<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 19, 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
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 19, 1995, ProNet Inc. (the "Company") completed the acquisition of
substantially all of the paging assets of All City Communication Company, Inc.,
a Wisconsin corporation ("All City"), for approximately $6.4 million comprised
of approximately $6.0 million paid in cash at closing and a $350,000 deferred
payment which is due and payable on or before May 19, 1996, and is payable, at
the Company's discretion, either in shares of common stock of the Company, or
cash, pursuant to an Asset Purchase Agreement dated as of June 30, 1994, by and
among All City, Robert J. von Bereghy, Maurice S. Meyers, Martin T. Franke,
Virginia Franke, Personal Representative of the Estate of Martin K. Franke, and
Cove Communications of Wisconsin, Inc., an Illinois corporation (collectively,
the "Shareholders", and together with All City, the "Sellers") and the Company.
Concurrently with the closing of the All City acquisition, the Company entered
into noncompetition agreements with the Sellers. The acquisition was effective
as of May 1, 1995.
All City is a provider of commercial paging services and serves
approximately 20,000 subscribers in the Milwaukee area. The assets acquired
include accounts receivable, pager inventory and property and equipment that are
used in the conduct of such radio paging system business. The Company intends
to continue to use the assets acquired from All City to provide paging services
and does not intend to devote such assets to other purposes.
The Company borrowed approximately $6.0 million in cash to fund the All
City 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 assets of All City was
determined through arm's length negotiations between the Company 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 Sheets of All City as of December 31, 1994, 1993 and
1992.
- Audited Statements of Income and Cash Flows for All City for the
years ended December 31, 1994, 1993 and 1992.
<PAGE>
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED (CON'T).
- Unaudited Balance Sheet of All City as of March 31, 1995.
- Unaudited Statement of Income and Cash Flows for All City for the
three months ended March 31, 1995.
(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"),
Metropolitan Houston Paging Services, Inc. ("Metropolitan") and All
City.
- 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, Metropolitan and All City.
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, Metropolitan and All City. 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 All City included in this Form
8-K.
(c) EXHIBITS.
[none]
<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: June 2, 1995 By: /s/ Jan E. Gaulding
---------------------------
Jan E. Gaulding
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED BALANCE SHEET
PRONET INC. AND SUBSIDIARIES
(UNAUDITED)
ProNet Inc. Carrier Metropolitan All City
----------------- ----------------- ---------------- -----------------
March 31, March 31, March 31, March 31,
1995 1995 1995 1995
----------------- ----------------- ---------------- -----------------
(A)
<S> <C> <C> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalents $ 5,368,400 $ 102,048 $ 1,558,400 $ 974
Trade accounts receivable, net of
allowance for doubtful accounts 4,653,659 245,005 103,208 232,205
Inventories 3,848,215 141,150 50,509 52,946
Other current assets 2,696,250 19,527 338,732 12,087
----------------- ----------------- ---------------- -----------------
TOTAL CURRENT ASSETS 16,566,524 507,730 2,050,849 298,212
EQUIPMENT
Pagers 25,257,281 800,001 0 3,045,165
Communications equipment 14,930,821 797,320 6,068,030 1,690,012
Security systems equipment 10,842,531 0 0 0
Office and other equipment 3,743,036 56,764 757,536 255,918
----------------- ----------------- ---------------- -----------------
54,773,669 1,654,085 6,825,566 4,991,095
Less allowance for depreciation 26,880,105 1,187,482 2,864,832 3,665,204
----------------- ----------------- ---------------- -----------------
27,893,564 466,603 3,960,734 1,325,891
OTHER ASSETS, net of amortization 42,510,951 192,340 0 167,549
----------------- ----------------- ---------------- -----------------
$ 86,971,039 $ 1,166,673 $ 6,011,583 $ 1,791,652
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
L I A B I L I T I E S A N D S H A R E H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES
Trade payables $ 1,419,930 $ 92,322 $ 209,245 $ 476,782
Other accrued expenses and liabilities 7,761,327 330,630 138,898 413,649
Current maturities of long-term debt 0 554,438 0 300,000
----------------- ----------------- ---------------- -----------------
TOTAL CURRENT LIABILITIES 9,181,257 977,390 348,143 1,190,431
LONG-TERM DEBT, less current maturities 21,900,000 0 0 10,832,233
DEFERRED PAYMENTS 5,332,298 0 0 0
DEFERRED TAX LIABILITIES 145,596 0 513,433 0
SHAREHOLDERS' EQUITY
Common stock 65,472 200 1,800 501
Additional capital 49,684,973 0 4,555,839 2,577,212
Retained earnings 2,091,255 189,083 592,368 (12,808,725)
Owner's Equity 0 0 0 0
Less treasury stock at cost (1,429,812) 0 0 0
----------------- ----------------- ---------------- -----------------
50,411,888 189,283 5,150,007 (10,231,012)
----------------- ----------------- ---------------- -----------------
$ 86,971,039 $ 1,166,673 $ 6,011,583 $ 1,791,652
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
Pro Forma
Carrier Metropolitan All City Balance Sheet a
Pro Forma Pro Forma Pro Forma March 31,
Adjustments Adjustments Adjustments 1995
---------------- ----------------- ----------------- ------------------
<C> <C> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalents $ (102,048)(5) $ (1,349,155)(5) $ (974)(5) $ 5,577,645
Trade accounts receivable, net of
allowance for doubtful accounts 0 0 0 5,234,077
Inventories 0 0 0 4,092,820
Other current assets (19,527)(5) 0 0 3,047,069
---------------- ----------------- ----------------- ------------------
TOTAL CURRENT ASSETS (121,575) (1,349,155) (974) 17,951,611
EQUIPMENT
Pagers (574,328)(5) 0 (2,236,213)(5) 26,291,906
Communications equipment (572,403)(5) (2,615,657)(5) (1,241,058)(5) 19,057,065
Security systems equipment 0 0 0 10,842,531
Office and other equipment (40,751)(5) (249,175)(5) (187,933)(5) 4,335,395
---------------- ----------------- ----------------- ------------------
(1,187,482) (2,864,832) (3,665,204) 60,526,897
Less allowance for depreciation (1,187,482)(5) (2,864,832)(5) (3,665,204)(5) 26,880,105
---------------- ----------------- ----------------- ------------------
0 0 0 33,646,792
OTHER ASSETS, net of amortization 5,679,968 (6) 17,060,250 (6) 4,638,713 (6) 70,249,771
---------------- ----------------- ----------------- ------------------
$ 5,558,393 $ 15,711,095 $ 4,637,739 $ 121,848,174
---------------- ----------------- ----------------- ------------------
---------------- ----------------- ----------------- ------------------
L I A B I L I T I E S A N D S H A R E H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES
Trade payables $ (7,317)(5) $ 0 $ (476,782)(5) $ 1,714,180
Other accrued expenses and liabilities (190,569)(5) (138,898)(5) (384,258)(5) 7,930,779
Current maturities of long-term debt (554,438)(5) 0 (300,000)(5) 0
---------------- ----------------- ----------------- ------------------
TOTAL CURRENT LIABILITIES (752,324) (138,898) (1,161,040) 9,644,959
LONG-TERM DEBT, less current maturities 3,500,000 (7) 21,000,000 (7) (4,782,233)(7) 52,450,000
DEFERRED PAYMENTS 3,000,000 (7) 0 350,000 (7) 8,682,298
DEFERRED TAX LIABILITIES 0 0 0 659,029
SHAREHOLDERS' EQUITY
Common stock (200)(5) (1,800)(5) (501)(5) 65,472
Additional capital 0 (4,555,839)(5) (2,577,212)(5) 49,684,973
Retained earnings (189,083)(5) (592,368)(5) 12,808,725 (5) 2,091,255
Owner's Equity 0 0 0 0
Less treasury stock at cost 0 0 0 (1,429,812)
---------------- ----------------- ----------------- ------------------
(189,283) (5,150,007) 10,231,012 50,411,888
---------------- ----------------- ----------------- ------------------
$ 5,558,393 $ 15,711,095 $ 4,637,739 $ 121,848,174
---------------- ----------------- ----------------- ------------------
---------------- ----------------- ----------------- ------------------
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
<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>
<PAGE>
<TABLE>
<CAPTION>
PRONET INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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>
---------------------------------------------------------------------------------------------
High Tech Signet Carrier Metropolitan All City
----------------- ----------------- ----------------- ------------------ ------------------
December 31, December 31, December 31, December 31, December 31,
1994 1994 1994 1994 1994
----------------- ----------------- ----------------- ------------------ ------------------
<C> <C> <C> <C> <C>
NET REVENUES
Recurring revenues $ 290,716 $ 4,750,322 $ 2,434,790 $ 4,834,561 $ 3,257,045
Paging equipment revenues 0 1,099,976 900,539 152,389 387,257
Cost of paging equipment revenues 0 (1,089,118) (1,185,274) (156,329) (299,505)
----------------- ----------------- ----------------- ------------------ ------------------
290,716 4,761,180 2,150,055 4,830,621 3,344,797
COST OF SALES AND SERVICES 86,159 1,148,968 202,813 1,516,933 833,005
GROSS MARGIN 204,557 3,612,212 1,947,242 3,313,688 2,511,792
EXPENSES
Sales, General & Administrative 219,951 2,287,592 1,603,121 1,622,247 1,669,730
Depreciation and amortization 127,585 626,714 227,675 597,050 1,225,004
----------------- ----------------- ----------------- ------------------ ------------------
347,536 2,914,306 1,830,796 2,219,297 2,894,734
----------------- ----------------- ----------------- ------------------ ------------------
OPERATING INCOME (LOSS) (142,979) 697,906 116,446 1,094,391 (382,942)
OTHER INCOME (EXPENSE)
Interest Expense 0 (292,167) (124,271) 0 (1,595,160)
Interest and Other Income 0 4,790 0 27,185 0
----------------- ----------------- ----------------- ------------------ ------------------
0 (287,377) (124,271) 27,185 (1,595,160)
INCOME (LOSS) BEFORE
INCOME TAXES (142,979) 410,529 (7,825) 1,121,576 (1,978,102)
Provision (benefit) for income taxes 0 0 0 381,336 25
----------------- ----------------- ----------------- ------------------ ------------------
NET INCOME (LOSS) $ (142,979) $ 410,529 $ (7,825) $ 740,240 $ (1,978,127)
----------------- ----------------- ----------------- ------------------ ------------------
----------------- ----------------- ----------------- ------------------ ------------------
EARNINGS PER SHARE
WEIGHTED AVERAGE SHARES
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
<PAGE>
<TABLE>
<CAPTION>
PRONET INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Contact Radio Call ChiComm High Tech Signet
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Adjustments Adjustments Adjustments
- ------------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
$ 0 $ 0 $ 0 $ 0 $ 0
0 0 0 0 0
0 0 0 0 0
- ------------------ ----------------- ----------------- ----------------- -----------------
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
(425,228)(3) (534,617)(3) 58,333 (3) 0 (3) (210,000)(3)
196,558 (1) 170,284 (1) 397,650 (1) 76,514 (1) 477,184 (1)
- ------------------ ----------------- ----------------- ----------------- -----------------
(228,670) (364,333) 455,983 76,514 267,184
- ------------------ ----------------- ----------------- ----------------- -----------------
228,670 364,333 (455,983) (76,514) (267,184)
(138,981)(2) (227,381)(2) (176,146)(2) (32,813)(2) (265,833)(2)
0 0 0 0 0
- ------------------ ----------------- ----------------- ----------------- -----------------
(138,981) (227,381) (176,146) (32,813) (265,833)
89,689 136,952 (632,129) (109,326) (533,017)
109,163 (4) 11,338 (4) (71,802)(4) (92,188)(4) (44,755)(4)
- ------------------ ----------------- ----------------- ----------------- -----------------
$ (19,474) $ 125,614 $ (560,327) $ (17,138) $ (488,262)
- ------------------ ----------------- ----------------- ----------------- -----------------
- ------------------ ----------------- ----------------- ----------------- -----------------
Pro Forma
Carrier Metropolitan All City Year Ended
Pro Forma Pro Forma Pro Forma December 31,
Adjustments Adjustments Adjustments 1994
- ----------------- ----------------- ------------------ -------------------
<C> <C> <C> <C>
$ 0 $ 0 $ (348,607)(3) $ 55,320,395
0 0 0 10,997,839
0 0 0 (11,161,037)
- ----------------- ----------------- ------------------ -------------------
0 0 (348,607) 55,157,197
0 0 (45,819)(3) 14,369,460
0 0 (302,788) 40,787,737
(813,646)(3) (214,300)(3) (769,318)(3) 20,614,593
392,640 (1) 1,137,350 (1) (169,337)(1) 15,252,029
- ----------------- ----------------- ------------------ -------------------
(421,006) 923,050 (938,655) 35,866,622
- ----------------- ----------------- ------------------ -------------------
421,006 (923,050) 635,867 4,921,115
(129,620)(2) (1,483,125)(2) 1,035,550 (2) (5,434,057)
0 0 0 204,999
- ----------------- ----------------- ------------------ -------------------
(129,620) (1,483,125) 1,035,550 (5,229,058)
291,386 (2,406,175) 1,671,417 (307,942)
103,609 (4) (432,471)(4) (112,083)(4) 688,728
- ----------------- ----------------- ------------------ -------------------
$ 187,777 $ (1,973,704) $ 1,783,500 $ (996,670)
- ----------------- ----------------- ------------------ -------------------
- ----------------- ----------------- ------------------ -------------------
$ (0.23)
-------------------
-------------------
4,392,863
-------------------
-------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRONET INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Historical Results for the Period from January 1, 1995 to the Date Indicated
-----------------------------------------------------------------------------------
ProNet Inc. Signet Carrier Metropolitan All City
--------------- --------------- --------------- --------------- ---------------
March 31, February 28, March 31, March 31, March 31,
1995 1995 1995 1995 1995
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
NET REVENUES
Recurring revenues $ 10,487,788 $ 871,772 $ 532,166 $ 1,408,364 $ 862,810
Paging equipment revenues 2,195,743 109,268 196,829 26,423 69,352
Cost of paging equipment revenues (2,065,236) (109,188) (179,036) (30,239) (55,370)
--------------- --------------- --------------- --------------- ---------------
10,618,295 871,852 549,959 1,404,548 876,792
COST OF SALES AND SERVICES 2,466,451 273,378 59,046 392,284 210,538
GROSS MARGIN 8,151,844 598,474 490,913 1,012,264 666,254
EXPENSES
Sales, General & Administrative 4,638,132 366,838 285,706 404,212 340,170
Depreciation and amortization 2,744,868 17,300 54,292 159,990 200,483
--------------- --------------- --------------- --------------- ---------------
7,383,000 384,138 339,998 564,202 540,653
--------------- --------------- --------------- --------------- ---------------
OPERATING INCOME (LOSS) 768,844 214,336 150,915 448,062 125,601
OTHER INCOME (EXPENSE)
Interest Expense (386,076) (53,566) (25,820) 0 (396,331)
Interest and Other Income 41,399 1,658 942 12,709 0
--------------- --------------- --------------- --------------- ---------------
(344,677) (51,908) (24,878) 12,709 (396,331)
INCOME (LOSS) BEFORE
INCOME TAXES 424,167 162,428 126,037 460,771 (270,730)
Provision for income taxes 358,422 0 638 156,662 0
--------------- --------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ 65,745 $ 162,428 $ 125,399 $ 304,109 $ (270,730)
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
EARNINGS PER SHARE $ $0.01
---------------
---------------
WEIGHTED AVERAGE SHARES 6,627,131
---------------
---------------
<CAPTION>
Pro Forma
Signet Carrier Metropolitan All City 3 Mos Ended
Pro Forma Pro Forma Pro Forma Pro Forma March 31,
Adjustments Adjustments Adjustments Adjustments 1995
--------------- --------------- --------------- --------------- ---------------
<C> <C> <C> <C> <C>
NET REVENUES
Recurring revenues $ 0 $ 0 $ 0 $ (83,231)(3) $ 14,079,669
Paging equipment revenues 0 0 0 0 2,597,615
Cost of paging equipment revenues 0 0 0 0 (2,439,069)
--------------- --------------- --------------- --------------- ---------------
0 0 0 (83,231) 14,238,215
COST OF SALES AND SERVICES 0 0 0 (7,475)(3) 3,394,222
GROSS MARGIN 0 0 0 (75,756) 10,843,993
EXPENSES
Sales, General & Administrative (38,333)(3) (143,412)(3) (39,950)(3) (93,063)(3) 5,720,300
Depreciation and amortization 79,531 (1) 98,160 (1) 284,338 (1) (42,334)(1) 3,596,627
--------------- --------------- --------------- --------------- ---------------
41,197 (45,252) 244,388 (135,397) 9,316,927
--------------- --------------- --------------- --------------- ---------------
OPERATING INCOME (LOSS) (41,197) 45,252 (244,388) 59,641 1,527,066
OTHER INCOME (EXPENSE)
Interest Expense (39,434)(2) (38,055)(2) (370,781)(2) 257,581 (2) (1,052,482)
Interest and Other Income 0 0 0 0 56,708
--------------- --------------- --------------- --------------- ---------------
(39,434) (38,055) (370,781) 257,581 (995,774)
INCOME (LOSS) BEFORE
INCOME TAXES (80,631) 7,197 (615,169) 317,222 531,292
Provision for income taxes 29,887 (4) 48,079 (4) (109,183)(4) 15,478 (4) 499,983
--------------- --------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (110,518) $ (40,882) $ (505,986) $ 301,744 $ 31,309
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
EARNINGS PER SHARE $ 0.00
---------------
---------------
WEIGHTED AVERAGE SHARES 6,627,131
---------------
---------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
<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/A for the Carrier
acquisition on June 2, 1995.
On 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. The Company filed a Form 8-K for the Metropolitan acquisition on May
18, 1995.
On May 19, 1995, the Company completed the acquisition of substantially all of
the paging assets of All City for approximately $6.4 million comprised of
approximately $6.0 million paid in cash at closing and a $350,000 deferred
payment pursuant to an Asset Purchase Agreement dated as of June 30, 1994, by
and among All City, Robert J. von
<PAGE>
Bereghy, Maurice S. Meyers, Martin T. Franke, Virginia Franke, Personal
Representative of the Estate of Martin K. Franke, and Cove Communications of
Wisconsin, Inc., an Illinois corporation (collectively, the "Shareholders", and
together with All City, the "Sellers") and the Company. Concurrently with the
closing of the All City acquisition, the Company entered into noncompetition
agreements with the Sellers.
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, Metropolitan
and All City had been acquired at the beginning of the periods presented. All
City'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, its
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 Carrier, Metropolitan and All City were acquired subsequent to March 31,
1995, their results of operations for the 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, Metropolitan and All City for such periods
and reflect the following adjustments:
(1) Pro forma adjustments are made to the statements of operations to reflect
additional depreciation and amortization expense based 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 remaining estimated useful lives of the
assets. The noncompetition agreements are amortized using the straight-line
method over a five year term, and goodwill is amortized using the
straight-line method over a 15-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 and All City deferred payments.
(3) The pro forma adjustments to selling, general and administrative expenses
are
<PAGE>
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 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. For All City, a reduction in revenues and cost of sales and
services related to the telephone answering service ("TAS") operations
that were not included in the purchase is recorded. All City cost savings
relate to decreased salaries and TAS related expenses.
(4) A pro forma adjustment is made to reflect the effect upon 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, Metropolitan and All City 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, Metropolitan and All City. The Company did not acquire cash or
assume certain trade payables, certain accrued expenses or existing
long-term debt for Carrier or All City.
(6) A pro forma adjustment is made to goodwill equal to the excess of the
purchase price over the fair values assigned to assets and 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,
Metropolitan and All City.
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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
ProNet Inc.
Plano, Texas
We have audited the balance sheets of All City Communication Company, Inc.
as of December 31, 1994, 1993 and 1992 the related statements of operations,
stockholders' deficit and cash flows for each of the three years ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 All City Communication
Company, 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 ended December 31,
1994, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency, which raises substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters also are described in Note 8. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
WINTER, KLOMAN, MOTER & REPP, S.C.
April 14, 1995
Elm Grove, Wisconsin
<PAGE>
ALL CITY COMMUNICATION COMPANY, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------------------------
1995 1994 1993 1992
------------- ------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................................ $ 974 $ 0 $ 41,292 $ 37,363
Accounts receivable, less allowance for doubtful accounts of
$32,000, $57,000 and $36,000 as of December 31, 1994, 1993 and
1992, respectively.............................................. 232,205 239,147 278,737 215,912
Inventories...................................................... 52,946 40,698 43,137 47,538
Other current assets............................................. 12,087 29,929 49,566 12,199
Deferred tax asset (Note 7)...................................... -- -- -- --
------------- ------------- ------------- ------------
Total current assets........................................... 298,212 309,774 412,732 313,012
------------- ------------- ------------- ------------
PROPERTY AND EQUIPMENT, at cost (Note 2)
Transmitting equipment........................................... 1,690,012 1,655,142 1,353,667 1,270,054
Pagers........................................................... 3,045,165 2,972,923 2,698,366 2,358,814
Furniture and fixtures........................................... 190,054 52,511 153,872 44,673
Computers........................................................ -- 136,668 -- 38,843
Leasehold improvements........................................... 65,864 65,864 65,864 66,029
------------- ------------- ------------- ------------
4,991,095 4,883,108 4,271,769 3,778,413
Less accumulated depreciation.................................... 3,665,204 3,483,908 2,692,783 1,953,998
------------- ------------- ------------- ------------
1,325,891 1,399,200 1,578,986 1,824,415
------------- ------------- ------------- ------------
OTHER ASSETS, net of accumulated amortization of $905,473,
$4,796,793 and $4,534,405 as of December 31, 1994, 1993 and 1992,
respectively...................................................... 167,549 161,312 423,127 884,801
------------- ------------- ------------- ------------
$ 1,791,652 $ 1,870,286 $ 2,414,845 $ 3,022,228
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities on long-term debt (Note 2).................... $ 300,000 $ 336,499 $ 300,000 $ 486,303
Accounts payable................................................. 476,782 617,388 452,249 345,454
Customer deposits................................................ 29,391 30,182 35,064 44,609
Accrued salaries, taxes and benefits............................. 31,666 19,244 18,754 50,294
Accrued income taxes (Note 7).................................... -- 25 25 4,116
Other current liabilities........................................ 352,953 149,964 141,643 127,743
------------- ------------- ------------- ------------
Total current liabilities...................................... 1,190,792 1,153,302 947,735 1,058,519
------------- ------------- ------------- ------------
LONG-TERM DEBT (Note 2)
Note payable..................................................... 1,325,000 1,564,566 1,700,000 660,000
Secured equipment notes.......................................... -- -- -- 688,938
Covenant not-to-compete.......................................... 300,000 300,000 300,000 300,000
Subordinated note purchase agreement, including deferred
interest........................................................ 9,507,233 9,149,559 7,749,626 6,315,080
------------- ------------- ------------- ------------
11,132,233 11,014,125 9,749,626 7,964,018
Less current maturities on long-term debt........................ 300,000 336,499 300,000 486,303
------------- ------------- ------------- ------------
10,832,233 10,677,626 9,449,626 7,477,715
------------- ------------- ------------- ------------
CONTINGENT LIABILITY (Note 5)...................................... -- -- -- --
------------- ------------- ------------- ------------
STOCKHOLDERS' DEFICIT (Note 8)
Common stock, $.01 par value; authorized 56,000 shares, issued
and outstanding 50,110 shares................................... 501 501 501 501
Paid-in capital.................................................. 2,577,212 2,577,212 2,577,212 2,577,212
Accumulated deficit.............................................. (12,809,086) (12,538,355) (10,560,229) (8,091,719)
------------- ------------- ------------- ------------
(10,231,373) (9,960,642) (7,982,516) (5,514,006)
------------- ------------- ------------- ------------
$ 1,791,652 $ 1,870,286 $ 2,414,845 $ 3,022,228
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
ALL CITY COMMUNICATION COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -------------------------------------------
1995 1994 1993 1992
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues......................................... $ 876,792 $ 3,644,302 $ 3,635,908 $ 3,524,008
Operating expenses
Cost of equipment sold............................. 210,538 299,505 294,761 323,303
Selling, general and administrative expenses....... 340,170 2,502,735 2,735,409 2,614,225
------------- ------------- ------------- -------------
550,708 2,802,240 3,030,170 2,937,528
------------- ------------- ------------- -------------
Income from operations........................... 326,084 842,062 605,738 586,480
Other (income) expense:
Interest expense................................... 396,331 1,590,550 1,587,904 1,427,375
Depreciation and amortization...................... 200,483 1,225,004 1,402,443 2,469,738
Gain on sale of property and equipment............. -- -- -- 43,607
Reserve for obsolete pagers........................ -- -- 84,000 --
Other income....................................... -- 4,610 (124) (8,535)
------------- ------------- ------------- -------------
596,814 2,820,164 3,074,223 3,932,185
------------- ------------- ------------- -------------
Loss before income taxes......................... (270,730) (1,978,102) (2,468,485) (3,345,705)
Income taxes -- current.............................. -- 25 25 --
------------- ------------- ------------- -------------
Net loss......................................... $ (270,730) $ (1,978,127) $ (2,468,510) $ (3,345,705)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
ALL CITY COMMUNICATION COMPANY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1991............................. $ 1 $ 958,881 $ (4,746,014) $ (3,787,132)
Capital contribution (Note 6).......................... 500 1,618,331 -- 1,618,831
Net loss............................................... -- -- (3,345,705) (3,345,705)
----- ------------ -------------- --------------
Balance at December 31, 1992............................. 501 2,577,212 (8,091,719) (5,514,006)
Net loss............................................... -- -- (2,468,510) (2,468,510)
----- ------------ -------------- --------------
Balance at December 31, 1993............................. 501 2,577,212 (10,560,229) (7,982,516)
Net loss............................................... -- -- (1,978,127) (1,978,127)
----- ------------ -------------- --------------
Balance at December 31, 1994............................. 501 2,577,212 (12,538,356) (9,960,643)
----- ------------ -------------- --------------
Net loss (unaudited)................................... -- -- (270,730) (270,730)
----- ------------ -------------- --------------
Balance at March 31, 1995................................ $ 501 $ 2,577,212 $ (12,809,086) $ (10,231,373)
----- ------------ -------------- --------------
----- ------------ -------------- --------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
ALL CITY COMMUNICATION COMPANY, 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 FROM OPERATING ACTIVITIES
Net loss............................................... $ (270,730) $(1,978,127) $(2,468,510) $(3,345,705)
Adjustments to reconcile net loss to net cash provided
by (used for) operating activities:
Depreciation and amortization........................ 200,483 1,225,004 1,402,443 2,469,738
Provision for doubtful accounts...................... -- (25,000) 25,000 (28,065)
Provision for obsolete inventory..................... -- -- -- 7,000
Provision for obsolete pagers........................ -- -- 84,000 --
(Gain) loss on sale of property and equipment........ (481) (5,160) (49,952) 43,607
Deferred interest.................................... 357,675 1,399,932 1,434,546 776,886
(Increase) decrease in:
Accounts receivable................................ 6,942 64,590 (87,825) 207,155
Inventories........................................ (12,248) 2,438 4,402 (6,861)
Other current assets............................... 16,942 19,637 (37,367) 4,680
Increase (decrease) in:
Accounts payable................................... (160,606) 165,139 106,797 196,356
Customer deposits.................................. (791) (4,882) (9,545) 6,368
Accrued salaries, taxes and benefits............... 12,422 490 (31,540) (6,334)
Accrued interest................................... -- -- (4,116) (159,990)
Accrued income tax................................. -- -- 25 --
Other current liabilities.......................... 57,435 (50,315) 13,901 27,542
------------- ----------- ----------- -----------
Net cash provided by operating activities........ 207,043 813,746 382,259 192,377
------------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment........... 28,742 222,586 180,560 38,620
Purchase of property and equipment..................... (160,411) (933,920) (795,072) (662,761)
Payment for noncompete agreement....................... -- -- -- (800,000)
------------- ----------- ----------- -----------
Net cash used in investing activities............ (131,669) (711,334) (614,512) (1,424,141)
------------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term borrowings....................... (75,000) (330,577) (1,432,169) (6,578,687)
Financing costs paid................................... -- (66,906) (114,880) (165,992)
Proceeds from long-term borrowings..................... -- 234,379 1,783,231 6,561,226
Payment on deferred interest........................... -- -- -- (703,373)
Net proceeds from contribution of capital.............. -- -- -- 1,618,831
Covenant not-to-compete................................ -- -- -- 300,000
Transfer of leased pagers to pager inventory, net of
accumulated depreciation.............................. -- -- -- 124,626
------------- ----------- ----------- -----------
Net cash provided by (used for) financing
activities...................................... (75,000) (163,104) 236,182 1,156,631
------------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents..... 374 (60,692) 3,929 (75,133)
Cash and cash equivalents -- beginning................... 600 41,292 37,363 112,496
------------- ----------- ----------- -----------
Cash and cash equivalents -- ending...................... $ 974 $ (19,400) $ 41,292 $ 37,363
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest................. $ 38,656 $ 190,618 $ 157,474 $ 1,587,365
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
ALL CITY COMMUNICATION COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
All City Communication Company, Inc. was incorporated in the State of
Wisconsin and is headquartered in Milwaukee, Wisconsin. The Company maintains
divisions in Milwaukee and Green Bay, Wisconsin. The Company is principally
engaged in the business of offering telecommunication services to customers in
Wisconsin, including paging, voice mail, cellular and telephone answering
services. The Company grants short-term credit to these customers. Consequently,
the Company's ability to collect the amounts due from customers is affected by
economic conditions in Wisconsin.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments with
maturities of less than three months.
INVENTORY
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out basis (FIFO). As of December 31, 1994, 1993 and
1992, inventories have been reduced by approximately $7,000 each year to reflect
estimated market value.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation and
amortization. Provisions for depreciation and amortization are determined on a
straight-line basis over the estimated useful lives of the assets for financial
accounting purposes and accelerated methods for income tax purposes.
Depreciation is calculated over the estimated useful lives as follows:
<TABLE>
<S> <C>
Transmitting equipment.................................... 5 years
Pagers.................................................... 5 years
Furniture and fixtures.................................... 5 years
Computers................................................. 5 years
Leasehold improvements.................................... 10 years
</TABLE>
The Company's policy is to record a reserve for potentially obsolete
equipment that may not have a secondary market value. As of December 31, 1994,
the reserve was $84,000.
Maintenance and repair costs are charged to expense as incurred, and
improvements which extend the useful life of the assets are capitalized.
INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated amortization.
Amortization is provided on a straight-line basis over the estimated lives of
such assets. Specific intangible assets and the manner in which their estimated
lives were determined are:
COVENANT NOT-TO-COMPETE: The Company entered into noncompetition
agreements with former owners of acquired entities. The values of these
agreements are being amortized over the lives of the contracts ranging
between three and five years. Amortization for the three years ending
December 31, 1994, 1993 and 1992 was $300,000, $328,333 and $203,333,
respectively.
FINANCING COSTS: Financing costs represent the costs incurred during
refinancing and are being amortized over the four-year term of the debt
obligations. Amortization for the three years ending December 31, 1994, 1993
and 1992 was $28,720, $151,509 and $123,105, respectively.
<PAGE>
ALL CITY COMMUNICATION COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CUSTOMER LISTS: Customer lists acquired in connection with the
acquisitions are being amortized over two to three years, the average number
of years of customer retention. Amortization for the years ending December
31, 1994, 1993 and 1992 was $0, $96,712 and $1,416,146, respectively.
INCOME TAXES
The Company computes and records income taxes payable based upon the
determination of taxable income for financial statement purposes. Where income,
expenses and income tax credits are recognized in different periods for
financial statement and income tax purposes, deferred tax assets and liabilities
are provided. These differences relate primarily to depreciation and
amortization and the realization of net operating loss carryforwards.
The Company has adopted the Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS No. 109), issued by the Financial
Accounting Standards Board.
NOTE 2 -- LONG-TERM DEBT
The long-term debt at December 31, 1993, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1993 1992
---------- --------- --------
<S> <C> <C> <C>
Note payable -- bank, payable in quarterly installments of $75,000 and annual
installments equal to 50% of the Company's excess cash flow payable on April 30, 1995
and every year thereafter with a final payment of all unpaid principal and accrued
interest on June 30, 1997. Interest is payable monthly at the bank's base rate plus an
amount equal to 3% per annum if the ratio of senior debt to operating cash flow is 2 to
1 or greater, 2.5% per annum if the ratio of senior debt to operating cash flow is less
than 2 to 1 but equal to or greater than 1.25 to 1, and 2% per annum if the ratio of
senior debt to operating cash flow is less than 1.25 to 1............................... $1,400,000 $1,700,000 $ 660,000
Covenant-not-to-compete -- the balance is a current obligation that was deferred as of
December 31, 1993. This covenant-not-to-compete is subordinated to the subordinated note
purchase agreement. All payments are deferred until full payment of the subordinated
note unless otherwise provided through subsequent debt agreements....................... 300,000 300,000 --
Secured equipment notes -- to financial service corporations, bearing interest from 12%
to 13%, payable in monthly installments. Secured by paging equipment.................... 164,566 -- 688,938
Subordinated note -- purchase agreement bearing interest at 25%. The original agreement
provided for the deferral of quarterly interest payments at 7%, additional interest at
18%, and principal until January 15, 1996. The note purchase agreement is subordinated
to the existing debt agreements. Pursuant to existing debt agreements, all interest and
principal are deferred until January 15, 1996 unless otherwise provided through
subsequent debt agreements.............................................................. 5,538,194 5,538,194 5,538,194
Deferred interest on subordinated note................................................... 3,611,365 2,211,432 776,886
----------- ---------- ----------
11,014,125 9,749,626 7,664,018
Less current maturities.................................................................. 336,499 300,000 486,303
----------- ---------- ----------
$10,677,626 $9,449,626 $7,177,715
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
Aggregate maturities or payments required on principal under long-term
obligations for each of the succeeding years are as follows:
<TABLE>
<S> <C>
1995................................................... $ 336,499
1996................................................... 9,790,831
1997................................................... 844,096
1998................................................... 29,319
1999................................................... 13,380
-----------
$11,014,125
-----------
-----------
</TABLE>
<PAGE>
ALL CITY COMMUNICATION COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- LONG-TERM DEBT (CONTINUED)
The note payable -- bank is secured by a first priority security interest in
all tangible and intangible personal property owned by the Company, first
priority perfected collateral assignments of real estate leases in which the
Company has an interest, first priority mortgages with respect to all real
estate owned by the Company and a first priority pledge of all of the stock of
the Company.
In addition to the various security agreements, the Company is subject to
the following loan covenants:
1. Maintain minimum senior debt service coverage ratio of at least 2.25 to
1 through June 30, 1994, 2 to 1 through June 30, 1995, 1.5 to 1 through
December 31, 1995, and 1.25 to 1 thereafter.
2. Maintain minimum senior debt to cash flow ratio of at least 1.5 to 1
through December 31, 1995 and 2 to 1 thereafter.
3. Maintain minimum operating cash flow to fixed charges for a period of
three consecutive months ranging from at least .70 to 1 through 1.10 to 1
for the term of the loan.
NOTE 3 -- OPERATING LEASES
The Company leases tower sites and office space under noncancellable lease
agreements. Some of these agreements terminate at various times over a period of
years ending October 31, 1998. The remaining leases are on a month-to-month
basis.
The following is a schedule by year of future minimum rental payments
required under the operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of December 31, 1994:
<TABLE>
<S> <C>
Year Ending December 31,
1995.................................................... $ 57,481
1996.................................................... 23,831
1997.................................................... 18,513
1998.................................................... 16,067
--------
Total minimum payments required......................... $115,892
--------
--------
</TABLE>
NOTE 4 -- 401(K) SAVINGS AND PROFIT SHARING PLAN
Effective February 1, 1991, the Company adopted a 401(k) savings plan that
covers all full-time employees. The Company elected to match 25% of the first 6%
of employee voluntary contributions. Employee voluntary contributions are 100%
vested. Company contributions are subject to the following vesting schedule:
<TABLE>
<CAPTION>
YEARS OF SERVICE % VESTED
- -------------------------------------------------------------------------- -------------
<S> <C>
1......................................................................... 20%
2......................................................................... 40%
3......................................................................... 60%
4......................................................................... 80%
5......................................................................... 100%
</TABLE>
Total contributions were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Employee voluntary contributions................... $ 20,364 $ 30,597 $ 32,447
Company matching contributions..................... $ 4,858 $ 8,677 $ 7,888
</TABLE>
<PAGE>
ALL CITY COMMUNICATION COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTINGENT LIABILITIES
SELF FUNDED HEALTH INSURANCE:
The Company's group medical coverage is a partially self-funded plan. The
Company pays medical claims for participants up to a maximum of $7,500 per
person and $120,000 plan aggregate. Medical claims in excess of $7,500 per
person are covered by insurance. The estimated potential cost to the Company for
the plan year ending May 1, 1995 is $140,205, including premiums of $20,205 and
claims of $120,000. The Company has paid or accrued $31,740 of claims for the
plan year ending May 1, 1995. As a result, the contingent liability is $88,260.
FEDERAL COMMUNICATIONS COMMISSION LICENSING:
The Company filed a voluntary disclosure letter with the Federal
Communications Commission regarding a number of licensing violations that had
been discovered during a system audit conducted in contemplation of the sale of
the paging operation. The Company is cooperating fully with the Federal
Communications Commissions in resolving these matters. The Federal
Communications Commission staff is in the process of reviewing the Company's
situation. It is the opinion of legal counsel that the Federal Communications
Commission may impose various fines in connection with these pending violations.
The amount of the fines, if any, cannot be determined as of the date of this
report. However, management estimates that any fines imposed may total between
$25,000 and $100,000.
NOTE 6 -- CORPORATE RESTRUCTURING
On June 5, 1992, the Company entered into a restructuring agreement with its
lenders and former parent corporation, Shoreland Communications, Inc.
(Shoreland). In accordance with the restructuring plan, Shoreland contributed
capital and certain assets to the Company and distributed the common stock of
the Company to Shoreland's common stockholders. The Company subsequently
acquired securities of Shoreland from the current subordinated note holder.
These securities were then purchased from the Company by Shoreland. Proceeds
from these transactions were used to repay existing long-term obligations.
NOTE 7 -- INCOME TAXES
Effective January 1, 1993, All City Communication Company, Inc. adopted SFAS
No. 109, Accounting for Income Taxes, which requires an asset and liability
approach to financial accounting and reporting for income taxes. The difference
between the financial statement and tax bases of assets and liabilities is
determined annually. Deferred income tax assets and liabilities are computed for
those differences that have future tax consequences using the currently enacted
tax laws and rates that apply to the periods in which they are expected to
affect taxable income. Valuation allowances are established, if necessary, to
reduce the deferred tax asset to the amount that will more likely than not be
realized. Income tax expense is the current tax payable or refundable for the
period plus or minus the net change in the deferred tax assets and liabilities.
The provisions of tax expense for the year ended December 31, 1994 are
presented as follows:
<TABLE>
<S> <C>
State................................................................. $25
---
---
</TABLE>
The net current deferred tax asset and the net noncurrent deferred tax
liability in the accompanying balance sheet includes the following amounts of
deferred tax assets and liabilities.
<TABLE>
<S> <C>
Deferred tax asset.............................................. $4,238,000
Valuation allowance............................................. (4,238,000)
----------
Net deferred tax asset........................................ $ 0
----------
----------
Deferred tax liability.......................................... $ 0
----------
----------
</TABLE>
<PAGE>
ALL CITY COMMUNICATION COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
After considering all of the evidence, both positive and negative,
management has concluded it is more likely than not that all future tax benefits
will not be realized. Therefore, a valuation allowance is needed for the
deferred tax asset. The balance in the valuation allowance as of December 31,
1993, was $3,350,000; and therefore, there was a change in the valuation
allowance this period of $888,000.
The deferred tax asset results from net operating loss carryforwards.
The Company has the following approximate tax carryforwards to offset future
taxable income.
<TABLE>
<CAPTION>
AMOUNT
----------------------------
FEDERAL WISCONSIN EXPIRATION DATE
------------- ------------- ---------------
<S> <C> <C> <C>
Net operating loss carryforward......................... $11,907,000 $11,907,000 2005-2010
</TABLE>
NOTE 8 -- CONTINGENCY
GOING CONCERN ASSUMPTION AND PENDING SALE:
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and has a stockholders' deficit of $9,960,642. During
1994, the Company contracted to sell its radio paging system including cellular
telephone, voice mail and centrex operations which should provide sufficient
capital to repay debt and provide working capital for remaining operations.
Management anticipates that the sale will close during 1995.
