PRONET INC /DE/, 10-Q, 1997-08-12

PRONET INC /DE/
10-Q, 1997-08-12
RADIOTELEPHONE COMMUNICATIONS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

_________

(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________

Commission File Number 0-16029

PRONET INC.
(Exact name of registrant as specified in its charter)

Delaware 75-1832168
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

6340 LBJ Freeway 75240
Dallas, Texas (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (972-687-2000)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of June 30, 1997: 12,618,865.

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PRONET INC.

INDEX

PART I. FINANCIAL INFORMATION

PAGE
----
Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets at June 30, 1997 and
December 31, 1996 1

Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1997 and 1996 2

Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 3

Notes to Consolidated Financial Statements 4

Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 16

Item 6. Exhibits and Reports on Form 8-K 17

SIGNATURES 20

<PAGE>

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PRONET INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

ASSETS
<TABLE>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................................. $ 3,817 $ 2,286
Trade accounts receivable, net of allowance for doubtful accounts......... 11,189 13,747
Federal income tax receivable............................................. 469 497
Inventories............................................................... 2,505 2,760
Other current assets...................................................... 2,326 2,499
-------- --------
20,306 21,789
EQUIPMENT
Pagers.................................................................... 57,973 59,003
Communications equipment.................................................. 56,418 49,134
Security systems' equipment............................................... 13,918 12,897
Office and other equipment................................................ 13,041 11,454
-------- --------
141,350 132,488
Less allowance for depreciation........................................... (65,845) (50,718)
-------- --------
75,505 81,770
GOODWILL AND OTHER ASSETS, net of amortization............................... 211,380 208,157
-------- --------
$307,191 $311,716
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables............................................................ $ 19,410 $ 10,452
Other accrued expenses and liabilities.................................... 12,288 13,264
-------- --------
31,698 23,716
LONG-TERM DEBT................................................................ 170,226 148,691
DEFERRED CREDITS.............................................................. 4,000 5,660
STOCKHOLDERS' EQUITY
Common stock.............................................................. 130 129
Additional capital........................................................ 181,991 180,694
Retained deficit.......................................................... (79,279) (45,714)
Less treasury stock at cost............................................... (1,575) (1,460)
-------- --------
101,267 133,649
-------- --------
$307,191 $311,716
-------- --------
-------- --------
</TABLE>

See notes to consolidated financial statements.

1
<PAGE>

PRONET INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Service revenues.................................. $ 24,505 $ 20,926 $ 48,562 $ 41,942
Product sales..................................... 5,554 3,889 10,430 7,035
-------- -------- -------- --------
Total revenues.................................... 30,059 24,815 58,992 48,977
Net book value of products sold................... (3,644) (3,355) (7,183) (6,136)
-------- -------- -------- --------
26,415 21,460 51,809 42,841

COST OF SERVICES
Pager lease and access services................... 7,264 5,712 14,450 11,224
Security systems' equipment services.............. 470 315 901 590
-------- -------- -------- --------
7,734 6,027 15,351 11,814
-------- -------- -------- --------
GROSS MARGIN...................................... 18,681 15,433 36,458 31,027
-------- -------- -------- --------
EXPENSES
Sales and marketing............................... 4,258 3,876 8,482 7,915
General and administrative........................ 6,728 6,004 13,089 11,344
Depreciation and amortization..................... 17,107 8,425 33,117 17,132
Nonrecurring charges.............................. 6,550 7,374 6,550 7,374
-------- -------- -------- --------
34,643 25,679 61,238 43,765
-------- -------- -------- --------
OPERATING LOSS.................................... (15,962) (10,246) (24,780) (12,738)

OTHER INCOME (EXPENSE)
Interest and other income......................... 54 187 137 214
Interest expense.................................. (4,329) (3,988) (8,756) (7,646)
-------- -------- -------- --------
(4,275) (3,801) (8,619) (7,432)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES.......................... (20,237) (14,047) (33,399) (20,170)
Income tax expense.................................... 67 100 167 100
-------- -------- -------- --------
NET LOSS.......................................... $(20,304) $(14,147) $(33,566) $(20,270)
-------- -------- -------- --------
-------- -------- -------- --------

NET LOSS PER SHARE.................................... $ (1.61) $ (1.76) $ (2.66) $ (2.65)
-------- -------- -------- --------
-------- -------- -------- --------

WEIGHTED AVERAGE SHARES............................... 12,618 8,404 12,601 7,657
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

See notes to consolidated financial statements.

2
<PAGE>

PRONET INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
SIX MONTHS ENDED
JUNE 30,
---------------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(33,566) $(20,270)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation.......................................... 25,183 10,589
Amortization.......................................... 7,934 6,543
Amortization of discount.............................. 36 36
Provision for losses on accounts receivable........... 961 696
Provision for settlement costs........................ 4,000 --
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable.... 1,513 (2,629)
Decrease in inventories............................. 261 401
(Increase) decrease in other current assets......... 201 (3,915)
(Increase) decrease in other assets................. (758) 7,374
Increase (decrease) in trade payables and
other accrued expenses and liabilities............ 7,737 (3,141)
-------- --------
Net cash provided by (used in) operating activities... 13,502 (4,316)
INVESTING ACTIVITIES:
Purchase of equipment, net............................ (6,745) (10,519)
Purchase of pagers, net of disposals.................. (9,254) (18,221)
Acquisitions, net of cash acquired.................... (14,114) (32,503)
Computer system software, product enhancements
and other intangible assets......................... (3,790) (668)
Other................................................. 380 (121)
-------- --------
Net cash used in investing activities................. (33,523) (62,032)
FINANCING ACTIVITIES:
Bank debt............................................. 21,500 48,000
Sale of common stock - net............................ -- 94,800
Payment on bank debt.................................. -- (48,000)
Exercise of incentive stock options for common stock.. -- 66
Debt financing costs.................................. -- (8,768)
Other................................................. 52 (348)
-------- --------
Net cash provided by financing activities............. 21,552 85,750
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS..................... 1,531 19,402
CASH AND CASH EQUIVALENTS:
Beginning of period................................... 2,286 10,154
-------- --------
End of period......................................... $ 3,817 $ 29,556
-------- --------
-------- --------
</TABLE>

See notes to consolidated financial statements.

3
<PAGE>

PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997

NOTE A - ACCOUNTING POLICIES

BASIS OF PRESENTATION: The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Form 10-K and Form
10-K A for ProNet Inc. (the "Company") filed with the Securities and Exchange
Commission on March 28, 1997 and May 1, 1997, respectively.

GOODWILL AND OTHER ASSETS: Goodwill and other assets consist of
the following (in thousands):

JUNE 30, DECEMBER 31,
1997 1996
-------- -----------
Goodwill.......................... $171,927 $164,786
FCC licenses...................... 34,674 34,665
Other............................. 35,383 31,003
-------- --------
241,984 230,454
Less accumulated amortization..... (30,604) (22,297)
-------- --------
$211,380 $208,157
-------- --------
-------- --------

Goodwill is amortized using the straight-line method over a fifteen
year term. Amortization of the FCC licenses is deferred while the related
system is not operational.

NET LOSS PER SHARE: Net loss per share is based on the weighted
average number of common shares and common equivalent shares outstanding
during each period. Stock options are considered common stock equivalents,
if dilutive, for purposes of computing weighted average shares outstanding.

RECLASSIFICATION OF FINANCIAL STATEMENTS: The 1996 financial
statements have been reclassified to conform to the 1997 financial statement
presentation.

NEW ACCOUNTING PRONOUNCEMENTS: In February 1997, the Financial
Accounting Standards Board issued Statement No. 128, Earnings per Share,
which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement No. 128 on the
calculation of primary and fully diluted earnings per share is not expected
to be material.

<PAGE>

PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B - LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
Senior subordinated notes...... $ 99,426 $ 99,391
Revolving line of credit....... 70,800 49,300
-------- --------
170,226 148,691
Less current maturities........ -- --
-------- --------
$170,226 $148,691
-------- --------
-------- --------

NOTE C - DEFERRED CREDITS

Deferred credits consist of the following (in thousands):

JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
Deferred payments.............. $ -- $ 5,660
Settlement costs............... 4,000 --
-------- --------
$ 4,000 $ 5,660
-------- --------
-------- --------

At December 31, 1996, the Company had deferred payments outstanding
related to the Cobbwells, Inc. dba Page One ("Page One") and SigNet Paging of
Raleigh, Inc. ("SigNet Raleigh") acquisitions of $4.9 million and $800,000,
respectively, which were due and payable one year from the closing of the
respective transactions. The balances were payable, at the Company's
discretion, either in cash or shares of the Company's Common Stock based on
current market value at the date of payment. In January 1997, the Company
paid $4.9 million in cash and issued 46,232 shares of its Common Stock in
payment of $5.7 million of the Page One and SigNet Raleigh deferred payments,
respectively.

On May 15, 1997, the Company announced that it had entered into an
agreement in principle to settle the securities class actions pending against
the Company in state and Federal courts. As part of the settlement, the
Company agreed to issue one million shares of the Company's Common Stock to
the plaintiff. See "Note F - Litigation."

NOTE D - ACQUISITIONS

In early 1993, the Company announced its plans to commence a
program of acquiring businesses that serve the commercial paging market and
offer operational synergies when integrated within the Company's
SuperCenters. During 1994, 1995 and 1996, the Company completed 21
acquisitions at a total cost of $198.9 million and the purchase of a
nationwide license (931.9125 MHz Radio Common Carrier frequency) and
associated system equipment (the "Nationwide License") for $43 million.
Effective March 1, 1997, the Company acquired all of the outstanding capital
stock of Modern Communication Corp. and Personal Communications, Inc.
("Modern") for $9.2 million. The completed acquisitions were accounted for
as purchases and funded by borrowings under the Company's revolving line of
credit, proceeds from the sale of the senior subordinated notes and issuances
of shares of the Common Stock.

<PAGE>

PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997

NOTE D - ACQUISITIONS (CONTINUED)

The pro forma unaudited results of operations for the six months
ended June 30, 1997 are not materially different from the historical results
and therefore are not presented. The pro forma unaudited results of
operations for the six months ended June 30, 1996, (which include
acquisitions closed as of June 30, 1997), assuming consummation of the
purchases at the beginning of the periods indicated, are as follows (in
thousands, except per share data):

SIX MONTHS ENDED
JUNE 30, 1996
----------------
Total revenues......................... $ 57,779
Net loss............................... (21,594)
Net loss per common share.............. (2.80)

These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the acquisitions been made as of those dates
or of results which may occur in the future.

In the second quarter of 1996, the Company signed a definitive agreement to
merge with Teletouch Communications, Inc. ("Teletouch"). In the third quarter
of 1996, the Company announced the termination of the pending Teletouch
merger. Nonrecurring charges of approximately $7.4 million were recorded in
the second quarter of 1996 as a result of the Teletouch merger termination.
These charges consist primarily of underwriting, advisory, legal and
accounting costs and merger financing costs.

NOTE E - INCOME TAXES

For the three and six months ended June 30, 1997, the primary
differences between the U.S. Federal statutory tax rate and the effective tax
rate in the Company's historical financial statements are state income taxes,
net operating losses with no benefit and the amortization of goodwill related
to stock acquisitions, which is not deductible for tax purposes.

NOTE F - LITIGATION

The Company, its directors, and certain of its officers have been
sued in eight separate actions brought in the United States District Court
for the Northern District of Texas and the District Courts of Dallas County,
Texas. The actions pending in federal court are captioned: WERNER V. PRONET
INC., ET AL., No. 3-96CV1795-P; MOLINA V. PRONET INC., ET AL., No.
3-96CV1972-R; SMITH, ET AL. V. LEHMAN BROTHERS, ET AL., No. 3-96CV2116-H;
L.L. CAPITAL PARTNERS L.P. V. PRONET INC., ET AL., No. 3-96-CV-02197-D. The
actions pending in state court are captioned: DENNIS V. PRONET INC., ET AL.,
No. 96-06509; GREENFIELD V. PRONET INC., ET AL., No. 96-06782-B; and DRUCKER
V. PRONET INC., ET AL., No. 96-06786-L.

Each of these cases purports to be a class action on behalf of a class of
purchasers of the Company's stock. The actions, taken as a group, allege that
the Company violated the Securities Act of 1933, the Securities Exchange Act
of 1934 (and Rule 10b-5 thereunder), and certain state statutes and common
law doctrines. All of the actions were filed after the price of the
Company's stock decreased in June 1996. Certain of the actions pertain to an
alleged class of plaintiffs who purchased shares in the Company's $100
million public offering, which closed on June 5, 1996. Other

<PAGE>

PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997

NOTE F - LITIGATION (CONTINUED)

actions purport to include claims on behalf of all purchasers of the
Company's Common Stock during an alleged class period. The state cases have
been consolidated into a single action, which alleges violation of the
Securities Act of 1933 in connection with the Company's Offering. The
federal actions have been consolidated into two separate actions, depending
upon the nature of the claim raised. The Company has been served in each
action. The Company has also accepted service on behalf of the individuals
named in the relevant actions. The Company and the individual defendants
have filed answers in each of the state cases. Two orders have been entered
appointing lead plaintiffs in the federal cases as provided for in the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The
plaintiffs have filed consolidated complaints. The Company recently filed
motions to dismiss the complaints in the federal cases. Under the provisions
of the Reform Act, the federal cases are stayed until the motions to dismiss
are resolved.

The Company has entered into an agreement in principle to settle
the securities class actions pending against the Company and its officers and
directors in state and federal courts in Dallas. The Company has also
entered into an agreement with its former underwriters that terminates the
Company's potential liability to its former underwriters.

The Company and its insurance carriers will pay $5 million to
settle all claims against the Company and its officers and directors. The
Company will also pay an additional $400,000 to the plaintiffs, as part of
its agreement with its former underwriters. The Company will assign to the
plaintiffs certain rights against one of its insurers and will issue one
million shares of ProNet stock to the class upon final court approval of the
settlement. The Company will also pay $2 million to the class if, within two
years from final approval of the settlement, the Company engages in a merger
or similar transaction in which control of the Company changes. The proposed
settlement is subject to execution of a definitive settlement agreement and
court approval.

The proposed settlements will resolve all disputes among the
parties to the litigation.

NOTE G - SUBSEQUENT EVENT

On August 8, 1997, the Company signed a definitive agreement ("the
Merger Agreement") to merge into Metrocall, Inc. ("Metrocall"). Metrocall
will issue approximately 12.3 million shares of Metrocall common stock, which
will be converted at a ratio of 0.9 Metrocall shares per ProNet share, as
adjusted. Total value of the merger is approximately $73.8 million.
Metrocall will also assume approximately $170.2 million in the Company's debt.

This transaction is subject to the approval of the Company's and
Metrocall's stockholders, and approval of Metrocall's stockholders of an
increase in Metrocall's authorized common shares to 80 million. The Merger
Agreement is also subject to other terms and conditions, including regulatory
approvals, consents by Metrocall's banks and approval of certain pending
securities litigation settlements involving the Company in accordance with
previously announced settlements.

For additional information regarding the transactions contemplated
in the Merger Agreement, reference is made to the Agreement and Plan of
Merger and certain other documents entered into in connection with the Merger
Agreement, copies of which are incorporated herein by reference through
Metrocall's Form 8-K dated August 11, 1997.

7
<PAGE>

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company provides wireless messaging services through its
paging and security systems operations. Until 1994, paging services were
provided solely to subscribers in the healthcare industry. Beginning in
1994, the Company broadened its operating focus through the acquisition of
paging businesses serving the general commercial marketplace. As a result of
23 completed acquisitions, the Company's results of operations for prior
periods may not be indicative of future performance.

The Company is a solutions-oriented organization dedicated to
individualized customer service which has concentrated on identifying market
opportunities in the wireless communications market where it can provide
users with enhanced wireless services. The Company focuses its activities in
five geographic regions or communication "SuperCenters" centered in major
metropolitan markets and population corridors, which generally have the
demographics, market size, travel patterns and types of businesses that
indicate significant potential demand for the Company's products and
services. The SuperCenters are located in New York, Chicago, Houston,
Charlotte and Stockton, California. At June 30, 1997, the Company had
1,385,354 pagers in service, which was the seventh largest domestic
subscriber base of all publicly traded paging companies in the United States.

As one of its enhanced wireless communications services, through
its wholly-owned subsidiary, Electronic Tracking Systems Inc. ("ETS"), which
operates under the name of ProNet Tracking Systems ("PTS"), the Company
markets radio-activated electronic tracking security systems primarily to
financial institutions throughout the United States. The systems consist of
radio transmitters, or "TracPacs," which are disguised in items of value.
When such an item is removed from a financial institution without
authorization, the TracPac signals the appropriate law enforcement
authorities, who in turn follow the signal generated by the TracPac to
recover the item and apprehend the suspect.

In both its paging and security systems operations, the Company
builds and operates communications systems and generates revenues from the
sale and lease of pagers, Intelligent Processing Terminal ("ipt") systems and
security devices and related access fees. The Company's revenues are derived
primarily from fixed monthly, quarterly, annual and bi-annual fees charged to
customers for paging and security tracking services. While a subscriber
remains in service, operating results benefit from this recurring monthly
revenue stream with minimal requirements for additional selling expenses or
other fixed costs. However, certain variable costs such as telephone and
equipment charges are directly related to the number of pagers in service.

Each month a percentage of the customer base disconnects service
for a variety of reasons. ProNet does, however, place substantial emphasis
on customer care and quality of service and as a result its paging business
currently has a disconnect ("churn") rate in line with the industry average
of approximately 3.1% (source: The State of the U.S. Paging Industry: 1995,
June 1995, Economic and Management Consultants International, Inc.). Churn
is the number of customers disconnecting service each month as a percentage
of the total subscriber base. Although the Company's current disconnect rate
of 2.9% is in line with the industry average, there can be no assurance that
the Company will not experience an increase in its churn rate, which may
adversely affect the Company's results of operations. The Company's monthly
churn rate in the security tracking business is lower than in its paging
business - currently approximately 1%.

Currently, service revenues consist of two components - service
fees and unit leasing fees. As the Company pursues its strategy of expanding
into new markets, increasing its coverage within its existing service areas
and broadening its customer base and distribution channels, the percentage of
customers who own and maintain ("COAM") their paging equipment rather than
leasing it from the Company is likely to increase. This, together with
competitive factors, may result in declining service revenues per subscriber
since these customers will not pay a leasing fee as part of their monthly
charge. However, the Company will not incur the capital costs related to
these COAM pagers. Additionally, average revenue per unit ("ARPU") for pagers
served through resellers is lower than for direct sales due

8
<PAGE>

to the wholesale rates charged to this distribution channel. Such resellers
do, however, assume all selling, marketing, subscriber management and related
costs that would otherwise be incurred by the Company.

Product sales and costs are also likely to increase as the business
mix shifts in favor of COAM units. The Company's objective is to break even
on product sales, but it may selectively offer discounts due to promotional
offers or competitive pressures.

The Company currently enjoys low operating costs per unit due to
the efficiency of its operations. It expects that the development of its
business around its SuperCenters will result in economies of scale and
consolidation of operating and selling expenses that will help it retain this
competitive advantage.

Earnings before other income (expense), income taxes, depreciation
and amortization and nonrecurring charges ("EBITDA") is a standard measure of
operating performance in the paging industry. The Company's EBITDA has grown
at a compound annual rate of approximately 43% over the past four years,
while cash flows from operating activities has decreased at a compound annual
rate of 61% for the same period. Cash flows from operating activities is
derived from the statement of cash flows and differs from EBITDA primarily
due to interest expense and changes in working capital. EBITDA growth is
expected to continue although near term EBITDA margins may be slightly
impacted by legal costs, start-up costs associated with certain SuperCenters
and new enhanced products and services and the buildout of existing and
acquired frequencies in the Company's marketplaces. Cash flow from operating
activities is expected to fluctuate based upon the changes in working capital
and fluctuations in interest expense resulting from changes in the prevailing
interest rates and the level of borrowing on the Company's revolving line of
credit. Non-cash and financing-related charges for the Company's acquisition
program have negatively impacted earnings in 1996 and the first six months of
1997 and have the potential to continue this trend in the future.

The following discussion and analysis of financial condition and
results of operations includes the historical results of operations of the
Company and the results of operations from the respective acquisition dates
of all acquisitions completed by the Company since 1994.

PAGING SYSTEMS' RESULTS OF OPERATIONS FOR THE
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1997 1996 1997 1996
-------- -------- ------ ------
(in thousands) (in thousands)
Revenues
Service revenues.....................$ 22,878 $ 19,578 $ 45,407 $ 39,136
Product sales........................ 5,552 3,889 10,422 7,013
-------- -------- -------- --------
Total revenues......................... 28,430 23,467 55,829 46,149
Net book value of products sold...... (3,644) (3,355) (7,183) (6,136)
-------- -------- -------- --------
Net revenues (1)....................... 24,786 20,112 48,646 40,013
Cost of services....................... (7,264) (5,712) (14,450) (11,224)
-------- -------- -------- --------
Gross margin........................... 17,522 14,400 34,196 28,789

Sales and marketing expenses........... 4,231 3,781 8,446 7,737
General and administrative expenses.... 6,655 5,839 12,953 11,000
Depreciation and amortization expenses. 16,682 8,015 32,313 16,326
Nonrecurring charges................... 6,550 7,374 6,550 7,374
9

<PAGE>

-------- -------- -------- --------
Operating loss.........................$(16,596) $(10,609) $(26,066) $(13,648)
-------- -------- -------- --------
EBITDA.................................$ 6,636 $ 4,780 $ 12,797 $ 10,052
-------- -------- -------- --------
-------- -------- -------- --------

(1) Net revenues represent revenues from services, rent and maintenance plus
product sales less cost of products sold.

<PAGE>

PAGING SYSTEMS' NET REVENUES for the three and six months ended
June 30, 1997 increased 23% to $24.8 million and 22% to $48.6 million,
respectively, from $20.1 million and $40.0 million, respectively, for the
comparable periods in 1996. Service revenues increased 17% and 16%, to $22.9
million and $45.4 million, respectively, for the three and six months ended
June 30, 1997, compared to $19.6 million and $39.1 million, respectively, for
the comparable periods in 1996. These increases are primarily attributable
to a growing subscriber base achieved through greater market penetration in
existing markets and three acquisitions between June 30, 1996 and June 30,
1997. Pagers in service increased 25% to 1,385,354 at June 30, 1997 from
1,107,444 at June 30, 1996. The increase in pagers in service was primarily
the result of these recent acquisitions. In 1994, 1995 and 1996, most of the
Company's growth in pagers in service was from acquisitions. In addition,
internal growth accounted for 51,622 units during the quarter ended June 30,
1997, which represents a year over year internal growth rate of approximately
17%.

ARPU was $5.61 for the quarter ended June 30, 1997 compared to
$6.09 for the quarter ended June 30, 1996. This decrease was due to a
further shift in the Company's subscriber base from direct to indirect
distribution channels which tend to generate lower revenues per subscriber.
The Company's subscriber base was 76% COAM at June 30, 1997 compared to 74%
at June 30, 1996. The Company believes that ARPU will continue to decrease,
although at a slower rate, as the Company expands its indirect distribution
channels.

PRODUCT SALES LESS NET BOOK VALUE OF PRODUCTS SOLD was $1,908,000
and $3,239,000 for the three and six months ended June 30, 1997, compared to
$534,000 and $877,000 for the comparable periods in 1996. The margin
increased in 1997 primarily due to increases in product sales and the sale of
a frequency in the first quarter of 1997. Management anticipates that the
Company's margins may vary from market to market due to competition and other
factors.

PAGING SYSTEMS' GROSS MARGIN (net revenues less cost of services)
was $17.5 million (71% of paging systems' net revenues) and $34.2 million
(70% of paging systems' net revenues) for the three and six months ended June
30, 1997, compared to $14.4 million (72% of paging systems' net revenues) and
$28.8 million (72% of paging systems' net revenues) for the comparable
periods in 1996. The decrease in gross margin as a percentage of paging
systems' net revenues was due to the increased expenses related to recent
acquisitions, start-up costs associated with certain SuperCenters and the
buildout of existing and acquired frequencies in its marketplaces, primarily
consisting of telephone, salaries, tower rent and third party access fees.
The Company currently anticipates that these margins will decrease slightly
in the short term, but will increase in the future as cost efficiencies and
integration savings are achieved and as revenues from new systems increase
without a relative increase in these costs. The cost of services increased
to $7.3 million and $14.5 million for the three and six months ended June 30,
1997, compared to $5.7 million and $11.2 million for the comparable periods
of the prior year, as a result of the increased costs of servicing a
substantially larger subscriber base resulting from both internal growth and
acquisitions.

PAGING SYSTEMS' SALES AND MARKETING EXPENSES were $4.2 million (17%
of paging systems' net revenues) and $8.4 million (17% of paging systems' net
revenues) for the three and six months ended June 30, 1997, compared to $3.8
million (19% of paging systems' net revenues) and $7.7 million (19% of paging
systems' net revenues) for the comparable periods of the prior year. The
decrease as a percentage of paging systems' net revenues was primarily due to
savings resulting from the integration of certain acquired retail counters
and the elimination of redundant expenses. These expenses as a percentage of
paging systems' net revenues may increase slightly in the future due to the
Company's focus on expanding its direct distribution channel.

PAGING SYSTEMS' GENERAL AND ADMINISTRATIVE EXPENSES were $6.7
million (27% of paging systems' net revenues) and $12.9 million (27% of
paging systems' net revenues) for the three and six months ended June 30,
1997, compared to $5.8 million (29% of paging systems' net revenues) and
$11.0 million (28% of paging systems' net revenues) for the comparable
periods in 1996. The stabilization as a percentage of paging systems' net
revenues was due primarily to the integration of certain acquisitions
completed since June 1996 into the SuperCenter structure, as well as the
increase in the number of acquired retail store locations referred to above.
Management anticipates that paging systems' general and administrative
expenses as a percentage of net revenues will decrease slightly over time as
a result of general and administrative expenses being spread across a larger
subscriber base.

<PAGE>

PAGING SYSTEMS' DEPRECIATION AND AMORTIZATION EXPENSES for the three and six
months ended June 30, 1997 increased 108% to $16.7 million and 98% to $32.3
million, respectively, from $8.0 million and $16.3 million for the comparable
periods in 1996. The increase was due to the amortization of intangibles
arising from the acquisitions and the depreciation of additional paging
equipment from acquisitions and capital investment for buildout of
frequencies and system support. The Company expects this trend in
depreciation and amortization expenses to continue in the near term as a
result of continued capital investment in paging equipment to support the
Company's growth.

PAGING SYSTEMS' NONRECURRING CHARGES were $6.6 million for the three and
six months ended June 30, 1997. These costs represent nonrecurring costs
related to the settlement of pending litigation and consisted primarily of
settlement, legal and accounting costs associated with the settlement.
Nonrecurring charges were $7.4 million for the three and six months ended
June 30, 1996. These costs represent nonrecurring costs related to a
terminated merger with Teletouch Communications, Inc. ("Teletouch") and
related planned financing, consisting primarily of underwriting, advisory,
legal and accounting fees and merger financing costs.

EBITDA for paging systems' operations was $6.6 million (27% of paging
systems' net revenues) and $12.8 million (26% of paging systems' net
revenues) for the three and six months ended June 30, 1997, compared to $4.8
million (24% of paging systems' net revenues) and $10.1 million (25% of
paging systems' net revenues) for the comparable periods in 1996. The
Company believes EBITDA will increase slightly as a percentage of net
revenues over time as the Company spreads its costs over a larger subscriber
base and achieve resulting economies of scale and operating efficiencies.

SECURITY SYSTEMS' RESULTS OF OPERATIONS FOR THE
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
(in thousands) (in thousands)
Revenues
Service revenues...................... $1,627 $1,348 $3,155 $2,806
Product sales......................... 2 -- 8 22
------ ------ ------ ------
Total revenues........................... 1,629 1,348 3,163 2,828
Cost of products sold.................... -- -- -- --
------ ------ ------ ------
Net revenues (1)......................... 1,629 1,348 3,163 2,828
Cost of services......................... (470) (315) (901) (590)
------ ------ ------ ------
Gross margin............................. 1,159 1,033 2,262 2,238
Sales and marketing expenses............. 27 95 36 178
General and administrative expenses...... 73 165 136 344
Depreciation and amortization expenses... 425 410 804 806
------ ------ ------ ------
Operating income......................... $ 634 $ 363 $1,286 $ 910
------ ------ ------ ------
------ ------ ------ ------
EBITDA................................... $1,059 $ 773 $2,090 $1,716
------ ------ ------ ------
------ ------ ------ ------
</TABLE>

(1) Net revenues represent revenues from services, rent and maintenance plus
product sales less cost of products sold.

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<PAGE>

SECURITY SYSTEMS' TOTAL REVENUES increased 21% to $1.6 million and 12%
to $3.2 million for the three and six months ended June 30, 1997, from $1.3
million and $2.8 million for the comparable periods in 1996. The increase
was due to the installation of 2 new systems since June 30, 1996, as well as
expansion of and additional penetration in existing markets. The number of
TracPacs in service decreased 2% to 28,796 at June 30, 1997, from 29,329 at
June 30, 1996.

SECURITY SYSTEMS' OPERATING INCOME was $634,000 and $1,286,000 for
the three and six months ended June 30, 1997, compared to $363,000 and
$910,000 for the same periods in 1996. The increase in operating income
resulted primarily from increased revenues and decreased sales and marketing
and general and administrative expenses.

EBITDA for the security systems' operations was $1,059,000 (65% of
security systems' net revenues) and 2,090,000 (66% of security systems'
service revenues) for the three and six months ended June 30, 1997, compared
to $773,000 (57% of security systems' net revenues) and $1.7 million (61% of
security systems' net revenues) for the same periods in 1996. The increase
was primarily due to increases in net revenues and decreases in sales and
marketing and general and administrative expenses.

OTHER INCOME (EXPENSE)

Other income (expense) includes interest income generated from
short-term investments and interest expense incurred. The period-to-period
fluctuations in interest expense have resulted primarily from changes in the
outstanding amounts under the revolving line of credit. Interest expense
increased for the three months and six months ended June 30, 1997 from prior
periods primarily as a result of increased borrowing under the revolving line
of credit. Interest expense is expected to continue to fluctuate based on
changes in the outstanding amounts under the revolving line of credit and
changes in interest rates.

FEDERAL INCOME TAXES

At December 31, 1996 the Company had net operating loss carryforwards of
$45.7 million for income tax purposes that expire in years 2005 through 2011.
For the three and six months ended June 30, 1997, the differences between the
U.S. Federal statutory tax rate and the effective rate in the Company's
historical financial statements are state income taxes, net operating losses
with no benefit and the amortization of goodwill related to stock
acquisitions, which is not deductible for tax purposes

LIQUIDITY AND CAPITAL RESOURCES

During 1996 and 1997, the Company financed the majority of its growth,
other than acquisitions, through internally generated funds. Net cash
provided by operating activities was $13.5 million for the six months ended
June 30, 1997, compared to net cash used in operating activities of $4.3
million for the comparable period in 1996. The increase in cash provided by
operating activities was primarily due to decreases in trade accounts
receivable and other assets and increases in trade payables and other accrued
expenses and liabilities. Acquisitions prior to September 1995 were financed
with borrowings under the Company's revolving line of credit. Proceeds from
the sale of the senior subordinated notes issued in 1995 were used to repay
all indebtedness outstanding under the Company's revolving line of credit and
to fund the remaining acquisitions in 1995. The purchase of the Nationwide
License in July 1996 was funded with $28 million from the Company's equity
offering in June 1996 and $15 million with borrowings under its revolving
line of credit. The $8.9 million cash portion of the acquisition of Modern in
the first quarter of 1997 was also funded with borrowings under its revolving
line of credit. The Company anticipates that its ongoing capital needs will
be funded with additional borrowings and net cash generated by operations.

CAPITAL EXPENDITURES

As of June 30, 1997, the Company had invested $114.4 million in system
equipment and pagers for its major metropolitan markets and $13.9 million in
system equipment and TracPacs for its 34 security systems.

13
<PAGE>

Capital expenditures for paging systems' equipment was $6.4 million for
the six months ended June 30, 1997 compared to $9.7 million for the
comparable period in 1996 (excluding assets acquired pursuant to the
completed acquisitions). Capital expenditures for security systems'
equipment and TracPacs for the six months ended June 30, 1997 was $270,000
compared to $803,000 for the comparable period in 1996.

Except for those assets acquired through acquisitions and any capital
costs associated with new enhanced products and services, the Company expects
to meet its capital requirements in 1997 with cash generated from operations.
Although the Company had no material binding commitments to acquire capital
equipment at June 30, 1997, the Company anticipates capital expenditures for
the remainder of 1997 to be $14.0 million for the purchase of system
equipment for its current paging systems' operations and $400,000 for the
manufacture of TracPacs and the purchase of system equipment for its security
systems' operations.

CREDIT FACILITIES

The $150 million under the Company's revolving line of credit consists
of a $25 million revolving line of credit maturing December 31, 2003, and a
$125 million two-year revolving line of credit which converts July 1, 1998 to
a term loan maturing December 31, 2003. The borrowings bear interest, at the
Company's designation, at either (i) the ABR plus a margin of up to 1.5%, or
(ii) the Eurodollar Base Rate plus a margin of up to 2.75%. The term loan
will be payable in quarterly installments, based on the principal amount
outstanding on the conversion date, in amounts ranging from 7% initially to
20%. Loans bearing interest based on ABR may be prepaid at any time, and
loans bearing interest based on the Eurodollar Rate may not be paid prior to
the last day of the applicable interest period. A commitment fee of either
.375% or .5% on the average daily unused portion of the Credit Facilities is
required to be paid quarterly.

SENIOR SUBORDINATED NOTES

In June 1995, the Company completed a Rule 144A Offering of $100 million
principal amount of its 11 7/8% senior subordinated notes due 2005 (the "1995
Notes"). Proceeds to the Company from the sale of the 1995 Notes, after
deducting discounts, commissions and offering expenses, were approximately
$95.6 million. The Company used approximately $49.4 million of the net
proceeds to repay all indebtedness outstanding under the existing revolving
line of credit. The Company used the remaining proceeds to pursue the
Company's acquisition strategy, to purchase frequency rights, to make capital
expenditures for buildout of the Company's regional paging systems and for
enhanced services, and for working capital and general corporate purposes.

The 1995 Notes are general unsecured obligations of the Company and are
subordinated to all existing and future senior debt of the Company. The
indenture provides that the Company may not incur any debt that is
subordinate in right of payment to the senior debt and senior in right of
payment to the 1995 Notes. The indenture also contains certain covenants
that, among other things, limit the ability of the Company and its
subsidiaries to incur indebtedness, pay dividends, engage in transactions
with affiliates, sell assets and engage in certain other transactions.
Interest on the 1995 Notes is payable in cash semi-annually on each June 15
and December 15, commencing December 15, 1995. The 1995 Notes will not be
redeemable at the Company's option prior to June 15, 2000.

The Company filed a Form S-4 Registration Statement (the "1995 S-4") on
July 7, 1995 to register the 1995 Notes with the SEC under the Securities Act
of 1933, as amended. On October 6, 1995, the SEC declared the 1995 S-4
effective.

COMMON STOCK OFFERING

In June 1996, the Company issued four million shares of its Common Stock
at a price of $25 per share. The net proceeds to the Company from the Offering,
after deducting commissions and offering expenses were approximately $94.8
million. Also in June 1996, the Company used approximately $48 million of the
net proceeds of the Offering to repay all outstanding indebtedness under its
existing revolving line of credit, $3 million to pay bank fees for the Credit
Facilities, $6 million to pay interest due on the 1995 Notes, and $8 million to
fund interest, penalty and underwriters fees for senior subordinated notes
related to the terminated Teletouch merger. In July 1996, the

14
<PAGE>

Company used approximately $28 million of the Offering proceeds to purchase
the Nationwide License. The remaining proceeds were used to fund capital
expenditures and for working capital and general operating needs.

ACQUISITIONS

In 1993, the Company announced its plans to commence a program of
acquiring businesses that serve the commercial paging market and offer
operational synergies when integrated within the Company's SuperCenters.
During 1994, 1995 and 1996, the Company completed 21 acquisitions at a total
cost of $198.9 million. The 21 completed acquisitions were accounted for as
purchases and funded by borrowings under the Company's revolving line of
credit, proceeds from the sale of the 1995 Notes and issuances of shares of
the Company's Common Stock. On March 1, 1997, the Company acquired
substantially all of the outstanding capital stock of Modern for a purchase
price of $9.2 million. This acquisition was accounted for as a purchase and
was funded by borrowings under the Credit Facilities.

At December 31, 1996, the Company had deferred payments of $5.7 million
outstanding related to various acquisitions which are due and payable one
year from the closing of the respective transactions. The balances are
payable, at the Company's obligation or discretion, either in cash or shares
of the Company's Common Stock based on current market value at the date of
payment. In January 1997, the Company paid $4.9 million in cash and issued
46,232 shares of its Common Stock in payment of $5.7 million of deferred
payments related to various acquisitions.

LITIGATION

If the proposed agreement in principle defined in "Item 1 - Legal
Proceedings" and "Note F - Litigation" to the Consolidated Financial
Statements is not finalized in accordance with the terms described therein,
the final outcome of the securities class actions could have a material
adverse effect on the Company's results of operations during fiscal year 1997
or subsequent periods.

FORWARD-LOOKING STATEMENTS

Certain statements contained herein are not based on historical facts,
but are forward-looking statements that are based upon numerous assumptions
as of the date of this filing that could prove not to be accurate. These
statements appear in a number of places in this report and include statements
regarding the intent, belief or current expectations of the Company, its
officers or its directors with respect to, among other things: (i)
acquisitions and product development; (ii) the Company's financing plans;
(iii) trends affecting the Company's financial condition or results of
operations; and (iv) regulatory matters affecting the Company. Actual
events, transactions and results may materially differ from the anticipated
events, transactions or results described in such statements. The Company's
ability to achieve such events, transactions or results is subject to certain
risks and uncertainties. Such risks and uncertainties include, but are not
limited to, the existence of, demand for and acceptance of the Company's
products and services, regulatory approval, economic conditions, the impact
of competition and pricing, the availability of appropriate candidates for
acquisition by the Company, results of financing efforts and other factors
affecting the Company's business that are beyond the Company's control,
including but not limited to the matters described in "Risk Factors" included
in the Form 10-K for the Company filed with the SEC on March 28, 1997. The
Company disclaims any obligations to update the forward-looking statements
contained herein.

15
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company, its directors, and certain of its officers have been sued
in eight separate actions brought in the United States District Court for the
Northern District of Texas and the District Courts of Dallas County, Texas.
The actions pending in federal court are captioned: WERNER V. PRONET INC., ET
AL., No. 3-96CV1795-P; MOLINA V. PRONET INC., ET AL., No. 3-96CV1972-R;
SMITH, ET AL. V. LEHMAN BROTHERS, ET AL., No. 3-96CV2116-H; L.L. CAPITAL
PARTNERS L.P. V. PRONET INC., ET AL., No. 3-96-CV-02197-D. The actions
pending in state court are captioned: DENNIS V. PRONET INC., ET AL., No.
96-06509; GREENFIELD V. PRONET INC., ET AL., No. 96-06782-B; and DRUCKER V.
PRONET INC., ET AL., No. 96-06786-L.

Each of these cases purports to be a class action on behalf of a class
of purchasers of the Company's common stock. The actions, taken as a group,
allege that the Company violated the Securities Act of 1933, the Securities
Exchange Act of 1934 (and Rule 10b-5 thereunder), and certain state statutes
and common law doctrines. All of the actions were filed after the price of
the Company's stock decreased in June 1996. Certain of the actions pertain
to an alleged class of plaintiffs who purchased shares in the Company's $100
million public offering, which closed on June 5, 1996. Other actions purport
to include claims on behalf of all purchasers of the Company's common stock
during an alleged class period. The state cases have been consolidated into
a single action, which alleges violation of the Securities Act of 1933 in
connection with the Company's Offering. The federal actions have been
consolidated into two separate actions, depending upon the nature of the
claim raised. The Company has been served in each action. The Company has
also accepted service on behalf of the individuals named in the relevant
actions. The Company and the individual defendants have filed answers in
each of the state cases. Two orders have been entered appointing lead
plaintiffs in the federal cases as provided for in the Reform Act. The
plaintiffs have filed consolidated complaints. The Company recently filed
motions to dismiss the complaints in the federal cases. Under the provisions
of the Reform Act, the federal cases are stayed until the motions to dismiss
are resolved.

The Company has entered into an agreement in principle to settle the
securities class actions pending against the Company and its officers and
directors in state and federal courts in Dallas. The Company has also
entered into an agreement with its former underwriters that terminates the
Company's potential liability to its former underwriters.

The Company and its insurance carriers will pay $5 million to settle all
claims against the Company and its officers and directors. The Company will
also pay an additional $400,000 to the plaintiffs, as part of its agreement
with its former underwriters. The Company will assign to the plaintiffs
certain rights against one of its insurers and will issue one million shares
of ProNet stock to the class upon final court approval of the settlement.
The Company will also pay $2 million to the class if, within two years from
final approval of the settlement, the Company engages in a merger or similar
transaction in which control of the Company changes. The proposed settlement
is subject to execution of a definitive settlement agreement and court
approval.

The proposed settlements will resolve all disputes among the parties to
the litigation.

16
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS.

3.1 - Restated Certificate of Incorporation dated July 31, 1987 (filed
as an exhibit to the Company's Registration Statement on Form
S-4 (File No. 33-60925) filed July 7, 1995, and incorporated
herein by reference).

3.2 - Certificate of Designation of Series A Junior Participating
Preferred Stock dated April 11, 1995 (filed as part of the
Company's Registration Statement on Form 8-A dated April 7,
1995, and incorporated herein by reference).

3.3 - Certificate of Amendment to Restated Certificate of Incorporation
dated June 12, 1995 (filed as an exhibit to the Company's Current
Report on Form 8-K, dated July 5, 1995, and incorporated herein by
reference).

3.4 - Restated Bylaws of the Company, as amended (filed as an exhibit to
the Company's Current Report on Form 8-K filed April 19, 1995, and
incorporated herein by reference).

4.1 - Indenture, dated as of June 15, 1995, between the Company and
First Interstate Bank of Texas, N.A., as Trustee (filed as an
exhibit to the Company's Current Report on Form 8-K, dated July 5,
1995, and incorporated herein by reference).

4.2 - Registration Rights Agreement, dated as of June 15, 1995, between
the Company, Lehman Brothers, Inc., Alex. Brown & Sons
Incorporated and Paine Webber Incorporated (filed as an exhibit to
the Company's Registration Statement on Form S-4 (File No.
33-60925) filed July 7, 1995, and incorporated herein by
reference).

4.3 - Rights Agreement, dated as of April 5, 1995, between the Company
and Chemical Shareholder Services Group, Inc., as Rights Agent,
specifying the terms of the rights to purchase the Company's
Series A Junior Participating Preferred Stock, and the exhibits
thereto (filed as an exhibit to the Company's Registration
Statement on Form 8-A dated April 7, 1995, and incorporated herein
by reference).

10.1 - Form of Indemnification Agreement between the Company and certain
of the Company's Directors (filed as an exhibit to Amendment No. 1
to the Company's Registration Statement on Form S-1 (File No. 33-
14956) filed July 10, 1987, and incorporated herein by reference).

10.2 - Deferred Compensation Plan of the Company (filed as an exhibit to
Amendment No. 2 to the Company's Registration Statement on Form
S-1 (File No. 33-14956) filed July 15, 1987, and incorporated
herein by reference).

10.3 - 1987 Stock Option Plan of the Company (filed as an exhibit to
Amendment No. 4 to the Company's Registration Statement on Form
S-1 (File No. 33-14956) filed July 29, 1987, and incorporated
herein by reference).

10.4 - Agreement dated June 15, 1988, between the Company and Texas
Instruments Incorporated for the acquisition of assets including
the use of patents, technology and software related to ProNet
Tracking Systems (filed as an exhibit to the Company's Current
Report on Form 8-K, dated July 21, 1988, and incorporated herein
by reference).

10.5 - Nonqualified Stock Option Agreement of the Company dated May 22,
1991 (filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991, and incorporated
herein by reference).

10.6 - Non-Employee Director Stock Option Plan of the Company (filed as
an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991, and incorporated herein by
reference).

10.7 - Stock Purchase Agreement dated June 24, 1993, by and between the
Company and Contact Communications, Inc. (filed as an exhibit
to the Company's Current Report on Form 8-K, dated March 1, 1994,
and incorporated herein by reference).

10.8 - Amendment Letter No. One to Stock Purchase Agreement dated
October 20, 1993, by and between the Company and Contact
Communications, Inc. (filed as an exhibit to the Company's Current
Report on Form 8-K, dated March 1, 1994, and incorporated herein
by reference).

10.9 - Amendment Letter No. Two to Stock Purchase Agreement dated January
4, 1994, by and between the Company and Contact Communications,
Inc. (filed as an exhibit to the Company's Current Report on Form
8-K, dated March 1, 1994, and incorporated herein by reference).

10.10 - Amendment Letter No. Three to Stock Purchase Agreement dated March
1, 1994, by and between the Company and Contact Communications,
Inc. (filed as an exhibit to the Company's Current Report on Form
8-K, dated March 1, 1994, and incorporated herein by reference).

17
<PAGE>

10.11 - 1994 Employee Stock Purchase Plan of the Company (filed as an
exhibit to the Company's Proxy Statement filed April 26, 1994, and
incorporated herein by reference).

10.12 - Stock Purchase Agreement dated April 20, 1995, regarding the
acquisition of the outstanding capital stock of Metropolitan
Houston Paging Services, Inc., ("Metropolitan") by and among
Contact Communications Inc., Metropolitan and the shareholders of
Metropolitan (filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1995,
and incorporated herein by reference).

10.13 - Form PS-58 Split Dollar Agreement between the Company and each of
its executive officers (filed as an exhibit to the Company's
Registration Statement on Form S-2 (File No. 33-85696) filed
October 28, 1994, and incorporated herein by reference).

10.14 - Employment Agreement dated May 18, 1994, by and between the
Company and Jackie R. Kimzey (filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1994, and incorporated herein by reference).

10.15 - Employment Agreement dated May 18, 1994, by and between the
Company and David J. Vucina (filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1994, and incorporated herein by reference).

10.16 - Change in Control Agreement dated May 18, 1994, by and between
the Company and Bo Bernard (filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1994, and incorporated herein by reference).

10.17 - Change in Control Agreement dated May 18, 1994, by and between
the Company and Jan E. Gaulding (filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1994, and incorporated herein by reference).

10.18 - Change in Control Agreement dated May 18, 1994, by and between
the Company and Jeffrey Owens (filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1994, and incorporated herein by reference).

10.19 - Change in Control Agreement dated January 17, 1995, by and between
the Company and Mark A. Solls (filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by reference).

10.20 - Asset Purchase Agreement dated May 24, 1995, regarding the
acquisition of substantially all of the paging assets of Americom
Paging Corporation, by and among the Company, Gregory W. Hadley,
Mo Shebaclo and American 900 Paging, Inc. dba Americom Paging
Corporation (filed as an exhibit to the Company's Current Report
on Form 8-K, dated July 7, 1995, and incorporated herein by
reference).

10.21 - Amended and Restated Credit Agreement dated February 9, 1995, by
and among the Company, The First National Bank of Chicago, as
Agent, and the Lenders party thereto (filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994, and incorporated herein by reference).

10.22 - Waiver, Consent and Amendment No. 1 dated as of June 12, 1995 by
and among the Company, The First National Bank of Chicago, as
Agent, and the Lenders party thereto (filed as an exhibit to the
Company's Registration Statement on Form S-4 (File No. 33-60925)
filed July 7, 1995, and incorporated herein by reference).

10.23 - Office Lease Agreement by and between the Company and Carter-
Crowley Properties, Inc., as Landlord (filed as an exhibit to
the Company's Current Report on Form 8-K, dated July 5, 1995,
and incorporated herein by reference).

10.24 - Stock Purchase Agreement dated October 6, 1995, regarding the
acquisition of all of the outstanding capital stock of Apple
Communication, Inc., by and among Contact Communications Inc.,
Apple Communication, Inc., and Salvatore Zarcone and Jill
DiFoggio (filed as an exhibit to the Company's Current Report
on 8-K, dated January 16, 1996, and incorporated herein by
reference).

10.25 - Stock Purchase Agreement dated November 22, 1995, regarding the
acquisition of all of the outstanding capital stock of Cobbwells,
Inc. d/b/a Page One, by and among the Company, Contact
Communications Inc., Cobbwells, Inc. d/b/a Page One, James H.
Cobb, III and Warren K. Wells (filed as an exhibit to the
Company's Current Report on 8-K, dated January 16, 1996, and
incorporated herein by reference).

10.26 - 1995 Long-Term Incentive Plan of the Company (filed as an exhibit
to the Company's Proxy Statement filed April 24, 1995, and
incorporated herein by reference).

10.27 - Voting Agreement by and among the Company and Continental Illinois
Venture Corporation, CIVC Partners I, GM Holdings, LLC, Rainbow
Resources, Inc., Robert McMurrey and G. David Higginbotham,

18
<PAGE>

dated as of April 15, 1996(filed as an exhibit to the Company's
Schedule 13D filed April 26, 1996, and incorporated by reference).

10.28 - Agreement and Plan of Merger by and among the Company, ProNet
Subsidiary, Inc. and Teletouch Communications, Inc., dated as of
April 15, 1996 (filed as an exhibit to the Company's Schedule 13D
filed April 26, 1996, and incorporated by reference).

10.29 - Asset Purchase Agreement dated April 19, 1996, regarding the
purchase of a nationwide data transmission license and associated
system equipment from EMBARC Communication Services, Inc., by and
among Contact Communications Inc., the Company, EMBARC
Communication Services, Inc. and Motorola Inc. (filed as an
exhibit to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1996, and incorporated herein by
reference).

10.30 - Stock Purchase Agreement dated April 24, 1996, regarding the
acquisition of all of the outstanding capital stock of Strategic
Products Corporation, by and among the Company, Strategic Products
Corporation, John K. LaRue and Keith Bussman (filed as an exhibit
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1996, and incorporated herein by
reference).

10.31 - Merger Agreement dated April 24, 1996, by and among the Company,
Pac-West Telecomm, Inc., John K. LaRue, William E. Koch and Bay
Alarm Company (filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1996,
and incorporated herein by reference).

10.32 - Termination Agreement and Release by and among the Company, ProNet
Subsidiary, Inc. and Teletouch Communications, Inc., dated as of
July 24, 1996 (filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1996,
and incorporated herein by reference).

10.33 - Second Amended and Restated Credit Agreement dated as of June 14,
1996, among the Company, The First National Bank of Chicago,
individually and as Agent and the Lenders party thereto (filed as
an exhibit to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1996, and incorporated herein
by reference).

10.34 - Amendment No. 1 to Credit Agreement dated as of September 30,
1996, by and among the Company, each of the Company's
subsidiaries, The First National Bank of Chicago, individually and
as Agent and the Lenders party thereto (filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1996, and incorporated herein by reference).

10.35 - Incentive Compensation Agreement dated as of July 7, 1997
between the Company and Impulse Telecommunications Corporation.*

10.36 - Agreement and Plan of Merger dated as of August 8, 1997 between
Metrocall, Inc. and the Company (filed as an exhibit to
Metrocall's Form 8-K dated August 11, 1997, and incorporated
herein by reference).

10.37 - Option Agreement between Metrocall, Inc. and the Company dated
August 8, 1997 (filed as an exhibit to Metrocall's Form 8-K dated
August 11, 1997, and incorporated herein by reference).

10.38 - Stockholders Voting Agreement between the Company and certain
stockholders of Metrocall, Inc. dated August 8, 1997 (filed as
an exhibit to Metrocall's Form 8-K dated August 11, 1997, and
incorporated herein by reference).

(b) Reports on Form 8-K: On July 2, 1997, the Company filed a
Current Report on Form 8-K relating to the settlement of
securities litigation.

___________________________

* Filed herewith

19
<PAGE>

SIGNATURES

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 thereunto duly authorized.

PRONET INC.
(Registrant)

DATE: August 12, 1997 By: /s/ Jan E. Gaulding
-------------------------------------
Jan E. Gaulding
SENIOR VICE PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION NUMBER
- ------- ----------- ------

3.4 - Restated Bylaws of the Company, as amended (filed as an exhibit to
the Company's Current Report on Form 8-K filed April 19, 1995, and
incorporated herein by reference).

10.11 - 1994 Employee Stock Purchase Plan of the Company (filed as an
exhibit to the Company's Proxy Statement filed April 26, 1994, and
incorporated herein by reference).

<PAGE>

10.26 - 1995 Long-Term Incentive Plan of the Company (filed as an exhibit
to the Company's Proxy Statement filed April 24, 1995, and
incorporated herein by reference).

10.27 - Voting Agreement by and among the Company and Continental Illinois
Venture Corporation, CIVC Partners I, GM Holdings, LLC, Rainbow
Resources, Inc., Robert McMurrey and G. David Higginbotham,
dated as of April 15, 1996(filed as an exhibit to the Company's
Schedule 13D filed April 26, 1996, and incorporated by reference).

10.35 - Incentive Compensation Agreement dated as of July 7, 1997
between the Company and Impulse Telecommunications Corporation.*

10.37 - Option Agreement between Metrocall, Inc. and the Company dated
August 8, 1997 (filed as an exhibit to Metrocall's Form 8-K dated
August 11, 1997, and incorporated herein by reference).

___________________________

* Filed herewith

<PAGE>

PRONET INC. ALPHA BETA PROJECT

INCENTIVE COMPENSATION AGREEMENT

This Agreement, made and entered into this 7th day of July, 1997, by and
between ProNet Inc. ("ProNet") and Impulse Telecommunications Corporation
("Impulse").

WHEREAS, Impulse has provided consulting services to ProNet regarding
the development of ProNet's Alpha Beta Project (the "Project"); and

WHEREAS, the consulting services were provided by Impulse utilizing a
reduced fee structure, with the understanding that Impulse would participate
in the success of the Project through a mutually agreeable incentive plan.

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto agree as follows:

1. In consideration of the provision of consulting services by Impulse
at a reduced rate, ProNet hereby agrees to pay Impulse the sum of Two Dollars
($2.00) per Net New Subscriber (as defined below) that purchases and utilizes
the Service (as defined below) provided by ProNet. ProNet shall pay Impulse
consideration as set forth herein (the "Fee") until Impulse has received the
sum of $350,000, at which time all payment obligations under this Agreement
shall cease. The Service shall be defined as the alpha-based paging service
provided by ProNet as described in the document prepared by Impulse for
ProNet titled PRONET NAME-BASED SERVICES STRATEGIC BUSINESS PLAN dated
February 26, 1997.

2. In determining the Fee to be paid by ProNet to Impulse, the number
of Net New Subscribers that initiate Service will be determined at the end of
each calendar quarter. Net New Subscriber(s) shall be defined as gross number
of subscribers which purchase the Service during a particular calendar
quarter minus such subscribers which have churned off the Service during the
immediately prior quarter. The Fee shall be paid by ProNet to Impulse within
sixty (60) days following the end of a calendar quarter.

3. ProNet reserves the right, in its sole discretion, to modify,
change, and control its present and future equipment and facilities, and/or
to terminate the Service if it deems necessary and/or appropriate. This
Agreement does not in any way create the relationship of principal and agent
between ProNet and Impulse. This Agreement shall be governed by the laws of
the State of Texas, and venue for the institution of any lawsuit concerning
this Agreement shall be in Dallas, Dallas County, Texas.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement as of the date first above written.

PRONET INC. IMPULSE
TELECOMMUNICATIONS
CORPORATION

/s/ JACKIE R. KIMZEY /s/ EDWARD E. JUNGERMAN
----------------------- -----------------------
Jackie R. Kimzey Edward E. Jungerman
Chairman and CEO President

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR PRONET INC. FOR THE SIX MONTHS ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,817
<SECURITIES> 0
<RECEIVABLES> 12,304
<ALLOWANCES> 1,115
<INVENTORY> 2,505
<CURRENT-ASSETS> 20,306
<PP&E> 141,350
<DEPRECIATION> 65,845
<TOTAL-ASSETS> 307,191
<CURRENT-LIABILITIES> 31,698
<BONDS> 170,226
0
0
<COMMON> 130
<OTHER-SE> 101,137
<TOTAL-LIABILITY-AND-EQUITY> 307,191
<SALES> 58,992
<TOTAL-REVENUES> 58,992
<CGS> 7,183
<TOTAL-COSTS> 22,534
<OTHER-EXPENSES> 61,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,756
<INCOME-PRETAX> (33,399)
<INCOME-TAX> 167
<INCOME-CONTINUING> (33,566)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,566)
<EPS-PRIMARY> (2.66)
<EPS-DILUTED> (2.66)

</TABLE>