<PAGE>
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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 September 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
Dallas, Texas 75240
(Address of principal executive offices) (Zip Code)
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 September 30, 1997: 12,638,392.
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<PAGE>
PRONET INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 1997 and
December 31, 1996. . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows for the
Nine Months Ended September 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>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 3,497 $ 2,286
Trade accounts receivable, net of allowance for doubtful accounts . . . 13,149 13,747
Federal income tax receivable . . . . . . . . . . . . . . . . . . . . . -- 497
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,605 2,760
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . 2,322 2,499
-------- --------
21,573 21,789
EQUIPMENT
Pagers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,453 59,003
Communications equipment. . . . . . . . . . . . . . . . . . . . . . . . 55,556 49,134
Security systems' equipment . . . . . . . . . . . . . . . . . . . . . . 14,128 12,897
Office and other equipment. . . . . . . . . . . . . . . . . . . . . . . 13,381 11,454
-------- --------
141,518 132,488
Less allowance for depreciation . . . . . . . . . . . . . . . . . . . . (73,134) (50,718)
-------- --------
68,384 81,770
GOODWILL AND OTHER ASSETS, net of amortization . . . . . . . . . . . . . 209,804 208,157
-------- --------
$299,761 $311,716
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,778 $ 10,452
Other accrued expenses and liabilities. . . . . . . . . . . . . . . . . 17,377 13,264
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . 1,656 --
-------- --------
36,811 23,716
LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,088 148,691
DEFERRED CREDITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 5,660
STOCKHOLDERS' EQUITY
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 129
Additional capital. . . . . . . . . . . . . . . . . . . . . . . . . . . 182,049 180,694
Retained deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . (91,743) (45,714)
Less treasury stock at cost . . . . . . . . . . . . . . . . . . . . . . (1,575) (1,460)
-------- --------
88,862 133,649
-------- --------
$299,761 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- ------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Service revenues . . . . . . . . . . . . . . $ 24,910 $21,460 $ 73,472 $ 63,402
Product sales. . . . . . . . . . . . . . . . 4,458 4,017 14,888 11,052
-------- -------- -------- --------
Total revenues . . . . . . . . . . . . . . . 29,368 25,477 88,360 74,454
Net book value of products sold. . . . . . . (2,726) (3,307) (9,909) (9,443)
-------- -------- -------- --------
26,642 22,170 78,451 65,011
COST OF SERVICES
Pager lease and access services. . . . . . . 7,434 6,184 21,884 17,408
Security systems' equipment services . . . . 341 292 1,242 882
-------- -------- -------- --------
7,775 6,476 23,126 18,290
-------- -------- -------- --------
GROSS MARGIN . . . . . . . . . . . . . . . . 18,867 15,694 55,325 46,721
EXPENSES
Sales and marketing. . . . . . . . . . . . . 4,359 3,890 12,841 11,805
General and administrative . . . . . . . . . 6,683 5,862 19,772 17,206
Depreciation and amortization. . . . . . . . 15,897 9,630 49,014 26,762
Nonrecurring charges (credits) . . . . . . . (200) 26 6,350 7,400
-------- -------- -------- --------
26,739 19,408 87,977 63,173
-------- -------- -------- --------
OPERATING LOSS . . . . . . . . . . . . . . . (7,872) (3,714) (32,652) (16,452)
OTHER INCOME (EXPENSE)
Interest and other income. . . . . . . . . . 64 20 201 234
Interest expense . . . . . . . . . . . . . . (4,649) (3,670) (13,405) (11,316)
-------- -------- -------- --------
(4,585) (3,650) (13,204) (11,082)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES . . . . . . . . . . (12,457) (7,364) (45,856) (27,534)
Income tax expense . . . . . . . . . . . . . . . 6 124 173 224
-------- -------- -------- --------
NET LOSS . . . . . . . . . . . . . . . . . . $(12,463) $(7,488) $(46,029) $(27,758)
-------- -------- -------- --------
-------- -------- -------- --------
NET LOSS PER SHARE . . . . . . . . . . . . . . . $ (0.99) $ (0.65) $ (3.65) $ (3.10)
-------- -------- -------- --------
-------- -------- -------- --------
WEIGHTED AVERAGE SHARES. . . . . . . . . . . . 12,638 11,572 12,613 8,962
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
PRONET INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
-------- ---------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(46,029) $ (27,758)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,092 16,763
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,922 9,999
Amortization of discount . . . . . . . . . . . . . . . . . . . . . 53 42
Provision for losses on accounts receivable. . . . . . . . . . . . 1,455 1,084
Provision for settlement costs . . . . . . . . . . . . . . . . . . 4,000 --
Changes in operating assets and liabilities:
Increase in trade accounts receivable . . . . . . . . . . . . . . (830) (3,674)
Increase in inventories . . . . . . . . . . . . . . . . . . . . . (720) (1,159)
(Increase) decrease in other current assets . . . . . . . . . . . 675 (2,395)
Decrease in other assets. . . . . . . . . . . . . . . . . . . . . -- 5,476
Increase in trade payables and
other accrued expenses and liabilities . . . . . . . . . . . . . 12,008 2,771
-------- ---------
Net cash provided by operating activities. . . . . . . . . . . . . 19,626 1,149
INVESTING ACTIVITIES:
Purchase of equipment, net . . . . . . . . . . . . . . . . . . . . (6,979) (11,768)
Purchase of pagers, net of disposals . . . . . . . . . . . . . . . (14,486) (24,132)
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . (14,114) (76,703)
Computer system software, product enhancements
and other intangible assets . . . . . . . . . . . . . . . . . . . (6,254) (934)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366 (390)
-------- ---------
Net cash used in investing activities. . . . . . . . . . . . . . . (41,467) (113,927)
FINANCING ACTIVITIES:
Bank debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,000 67,000
Sale of common stock - net . . . . . . . . . . . . . . . . . . . . -- 94,800
Payment on bank debt . . . . . . . . . . . . . . . . . . . . . . . -- (48,000)
Debt financing costs . . . . . . . . . . . . . . . . . . . . . . . -- (8,948)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 (294)
-------- ---------
Net cash provided by financing activities. . . . . . . . . . . . . 23,052 104,558
-------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . 1,211 (8,220)
CASH AND CASH EQUIVALENTS:
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . 2,286 10,154
-------- ---------
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,497 $ 1,934
-------- ---------
-------- ---------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 nine month
period ended September 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") for the year ended December 31, 1996 filed with the Securities and
Exchange Commission (the "SEC") on March 28, 1997 and May 1, 1997, respectively.
GOODWILL AND OTHER ASSETS: Goodwill and other assets consist of the
following (in thousands):
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------- ---------
Goodwill......................... $ 171,927 $ 164,786
FCC licenses..................... 34,674 34,665
Other............................ 37,795 31,003
--------- ---------
244,396 230,454
Less accumulated amortization.... (34,592) (22,297)
--------- ---------
$ 209,804 $ 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.
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.
4
<PAGE>
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997
NOTE B - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------- ---------
Senior subordinated notes.... $ 99,444 $ 99,391
Revolving line of credit..... 72,300 49,300
--------- ---------
171,744 148,691
Less current maturities...... (1,656) --
--------- ---------
$ 170,088 $ 148,691
--------- ---------
--------- ---------
NOTE C - DEFERRED CREDITS
Deferred credits consist of the following (in thousands):
SEPTEMBER 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.
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 G - 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.
5
<PAGE>
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997
NOTE D - ACQUISITIONS (CONTINUED)
The pro forma unaudited results of operations for the nine months ended
September 30, 1997 and 1996 are not materially different from the historical
results and therefore are not presented.
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 - PENDING MERGER
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 based on
the market value of ProNet's Common Stock on August 8, 1997. Metrocall will
also assume all of 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 transaction 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.
NOTE F - INCOME TAXES
For the three and nine months ended September 30, 1997, the primary
difference 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.
6
<PAGE>
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997
NOTE G - 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 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 entered into an agreement effective May 14, 1997 to settle the
pending securities class actions. The Company, its insurance carriers and its
former underwriters will pay $8.25 million to claims against the defendants. The
Company has agreed to pay $1.7 million of this amount. In addition, the Company
will issue one million shares of the Company's Common Stock to the class. 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
transactions which results in a "change of control" of the Company. The proposed
settlement is subject to court approval. The proposed settlement will resolve
all disputes to the litigation.
On September 24, 1997, the United States District Court for the Northern
District of Texas preliminarily approved the proposed settlement. The Court set
a hearing on the parties' joint motion for entry of a final judgement approving
the settlement for November 19, 1997.
On August 13, 1997, the Company and certain of its directors were named in
a class action complaint in the Court of Chancery for the State of Delaware in
and for New Castle County. The case is styled, JERRY KRIM V. PRONET INC., ET
AL., C.A. No. 15873. In this action, the plaintiff alleges that the Company's
stockholders will receive inadequate consideration in connection with the
Company's proposed merger with Metrocall. The plaintiff further alleges various
breaches by the director defendants in connection with the proposed merger. The
defendants view the complaint as meritless and on September 5, 1997, filed a
motion to dismiss the plaintiff's complaint. That motion is pending before the
Court.
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 that 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 September 30, 1997, the Company had
1,426,274 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 2.7% 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
8
<PAGE>
resellers is lower than for direct sales due 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 nine 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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Revenues
Service revenues . . . . . . . . . . . . . . $23,389 $19,998 $ 68,796 $ 59,134
Product sales. . . . . . . . . . . . . . . . 4,447 3,999 14,869 11,012
------- ------- -------- --------
Total revenues. . . . . . . . . . . . . . . . . . 27,836 23,997 83,665 70,146
Cost of products sold. . . . . . . . . . . . (2,718) (3,303) (9,901) (9,439)
------- ------- -------- --------
Net revenues (1). . . . . . . . . . . . . . . . . 25,118 20,694 73,764 60,707
Cost of services . . . . . . . . . . . . . . (7,434) (6,184) (21,884) (17,408)
------- ------- -------- --------
Gross margin. . . . . . . . . . . . . . . . . . . 17,684 14,510 51,880 43,299
Sales and marketing expenses . . . . . . . . 4,318 3,847 12,763 11,584
General and administrative expenses. . . . . 6,566 5,662 19,519 16,662
Depreciation and amortization expenses . . . 15,471 9,244 47,784 25,571
Nonrecurring charges . . . . . . . . . . . . (200) 26 6,350 7,400
------- ------- -------- --------
Operating loss. . . . . . . . . . . . . . . . . . $(8,471) $(4,269) $(34,536) $(17,918)
------- ------- -------- --------
------- ------- -------- --------
EBITDA. . . . . . . . . . . . . . . . . . . . . . $6,800 $ 5,001 $ 19,598 $ 15,053
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
(1) Net revenues represent revenues from services, rent and maintenance plus
product sales less cost of products sold.
9
<PAGE>
PAGING SYSTEMS' NET REVENUES for the three and nine months ended September
30, 1997 increased 21% to $25.1 million and 22% to $73.8 million,
respectively, from $20.7 million and $60.7 million, respectively, for the
comparable periods in 1996. Service revenues increased 17% and 16%, to $23.4
million and $68.8 million, respectively, for the three and nine months ended
September 30, 1997, compared to $20.0 million and $59.1 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 September 30, 1996 and September
30, 1997. Pagers in service increased 25% to 1,426,274 at September 30, 1997
from 1,142,570 at September 30, 1996. The increase in pagers in service was
primarily the result of internal growth. In 1994, 1995 and 1996, most of the
Company's growth in pagers in service was from acquisitions. In addition,
internal growth accounted for 40,920 units during the quarter ended September
30, 1997, which represents a year over year internal growth rate of
approximately 25%.
ARPU was $5.54 for the quarter ended September 30, 1997 compared to $5.88
for the quarter ended September 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 September 30, 1997 compared to 74% at
September 30, 1996. The Company believes that ARPU will continue to
decrease, although at a slower rate, as the Company continues to expand its
indirect distribution channel.
PRODUCT SALES LESS NET BOOK VALUE OF PRODUCTS SOLD was $1.7 million and
$5.0 million for the three and nine months ended September 30, 1997, compared
to $696,000 and $1.6 million for each of the comparable periods in 1996. The
increase in 1997 is 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 on pager sales may vary from market to market due to
competition and other factors.
PAGING SYSTEMS' GROSS MARGIN (net revenues less cost of services) was
$17.7 million (70% of paging systems' net revenues) and $51.9 million (70% of
paging systems' net revenues) for the three and nine months ended September
30, 1997, compared to $14.5 million (70% of paging systems' net revenues) and
$43.3 million (71% of paging systems' net revenues) for the comparable
periods in 1996. The decrease in gross margin as a percentage of paging
systems' net revenues for the nine months ended September 30, 1997 was due to
increased expenses related to the buildout of existing and acquired
frequencies in its marketplaces, primarily consisting of salaries and tower
rent, offset by lower telephone costs. The Company currently anticipates
that these margins will remain constant in the short term, and 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 costs.
The cost of services increased to $7.4 million and $21.9 million for the
three and nine months ended September 30, 1997, compared to $6.2 million and
$17.4 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 $4.3 million (17% of
paging systems' net revenues) and $12.8 million (17% of paging systems' net
revenues) for the three and nine months ended September 30, 1997, compared to
$3.8 million (19% of paging systems' net revenues) and $11.6 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 if the Company expands its retail distribution channel.
PAGING SYSTEMS' GENERAL AND ADMINISTRATIVE EXPENSES were $6.6 million
(26% of paging systems' net revenues) and $19.5 million (27% of paging
systems' net revenues) for the three and nine months ended September 30,
1997, compared to $5.7 million (27% of paging systems' net revenues) and
$16.7 million (27% 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 September 1996 into the SuperCenter structure, as well as the
increase in the number of acquired retail store locations referred to
10
<PAGE>
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.
PAGING SYSTEMS' DEPRECIATION AND AMORTIZATION EXPENSES for the three and
nine months ended September 30, 1997 increased 67% to $15.5 million and 87%
to $47.8 million, respectively, from $9.2 million and $25.6 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 AND CREDITS were $(200,000) and $6.4
million, respectively, for the three and nine months ended September 30,
1997. The nonrecurring charge for the nine months ended September 30, 1997
represents costs related to the settlement of pending litigation and
consisted primarily of settlement, legal and accounting costs associated with
the settlement. Nonrecurring charges were $26,000 and $7.4 million for the
three and nine months ended September 30, 1996, respectively. 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 $6.8 million (27% of paging
systems' net revenues) and $19.6 million (27% of paging systems' net
revenues) for the three and nine months ended September 30, 1997, compared to
$5.0 million (24% of paging systems' net revenues) and $15.1 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 achieves resulting economies of scale and operating efficiencies.
SECURITY SYSTEMS' RESULTS OF OPERATIONS FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1996 1997 1996
-------- -------- ------ ------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Revenues
Service revenues $1,521 $1,462 $ 4,676 $4,268
Product sales 11 18 19 40
------ ------ ------- ------
Total revenues 1,532 1,480 4,695 4,308
Cost of products sold (8) (4) (8) (4)
------ ------ ------- ------
Net revenues (1) 1,524 1,476 4,687 4,304
Cost of services (341) (292) (1,242) (882)
------ ------ ------- ------
Gross margin 1,183 1,184 3,445 3,422
Sales and marketing expenses 41 43 78 221
General and administrative expenses 117 200 253 544
Depreciation and amortization expenses 426 386 1,230 1,191
------ ------ ------- ------
Operating income $ 599 $ 555 $ 1,884 $1,466
------ ------ ------- ------
------ ------ ------- ------
EBITDA $1,025 $ 941 $ 3,114 $2,657
------ ------ ------- ------
------ ------ ------- ------
</TABLE>
(1) Net revenues represent revenues from services, rent and maintenance plus
product sales less cost of products sold.
11
<PAGE>
SECURITY SYSTEMS' TOTAL REVENUES increased 4% to $1.5 million and 9% to
$4.7 million for the three and nine months ended September 30, 1997, from
$1.5 million and $4.3 million for the comparable periods in 1996. The
increase was due to the installation of two new systems since September 30,
1996, as well as expansion of and additional penetration in existing markets.
The number of TracPacs in service decreased 5% to 27,229 at September 30,
1997, from 28,710 at September 30, 1996.
SECURITY SYSTEMS' OPERATING INCOME was $599,000 and $1.9 million for the
three and nine months ended September 30, 1997, compared to $555,000 and $1.5
million for the same periods in 1996. The increase in operating income for
the three and nine months ended September 30, 1997 resulted primarily from
increased revenues and decreased sales and marketing and general and
administrative expenses.
EBITDA for the security systems' operations was $1.0 million (67% of
security systems' net revenues) and $3.1 million (66% of security systems'
service revenues) for the three and nine months ended September 30, 1997,
compared to $941,000 (64% of security systems' net revenues) and $2.7
million (62% 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 and nine months ended September 30, 1997 from prior periods
primarily due to increased borrowings 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 nine months ended September 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 $19.6 million for the nine months ended
September 30, 1997, compared to net cash provided by operating activities of
$1.1 million for the comparable period in 1996. The increase in net cash
provided by operating activities was primarily due to increases in the net
loss offset by increases in depreciation and amortization, trade payables and
other accrued expenses and liabilities and decreases in other assets.
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.
12
<PAGE>
CAPITAL EXPENDITURES
As of September 30, 1997, the Company had invested $114.0 million in
system equipment and pagers for its major metropolitan markets and $14.1
million in system equipment and TracPacs for its 34 security systems.
Capital expenditures for paging systems' equipment was $6.6 million for
the nine months ended September 30, 1997 compared to $10.9 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 nine months ended September 30, 1997 was
$363,000 compared to $821,000 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 September 30, 1997, the Company anticipates capital expenditures
for the remainder of 1997 to be $500,000 for the purchase of system equipment
for its current paging systems operations and $100,000 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. At September 30, 1997, the Company had
approximately $2.9 million of available funds under the Credit Facilities.
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.
13
<PAGE>
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 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.
PENDING MERGER
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 all of 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 transaction 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.
LITIGATION
The final outcome of the issues subject to litigation as described in
"Item 1 - Legal Proceedings" and "Note F - Litigation" to the Consolidated
Financial Statements could have a material adverse effect on the Company's
results of operations during fiscal year 1997 or subsequent periods.
14
<PAGE>
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 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 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 entered into an agreement effective May 14, 1997 to settle
the pending securities class actions. The Company, its insurance carriers and
its former underwriters will pay $8.25 million to claims against the
defendants. The Company has agreed to pay $1.7 million of this amount. In
addition, the Company will issue one million shares of the Company's Common
Stock to the class. 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 transactions which results in a change of "control" of
the Company. The proposed settlement is subject to court approval. The
proposed settlement will resolve all disputes to the litigation.
On September 24, 1997, the United States District Court for the Northern
District of Texas preliminarily approved the proposed settlement. The Court
set a hearing on the parties' joint motion for entry of a final judgement
approving the settlement for November 19, 1997.
On August 13, 1997, the Company and certain of its directors were named
in a class action complaint in the Court of Chancery for the State of
Delaware in and for New Castle County. The case is styled, JERRY KRIM V.
PRONET INC., ET AL., C.A. No. 15873. In this action, the plaintiff alleges
that the Company's stockholders will receive inadequate consideration in
connection with the Company's proposed merger with Metrocall. The plaintiff
further alleges various breaches by the director defendants in connection
with the proposed merger. The defendants view the complaint as meritless and
on September 5, 1997, filed a motion to dismiss the plaintiff's complaint.
That motion is pending before the Court.
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).
17
<PAGE>
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).
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).
18
<PAGE>
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, 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 and 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).
10.39 - Amendment to Option Agreement dated as of August 29, 1997 between
Metrocall, Inc. and the Company (filed as an exhibit to
Metrocall's Form 8-K dated September 8, 1997, and incorporated
herein by reference).
(b) - Reports on Form 8-K: No Current Reports on Form 8-K were filed by
the Company during the quarter ended September 30, 1997.
- ------------------------
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: November 14, 1997 By: /s/ Jan E. Gaulding
------------------------------------------
Jan E. Gaulding
SENIOR VICE PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
20
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION NUMBER
- ------- ----------- ------
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
<PAGE>
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).
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 Jeffery 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).
<PAGE>
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 CCI, Apple Communication, Inc.,
and Salvatore Zarcone and Jill DiFoggio (filed as an exhibit to the
Company's Current Report on Form 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, CCI, 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 Form 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, 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, 1995.
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.
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.
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 and 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).
<PAGE>
10.39 - Amendment to Option Agreement dated as of August 29, 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).
27* - Financial Data Schedule.
- --------------------------
* Filed herewith.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,497
<SECURITIES> 0
<RECEIVABLES> 14,103
<ALLOWANCES> 954
<INVENTORY> 2,605
<CURRENT-ASSETS> 21,573
<PP&E> 141,518
<DEPRECIATION> 73,134
<TOTAL-ASSETS> 299,761
<CURRENT-LIABILITIES> 35,155
<BONDS> 171,744
0
0
<COMMON> 131
<OTHER-SE> 88,731
<TOTAL-LIABILITY-AND-EQUITY> 299,761
<SALES> 88,360
<TOTAL-REVENUES> 88,360
<CGS> 9,909
<TOTAL-COSTS> 33,035
<OTHER-EXPENSES> 87,977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,405
<INCOME-PRETAX> (45,856)
<INCOME-TAX> 173
<INCOME-CONTINUING> (46,029)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,029)
<EPS-PRIMARY> (3.65)
<EPS-DILUTED> (3.65)
</TABLE>
