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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________to ________
COMMISSION FILE NUMBER 0-17316
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 64-0518209
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 SOUTH LAMAR STREET 39201
MTEL CENTRE, SOUTH BUILDING (ZIP CODE)
JACKSON, MISSISSIPPI
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code: (601) 944-1300
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
None REGISTERED
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share,
together with associated rights to purchase
Series C Junior Participating Preferred Stock
(Title of class)
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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 [_]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant:
$400,192,305 as of March 3, 1997
Indicate the number of shares of each of the Registrant's classes of common
stock, as of the latest practicable date:
54,457,855 shares of Common Stock, par value $.01 per share, outstanding as
of March 3, 1997.
Documents incorporated by reference in this Annual Report on Form 10-K:
Portions of the definitive proxy statement relating to the 1997 Annual
Meeting of Stockholders in Part III, Items 10 (as related to Directors), 11,
12 and 13.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10- K or any
amendment to this Form 10-K. [_]
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TABLE OF CONTENTS
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PART I
Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 16
Item 3. Legal Proceedings................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............... 17
Executive Officers of the Registrant.................................. 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters................................................................... 18
Item 6. Selected Financial Data........................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 20
Item 8. Financial Statements and Supplementary Data....................... 31
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...................................................... 31
PART III
Item 10. Directors and Executive Officers of the Registrant............... 31
Item 11. Executive Compensation........................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and Management... 31
Item 13. Certain Relationships and Related Transactions................... 31
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedules and
Reports on Form 8-K....................................................... 32
Index to Consolidated Financial Statements............................ F-1
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PART I
Certain statements set forth in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 constitute forward looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and are
subject to the safe harbor created by such section. When appropriate, certain
factors that could cause results to differ materially from those described in
the forward looking statements are enumerated. As a result, this Annual Report
on Form 10-K, including the Consolidated Financial Statements and the notes
thereto, should be read in its entirety for a complete understanding of such
factors.
ITEM 1. BUSINESS
GENERAL
Mobile Telecommunication Technologies Corp. ("Mtel" or the "Company") is a
leading provider of nationwide and international one-way wireless messaging
services in the United States and selected international markets. In September
1995, Mtel also commenced commercial operation of the first advanced messaging
network in the United States that utilizes spectrum allocated by the Federal
Communications Commission ("FCC") for narrowband personal communications
services ("PCS"). Mtel's strategy is to maintain its leadership position by
serving as a high quality, single source provider of one-way and advanced
messaging services and continuing to develop and provide innovative, value-
added services. As of December 31, 1996, Mtel had approximately 1,307,400
units in service worldwide, which represents an increase of 25.6% over the
approximately 1,040,700 units in service as of December 31, 1995, and includes
approximately 1,083,200 SkyTel domestic one-way units, 29,800 advanced
messaging units on the narrowband PCS network and 194,400 international one-
way messaging units on a proportionate basis.
Mtel, through its wholly-owned subsidiary, SkyTel Corp. ("SkyTel"), provides
one-way messaging services in thousands of towns and cities in the United
States by means of SkyTel's ground-based transmitter system, leased satellite
facilities and proprietary messaging technology and software utilizing two
dedicated channels on the 931 MHz frequency (collectively, the "931 MHz
Frequencies") licensed by the FCC. As part of its strategic focus, Mtel has
sought to become a single source provider of one-way messaging services to
mobile professionals, many of whom have needs for local and regional one-way
messaging services in addition to nationwide and international services. To
facilitate this strategy, Mtel offers regional and local coverage options,
primarily through contractual arrangements with a substantial number of the
commercial mobile radio service providers in the United States.
In September 1995, the Company commenced commercial operation of the
narrowband PCS network which currently provides coverage in approximately 220
metropolitan statistical areas ("MSAs") in the United States covering
approximately 75% of the population. The narrowband PCS network is a location
independent network that utilizes a proprietary system architecture designed
and developed by Mtel. Services on the narrowband PCS network currently
include interactive two-way services and fixed location services, and the
Company plans to begin offering advanced text messaging services on the
narrowband PCS network in the second quarter of 1997.
Mtel operates or has investments in joint ventures that operate nationwide
one-way messaging systems in 13 countries in Latin America, including
Argentina, Colombia, Mexico and Peru, and four countries in the Asia Pacific
region. As of December 31, 1996, Mtel had approximately 194,400 international
one-way messaging units in service, which reflects its proportionate share of
units placed in service by its joint ventures as well as units placed in
service by its consolidated subsidiaries. Mtel also provides its subscribers
with access to an international network using Mtel's proprietary technology
that interconnects the systems operated by the Company's international
subsidiaries and joint ventures with the systems in the United States, the
Bahamas, Bermuda, Canada, and Singapore.
Mtel was incorporated in Delaware on October 21, 1988. On November 18, 1988,
Mtel (then a wholly-owned subsidiary of Mobile Communications Corporation of
America ("MCCA")) succeeded by merger to the businesses and assets of COM/NAV
Marine, Inc., also a wholly-owned subsidiary of MCCA. On April 4, 1989,
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MCCA distributed all of the then outstanding shares of Common Stock of Mtel,
par value $.01 per share ("Common Stock"), to the stockholders of MCCA
immediately prior to the acquisition by BellSouth Corporation of MCCA's local
and regional paging operations and cellular radio telephone interests.
Unless the context otherwise requires, references to Mtel or the Company
herein include Mobile Telecommunication Technologies Corp. and its
subsidiaries. Mtel's executive offices are located at 200 South Lamar Street,
Mtel Centre, South Building, Jackson, Mississippi, 39201 and its telephone
number is (601) 944-1300.
Set forth below is a description of the Company's businesses. The Company's
businesses have been classified into four industry segments: One-Way
Messaging, Advanced Messaging, International and Other. See Note 11 of Notes
to Consolidated Financial Statements for certain financial information
concerning these industry segments.
ONE-WAY MESSAGING
One-Way Messaging Products and Services. SkyTel provides one-way messaging
services in thousands of cities and towns in the United States by means of
SkyTel's ground based transmitter system, leased satellite facilities and
proprietary messaging technology and software utilizing the 931 MHz
Frequencies. SkyTel provides to its subscribers numerous service benefits,
including a fully redundant network that helps ensure system reliability, an
expanded product offering that includes both local and regional service along
with its established nationwide and international service, centralized 24-hour
customer service and centralized in-house billing that provides tailored
billing options to meet individualized customer needs.
The Company's principal one-way messaging services in the United States are
marketed under the names SkyPager(R) for numeric paging service, SkyWord(R)
for alphanumeric messaging service and SkyTalk(R) for digital voice message
storage and retrieval services. A subscriber for one-way messaging services
may obtain numeric or alphanumeric service on a local, regional, nationwide or
international basis, with regional coverage in six regions, three of which
correspond to the Eastern, Central and Western (which includes both the
Mountain and Pacific) time zones and three of which provide coverage in the
Southwest, Midwest and Southeast regions of the United States. SkyTel also
offers several additional one-way messaging coverage options, including Metro
local service, which provides one-way messaging coverage over one of twenty-
one zones in the United States, and Nationwide Now, which allows a local,
zonal or regional customer of one-way messaging services to obtain nationwide
coverage on demand for specified periods of time. Currently, a majority of
one-way subscribers receive numeric display service, although alphanumeric
service constitutes a growing component of the SkyTel one-way customer base.
For the years ended December 31, 1996, 1995 and 1994, one-way messaging
operations in the United States accounted for approximately 89%, 92% and 92%
of the consolidated revenues of the Company, respectively.
As part of its strategic focus, SkyTel has sought to become a single source
messaging provider to business users, many of whom have needs for local and
regional one-way messaging services in addition to nationwide and
international services. To facilitate this strategy, in February, 1995, Mtel
acquired United States Paging Corporation ("USPC") which provides one-way
local and regional messaging services through contractual arrangements with a
substantial number of the commercial mobile radio service providers in the
United States to a customer base comprised primarily of corporations requiring
service in multiple locations. USPC also provides customized, value-added
services which are not generally offered by local or regional paging
companies, such as single point of contact for all sales, service and support
nationwide, optimum selection of radio frequency coverage to maximize service
for each customer's specific area of travel and service, centralized and
customized nationwide billing and computerized automatic messaging for
centralized dispatch.
SkyTel has integrated its communications technology with the Internet by
offering both a World Wide Web site and Internet gateway. The web site
(www.skytel.com) provides information on the Company's services worldwide,
permits direct interaction with SkyTel customer support and provides an
Internet solution for
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companies and individuals to originate and send messages to any SkyTel
subscriber. The Internet gateway allows an estimated 70 million e-mail users
to send messages to SkyTel subscribers. The Company estimates that it is
currently delivering approximately 500,000 messages per month to SkyTel one-
way and advanced messaging subscribers via the World Wide Web site and the
Internet e-mail gateway.
SkyTel has also been an innovator in and has devoted significant efforts to
developing one-way wireless messaging services that integrate SkyTel's
communications technology with the latest advances in the computer hardware,
software and information industries. SkyTel's one-way messaging network
supports Lotus cc: Mail and Microsoft Mail, two of the most widely used LAN-
based e-mail systems in the United States. Users of these e-mail systems who
subscribe for SkyTel service can be alerted of or may actually receive
incoming e-mail messages through SkyTel's one-way messaging system without
having to retrieve the messages in the traditional wireline method. SkyTel and
Lotus Development Corp. ("Lotus") also market jointly a pager gateway that
permits users of Lotus' communications software to receive numeric and
alphanumeric messages transmitted through SkyTel's one-way messaging system.
The pager gateway developed by Lotus and SkyTel allows users to filter and
forward e-mail to their wireless receiver and to send message alerts or
changes or additions in the Lotus Notes database.
One-Way Messaging Operations. A person desiring to reach a one-way messaging
subscriber can call a toll-free number (1-800-SKYPAGE for numeric service, 1-
800-SKYGRAM for alphanumeric service or a personal 800 number). The message (a
telephone number or text message) is processed by SkyTel's network operations
computer center and uplinked to a communications satellite. That signal is
then simultaneously broadcast to each downlink in the system and transmitted
to the subscriber on one of SkyTel's frequencies through nationwide
transmitter facilities owned and operated by SkyTel.
SkyTalk(R) is marketed as an additional feature providing customers with
digital voice message storage and retrieval services which permit a caller to
leave a recorded message for a subscriber on the one-way messaging system by
dialing a toll-free number (1-800-SKYTALK). The message is stored in a
voicemail computer. When a message is left, the subscriber is automatically
alerted through the messaging unit and thereafter can retrieve the stored
message by calling the voice message computer utilizing the same toll-free
number. The SkyTalk system can also be accessed from a number of countries
outside the United States by dialing a toll-free telephone number.
SkyTel's proprietary "Universal Messaging System" technology includes
redundant Digital Alpha 8400 computers which are linked together and connected
to a satellite backbone and terrestrial delivery system on a nationwide basis
in accordance with SkyTel's design specifications. In addition, SkyTel
operates its one-way messaging network by means of computer software programs
specially written, developed and enhanced over the years by its software
engineering staff and contract consultants. A key element of SkyTel's
proprietary software is the manner in which the software controls, processes
and delivers messages to subscribers through an international network of
nationwide messaging systems. This software also has the ability to integrate
and process other types of information such as electronic mail and facsimile
messages. SkyTel's software also applies customer usage information to
generate customer bills, and an extensive customer database provides valuable
information regarding the profiles, preferences and characteristics of
SkyTel's direct customers.
All domestic nationwide and regional messages are routed through one of
SkyTel's operations centers located in Washington, D.C. and Jackson,
Mississippi before being transmitted to the satellite uplink. Both operations
centers maintain a full backup power plant and generator. The Washington, D.C.
operations center maintains a direct telephone communications linkup with MCI
Telecommunications Corporation ("MCI"), one of the current vendors of the
Company's 800 services. SkyTel's operations centers are also linked to the
AT&T network for 800 and other services. The operations center in Jackson,
Mississippi also serves as the operations center for the Company's narrowband
PCS and international messaging networks. Local messages are generally routed
through local paging systems operated by third parties which have contracted
with USPC.
The Company leases satellite capacity and the uplink facilities utilized in
the SkyTel one-way messaging system from SpaceCom Systems, Inc. ("SpaceCom")
under an agreement which expires in March 1998, subject
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to renewal by mutual agreement of the parties. The downlink facilities used in
connection with the SpaceCom system are owned by the Company. SkyTel also
leases fully redundant satellite capacity and uplink and downlink facilities
from GTE Corporation ("GTE") on a month-to-month basis, and has an option to
purchase downlink facilities from GTE.
In January, 1995, Mtel acquired the outstanding shares of SkyTel common
stock that Mtel did not own in exchange for Mtel Common Stock (the "SkyTel
Merger"). The SkyTel common stock held by the SkyTel stockholders, other than
Mtel or its direct or indirect subsidiaries (constituting approximately 9.7%
of the outstanding shares of SkyTel common stock), was converted into the
right to receive an aggregate of approximately 3.4 million shares of Mtel
Common Stock in the SkyTel Merger. As a result of this transaction, all of the
issued and outstanding shares of SkyTel common stock are beneficially owned by
Mtel. See Note 5 of Notes to Consolidated Financial Statements.
ADVANCED MESSAGING
Overview. In September 1995, the Company launched commercial service of its
nationwide narrowband PCS network which enables subscribers to send and
receive messages without the need to know the location of the sender or
receiver at the time of transmission. The narrowband PCS network utilizes a
proprietary system architecture designed and developed by Mtel incorporating
low-power subscriber equipment transmission technology. The Company has
designed the narrowband PCS network to be open to developers of software and
services that address the growing wireless communications market. This open
architecture strategy is designed to stimulate the development of products and
applications to increase volume on the narrowband PCS network and encourage
direct sales and marketing support by such developers.
Narrowband PCS Products and Services. The narrowband PCS network may be
accessed by dialing a toll-free number and is currently operational in
approximately 220 MSAs in the United States covering approximately 75% of the
population. The Company's introduction of the narrowband PCS network featured
an interactive two-way messaging capability, which was enhanced in mid-1996
with the introduction of the SkyWriter(TM) messaging device designed and
developed for the Company by Wireless Access, Inc. ("Wireless Access"). The
SkyWriter(TM) device allows subscribers to compose and send text messages from
the device through a unique user friendly interface and makes peer-to-peer
data communications possible for the first time.
Each messaging device on the narrowband PCS network also has a unique
Internet e-mail address that allows subscribers to originate or respond
directly from the device or through any Internet e-mail package. SkyTel's
World Wide Web site provides subscribers with message origination
capabilities, message status checking and reply redirection. SkyTel's PC and
Macintosh based software, SkyTel Access(TM), also provides message
origination, retrieval and management functions, and messaging capabilities
have also been integrated with the Hewlett-Packard 100/200LX and is being
integrated with the Microsoft Windows CE palmtop systems.
The Company plans to introduce SkyWord Plus(TM), an advanced text messaging
service on the narrowband PCS network in the second quarter of 1997. This
service will ensure message delivery through system confirmation of delivery
from the network operations center and a store and forward platform. If a
customer is in transit between two markets and temporarily out of coverage,
any messages will be stored and automatically delivered to the customer when
he or she is back in coverage. The advanced text messaging service will also
be equipped with a feature that will automatically detect errors in message
transmission and provide for retransmission of the message, as well as the
ability to change subscriber profiles and add or delete services through over
the air programming commands without the need to send the messaging device
back for reprogramming. The Company has been working with Motorola, Inc.
("Motorola") to design and develop the messaging device for its advanced text
messaging service.
In 1997, the Company will also be pursuing opportunities on the narrowband
PCS network afforded by fixed wireless applications. Fixed wireless
applications will generally utilize the narrowband PCS network in off-peak
hours and can be implemented with little or no network modification.
Applications currently under development include vending machine monitoring,
Kiosk management systems and gas pipeline transmission monitoring.
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During 1997, the Company intends to continue its efforts to establish
alliances with industry leaders to develop fixed wireless applications and to
work with hardware manufacturers to develop fixed wireless transceivers and
interface devices.
SkyTel has also entered into joint development and marketing alliances with
several companies that the Company believes will expand the capabilities and
potential applications of its advanced messaging services. In 1996, the
Company developed SkyTel Messenger(TM) for Windows CE in close collaboration
with Microsoft Corporation ("Microsoft"). SkyTel Messenger(TM) enables
customers to integrate the communications features of a handheld PC based on
Windows CE with the narrowband PCS network. SkyTel has recently concluded
agreements with three Microsoft licensed manufacturers of handheld PC's, Casio
Computer Co., Ltd., Compaq Computer Corporation and Phillips Electronics North
America Corporation, to co-market the Company's advanced messaging services
with these products.
The Company is continuing its efforts to optimize and expand the
functionality and applications of the narrowband PCS network. For example,
SkyTel offers a software development kit that allows software developers,
corporations and partners to develop unique and differentiated applications
that maximize the advanced messaging capabilities of the narrowband PCS
network. In addition, the Company is pursuing alliances and joint development
and marketing efforts with leading operating system software developers,
application software developers, database and information service providers
and hardware vendors in an effort to meet the advanced messaging needs of the
mobile professional.
The Company intends to focus its marketing efforts in 1997 on increasing the
commercial acceptance of the advanced messaging services available on the
narrowband PCS network. Mtel also intends to continue to target market
segments with diverse messaging requirements, such as corporate users,
business travelers and users of portable and handheld personal computers, for
purposes of marketing its advanced messaging services on the narrowband PCS
network. However, two-way wireless data services available to date have had
only modest market acceptance, mostly in specialized vertical market
applications. Mtel believes this is due to slower user acceptance of new
technologies and services, limited applications, large subscriber devices and
high costs associated with other two-way data services.
System Description; Technology. The narrowband PCS network is a location
independent nationwide network. The Company believes that the network draws
competitive advantages from its technology and infrastructure, its user-
friendly advanced messaging platform, and its network operations center and
intuitive applications. The network operations center manages network traffic
flow, connectivity to information service providers and other databases, and
customer profiles and accounts. Another important feature of the narrowband
PCS network is extended battery usage, which is achieved by the messaging
protocol and characteristics of the proprietary system architecture
incorporated into the narrowband PCS network.
Over-the-air transmissions on the narrowband PCS network utilize an
innovative multi-carrier modulation technology. The narrowband PCS network has
demonstrated transmission rates in excess of 24,000 bits per second for
forward network links. This compares with 2,400 bits per second typically
utilized at present by many one-way paging systems. The higher transmission
speed provides increased system capacity. The narrowband PCS network operates
with synchronized transmitters on the same frequency within a given coverage
area to optimize building penetration and reduce power requirements.
The development of the narrowband PCS network has required the application
of numerous technological innovations in order to develop base transmitters,
receivers and control equipment, software and subscriber equipment. The
Company has worked in conjunction with Motorola to design and develop the
transmitters, controllers, receivers and messaging units for the narrowband
PCS network, and joint efforts to improve the performance of the network
infrastructure equipment are continuing. The Company is also continuing to
work with Motorola and Wireless Access to design and develop the next
generation of messaging devices with advanced functionality for use on the
narrowband PCS network.
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As is the case with the development and introduction of new technology,
consumer acceptance of the technology may be slow and commercially acceptable
performance levels on a consistent basis may require a period of stabilization
and optimization of the network. The Company believes that system performance
following commercial launch in September 1995 affected the level of customer
acceptance of the advanced messaging services available on the Company's
narrowband PCS network. The Company continued its efforts during 1996 to
optimize and improve the reliability and performance of the narrowband PCS
network, and has worked extensively with Motorola to improve components of the
infrastructure equipment which the Company believes has also enhanced network
performance. During 1996, the Company also expanded the coverage of the
narrowband PCS network in major metropolitan areas to meet customer needs, and
plans to continue to expand network coverage during 1997. The Company believes
that improved network performance, reliability and coverage, together with new
product offerings and more effective distribution, will result in increasing
levels of units in service on the narrowband PCS network during 1997. However,
the Company's ability to achieve adequate levels of net unit additions on the
narrowband PCS network will depend upon the success of the direct, reseller
and other distribution channels, the commercial acceptability of the advanced
messaging services that will be available on the narrowband PCS network and
the competitive environment, including pricing, for competing services. See
Note 2 of Notes to Consolidated Financial Statements for a discussion of
certain risks and uncertainties regarding the narrowband PCS network.
PCS Licenses. In July 1994, the FCC awarded the Company the first narrowband
PCS license for the deployment and commercialization of a two-way, nationwide
wireless data network in the United States pursuant to a Pioneer's Preference.
The Company also acquired two additional paired nationwide narrowband PCS
licenses in an auction held by the FCC in late July 1994 for a purchase price
of $127.5 million. The narrowband PCS network currently operates on one of
these paired channels. The Company believes that the use of paired channels
enhances the efficiency of the narrowband PCS network by permitting the
segregation of inbound and outbound traffic, and that such additional spectrum
will allow the narrowband PCS network to provide a wider range of services to
the public, including longer message length, bulk airtime applications and
other services which may be developed in the future.
The issuance of the Company's initial narrowband PCS license pursuant to the
Pioneer's Preference was conditioned by the FCC, among other things, upon the
payment of a license fee in the amount of approximately $33.0 million. Mtel
filed an appeal challenging the condition requiring payment for this license,
and in March 1996 the United States Court of Appeals for the D.C. Circuit
issued a decision upholding the FCC's authority under the Communications Act
of 1934, as amended (the "Communications Act"), to impose such a fee. However,
the Court remanded the matter to the FCC for consideration of the propriety of
imposing such a fee in light of Mtel's reliance on the FCC's public
pronouncements that no such fee would be imposed and the granting by the FCC
of other paging licenses without the imposition of any fee. Payment for this
license will not be required to be made unless and until such litigation is
finally resolved adversely to Mtel. Mtel does not currently utilize the
frequency covered by this license.
INTERNATIONAL
Mtel's international strategy has been to develop one-way messaging systems
in foreign countries where opportunities exist for significant growth and
profitability. Mtel believes that the underdeveloped telecommunications
infrastructure, excellent growth potential and fragmented local competition
existing in many of these countries provides a significant opportunity for the
Company. Mtel also believes that expansion into international markets enhances
one-way messaging coverage to its customers who travel on an international
basis, leverages existing proprietary systems and resources and improves
economies of scale.
The Company's international development efforts have been focused primarily
on the construction and operation of one-way nationwide messaging systems in
Latin America. Mtel Latin America, Inc. ("Mtel Latam") serves as the holding
company for the Company's Latin American operations and investments and
conducts one-way messaging operations through wholly-owned subsidiaries in
Argentina, Puerto Rico and Uruguay and through a 98% owned subsidiary in
Colombia. As of December 31, 1996, Mtel Latam also owned
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equity interests in joint ventures that conduct one-way messaging operations
in Mexico (49%), Peru (45%), Venezuela (50%), the Dominican Republic (50%), El
Salvador (50%) Ecuador (50%), Guatemala (50%), Paraguay (40%) and Brazil
(19%), although the interest in Brazil was sold by Mtel Latam in the first
quarter of 1997. Mtel Latam intends to continue to pursue development efforts
in this region and to focus on acquisitions which will enable the Company to
gain market share and achieve economies of scale in the more populous
countries in Latin America. See "Management's Discussions and Analysis of
Financial Condition and Results of Operations--International."
The following table sets forth information as of December 31, 1996 regarding
Mtel Latam's operations and investments:
MTEL SYSTEMS
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DECEMBER 31, 1996
APPROXIMATE ---------------------
POPULATION ACTUAL PROPORTIONAL
(IN MTEL COMMENCEMENT OF UNITS IN UNITS IN
COUNTRY MILLIONS) PARTNER OWNERSHIP OPERATIONS SERVICE SERVICE
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Mexico 95.8 Radio Telefonia Movil 49.0% February 1992 95,071 46,585
Metropolitana
S.A. de C.V.(1)
Brazil(2) 162.7 Victori Comunicacoes 19.0% July 1993 158,610 30,136
S.A.
Paraguay 5.5 BEPSA Communications 40.0% February 1993 19,348 7,739
S.R.L.
Argentina 34.7 N/A 100.0% April 1994 26,729 26,729
Costa Rica 3.5 Inversiones Comesal, 75.0% Planned for 1997 N/A N/A
S.A. de C.V.
Colombia 36.8 N/A 98.0%(3) June 1994 20,944 20,525
Peru 24.5 Tele 2000 S.A. 45.0% October 1994 11,167 5,025
Ecuador 11.5 Isaias Group 50.0% May 1995 10,466 5,233
El Salvador 5.8 Inversiones Comesal, 50.0% Planned for 1997 N/A N/A
S.A. de C.V.
Guatemala 11.3 Europeos, S.A. 50.0% October 1995 10,938 5,468
Uruguay(4) 3.2 Radio Aviso, S.A. 100.0% September 1995 4,170 3,753
Dominican Republic 8.1 Transmissiones y 50.0% October 1996 978 489
Proyecciones, S.A.
Puerto Rico(5) 3.8 N/A 100.0% October 1996 1,420 1,420
Venezuela 22.0 Telecomunicaciones 50.0% November 1995 3,792 1,896
Movilnet
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(1) A wholly owned subsidiary of Grupo Televisa, a media and
telecommunications conglomerate based in Mexico City.
(2) The interest in the joint venture in Brazil was sold by Mtel Latam in the
first quarter of 1997 for an aggregate purchase price of $14.3 million.
(3) Senior management owns the remaining interest.
(4) A 90% interest in a paging operation in Uruguay was acquired in September
1995 and the remaining 10% was acquired in the first quarter of 1997.
(5) The Company's subsidiary in Puerto Rico serves as an exclusive reseller
and system manager of SkyTel.
In September 1996, the Company completed the sale of a 20% equity interest
in Mtel Latam to Newbridge Latin America, L.P. ("Newbridge") for an aggregate
purchase price of $35 million. Approximately $10.2 million of the net proceeds
from the sale of the equity interest in Mtel Latam to Newbridge was paid to
the Company as reimbursement for amounts invested in the Latin American
operations during 1996. The remainder of the net proceeds from such sale are
being used to fund capital expenditures, working capital requirements,
acquisitions and additional development efforts of Mtel Latam in this region.
The equity interest sold to Newbridge consists of 20% of the outstanding
common stock (the "Latam Common Stock") and 20% of the outstanding cumulative
redeemable variable rate preferred stock (the "Latam Preferred Stock") of Mtel
Latam. The holders of Latam Preferred Stock, including the Company, are
entitled to receive cumulative dividends which will accrue at an annual rate
of 12%, compounded annually, increasing one percent on each anniversary of the
date of original issuance of the Latam Preferred Stock (the "Closing Date")
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up to a maximum annual rate of 15%, which dividends are payable in additional
shares of Latam Preferred Stock. Newbridge is entitled to preemptive rights in
the event of the sale by Mtel Latam of additional equity securities, tag-along
rights in the event of the sale of equity securities of Mtel Latam by the
Company or any permitted transferee of the Company, and piggy-back
registration rights.
Newbridge is entitled to elect two of the eight directors comprising the
Mtel Latam Board until such time as Newbridge disposes of more than 10% of the
Latam Common Stock originally purchased by Newbridge, or Newbridge's voting
interest on a fully-diluted basis is less than 12% of the total voting power
of the Latam Common Stock outstanding. Notwithstanding the foregoing,
Newbridge is entitled to elect one director to the Mtel Latam Board until such
time as Newbridge disposes of more than 50% of the Latam Common Stock
originally purchased by Newbridge, or Newbridge's voting interest on a fully-
diluted is less than 5% of the total voting power of the Latam Common Stock
outstanding. The approval of seven of the eight members of the Board of
Directors of Mtel Latam is required to approve certain matters, including the
annual business plan of Mtel Latam, the appointment or removal of the chief
executive officer, chief operating officer and chief financial officer of Mtel
Latam, the incurrence of indebtedness in excess of $15 million and certain
fundamental corporate transactions such as the merger or sale of substantially
all of the assets of Mtel Latam or any material subsidiary.
The Latam Preferred Stock is convertible, at the option of Newbridge, into
shares of Latam Common Stock at a per share conversion price equal to the per
share purchase price paid by Newbridge in September 1996 for the Latam Common
Stock. The Latam Common Stock is also exchangeable, at the option of
Newbridge, into shares of Common Stock of the Company upon the occurrence of
certain events, including the occurrence of a change in control of the
Company, the completion of a public offering by Mtel Latam that results in the
Company owning less than 40% of Mtel Latam, or at any time following the
fourth anniversary of the Closing Date if the Board of Directors of Mtel Latam
denies the request of Newbridge to undertake an initial public offering and
Mtel Latam does not undertake to arrange a sale of the Mtel Latam equity
securities owned by Newbridge for fair market value. Mtel Latam may require
Newbridge to exchange the Latam Common Stock for shares of Common Stock of the
Company at such time as Newbridge is no longer entitled to elect any directors
of Mtel Latam, at any time after the sixth anniversary of the Closing Date if
Mtel Latam has not completed an initial public offering of at least 35% of the
outstanding shares of Latam Common Stock, or at any time after the seventh
anniversary of the Closing Date if the Company owns 40% or more of Mtel Latam,
and Mtel Latam has not sold all or substantially all of its assets, merged
with another entity whereby Mtel Latam is not the surviving entity or
completed an initial public offering of at least 35% of the outstanding shares
of Latam Common Stock. The number of shares of Common Stock of the Company
issuable in the event of such an exchange would be based on the fair market
value of the Latam Common Stock being exchanged.
The sale of the equity interest in Mtel Latam to Newbridge required the
Company to designate Mtel Latam as an "unrestricted subsidiary" for purposes
of SkyTel's bank credit facility and the indenture relating to the Company's
13.5% Senior Subordinated Discount Notes due 2002. As a result of this
designation, Mtel Latam will be required to finance its operations and
development efforts independent of the Company. Mtel Latam will be required to
engage in additional debt or equity financings in order to fund its capital
requirements and development efforts, and there can be no assurance that Mtel
Latam will be able to complete any additional financings on terms acceptable
to Mtel Latam. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--International."
The Company also conducts one-way messaging operations in Hong Kong through
a wholly-owned subsidiary and owns equity interests in joint ventures that
conduct such operations in Indonesia (19%), Malaysia (25%) and the Philippines
(40%). In addition, the Company owns a 49% equity interest in a joint venture
that manages the one-way messaging network in the Shanghai Province of the
Peoples Republic of China which is expected to commence commercial operations
in the second quarter of 1997. The Company has determined to reduce its
capital commitments and to restructure or divest its operations in the Asia
Pacific region. In addition, the March 1997 amendment to SkyTel's bank credit
facility requires the Company to raise at least $10 million in proceeds from
the sale of its operations and investments in the Asia Pacific region on or
before December 31, 1997. Each of the Company's joint venture agreements in
the Asia Pacific region contain rights of first refusal or other restrictions
or conditions on the transfer of the Company's interests in such joint
ventures, and the Company cannot predict the extent to which these
restrictions will effect the Company's ability to restructure or
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divest its investments in this region. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--Impairment Loss" for information regarding the impairment loss
recorded for the year ended December 31, 1996 relating to the Company's
investments in the Asia Pacific region.
In July 1996, the Company, in conjunction with the other shareholders of
Mercury Paging Ltd. ("MPL") completed the sale of all the outstanding shares
of MPL, including the Company's 29% equity interest in MPL, for an aggregate
purchase price of $26.4 million. The Company's interest in MPL was considered
a non-strategic asset because MPL did not operate on the 931 MHz frequency.
The Company also owns and operates an international network which
interconnects one-way messaging systems on the 931 MHz frequency in various
countries utilizing Mtel's proprietary messaging software. The Company's
international network currently interconnects the systems in the United
States, Mexico, Argentina, Brazil, Canada, Colombia, Hong Kong, Indonesia,
Malaysia, Peru, Singapore, Bermuda, the Bahamas, the Dominican Republic,
Ecuador, Paraguay, Venezuela, Uruguay and Guatemala. The Company believes that
its international network differentiates its services from those of its
competitors, but does not expect that revenues from international traffic will
be material.
The international operations of the Company's subsidiaries and joint
ventures have generated operating losses to date. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations "and "--Liquidity and Capital Resources--International."
Mtel's international operations and investments are generally subject to the
risks of political, economic or social instability, including the possibility
of expropriation, confiscatory taxation or other adverse regulatory or
legislative developments, limitations on the removal of investment income,
capital and other assets (including fees charged by Mtel for licensed
technology), inflation and exchange rate fluctuations. Mtel's international
operations and joint ventures also experience significant competition in the
countries in which they operate. Mtel cannot predict whether any of such
factors will occur in the future or the extent to which such factors would
have a material adverse effect on Mtel's international operations, and the
existence of any such factors will be taken into account in determining
whether to continue the Company's international development efforts in any
country. Mtel's international operations and joint ventures are generally
subject to regulation and require governmental authorizations in the countries
in which such operations are conducted, and changes in such regulation, the
enactment of legislation or the allocation of spectrum for competing services
could adversely affect Mtel's international operations and investments.
OTHER SERVICES
As of December 31, 1996, the Company provided telephone answering services
("TAS") to approximately 6,000 customers in eight cities. To receive TAS, the
subscriber's telephone line is call forwarded to a computer or to a
switchboard at one of the Company's answering service bureaus, enabling an
operator to answer the subscriber's telephone. Service is available on an 8,
12 or 24 hour basis or as otherwise needed. For the year ended December 31,
1996, TAS operations accounted for approximately 1.8% of the consolidated
revenues of the Company.
TAS is a mature business which the Company believes has less growth
potential than the Company's other businesses. In addition, TAS operations are
more labor intensive as compared to the Company's other businesses. As a
result, the Company has determined to divest its TAS operations and entered
into an agreement in principal to sell all of the Company's TAS assets for an
aggregate purchase price of approximately $4.6 million. The completion of the
TAS sale is subject to the execution of a definitive acquisition agreement.
The Company was one of the eight original equity participants in American
Mobile Satellite Corporation ("AMSC") and was the beneficial owner of
approximately 2.0% of the outstanding shares of common stock of AMSC as of
December 31, 1996. AMSC provides mobile telephone, fax and data services to
the land mobile, maritime, aeronautical and fixed site market through its
mobile satellite system. In 1996 and 1995, the Company sold a portion of its
shares of AMSC common stock resulting in total proceeds of $8.9 million and
$3.8 million, respectively.
The Company is also the beneficial owner of convertible preferred stock
which is convertible into approximately 4.0% of the common stock of Wireless
Access, a company engaged in the business of developing
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wireless integration for mobile computing. Wireless Access has designed and
developed advanced messaging units for the Company's narrowband PCS network.
MARKETING
Customers of SkyTel's one-way and advanced messaging services are generally
professional and management personnel, government agencies and many of the
corporations in the Fortune 1000 whose personnel travel extensively and
require access to important information. SkyTel has established a direct
marketing and sales capability, developed marketing arrangements with selected
unaffiliated resellers, including local and regional paging companies, and
entered into joint development and marketing agreements with selected
companies.
Direct Sales. Through its direct sales force, SkyTel focuses on serving as a
single source provider of local, regional and nationwide one-way and advanced
messaging services, as well as one-way international messaging services, to
large corporate and national accounts. The Company believes that its efforts
to establish a highly-professional, dedicated, advanced application oriented
direct sales force differentiates SkyTel from its competitors. As of December
31, 1996, SkyTel maintained a direct sales presence in more than 30
metropolitan areas. SkyTel intends to significantly expand its direct sales
force in 1997.
SkyTel's direct sales efforts have been successful in achieving higher
average revenues per one-way messaging unit in service than many of its
competitors. The Company believes this is due, in part, to its highly trained
direct sales force, in addition to its value-added sales approach which
contributes to the Company's high nationwide alphanumeric product mix and
field based customer support resources. In addition, the Company has
established an intense training program for its sales personnel which the
Company believes will enhance their ability to market and sell advanced
messaging products and applications on the narrowband PCS network. The Company
also believes that SkyTel's 24-hour customer service has reinforced the
success of its direct sales efforts.
SkyTel has historically experienced disconnect rates for one-way messaging
units placed in service by its direct sales channel that were comparable to
industry standards. However, in 1996 these disconnect rates increased as a
result of capacity constraints on the one-way network. Although, management
has undertaken significant efforts to reduce the disconnect rate of the SkyTel
direct sales channel in 1997, the Company cannot predict the extent to which
such efforts will be successful since this will be dependent on competitive
and other factors, some of which may be beyond the control of SkyTel. Further,
there can be no assurance that SkyTel will not experience an increase in its
disconnect rate in 1997, and any such increase could adversely affect the
Company's results of operations.
SkyTel also generates direct sales through its telemarketing group located
in Jackson, Mississippi, which generally responds to inquiries generated by
its national advertising and promotional programs, focuses on outbound sales
calls to smaller companies and mobile professionals and qualifies corporate
account leads for referral to SkyTel's direct corporate account sales force.
SkyTel also maintains an airport marketing program utilizing kiosks located
inside airport terminals to provide services to frequent travelers and capture
leads for follow-up by the corporate account and telemarketing sales forces.
SkyTel currently operates from two locations in the Atlanta Hartsfield
International Airport as well as locations in the Cincinnati, Salt Lake City
and San Jose airports.
Resellers. SkyTel's one-way messaging services are also distributed through
approximately 125 resellers which market such services from over 425 sales
locations. The reseller distribution channel is administered by a dedicated
management team through the Company's Destineer Corp. subsidiary. Resellers of
SkyTel's regional and nationwide one-way messaging services generally purchase
service in bulk quantities at wholesale rates, and include major companies
such as McCaw RCC Communications, Inc. d/b/a AT&T Wireless Services ("AT&T"),
MCI, AirTouch Paging, Ameritech Mobile Services, Inc., Arch Communications
Group, Inc., Bell Atlantic Paging, Inc., American Paging, Inc., ProNet, Inc.
and GTE, many of which offer SkyTel's one-way messaging services in
conjunction with paging services provided on their own paging systems.
Resellers are generally responsible for all customer support, billing,
collection and equipment acquisition and maintenance costs. As a result,
acquisition costs for units placed in service by resellers are significantly
lower than the costs incurred for units placed in service by the Company's
direct sales channel. Approximately 35%, 34% and 28%
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of SkyTel's revenues for the years ended December 31, 1996, 1995 and 1994,
respectively, were attributable to one-way messaging units placed in service
by resellers. The Company's agreements with resellers are generally for one to
three year terms and are automatically renewed for additional one-year periods
unless terminated by either party upon at least 90 days' written notice prior
to the expiration of the then current term.
Net unit additions on the SkyTel one-way messaging network in 1996 were
significantly affected by higher than expected disconnect rates in the
reseller distribution channel, particularly MCI. The Company restructured its
distribution arrangement with MCI in the fourth quarter of 1996 in an effort
to improve the quality of MCI's sales and to focus exclusively on corporate
customers. The restructured relationship provides for separate charges for
airtime and the unbundling of certain support services that were previously
included as components of the reseller product offering. In addition, the
Company is no longer required to lease paging units to MCI which will reduce
the acquisition costs to the Company of units placed in service through this
channel. The unbundled support services continue to be made available by the
Company for an additional charge. The Company has extended the pricing model
made available to MCI to other resellers and is making the advanced messaging
products on the Company's narrowband PCS network available for distribution by
the reseller channel. The Company entered into new reseller agreements in the
first quarter of 1997 with approximately thirty resellers, including AT&T,
AirTouch Paging, Bell Atlantic Paging, Inc. and American Paging, Inc. Although
the Company believes that these restructured reseller distribution agreements
and the availability of advanced messaging products on the narrowband PCS
network will result in higher net unit additions by the reseller channel in
1997, there can be no assurance in this regard or that the Company will
experience improved disconnect rates in the reseller channel.
Retail Channel. In late 1995, the Company began distributing its one-way and
advanced messaging services through a distribution agreement with Sony
Wireless Telecommunications Company ("Sony"). Under the agreement, the Sony's
sales organization sells SkyTel's one-way and advanced messaging services
through its network of consumer electronic retailers. In 1996, the Company
introduced a line of Sony branded one-way numeric paging products that will
only be available with SkyTel one-way messaging services and a new service
that does not require a monthly fee and provides customers a prepaid, packaged
solution with a fixed number of messages. At December 31, 1996, the Company's
services were being distributed in approximately 1,700 consumer retail outlets
in the United States, including Staples, Office Depot, Comp USA and selected
Target locations, pursuant to the distribution agreement with Sony.
Alternate Distribution Channels. In 1996, SkyTel used individual sales
agents to sell and distribute its services in major metropolitan areas
throughout the United States. The Company is undertaking efforts in 1997 to
improve the profitability of sales and reduce the disconnect rate attributable
to this distribution channel. SkyTel has also developed a sales channel that
focuses on selling to the trade association marketplace.
Advertising and Marketing Alliances. SkyTel supports the marketing efforts
of its direct sales force and resellers with advertising and sales support in
broadcast and print media, trade shows, events, direct mail and telephone
marketing. In addition, SkyTel has conducted joint marketing programs with
companies that provide other services to similar target audiences and has
recently begun to enter into several joint development and marketing
agreements with manufacturers of palmtop and handheld computers.
SkyTel's one-way and advanced messaging subscribers and resellers are billed
monthly for service and for equipment rental, when applicable. Subscribers may
also purchase their own equipment. The Company offers various service packages
based on the type of services selected by the subscriber, which generally
include a predetermined number of messages per month, for a fixed monthly
charge. Messages which exceed the prescribed monthly amount are charged on a
per message block or per character basis. International coverage can be
obtained for an additional charge. The Company also offers a variety of other
services in addition to its one-way and advanced messaging services such as
SkyTalk and SkyQuote (a stock market quotation service) for an additional
charge. The term of SkyTel's service contracts vary and, in certain cases, may
be terminable by either party upon 30 days' notice after an initial term,
although a number of large customers have service contracts for fixed terms.
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COMPETITION
The SkyTel one-way messaging system operates on one of the three Commercial
Mobile Radio Services ("CMRS") frequencies originally allocated by the FCC
specifically for common carrier nationwide network one-way messaging services.
SkyTel commenced operation in 1993 of additional transmission facilities on a
second frequency in virtually all markets in which SkyTel's first CMRS
frequency is operational. A nationwide one-way messaging system on one of the
three CMRS frequencies originally allocated for nationwide common carriage by
the FCC is also operated by MobileMedia Communications, Inc. ("MobileMedia")
in most markets in which the SkyTel one-way messaging system provides service,
utilizes MobileMedia's existing local and regional one-way paging network and
competes directly with SkyTel. Motorola operates the third CMRS nationwide
common carrier frequency, but does not offer traditional nationwide one-way
messaging service on its system. Motorola offers one-way electronic mail
service to portable receivers (a service which has been discontinued for new
subscribers), as well as a sports score service.
A number of other companies (including AT&T, Paging Network, Inc.
("PageNet"), AirTouch Paging and certain Bell operating companies) are
offering nationwide or expanded regional services that compete directly with
SkyTel's one-way and advanced messaging services. Certain of these companies
have succeeded in establishing a significant market presence. In addition,
several of these companies currently resell SkyTel one-way messaging services,
and the Company cannot predict the extent to which competing nationwide or
expanded regional one-way messaging services provided by such resellers will
affect SkyTel's subscriber base.
The Company believes that competition for subscribers for nationwide one-way
messaging services in the United States has historically been based primarily
on the quality and breadth of service offered, the geographic area covered by
the system and, more recently, on price. The Company believes that the quality
of service of the SkyTel one-way messaging system compares favorably with that
of its competitors and that SkyTel's geographic coverage is comparable to the
coverage of most of its competitors. The Company also believes that
competitors offering or planning to offer nationwide one-way messaging
services in the United States will continue to emphasize pricing as a
significant competitive factor.
Certain of SkyTel's competitors in the United States such as AT&T, PageNet
and certain Bell operating companies possess substantially greater financial
resources than the Company and this could have a substantial competitive
impact on SkyTel.
The Company acknowledges that cellular telephone service may be perceived as
being competitive with SkyTel's one-way and advanced messaging services.
However, the Company believes that for its primary target market, the mobile
professional, certain inconveniences associated with cellular roaming are
overcome by using nationwide messaging as a complement to cellular service.
Nationwide messaging service provides instant notification and screening of
calls without the need to know the party's location, and offers ease of use
and longer battery life. The calls can then be returned via the cellular
telephone at the convenience of the user, thereby minimizing expensive roamer
access fees and long-distance call charges. The Company further believes that
the complementary aspects of the two services are demonstrated by the fact
that certain cellular providers are resellers of SkyTel's services and that a
significant portion of SkyTel's customers are also cellular users.
In 1994, the FCC held its first spectrum auction which included ten
nationwide narrowband PCS licenses. Certain companies such as AT&T and PageNet
acquired multiple frequencies in such auction, as did the Company. In
addition, the FCC has completed auctions of regional narrowband PCS spectrum.
Four companies acquired licenses in each of the five regions and, as a result,
will be able to interconnect all five regions and provide nationwide
narrowband PCS service. The FCC plans to auction additional narrowband PCS
spectrum in 1997 covering smaller service areas, and these smaller service
areas may be aggregated to provide effective nationwide or regional coverage.
The Company believes that the companies which acquired narrowband PCS spectrum
may offer services similar to the Company's narrowband PCS network, although
Mtel cannot predict when such competing services will be available. PageNet
has announced that it plans to utilize its narrowband PCS spectrum to provide
a portable voice messaging service and expects to introduce this service in
selected markets in 1997. The Company cannot predict the extent to which
PageNet's voice service will compete with the one-way and advanced messaging
services provided by the Company.
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Over the last two years, the FCC has conducted three separate auctions for
broadband PCS spectrum, resulting in the issuance of more than 2,000 broadband
PCS licenses. Although broadband PCS was designed primarily for two-way voice
communications, many broadband PCS licensees are offering paging as a
supplemental service available on their networks. Although the Company
believes that narrowband PCS is better suited for data messaging services than
broadband PCS, the Company cannot predict the extent to which the paging
services provided by broadband PCS licensees will effectively compete with the
one-way and advanced messaging services provided by the Company.
The Company also expects to experience competition from companies providing
wireless messaging services based on technology that is different from the
Company's technology, including: (i) the existing two-way data networks
operated by Ardis and RAM; (ii) specialized mobile radio services ("SMR") such
as Nextel Communications Corporation's ESMR network; and (iii) cellular
digital packet data ("CDPD"), a protocol to send data over existing analog
cellular networks. SMR and existing two-way services primarily offer
integrated vertical dispatch applications (used in taxi, courier and trucking
services) and have indicated that they intend to offer mobile telephone,
dispatch, alphanumeric type messaging and wireless data from the same device.
The FCC is continuing an aggressive program of allocating additional
spectrum for new wireless services and is proposing that licensees of spectrum
for these new services be given maximum flexibility in determining the uses
for such spectrum. The Company cannot predict the extent to which licensees of
this additional spectrum will compete with the Company.
Continuing technological advances in the communications industry, as well as
potential regulatory and legislative developments such as the availability of
additional spectrum, make it impossible to predict the extent of future
competition in the businesses in which Mtel operates. Such technological
advances and regulatory and legislative developments may, for example, make
available other alternatives to the services provided by the Company, thereby
creating additional sources of competition. In addition, future entrants into
the market which possess significantly greater financial resources than Mtel
could have a significant, adverse competitive impact upon the Company.
The Company's international subsidiaries and joint ventures generally
experience significant competition in the international markets in which such
subsidiaries and joint ventures operate. In many countries, the markets are
generally characterized by fragmented, local messaging providers and
competition is based primarily on price.
REGULATION
SkyTel's one-way and advanced messaging operations in the United States, as
well as most of Mtel's other domestic businesses, are subject to regulation by
the FCC under the Communications Act, and may be conducted only on frequencies
assigned by the FCC for use by the Company. SkyTel's one-way messaging
operations are currently conducted on the 931 MHz Frequencies. The Company's
narrowband PCS network currently operates on a paired channel in the 940-941
MHz frequency band, which is one of the two licenses acquired by the Company
in the FCC's first auction of nationwide narrowband PCS spectrum held in July
1994.
In July 1994, the FCC also awarded the Company an unpaired narrowband PCS
license pursuant to a Pioneer's Preference. However, the issuance of the
Company's initial nationwide narrowband PCS license was conditioned by the FCC
upon the payment of a license fee in the amount of $33.0 million. The FCC also
conditioned the license upon Mtel substantially using the innovative
technology for which it was granted the Pioneer's Preference and upon Mtel
meeting certain coverage requirements. This FCC license also restricts Mtel
from transferring control of the license for a period of three years or until
certain coverage requirements are met. Mtel filed an appeal challenging the
condition requiring payment for this license, and in March 1996 the United
States Court of Appeals for the D.C. Circuit issued a decision upholding the
FCC's authority under the Communications Act to impose such a fee. However,
the Court remanded the matter to the FCC for consideration
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of the propriety of imposing such a fee in light of Mtel's reliance on the
FCC's public pronouncements that no such fee would be imposed and the granting
by the FCC of other paging licenses without the imposition of any fee. Payment
for this license will not be required to be made unless and until such
litigation is finally resolved adversely to Mtel. Mtel does not currently
utilize the frequency covered by this license.
The FCC has adopted rules generally revising the classification of licensees
of land mobile radio services. Traditionally, the FCC has classified licensees
of land mobile radio services as either common carriers or private mobile
carriers. Pursuant to the FCC's rules, all land mobile radio licensees are
classified either as CMRS licensees or Private Mobile Radio Service licensees.
Those carriers, like the Company and its competitors, who make service
available to the public on a for-profit basis through interconnection with the
public switched telephone network, are classified as CMRS licensees. The
Company believes that these rules will have the effect of removing certain
regulatory advantages that private mobile carriers have enjoyed to date.
In 1994, the FCC adopted rules pursuant to which the FCC will utilize
competitive bidding to select CMRS licensees when more than one entity has
timely filed an application for the same license. These competitive bidding
rules could require that FCC licensees make significant investments in order
to obtain spectrum.
The FCC recently adopted rules regarding the licensing of non-nationwide
paging frequencies. These rules provide for the grant of non-nationwide paging
frequencies on a geographic area basis rather than on a transmitter-by-
transmitter approach previously used by the FCC. SkyTel's second frequency
will be subject to these geographic licensing rules, and the acquisition of
this second frequency in any geographic area in which SkyTel does not
currently operate on this frequency may require SkyTel to participate in an
FCC auction. SkyTel will not be required to participate in an auction in order
to retain its existing licenses on the second frequency at the time such
licenses become subject to renewal.
The FCC has allocated spectrum in the 901-902 MHz, 930-931 MHz, and 940-941
MHz frequency bands for narrowband PCS services. In a separate phase of that
same proceeding, the FCC allocated spectrum in the 1.8-1.9 GHz band for
broadband PCS, which involves primarily two-way mobile voice and data
services. See "Competition."
The FCC licenses for SkyTel's one-way nationwide messaging operations expire
in 1999, and the nationwide narrowband PCS licenses expire in 2004. The
Company's other FCC licenses are subject to renewal on various dates through
2004. The FCC's rules provide that a licensee has an "expectancy of renewal"
if its past record of operation for the term of the license demonstrates that
the licensee has provided "substantial" service (as defined in such rules) and
the licensee has substantially complied with the Communications Act and the
rules and policies of the FCC promulgated thereunder. The Company believes
that it has satisfied such requirements to date and that it would be entitled
to an "expectancy of renewal" with respect to each of its licenses if such
licenses were currently subject to renewal. The FCC rules provide for the
continuing effectiveness of licenses when renewal applications have been filed
in a timely manner. All FCC licenses may be revoked and license renewal
applications may be denied for cause.
The FCC is involved in several rulemaking proceedings involving
interconnection, access reform and a universal service fund which could impact
the operating costs of the Company in providing one-way and advanced messaging
services. These rulemaking proceedings are expected to be completed in 1997,
and the Company cannot predict the extent to which such rulemaking proceedings
could adversely affect the Company. The FCC also recently adopted rules which
impose additional costs on interexchange carriers for toll-free calls
initiated from pay telephones and provide that interexchange carriers may pass
on such costs to the beneficiaries of such services like the Company. The
FCC's rulemaking proceeding has been appealed to the United States Court of
Appeals for the D.C. Circuit. The Company cannot predict if such rules will be
upheld by the Court and, if upheld, the extent to which such rules will impact
the Company.
The Telecommunications Act of 1996 (the "1996 Act") authorizes the FCC to
auction toll-free 800 and 888 numbers. Toll-free numbers are currently
available without charge, except for certain minor administrative fees.
Although there is uncertainty whether such auctions will, in fact, be
conducted, such auctions could have the effect of increasing the operating
costs of the Company's one-way and narrowband PCS networks.
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The Communications Act prohibits an alien from serving as an officer or
director of, and prohibits aliens and foreign governments or representatives
thereof from owning more than a 20% equity interest in, a company such as Mtel
which directly holds FCC licenses. In the event that the Company transfers all
of the FCC licenses which it directly holds to one or more of its
subsidiaries, the Communications Act would generally not permit aliens and
foreign governments or their representatives to own more than a 25% equity
interest in the Company.
On February 15, 1997, the World Trade Organization, Group on Basic
Telecommunications, adopted certain principles regarding foreign ownership of
companies in the telecommunications industry. Fifty-four countries adopted the
U.S. sponsored Regulatory Reference Paper that calls for an increase in
international competition in the telecommunications industry. Although the 20%
limitation on direct foreign ownership under the Communications Act will
remain in effect, the U.S. sponsored Regulatory Reference Paper provides that
a foreign entity organized in a country that adopted the Regulatory Reference
Paper may acquire up to a 100% ownership interest in an FCC licensee through a
wholly-owned, intermediate entity if the country in which the foreign entity
is organized grants reciprocal rights.
The 1996 Act limits the ability of state public utility or public service
commissions to regulate intrastate wireless messaging services. As a result,
states are limited in regulating entry through indirect obstacles and will be
restricted in applying RF emission standards different from those adopted on a
federal level.
The Company's international subsidiaries and joint ventures generally
require governmental authorizations in each country to provide local,
nationwide and international messaging services. In addition, the Company is
required in certain countries to obtain governmental approvals prior to making
an investment in a subsidiary or joint venture.
Changes in the regulation of or the enactment of legislation affecting
Mtel's domestic or international operations or the allocation of spectrum for
services that compete with such businesses could adversely affect Mtel's
results of operations.
SOURCES OF EQUIPMENT
The satellite capacity and most components of the infrastructure equipment
which the Company uses in providing its one-way and advanced messaging
services generally are available from multiple sources, and the Company
anticipates that such satellite capacity and equipment will be available in
sufficient quantities in the foreseeable future. Certain types of messaging
units used on the one-way and narrowband PCS networks are available only from
a single source, although the Company believes that such messaging units will
be available in sufficient quantities as required by the Company. The Company
is working with Motorola and Wireless Access to develop the next generation of
advanced messaging units for use on the narrowband PCS network, and the
Company cannot predict the extent to which it may experience delays in the
delivery of such messaging units.
TRADEMARKS, PATENTS AND COPYRIGHTS
The Company holds a number of United States trademarks and service marks,
including the following federally registered marks: MOBILE TELECOMMUNICATION
TECHNOLOGIES CORP.; MTEL; SKYTEL; SKYPAGER; SKYQUOTE and SKYTALK. In addition,
the Company owns common law rights in the United States to a number of other
marks and holds a number of pending applications for trademarks and service
marks in the United States, including: DESTINEER; NATIONWIDE NOW; SKYTEL 2-WAY
and SKYTEL ACCESS. The Company also holds numerous registrations and pending
applications for its trademarks and service marks throughout the world,
including countries in which it has international operations.
The Company holds several United States patents related to various aspects
of its telecommunications businesses. For example, in 1992, the Company was
issued a United States patent for the national paging control computer
subscriber interface equipment that it uses in connection with the SkyTel one-
way messaging system.
15
<PAGE>
The Company also holds a United States patent for a mobile paging call-back
system. This technology integrates portable cellular radio telephones with
paging (including nationwide paging) and permits incoming paging calls to be
displayed on cellular telephones. The subscriber can then complete a telephone
call to the displayed number by touching only one button on the cellular
telephone. The Company was recently notified that it would be granted another
United States patent covering networks and services that use this integrated
cellular telephone/pager technology. The Company also holds several United
States patents and patent applications relating to air-to-ground and ground-
to-air telephone calling systems and services.
The Company has filed various patent applications with the United States
Patent and Trademark Office, including applications relating to paging
networks and services, the narrowband PCS network and advanced messaging
services. The Company also holds patents and patent applications to protect
its technologies in several foreign countries. The Company is the copyright
owner of works of authorship it has created on its behalf, including computer
software, brochures, advertisements, manuals and similar materials.
EMPLOYEES
The Company and its subsidiaries employed a total of approximately 2,970
full and part-time personnel as of December 31, 1996, none of whom is
represented by organized labor.
ITEM 2. PROPERTIES
The Company currently leases a total of approximately 154,088 square feet of
office space in the Mtel Centre complex in Jackson, Mississippi which serves
as the Company's principal executive offices (the "Mtel Centre Complex")
pursuant to a lease entered into in August 1995. The lease for space in the
Mtel Centre Complex has a monthly rental rate of approximately $170,887 and
expires on July 31, 2005. The Company also leases approximately 155,956 square
feet of space in Jackson, Mississippi for customer service, information
services and inventory storage pursuant to leases entered into during the
period from 1991 to 1996. Such leases have an average aggregate monthly rental
rate of $137,916 and begin to expire on June 30, 2002.
SkyTel currently leases approximately 41,200 square feet of office space in
downtown Washington, D.C., pursuant to a lease which commenced on July 1,
1991. The lease term is for ten years and has an average monthly rental rate
of $108,140 plus SkyTel's proportionate share of operating costs and taxes.
SkyTel has the option to renew the lease after June 30, 2001 for one five-year
period at 95% of the then current market rate. In addition, SkyTel leases
approximately 23,870 square feet of office space in New York City having an
average aggregate monthly rental rate of approximately $67,035. The term of
this lease expires on December 31, 1999. The Company is also a party to a
lease for approximately 10,000 square feet of office space in Manchester,
England which was leased in conjunction with its former paging operations in
the United Kingdom. The lease term expires in July 2015 and has a monthly
rental rate of approximately (Pounds) 8,700. Approximately 25% of this office
space is being subleased by the Company.
The Company and its subsidiaries own or lease office space in approximately
31 cities in 15 states which is used in conjunction with its nationwide
messaging and telephone answering service operations. These office leases
provide for monthly rental rates ranging from $450 to $19,000. The Company
also leases antenna sites which are used primarily in conjunction with its
messaging operations. Antenna sites typically comprise relatively few square
feet and are located in most cases on building rooftops, towers or other fixed
structures. As of December 31, 1996, the Company leased approximately 1,933
antenna sites in the United States in connection with its one-way messaging
operations and approximately 3,624 antenna sites for the narrowband PCS
network for monthly rental rates ranging from approximately $50 to $2,000,
which antenna leases are for various terms.
ITEM 3. LEGAL PROCEEDINGS
On February 20, 1997, two stockholders filed a civil complaint in the United
States District Court for the District of Columbia. Kris Lindblom and Jack
Fefer v. Mobile Telecommunication Technologies Corporation, SkyTel
Corporation, J. Robert Fugate, Leonard G. Kriss, M. Bernard Puckett, Thomas G.
Barksdale, Calvin C. LaRoche, Jai Bhagat and John N. Palmer, Civil Action No.
1:97CV00337. The Complaint has two counts, one
16
<PAGE>
alleging violation of Section 10(b) of the Exchange Act against all
defendants, and one claiming violations of Section 20(a) of the Exchange Act
by defendants Mtel, Puckett and Palmer. The plaintiffs seek unspecified
damages and to certify the case as a class action. The Company intends to
vigorously defend the case.
Except as set forth above and described in "Item 1. Business--Advanced
Messaging--PCS Licenses", there are no material legal or regulatory
proceedings involving the Company except license applications and renewals and
other regulatory proceedings incident to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information concerning the executive officers of the
Company as of March 1, 1997. John N. Palmer serves as Chairman of the Board of
the Company for a seven-year term pursuant to an employment agreement with the
Company that commenced as of April 4, 1989. The Company has entered into
employment agreements with John T. Stupka and Jai P. Bhagat which provide for
Mr. Stupka's employment as President and Chief Executive Officer and Mr.
Bhagat's employment as Vice Chairman of the Company for five-year terms that
commenced as of August 1, 1996 and April 4, 1989, respectively. The Company
has also entered into employment agreements with Robert Kaiser, Leonard G.
Kriss, John E. Welsh III and Calvin C. LaRoche that provide for their
employment as officers of the Company for two-year terms that commenced as of
August 15, 1996, February 1, 1993, December 13, 1992 and June 1, 1994,
respectively. Each employment agreement between the Company and its officers
described above provides for a one-year automatic extension of the term at the
end of each year during the term unless the Company or such officer elects not
to have the term so extended.
Jai P. Bhagat, age 50, has served as Vice Chairman of the Company since May
1995 and as Executive Vice President and a Director since October 1988. Mr.
Bhagat is a past Chairman and currently serves on the Board of Directors of
the Personal Communications Industry Association, a national association
representing the mobile communications industry.
Thomas R. Ferguson, age 38, has served as Treasurer of the Company since May
1994. Mr. Ferguson, a certified public accountant, served as Director of
Finance of the Company from August 1991 to May 1994. Prior to joining Mtel,
Mr. Ferguson served as Controller for Gulf States Canners, Inc.
Robert Kaiser, age 42, has served as Senior Vice President-Finance and Chief
Financial Officer of the Company since August 15, 1996. Prior to joining the
Company, Mr. Kaiser served from March 1987 through August, 1996 as Chief
Financial Officer of Southwestern Bell Mobile System, Inc.
Leonard G. Kriss, age 47, has served as a Senior Vice President, General
Counsel and Secretary of the Company since February 1993. Prior to joining the
Company, Mr. Kriss was a practicing corporate attorney and a partner in the
law firm of Jones, Day, Reavis & Pogue which serves as outside legal counsel
for the Company with respect to certain matters.
Calvin C. LaRoche, age 51, has served as a Senior Vice President of the
Company since June, 1993. Mr. LaRoche also served as President and Chief
Executive Officer of Mtel International, Inc. from June 1994 to October 1996.
Prior to joining Mtel, Mr. LaRoche was employed by International Business
Machines Corporation for 24 years, most recently as Director of Strategic
Development.
John N. Palmer, age 62, has served as the Chairman of the Board of Directors
of the Company since October 1988, acting Chief Executive Officer of the
Company from January 4, 1996 until August 1, 1996 and Chief Executive Officer
of the Company from October 1988 to May 1995. Mr. Palmer previously served as
Chairman of the Board, President and Chief Executive Officer of MCCA from 1973
to April 1989.
17
<PAGE>
Robert T. Pike, age 50, has served as Senior Vice President-Human Resources
of the Company since October 1995. Prior to joining Mtel, Mr. Pike was
employed for approximately six years by MCI both as a Director and Vice
President of Human Resources.
John T. Stupka, age 47, has served as President and Chief Executive Officer
of the Company since August 1, 1996. Prior to joining the Company, Mr. Stupka
served as Senior Vice President--Strategic Planning of SBC Communications,
Inc. from August 1995 to August 1996 and as President and Chief Executive
Officer of South-Western Bell Mobile Systems, Inc. from November 1985 to
August 1995.
John E. Welsh III, age 46, has served as Vice Chairman of the Company since
May 1995, acting Chief Financial Officer of the Company from February 1996
until August 15, 1996, Managing Director of the Company since December 1992
and as a Director of the Company since September 1992. Mr. Welsh was a
principal in Seaport Capital, Inc., a financial advisory and merchant banking
firm, from January 1992 to December 31, 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded in the over-the-counter market and
quoted on the Nasdaq Stock Market under the symbol MTEL. As of March 3, 1997,
the Common Stock was held by approximately 3,900 holders of record. The table
below sets forth the reported high and low sales prices for the Common Stock
on the Nasdaq National Market System for the years ended December 31, 1995 and
1996. This information does not include retail mark-ups, mark-downs or
commissions.
<TABLE>
<CAPTION>
1995 1996
--------------- ----------------
HIGH LOW HIGH LOW
------ ----- -------- -------
<S> <C> <C> <C> <C>
First Quarter................................ $23 3/8 $18 3/4 $21 9/16 $13 1/2
Second Quarter............................... 27 7/8 21 7/8 17 1/2 13 3/4
Third Quarter................................ 35 5/8 26 3/8 16 1/8 9 7/8
Fourth Quarter............................... 34 5/16 19 5/8 15 5/8 8 1/2
</TABLE>
The Company has never paid dividends on the Common Stock and does not intend
to pay dividends on the Common Stock in the foreseeable future. The Board of
Directors of the Company intends to retain any earnings to provide funds for
the operation and expansion of the Company's businesses. Certain covenants in
SkyTel's bank credit facility, as amended, and the indenture relating to the
Company's 13.5% Senior Subordinated Discount Notes due 2002 prohibit the
payment of cash dividends on the Common Stock. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Sources of Funds."
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial data for the Company and
should be read in conjunction with the Consolidated Financial Statements,
related notes and other financial information appearing elsewhere in this
Annual Report on Form 10-K. The consolidated statement of operations data and
consolidated balance sheet data for each of the five years in the period ended
December 31, 1996 have been derived from the Consolidated Financial Statements
for those periods. The Company's Consolidated Financial Statements for each of
the five years in the period ended December 31, 1996 have been audited by
Arthur Andersen LLP, independent public accountants, whose report with respect
to the Consolidated Financial Statements as of December 31, 1995 and December
31, 1996 and for each of the years in the three-year period ended December 31,
1996 appears elsewhere in this Annual Report on Form 10-K. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:(1)
Revenues:
One-way messaging......... $ 98,816 $131,595 $150,455 $225,146 $ 311,601
Advanced messaging........ -- -- -- 1,213 9,593
International............. 13,411 80 2,485 10,121 20,289
Other..................... 13,837 12,790 10,330 9,511 9,046
-------- -------- -------- -------- ---------
Total revenues............. 126,064 144,465 163,270 245,991 350,529
Operating income (loss).... 3,938 13,547 (24,579) (58,422) (130,947)
Interest income (expense),
net........................ (2,922) (2,691) 1,758 1,180 (38,915)
Income (loss) before income
taxes and equity income
(loss).................... 2,694 14,949 (21,893) (53,230) (167,200)
Equity in income (loss)
from investments........... (5,418) 2,705 3,849 946 (1,901)
Net income (loss) before
nonrecurring items......... (2,798) 16,963 (19,846) (33,686) (133,054)
Net income (loss).......... $ (2,798) $ 16,963 $(19,846) $(52,027) $(171,822)
Preferred dividend
requirement................ -- (1,697) (8,438) (8,438) (11,595)
Net income (loss) available
to common stockholders.... $ (2,798) $ 15,266 $(28,284) $(60,465) $(183,417)
Income (loss) per common
share...................... $ (0.08) $ 0.39 $ (0.77) $ (1.19) $ (3.38)
CONSOLIDATED BALANCE SHEET
DATA:(1)
Working capital............ $ 53,496 $218,410 $185,551 $(34,934) $ 23,885
Total assets............... 194,434 406,052 715,471 851,414 803,260
Long-term debt............. 99,902 99,398 273,629 333,259 402,491
Total stockholders'
investment................. 75,677 278,717 366,077 423,540 301,395
Total common shares
outstanding................ 34,780 35,818 45,647 54,135 54,404
</TABLE>
- --------
(1) The 1992 through 1994 amounts have been restated to reflect the February
1995 acquisition of United States Paging Corporation which was accounted
for as a pooling-of-interests.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of Mtel for the three years ended December 31, 1996 and
certain factors that will affect Mtel's financial condition. Mtel's principal
operations include SkyTel one-way messaging services in the United States,
advanced messaging services provided on the narrowband PCS network in the
United States and international one-way messaging operations.
In September 1995, the Company commenced commercial operation of its
nationwide narrowband PCS network in the United States. Prior to commencement
of commercial operation, substantially all of the costs of developing and
constructing the narrowband PCS network were capitalized in accordance with
generally accepted accounting principles. Subsequently, the Company has
expensed all costs associated with the operation of the narrowband PCS
network, has begun to depreciate and amortize the infrastructure, spectrum
costs and other capitalized costs, and has discontinued the capitalization of
interest costs associated with borrowings used to fund the construction and
development of the narrowband PCS network. The Company expects to incur net
losses on a consolidated basis in 1997 and 1998, primarily as a result of
losses from and depreciation and amortization related to operations on the
narrowband PCS network. See "Results of Operations--Expenses."
Certain statements set forth in this Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and are subject to the safe harbor created by such section. When
appropriate, certain factors that could cause results to differ materially
from those projected in the forward looking statements are enumerated. This
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto appearing elsewhere in this Annual
Report, on Form 10-K, including Note 2 of Notes to Consolidated Financial
Statements which discusses certain risks and uncertainties involving the
Company's ability to generate future positive operating cash flows and
operating income and the availability of capital resources needed by the
Company to fund its business plans.
RESULTS OF OPERATIONS
Revenues. Consolidated revenues increased 43% in 1996 as compared to 1995
and 51% in 1995 as compared to 1994. Revenues from one-way messaging
operations in the United States increased 38% in 1996 as compared to 1995 and
50% in 1995 as compared to 1994. These increases in revenues were primarily
attributable to increases in the number of one-way paging and voice messaging
units in service in the United States which increased 19% in 1996 as compared
to 1995 and 103% in 1995 as compared to 1994.
The rate of increase in net unit additions was lower in 1996 as compared to
1995, primarily as a result of higher than expected disconnect rates in the
reseller distribution channel, including MCI, and the alternate (primarily
agent) distribution channel. Average revenue per one-way messaging unit in
service decreased slightly in 1996 ($25.78) as compared to 1995 ($27.92),
although average revenue per one-way messaging unit was favorably impacted by
the product mix of units placed in service through SkyTel's direct
distribution channel which generated higher average revenue per unit than
other distribution channels and constituted a significant portion of net unit
additions in 1996.
The Company restructured its distribution arrangement with MCI in the fourth
quarter of 1996 and entered into new agreements with certain other major
resellers in the first quarter of 1997. The Company believes that the revised
terms of these reseller arrangements, which provide for separate charges for
airtime and the unbundling of certain support services that were previously
included as components of the reseller product offering, together with the
availability of new product offerings on the narrowband PCS network in 1997,
will result in increased net unit additions from this distribution channel in
1997. In addition, under the restructured agreement with MCI, the Company is
no longer required to lease paging units to MCI, which will reduce the
acquisition costs to the Company of units placed in service through this
distribution channel and result in additional free cash flow for the Company.
20
<PAGE>
In 1997, the Company intends to emphasize the distribution of a family of
advanced messaging services, including advanced text messaging, two-way
interactive messaging and fixed location services, all of which are expected
to be available beginning in the second quarter of 1997. The Company believes
that the narrowband PCS network provides the Company with the opportunity to
place a substantially higher number of units in service because of
significantly increased network capacity due to higher transmission speed and
spectrum reuse. This increased capacity should permit the Company to achieve
improved cash flow from operations on an incremental basis at such time as the
Company places a sufficient number of advanced messaging units in service to
cover the fixed costs of the narrowband PCS network and operating costs
decline as a percentage of revenues. The ability of the Company to achieve
adequate levels of net unit additions will depend upon the success of the
direct, reseller and other distribution channels, the commercial acceptability
of the advanced messaging services that will be available on the narrowband
PCS network and the competitive environment, including pricing, for competing
services.
In 1994, SkyTel began to offer a bundled package of nationwide and local
messaging services to Fortune 1000 companies in order to further penetrate the
national accounts market and to respond to customer requests for single source
solutions to their messaging needs. In order to facilitate this strategy, in
February 1995, the Company acquired United States Paging Corporation ("USPC")
in a merger in which each share of USPC common stock was exchanged for 0.415
of a share of Mtel Common Stock, or an aggregate of approximately 1.6 million
shares of Mtel Common Stock having a value at the time of the transaction of
approximately $30.5 million. The acquisition of USPC has been accounted for as
a pooling-of-interests and, accordingly, the financial statements of Mtel have
been restated to include the results of USPC for all periods presented.
Mtel's consolidated revenues during the three years ended December 31, 1996
included revenues recorded by the Company's operations in Argentina and
Colombia that commenced nationwide and international one-way messaging
operations on the 931 MHz frequency in April 1994 and June 1994, respectively.
In addition, consolidated revenues in 1995 and 1996 included revenues recorded
by the Company's operations in Hong Kong which commenced commercial operation
in June 1995, and by the Company's operations in Uruguay which were acquired
in September 1995. Consolidated revenues from these operations were $20.1
million, $8.6 million and $1.4 million in 1996, 1995 and 1994, respectively.
In each of the years ended December 31, 1996, 1995 and 1994, revenues from
one-way messaging operations in the United States provided approximately 89%,
92% and 92% of Mtel's consolidated revenues, respectively. Revenues generated
by advanced messaging operations on the narrowband PCS network constituted 3%
of consolidated revenues in 1996 and such revenues were not material in 1995.
Revenues from international one-way messaging operations provided
approximately 6%, 4% and 2% of Mtel's consolidated revenues in 1996, 1995 and
1994, respectively, and other Mtel operations provided approximately 2%, 4%
and 6% of the Company's consolidated revenues in 1996, 1995 and 1994,
respectively.
Expenses. Expenses include operating expenses, selling, general and
administrative expenses and depreciation and amortization.
Operating Expenses. Operating expenses primarily consist of salaries,
telephone costs and transmitter and receiver site rentals associated with the
Company's one-way and narrowband PCS operations in the United States and one-
way international messaging operations, as well as expenses associated with
the maintenance of the Company's domestic and international operating
equipment and facilities. Operating expenses on a consolidated basis increased
68% in 1996 as compared to 1995 and 59% in 1995 as compared to 1994. The
increase in 1996 primarily reflects the first full year of operating expenses
related to the narrowband PCS network which, because of its design and
functionality, has significantly higher fixed operating costs than the
Company's one-way operations. The increases in each of the three years ended
December 31, 1996 also reflect increased telephone and system costs associated
with the increasing one-way subscriber base in the United States and the
inclusion of operating expenses related to the Company's international
operations. As a percentage of revenues, operating expenses on a consolidated
basis increased to 33% in 1996 as compared to 28% in 1995 and 27% in 1994.
21
<PAGE>
Operating expenses related to the one-way messaging system in the United
States increased 31% in 1996 as compared to 1995 and 46% in 1995 as compared
to 1994, and as a percentage of revenues were 23% in 1996 as compared to 24%
in 1995 and 25% in 1994. Operating expenses of the Company's international
subsidiaries increased 69% in 1996 as compared to 1995, and 192% in 1995 as
compared to 1994, but decreased as a percentage of revenues to 42% in 1996 as
compared to 50% in 1995 and 70% in 1994.
The Company expects to incur increased operating expenses during 1997 and
future periods, primarily as a result of an increase in the number of units in
service on its one-way and narrowband PCS networks in the United States and
the expansion of coverage of the narrowband PCS network.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include marketing and advertising costs related to
domestic and international messaging operations, personnel costs associated
with SkyTel's direct sales and marketing staff, the costs associated with
customer support operations in the United States and corporate overhead costs,
primarily salaries and administrative expenses. On a consolidated basis, these
expenses increased 18% in 1996 as compared to 1995 and 58% in 1995 as compared
to 1994. The increase in 1996 primarily reflects selling, general and
administrative expenses associated with the first full year of operation of
the narrowband PCS network. The increases in 1995 and 1996 also reflect
additional costs associated with customer support operations, such as customer
service, operator dispatch, billing and collections, which resulted from the
continuing increase in units in service on the SkyTel one-way messaging system
in the United States. The increase in 1995 reflects costs associated with the
expansion of SkyTel's direct sales force, and the inclusion of selling,
general and administrative expenses relating to the Company's international
messaging operations in Argentina and Colombia for a full year and in Hong
Kong for the second half of 1995. In addition, selling, general and
administrative expenses in 1995 included costs of approximately $18.3 million
that consisted primarily of one-time promotional and marketing expenses
related to the launch of the narrowband PCS network. As a percentage of
revenues, selling, general and administrative expenses on a consolidated basis
declined to 65% in 1996 as compared to 79% in 1995 and 75% in 1994.
Selling, general and administrative expenses related to one-way messaging
operations in the United States increased 9% in 1996 as compared to 1995 and
21% in 1995 as compared to 1994. International selling, general and
administrative expenses increased 30% in 1996 as compared to 1995 and 113% in
1995 as compared to 1994.
In 1997, selling, general and administrative expenses on a consolidated
basis are expected to increase as a result of the Company's plans to
significantly expand its direct sales force in the United States and
additional marketing expenses which the Company expects to incur in connection
with the promotion of advanced messaging products on its narrowband PCS
network. In addition, the Company expects to incur increased customer service
costs to support the projected increase in net unit additions in 1997.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses on a consolidated basis increased 136% in 1996 as compared to 1995
and 90% in 1995 as compared to 1994. The increase in 1996 is attributable, in
large part, to depreciation and amortization of the network infrastructure,
spectrum costs and other previously capitalized costs related to the
narrowband PCS network. Depreciation and amortization in 1996 also reflected a
charge of approximately $7.3 million, which represented a write down of the
book value of obsolete paging equipment to fair market value and an adjustment
resulting from a physical pager inventory reconciliation. The increase in 1995
reflected the consolidation of messaging operations in Argentina and Colombia
for a full year and the consolidation of operations in Hong Kong in the second
half of 1995. As a percentage of revenues, depreciation and amortization
expenses on a consolidated basis increased to 29% in 1996 as compared to 17%
in 1995 and 14% in 1994.
Operating Income (Loss). The Company reported a consolidated operating loss
of $130.9 million in 1996 as compared to a consolidated operating loss of
$58.4 million in 1995 and $24.6 million in 1994. One-way messaging operations
recorded operating income of $52.3 million in 1996 as compared to operating
income of $21.2 million in 1995 and an operating loss of $4.6 million in 1994.
The Company's advanced messaging
22
<PAGE>
operations recorded an operating loss of $119.1 million in 1996 and $54.3
million in 1995, and international operations recorded an operating loss of
$54.1 million in 1996 as compared to $21.4 million in 1995 and $10.8 million
in 1994. The Company expects to report operating losses on a consolidated
basis in 1997 and 1998 as a result of continuing operating losses related to
its narrowband PCS operations in the United States and international messaging
operations. However, the Company expects SkyTel's one-way messaging business
in the United States to continue to report operating income in 1997 and future
periods as a result of continued growth in profitable units in service,
although the level of growth will be dependent on the success of SkyTel's
direct, reseller and other distribution channels, the competitive environment,
including pricing, in the one-way messaging industry and the extent to which
subscribers for one-way messaging services elect to use the advanced messaging
products available on the Company's narrowband PCS network.
Interest Expense and Interest Income. Interest expense increased 284% in
1996 as compared to 1995 and 171% in 1995 as compared to 1994. Interest
expense in 1996 and 1995 includes interest accrued on $265 million principal
amount of 13.5% Senior Subordinated Discount Notes due 2002 (the "Senior
Notes") issued in December 1994, the proceeds of which (after funding an
escrow account in the amount of $93.6 million to provide for the payment of
interest on the Senior Notes for the first three years) were used primarily to
fund equipment purchases and development and construction costs related to the
narrowband PCS network. Interest expense in 1996 also included interest
accrued on borrowings under the Company's bank credit facility which were
$135.5 million as of December 31, 1996. Interest expense in 1994 primarily
reflects interest accrued on the 6.75% Convertible Subordinated Debentures
issued by the Company in May 1992 (the "Debentures"), substantially all of
which were converted into shares of common stock of the Company in December
1994. See "Liquidity and Capital Resources--Sources of Funds."
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
34, the Company capitalizes interest expense related to equity investments and
the purchase of certain assets which constitute activities preliminary to the
commencement of the investee's or purchaser's planned principal operations.
The Company capitalized $6.1 million, $25.9 million and $2.9 million in
interest costs in 1996, 1995 and 1994, respectively. In 1995, capitalized
interest of $22.9 million related to costs associated with the narrowband PCS
network incurred prior to September 19, 1995. The Company does not expect to
capitalize interest expense relating to any current projects in 1997.
Interest expense in 1996, 1995 and 1994 was offset by interest income of
$6.2 million, $12.9 million and $6.1 million, respectively. Interest income in
1996 and 1995 represented income generated by the investment of the net
proceeds from the sale of the Senior Notes not immediately applied by the
Company, including the amount held in escrow for the payment of interest on
the Senior Notes which will terminate with the interest payment due on the
Senior Notes on December 15, 1997. In 1994, interest income was primarily
attributable to income generated by the investment of the net proceeds from
the sale of the $2.25 Cumulative Convertible Exchangeable Preferred Stock (the
"$2.25 Preferred Stock") completed in October 1993. See "Liquidity and Capital
Resources--Sources of Funds."
Provision for Income Taxes. Mtel reported net losses on a consolidated basis
during each of the years ended December 31, 1996, 1995 and 1994 and,
accordingly, no provision for federal income taxes has been made for such
periods. The Company's provision for income taxes reflects state and local
income taxes.
Preferred Stock Dividends. The Company paid aggregate cash dividends in the
amount of approximately $8.4 million in each of the years ended December 31,
1996, 1995 and 1994 on its $2.25 Preferred Stock. In addition, the Company
accrued approximately $3.2 million in 1996, which represented stock dividends
accrued on the Company's 7.5% Cumulative Convertible Accruing Pay-in-Kind
Preferred Stock (the "PIK Preferred Stock") issued in April and May of 1996.
Although dividends on the $2.25 Preferred Stock and the PIK Preferred Stock
are not treated as an expense on the Company's consolidated statements of
operations and, therefore, do not affect reported net income, the amount of
such dividends is deducted from net income for the purpose of determining net
income (loss) per common share.
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Equity Income (Loss) from Investments. The Company generally records its
share of operating results of international joint ventures in which it holds
an ownership interest of 20% to 50% using the equity method of accounting. The
Company recorded an equity loss attributable to such international joint
ventures of $1.4 million in 1996, as compared to equity income of $1.2 million
in 1995 and $3.8 million in 1994. The equity loss in 1996 was primarily the
result of start-up losses from new operations commenced in the Philippines,
Venezuela and the Dominican Republic. In July 1996, the Company sold its 29%
equity interest in MPL which recorded equity income of $0.7 million, $2.6
million and $2.7 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company generally accounts for its investments in
international joint ventures in which it holds less than a 20% equity interest
using the cost method of accounting. See "Liquidity and Capital Resources--
International" and "Liquidity and Capital Resources--Sources of Funds--Asset
Dispositions."
Impairment Loss. In October, 1995, the Financial Accounting Standards Board
issued SFAS No. 121-Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of. SFAS No. 121 requires that each long-
lived asset be reviewed on an individual basis for recoverability of the
carrying amount of such asset based on an estimate of the future cash flows to
be generated by such asset. The Company adopted SFAS No. 121 on January 1,
1996.
The Company recognized an impairment loss of approximately $38.8 million for
the year ended December 31, 1996 with respect to those long-lived assets whose
estimated future cash flows were projected to be less than the carrying value
of such assets. The amount of the impairment loss is the difference between
the carrying amount of the impaired assets and the fair value of such assets.
Approximately $27.5 million of the impairment loss related to certain of the
Company's international investments in Asia and Europe, and the balance
related to certain domestic investments. See "Liquidity and Capital
Resources--International."
Net Income (Loss). The Company reported a consolidated net loss of $133.1
million in 1996 before inclusion of the impairment loss described above, and a
consolidated net loss of $171.8 million including the impairment loss, as
compared to a consolidated net loss of $52.0 million in 1995 and $19.8 million
in 1994. When combined with the effect of the dividends accrued on the $2.25
Preferred Stock and the PIK Preferred Stock, the Company reported a
consolidated net loss per common share of $2.66 in 1996 prior to the
impairment loss, and a consolidated net loss per common share of $3.38
including the impairment loss, as compared to a consolidated net loss per
common share of $1.19 in 1995 and $0.77 in 1994. The Company's one-way
messaging operations reported net income of $48.3 million in 1996 as compared
to net income of $20.2 million in 1995 and a net loss of $14.7 million in
1994. The Company's advanced messaging operations reported net losses of
$158.2 million, $62.2 million and $4.3 million in 1996, 1995 and 1994,
respectively, and international operations reported net losses of $65.0
million, $21.4 million and $6.8 million in 1996, 1995 and 1994, respectively.
The consolidated net loss in 1996 also included a net loss of approximately
$4.2 million recorded on the sale of the Company's 29% equity interest in MPL.
The consolidated net losses in 1996 and 1995 were offset by gains of
approximately $6.6 million and $2.5 million, respectively, from the sale of a
portion of the Company's investment in AMSC. The consolidated net loss in 1994
included a non-recurring charge of $3.1 million related to the conversion
offer for the Company's Debentures which was completed in December 1994 and
was offset by a non-recurring gain of $4.7 million from the sale of the
Company's digital microwave system that operated in the Los Angeles area and
two specialized mobile radio service operations. See "Liquidity and Capital
Resources."
The Company expects to incur a net loss on a consolidated basis in 1997 and
1998 as a result of continuing losses from its advanced messaging and
international operations, although one-way messaging operations are expected
to generate net income during these periods.
Currency Exchange Rates. The Company is subject to exposure resulting from
adverse trends in exchange rates relative to local foreign currencies.
Management periodically reviews its exchange rate risks and may take certain
actions to reduce such risks. The Company has not previously used derivative
financial instruments to hedge its foreign currency exchange rate risks due,
in part, to the lack of availability of appropriate hedging instruments in
most of the countries in which Mtel has investments.
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LIQUIDITY AND CAPITAL RESOURCES
One-Way Messaging. Mtel has required significant capital during the three-
year period ended December 31, 1996, to fund the development and expansion of
the SkyTel one-way messaging system in the United States. The Company expended
$67.5 million, $90.1 million and $35.5 million in 1996, 1995 and 1994,
respectively, for these purposes. Approximately $43.4 million, $59.2 million
and $16.3 million of these capital expenditures in 1996, 1995 and 1994,
respectively, related to the procurement of messaging units to support
SkyTel's increasing one-way subscriber base. Pager procurement in 1995 and
1996 also included a substantial number of high speed Flex pagers which were
exchanged for slower-speed POCSAG units then in service on the one-way
messaging system in the United States to alleviate capacity constraints on the
one-way system.
As of December 31, 1996, the Company had no formal commitments for capital
expenditures related to the SkyTel one-way messaging system, but management
anticipates that such capital expenditures in 1997 will be approximately $25-
35 million. A significant portion of these projected capital expenditures will
be used for the procurement of one-way messaging units, and projected capital
requirements could vary based upon the net unit additions placed in service on
the SkyTel system.
Advanced Messaging. In September 1995, the Company commenced commercial
operation of its narrowband PCS network. The Company incurred capital
expenditures for infrastructure equipment, development and construction costs
related to the narrowband PCS network of $46.0 million, $162.3 million and
$49.3 million in the years ended December 31, 1996, 1995 and 1994,
respectively. Development costs in 1996 included amounts related to the
expansion of network coverage in certain major metropolitan areas and
continuing efforts to optimize and improve the performance and reliability of
the narrowband PCS network. Approximately $8.4 million and $14.7 million of
these capital expenditures in 1996 and 1995, respectively, related to the
purchase of messaging units for use on the narrowband PCS network. In addition
to the equipment, development and construction costs described above, the
Company incurred costs of $127.5 million for the purchase of additional
nationwide narrowband PCS spectrum in an FCC auction held in July 1994.
The Company anticipates that capital expenditures related to its narrowband
PCS network in 1997 will total approximately $45-55 million. Approximately
$20-25 million will be used to continue the Company's network coverage
expansion program, and the Company has entered into an agreement with Motorola
to purchase additional transmitters in 1997 for an aggregate purchase price of
approximately $7.6 million. The balance of the projected capital expenditures
in 1997 will be used for the procurement of advanced messaging units. The
Company has entered into an agreement with Wireless Access to purchase
advanced messaging units for the narrowband PCS network. The Company's total
commitment under this agreement with Wireless Access is $21.1 million, a
portion of which is secured by letters of credit which have been provided by
the Company in exchange for extended payment terms. Approximately $16.0
million of this commitment is expected to be incurred in 1997, with the
balance payable in the first quarter of 1998. The Company also has entered
into an agreement with Motorola to purchase advanced messaging units. The
Company's total commitment in 1997 under the agreement with Motorola is
approximately $11.1 million. The commitments with Wireless Access and Motorola
to purchase advanced messaging units may be satisfied through purchases by the
Company's resellers.
The Company's initial nationwide narrowband PCS license was granted by the
FCC pursuant to a Pioneer's Preference and such grant was conditioned by the
FCC upon the payment by Mtel of a license fee in the amount of approximately
$33.0 million. Mtel filed an appeal challenging the condition requiring
payment for this license, and in March 1996 the United States Court of Appeals
for the D.C. Circuit issued a decision upholding the FCC's authority under the
Communications Act to impose such a fee. However, the Court remanded the
matter to the FCC for consideration of the propriety of requiring the payment
of such a fee in light of Mtel's reliance on the FCC's public pronouncements
that no such fee would be imposed and the granting by the FCC of other paging
licenses without the imposition of any fee. Payment for this license will not
be required to be made unless and until such litigation is definitively
resolved adversely to Mtel. The narrowband PCS network does not currently
operate on the frequency covered by this license.
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International. The Company required approximately $12.4 million, $23.2
million and $14.1 million in 1996, 1995 and 1994, respectively, to fund the
capital expenditures and initial working capital requirements of its
operations in Argentina, Colombia, Hong Kong, Puerto Rico and Uruguay where
the licenses are held by majority-owned subsidiaries. The Company also
provided capital of approximately $8.1 million, $5.6 million and $6.2 million
in 1996, 1995 and 1994, respectively, to fund its proportionate share of
capital required by its international joint ventures. This capital was used to
fund capital expenditures and working capital requirements of joint ventures
in various countries including Brazil, Indonesia, Malaysia, El Salvador, Costa
Rica, Dominican Republic, Philippines and Venezuela.
In September 1996, the Company sold a 20% equity interest in Mtel Latam, the
holding company for the Company's investments in Latin America, for an
aggregate purchase price of $35.0 million. Approximately $10.2 million of the
net proceeds from the sale of the equity interest in Mtel Latam was paid to
the Company as reimbursement for amounts invested in the Latin American
operations during 1996. The remainder of the net proceeds from such sale is
being used to fund capital expenditures, working capital requirements,
acquisitions and additional development efforts in the Latin American region.
The sale of the equity interest in Mtel Latam required the Company to
designate Mtel Latam as an "unrestricted subsidiary" for purposes of the
Company's bank credit agreement and the indenture relating to the Senior
Notes. As a result of this designation, Mtel Latam will be required to finance
its operations and development efforts independent of the Company. See "Item
1. Business--International."
The Company anticipates that Mtel Latam will require approximately $8-12
million in 1997 to fund capital expenditures and working capital requirements
of its subsidiaries and capital contributions to its joint ventures in Latin
America. However, this amount may vary depending on Mtel Latam's expansion
strategy and development efforts. Mtel Latam will be required to engage in
additional debt or equity financing in order to fund these requirements, and
there can be no assurance that Mtel Latam will be able to complete any
additional financing on terms acceptable to Mtel Latam.
The Company has determined to reduce its capital commitment and to
restructure or divest its operations and investments in the Asia Pacific
region. In addition, the March, 1997 amendment to SkyTel's bank credit
facility requires the Company to raise certain minimum proceeds through the
sale of its operations and investments in the Asia Pacific region on or before
December 31, 1997. Subject to any such restructuring or sales that may occur,
the Company estimates that it will require approximately $3.0-3.5 million in
1997 to fund capital expenditures and working capital requirements in Hong
Kong and capital contributions to the Company's joint ventures in this region.
During 1996, subsequent to the sale of its 29% equity interest in MPL, the
Company determined to suspend its remaining operations in Europe since the
Company was generally unable to utilize the 931 MHz frequency for paging
operations in Europe. See "--Results of Operations--Impairment Loss."
Sources of Funds. The Company has funded its capital requirements during the
three years ended December 31, 1996 with the net proceeds from the sale of the
Senior Notes, the $2.25 Preferred Stock and the PIK Preferred Stock,
borrowings under SkyTel's bank credit facilities, net cash provided by
operations and, to a lesser extent, the proceeds from the sale of non-
strategic assets. For the years ended December 31, 1995 and 1994,
respectively, the Company had net cash provided by operating activities of
$10.6 million and $2.2 million. In 1996, the Company had net cash used by
operating activities of $47.6 million. Of this amount, $33.0 million was
related to changes in certain working capital accounts, including accounts
receivable and accounts payable. The Company's net working capital at December
31, 1996 was approximately $23.9 million compared to a working capital deficit
at December 31, 1995 of approximately $34.9 million.
The Company intends to fund its capital requirements in 1997 and 1998 from
borrowings under SkyTel's bank credit facility, as amended, net cash provided
by operating activities and the proceeds from the sale of non-strategic
assets. See "Bank Credit Facility" below for a description of the material
terms of the Company's bank credit facility, as amended in March 1997,
including limitations on borrowing availability thereunder in 1997 and 1998.
Set forth below is a description of the major sources of capital available
to the Company during the three years ended December 31, 1996, as well as
sources of capital expected to be available to the Company through
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1998. The following summary does not purport to be complete and is qualified
in its entirety by reference to the various agreements and documents referred
to below, each of which has been filed or incorporated by reference as an
exhibit to this Annual Report on Form 10-K.
Bank Credit Facility. In December 1995, SkyTel established a $250.0 million
secured revolving credit facility with a syndicate of financial institutions
led by Chase Manhattan Bank, as administrative agent, Credit Lyonnais New York
Branch, as documentation agent, and J.P. Morgan Securities Inc., as co-
syndication agent. As part of the bank credit facility, SkyTel is also
provided with access to letters of credit from Credit Lyonnais New York Branch
in an amount not to exceed $20.0 million. Borrowings under the credit facility
may be used for capital expenditures, working capital and other general
corporate purposes. As of December 31, 1996, SkyTel had approximately $135.5
million of borrowings outstanding under the bank credit facility. In addition,
letters of credit in the amount of $11.5 million had been issued under the
bank credit facility as of December 31, 1996, and the borrowing availability
has been reduced by a corresponding amount.
The bank credit facility provides that SkyTel may incur borrowings until its
maturity date on December 31, 2001. However, the bank credit facility, as
amended in March 1997, limits the amount of borrowings available thereunder to
$175.0 million, increasing to $190.0 million upon receipt of confirmation by
the bank group that the Company is in compliance with all covenants as of June
30, 1997 and increasing to $200.0 million upon receipt of such confirmation of
compliance as of September 30, 1997. Additional availability thereafter will
be subject to the approval of the Company's 1998 business plan by the banks
holding at least 66 2/3% of the total outstanding borrowings under the
facility. The Company's borrowing availability will decrease to $175.0 million
on and after December 31, 1998 unless the bank group has approved additional
availability in accordance with the preceding sentence.
The $250.0 million commitment available to SkyTel for borrowings under the
bank credit facility reduces quarterly commencing on March 31, 1999. The
quarterly reductions in the commitment are $22.5 million for each quarter in
1999, $27.5 million for each quarter in 2000 and $12.5 million for each
quarter in 2001. If on the date of any such reduction in the commitment,
outstanding borrowings exceed the commitment amount (as so reduced), SkyTel is
obligated to repay the amount of such excess. The credit facility also
provides that the commitment will be reduced by 75% of excess cash flow and
50% of the amount of net proceeds from the issuance of equity by SkyTel, the
Company and certain of their subsidiaries and 100% of the amount of net
proceeds from the issuance by Mtel of any subordinated debt.
Borrowings under the bank credit facility, as amended in March 1997, bear
interest at the option of SkyTel at the alternate base rate (which is the
greater of Chase Manhattan Bank's prime rate, the Federal Funds rate plus 1/2
of 1% or the base certificate of deposit rate plus 1%) plus 2%, or the London
Interbank Offered Rate ("LIBOR") plus 3%. Subsequent to December 31, 1997,
borrowings under the bank credit facility will bear interest, at the option of
SkyTel, at the alternate base rate plus an additional margin ranging from 1%
to 2% or the LIBOR plus an additional margin ranging from 2% to 3%, in each
case with the applicable margin being based upon the ratio of the Company's
consolidated total debt to annualized cash flows of SkyTel for the two
preceding quarters.
Borrowings under the bank credit facility are guaranteed by the Company and
its subsidiaries that are incorporated in or operate within the United States.
Indebtedness under the credit facility is secured by a first priority lien on
and security interest in substantially all of the assets of the Company,
SkyTel and the subsidiary guarantors, including pledges of capital stock and
notes evidencing intercompany indebtedness. The loan agreement relating to the
bank credit facility, as amended, contains extensive covenants, including
covenants limiting the incurrence of additional indebtedness and restricting
the payment of cash dividends by both SkyTel and the Company, requires SkyTel
and the Company to comply with various financial ratios and to achieve certain
operating results during the term of the bank credit facility, including the
achievement of minimum levels of units in service, and contains customary
cross-default provisions. In addition, the loan agreement, as amended,
provides that on or after December 30, 1999, if the terms of the indenture
relating to the Senior Notes provides that SkyTel is no longer permitted to
incur indebtedness under the bank credit facility, and so long as the Company
complies with certain conditions, the obligations of SkyTel under the bank
credit facility shall be
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assumed by the Company and SkyTel and each of the subsidiary guarantors shall
be released from their obligations under the bank loan agreement. In December
1996, the Company received a waiver from the bank group which modified a
covenant requiring certain levels of units in service as of December 31, 1996
and extended the date by which the Company was required to sell equity
securities of the subsidiary formed for the purpose of holding the Company's
operations and investments in the Asia Pacific region. See Note 7 of Notes to
Consolidated Financial Statements.
The March 1997 amendment to the bank credit facility also amended certain
financial and operating covenants contained in the original bank loan
agreement to align these covenants with the Company's 1997 business plan which
was approved by the bank group. In addition, the March 1997 amendment requires
the Company to comply with a ratio of total sources of funds on a consolidated
basis (which is defined as the sum of consolidated cash flows, unrestricted
cash and cash equivalents, unused availability under the bank credit facility,
any net reduction in net working capital and the net cash proceeds received
from permitted asset sales or the issuance of equity securities or
subordinated debt permitted under the bank loan agreement) to total uses of
funds on a consolidated basis (which is defined as the sum of capital
expenditures, interest expense, net principal repayments, cash taxes actually
paid and any other cash expense) on a quarterly basis commencing with the
quarter ending March 31, 1997. If the Company fails to comply with this
covenant for any quarterly period, the Company will have the opportunity to
correct such failure by consummating certain sales of non-strategic assets or
capital markets transactions within 90 days following the end of such period.
As a result of higher than projected capital expenditures in the fourth
quarter of 1995, primarily related to the purchase of pagers to support one-
way sales, the purchase of Flex pagers to alleviate capacity constraints on
the one-way network and development costs associated with the narrowband PCS
network, SkyTel incurred higher than expected borrowings under its bank credit
facility. The capital expenditures and resulting borrowings caused SkyTel to
be in violation of a capital expenditure covenant in its bank loan agreement
as of December 31, 1995 and a leverage maintenance covenant during the first
quarter of 1996, and resulted in a temporary suspension of the Company's
borrowing availability under the bank credit facility. In March, 1996, the
bank group waived these covenant violations and agreed to certain amendments
to the bank loan agreement to provide additional operational flexibility under
the bank credit facility.
The amendment to the bank loan agreement entered into in March, 1996 also
required the Company to complete the following transactions on or before the
dated indicated: (i) on or before May 15, 1996, the sale of such number of
shares of PIK Preferred Stock as will result in the Company receiving gross
proceeds of $50.0 million; (ii) on or before June 30, 1996, the previously
planned sales of its equity interest in MPL and the sale of equity securities
of a subsidiary formed for the purpose of holding the Company's investments in
operations in Latin America and receive certain minimum proceeds; and (iii) on
or before December 31, 1996, the previously planned sale of equity securities
of a subsidiary to be formed for the purpose of holding the Company's
investments and operations in Asia and receive certain minimum proceeds. In
June 1996, the bank group granted the Company a 30-day extension until July
31, 1996 to complete the sale of its interest in MPL and a 90-day extension
until September 30, 1996 to complete the sale of equity securities of the
subsidiary formed for the purpose of holding the Company's investments in
Latin America. The Company completed the sale of PIK Preferred Stock in the
second quarter of 1996, completed the sale of its 29% equity interest in MPL
in July 1996, and completed the sale of equity securities of its Latin
American holding company in September 1996. Pursuant to the March 1997
amendment, the Company is required to raise certain minimum proceeds from the
sale of its operations and investments in the Asia Pacific region on or before
December 31, 1997.
PIK Preferred Stock. In April and May of 1996, the Company completed the
sale of 57,500 shares of its PIK Preferred Stock for an aggregate purchase
price of $57.5 million. The proceeds from the sale of the PIK Preferred Stock
have been used by the Company for general corporate purposes including the
continued development and optimization of the narrowband PCS network. Holders
of the PIK Preferred Stock are entitled to receive dividends out of funds
legally available therefor at an annual rate of 7.5% (or $75 per share of PIK
Preferred Stock), payable quarterly on each March 15, June 15, September 15
and December 15. The Company has the option, however, to pay dividends on the
PIK Preferred Stock through the later of the fifth anniversary of the date of
issuance or until cash dividends are permitted under the Company's bank credit
facility or the
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indenture relating to the Senior Notes in the form of additional shares of PIK
Preferred Stock. Cumulative, unpaid dividends on the PIK Preferred Stock of
$3.2 milion have been accrued from the date of original issuance.
The PIK Preferred Stock ranks junior in right of payment to the Company's
outstanding $2.25 Preferred Stock. In the event of any liquidation,
dissolution or winding up of the Company, holders of PIK Preferred Stock are
entitled to receive, following payment in full to the holders of the $2.25
Preferred Stock of all amounts to which such holders are entitled, a
liquidation preference in the amount of $1,000 per share of PIK Preferred
Stock, plus accrued and unpaid dividends, before any payment is made or assets
are distributed to holders of Mtel Common Stock or any other class of stock of
the Company ranking junior to the PIK Preferred Stock as to rights upon
liquidation, dissolution or winding up of the Company. Except as required by
law or with respect to the creation or amendment of senior classes of
preferred stock and subject to the rights the holders of the $2.25 Preferred
Stock, holders of PIK Preferred Stock do not have voting rights unless
quarterly dividends on the Company's $2.25 Preferred Stock are in arrears for
two consecutive quarters, in which case, the number of directors of the
Company would be increased by one and holders of PIK Preferred Stock, voting
separately as a class, would be entitled to elect one director until the
dividend arrangement has been paid. In the event quarterly dividends on the
Company's $2.25 Preferred Stock are in arrears for four consecutive quarters,
the number of directors of the Company would be increased again by one, and
holders of PIK Preferred Stock would be entitled to elect an additional
director.
Each share of PIK Preferred Stock is convertible at the option of the holder
into shares of Mtel Common Stock at conversion prices ranging from $17.90 to
$18.19 per share of Mtel Common Stock, subject to adjustment upon the
occurrence of certain events. Following the second anniversary of the date of
issuance of the PIK Preferred Stock, the Company may redeem, in whole or in
part, the outstanding PIK Preferred Stock at a price of $1,000 per share plus
accrued and unpaid dividends. The bank credit facility, as amended, and the
indenture relating to the Senior Notes prohibit the voluntary redemption of
the PIK Preferred Stock. Commencing on the seventh anniversary of the date of
issuance of the PIK Preferred Stock and continuing through the tenth
anniversary thereof, the Company must redeem 7,500 shares of PIK Preferred
Stock at a price of $1,000 per share, together with accrued and unpaid
dividends thereon.
Senior Notes. In December 1994 Mtel issued $265.0 million principal amount
of 13.5% Senior Subordinated Discount Notes due December 15, 2002 in a public
offering underwritten by Bear, Stearns & Co. Inc., Alex. Brown & Sons
Incorporated and J.P. Morgan Securities Inc. The net proceeds received by Mtel
from the sale of the Senior Notes, after deducting the underwriting discount
and expenses of the offering, were $255.7 million. The net proceeds, after
making the deposit described below, were used by the Company capital
expenditures and initial working capital requirements related to the
narrowband PCS network.
Interest on the Senior Notes is payable semi-annually, in cash, on June 15
and December 15 of each year, commencing on June 15, 1995. The indenture
relating to the Senior Notes required the Company to deposit approximately
$93.6 million of the net proceeds to purchase a portfolio of securities,
initially consisting of U.S. government securities (including any securities
in respect thereof, the "Pledged Securities"), to provide for the payment of
interest on the Senior Notes through December 15, 1997 and, under certain
circumstances, as security for repayment of the principal of the Senior Notes.
All of the Pledged Securities will be applied to the payment of interest on
the Senior Notes as of the interest payment due on December 15, 1997, and the
Company will be required to fund interest payments on the Senior Notes
commencing with the interest payment due on June 15, 1998.
The Senior Notes are senior obligations of the Company, rank senior in right
of payment to all subordinated indebtedness of the Company, other than the
Debentures as to which the Senior Notes rank pari passu, and are to be pari
passu in right of payment to all of the Company's existing and future senior
indebtedness, including the Company's guarantee of SkyTel's bank credit
facility. However, the Company's guarantee of the bank credit facility is
secured by a security interest in and lien on substantially all of the assets
of the Company (other than the Pledged Securities) and accordingly will rank
senior to the Senior Notes to the extent of such security. In addition, the
Company serves primarily as a holding company for its operating subsidiaries,
and therefore the Senior Notes will be effectively subordinated to all
liabilities of the Company's subsidiaries, including trade payables and the
bank credit facility.
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The Senior Notes are subject to redemption at the option of the Company, in
whole or in part, at any time on or after December 15, 1999, at established
redemption prices plus accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to December 15, 1997, at the option
of the Company, Senior Notes in an amount not to exceed 25% of the original
principal amount of the Senior Notes may be redeemed at a redemption price
equal to 114.5% of the principal amount of the Senior Notes, plus accrued and
unpaid interest, if any, to the date of redemption, with the proceeds from the
sale of at least $75.0 million of certain equity securities to a strategic
equity investor meeting certain qualifications; provided, that Senior Notes in
an amount equal to at least 75% of the original principal amount of the Senior
Notes remain outstanding following any such redemption.
In the event of a change of control, holders of the Senior Notes will have
the right to require the Company to repurchase their Notes, in whole or in
part, at a price equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase. There can be no
assurance that the Company would have the financial resources necessary to
repurchase the Senior Notes upon a change of control.
The indenture relating to the Senior Notes contains certain covenants that,
among other things, limit the ability of the Company and its subsidiaries to
incur certain additional indebtedness, pay dividends or make other
distributions, repurchase equity interests or subordinated indebtedness, make
certain other restricted payments, create certain liens, engage in any
business other than the telecommunications business, enter into certain
transactions with affiliates, sell assets, issue or sell equity interests or
enter into certain mergers and consolidations. The indenture also contains
customary cross-default provisions.
In July 1996, the Company completed a consent solicitation pursuant to which
the holders of the Senior Notes approved certain amendments to the indenture
relating to the Senior Notes. Under the amended terms of the indenture, the
Company has the ability to incur additional senior debt, subject to the terms
of its existing bank credit facility, as amended, to meet the Company's
anticipated financial needs. The amount of senior debt that may be incurred
under the covenants in the indenture is based, in part, on the number of
messaging units placed in service since September 30, 1994. In addition, the
amendments to the indenture permit the Company to designate its Latin American
and Asian holding companies as "unrestricted" subsidiaries for purpose of the
indenture, thereby taking these entities outside the scope of the indenture
covenants. The Company paid consenting holders of the Senior Notes $15.00 per
$1,000 principal amount of Senior Notes, or an aggregate of approximately $3.9
million, and agreed to extend the period during which the Company is
prohibited from effecting an optional redemption of the Senior Notes by one
year to December 15, 1999.
Conversion Offer. In December 1994, to facilitate the offering of the Senior
Notes, the Company completed an offer to induce conversion (the "Conversion
Offer") of its 6.75% Convertible Subordinated Debentures due 2002 (the
"Debentures") pursuant to which the Company paid a premium of $45.00 (the
"Conversion Premium"), in addition to the issuance of 100 shares of Mtel
Common Stock issuable in accordance with the terms of the Debentures, upon the
conversion of each $1,000 principal amount of Debentures. A total of
approximately $82.2 million in aggregate principal amount of Debentures
(representing approximately 97% of the total outstanding Debentures) were
converted in the Conversion Offer. As a result, approximately 8.2 million
shares of Mtel Common Stock were issued in connection with the Conversion
Offer and the Company paid a total Conversion Premium of approximately $3.1
million in connection therewith.
Disposition of Non-Strategic Assets. The Company continually reviews its
strategic business objectives with respect to its businesses and investments
and may consider from time to time, subject to any restrictions imposed under
the bank credit facility and the indenture relating to the Senior Notes, the
disposition of non-strategic assets. In 1996 and 1995, the Company completed
the disposition of a portion of its shares of AMSC Common Stock resulting in
net proceeds of $8.9 million and $3.8 million, respectively. In addition, the
Company, in conjunction with the other stockholders of MPL, completed the sale
of all of the issued and outstanding shares of MPL, including the Company's
29% equity interest in MPL, on July 15, 1996. The Company received net pre-tax
proceeds of approximately $26.4 million as a result of such sale. In 1994, the
Company completed the sale of its digital point-to-point microwave system that
operates in the Los Angeles area and two SMR operations, resulting in a
nonrecurring gain of approximately $4.7 million in 1994.
30
<PAGE>
Pursuant to the March, 1997 amendment to the SkyTel bank credit facility,
the Company is required to raise certain minimum proceeds from the sale of its
operations and investments in the Asia Pacific region on or before December
31, 1997. The March 1997 amendment also requires the Company to comply with a
covenant requiring the maintenance of a ratio of total sources of funds on a
consolidated basis to total uses (as defined in the bank loan agreement) on a
quarterly basis commencing with the quarter ending March 31, 1997. If the
Company fails to comply with this covenant in any quarter, the Company will be
required to raise additional funds through the disposition of non-strategic
assets or certain capital markets transactions within 90 days following the
end of such quarter.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 121--Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of. This statement requires that each long-lived asset
be reviewed on an individual basis for recoverability of the carrying amount
of such asset based on an estimate of future net cash flows if events or
circumstances give rise to questions as to the ability of a company to realize
its investment in such long-lived asset. The Company adopted the statement on
January 1, 1996. See Note 3 of Notes to Consolidated Financial Statements for
information regarding the impairment loss recorded for the year ended December
31, 1996. See also Note 2 of Notes to Consolidated Financial Statements for a
discussion of matters that could significantly influence the estimated future
cash flows used by the Company to perform the evaluations required under SFAS
No. 121.
In October 1995, the FASB issued SFAS No. 123--Accounting for Stock-Based
Compensation. This statement establishes financial accounting and reporting
standards for stock-based employee compensation but allows an entity to
continue to measure compensation costs for such plans using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
Opinion No. 25. Entities electing to remain subject to Accounting Opinion No.
25 are required to make pro forma disclosures as if the fair value method of
accounting defined in SFAS No. 123 had been applied. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
based method prescribed in Opinion No. 25. See Note 10 of Notes to
Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Financial Statements--
Balance Sheets--December 31, 1995 and 1996............................... F-3
Statements of Operations for the three years ended December 31, 1996..... F-4
Statements of Changes in Stockholders' Investment for the three years
ended December 31, 1996.................................................. F-5
Statements of Cash Flows for the three years ended December 31, 1996..... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
With the exception of information relating to the executive officers of the
Company which is provided in Part I hereof, all information required by Part
III (Items 10, 11, 12 and 13) is incorporated by reference to the Company's
definitive proxy statement relating to the 1997 Annual Meeting of
Stockholders.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)1. Financial Statements. See Index to Consolidated Financial Statements on
Page F-1 hereof.
2. Financial Statement Schedules of the Company.
<TABLE>
<S> <C>
II Valuation and Qualifying Accounts.................................. FA-2
Report of Independent Public Accountants on Financial Statement
Schedule
of the Company....................................................... FA-3
</TABLE>
Schedules other than that listed above are omitted because of the absence of
conditions under which they are required or because the information is
included in the financial statements or notes thereto.
3. Exhibits required by Item 601 of Regulation S-K
The following exhibits are filed as part of this Annual Report. Where such
filing is made by incorporation by reference (I/B/R) to a previously filed
statement or report, such statement or report is identified in parentheses.
There are omitted from the exhibits filed with this Annual Report certain
promissory notes, conditional sales contracts and other instruments and
agreements with respect to long-term debt of the Company, none of which
authorizes securities in a total amount that exceeds 10% of the total assets
of the Company on a consolidated basis. Pursuant to Item 601(b)(4)(iii) of
Regulation S-K, the Company hereby agrees to file with the Securities and
Exchange Commission copies of all such omitted promissory notes, conditional
sales contracts and other instruments and agreements as the Commission
requests.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
3.1 Restated Certificate of
Incorporation of the
Company (Exhibit 3.3 to
the Registration Statement
on Form 10 filed on
November 18, 1988 and
effective on December 29,
1988)..................... I/B/R
3.2 Bylaws of the Company, as
amended (Exhibit 3.4 to
the Registration Statement
on Form 10 of the Company
filed on November 18, 1988
and effective on December
29, 1988)................. I/B/R
4.1 Certificate of
Designations of Series C
Junior Participating
Preferred Stock of the
Company (Exhibit 3 to the
Registration Statement on
Form 8-A of the Company
filed on August 3, 1989).. I/B/R
4.2 Rights Agreement dated as
of July 26, 1989 between
the Company and NCNB Texas
National Bank (Exhibit 2
to the Registration
Statement on Form 8-A of
the Company filed on
August 3, 1989)........... I/B/R
4.3 Form of Right Certificate
of the Company (Exhibit 1
to the Registration
Statement on Form 8-A of
the Company filed on
August 3, 1989)........... I/B/R
4.4 Indenture dated as of May
28, 1992 between the
Company and NationsBank of
Texas, N.A., as Trustee,
relating to the Company's
6.75 % Convertible
Subordinated Debentures
due May 15, 2002,
including as an exhibit
thereto the form of
Debenture (Exhibits 4.3
and 28 to the Company's
Quarterly Report on Form
10-Q for the quarter ended
September 30, 1992)....... I/B/R
4.5 Form of Indenture between
the Company and Texas
Commerce Bank National
Association, as Trustee,
relating to the 13.5 %
Senior Notes due 2002,
including as an exhibit
thereto the form of the
Note (Exhibit 4.8 to the
Company's Registration
Statement on Form S-3
filed on November 10, 1994
and effective on December
21, 1994)................. I/B/R
4.6 Certificate of
Designations of the $2.25
Cumulative Convertible
Exchangeable Preferred
Stock of the Company
(Exhibit 4.1 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended September
30, 1993)................... I/B/R
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
4.7 Credit, Security, Guaranty and Pledge Agreement dated as
of December 21, 1995 by and among the Company, the
lenders referred to therein, Chemical Bank, Credit
Lyonnais New York Branch and J.P. Morgan Securities, Inc.
(Exhibit 4.7 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).................... I/B/R
4.8 Contribution Agreement of the Company dated as of
December 21, 1995 entered into in connection with the
Credit, Security, Guaranty and Pledge Agreement dated as
of December 21, 1995 by and among the Company, the
lenders referred to therein, Chemical Bank, Credit
Lyonnais New York Branch and J.P. Morgan Securities, Inc.
(Exhibit 4.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).................... I/B/R
4.9 Patent and Security Agreement of the Company dated as of
December 21, 1995 entered into in connection with the
Credit, Security, Guaranty and Pledge Agreement dated as
of December 21, 1995 by and among the Company, the
lenders referred to therein, Chemical Bank, Credit
Lyonnais New York Branch and J.P. Morgan Securities, Inc.
(Exhibit 4.9 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).................... I/B/R
4.10 Trademark Security Agreement of the Company dated as of
December 21, 1995 entered into in connection with the
Credit, Security, Guaranty and Pledge Agreement dated as
of December 21, 1995 by and among the Company, the
lenders referred to therein, Chemical Bank, Credit
Lyonnais New York Branch and J.P. Morgan Securities, Inc.
(Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).................... I/B/R
4.11 Copyright Security Agreement of the Company dated as of
December 21, 1995 entered into in connection with the
Credit, Security, Guaranty and Pledge Agreement dated as
of December 21, 1995 by and among the Company, the
lenders referred to therein, Chemical Bank, Credit
Lyonnais New York Branch and J.P. Morgan Securities, Inc.
(Exhibit 4.11 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).................... I/B/R
4.12 Subordination Agreement dated as of December 21, 1995 by
and among the Company and Chemical Bank. (Exhibit 4.12 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995)................................. I/B/R
4.13 Amendment No. 1 dated as of March 27, 1996 to the Credit,
Security, Guaranty and Pledge Agreement dated as of
December 21, 1995 by and among the Company, the lenders
referred to therein, Chemical Bank, Credit Lyonnais New
York Branch and J.P. Morgan Securities, Inc. (Exhibit
4.13 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995)............................ I/B/R
4.14 Certificate of Designation relating to the Series A 7.5%
Cumulative Convertible Accruing Pay-In-Kind Preferred
Stock (Exhibit 4.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996).......... I/B/R
4.15 Certificate of Designation relating to the Series B 7.5%
Cumulative Convertible Accruing Pay-In-Kind Preferred
Stock (Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996).......... I/B/R
4.16 Certificate of Designation relating to the Series C 7.5%
Cumulative Convertible Accruing Pay-In-Kind Preferred
Stock (Exhibit 4.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996).......... I/B/R
4.17 Supplemental Indenture dated as of July 18, 1996 between
the Company and Texas Commerce Bank National Association,
as Trustee, relating to the 13.5% Senior Notes due 2002
(Exhibit 4.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996)................ I/B/R
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
4.18 Amendment No. 2 dated as of August 23, 1996 to the
Credit, Security, Guaranty and Pledge Agreement dated as
of December 21, 1995, as amended, by and among the
Company, the lenders referred to therein, Chase Manhattan
Bank, Credit Lyonnais New York Branch and J.P. Morgan
Securities, Inc. (Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996).................................................... I/B/R
4.19 Amendment No. 3 dated as of March 26, 1997 to the Credit,
Security, Guarantee and Pledge Agreement dated as of
December 21, 1995, as amended, by and among the Company,
the lenders referred to therein, the Chase Manhattan
Bank, Credit Lyonnais, New York Branch, and J. P. Morgan
Securities, Inc. ........................................
4.20 Certificate of Amendment of Restated Certificate of
Incorporation dated May 30, 1996.........................
10.1* Employment Agreement dated November 19, 1988 between the
Company and John N. Palmer (Exhibit 10.9 to the
Registration Statement on Form 10 of the Company filed on
November 18, 1988 and effective on December 29, 1988).... I/B/R
10.2* Employment Agreement dated November 19, 1988 between the
Company and Jai P. Bhagat (Exhibit 10.12 to the
Registration Statement on Form 10 of the Company filed on
November 18, 1988 and effective on December 29, 1988).... I/B/R
10.4* Form of Indemnification Agreement (Exhibit 10.16 to the
Registration Statement on Form 10 of the Company filed on
November 18, 1988 and effective on December 29, 1988).... I/B/R
10.5* 1988 Executive Incentive Plan, as amended, of the Company
including as exhibits thereto the forms of non-qualified
and incentive stock option agreements (Exhibit 10.18 to
the Registration Statement on Form 10 of the Company
filed on November 18, 1988 and effective on December 29,
1988).................................................... I/B/R
10.6* Form of Non-Qualified Stock Option Agreement for non-
officer directors of the Company (Exhibit 10.19 to the
Registration Statement on Form 10 of the Company filed on
November 18, 1988 and effective on December 29, 1988).... I/B/R
10.7* 1990 Executive Incentive Plan of the Company including as
an exhibit thereto the form of non-qualified stock option
agreement (Exhibit 10.16 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1990)....... I/B/R
10.8 Services Agreement dated January 24, 1991 between Rogers
Cantel Mobile, SkyTel Corp. and Mtel International, Inc.
(Exhibit 10.31 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1991).................. I/B/R
10.9 Joint Venture Agreement dated as of April 11, 1991 by and
between Mtel International, Inc. and Radio Telefonia
Movil Metropolitana, S.A. de C.V. (Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991)....................................... I/B/R
10.10* Employment Agreement dated as of December 14, 1992
between the Company and John E. Welsh III (Exhibit 10.28
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992)................................. I/B/R
10.11* Employment Agreement dated as of December 24, 1992
between the Company and Leonard G. Kriss (Exhibit 10.29
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992)................................. I/B/R
10.12* Short-Term Management Incentive Plan (Exhibit 10.30 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1992)................................. I/B/R
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.13* Long-Term Management
Incentive Plan (Exhibit
10.31 to the Company's
Annual Report on Form 10-K
for the year ended
December 31, 1992 )....... I/B/R
10.14 Form of Stockholders
Agreement among the
Company, SkyTel and Sky
Acquisition Corp. (Exhibit
10.37 to the Company's
Registration Statement on
Form S-4 filed on October
26, 1994 and effective on
December 14, 1994).......... I/B/R
10.15 Amended and Restated
Merger Agreement and Plan
of Reorganization dated as
of September 21, 1994, by
and among the Company,
Dixon Acquisition Corp.
and United
States Paging Corporation
(Exhibit 2 to the
Registration Statement of
the Company,
Registration No. 33-85612,
filed on October 27, 1994).. I/B/R
10.16 Technology Development and
Marketing Agreement dated
March 23, 1994, by and
between Microsoft
Corporation and Destineer
Corp. (Exhibit 10.2 to the
Company's
Quarterly Report on Form
10-Q for the quarter ended
September 30, 1994)......... I/B/R
10.17 Form of Destineer Corp.
Warrant Certificate
(Exhibit 10.3 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended September
30, 1994)................... I/B/R
10.18 Form of Underwriting
Agreement among Bear,
Stearns & Co. Inc., Alex.
Brown & Sons Incorporated
and J.P. Morgan Securities
Inc., as Underwriters, and
the Company (Exhibit 1
to the Company's
Registration Statement on
Form S-3 filed on November
10, 1994 and
effective on December 21,
1994)....................... I/B/R
10.19* Employment Agreement dated
June 1, 1994 between the
Company and Calvin C.
LaRoche (Exhibit 10.32 to
the Company's Annual
Report on Form 10-K for
the year ended
December 31, 1994).......... I/B/R
10.20 MCI Special Customer
Arrangement between the
Company and MCI
Telecommunications
Corporation dated as of
August 22, 1994 (Exhibit
10.33 to the Company's
Annual Report
on Form 10-K for the year
ended December 31, 1994).... I/B/R
10.21 First Amendment to MCI
Special Customer
Arrangement between the
Company and MCI
Telecommunications
Corporation dated as of
January 9, 1995 (Exhibit
10.34 to the
Company's Annual Report on
Form 10-K for the year
ended December 31, 1994).... I/B/R
10.22* Amended 1990 Executive
Plan of the Company
(Exhibit 10.1 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended June 30,
1995)....................... I/B/R
10.23 Lease Agreement dated June
14, 1995 by and between
Security Centre, Inc. and
the Company (Exhibit 10.30
to the Company's Annual
Report on Form 10-K for
the year ended December
31, 1995)................. I/B/R
10.24 Stock Exchange Agreement
dated as of July 19, 1995
by and among the Company,
Microsoft Corporation,
Kleiner Perkins Caufield &
Byers VI, L.P., KPCB VI
Founders
Fund, L.P., William H.
Gates, Paul G. Allen,
Integral Capital Partners,
L.P. and Integral
Capital Partners
International C.V.
(Exhibit 10.31 to the
Company's Annual Report on
Form 10-K for the year
ended December 31, 1995).. I/B/R
10.25 Stockholder Agreement
dated as of September 15,
1995 by and between the
Company and Microsoft
Corporation (Exhibit 10.32
to the Company's Annual
Report on Form 10-K for
the year ended December
31, 1995)................. I/B/R
10.26 Form of Stock Purchase
Agreement relating to the
Sale of the Series A,
Series B and Series C 7.5%
Cumulative Convertible
Accruing Pay-In-Kind
Preferred Stock (Exhibit
10.1 to the Company's
Quarterly Report on Form
10-Q for the quarter ended
March 31, 1996)........... I/B/R
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.27 Stockholder Agreement dated as of March 29, 1996 by and
between the Company and Microsoft Corporation (Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996)........................ I/B/R
10.28 Form of Registration Rights Agreement relating to the
Series A, Series B and Series C 7.5% Cumulative
Convertible Accruing Pay-In-Kind Preferred Stock (Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996)........................ I/B/R
10.29 Purchase Agreement dated as of September 19, 1996, by and
between Mtel Latin America, Inc. and Newbridge Latin
America, L.P. (Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996).................................................... I/B/R
10.30 Contribution, Registration Rights and Standstill
Agreement dated as of September 19, 1996 by and among the
Company, Newbridge Latin America, L.P. and TPG Partners,
L.P. (Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996)...... I/B/R
10.31 Stockholders and Exchange Rights Agreement dated as of
September 19, 1996 by and among Mtel Latin America, Inc.,
Mtel International, Inc. and Newbridge Latin America,
L.P. (Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996)...... I/B/R
10.32 Subscription Agreement dated as of September 19, 1996 by
and between Newbridge Latin America, L.P. and Mtel Puerto
Rico, Inc. (Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996).................................................... I/B/R
10.33 Stockholders and Exchange Rights Agreement dated as of
September 19, 1996 by and among Mtel Puerto Rico, Inc.,
Mtel Latin America, Inc. and Newbridge Latin America,
L.P. (Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996)...... I/B/R
10.34* Employment Agreement dated as of August 1, 1996 by and
between the Company and John T. Stupka. (Exhibit 10.6 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996)........................ I/B/R
10.35* Employment Agreement dated as of August 15, 1996 by and
between the Company and Robert Kaiser. (Exhibit 10.7 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996)........................ I/B/R
10.36* Form of Restricted Stock Agreement under the 1990
Executive Incentive Plan. (Exhibit 10.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)...................................... I/B/R
10.37 Form of Reseller Agreement of SkyTel.....................
21.1 Subsidiaries of the Company..............................
23.1 Consent of Arthur Andersen LLP...........................
27.1 Financial Data Schedule..................................
</TABLE>
- --------
* Identifies each exhibit that is a "management contract or compensatory plan
or arrangement" required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
None.
36
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Financial Statements--
Balance Sheets--December 31, 1995 and 1996.............................. F-3
Statements of Operations for the three years ended December 31, 1996.... F-4
Statements of Changes in Stockholders' Investment for the three years
ended December 31, 1996................................................. F-5
Statements of Cash Flows for the three years ended December 31, 1996.... F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Mobile Telecommunication Technologies Corp.:
We have audited the accompanying consolidated balance sheets of Mobile
Telecommunication Technologies Corp. (a Delaware corporation) and subsidiaries
as of December 31, 1995 and 1996, and the related consolidated statements of
operations, changes in stockholders' investment and cash flows for each of the
years in the three year period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mobile Telecommunication
Technologies Corp. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three year period then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Jackson, Mississippi,
March 27, 1997.
F-2
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
ASSETS:
Current assets--
Cash and cash equivalents...................... $ 9,612,734 $ 25,744,724
Accounts receivable, net of allowance for
losses......................................... 46,313,031 64,797,525
Assets held for sale........................... -- 8,000,000
Other current assets........................... 3,700,019 3,725,376
------------- -------------
Total current assets.......................... 59,625,784 102,267,625
------------- -------------
Messaging networks--
Property and equipment, net.................... 294,626,442 288,870,518
Certificates of authority and license cost,
net............................................ 159,101,539 153,070,879
Network construction and development costs,
net............................................ 88,145,489 80,173,364
------------- -------------
Total messaging networks...................... 541,873,470 522,114,761
------------- -------------
Goodwill, net................................... 88,144,574 83,949,489
Investment in unconsolidated international
ventures........................................ 73,531,983 29,641,441
Other assets--
Securities restricted for debt service......... 64,101,245 32,546,458
Other.......................................... 24,136,475 32,740,100
------------- -------------
Total other assets............................ 88,237,720 65,286,558
------------- -------------
$ 851,413,531 $ 803,259,874
============= =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT:
Current liabilities--
Current maturities of long-term debt........... $ 1,278,426 $ 31,263
Accounts payable............................... 67,507,668 31,733,303
Accrued liabilities............................ 25,773,967 46,618,339
------------- -------------
Total current liabilities..................... 94,560,061 78,382,905
------------- -------------
Long-term debt, net of current maturities....... 333,258,720 402,491,222
Minority interest............................... 54,501 20,990,363
Commitments and contingencies
Stockholders' investment--
Preferred stock, par value $.01 per share;
25,000,000 shares authorized; 3,750,000 shares
of $2.25 Cumulative Convertible Exchangeable
Preferred Stock outstanding in 1995 and 1996
($187,500,000 aggregate liquidation value);
57,500 shares of 7.5% Cumulative Convertible
Accruing PIK Preferred Stock outstanding in
1996.......................................... 37,500 38,075
Common stock, par value $.01 per share;
100,000,000 shares authorized; shares
outstanding: 54,134,711 in 1995 and 54,404,188
in 1996....................................... 541,347 544,042
Additional paid-in capital..................... 557,837,759 618,212,220
Accumulated deficit............................ (133,383,935) (316,800,646)
Cumulative translation adjustment.............. (1,492,422) (598,307)
------------- -------------
Total stockholders' investment................ 423,540,249 301,395,384
------------- -------------
$ 851,413,531 $ 803,259,874
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Revenues:
U.S. operations................... $160,785,180 $ 235,870,191 $ 330,239,055
International operations.......... 2,484,744 10,120,802 20,289,596
------------ ------------- -------------
163,269,924 245,990,993 350,528,651
Expenses:
Operating......................... 43,532,259 69,000,425 115,784,932
Selling, general and
administrative.................... 122,023,417 193,103,060 226,984,752
Depreciation and amortization..... 22,293,429 42,309,249 99,938,576
Writedown of international and
other assets...................... -- -- 38,768,024
------------ ------------- -------------
187,849,105 304,412,734 481,476,284
------------ ------------- -------------
Operating income (loss)............ (24,579,181) (58,421,741) (130,947,633)
Interest income.................... 6,089,188 12,935,133 6,229,680
Interest expense................... (4,331,435) (11,754,931) (45,144,814)
Gain on sales of assets............ 4,732,392 2,689,150 2,367,976
Other income (expense)............. (3,804,049) 1,322,800 295,176
------------ ------------- -------------
Income (loss) before income taxes
and equity income (loss)........... (21,893,085) (53,229,589) (167,199,615)
Provision (benefit) for income
taxes.............................. 1,802,612 (256,494) 2,720,982
Equity in income (loss) from
investments........................ 3,849,212 945,684 (1,901,311)
------------ ------------- -------------
Net income (loss).................. $(19,846,485) $ (52,027,411) $(171,821,908)
Preferred dividend requirement..... 8,437,500 8,437,500 11,594,803
------------ ------------- -------------
Net income (loss) available to
common stockholders................ $(28,283,985) $ (60,464,911) $(183,416,711)
============ ============= =============
Net income (loss) per common share. $ (0.77) $ (1.19) $ (3.38)
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE
----------------- ------------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
--------- ------- ---------- -------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1993................... 3,750,000 $37,500 35,817,774 $358,178 $323,880,956 $ (44,635,039) $ (925,003)
Net loss............... -- -- -- -- -- (19,846,485) --
Preferred stock
dividend requirement.. -- -- -- -- -- (8,437,500) --
Exercise of stock
options............... -- -- 246,368 2,463 1,522,342 -- --
Conversion of
convertible
subordinated debt into
common stock.......... -- -- 9,550,133 95,501 88,861,535 -- --
Employee Stock Purchase
Plan.................. -- -- 32,444 325 478,982 -- --
Sale of Destineer
stock................. -- -- -- -- 24,317,008 -- --
Issuance costs from
1993 sale of preferred
stock................. -- -- -- -- (22,756) -- --
Currency translation
adjustment............ -- -- -- -- -- -- 388,806
--------- ------- ---------- -------- ------------ ------------- -----------
BALANCE, December 31,
1994................... 3,750,000 37,500 45,646,719 456,467 439,038,067 (72,919,024) (536,197)
Net loss............... -- -- -- -- -- (52,027,411) --
Preferred stock
dividend requirement.. -- -- -- -- -- (8,437,500) --
Exercise of stock
options............... -- -- 936,379 9,364 6,910,988 -- --
Conversion of
convertible
subordinated debt into
common stock.......... -- -- 116,500 1,165 1,163,835 -- --
Employee Stock Purchase
Plan.................. -- -- 43,140 431 625,991 -- --
Acquisition of SkyTel
minority interest..... -- -- 3,390,573 33,906 49,266,094 -- --
Acquisition of
Destineer minority
interest.............. -- -- 4,001,400 40,014 60,832,784 -- --
Currency translation
adjustment............ -- -- -- -- -- -- (956,225)
--------- ------- ---------- -------- ------------ ------------- -----------
BALANCE, December 31,
1995................... 3,750,000 37,500 54,134,711 541,347 557,837,759 (133,383,935) (1,492,422)
Net loss............... -- -- -- -- -- (171,821,908) --
Preferred stock
dividend requirement.. -- -- -- -- -- (11,594,803) --
Exercise of stock
options............... -- -- 204,093 2,041 1,824,245 -- --
Conversion of
convertible
subordinated debt into
common stock.......... -- -- 28,511 285 291,224 -- --
Employee Stock Purchase
Plan.................. -- -- 36,873 369 453,907 -- --
Sale of Mtel Latin
America, Inc. minority
interest.............. -- -- -- -- 1,912,070 -- --
Issuance of PIK
Preferred Stock....... 57,500 575 -- -- 55,893,015 -- --
Currency translation
adjustment............ -- -- -- -- -- -- 894,115
--------- ------- ---------- -------- ------------ ------------- -----------
BALANCE, December 31,
1996................... 3,807,500 $38,075 54,404,188 $544,042 $618,212,220 $(316,800,646) $ (598,307)
========= ======= ========== ======== ============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................ $ (19,846,485) $ (52,027,411) $(171,821,908)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization... 22,293,429 42,309,249 99,938,576
Provision for losses on accounts
receivable and paging
inventory...................... 2,314,397 6,880,223 17,222,560
Amortization of debt issuance
costs.......................... 394,480 1,164,359 2,112,642
Foreign currency transaction
loss........................... 717 13,735 660,799
Gain on sales of assets......... (4,732,392) (2,689,150) (2,367,976)
Losses attributable to minority
interests...................... -- (1,336,535) (955,975)
Equity in (income) loss from
investments.................... (3,849,212) (945,684) 1,901,311
Writedown of international and
other assets................... -- -- 38,768,024
Change in assets and
liabilities:
(Increase) in accounts
receivable.................... (889,439) (32,856,244) (11,197,945)
(Increase) decrease in other
current assets................ (9,554,466) 1,239,411 4,503,940
Increase (decrease) in accounts
payable and accrued
liabilities................... 16,086,369 48,807,295 (26,337,743)
------------- ------------- -------------
Net Cash Provided By (Used In)
Operating Activities.............. 2,217,398 10,559,248 (47,573,695)
------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from asset sales....... 10,335,242 3,840,250 67,729,578
Capital expenditures............ (227,666,624) (277,307,997) (118,586,932)
(Increase) in investment in
unconsolidated international
ventures....................... (20,566,441) (12,267,681) (19,588,525)
(Increase) decrease in other
assets......................... (98,546,131) 24,359,802 16,138,064
Decrease in short-term
investments.................... 40,643,039 53,689,435 --
------------- ------------- -------------
Net Cash Used In Investing
Activities........................ (295,800,915) (207,686,191) (54,307,815)
------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on long-term
debt........................... (284,793) (42,792,056) (2,014,661)
Issuance of debt................ 266,530,614 103,636,680 70,000,000
Sale of Destineer stock......... 50,225,000 -- --
Payment of dividends on
preferred stock................ (8,406,084) (8,437,500) (8,437,500)
Sale of stock and exercise of
stock options.................. 1,981,304 8,711,774 2,572,071
Issuance of PIK Preferred Stock. -- -- 55,893,590
------------- ------------- -------------
Net Cash Provided By Financing
Activities........................ 310,046,041 61,118,898 118,013,500
------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents........... 16,462,524 (136,008,045) 16,131,990
Cash and cash equivalents--
beginning of year.............. 129,158,255 145,620,779 9,612,734
------------- ------------- -------------
Cash and cash equivalents--end
of year........................ $ 145,620,779 $ 9,612,734 $ 25,744,724
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Mobile Telecommunication Technologies Corp. ("Mtel" or the "Company") is a
leading provider of nationwide messaging services in the United States. Mtel's
principal operations include SkyTel one-way messaging services in the United
States, advanced messaging services on the narrowband personal communication
services ("PCS") network and international one-way messaging operations.
Mtel's wholly-owned subsidiary, SkyTel Corp. ("SkyTel"), operates a one-way
nationwide messaging system whereby subscribers can be reached in thousands of
towns and cities in the United States by means of two dedicated 931 MHz
frequencies licensed by the Federal Communications Commission ("FCC"), a
ground-based transmitter system, leased satellite facilities and proprietary
network software.
In September 1995, the Company launched commercial operation of the first
nationwide wireless messaging network in the United States that utilizes
frequency licensed by the FCC for narrowband PCS. This network enables
subscribers to send and receive messages through the use of a new class of
small low-power, light-weight devices without the need to know the location of
the sender or receiver at the time of transmission, and utilizes a proprietary
system architecture designed and developed by Mtel. Mtel's 100%-owned
subsidiary, Destineer Corp. ("Destineer"), holds the FCC license utilized by
this network.
Mtel, through its 100%-owned subsidiary Mtel International, Inc. ("Mtel
International"), operates or has investments in entities that operate one-way
wireless messaging systems in various countries, primarily in the Latin
America region. Mtel also provides its subscribers with access to an
international messaging network that utilizes Mtel's proprietary technology
and interconnects the systems operated by Mtel and its joint ventures with
systems in Canada, Singapore and other countries. See Note 6.
On February 17, 1995, Mtel acquired United States Paging Corporation
("USPC") in a merger in which USPC stockholders received 1.6 million shares of
Mtel Common Stock having a value at the time of the transaction of
approximately $30.5 million. USPC provides local and regional paging services
with centralized and customized nationwide billing, computerized maintenance
and service reporting and computerized automatic messaging for centralized
dispatch. The merger was accounted for as a pooling-of-interests and,
accordingly, the financial statements of Mtel have been restated to include
the results of USPC for all periods presented.
Mtel is also engaged in other telecommunications-related businesses
including air-to-ground telecommunications operations and telephone answering
services ("TAS"). The Company is currently involved in negotiations regarding
the disposition of TAS.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of Mtel and its majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents--Mtel considers all cash investments purchased
with a maturity of three months or less to be cash equivalents. As of December
31, 1996, cash and cash equivalents of approximately $10.9 million were
restricted for use by Mtel Latin America, Inc. ("Mtel Latam").
F-7
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounts Receivable--Accounts receivable balances are presented net of
allowances for losses. Mtel's allowance for losses was $5.6 million as of
December 31, 1995 and $15.0 million as of December 31, 1996.
Property and Equipment--Property is recorded at cost net of accumulated
depreciation. Depreciation is provided using the straight-line method over the
following estimated useful lives:
<TABLE>
<S> <C>
Communications equipment.................................... 4 to 10 years
Buildings and other property................................ 3 to 20 years
</TABLE>
Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized. The cost and related reserves of assets sold or
retired are removed from the accounts and any resulting gain or loss is
reflected in the accompanying statements of operations.
Goodwill--Goodwill represents the excess cost over net tangible assets
acquired, primarily as a result of the acquisition of SkyTel and Destineer
minority interests (see Note 5) and TAS business combinations. Goodwill
associated with acquisitions within the United States is amortized over 40
years. Goodwill associated with acquisitions of international paging
operations is amortized over 5 years. Accumulated amortization related to
goodwill at December 31, 1995 and 1996 was $4.9 million and $7.6 million,
respectively.
Interest Capitalization--In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 34, Mtel capitalizes interest expense
related to equity investments and the construction or purchase of certain
assets which constitute activities preliminary to the commencement of the
planned principal operation. Interest capitalized in the years ended December
31, 1994, 1995 and 1996 was $2.9 million, $25.9 million and $6.1 million,
respectively.
Revenue Recognition--Revenue is recorded at the time of customer usage.
Per Share Amounts--Net loss per share is determined by dividing the net loss
available to common stockholders by the weighted average number of common
shares outstanding during the year with no effect given to common stock
equivalents because such effect would be antidilutive. Weighted average common
shares used for the purpose of calculating net loss per share for 1994, 1995
and 1996 were 36,831,880, 50,812,475 and 54,304,109, respectively. Primary and
fully diluted per share amounts were the same for each of the years presented.
Foreign Currency--The assets and liabilities of international subsidiaries
and equity investments in joint ventures are translated into U.S. dollars
using the year-end exchange rate; revenues and expenses are translated at the
average rate for the year. Foreign currency translation adjustments are
charged to a separate component of stockholders' investment. Financial results
of international subsidiaries and equity investments in joint ventures in
countries with highly inflationary economies are translated using a
combination of current and historical exchange rates and any adjustments are
included in net earnings for the period.
Income Taxes--Mtel's deferred tax asset as of December 31, 1996 is primarily
attributable to cumulative net operating loss carryforwards for federal income
tax purposes of $117.9 million which expire in various amounts during 2003
through 2011. The deferred tax liability is primarily attributable to
accelerated depreciation and amortization for tax purposes. A valuation
allowance has been provided for the full net deferred tax asset because
utilization of cumulative net operating loss carryforwards is dependent on the
Company generating future taxable income of sufficient amounts to offset such
cumulative losses. The provision (benefit) for income taxes in 1994, 1995 and
1996 is primarily attributable to state income taxes.
F-8
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following represents the Company's deferred tax asset, deferred tax
liability and related valuation allowance at December 31, 1995 and 1996:
1995 1996
------------ -------------
Deferred tax asset........................... $ 57,894,000 $ 134,363,000
Deferred tax liability....................... (23,246,000) (31,299,000)
Valuation allowance.......................... (34,648,000) (103,064,000)
------------ -------------
Net deferred tax asset....................... $ -- $ --
============ =============
Fair Value of Financial Instruments--The carrying amounts at December 31,
1995 and 1996 for cash, accounts receivable, accounts payable and accrued
liabilities are a reasonable estimate of their fair values. For 1995 and 1996,
the fair value of each of the other classes of financial instruments is
estimated based on quoted market prices for the same or similar instruments.
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------------- -------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
Securities Restricted
for Debt Service........... $ 64,101,000 $ 67,036,000 $ 32,546,000 $ 34,307,000
13.5% Senior Notes.......... 265,000,000 294,150,000 265,000,000 264,338,000
Financial Instruments
Included in Other Assets... 5,005,000 23,315,000 2,616,000 4,871,000
Stock-Based Compensation--SFAS No. 123 "Accounting for Stock-Based
Compensation" encourages, but does not require companies to record
compensation cost for stock-based compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock. See Note 10.
Recently Issued Accounting Standards--In October 1995, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
This statement requires that long-lived assets be reviewed for recoverability
based on estimates of future net cash flows if events or circumstances give
rise to questions as to the ability of a company to realize its investment in
such long-lived assets. The Company adopted the statement on January 1, 1996.
See Note 3 for additional information on an impairment loss recorded in 1996.
Use of Estimates--Financial statements prepared in accordance with generally
accepted accounting principles require the use of management estimates. The
most significant estimates included in these financial statements relate to
the estimated economic lives of and the Company's ability to realize its
investment in certain licenses, equipment and software which comprise the
Company's messaging networks. See Note 4. Specifically, the Company has
incurred significant costs to acquire licenses and to construct the narrowband
PCS network. The Company estimates that this cost will be recovered through
future operating cash flows to be generated from the narrowband PCS network.
Management's estimates as to the extent and timing of cash flows generated by
the narrowband PCS network could change, and such change could differ
materially from the estimates which were used to evaluate the Company's
ability to realize its investments in the narrowband PCS network at December
31, 1996.
Prior Year Balances--Certain reclassifications have been made to previously
reported balances to conform to current year presentation.
F-9
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) RISKS AND UNCERTAINTIES:
The Company has incurred substantial operating losses in 1994 through 1996,
primarily as a result of start-up losses associated with the introduction of
the narrowband PCS network and the Company's international development
efforts. Additionally, substantial capital expenditures were required from
1994 to 1996 related to the acquisition of narrowband PCS licenses,
construction and development of the narrowband PCS network, the purchase of
messaging units required to support significant growth in SkyTel one-way units
in service and international development activities. Management expects the
Company to incur operating losses in 1997 and 1998 primarily as a result of
continuing losses related to the narrowband PCS network.
The Company's business plan projects substantial growth in units in service
on both its SkyTel one-way and narrowband PCS networks and for continued
development and expansion of the narrowband PCS network. The Company
anticipates that a substantial portion of the anticipated growth on the
narrowband PCS network will come from advanced text messaging to be introduced
in the second quarter of 1997. This growth requires the availability of
significant capital resources to fund capital expenditures for network
expansion and messaging unit additions. Growth in units in service on both the
SkyTel one-way and narrowband PCS networks will also be required in order for
the Company to achieve consolidated operating profitability and positive
operating cash flows. Management believes that the Company can achieve the
anticipated growth in units in service and that the required capital resources
will be available to fund expected capital expenditures and operating losses.
However, if such growth is not achieved or adequate capital resources are not
available, the Company may not be able to complete its business plan or remain
in compliance with certain covenants of its bank loan agreement. See Note 7.
The Company began commercial operation of its narrowband PCS network in
September 1995 and incurred losses attributable to the narrowband PCS network
of $62.2 million and $158.2 million during 1995 and 1996, respectively. The
Company anticipates that the narrowband PCS network will continue to incur
losses during 1997 and 1998. The Company has invested approximately $377.6
million in assets and spectrum related to the narrowband PCS network at
December 31, 1996, and the Company expects to incur significant capital
expenditures to continue expansion of network coverage and to procure
messaging units for its subscriber base. Management believes that the
Company's investment in the assets of the narrowband PCS network will be
recovered through future operating cash flows of the narrowband PCS network.
The ability of the Company to generate sufficient levels of operating cash
flow on the narrowband PCS network is dependent on the addition of a
significant number of units in service and the availability of sufficient
capital resources to continue the development of the network and fund its
operating losses. Management's estimates of the cash flows generated by the
narrowband PCS network and the capital resources needed and available to
complete its development could change, and such change could differ materially
from the estimates used to evaluate the Company's ability to realize its
investment as of December 31, 1996. See Note 1 regarding the significance of
the use of estimates in the Company's financial statements.
The Company's operations and investments in each of its international
markets are generally subject to the risks of political, economic or social
instability, including the possibility of expropriation, confiscatory taxation
or other adverse regulatory or legislative developments, limitations on the
removal of investment income, capital and other assets and exchange rate
fluctuations.
(3) IMPAIRMENT OF CERTAIN LONG-LIVED ASSETS:
In 1996, the Company adopted SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company
recognized an impairment loss of approximately $38.8 million in 1996 for those
long-lived assets where the sum of such estimated future cash flows was less
F-10
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
than the carrying amount of such assets. SFAS 121 requires analysis of each
item on an individual asset by asset basis, where applicable, versus the
analysis of the aggregate asset value and aggregate cash flows previously
used. The amount of the impairment loss is the excess of the carrying amount
of the impaired asset over the fair value of the asset.
The Company has determined to divest or restructure its operations in the
Asia Pacific region. As a result, the Company's ownership percentage in
certain of its Asian subsidiaries or investees may be reduced. During 1996,
subsequent to the sale of its 29% equity interest in Mercury Paging Ltd.
("MPL"), the Company also determined to suspend its remaining operations in
Europe since the Company was unable to utilize the 931 MHz frequency for
paging operations in Europe.
Approximately $27.5 million of the impairment loss relates to certain of the
Company's international investments in Asia and Europe. An additional $11.3
million of impairment loss relates to certain domestic investments.
(4) MESSAGING NETWORKS:
Mtel continues to pursue its plan of developing nationwide and international
messaging networks through investments in the United States and certain
international locations. Costs incurred by the Company in establishing and
constructing messaging networks in the United States and by the Company's
majority-owned subsidiaries in countries outside the United States include,
among other things, property and equipment, internally developed software,
organizational costs, costs of acquiring required licenses and certain other
costs of establishing business operations.
The following provides additional details with respect to the elements of
the Company's messaging networks. See Note 11 for additional information
concerning the Company's business segments.
Property and Equipment--Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ -------------
<S> <C> <C>
Land............................................ $ 282,581 $ 259,408
Building........................................ 4,126,749 4,051,456
Communications equipment........................ 297,395,410 301,886,491
Other........................................... 70,033,621 88,343,099
------------ -------------
371,838,361 394,540,454
Accumulated depreciation........................ (77,211,919) (105,669,936)
------------ -------------
$294,626,442 $ 288,870,518
============ =============
</TABLE>
Depreciation expense in 1996 includes a charge of approximately $7.3 million
which represents a writedown of the book value of certain obsolete paging
equipment to fair market value and an adjustment resulting from a physical
pager inventory reconciliation.
Certificates of Authority and License Cost--Certificates of authority are
primarily attributable to costs associated with obtaining one-way paging
licenses and narrowband PCS licenses. Costs associated with licenses within
the United States are amortized over periods not exceeding 40 years. Costs
associated with obtaining licenses for international paging operations are
amortized over 5 years. Accumulated amortization related to certificates of
authority and license cost at December 31, 1995 and 1996 was $6.3 million and
$10.5 million, respectively.
F-11
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Destineer acquired two nationwide narrowband PCS licenses in an auction held
by the FCC in July 1994 at a cost of approximately $127.5 million. Effective
with the September 1995 commercial launch of the narrowband PCS network, the
Company began amortizing the cost of the license currently being used to
provide narrowband PCS services (approximately $80 million) over a 40-year
period. The Company will begin to amortize the cost of the acquired narrowband
PCS license (approximately $47.5 million) that is not currently being used at
such time as that frequency becomes operational.
The Company's initial nationwide narrowband PCS license was granted by the
FCC pursuant to a Pioneer's Preference and such grant was conditioned by the
FCC upon the payment by Mtel of a license fee in the amount of approximately
$33.0 million. Mtel filed an appeal challenging the condition requiring
payment for this license, and in March 1996 the United States Court of Appeals
for the D.C. Circuit issued a decision upholding the FCC's authority under the
Communications Act of 1934, as amended, to impose such a fee. However, the
Court remanded the matter to the FCC for consideration of the propriety of
requiring the payment of such a fee in light of Mtel's reliance on the FCC's
public pronouncements that no such fee would be imposed and the granting by
the FCC of other paging licenses without the imposition of any fee. Payment
for the license will not be required to be made unless and until such
litigation is definitively resolved adversely to Mtel. The narrowband PCS
network does not currently operate on the frequency covered by this license.
Network Construction and Development Costs--Network construction and
development costs represent the costs associated with the construction and
development of the SkyTel one-way messaging network and the narrowband PCS
network. These costs include software development costs, site acquisition and
development costs, capitalized interest costs and related costs. Network
construction and development costs are amortized over periods not exceeding 10
years. Accumulated amortization related to network construction and
development costs at December 31, 1995 and 1996 was $8.5 million and $22.5
million, respectively.
(5) ACQUISITION OF MINORITY INTEREST:
On January 13, 1995, Mtel acquired the 9.7% of the outstanding shares of
SkyTel Common Stock that Mtel did not already own in a transaction in which
the minority stockholders of SkyTel received approximately 3.4 million shares
of Mtel Common Stock having an aggregate value at the time of the transaction
of approximately $49 million. The transaction was accounted for as the
purchase of minority interest and resulted in goodwill of approximately $49
million. As a result of this transaction, all of the issued and outstanding
shares of SkyTel Common Stock are owned by Mtel.
On September 15, 1995, Mtel acquired the 19.9% of the outstanding shares of
Destineer Common Stock that Mtel did not already own in a transaction in which
the minority stockholders of Destineer received approximately 4.0 million
shares of Mtel Common Stock having an aggregate value at the time of the
transaction of approximately $85 million. The transaction resulted in goodwill
of approximately $31 million. As a result of this transaction, all of the
issued and outstanding shares of Destineer Common Stock are owned by Mtel.
If the SkyTel and Destineer minority interest acquisitions had occurred on
January 1, 1994, the unaudited pro forma net loss and net loss per common
share for the years ended December 31, 1995 and 1994 would have been $53.9
million and $1.17 per share and $22.5 million and $0.70 per share,
respectively.
(6) INTERNATIONAL INVESTMENTS:
Mtel has equity investments in unconsolidated joint ventures that operate
one-way messaging systems in 11 countries outside the United States. Costs
incurred by the Company in establishing these international joint ventures
include property and equipment, software development costs, organizational
costs and other costs of establishing business operations. Such costs are
generally capitalized by Mtel until such time as the investee becomes
operational or a relationship is abandoned. Once operations are established by
the investee, Mtel
F-12
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
classifies such costs based on the type of investment and determines the
method of accounting for its investment based on, among other things, its
ownership percentage and its ability to exercise significant influence over
the investee's operations and management. If the relationship is abandoned,
the capitalized costs are charged to expense. See Note 3 for information on
the impairment loss recorded in 1996 of approximately $27.5 million related to
the Company's investment in certain international assets in Asia and Europe.
Latin America --In September 1996, the Company sold a 20% equity interest in
Mtel Latam, the holding company for the Company's investments in Latin
America, for an aggregate purchase price of $35 million. Mtel Latam received
$27 million of the proceeds at closing and the remaining $8 million is due by
the end of the first quarter of 1997. No gain or loss was recorded in
connection with this transaction. The transaction is reflected as minority
interest on Mtel's balance sheet. Mtel received approximately $10.2 million of
the net proceeds as reimbursement for amounts invested in the Latin American
operations during 1996. The remainder of the net proceeds from the sale is
being used to fund capital expenditures, working capital requirements and
additional development efforts in the Latin American region. In order to sell
the equity interest in Mtel Latam, Mtel was required to designate Mtel Latam
as an "unrestricted subsidiary" for purposes of the Company's bank credit
agreement and the indenture relating to the Senior Notes. As a result of this
designation, Mtel Latam will be required to finance its operations and
development efforts independent of the Company. The purchaser has the right to
convert its shares of Mtel Latam Common Stock into shares of Mtel Common Stock
based on the then fair market value of the Mtel Latam Common Stock upon the
occurrence of certain events including, among other things, a change in
control of Mtel Latam or the absence of a public market for Mtel Latam Common
Stock on or before September 19, 2001.
Mtel Latam provides one-way wireless messaging services through 100%-owned
subsidiaries in Argentina, Puerto Rico and Uruguay and a 98%-owned subsidiary
in Colombia. Accordingly, the results of operations in these countries are
included in the Company's consolidated financial statements. Mtel Latam's
ownership percentages in other countries range from 19% to 50%. Investments in
which Mtel Latam holds an ownership percentage of 20% to 50% are generally
accounted for using the equity method. Any excess of Mtel Latam's capitalized
costs over the underlying book value of its ownership in international
operations is treated as an intangible asset and is generally amortized over a
five-year period beginning when the investee becomes operational. Mtel Latam's
largest unconsolidated international equity investment is in Mexico.
Mexico--Mtel Latam owns a 49% equity interest, and an affiliate of Grupo
Televisa, a media conglomerate based in Mexico City, owns a 51% equity
interest in Comunicaciones Mtel, S.A. de C.V. ("CMtel") which provides
nationwide one-way messaging services in Mexico. Mtel Latam recorded equity
income of approximately $1.6 million, $1.1 million and $1.8 million for the
years ended December 31, 1994, 1995 and 1996, respectively, from its
investment in CMtel. As of December 31, 1995 and 1996, the carrying value of
Mtel Latam's investment in CMtel was $9.0 million and $9.7 million,
respectively.
Other Mtel Latam Investments--Mtel Latam holds 50% or less equity
investments in several other international joint ventures which are in various
stages of operations. For those entities which have commenced operations,
other than CMtel, Mtel Latam's net investment at December 31, 1996 was
approximately $13.0 million as compared to approximately $8.8 million at
December 31, 1995. At December 31, 1996, these investments included operations
in Paraguay, Peru, Ecuador, Guatemala, Brazil, Dominican Republic and
Venezuela. Aggregate losses from 50% or less owned investments accounted for
using the equity method, other than CMtel, were approximately $0.1 million,
$1.5 million and $2.9 million for the years ended December 31, 1994, 1995 and
1996, respectively. Mtel Latam's net investment in international joint
ventures which were not yet operational was approximately $ 1.8 million at
December 31, 1996 as compared to $3.6 million at December 31, 1995.
Other Investments--Mtel also provides one-way messaging services through its
100%-owned subsidiary in Hong Kong, the results of operations from which are
included in the Company's consolidated financial statements.
F-13
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On July 15, 1996, the Company completed the sale of its 29% equity interest
in MPL, which operates in the United Kingdom, and received net pre-tax
proceeds of approximately $26.4 million. MPL was considered a non-strategic
asset because it does not operate on the 931 MHz frequency in the United
Kingdom. In 1996, the Company recorded a net after-tax loss on the sale of its
equity interest in MPL of approximately $4.2 million. Mtel recorded equity
income from MPL of approximately $2.7 million, $2.6 million and $0.7 million
for the years ended December 31, 1994, 1995 and 1996, respectively. For the
year ended December 31, 1995, Mtel received dividends of approximately $1.2
million from MPL.
(7) DEBT:
A summary of debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
------------ ------------
<S> <C> <C>
13.5% Senior Subordinated Discount Notes due 2002. $265,000,000 $265,000,000
Bank credit facility.............................. 65,500,000 135,500,000
6.75% Convertible subordinated debentures due
2002.............................................. 1,512,000 1,455,000
Other notes payable............................... 2,525,146 567,485
------------ ------------
334,537,146 402,522,485
Less current maturities........................... 1,278,426 31,263
------------ ------------
$333,258,720 $402,491,222
============ ============
</TABLE>
On December 30, 1994, the Company completed a public offering of $265.0
million principal amount of 13.5% Senior Subordinated Discount Notes due 2002
(the "Senior Notes"). Interest on the Senior Notes is payable semi-annually on
June 15 and December 15 of each year. The Company used approximately $93.6
million of the net proceeds to purchase a portfolio of securities pledged as
security for payment of interest on the Senior Notes through December 15,
1997. The portfolio is comprised of U.S. government securities with maturities
designed to coincide with the dates that interest on the Senior Notes is
payable. The Senior Notes will mature on December 15, 2002 and are subject to
redemption at the option of the Company, in whole or in part, at any time on
or after December 15, 1999, at a redemption price of par plus a premium (for
any redemption prior to December 15, 2001) and any accrued and unpaid
interest, to the date of redemption. In addition, at any time prior to
December 15, 1997, at the option of the Company, up to 25% of the aggregate
principal amount of the Senior Notes may be redeemed at a redemption price
equal to 114.5% of the principal amount of the Senior Notes at the date of
redemption, plus accrued and unpaid interest, if any, to the date of
redemption, with the proceeds from the sale of at least $75.0 million of
certain equity securities to a strategic equity investor meeting certain
qualifications; provided, that at least 75% of the aggregate principal amount
of the Senior Notes originally issued remains outstanding following any such
redemption. The Senior Notes are senior obligations of the Company and rank
senior in right of payment to all subordinated indebtedness of the Company.
In July 1996, the Company completed a consent solicitation pursuant to which
the holders of the Senior Notes approved certain amendments to the indenture
relating to the Senior Notes. Under the amended terms of the indenture, the
Company has the ability to incur additional senior debt, subject to the terms
of its existing bank credit facility, to meet the Company's anticipated
financial needs. The amount of senior debt that may be incurred under the
covenants in the indenture is based, in part, on the number of messaging units
placed in service since September 30, 1994. In addition, the amendments to the
indenture permit the Company to designate its Latin American and Asian holding
companies as "unrestricted" subsidiaries for purpose of the indenture, thereby
taking these entities outside the scope of the indenture covenants. The
Company paid consenting holders of the Senior Notes $15.00 per $1,000
principal amount of Senior Notes, or an aggregate of approximately $3.9
million, and agreed to extend the period during which the Company is
prohibited from effecting an optional
F-14
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
redemption of the Senior Notes by one year to December 15, 1999. The indenture
relating to the Senior Notes also contains customary cross-default provisions.
In December 1995, SkyTel established a $250.0 million secured revolving
credit facility (the "bank credit facility") with a final maturity of December
31, 2001 from a syndicate of financial institutions (the "Bank Group"). The
bank credit facility is being used for capital expenditures, working capital
and other general corporate purposes. Borrowings under the bank credit
facility, as amended in March 1997, bear interest at the option of SkyTel at
(i) the alternate base rate (as defined in the credit facility) plus 2% or
(ii) the London Interbank Offering Rate ("LIBOR") plus 3% through December 31,
1997. Borrowings thereafter bear interest at the option of SkyTel at the
alternate base rate plus an additional margin of 1% to 2% or the LIBOR plus an
additional margin ranging from 2% to 3%, in each case with the applicable
margin being based upon the ratio of the Company's consolidated total debt to
the combined annualized cash flows of SkyTel and USPC for the two preceding
quarters. The borrowings outstanding at December 31, 1996 carried an 8.3%
average interest rate as of that date. Borrowings under the bank credit
facility are guaranteed by Mtel and its U.S. subsidiaries and are secured by
substantially all of the assets of SkyTel, Mtel and Mtel's other U.S.
subsidiaries. The loan agreement relating to the bank credit facility, as
amended, contains extensive quarterly financial and operating covenants,
including certain minimum cash flow and subscriber level requirements, as well
as covenants limiting the incurrence of additional indebtedness and
restricting the payment of cash dividends by both SkyTel and the Company. On
December 10, 1996, the Company received a waiver pursuant to which the lending
banks modified the December 31, 1996 subscriber level requirements and
extended the date by which the Company must sell equity securities in a
subsidiary holding the Company's investments in Asia. At December 31, 1996,
Mtel and SkyTel were in compliance with each of the covenants set forth in the
bank credit facility, as amended, and as modified by the December 10, 1996
waiver. The $250.0 million commitment available to SkyTel for borrowings under
the bank credit facility reduces quarterly commencing on March 31, 1999. The
quarterly reductions in the commitment are $22.5 million for each quarter in
1999, $27.5 million for each quarter in 2000 and $12.5 million for each
quarter in 2001.
As a result of higher than projected capital expenditures in the fourth
quarter of 1995, SkyTel incurred higher than expected borrowings under the
bank credit facility. The capital expenditures and resulting borrowings caused
SkyTel to be in violation of a capital expenditure covenant as of December 31,
1995 and a leverage maintenance covenant during the first quarter of 1996, and
resulted in a temporary suspension of the Company's borrowing availability
under the bank credit facility. In March 1996, the lending banks waived these
covenant violations and agreed to certain amendments (the "March 1996
Amendments") to the bank credit facility to provide additional operating
flexibility under the bank credit facility.
The March 1996 Amendments required the Company to complete certain
transactions during 1996, including the sale of Cumulative Convertible
Accruing PIK Preferred Stock (the "PIK Preferred Stock") resulting in gross
proceeds of at least $50.0 million, the sale of the Company's interest in MPL
in the United Kingdom for certain minimum proceeds, and the sale of equity
securities in subsidiaries holding the Company's investments in Latin America
and Asia for certain minimum proceeds. The Company completed the sale of the
PIK Preferred Stock in the second quarter of 1996 and completed the sale of
MPL and the sale of equity securities in a subsidiary holding the Company's
investments in Latin America in the third quarter of 1996. In the March 1997
amendment discussed below, the Bank Group extended the date by which the
Company must sell all or a portion of its equity securities in Asia for
certain minimum proceeds to December 31, 1997.
On March 27, 1997, SkyTel and the Bank Group completed a further amendment
to the bank credit facility designed to align certain financial and
operational covenants contained in the bank credit facility to the Company's
business plan. However, the bank credit facility, as amended in March 1997,
limits the amount of borrowings available thereunder to $175 million,
increasing to $190 million upon receipt of confirmation by the Bank Group that
the Company is in compliance with all covenants as of June 30, 1997, and
increasing to $200
F-15
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
million upon receipt of confirmation of such compliance as of September 30,
1997. Additional availability thereafter will be subject to the approval of
the Company's 1998 business plan by the banks holding at least 66 2/3% of the
total outstanding borrowings under this facility. The Company's borrowing
availability will decrease to $175 million on and after December 31, 1998
unless the Bank Group has approved additional availability in accordance with
the preceding sentence.
On May 28, 1992, the Company completed an underwritten public offering of
$86,250,000 principal amount of 6.75% Convertible Subordinated Debentures (the
"Debentures") due May 15, 2002. On December 12, 1994, the holders of the
Debentures converted $82.2 million in aggregate principal amount of Debentures
into Mtel Common Stock pursuant to a conversion offer made by the Company and
received, in addition to approximately 8.2 million shares of Mtel Common
Stock, a cash payment equal to approximately $45 per $1,000 face amount of
Debentures. The aggregate amount of this conversion cost, $3.1 million, was
charged to other expense in 1994. Interest on the remaining Debentures is
payable semi-annually on May 15 and November 15. The Debentures are
convertible into common stock of the Company at $10 per share.
(8) COMMITMENTS AND CONTINGENCIES:
At December 31, 1996, Mtel was committed under noncancelable operating
leases expiring on various dates. The leases are primarily for the rental of
office space, antenna sites and vehicles. Annual commitments for rental
payments on such leases in each of the years ending December 31, 1997 through
2001 and thereafter are as follows:
<TABLE>
<CAPTION>
MINIMUM
RENTAL
YEAR PAYMENTS
---- -----------
<S> <C>
1997............................................................. $36,197,000
1998............................................................. 29,774,000
1999............................................................. 22,186,000
2000............................................................. 13,659,000
2001............................................................. 6,909,000
Thereafter....................................................... 9,641,000
</TABLE>
Rental expense for operating leases was approximately $13.0 million, $22.4
million and $38.1 million during the years ended December 31, 1994, 1995 and
1996, respectively.
The Company currently acquires a significant portion of its messaging units
from a single vendor. The ability of the Company to continue to provide
messaging units to its customers is largely dependent on the vendor's ability
to supply such messaging units on a timely basis.
Mtel has entered into an agreement with Wireless Access, Inc. with respect
to the design and manufacture of messaging units for the narrowband PCS
network. The Company's total commitment under this agreement is approximately
$21.1 million. Approximately $16.0 million of this commitment is expected to
be paid during 1997 with the balance payable in the first quarter of 1998.
Mtel has also entered into agreements with Motorola, Inc. for the purchase of
advanced messaging units for the narrowband PCS network. The Company's total
commitment in 1997 under the agreement is approximately $11.1 million for
advanced messaging units and $7.6 million for infrastructure.
On February 20, 1997, certain litigation was filed in the United States
District Court for the District of Columbia against the Company, its wholly-
owned subsidiary SkyTel, and seven current and former officers and directors.
The litigation alleges certain violations of the Securities Exchange Act of
1934, as amended, during the period January 19, 1995 through February 22,
1996. The plaintiffs are seeking unspecified damages and to have the case
certified as a class action. The Company is reviewing the allegations in the
complaint and intends to vigorously defend in this litigation.
F-16
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is involved in various other legal matters and claims which are
being defended and handled in the ordinary course of business. None of these
other matters is expected, in the opinion of management, to have a material
adverse effect upon the financial position or results of operations of the
Company.
(9) STOCKHOLDERS' INVESTMENT:
In July 1989, Mtel declared a dividend of one stock purchase right for each
outstanding share of Mtel Common Stock. Under certain conditions, each right
may be exercised to purchase from Mtel one one-hundredth of a share of Mtel
Series C Junior Participating Preferred Stock, $.01 par value per share, at a
price of $30, subject to adjustment. The rights may only be exercised after a
public announcement that a party has acquired or obtained the right to acquire
20% or more of the outstanding shares of Mtel Common Stock or after
commencement of a tender offer or exchange offer for 20% or more of the
outstanding shares of Mtel Common Stock. The rights, which do not have voting
rights, expire in 1999 and may be redeemed by Mtel at a price of $.01 per
right at any time prior to their expiration or the acquisition of 20% of the
outstanding shares of Mtel Common Stock. In the event that Mtel is acquired in
a merger or other business transaction not approved by the Mtel Board of
Directors, each holder of a right shall have the right to receive that number
of shares of Mtel Common Stock that would have a market value of two times the
exercise price of the right.
On October 19, 1993, the Company sold 3,750,000 shares of $2.25 Cumulative
Convertible Exchangeable Preferred Stock (the "$2.25 Preferred Stock") at a
price of $50 per share with an aggregate liquidation value of approximately
$187.5 million. The sale of the $2.25 Preferred Stock was made in a private
transaction exempt from the registration requirements of the federal
securities laws. The $2.25 Preferred Stock is convertible at any time at the
option of the holder into shares of common stock of the Company at a
conversion rate of 1.1111 common shares for each share of $2.25 Preferred
Stock. The $2.25 Preferred Stock is mandatorily redeemable under conditions
outside the control of the Company in certain circumstances and such
redemption may be made in common stock of the Company or cash at the Company's
option. Net proceeds to the Company, after deducting the expenses of the
offering and the discounts to the initial purchasers, were approximately
$181.0 million.
In April and May of 1996, the Company sold an aggregate of 57,500 shares of
PIK Preferred Stock for an aggregate purchase price of $57.5 million to
certain investors, including Microsoft Corporation, Kleiner Perkins Caufield &
Byers, Chase Manhattan Corporation and certain executive officers and
directors of the Company, including John N. Palmer, Chairman of the Board.
Holders of the PIK Preferred Stock are entitled to receive dividends out of
funds legally available therefor at an annual rate of 7.5% (or $75 per share
of PIK Preferred Stock), payable quarterly on each March 15, June 15,
September 15 and December 15. The Company has the option, however, to pay
dividends on the PIK Preferred Stock through the later of the fifth
anniversary of the date of issuance or until cash dividends are permitted
under the Company's bank credit facility and the indenture relating to the
Senior Notes in the form of additional shares of PIK Preferred Stock.
Cumulative unpaid dividends on the PIK Preferred Stock of $3.2 million have
been accrued from the date of original issuance.
The PIK Preferred Stock ranks junior in right of payment to the Company's
outstanding $2.25 Preferred Stock. In the event of any liquidation,
dissolution or winding up of the Company, holders of PIK Preferred Stock would
be entitled to receive, following payment in full to the holders of the $2.25
Preferred Stock of all amounts to which such holders are entitled, a
liquidation preference in the amount of $1,000 per share of PIK Preferred
Stock, plus accrued and unpaid dividends, before any payment is made or assets
are distributed to holders of Mtel Common Stock or any other class of stock of
the Company ranking junior to the PIK Preferred Stock as to rights upon
liquidation, dissolution or winding up of the Company. Except as required by
law or with respect to the creation or amendment of senior classes of
preferred stock, holders of PIK Preferred Stock do not have voting rights
unless quarterly dividends on the Company's $2.25 Preferred Stock are in
arrears for two consecutive
F-17
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
quarters, in which case, the number of directors of the Company would be
increased by one and the holders of PIK Preferred Stock, voting separately as
a class, will be entitled to elect one director until the dividend arrearage
has been paid. In the event quarterly dividends on the Company's $2.25
Preferred Stock are in arrears for four consecutive quarters, the number of
directors of the Company would be increased again by one, and the holders of
PIK Preferred Stock would be entitled to elect an additional director.
Each share of PIK Preferred Stock is convertible at the option of the holder
into shares of Mtel Common Stock at conversion prices ranging from $17.90 per
share to $18.19 per share of Mtel Common Stock, subject to adjustment upon the
occurrence of certain events. Following the second anniversary of the date of
issuance of the PIK Preferred Stock, the Company may redeem, in whole or in
part, the outstanding PIK Preferred Stock at a price of $1,000 per share plus
accrued and unpaid dividends. The bank credit facility, as amended, and the
indenture relating to the Senior Notes prohibit the voluntary redemption of
the PIK Preferred Stock. Commencing on the seventh anniversary of the date of
issuance of the PIK Preferred Stock and continuing through the tenth
anniversary thereof, the Company must redeem 7,500 shares of PIK Preferred
Stock at a price of $1,000 per share, along with accrued and unpaid dividends
thereon. Such redemption may be made, at the Company's option, in Mtel Common
Stock or cash.
(10) EXECUTIVE INCENTIVE PLANS AND STOCK-BASED COMPENSATION:
In October 1988, the Board of Directors of Mtel adopted an Executive
Incentive Plan (the "1988 Plan"). The 1988 Plan provides for the granting of
stock options, stock appreciation rights, performance units and restricted
stock to officers and employees for a maximum of 2,500,000 shares of Mtel
Common Stock. In October 1990, the Board of Directors of Mtel adopted the 1990
Executive Incentive Plan (the "1990 Plan"). The 1990 Plan, as amended by the
vote of the stockholders at the 1995 annual meeting, similarly provides for
the granting of stock options, stock appreciation rights, performance units
and restricted stock not to exceed an additional 6,000,000 shares of Mtel
Common Stock. Options may be granted under both the 1988 Plan and 1990 Plan to
purchase shares of Mtel Common Stock at a price not less than the fair market
value on the date of grant. Option rights under both the 1988 Plan and the
1990 Plan issued prior to January 1, 1996 generally become exercisable as to
33 1/3% of the shares of Mtel Common Stock covered thereby on the first
anniversary of the date of the grant, and become exercisable as to an
additional 33 1/3% 18 months and 24 months after the date of the grant. Option
rights under both the 1988 Plan and the 1990 Plan issued on or after January
1, 1996 generally become exercisable as to 25% of the shares of Mtel Common
Stock covered thereby on the first anniversary of the date of the grant, and
become exercisable as to an additional 25% 2 years, 3 years and 4 years after
the date of the grant. All options expire ten years from the date of the
grant. During 1996, the Company granted certain executive officers 87,500
shares of restricted stock.
Mtel also has adopted a Long-Term Management Incentive Plan (the "Long-Term
Incentive Plan") which was approved by the stockholders of the Company at the
1993 annual meeting. The Long-Term Incentive Plan provides for awards
consisting of cash, shares of the Company's common stock or stock options, or
any combination thereof, to officers and key employees of the Company and its
subsidiaries selected for participation by the Compensation Committee of the
Board of Directors. The awards are payable if Mtel's total return to
stockholders over the three-year performance cycle exceeds the rate of return
on a three-year Treasury bill over the performance cycle and meets or exceeds
certain levels of the total return to stockholders of a group of companies
within the telecommunications industry group. Mtel has reserved 500,000 shares
from its authorized but unissued shares of common stock for awards pursuant to
the Long-Term Incentive Plan. No awards have been granted under the Long-Term
Incentive Plan for the three-year performance cycle ended December 31, 1996.
In March 1993, the Board of Directors of the Company adopted the Company's
1993 Employee Stock Purchase Plan (the "Stock Purchase Plan") which authorizes
the granting of options to purchase up to 500,000 shares of common stock of
Mtel to the Company's employees. The Stock Purchase Plan was approved by the
F-18
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
stockholders of the Company at the 1993 annual meeting. All employees of the
Company and its subsidiaries who are not executive officers of the Company and
who have been employed for six months or more are eligible to elect to be
granted options under the Stock Purchase Plan. The purchase price for optioned
stock will be the lesser of (a) 85 percent of the fair market value of the
common stock on the date of grant or (b) 85 percent of such fair market value
on the date of exercise of the option. Employees may elect to have up to 10
percent of their compensation withheld from payroll and applied to purchase
common stock under the Stock Purchase Plan. A total of 43,140 and 36,873
shares of common stock of the Company was issued under the Stock Purchase Plan
during 1995 and 1996, respectively.
Mtel has also granted directors who are not officers of Mtel certain
nonqualified options outside of its executive incentive plans. These
nonqualified stock options become exercisable in accordance with terms similar
to options granted under the 1988 Plan and the 1990 Plan. There was no
compensation expense attributable to these options.
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost
has been recognized for the stock option plans. If compensation cost had been
determined based on the fair value at grant date for awards in 1995 and 1996
in accordance with SFAS No. 123, the Company's net income (loss) and net
income (loss) per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1995 1996
------------ -------------
<S> <C> <C>
Net income (loss)--As reported................. $(52,027,411) $(171,821,908)
Net income (loss)--Pro forma................... $(55,521,833) $(177,675,832)
Net income (loss) per share--As reported....... $ (1.19) $ (3.38)
Net income (loss) per share--Pro forma......... $ (1.26) $ (3.49)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Expected life................................................ 5 years 5 years
Risk-free interest rate...................................... 5.39% 6.22%
Expected volatility.......................................... 53% 53%
Dividend yield............................................... -0- -0-
</TABLE>
The weighted average fair value of options granted during 1995 and 1996 was
$13.51 and $7.25 per share, respectively. The pro forma effect on net income
for 1996 and 1995 is not representative of the pro forma effect on net income
in future years because pro forma compensation expense related to grants made
prior to 1995 is not included.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, Beginning
of Year................ 3,673,700 $ 5.72 4,738,512 $ 9.25 4,481,781 $12.13
Granted................ 1,373,890 18.08 709,100 24.44 1,333,500 13.32
Exercised.............. (246,368) 16.54 (936,379) 19.44 (204,093) 16.16
Canceled............... (62,710) 7.42 (29,452) 16.22 (789,753) 19.34
Outstanding, End of
Year.................... 4,738,512 $ 9.25 4,481,781 $12.13 4,821,435 $11.54
</TABLE>
F-19
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options to purchase 3,175,468 shares of common stock were outstanding and
exercisable at an average exercise price of $9.55 per share at December 31,
1996.
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ---------------------
RANGE OF NUMBER WEIGHTED AVG. WTD. AVG. NUMBER WTD. AVG.
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/96 CONTRACTUAL LIFE PRICE AT 12/31/96 PRICE
- ---------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 2 to $12 2,758,935 4.8 yrs $ 6.24 2,088,935 $ 4.41
$13 to $23 1,939,500 8.0 yrs $17.88 1,045,549 $18.99
$24 to $34 123,000 8.7 yrs $30.21 40,984 $30.21
</TABLE>
(11) SEGMENT INFORMATION:
Mtel is principally engaged in one-way messaging operations, advanced
messaging operations and international operations. The Company's other
businesses include air-to-ground telecommunications operations and telephone
answering services. For purposes of reporting operating income (loss) for the
Company's business segments, certain indirect operating and selling, general
and administrative costs must be allocated among the business segments. Such
costs are generally allocated among the one-way messaging, advanced messaging
and international segments based on the percentage of time spent by the
applicable personnel on each segment's activities.
For the year ended December 31, 1994, international revenues, operating
income (loss) and depreciation and amortization are attributable primarily to
the Company's Argentina and Colombia operations. International revenues,
operating income (loss) and depreciation and amortization for the year ended
December 31, 1995 are comprised of the Company's operations in Argentina,
Colombia, Hong Kong and Uruguay. International revenues, operating income
(loss) and depreciation and amortization for the year ended December 31, 1996
are comprised of the Company's operations in Argentina, Colombia, Hong Kong,
Uruguay and Puerto Rico. Net Income (Loss)--International for the years ended
December 31, 1994, 1995 and 1996 includes equity income (loss) of $3.8
million, $1.2 million and ($1.4) million, respectively, relating to its
minority-owned investments in the United Kingdom, Mexico and certain other
countries. See Note 3 for information on the impairment of certain long-lived
assets and Note 6 for information on the Company's sale of its investment in
the United Kingdom in 1996. Net Income (Loss)--Other for 1994 includes a gain
of $2.5 million from the sale of the Company's digital point-to-point
microwave system and a gain of $2.2 million from the sale of two specialized
mobile radio licenses and assets. Net Income (Loss)--Other for 1995 and 1996
includes a $2.5 million gain and a $6.6 million gain, respectively, from the
sales of a portion of the Company's stock in American Mobile Satellite Corp.
No provision or benefit for income taxes has been reflected in the
determination of net income (loss) for the Company's business segments because
the Company incurred no federal income tax liability on a consolidated basis.
F-20
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized information about Mtel's operations in its principal segments is
presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995 1996
-------- -------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues--
One-way messaging............................. $150,455 $225,146 $ 311,601
Advanced messaging............................ -- 1,213 9,593
International................................. 2,485 10,121 20,289
Other......................................... 10,330 9,511 9,046
-------- -------- ---------
$163,270 $245,991 $ 350,529
Operating Income (Loss)--
One-way messaging............................. $ (4,608) $ 21,225 $ 52,253
Advanced messaging............................ (4,344) (54,311) (119,092)
International................................. (10,755) (21,392) (54,104)
Other......................................... (4,872) (3,944) (10,004)
-------- -------- ---------
$(24,579) $(58,422) $(130,947)
Depreciation and Amortization--
One-way messaging............................. $ 17,520 $ 27,998 $ 51,457
Advanced messaging............................ - 6,314 33,083
International................................. 1,826 4,938 10,315
Other......................................... 2,947 3,059 5,083
-------- -------- ---------
$ 22,293 $ 42,309 $ 99,938
Net Income (Loss)--
One-way messaging............................. $(14,688) $ 20,184 $ 48,306
Advanced messaging............................ (4,344) (62,168) (158,203)
International................................. (6,779) (21,380) (65,001)
Other......................................... 5,965 11,337 3,076
-------- -------- ---------
$(19,846) $(52,027) $(171,822)
Total Assets--
One-way messaging............................. $117,708 $254,886 $ 263,437
Advanced messaging............................ 190,740 378,784 377,628
International................................. 116,449 102,965 70,980
Other......................................... 290,574 114,779 91,215
-------- -------- ---------
$715,471 $851,414 $ 803,260
Capital Expenditures--
One-way messaging............................. $ 35,483 $ 90,132 $ 67,493
Advanced messaging............................ 176,808 162,339 45,969
International................................. 11,190 12,978 2,637
Other......................................... 4,186 11,859 2,488
-------- -------- ---------
$227,667 $277,308 $ 118,587
</TABLE>
F-21
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected unaudited quarterly financial data is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------------- ----------------- ----------------- ------------------
1995 1996 1995 1996 1995 1996 1995 1996
------- -------- ------- -------- ------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $50,628 $ 80,584 $56,864 $ 88,212 $64,423 $ 92,006 $ 74,076 $ 89,727
Operating income (loss). $(5,300) $(26,136) $(3,946) $(18,511) $(7,332) $(17,825) $(41,844) $(68,475)
Net income (loss)....... $(4,009) $(28,574) $ (993) $(28,897) $(6,640) $(32,304) $(40,385) $(82,047)
Net income (loss) per
common share........... $ (0.13) $ (0.57) $ (0.06) $ (0.59) $ (0.17) $ (0.65) $ (0.79) $ (1.57)
</TABLE>
Net loss per share is calculated by dividing the net loss by the weighted
average number of common shares outstanding during the quarter with no effect
given to common stock equivalents because such effect would be antidilutive.
The operating loss and net loss for the quarter ended December 31, 1995,
include the narrowband PCS launch costs and the first full quarter of
operating costs, depreciation and amortization and interest expense
attributable to the narrowband PCS network. In 1995, approximately $18.3
million of narrowband PCS launch costs, representing primarily promotional and
marketing costs incurred by the Company in 1995 in connection with the
commencement of commercial operation of the narrowband PCS network, were
recorded as part of selling, general and administrative costs. These costs
were incurred in addition to the advertising and marketing costs incurred in
connection with on-going sales and marketing activities and will not recur.
The operating loss and net loss for the quarter ended December 31, 1996
include the impairment loss of international and other assets. See Note 3.
(13) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid by Mtel during the years ended December 31, 1994, 1995 and
1996 amounted to $6.6 million, $35.4 million and $46.6 million, respectively.
No federal income taxes were paid during these years. See Note 5 for
information on non-cash transactions.
F-22
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE
----
Financial Statement Schedule of the Company:
II Valuation and Qualifying Accounts.................................... FA-2
Report of Independent Public Accountants on Financial Statement Schedule
of the Company......................................................... FA-3
FA-1
<PAGE>
SCHEDULE II
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO ACCOUNTS BALANCE AT
BEGINNING COSTS AND WRITTEN END OF
DESCRIPTION OF PERIOD EXPENSES OFF DEDUCTIONS PERIOD
- ----------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
1994.................. $1,308,060 $ 2,314,397 $1,271,881 $0 $ 2,350,576
1995.................. 2,350,576 6,880,223 3,634,408 0 5,596,391
1996.................. 5,596,391 15,922,560 6,524,095 0 14,994,856
</TABLE>
FA-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Mobile Telecommunication Technologies Corp.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Mobile Telecommunication Technologies
Corp. included in this Form 10-K, and have issued our report thereon dated
March 27, 1997. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The accompanying financial
statement schedule is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This financial statement schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Jackson, Mississippi,
March 27, 1997.
FA-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Mobile Telecommunication
Technologies Corp.
By: /s/ John T. Stupka
---------------------------------
JOHN T. STUPKA
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Date: March 27, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John T. Stupka President, Chief Executive March 27, 1997
_________________________________ Officer (Principal
JOHN T. STUPKA Executive Officer) and
Director
/s/ Robert Kaiser Senior Vice President-- March 27, 1997
_________________________________ Finance and Chief Financial
ROBERT KAISER Officer (Principal
Financial and Accounting
Officer)
/s/ Haley Barbour Director March 27, 1997
_________________________________
HALEY BARBOUR
/s/ Thomas G. Barksdale Director March 27, 1997
_________________________________
THOMAS G. BARKSDALE
/s/ Jai P. Bhagat Director March 27, 1997
_________________________________
JAI P. BHAGAT
/s/ Gregory B. Maffei Director March 27, 1997
_________________________________
GREGORY B. MAFFEI
/s/ John N. Palmer Chairman of the Board March 27, 1997
_________________________________
JOHN N. PALMER
/s/ R. Faser Triplett Director March 27, 1997
_________________________________
R. FASER TRIPLETT
/s/ R. Gerald Turner Director March 27, 1997
_________________________________
R. GERALD TURNER
/s/ E. Lee Walker Director March 27, 1997
_________________________________
E. LEE WALKER
/s/ John E. Welsh III Director March 27, 1997
_________________________________
JOHN E. WELSH III
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
3.1 Restated Certificate of
Incorporation of the
Company (Exhibit 3.3 to
the Registration Statement
on Form 10 filed on
November 18, 1988 and
effective on December 29,
1988)..................... I/B/R
3.2 Bylaws of the Company, as
amended (Exhibit 3.4 to
the Registration Statement
on Form 10 of the Company
filed on November 18, 1988
and effective on December
29, 1988)................. I/B/R
4.1 Certificate of
Designations of Series C
Junior Participating
Preferred Stock of the
Company (Exhibit 3 to the
Registration Statement on
Form 8-A of the Company
filed on August 3, 1989).. I/B/R
4.2 Rights Agreement dated as
of July 26, 1989 between
the Company and NCNB Texas
National Bank (Exhibit 2
to the Registration
Statement on Form 8-A of
the Company filed on
August 3, 1989)........... I/B/R
4.3 Form of Right Certificate
of the Company (Exhibit 1
to the Registration
Statement on Form 8-A of
the Company filed on
August 3, 1989)........... I/B/R
4.4 Indenture dated as of May
28, 1992 between the
Company and NationsBank of
Texas, N.A., as Trustee,
relating to the Company's
6.75 % Convertible
Subordinated Debentures
due May 15, 2002,
including as an exhibit
thereto the form of
Debenture (Exhibits 4.3
and 28 to the Company's
Quarterly Report on Form
10-Q for the quarter ended
September 30, 1992)....... I/B/R
4.5 Form of Indenture between
the Company and Texas
Commerce Bank National
Association, as Trustee,
relating to the 13.5 %
Senior Notes due 2002,
including as an exhibit
thereto the form of the
Note (Exhibit 4.8 to the
Company's Registration
Statement on Form S-3
filed on November 10, 1994
and effective on December
21, 1994)................. I/B/R
4.6 Certificate of
Designations of the $2.25
Cumulative Convertible
Exchangeable Preferred
Stock of the Company
(Exhibit 4.1 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended September
30, 1993)................... I/B/R
4.7 Credit, Security, Guaranty
and Pledge Agreement dated
as of December 21, 1995 by
and among the Company, the
lenders referred to
therein, Chemical Bank,
Credit Lyonnais New York
Branch and J.P. Morgan
Securities, Inc. (Exhibit
4.7 to the Company's
Annual Report on Form 10-K
for the year ended
December 31, 1995)........ I/B/R
4.8 Contribution Agreement of
the Company dated as of
December 21, 1995 entered
into in connection with
the Credit, Security,
Guaranty and Pledge
Agreement dated as of
December 21, 1995 by and
among the Company, the
lenders referred to
therein, Chemical Bank,
Credit Lyonnais New York
Branch and J.P. Morgan
Securities, Inc. (Exhibit
4.8 to the Company's
Annual Report on Form 10-K
for the year ended
December 31, 1995)........ I/B/R
4.9 Patent and Security
Agreement of the Company
dated as of December 21,
1995 entered into in
connection with the
Credit, Security, Guaranty
and Pledge Agreement dated
as of December 21, 1995 by
and among the Company, the
lenders referred to
therein, Chemical Bank,
Credit Lyonnais New York
Branch and J.P. Morgan
Securities, Inc. (Exhibit
4.9 to the Company's
Annual Report on Form 10-K
for the year ended
December 31, 1995)........ I/B/R
4.10 Trademark Security
Agreement of the Company
dated as of December 21,
1995 entered into in
connection with the
Credit, Security, Guaranty
and Pledge Agreement dated
as of December 21, 1995 by
and among the Company, the
lenders referred to
therein, Chemical Bank,
Credit Lyonnais New York
Branch and J.P. Morgan
Securities, Inc. (Exhibit
4.10 to the Company's
Annual Report on Form 10-K
for the year ended
December 31, 1995)........ I/B/R
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
4.11 Copyright Security Agreement of the Company dated as of
December 21, 1995 entered into in connection with the
Credit, Security, Guaranty and Pledge Agreement dated as
of December 21, 1995 by and among the Company, the
lenders referred to therein, Chemical Bank, Credit
Lyonnais New York Branch and J.P. Morgan Securities, Inc.
(Exhibit 4.11 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).................... I/B/R
4.12 Subordination Agreement dated as of December 21, 1995 by
and among the Company and Chemical Bank. (Exhibit 4.12 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995)................................. I/B/R
4.13 Amendment No. 1 dated as of March 27, 1996 to the Credit,
Security, Guaranty and Pledge Agreement dated as of
December 21, 1995 by and among the Company, the lenders
referred to therein, Chemical Bank, Credit Lyonnais New
York Branch and J.P. Morgan Securities, Inc. (Exhibit
4.13 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995)............................ I/B/R
4.14 Certificate of Designation relating to the Series A 7.5%
Cumulative Convertible Accruing Pay-In-Kind Preferred
Stock (Exhibit 4.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996).......... I/B/R
4.15 Certificate of Designation relating to the Series B 7.5%
Cumulative Convertible Accruing Pay-In-Kind Preferred
Stock (Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996).......... I/B/R
4.16 Certificate of Designation relating to the Series C 7.5%
Cumulative Convertible Accruing Pay-In-Kind Preferred
Stock (Exhibit 4.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996).......... I/B/R
4.17 Supplemental Indenture dated as of July 18, 1996 between
the Company and Texas Commerce Bank National Association,
as Trustee, relating to the 13.5% Senior Notes due 2002
(Exhibit 4.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996)................ I/B/R
4.18 Amendment No. 2 dated as of August 23, 1996 to the
Credit, Security, Guaranty and Pledge Agreement dated as
of December 21, 1995, as amended, by and among the
Company, the lenders referred to therein, Chase Manhattan
Bank, Credit Lyonnais New York Branch and J.P. Morgan
Securities, Inc. (Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996).................................................... I/B/R
4.19 Amendment No. 3 dated as of March 26, 1997 to the Credit,
Security, Guarantee and Pledge Agreement dated as of
December 21, 1995, as amended, by and among the Company,
the lenders referred to therein, the Chase Manhattan
Bank, Credit Lyonnais, New York Branch, and J. P. Morgan
Securities, Inc. ........................................
4.20 Certificate of Amendment of Restated Certificate of
Incorporation dated May 30, 1996.........................
10.1* Employment Agreement dated November 19, 1988 between the
Company and John N. Palmer (Exhibit 10.9 to the
Registration Statement on Form 10 of the Company filed on
November 18, 1988 and effective on December 29, 1988).... I/B/R
10.2* Employment Agreement dated November 19, 1988 between the
Company and Jai P. Bhagat (Exhibit 10.12 to the
Registration Statement on Form 10 of the Company filed on
November 18, 1988 and effective on December 29, 1988).... I/B/R
10.4* Form of Indemnification Agreement (Exhibit 10.16 to the
Registration Statement on Form 10 of the Company filed on
November 18, 1988 and effective on December 29, 1988).... I/B/R
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.5* 1988 Executive Incentive
Plan, as amended, of the
Company including as
exhibits thereto the forms
of non-qualified and
incentive stock option
agreements (Exhibit 10.18
to the Registration
Statement on Form 10 of
the Company filed on
November 18, 1988 and
effective on December 29,
1988)..................... I/B/R
10.6* Form of Non-Qualified
Stock Option Agreement for
non-officer directors of
the Company (Exhibit 10.19
to the Registration
Statement on Form 10 of
the Company filed on
November 18, 1988 and
effective on December 29,
1988)..................... I/B/R
10.7* 1990 Executive Incentive
Plan of the Company
including as an exhibit
thereto the form of non-
qualified stock option
agreement (Exhibit 10.16
to the Company's Annual
Report on Form 10-K for
the year ended December
31, 1990)................. I/B/R
10.8 Services Agreement dated
January 24, 1991 between
Rogers Cantel Mobile,
SkyTel Corp. and Mtel
International, Inc.
(Exhibit 10.31 to the
Company's Annual Report on
Form 10-K for the year
ended December 31, 1991).. I/B/R
10.9 Joint Venture Agreement
dated as of April 11, 1991
by and between Mtel
International, Inc. and
Radio Telefonia Movil
Metropolitana, S.A. de
C.V. (Exhibit 10.27 to the
Company's Annual Report on
Form 10-K for the year
ended December 31, 1991).. I/B/R
10.10* Employment Agreement dated
as of December 14, 1992
between the Company and
John E. Welsh III (Exhibit
10.28 to the Company's
Annual Report on Form 10-K
for the year ended
December 31, 1992)........ I/B/R
10.11* Employment Agreement dated
as of December 24, 1992
between the Company and
Leonard G. Kriss (Exhibit
10.29 to the Company's
Annual Report on Form 10-K
for the year ended
December 31, 1992)........ I/B/R
10.12* Short-Term Management
Incentive Plan (Exhibit
10.30 to the Company's
Annual Report on Form 10-K
for the year ended
December 31, 1992)........ I/B/R
10.13* Long-Term Management
Incentive Plan (Exhibit
10.31 to the Company's
Annual Report on Form 10-K
for the year ended
December 31, 1992 )....... I/B/R
10.14 Form of Stockholders
Agreement among the
Company, SkyTel and Sky
Acquisition Corp. (Exhibit
10.37 to the Company's
Registration Statement on
Form S-4 filed on October
26, 1994 and effective on
December 14, 1994).......... I/B/R
10.15 Amended and Restated
Merger Agreement and Plan
of Reorganization dated as
of September 21, 1994, by
and among the Company,
Dixon Acquisition Corp.
and United
States Paging Corporation
(Exhibit 2 to the
Registration Statement of
the Company,
Registration No. 33-85612,
filed on October 27, 1994).. I/B/R
10.16 Technology Development and
Marketing Agreement dated
March 23, 1994, by and
between Microsoft
Corporation and Destineer
Corp. (Exhibit 10.2 to the
Company's
Quarterly Report on Form
10-Q for the quarter ended
September 30, 1994)......... I/B/R
10.17 Form of Destineer Corp.
Warrant Certificate
(Exhibit 10.3 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended September
30, 1994)................... I/B/R
10.18 Form of Underwriting
Agreement among Bear,
Stearns & Co. Inc., Alex.
Brown & Sons Incorporated
and J.P. Morgan Securities
Inc., as Underwriters, and
the Company (Exhibit 1
to the Company's
Registration Statement on
Form S-3 filed on November
10, 1994 and
effective on December 21,
1994)....................... I/B/R
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.19* Employment Agreement dated
June 1, 1994 between the
Company and Calvin C.
LaRoche (Exhibit 10.32 to
the Company's Annual
Report on Form 10-K for
the year ended
December 31, 1994).......... I/B/R
10.20 MCI Special Customer
Arrangement between the
Company and MCI
Telecommunications
Corporation dated as of
August 22, 1994 (Exhibit
10.33 to the Company's
Annual Report
on Form 10-K for the year
ended December 31, 1994).... I/B/R
10.21 First Amendment to MCI
Special Customer
Arrangement between the
Company and MCI
Telecommunications
Corporation dated as of
January 9, 1995 (Exhibit
10.34 to the
Company's Annual Report on
Form 10-K for the year
ended December 31, 1994).... I/B/R
10.22* Amended 1990 Executive
Plan of the Company
(Exhibit 10.1 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended June 30,
1995)....................... I/B/R
10.23 Lease Agreement dated June
14, 1995 by and between
Security Centre, Inc. and
the Company (Exhibit 10.30
to the Company's Annual
Report on Form 10-K for
the year ended December
31, 1995)................. I/B/R
10.24 Stock Exchange Agreement
dated as of July 19, 1995
by and among the Company,
Microsoft Corporation,
Kleiner Perkins Caufield &
Byers VI, L.P., KPCB VI
Founders
Fund, L.P., William H.
Gates, Paul G. Allen,
Integral Capital Partners,
L.P. and Integral
Capital Partners
International C.V.
(Exhibit 10.31 to the
Company's Annual Report on
Form 10-K for the year
ended December 31, 1995).. I/B/R
10.25 Stockholder Agreement
dated as of September 15,
1995 by and between the
Company and Microsoft
Corporation (Exhibit 10.32
to the Company's Annual
Report on Form 10-K for
the year ended December
31, 1995)................. I/B/R
10.26 Form of Stock Purchase
Agreement relating to the
Sale of the Series A,
Series B and Series C 7.5%
Cumulative Convertible
Accruing Pay-In-Kind
Preferred Stock (Exhibit
10.1 to the Company's
Quarterly Report on Form
10-Q for the quarter ended
March 31, 1996)........... I/B/R
10.27 Stockholder Agreement
dated as of March 29, 1996
by and between the Company
and Microsoft Corporation
(Exhibit 10.2 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended March 31,
1996)..................... I/B/R
10.28 Form of Registration
Rights Agreement relating
to the Series A, Series B
and Series C 7.5%
Cumulative Convertible
Accruing Pay-In-Kind
Preferred Stock (Exhibit
10.3 to the Company's
Quarterly Report on Form
10-Q for the quarter ended
March 31, 1996)........... I/B/R
10.29 Purchase Agreement dated
as of September 19, 1996,
by and between Mtel Latin
America, Inc. and
Newbridge Latin America,
L.P. (Exhibit 10.1 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended September
30, 1996)................. I/B/R
10.30 Contribution, Registration
Rights and Standstill
Agreement dated as of
September 19, 1996 by and
among the Company,
Newbridge Latin America,
L.P. and TPG Partners,
L.P. (Exhibit 10.2 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended September
30, 1996)................. I/B/R
10.31 Stockholders and Exchange
Rights Agreement dated as
of September 19, 1996 by
and among Mtel Latin
America, Inc., Mtel
International, Inc. and
Newbridge Latin America,
L.P. (Exhibit 10.3 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended September
30, 1996)................. I/B/R
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.32 Subscription Agreement dated as of September 19, 1996 by
and between Newbridge Latin America, L.P. and Mtel Puerto
Rico, Inc. (Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996).................................................... I/B/R
10.33 Stockholders and Exchange Rights Agreement dated as of
September 19, 1996 by and among Mtel Puerto Rico, Inc.,
Mtel Latin America, Inc. and Newbridge Latin America,
L.P. (Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996)...... I/B/R
10.34* Employment Agreement dated as of August 1, 1996 by and
between the Company and John T. Stupka. (Exhibit 10.6 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996)........................ I/B/R
10.35* Employment Agreement dated as of August 15, 1996 by and
between the Company and Robert Kaiser. (Exhibit 10.7 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996)........................ I/B/R
10.36* Form of Restricted Stock Agreement under the 1990
Executive Incentive Plan. (Exhibit 10.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)...................................... I/B/R
10.37 Form of Reseller Agreement of SkyTel.....................
21.1 Subsidiaries of the Company..............................
23.1 Consent of Arthur Andersen LLP...........................
27.1 Financial Data Schedule..................................
</TABLE>
- --------
* Identifies each exhibit that is a "management contract or compensatory plan
or arrangement" required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
None.
5
<PAGE>
Exhibit 4.19
AMENDMENT NO. 3 (the "Amendment") dated as of March 26,
1997 to the Credit, Security, Guaranty and Pledge
Agreement dated as of December 21, 1995 (the
"Agreement"), among SKYTEL CORP., a Delaware
corporation ("SkyTel"), MOBILE TELECOMMUNICATION
TECHNOLOGIES CORP., a Delaware corporation ("Mtel"),
the Subsidiaries of Mtel referred to therein, the
lenders referred to therein (the "Lenders"), THE CHASE
MANHATTAN BANK (formerly known as Chemical Bank), as
administrative agent for the Lenders (the
"Administrative Agent"), CREDIT LYONNAIS NEW YORK
BRANCH, as documentation agent, and J.P. MORGAN
SECURITIES INC., as co-syndication agent.
INTRODUCTORY STATEMENT
----------------------
All capitalized terms not otherwise defined in this Amendment are
used herein as defined in the Agreement.
The Borrower has presented the Lenders with a revised business plan
which includes certain planned asset sales and equity issuances. In connection
therewith, the Borrower has requested that the Agreement be amended to modify
certain provisions of the Agreement as hereinafter set forth.
In consideration of the mutual agreements contained herein and
other good and valuable consideration, the parties hereto hereby agree as
follows:
SECTION 1. Amendment to the Agreement. Subject to the
--------------------------
provisions of Section 2 hereof, the Agreement is hereby amended effective as of
the Effective Date (such term being used herein as defined in Section 2 hereof)
as follows:
(A) The definition of "Margin" appearing in Article 1 of the
Agreement is hereby amended in its entirety to read as follows:
"'Margin' shall mean in the case of Alternate Base Rate
------
Loans, 200 Basis Points per annum and in the case of Eurodollar
Loans, 300 Basis Points per annum; subject in each case, at any
time after (but not before) December 31, 1997, to adjustment from
time to time in accordance with the terms of Section 2.5(c)
hereof."
(B) The definition of "Net Cash Proceeds" appearing in Article 1
of the Agreement is hereby amended by adding the following new phrase at the
end of the existing text:
<PAGE>
"and (D) the amount of any Indebtedness (other than Indebtedness
hereunder) secured by the property or assets being sold and/or
required to be repaid by a Credit Party on the occasion of such
sale."
(C) The following definitions are hereby added to Article 1 of
the Agreement in their proper alphabetical order:
"'Consolidated Net Working Capital' shall mean for any
--------------------------------
date at which it is to be determined, (i) the sum of accounts
receivable and other current assets, minus (ii) accounts payable
and other accrued current liabilities, as each of such items would
appear on a balance sheet of such Person and its Consolidated
Subsidiaries prepared as of such date of determination in
accordance with GAAP."
"'Total Sources' shall mean, with respect to any Person
-------------
for any period for which such amount is being determined, the sum
of the following (without double-counting): (i) Consolidated EBITDA
of such Person, (ii) unrestricted cash on hand (i.e. cash and Cash
Equivalents) held by such Person at the beginning of such period,
(iii) unused availability under the Agreement at the beginning of
such period, (iv) any increase in availability under the Agreement
which becomes effective during such period, (v) any net reduction
(or minus any net increase) in Consolidated Net Working Capital
during such period, and (vi) Net Cash Proceeds received by such
Person during such period in connection with the sale or other
disposition of an asset permitted by Section 6.4 hereof or the
issuance by Mtel of any equity securities or Subordinated Debt
permitted by Section 6.1(d) hereof, all as determined on a
consolidated basis in accordance with GAAP for such Person and its
Consolidated Subsidiaries."
"Total Uses' shall mean, with respect to any Person for
----------
any period for which such amount is being determined, the sum
(without double-counting) of the following items to the extent
actually paid in cash during such period: (i) Capital Expenditures
of such Person, (ii) Consolidated Interest Expense of such Person,
(iii) net principal repayments, if any, of the Loans during such
period, (iv) cash taxes actually paid during such period and (v)
any other cash expense, including Restricted Payments to the extent
permitted by Section 6.26 hereof (but only to the extent such
expenses or payments were not previously reflected in the
calculation of Consolidated EBITDA for such Person for such
period), made during such period, all as determined on a
consolidated basis in accordance with GAAP for such Person and its
Consolidated Subsidiaries."
"Trailing Four Quarters' shall mean, with respect to any
----------------------
date of determination, the fiscal quarter then ended and the three
immediately preceding fiscal quarters, considered as a single
period."
-2-
<PAGE>
(D) The first sentence of Section 2.2(b) of the Agreement is
hereby amended by deleting the date "March 31, 1997" appearing therein (as such
Section has been amended) and inserting the date "December 31, 1997" in lieu
thereof.
(E) Section 2.2(e) of the Agreement is hereby amended in its
entirety to read as follows:
"(e) The Borrower hereby agrees it shall not request that
any Loan be made if, after giving effect thereto, the sum of the
aggregate Loans then outstanding plus the then current L/C Exposure
would exceed (i) $175,000,000 at any time after the effective date
of Amendment No. 3 to this Agreement until such date that the
Administrative Agent shall have received copies of financial
statements and a Compliance Certificate for the period ending
6/30/97 confirming that no Default exists as of such date, (ii)
$190,000,000 from the date of receipt of the Compliance Certificate
described in the preceding clause (i) until such date that the
Administrative Agent shall have received copies of financial
statements and a Compliance Certificate for the period ending
9/30/97 confirming that no Default exists as of such date, (iii)
$200,000,000 from the date of receipt of the Compliance Certificate
described in the preceding clause (ii) until December 31, 1998, and
(iv) $175,000,000 on and after December 31, 1998; provided that at
any time after Mtel provides the Lenders with financial statements
for the fiscal year ending on December 31, 1997, the business plan
for fiscal year 1998 for Mtel and its Subsidiaries and other
documentation requested by the Lenders, such limitations may be
increased or eliminated upon approval by the Required Lenders in
their discretion."
(F) Section 2.5(c) of the Agreement is hereby amended by (1)
deleting the date "March 31, 1997" appearing at the beginning of such Section
(as such Section has been amended) and inserting the date "December 31, 1997"
in lieu thereof and (2) deleting the date "June 30, 1997" appearing in clause
(ii) of such Section (as such Section has been amended) and inserting the date
"March 31, 1998" in lieu thereof.
(G) Section 2.5(c) of the Agreement is hereby further amended so
that the table currently appearing therein will only apply so long as the
Standard & Poors rating on Mtel's 13-1/2% Senior Notes due 2002 is BB- or
better, and at all other times the following table shall apply instead:
(X) (Y)
Margin
-3-
<PAGE>
Ratio of Total Debt of Mtel
and its Consolidated
Subsidiaries to Annualized For Alternate Base Rate For Eurodollar Loans
EBITDA of SkyTel Loans --------------------
---------------- -----
greater than or equal to 200 Basis Points 300 Basis Points
5.00:1.00
greater than or equal to 175 Basis Points 275 Basis Points
4.50:1.00, but less than
5.00:1.00
greater than or equal to 150 Basis Points 250 Basis Points
4.00:1.00, but less than
4.50:1.00
greater than or equal to 125 Basis Points 225 Basis Points
3.50:1.00, but less than
4.00:1.00
less than 3.50:1:00 100 Basis Points 200 Basis Points
(H) Section 2.7(d) is hereby amended in its entirety to read as
follows:
"(d) The Total Commitment shall be automatically and
permanently reduced by an amount equal to one hundred percent
(100%) of any Net Cash Proceeds received by any Credit Party on or
after January 1, 1997 from any sale or other disposition of any
asset pursuant to Section 6.4(c), (e) or (f) hereof or from the
issuance by Mtel of any equity securities or any Indebtedness
permitted under Section 6.1(d) hereof, but only to the extent that
the cumulative amount of such Net Cash Proceeds exceeds
$90,000,000. Any reduction in the Total Commitment pursuant to
this Section 2.7(d) shall occur simultaneously with the receipt by
such Credit Party of such Net Cash Proceeds. Any reduction in the
Total Commitment pursuant to this Section 2.7(d) shall be applied
pro rata to reduce any remaining scheduled reductions in the Total
Commitment pursuant to Section 2.7(b) hereof."
(I) Section 2.7(e) is hereby deleted in its entirety and replaced
with the words "Not Used."
(J) Section 2.10(c) is hereby amended in its entirety to read as
follows:
"(c) The Borrower shall pay to the Administrative Agent for
the pro rata account of each Lender as a mandatory prepayment on
the Loans, an amount equal
-4-
<PAGE>
to one hundred percent (100%) of any Net Cash Proceeds received by
any Credit Party on or after January 1, 1997 from any sale or other
disposition of any asset pursuant to Section 6.4(c), (e) or (f)
hereof or from the issuance by Mtel of any equity securities or any
Indebtedness permitted under Section 6.1(d) hereof, but only to the
extent that the cumulative amount of such Net Cash Proceeds exceeds
$90,000,000. All such mandatory prepayments pursuant to this
Section 2.10(c) shall be made by the Borrower substantially
simultaneously with receipt of such Net Cash Proceeds, but in any
event within three (3) Business Days of receipt thereof.
(K) Section 2.10(d) is hereby deleted in its entirety and
replaced with the words "Not Used."
(L) Clause (iii) of Section 5.1(e) of the Agreement is hereby
amended by adding the words "and Section 6.31" after the words "Sections 6.15
through 6.23" appearing therein.
(M) Section 5.21(b) of the Agreement is hereby amended in its
entirety to read as follows:
"(b) On or before December 31, 1997, sell or otherwise
dispose of all or a portion of the equity interests in Mtel Asia
(or any of Mtel Asia's Subsidiaries) owned by Mtel or any of its
Affiliates, in a transaction which results in the receipt by the
Credit Parties of Net Cash Proceeds of at least $10,000,000 and
otherwise complies with the provisions of Section 6.4(e) hereof."
(N) Section 6.4(c) of the Agreement is hereby amended by deleting
the figure "$10,000,000" and inserting in its place the figure "$15,000,000".
(O) Clause (iii) of Section 6.4(e) of the Agreement is hereby
amended in its entirety to read as follows:
"(iii) all the equity interest in Mtel Asia (or any of Mtel Asia's
Subsidiaries)"
(P) The table appearing in Section 6.15 of the Agreement (Total
Debt to EBITDA Ratio of Mtel and Its Consolidated Subsidiaries) is hereby
amended in its entirety to read as follows:
"Period Ratio
------ -----
From 3/31/98 through 6/29/98 10.00:1.00
From 6/30/98 through 9/29/98 7.00:1.00
-5-
<PAGE>
From 9/30/98 through 12/30/98 5.00:1.00
From 12/31/98 through 3/30/99 4.00:1.00
From 3/31/99 through 6/29/99 3.75:1.00
From 6/30/99 through 9/29/99 3.50:1.00
From 9/30/99 through 12/30/00 3.00:1.00
12/31/00 and thereafter 2.50:1.00"
(Q) The table appearing in Section 6.17 of the Agreement (Ratio
of Total Debt of Mtel and its Consolidated Subsidiaries to EBITDA of SkyTel) is
hereby amended in its entirety to read as follows:
"Period Ratio
-----
From 3/31/97 through 9/29/98 4.50:1.00
From 9/30/98 through 12/30/99 4.25:1.00
12/31/99 and thereafter 4.15:1.00"
(R) Section 6.18(a) of the Agreement is hereby amended in its
entirety and replaced with the following:
"(a) With respect to each of the fiscal quarters indicated
below, permit the ratio of Annualized EBITDA of Mtel and its
Consolidated Subsidiaries to Consolidated Interest Expense of Mtel
and its Consolidated Subsidiaries for the Trailing Four Quarters
minus, in the case of each Trailing Four Quarters ending on or
-----
before December 31, 1997, interest paid on the Senior Notes due
2002 from funds held in the Pledge Account (as such term is defined
in the Senior Note Indenture), to be less than the corresponding
ratio indicated below:
Fiscal Quarter Ended Ratio
-----
September 30, 1997 1.00:1.00
December 31, 1997 2.75:1.00
March 31, 1998 1.10:1.00
-6-
<PAGE>
June 30, 1998 1.25:1.00
September 30, 1998 1.50:1.00
December 31, 1998 2.00:1.00
March 31, 1999 2.25:1.00
June 30, 1999 2.25:1.00
September 30, 1999 2.75:1.00
December 31, 1999 and each
fiscal quarter end thereafter 3.00:1.00"
(S) Section 6.18(b) of the Agreement is hereby amended in its
entirety to read as follows:
"(b) With respect to each of the fiscal quarters indicated
below, permit the ratio of Annualized EBITDA of SkyTel to
Consolidated Interest Expense of Mtel and its Consolidated
Subsidiaries for the Trailing Four Quarters minus, in the case
-----
of each Trailing Four Quarters ending on or before December 31,
1997, interest paid on the Senior Notes due 2002 from funds held in
the Pledge Account (as such term is defined in the Senior Note
Indenture), to be less than the corresponding ratio indicated
below:
Fiscal Quarter Ended Ratio
-------------------- -----
March 31, 1997 7.25:1.00
June 30, 1997 7.25:1.00
September 30, 1997 7.00:1.00
December 31, 1997 7.00:1.00
March 31, 1998 and each fiscal
quarter end thereafter 1.75:1.00"
-7-
<PAGE>
(T) The table appearing in Section 6.19 of the Agreement (Minimum
EBITDA of SkyTel) is hereby amended so that the figure set forth under the
heading "Amount" is $25,000,000 for each fiscal quarter ending on or after
March 31, 1997.
(U) The table appearing in Section 6.20 of the Agreement (Minimum
EBITDA of Mtel) is hereby amended in its entirety to read as follows:
"Fiscal Quarter Ended Amount
-----------
(in millions)
June 30, 1997 2.5
September 30, 1997 7.0
December 31, 1997 12.0
March 30, 1998 16.5
June 30, 1998 20.0
September 30, 1998 24.0
December 31, 1998 29.0
March 31, 1999 30.0
June 30, 1999 33.0
September 30, 1999 37.0
December 31, 1999 42.0
March 30, 2000 50.0
June 30, 2000 50.0
September 30, 2000 50.0
December 31, 2000 50.0
March 31, 2001 62.5
June 30, 2001 62.5
-8-
<PAGE>
September 30, 2001 62.5
December 31, 2001 62.5"
(V) The table appearing in Section 6.21 of the Agreement
(Limitations on Capital Expenditures) is hereby amended in its entirety to read
as follows:
"Period Amount
------ ------
(Fiscal Year ending on (in millions)
December 31)
1997 110.0
1998 100.0
1999 100.0
2000 100.0
2001 100.0"
(W) The table appearing in Section 6.22 of the Agreement (Minimum
Subscriber Level for SkyTel) is hereby amended in its entirety to read as
follows:
"Date Number of Subscribers
---------------------
March 31, 1997 1,050,000
June 30, 1997 1,075,000
September 30, 1997 1,100,000
December 31, 1997 1,200,000
March 31, 1998 1,250,000
June 30, 1998 1,300,000
September 30, 1998 1,350,000
December 31, 1998 1,375,000
-9-
<PAGE>
March 31, 1999 1,400,000
June 30, 1999 1,450,000
September 30, 1999 1,500,000
December 31, 1999 1,600,000
March 31, 2000 1,625,000
June 30, 2000 1,650,000
September 30,2000 1,675,000
December 31, 2000 1,700,000
March 31, 2001 1,725,000
June 30, 2001 1,750,000
September 30, 2001 1,775,000
December 31, 2001 1,800,000"
(X) The table appearing in Section 6.23 of the Agreement (Minimum
Subscriber Level for Destineer) is hereby amended in its entirety to read as
follows:
"Date Number of Subscribers
---- ---------------------
March 31, 1997 25,000
June 30, 1997 50,000
September 30, 1997 125,000
December 31, 1997 200,000
March 31, 1998 275,000
June 30, 1998 350,000
-10-
<PAGE>
September 30, 1998 425,000
December 31, 1998 525,000
March 31, 1999 600,000
June 30, 1999 700,000
September 30, 1999 800,000
December 31, 1999 900,000
March 31, 2000 950,000
June 30, 2000 1,000,000
September 30, 2000 1,050,000
December 31, 2000 1,100,000
March 31, 2001 1,200,000
June 30, 2001 1,300,000
September 30, 2001 1,400,000
December 31, 2001 1,500,000"
(Y) Article 6 of the Agreement is hereby amended by adding the
following new Section:
" SECTION 6.31. Fixed Charge Coverage Ratio
---------------------------
(a) With respect to each fiscal quarter ending during the
periods indicated below, permit the ratio of Total Sources of Mtel
and its Consolidated Subsidiaries to Total Uses of Mtel and its
Consolidated Subsidiaries to be less than the corresponding ratio
indicated below:
Period Ratio
------ -----
3/31/97 1.25:1.00
-11-
<PAGE>
6/30/97 1.10:1.00
From 9/30/97 through 3/31/98 1.25:1.00
From 6/30/98 through 12/31/99 1.20:1.00
3/31/00 and thereafter 1.00:1.00
(b) Any failure by the Credit Parties to achieve the ratio
set forth in Section 6.31(a) for any quarter shall not constitute a
Default or Event of Default unless ninety (90) days shall have
elapsed after the end of such quarter without the Credit Parties
achieving compliance by selling or otherwise disposing of any of
their respective property or assets to the extent permitted by
Section 6.4 hereof or by Mtel issuing its equity securities or
Subordinated Debt permitted by Section 6.1(d) hereof and
recomputing the ratio set forth in Section 6.31(a) as if the Net
Cash Proceeds of such transaction actually received within such
ninety (90) days had instead been received by Mtel during such
quarter. To the extent that any portion of Net Cash Proceeds
received by the Credit Parties in connection with such transaction
is used in the recomputation of the Total Sources to Total Uses
ratio to achieve compliance with Section 6.31(a) for the current
period, such portion may not be counted in the computation of such
ratio for any subsequent period; however, any excess amounts may be
used in the computation of the Total Sources to Total Uses ratio
for the subsequent period. All of the foregoing computations shall
be demonstrated in reasonable detail in each Compliance Certificate
delivered pursuant to Section 5.1(e) hereof."
SECTION 2. Conditions to Effectiveness. The effectiveness of
---------------------------
this Amendment is subject to the satisfaction in full of the following
conditions precedent (the first date on which all such conditions have been
satisfied being herein referred to as the "Effective Date"):
(A) the Administrative Agent shall have received executed
counterparts of this Amendment, which, when taken together, bear the signatures
of the Credit Parties and those Lenders required by Section 13.9 of the
Agreement;
(B) the Administrative Agent shall have received a fee in an
amount equal to 3/4 of 1% of such Lender's Commitment under the Agreement on
behalf of each Lender (including the Agents or their Affiliates) which both (i)
on or before March 7, 1997 indicated to the Administrative Agent its agreement
in principal to the terms of this Amendment as presented to the Lenders at the
February 24, 1997 bank meeting, and (ii) returns an executed counterpart of
this Amendment to the Administrative Agent by facsimile or courier by 5:00 p.m.
New York City time on March 26, 1997;
-12-
<PAGE>
(C) the Lenders shall have received written confirmation from
Lockheed-Martin (or another consultant acceptable to the Agents in their
discretion) confirming that the previously reported software problems
associated with the 2-Way system have been resolved and that the system is
functioning at a technical performance level which is consistent with the
Borrower's business plan;
(D) all legal matters in connection with this Amendment shall be
reasonably satisfactory to Morgan, Lewis & Bockius LLP, counsel for the Agents.
SECTION 3. Representations and Warranties. The Credit Parties
------------------------------
hereby represent and warrant to the Lenders that:
(A) after giving effect to this Amendment, the representations
and warranties contained in the Agreement and in the other Fundamental
Documents are true and correct in all material respects on and as of the date
hereof as if such representations and warranties had been made on and as of the
date hereof (except to the extent such representations and warranties expressly
relate to an earlier date); and
(B) after giving effect to this Amendment, the Credit Parties are
in compliance with all the terms and provisions set forth in the Agreement and
the other Fundamental Documents and no Default or Event of Default has occurred
or is continuing under the Agreement.
SECTION 4. Full Force and Effect.
---------------------
Except as expressly set forth herein, this Amendment does not
constitute a waiver or modification of any provision of the Agreement or a
waiver of any Default or Event of Default under the Agreement, in either case
whether or not known to the Agents. Except as expressly amended hereby, the
Agreement shall continue in full force and effect in accordance with the
-13-
<PAGE>
provisions thereof on the date hereof. As used in the Agreement, the terms
"Credit Agreement", "this Agreement", "herein", "hereafter", "hereto",
"hereof", and words of similar import, shall, unless the context otherwise
requires, mean the Agreement as amended by this Amendment. References to the
terms "Agreement" or "Credit Agreement" appearing in the Exhibits or Schedules
to the Agreement, shall, unless the context otherwise requires, mean the
Agreement as amended by this Amendment.
SECTION 5. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED
--------------
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WHICH
ARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THE STATE OF
NEW YORK.
SECTION 6. Counterparts. This Amendment may be executed in two
------------
or more counterparts, each of which shall constitute an original, but all of
which when taken together shall constitute but one instrument.
SECTION 7. Expenses. The Borrower agrees to pay all reasonable
--------
out-of-pocket expenses incurred by the Agents in connection with the
preparation, execution and delivery of this Amendment and any other
documentation contemplated hereby, including, but not limited to, the
reasonable fees and disbursements of counsel for the Agents.
SECTION 8. Headings. The headings of this Amendment are for the
--------
purposes of reference only and shall not affect the construction of, or be
taken into consideration in interpreting, this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed by their duly authorized officers, all as of the date and
year first written above.
BORROWER:
SKYTEL CORP.
By:___________________________
Name:
Title:
-14-
<PAGE>
GUARANTORS:
MOBILE TELECOMMUNICATION
TECHNOLOGIES CORP.
MTEL PAGING, INC.
MTEL INTERNATIONAL, INC.
UNITED STATES PAGING CORPORATION
DESTINEER CORPORATION
MOBILECOMM EUROPE INC.
MTEL SPACE TECHNOLOGIES CORPORATION
MTEL TECHNOLOGIES, INC.
MTEL MAINE, INC.
COM/NAV REALTY CORP.
INTELLIGENT INVESTMENT PARTNERS, INC.
By:___________________________
Name:
Title:
LENDERS:
THE CHASE MANHATTAN BANK (formerly known as
Chemical Bank), individually and as
Administrative Agent
Executed in New York, New York
By:___________________________
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH,
as Documentation Agent
By:___________________________
Name:
Title:
-15-
<PAGE>
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By:___________________________
Name:
Title:
J.P. MORGAN SECURITIES INC.,
as Co-Syndication Agent
By:___________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:___________________________
Name:
Title:
ABN AMRO BANK N.V.
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
-16-
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By:___________________________
Name:
Title:
THE BOATMEN'S NATIONAL BANK OF
ST. LOUIS
By:___________________________
Name:
Title:
CIBC INC.
By:___________________________
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:___________________________
Name:
Title:
-17-
<PAGE>
Exhibit 4.20
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Company").
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said Company, at a duty called and
convened meeting at which a quorum was present and acting throughout, adopted a
resolution, a copy of which has been filed with the minutes of such meeting of
the Board, proposing and declaring advisable the following amendment to the
Restated Certificate of Incorporation of said Company:
RESOLVED, that the restated Certificate of Incorporation of the
Company be amended by changing the first sentence of the FOURTH Section of
Article V thereof to read as follows:
"FOURTH. The total number of shares of stock which the
Corporation shall have authority to issue is 125,000,000, consisting
of 25,000,000 shares of Preferred Stock, $.01 par value per share
(hereinafter called "Preferred Stock", $.01 par value per share,
and 100,000,000 shares of Common Stock, $.01 par value per share
(hereinafter called "Common Stock")."
SECOND: That the aforesaid amendment to the Restated Certificate of
Incorporation of the Company was duly and validly adopted by the affirmative
vote of a majority of the outstanding shares of Common Stock entitled to vote
thereon at the 1996 Annual Meeting of Stockholders of the Company held on
May 30, 1996, and in accordance with the applicable provisions of Section 242 of
the General Corporation Law of the State of Delaware.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, said MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. has
caused this certificate to be signed by John N. Palmer, its Chairman and Chief
Executive Officer, and attested by Leonard G. Kriss, its Secretary, this \
30th day of May, 1996
MOBILE TELECOMMUNICATION TECHNOLOGIES
CORP., a Delaware corporation
By: /s/ John N. Palmer
---------------------------------------
John N. Palmer
Chief Executive Officer
ATTEST:
/s/ Leonard G. Kriss
- ----------------------
Leonard G. Kriss
Secretary
[CORPORATE SEAL]
-2-
<PAGE>
Ex. 10.37
RESELLER AGREEMENT
This Reseller Agreement, as the same may be amended, supplemented, or modified
from time to time ("Agreement"), is made and entered into by and between
Destineer Corporation ("Destineer"), a Delaware corporation, and
_________________________________________ ("Reseller"), a __________________
corporation.
1. The term of this Agreement shall commence as of the Effective Date (as
defined in the attached Terms and Conditions) and shall continue for a period
of ____________ (___) years thereafter (the "Initial Term").
2. The parties' rights and obligations under this Agreement are set forth in
the Terms and Conditions attached hereto and the accompanying exhibits which
are incorporated by reference herein.
3. Reseller's address for purposes of Section 15 of the attached Terms and
Conditions shall be ___________________; ___________________; telephone number
___________________; facsimile number ___________________; attention
___________________.
In Witness Whereof, Destineer and Reseller have executed this Agreement on the
dates noted below.
DESTINEER CORPORATION
Date:
----------------------
---------------------------------------
By:
------------------------------------
Title:
---------------------------------
Reseller:
------------------------------
Date:
----------------------- ---------------------------------------
By:
------------------------------------
Title:
--------------------------------
- --------------------------------------------------------------------------------
CONFIDENTAL
<PAGE>
Terms and Conditions
Page 1 of 4
TERMS AND CONDITIONS
1. Definitions.
(a) Affiliate: As applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition, "control" (including with correlative
meanings, the terms "controlling", "controlled by", and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
that Person through the ownership of voting securities, by contract or
otherwise.
(b) Ancillary Services: The ancillary services, support and rights
identified and described in more detail in Exhibit "A" attached hereto.
(c) Cap Code: A Device specific identification code, to be assigned by
Reseller to each Device placed in service on the SkyTel Network, in accordance
with the provisions of Section 6(d) below.
(d) Confidential Information: Any business, marketing, sales, financial or
technical information including, without limitation, any information relating to
the present and future business operations or financial condition, and all other
information of any kind which may reasonably be deemed confidential or
proprietary, disclosed by one party to the other pursuant to this Agreement,
which is designated or identified as "confidential", "proprietary", or in some
other manner to indicate its confidential nature. Notwithstanding the above,
"Confidential Information" does not include information that (i) is or becomes
generally known or available by publication, commercial use, or otherwise
through no fault of the receiving party, (ii) was known by the receiving party
at the time of disclosure by the disclosing party as evidenced by competent
written proof, (iii) is independently developed by the receiving party without
use of the disclosing party's Confidential Information; or (iv) is lawfully
obtained from a third Person who has the right to make such disclosure.
(e) Device: Any wireless messaging unit that Destineer, in its sole
discretion, deems acceptable for use on the SkyTel Network, a current listing of
which is set forth in Exhibit "B" attached hereto.
(f) Effective Date: The date this Agreement is executed by Destineer.
Notwithstanding the Effective Date of this Agreement, if Reseller is an existing
reseller of Destineer or its Affiliates, pricing under this Agreement shall not
become effective until the first day of the first Destineer billing cycle
immediately following the Effective Date.
(g) Person: Any individual, company, corporation, firm, partnership, joint
venture, association, organization, or trust, in each case whether or not having
a separate legal identity.
(h) PIN: A unique, Subscriber specific, personal identification number,
mailbox identification number, or other form of identification number, which may
include, without limitation, a personal toll free number, to be assigned by
Reseller in accordance with the provisions of Section 6(d) below.
(i) SkyTel: SkyTel Corp., a Delaware corporation and Affiliate of
Destineer.
(j) SkyTel Marks: The trade names, trademarks, logos, and service marks
owned by or licensed to Destineer that are listed in Exhibit "C" attached
hereto, as Exhibit "C" may be amended from time to time.
(k) SkyTel Network: Collectively, the one-way and two-way wireless
messaging systems owned and operated by Destineer and its Affiliates to provide
the SkyTel Services.
(l) SkyTel Services: The wireless messaging service offerings provided by
Destineer and its Affiliates as more fully described in Exhibit "D" attached
hereto. Notwithstanding the provisions of Section 16(j) below, Destineer may
revise Exhibit "D" from time to time in its sole discretion upon the delivery of
written notice to Reseller at least ninety (90) days prior to the effective date
of such revision.
(m) Subscriber: A customer of Reseller that, by virtue of the reseller
relationship established hereunder, is an end-user of the SkyTel Services.
(n) UIS or Unit in Service: A SkyTel Service account activated by Reseller
that consists of (i) "Basic Services" (see Exhibit "D" attached hereto) or (ii)
Voice Mail services. For example, a SkyWord service account constitutes one (1)
UIS; a SkyWord service account activated in connection with Voice Mail services
constitutes two (2) UIS.
2. Authority.
(a) Destineer grants Reseller a non-exclusive right to resell the SkyTel
Services in the United States in accordance with the Terms and Conditions of
this Agreement, and, in connection therewith, Reseller shall use its best
efforts to promote, market and sell the SkyTel Services to Subscribers. The
right and authority granted herein is subject to and conditioned upon Reseller's
satisfaction of Destineer's standard credit review policies and procedures.
(b) Notwithstanding the provisions of Section 2(a) above, all personnel of
Reseller involved in the promotion, marketing and sale of wireless messaging
services provided over the two-way wireless messaging network owned and operated
by Destineer and its Affiliates, as a condition of Reseller's right to promote,
market and sell such services, must undergo and successfully complete training
on the use and utilization of such services in accordance with the provisions
set forth in Exhibit "A-1" attached hereto.
(c) Notwithstanding anything to the contrary herein, Destineer and its
Affiliates expressly reserve the right to promote, solicit, market and sell the
SkyTel Services directly to Subscribers and other Persons, whether located
within or outside of the United States.
3. Price and Payment.
(a) Reseller shall compensate Destineer for the SkyTel Services in
accordance with the pricing schedule attached hereto as Exhibit "E". Monthly
service fees shall be payable by Reseller in advance and are not contingent upon
usage. Reseller shall pay applicable usage and other charges in arrears.
Notwithstanding the provisions of Section 16(j) below, Destineer reserves the
right to modify the fees and charges set forth in Exhibit "E" upon at least
thirty (30) days advance written notice to Reseller. Prices charged by Reseller
to Subscribers for the SkyTel Services shall be determined solely by Reseller.
(b) To the extent requested by Reseller, Reseller shall compensate
Destineer for the Ancillary Services in accordance with the rates and charges
set forth in Exhibit "A" attached hereto.
(c) Destineer shall invoice Reseller on a monthly basis for all fees and
charges accruing hereunder. Such fees and charges shall be due and payable by
Reseller within thirty (30) days of the date of Destineer's invoice. Any
balance not paid by such due date shall bear interest at the rate of one and
one-half percent (1 1/2%) per month from and after the due date. All taxes
relating to this Agreement, the SkyTel Services and the Ancillary Services,
except taxes based upon the income of Destineer, shall be paid by Reseller.
CONFIDENTIAL
<PAGE>
Terms and Conditions
Page 2 of 4
(d) Reseller shall be liable to Destineer for all fees and charges accruing
hereunder, whether or not Reseller collects any amounts from its Subscriber(s).
Reseller shall bear all risks and expenses incurred in connection with
performance of its obligations and activities under this Agreement.
(e) [LETTER OF CREDIT/PAYMENT SECURITY PROVISION, IF APPLICABLE].
4. Reseller Obligations.
(a) Reseller shall conduct its operations in an orderly, competent and
professional manner, and shall ensure that its officers, agents, employees and
representatives employ the highest standards of business conduct. Reseller
shall ensure that each of its employees performing any operations in connection
with the provision of the SkyTel Services are adequately trained, prior to the
commencement of any such operations, and are competent to perform their
respective duties.
(b) In providing the SkyTel Services to its Subscribers, Reseller shall
comply with all laws, rules and regulations promulgated by the FCC applicable to
the activities of Reseller hereunder, as well as with all message length,
message volume and other such operational procedures and limitations established
by Destineer from time to time.
(c) Except to the extent otherwise requested by Reseller and expressly set
forth in Exhibit "A" attached hereto, Reseller shall be solely responsible for
the provision of any and all sales and associated activities (including, without
limitation, billings to and collections from Subscribers), Devices and customer
support services to its Subscribers as related to the SkyTel Network, and shall
be solely responsible for any and all costs and expenses related thereto.
(d) Reseller shall not misrepresent the SkyTel Services to Subscribers or
otherwise make any claims, representations or warranties in connection with the
SkyTel Services other than expressly authorized by Destineer.
(e) Reseller shall ensure that provisions consistent with the provisions
set forth in Section 9 hereof are incorporated in all agreements between
Reseller and its Subscribers relative to this provision of the SkyTel Services.
Reseller shall make the form of all such agreements available to Destineer for
review and shall incorporate any modifications or amendments therein that
Destineer may reasonably request.
5. Destineer Obligations.
(a) Destineer and its Affiliates shall, at all times, have the sole and
exclusive control and authority over the design, construction, development,
management, operation, and maintenance of the SkyTel Network and the SkyTel
Services.
(b) Destineer shall provide Subscribers, through a carrier or carriers of
Destineer's choice, toll-free or local dial up access to the SkyTel Network from
any point in the continental United States, Alaska and Hawaii, and shall ensure
that the SkyTel Services provided to Subscribers shall be of at least the grade
and quality as provided by SkyTel to its direct customers.
(c) To the extent requested by Reseller, Destineer shall provide the
Ancillary Services to Reseller in accordance with the provisions set forth in
Exhibit "A" attached hereto.
6. Devices.
(a) General. Reseller and its Subscribers shall only activate the Devices
listed in Exhibit "B" in connection with the SkyTel Services. All Devices
placed in service on the SkyTel Network by or through Reseller shall comply with
the provisions of this Agreement, including, without limitation, the provisions
of this Section 6(a) and, to the extent applicable, the restrictions relative to
use of the SkyTel Marks in Retail Distribution as set forth in Exhibit "A-5"
attached hereto. Notwithstanding the provisions of Section 16(j) hereof,
Destineer may revise the Device listing set forth in Exhibit "B" from time to
time upon the delivery of written notice to Reseller at least ninety (90) days
prior to the effective date of such revision. If Destineer amends Exhibit "B"
in such a manner whereby previously authorized Devices are no longer authorized
for use on the SkyTel Network, Reseller shall take such actions as are
necessary, at Reseller's sole cost and expense, to substitute authorized Devices
for the previously authorized Devices then utilized by Subscribers in accordance
with the following time frames: (i) for Devices utilized on the one-way
wireless messaging networks owned and operated by Destineer and its Affiliates,
within thirty-six (36) months following the effective date of the revision to
Exhibit "B", and (ii) for Devices utilized on the two-way wireless messaging
network owned and operated by Destineer and its Affiliates, within forty-eight
(48) months following the effective date of the revision to Exhibit "B".
(b) Procurement. At Reseller's request, Destineer shall sell Devices to
Reseller at the prices set forth in Exhibit "B"; provided that the Devices
requested are available by Destineer for distribution to Reseller, as determined
by Destineer in its sole discretion. Subject to the provisions of Section 6(a)
above, Reseller may also obtain Devices from the Device manufacturer or from any
other authorized source of such Devices.
(c) Activation. All Devices activated on the SkyTel Network by Reseller
shall be coded and activated only in accordance with directives, policies and
procedures established by Destineer, which, with respect to the two-way wireless
messaging network owned and operated by Destineer and its Affiliates, may
include, without limitation, coding and activation of the Devices at the
manufacturer level or by or at the direction of Destineer.
(d) Cap Code and PIN Coordination.
(i) Reseller shall assign Cap Codes and PINs to Devices utilized by
Subscribers only from blocks of Cap Codes and PINs to be allocated to Reseller
by Destineer. Destineer will use commercially reasonable efforts to make a
sufficient number of Cap Codes and PINs available to Reseller as shall be
necessary to service the number of Subscribers which Reseller, in the exercise
of its reasonable judgment, projects will utilize the SkyTel Services.
(ii) All PINs and Cap Codes assigned to Reseller by Destineer shall
remain the property of Destineer. Destineer shall have the right to utilize
PIN(s) and Cap Codes which are not utilized by Reseller, as well as those
associated with deactivated Devices, as Destineer may determine from time to
time in its sole discretion.
7. SkyTel Marks. The SkyTel Services and Devices provided by Reseller to its
Subscribers shall be private branded (i.e., except to the extent otherwise
provided herein, Reseller shall have no right or authority to market, promote or
sell the SkyTel Services and related Devices under any brand, trade or service
marks owned by or licensed to Destineer or its Affiliates). Notwithstanding the
foregoing, Destineer shall, to the extent requested by Reseller, license to
Reseller the right to utilize the SkyTel Marks in connection with such
activities in accordance with and subject to the provisions set forth in Exhibit
"A-5" attached hereto.
CONFIDENTIAL
<PAGE>
Terms and Conditions
Page 3 of 4
8. Representations and Warranties. Each party represents and warrants to the
other that (a) it is a corporation duly organized, validly existing, and in good
standing under the laws of the State of its incorporation; (b) it has all
requisite corporate power and authority to enter into this Agreement and to
carry out and perform its obligations under the terms of this Agreement; (c)
this Agreement has been duly authorized, executed, and delivered and constitutes
a valid and binding obligation of such party enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency, moratorium,
and other laws of general application affecting the enforcement of creditors'
rights; and (d) the execution, delivery, and performance of and compliance with
this Agreement does not and will not conflict with, or constitute a default
under, or result in the creation of, any mortgage, pledge, lien, encumbrance, or
charge upon any of the properties or assets of such party, nor result in any
violation of (i) any term of its certificate of incorporation or bylaws, (ii) in
any material respect, any term or provision of any mortgage, indenture,
contract, agreement, instrument, judgment, or decree, or (iii) to the best of
its knowledge, any order, statute, rule, or regulation applicable to such party,
the violation of which would have a material adverse effect on its business or
properties.
9. Limitation of Liabilities.
(a) DESTINEER AND ITS AFFILIATES MAKE NO WARRANTIES, EITHER EXPRESS OR
IMPLIED, CONCERNING THE SKYTEL SERVICES, THE SKYTEL NETWORK OR THE ANCILLARY
SERVICES, AND HEREBY EXPRESSLY DISCLAIM ALL IMPLIED WARRANTIES, INCLUDING
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE. UNDER
NO CIRCUMSTANCES SHALL DESTINEER OR ITS AFFILIATES BE LIABLE TO RESELLER OR ANY
OTHER PERSON, INCLUDING, WITHOUT LIMITATION, SUBSCRIBERS, FOR ANY LOSS, INJURY,
OR DAMAGE, OF WHATEVER KIND OR NATURE, RESULTING FROM OR ARISING OUT OF ANY
MISTAKES, ERRORS, OMISSIONS, DELAYS, OR INTERRUPTIONS IN THE RECEIPT,
TRANSMISSION, OR STORAGE OF ANY MESSAGES, SIGNALS OR INFORMATION ARISING OUT OF
OR IN CONNECTION WITH THE SKYTEL SERVICES OR USE OF THE SKYTEL NETWORK. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, DESTINEER AND ITS AFFILIATES SHALL IN
NO EVENT BE LIABLE TO RESELLER OR ANY OTHER PERSON, INCLUDING, WITHOUT
LIMITATION, SUBSCRIBERS, FOR INDIRECT, INCIDENTAL, OR SPECIAL DAMAGES, LOST
PROFITS, LOST SAVINGS, OR ANY OTHER FORM OF CONSEQUENTIAL DAMAGES, REGARDLESS OF
THE FORM OF ACTION, EVEN IF DESTINEER HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES, WHETHER RESULTING FROM BREACH OF ITS OBLIGATIONS UNDER THIS
AGREEMENT OR OTHERWISE.
(b) DESTINEER MAKES NO WARRANTIES AS TO ANY DEVICES, INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR USE OR PURPOSE. TO THE EXTENT LEGALLY PERMISSIBLE, DESTINEER SHALL
ASSIGN ALL MANUFACTURER'S WARRANTIES FOR SUCH DEVICES, IF ANY, TO RESELLER.
10. Term.
(a) The Initial Term of this Agreement shall be as specified on the
signature page of this Agreement. The term of this Agreement shall
automatically renew for additional, successive one (1) year terms at the
expiration of the Initial Term at each anniversary thereof, unless either party
provides the other party with prior written notice of its intention not to renew
this Agreement at least ninety (90) days prior to the expiration of the then
current term.
(b) Upon any termination of this Agreement, Destineer and Reseller shall,
subject to the provisions of Sections 10(c) and 11(c) below, be released from
all objections and liabilities to the other occurring or arising after the date
of such termination or the transactions contemplated hereby, except with respect
to those obligations which by their nature are designed to survive termination;
provided that no such termination will relieve Reseller from any amount due and
owing hereunder or any liability arising from any breach of this Agreement
occurring prior to termination.
(c) Termination of this Agreement shall not affect or diminish Reseller's
obligation to make payment to Destineer for services provided before or after
the date of termination, and such obligation shall survive termination of this
Agreement. Upon any termination of this Agreement, the parties shall, subject
to the provisions of Section 11(c) below, cooperate in good faith to effect an
orderly wind-down of the relationship created under this Agreement. Destineer's
provision of the SkyTel Services to Reseller following the date of any such
termination shall be expressly conditioned upon and subject to Reseller's
compliance with the Terms and Conditions of this Agreement, including, without
limitation, Reseller's timely payment to Destineer for services provided in
accordance with the first sentence of this Section 10(c).
11. Default.
(a) The following shall constitute an Event of Default: (i) failure by
Reseller to make any payment when due; (ii) failure by either party to observe
or perform in any material respect any of the covenants or agreements contained
in this Agreement; or (iii) a party's insolvency, assignment for the benefit of
creditors, appointment or sufferance of appointment of a trustee, a receiver or
similar officer, or commencement of a proceeding seeking reorganization,
rehabilitation, liquidation or similar relief under the bankruptcy, insolvency
or similar debtor-relief statues.
(b) Upon the occurrence of an Event of Default, the party not in default
shall have the right to terminate this Agreement upon written notice to the
other party and the failure of the other party to cure such Default within
thirty (30) days of receiving such written notice. Notwithstanding anything
herein to the contrary, Destineer shall have the right, at its option, to
immediately terminate this Agreement, without further notice or right to cure,
upon the occurrence of any second or subsequent Default under Section 3(c) above
within any given twelve (12) month period.
(c) In the event of termination of this Agreement by Destineer due to the
occurrence of an Event of Default by Reseller, Reseller shall provide Destineer
immediate access to all pertinent Subscriber records, including, but not limited
to, cash, Subscriber's name, address, PIN(s), and payment history, as well as
all other Subscriber related records requested by Destineer, whereafter
Destineer and its Affiliates shall have the absolute right, without notice to
Reseller, to take whatever action Destineer deems necessary or advisable to
solicit the business of such Subscribers for the benefit of Destineer and its
Affiliates. Reseller's obligations under this Section shall survive the
termination of this Agreement.
12. Assignment. This Agreement, including any rights or obligations under this
Agreement, may be assigned or transferred, directly or indirectly, by either of
the parties to any other Person without the prior written consent by the other
party. In the event of any assignment or transfer of this Agreement, all terms
and conditions hereof shall be binding upon and enure to the assignee as though
such assignee were an original party hereto. For purposes of this provision, an
"assignment" or "transfer" shall mean and include, without limitation (a) any
voluntary or involuntary assignment by Reseller by contract, law or otherwise,
(b) the merger of Reseller or any controlling Affiliate into any third Person,
or (c) a change in control of Reseller or any controlling Affiliate of Reseller
that occurs by reason of (i) the sale of a controlling interest in the voting
stock of Reseller or any controlling Affiliate of Reseller, or (ii) a merger of
a third
CONFIDENTIAL
<PAGE>
Terms and Conditions
Page 4 of 4
Person into Reseller or any controlling Affiliate of Reseller. Notwithstanding
the above, Destineer may assign this Agreement, without the prior consent of
Reseller, to any Affiliate of Destineer or to any Person acquiring all or
substantially all of the assets or a controlling interest in the voting stock of
Destineer, SkyTel or any controlling Affiliate of Destineer.
13. Indemnity and Insurance.
(a) Indemnity.
(i) Reseller shall defend, indemnify, and hold Destineer and its
Affiliates harmless from and against any and all liabilities, losses, damages
and costs, including reasonable attorney's fees, resulting from, arising out of,
or in any way connected with (A) any breach by Reseller of any warranty,
representation, agreement, or obligation contained herein, (B) the performance
of Reseller's duties and obligations hereunder, or (C) any unauthorized use of
the SkyTel Marks by Reseller. Reseller's obligations under this Section shall
survive the termination of this Agreement.
(ii) Destineer shall defend, indemnify, and hold Reseller harmless from
and against any and all liabilities, losses, damages and costs, including
reasonable attorney's fees, resulting from, arising out of, or in any way
connected with (A) any breach by Destineer of any warranty, representation,
agreement or obligation contained herein, or (B) the performance of Destineer's
duties and obligations hereunder. Destineer's obligations under this Section
shall survive the termination of this Agreement.
(b) Insurance. Reseller shall maintain comprehensive general liability
insurance in a combined single limit of not less than $1,000,000.00, which shall
cover bodily injury (including death) and property damage. Purchase and
maintenance of such insurance shall not be construed as relieving Reseller of
any of its obligations hereunder.
14. Confidentiality. Each party acknowledges that, during the term of this
Agreement, it will be entrusted with Confidential Information relating to the
business of the other party. Neither party will use the other's Confidential
Information for purposes other than those necessary to further the purposes of
this Agreement. Neither party will disclose to third Persons the other's
Confidential Information without the prior written consent of the other party.
Each party understands, acknowledges and agrees that the terms and conditions of
this Agreement are confidential and restricted by this Section as to disclosure
to any third Person. Should either party be required under applicable law, rule
or regulation, or pursuant to the order of any court or governmental entity of
legal process of any governmental entity of competent jurisdiction to disclose
Confidential Information of the disclosing party in the receiving party's
possession, custody or control, the receiving party shall use commercially
reasonable efforts to: (a) give at least thirty (30) days prior written notice
of such disclosure to the disclosing party, (b) limit such disclosure, and (c)
make such disclosure only to the extent so required. The parties' obligations
hereunder with respect to Confidential Information shall survive the expiration
or earlier termination of this Agreement.
15. Notices. Any notice or other communication herein required or permitted to
be given shall be in writing and may be personally served, telecopied, telexed,
or sent by overnight courier, and shall be deemed to have been received when (a)
delivered in person or received by telecopy or telex, or (b) one (1) business
day after delivery to the office of such overnight courier service with postage
prepaid and properly addressed to the other party, at the following respective
addresses:
To Destineer: Destineer Corporation
200 South Lamar Street
Mtel Centre South, Suite 1000
Jackson, Mississippi 39201
Telephone: (601) 944-1300
Facsimile: (601) 944-3225
Attention: Senior Vice President, Wholesale Distribution
To Reseller: See address specified on the signature page of this Agreement.
or to such other address or addresses as either party may from time to time
designate as to itself by like notice.
16. Miscellaneous.
(a) Laws, Rules, and Regulations. This Agreement is subject to all laws,
rules, regulations and ordinances relative to, among other things, the provision
of wireless messaging services, including, without limitation, the
Communications Act of 1934 and the Telecommunications Act of 1996, as amended,
and all rules and regulations promulgated thereunder.
(b) Force Majeure. Neither party will be liable for any nonperformance
under this Agreement due to causes beyond its reasonable control that could not
have been reasonably anticipated by the non-performing party as of the Effective
Date and that cannot be reasonably avoided or overcome; provided that the non-
performing party gives the other party prompt written notice of such cause
promptly, and in any event within fifteen (15) calendar days of discovery
thereof.
(c) Independent Parties. None of the provisions of this Agreement shall be
deemed to constitute a partnership, joint venture, or any other such
relationship between the parties hereto, and neither party shall have any
authority to bind the other in any manner. Neither party shall have or hold
itself out as having any right, authority or agency to act on behalf of the
other party in any capacity or in any manner, except as may be specifically
authorized in this Agreement.
(d) Applicable Law. The validity, construction and performance of this
Agreement will be governed by and construed in accordance with the laws of the
State of Delaware, without regard to the principles of conflict of law.
(e) Severability. If any provision in this Agreement shall be held to be
illegal, invalid, or unenforceable, such provision will be enforced to the
maximum extent permissible so as to effect the intent of the parties, and the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
(f) No Waiver. No delay or failure by Destineer in exercising any right
under this Agreement, and no partial or single exercise of the right, shall
constitute a waiver of that or any other right. Failure by Destineer to enforce
any right under this Agreement will not be deemed a waiver of future enforcement
of that or any other right.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but which collectively
will constitute one and the same instrument.
(h) Headings. The headings and captions used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
(i) Construction. This Agreement has been negotiated by the parties and
their respective counsel. This Agreement will be interpreted fairly in
accordance with its terms and without any strict construction in favor of or
against either party based on draftsmanship of the Agreement or otherwise.
(j) Complete Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
and replaces all prior or contemporaneous understandings or agreements, written
or oral, between Reseller and Destineer or any of its Affiliates regarding such
subject matter. No amendment to or modification of this Agreement will be
binding unless in writing and signed by a duly authorized representative of both
parties.
CONFIDENTIAL
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
STATE/JURISDICTION
NAME OF INCORPORATION
- ---- ----------------------
<S> <C>
DOMESTIC SUBSIDIARIES
Mtel Paging, Inc........................................ Delaware
SkyTel Corp............................................. Delaware
Destineer Corporation................................... Delaware
United States Paging Corporation........................ Delaware
Mtel Technologies, Inc.................................. Delaware
Mtel Maine, Inc......................................... Delaware
Mtel International, Inc................................. Delaware
Mtel Latin America, Inc................................. Delaware
Mtel Puerto Rico, Inc................................... Delaware
MobileComm Europe Inc................................... Delaware
Mtel Space Technologies Corporation..................... Delaware
Mtel Space Technologies, L.P............................ Delaware
COM/NAV Realty Corp..................................... Delaware
Intelligent Investment Partners, Inc.................... Delaware
Mtel American Radiodetermination Corporation*........... Delaware
Mtel Cellular, Inc.*.................................... Delaware
Mtel Digital Services, Inc.*............................ Delaware
Mtel Microwave, Inc.*................................... Delaware
Mtel Service Corporation*............................... New York
Internet Cafe Inc.*..................................... Mississippi
Mtel Asia, Inc. ........................................ Delaware
FOREIGN SUBSIDIARIES
Sky Telecom Services Limited............................ Hong Kong
Mtel China, Inc......................................... British Virgin Islands
SkyTel (UK) Limited..................................... England and Wales
Mtel (UK) Limited....................................... England and Wales
Mtel do Brasil Participacoes Ltda....................... Brazil
Mtel Argentina S.A. .................................... Argentina
Mtel Chile S.A.......................................... Chile
Mtel Costa Rica S.A..................................... Costa Rica
Mtel del Ecuador S.A.................................... Ecuador
Telecomunicaciones SkyTel S.A........................... Venezuela
Comunicaciones Racotec.................................. Costa Rica
Mtel Colombia S.A....................................... Colombia
Radio Aviso S.A......................................... Uruguay
Nubal S.A............................................... Uruguay
OTHER INVESTMENTS
American Mobile Satellite Corp.......................... Delaware
Mercury Paging.......................................... England and Wales
SkyTel (Malaysia) Sdn Bhd............................... Malaysia
P.T. SkyTelindo Services Sdn Bhd........................ Indonesia
Telepage Limited........................................ Malta
Victori Comunicacoes S.A................................ Brazil
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE/JURISDICTION
NAME OF INCORPORATION
- ---- ------------------
<S> <C>
Buscapersona Cia., Ltd...................................... Ecuador
SkyTel Dominican Republic................................... Dominican Republic
Mtel Guatemala S.A.......................................... Guatemala
SkyTel Panama............................................... Panama
Communicaciones Mtel S.A. de C.V............................ Mexico
SkyTel del Peru S.A......................................... Peru
BEPSA Communicaciones S.A................................... Paraguay
Global Page (Hong Kong) Limited............................. Hong Kong
</TABLE>
- --------
* Inactive corporations owning no assets and currently conducting no business
activities.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Annual Report on Form 10-K for the year ended
December 31, 1996 into Mobile Telecommunication Technologies Corp.'s
previously filed Registration Statements on Form S-8, File Nos. 33-31617, 33-
42494, 33-55722, 33-62032 and 33-64853 and Registration Statement on Form S-3,
File No. 333-16245.
Arthur Andersen LLP
Jackson, Mississippi,
March 27, 1997.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOBILE
TELECOMMUNICATION TECHNOLOGIES CORP. CONSOLIDATED BALANCE SHEET AS OF DECEMBER
31, 1996 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,744,724
<SECURITIES> 0
<RECEIVABLES> 79,792,381
<ALLOWANCES> 14,994,856
<INVENTORY> 0
<CURRENT-ASSETS> 102,267,625
<PP&E> 394,540,454
<DEPRECIATION> 105,669,936
<TOTAL-ASSETS> 803,259,874
<CURRENT-LIABILITIES> 78,382,905
<BONDS> 402,491,222
38,075
0
<COMMON> 544,042
<OTHER-SE> 300,813,267
<TOTAL-LIABILITY-AND-EQUITY> 803,259,874
<SALES> 350,528,651
<TOTAL-REVENUES> 350,528,651
<CGS> 0
<TOTAL-COSTS> 442,708,260
<OTHER-EXPENSES> 38,768,024
<LOSS-PROVISION> 15,922,560
<INTEREST-EXPENSE> 45,144,814
<INCOME-PRETAX> (169,100,926)
<INCOME-TAX> 2,720,982
<INCOME-CONTINUING> (171,821,908)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (171,821,908)
<EPS-PRIMARY> (3.38)
<EPS-DILUTED> (3.38)
</TABLE>
