<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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, 1997
[_]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)
<TABLE>
<S> <C>
DELAWARE 64-0518209
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
200 SOUTH LAMAR STREET, MTEL CENTRE, SOUTH BUILDING, JACKSON, MISSISSIPPI
39201
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(601) 944-1300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE
OF
EACH
CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
----- -----------------------------------------
<S> <C>
None Not Applicable
</TABLE>
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)
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: $1,340,835,111 as of March 19, 1998
Indicate the number of shares of each of the Registrant's shares of each of
the Registrant's classes of common stock, as of the latest practicable date:
55,236,907 shares of Common Stock, par value $.01 per share, outstanding as of
March 19, 1998.
Documents incorporated by reference in this Annual Report on Form 10-K:
Portions of the definitive proxy statement relating to the 1998 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. [_]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I
<S> <C>
Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 15
Item 3. Legal Proceedings................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............... 16
Executive Officers of the Registrant.................................. 16
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.................................................... 19
Item 8. Financial Statements and Supplementary Data....................... 32
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 32
PART III
Item 10. Directors and Executive Officers of the Registrant............... 32
Item 11. Executive Compensation........................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and Management... 32
Item 13. Certain Relationships and Related Transactions................... 32
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedules and
Reports on Form 8-K...................................................... 33
Index to Consolidated Financial Statements............................ F-1
</TABLE>
<PAGE>
PART I
Certain statements set forth in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 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 wireless messaging services in the United States. As of
December 31, 1997, Mtel had approximately 1,353,300 units in service in the
United States, which represents an increase of 21.6% over the approximately
1,113,000 units in service as of December 31, 1996, and includes approximately
1,145,400 domestic one-way units and 207,900 advanced messaging units.
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 Federal Communications Commission ("FCC"). The
Company's one-way messaging network features FLEX(R) technology which allows
faster transmission speeds, thereby increasing the capacity of this network.
SkyTel provides a full range of one-way messaging services to business users
and offers local services, which are generally provided through contractual
arrangements with other commercial mobile radio service providers, in addition
to regional, nationwide and international services.
Mtel also currently operates the only nationwide advanced messaging network
(the "Advanced Messaging Network") in the United States that utilizes spectrum
allocated by the FCC for narrowband personal communications services ("PCS").
The Advanced Messaging Network is a location independent network that utilizes
a proprietary system architecture designed and developed by Mtel, and provides
coverage in approximately 259 metropolitan statistical areas ("MSAs") in the
United States covering approximately 75% of the population. Services on the
Advanced Messaging Network currently include advanced text messaging services
with guaranteed delivery, which were introduced in the second quarter of 1997,
interactive two-way services and fixed location services.
Mtel's strategy is to maintain its leadership position in the wireless
messaging industry in the United States by serving as a high quality, single
source provider of one-way and advanced messaging services to corporate and
business users and continuing to develop and provide innovative, value-added
services. The Company intends to continue to emphasize the distribution of the
family of services available on its Advanced Messaging Network, which provides
the Company the opportunity to place a substantially higher number of units in
service as compared to the Company's one-way network due to higher
transmission speed and spectrum reuse. The Company also intends to continue to
feature its one-way messaging services through the promotion of lower cost,
high margin products and services that more efficiently leverage the capacity
of this network, such as the Beepwear(TM) pager watch which is being
manufactured by a joint venture comprised of Motorola, Inc. ("Motorola") and
Timex Corporation ("Timex") and prepaid paging services.
Mtel, through its consolidated subsidiaries and joint ventures, also
operates nationwide one-way messaging systems in 16 countries outside the
United States, primarily in Latin America. As of December 31, 1997, Mtel had
approximately 231,800 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
1
<PAGE>
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, Brazil, Canada, China, Hong Kong 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, MCCA
distributed all of the then outstanding shares of Common Stock of Mtel 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 three industry segments: One-Way
Messaging; Advanced Messaging; and International. See Note 10 of Notes to
Consolidated Financial Statements for certain financial information concerning
these industry segments.
ONE-WAY MESSAGING NETWORK
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 local service along
with its established regional, nationwide and international service,
centralized 24-hour customer service and centralized in-house billing that
provides customized billing options to meet individualized customer needs. For
the years ended December 31, 1997, 1996 and 1995, one-way messaging operations
in the United States accounted for approximately 83%, 89% and 92% of the
consolidated revenues of the Company, respectively.
A person desiring to reach a one-way messaging subscriber may access the
network in a number of ways, including modems, e-mail/Internet access and
personal toll-free numbers. The 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.
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. SkyTel's software
also generates customer bills, and an extensive customer database provides
valuable information regarding the profiles, preferences and characteristics
of SkyTel's direct customers.
All domestic one-way 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 operations
center in Jackson, Mississippi also serves as the operations center for the
Company's advanced and international messaging networks. Local messages are
generally routed through local paging systems operated by third parties.
SkyTel leases satellite capacity and the uplink facilities utilized in the
SkyTel one-way messaging system from SpaceCom Systems, Inc. ("SpaceCom") under
agreements which expire in December 1998 and January
2
<PAGE>
2006, subject 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 California Microwave, Inc. under an agreement which
expires in May 1998.
ADVANCED MESSAGING NETWORK
The Company's Advanced Messaging Network, which began commercial operation
in September 1995, currently is the only nationwide network in the United
States that utilizes spectrum allocated by the FCC for narrowband PCS. The
Advanced Messaging Network is a location independent network that utilizes a
proprietary system architecture designed and developed by Mtel and
incorporates low-power transmission technology. The Advanced Messaging Network
is currently operational in approximately 259 MSAs in the United States
covering approximately 75% of the population.
Over-the-air transmissions on the Advanced Messaging Network utilize an
innovative multi-carrier modulation technology. The Advanced Messaging Network
has demonstrated transmission rates in excess of 24,000 bits per second for
forward network links, which compares to 6,400 bits per second utilized at
present by the fastest one-way paging systems. The higher transmission speed
and the ability to divide the coverage of the Advanced Messaging Network into
zones provide increased system capacity which is many more times the capacity
of the Company's one-way network. The Advanced Messaging Network also operates
with synchronized transmitters on the same frequency within a given coverage
area to optimize building penetration and reduce power requirements. The
Advanced Messaging Network utilizes one of the two paired narrowband PCS
channels acquired by the Company in July 1994. The Company believes that the
use of a paired channel enhances the efficiency of the Advanced Messaging
Network by permitting the segregation of inbound and outbound traffic, and
will allow the Advanced Messaging Network to provide a wider range of services
to the public, including longer message length, bulk airtime applications and
other services and applications which may be developed in the future.
The Company also believes that the Advanced Messaging 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.
During 1997, the Company continued to optimize and improve the reliability
and performance of the Advanced Messaging Network, and also continued to
expand the coverage of the Advanced Messaging Network in major metropolitan
areas. The Company plans to continue to expand both the transmitter and
receiver coverage of the Advanced Messaging Network in 1998 in several of the
largest metropolitan areas in the United States to further enhance the
Company's interactive two-way services. The Company believes that improved
network performance, reliability and coverage, together with smaller and
improved messaging devices, new service offerings and applications and
additional distribution channels, will result in increasing levels of units in
service on the Advanced Messaging Network during 1998. The ability of the
Company to achieve projected levels of net unit additions and improved
operating results will be dependent on the continued improved performance of
its direct and reseller distribution channels and the timely availability and
market acceptance of new devices and value-added services which the Company
plans to introduce on the Advanced Messaging Network in 1998. In addition, the
Company cannot predict the extent to which competing advanced messaging
services will be available in 1998, if at all.
PRODUCTS AND SERVICES
Basic Services. The Company's principal one-way messaging services in the
United States are marketed under the names SkyPager(R) for numeric paging
service and SkyWord(R) for alphanumeric messaging service. A subscriber for
one-way 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
3
<PAGE>
coverage in the Southwest, Midwest and Southeast regions of the United States.
SkyTel also offers several additional one-way service coverage options,
including Metro local service, which provides one-way coverage over one of
twenty-one zones in the United States, and Nationwide Now(R), which allows a
local, zonal or regional customer of one-way services to obtain nationwide
coverage on demand for specified periods of time.
The Advanced Messaging Network currently features two primary services, an
advanced text messaging service which is marketed under the name SkyWord(R)
Plus and an interactive two-way messaging service which is marketed under the
name SkyTel 2-Way(R). The SkyWord Plus service ensures message delivery
through system confirmation of delivery from the network operations center and
a store and forward function. If a customer is in transit between two markets
and is temporarily out of coverage or turns off the device, any messages are
stored and automatically delivered to the customer when he or she is back in
coverage or turns the device back on. The advanced text messaging service is
also equipped with a feature that automatically detects errors in message
transmission and provides for retransmission of the message. The Company's
SkyTel 2-Way service enables subscribers to compose and send text messages to
and receive text messages from an advanced messaging device or an Internet e-
mail address. The Advanced Messaging Network also has 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.
For the year ended December 31, 1997, nationwide text messaging units
represented approximately 70% of the Company's domestic net unit additions. As
part of its strategic plan, the Company intends to continue to emphasize the
distribution of nationwide text messaging services on the more capacity
efficient Advanced Messaging Network while at the same time continuing to
feature its one-way messaging services through the promotion of lower cost,
high margin products and services that more efficiently leverage the capacity
of the one-way network, such as the Beepwear(TM) pager watch and prepaid
paging services. The Beepwear pager watch, which was introduced in December
1997 and is manufactured by a joint venture comprised of Motorola and Timex,
is the first FLEX enabled alphanumeric pager watch. The Company's agreement
with the Motorola/Timex joint venture provides that the Skytel one-way
messaging system will be the exclusive provider of paging services for a
period of one year to purchasers of the Beepwear pager watch who elect to
subscribe for such services. Prepaid paging permits consumers to purchase a
Motorola pager and SkyTel one-way messaging services in a single package
without contracts, credit verification, monthly bills or long term
commitments, and is ideal for first-time users and users who have limited
messaging or short duration needs. The SkyTel system tabulates the number of
messages received by the subscriber and forwards a renewal message to the unit
when the subscription reaches a predetermined number of messages. Upon
depletion of the messages or the expiration of the service, a subscriber may
obtain additional messaging services through the purchase of a recharge card
which is available at the original place of purchase, select retail locations
or directly from SkyTel.
The Company continued to enhance its Internet-based messaging services in
1997, adding numerous features to facilitate efficient, flexible messaging. An
estimated 79 million e-mail users have the ability to send messages to SkyTel
subscribers via the Internet. Each unit in service on the one-way network or
the Advanced Messaging Network has a unique Internet e-mail address that
allows subscribers to receive e-mail messages, and in the case of units on the
Advanced Messaging Network, to also originate or respond directly from the
device or through any Internet e-mail package. Messages are delivered via a
reliable, high-availability Internet e-mail gateway technology maintained by
the Company. As of February 1998, approximately 2.3 million messages per month
were delivered through the Internet to one-way and advanced messaging
subscribers, as compared to approximately 400,000 as of February 1997.
The Company also significantly expanded the SkyTel Web Site in 1997. The Web
Site's most utilized feature is the "Send A Message" function which permits
anyone with web browser access to compose and transmit messages. In February
1998, approximately 700,000 messages were transmitted to one-way and advanced
messaging subscribers through the SkyTel Web Site, as compared to
approximately 130,000 in February 1997, a 438% increase. In addition to
sending messages, the "Send A Message" function provides confirmation of
delivery of all messages sent to SkyTel 2-Way devices. In addition, the SkyTel
Web Site allows
4
<PAGE>
users to set up and maintain address books, and permits transmission of
broadcast messages to a large group at one time. The Web Site also provides
updated information on the Company's services worldwide, displays coverage
maps and facilitates direct interaction with SkyTel customers.
The Company has also developed a series of customized intranet-based
offerings for corporate customers which enable users to maintain address books
and group lists of individuals within a company or division. These intranet-
based offerings allow customers to send group and broadcast messages to all or
a select group of their employees from a simple interface. The intranet
offering can also enable corporate customers to cost effectively send messages
to thousands of customers on the Company's networks through a single
installation.
The Company is continuing its efforts to optimize and expand the
functionality and applications of its messaging networks. The Company offers a
software developers kit that allows software developers, corporations and
partners to develop unique and differentiated applications that seamlessly
interface with and maximize the capabilities of the Company's messaging
networks. The software development kit was enhanced in 1997 to include
additional features, improved documentation and tools enabling connectivity
from a variety of common computing platforms such as MS-DOS and several
different UNIX versions to the Company's networks via modem, the Internet and
wireless devices. In addition, the Company has developed a software driver to
connect the pager gateway of Lotus Notes, the dominant groupware product
worldwide, to the Company's Advanced Messaging Network. The software offers
the capability to extend any Lotus Notes database to the Advanced Messaging
Network, offering interactive two-way messaging subscribers the ability to
receive messages, database alerts or updates, respond to such messages, alerts
or updates and submit queries wirelessly. Other applications available in the
software developers kit include automated dispatch and delivery tracking
capabilities.
The software developers kit promotes the use of "socket" technology, a
standardized method to connect to the Internet. By adopting "socket"
technology, the Company ensures the use of a common, industry-standard means
for network connectivity. Other benefits of "socket" technology include
interactive response from the Company's messaging systems when a subscriber
elects to send a message via the Internet, reduction in the number of calls
placed to SkyTel's 800 toll-free numbers as more people use the Internet
connection, and the gradual elimination of dial-up modem usage, thereby
improving efficiency, convenience and speed for subscribers. To ensure
dependable, high-volume Internet access, the Company also provides multiple
connections to the Internet so that in the event one circuit cannot be used,
another is always available.
The Company has also entered into joint development and marketing alliances
with several companies or integrated its messaging services with the products
of other companies that the Company believes will expand the capabilities and
potential applications of its Advanced Messaging Network. In late 1996 and
early 1997, the Company developed SkyTel Messenger(R) for Windows CE in close
collaboration with Microsoft Corporation ("Microsoft"). SkyTel Messenger
enables customers to integrate the communications features of a handheld PC
based on Windows CE with the Advanced Messaging Network. The Company has
concluded agreements with three Microsoft licensed manufacturers of handheld
PC's, Casio Computer Co., Ltd. ("Casio"), Compaq Computer Corporation
("Compaq") and Phillips Electronics North America Corporation ("Phillips") to
co-market the Company's advanced messaging services with these products. The
Company has also developed SkyTel Access(R) software that provides message
origination, retrieval and management functions, and other software which has
integrated advanced messaging devices with palmtop computers.
The Company continues to work with Motorola and Wireless Access, Inc.
("Wireless Access"), which was recently acquired by Glenayre Electronics,
Inc., to design and develop the next generation of messaging devices with
advanced functionality that will utilize the Company's Advanced Messaging
Network. In December 1997, the Company introduced the PageWriter 2000, a new
full-featured device from Motorola designed with a qwerty keyboard for
convenient two-way messaging. The PageWriter 2000 contains an operating system
and PC connectivity allowing for custom application development and upgrades.
In 1998, the Company plans to
5
<PAGE>
introduce several smaller, lighter weight advanced messaging devices with
enhanced sensitivity and performance that will be manufactured by Motorola and
Wireless Access and which will be programmable for additional services "over
the air" as new services become available. The Company's ability to achieve
projected levels of net unit additions on its Advanced Messaging Network in
1998 will be dependent, among other things, upon the timely availability and
market acceptance of these new devices.
During 1997, the Company continued to pursue development efforts for fixed
wireless applications on the Advanced Messaging Network. Fixed wireless
applications can be added by the Company with little or no network
modification or incremental expansion and will primarily utilize the Advanced
Messaging Network during off-peak hours. In 1997, the Company entered into
several commercial fixed wireless service contracts and had approximately
30,100 fixed wireless units committed under such contracts as of December 31,
1997. The Company also entered into an agreement with Enron Energy Services,
Inc. ("Enron") in December 1997 under which Enron will utilize Mtel's Advanced
Messaging Network to support wireless meter reading and provide advanced
services for residential power customers nationwide. Under the terms of the
agreement, Enron made a nonrefundable $5.0 million prepayment to Mtel which
will be applied to initial service costs. The Company intends to continue to
pursue development efforts for fixed wireless applications in 1998, and the
success of these efforts will be dependent, in part, on the ability of
equipment manufacturers to develop devices suitable for these applications.
The Company expects net unit additions from fixed wireless applications to be
limited in 1998.
Value Added Services. 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 or advanced messaging systems 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 number.
The Company's one-way and advanced messaging systems may also be utilized to
notify subscribers of calls recorded on their interoffice telephone system.
Subscribers receive a notice on the messaging unit which informs them that
their business voice mail system has received a message. The subscriber then
calls the number for the business voice mail to listen to the recorded
message. The one-way messaging system also permits subscribers to retrieve
facsimiles from a SkyTel fax "mailbox."
In 1998, the Company plans to introduce an advanced text messaging service
with guaranteed delivery that will allow SkyWord Plus subscribers to respond
to a message directly from the messaging device. The SkyReply(TM) feature,
which will be available on the new Motorola Lynx(TM) and the Wireless Access
AccessMate(TM) pagers that are expected to be commercially available in the
second quarter of 1998, will allow SkyWord Plus subscribers to have a series
of replies pre-programmed into the paging device. The SkyReply feature will
also allow the message sender to transmit custom replies with the message
which can then be sent back by the recipient. The Company believes that the
SkyReply feature will further encourage the transition from one-way messaging
to full interactive two-way service and will provide corporate users the
ability to conveniently communicate with field personnel in a command and
control environment.
In the second quarter of 1998, the Company also plans to introduce the first
caller ID service available in the messaging industry. The caller ID feature
will allow a person sending a numeric message or SkyTalk voice message to a
subscriber to include the sender's name or other identification with the
message or SkyTalk notification. This feature, which will be available with
one-way alphanumeric service and SkyWord(R) Plus and Skytel 2-Way(R) service
on the Advanced Messaging Network, will allow subscribers to prioritize their
responses to messages based on the identity of the sender.
The Company currently provides several information services in conjunction
with its one-way and advanced messaging services. Information services are
currently available either on a general broadcast basis such as news or on a
personal broadcast basis as selected by the individual subscriber as in the
case of stock quotes.
6
<PAGE>
Approximately 80% of the Company's alphanumeric customers use FLEX technology
devices which are capable of over-the-air programming. The use of over-the-air
programming enables the Company to commence, terminate or change information
services as requested by the subscriber. In 1998, the Company intends to
significantly expand its information services offerings and intends to provide
access to the Company's networks to content providers as a vehicle for
transmitting information to their customers.
The two-way capability of the Advanced Messaging Network will also enable
the Company to offer information services on demand. After initial enrollment
for an on demand service, a subscriber may communicate from his or her device
to a personal identification number or Internet e-mail address requesting
specific information such as a stock quote, weather forecast or sports score
which is then sent back to the subscriber through the Advanced Messaging
Network. The Company currently offers an on-demand stock quote service and
expects to introduce additional on demand information services in the second
half of 1998.
INTERNATIONAL
Mtel Latin America, Inc. ("Mtel Latam"), which is an 80% owned subsidiary of
the Company, serves as the holding company for the Company's Latin American
operations and investments and conducts one-way messaging operations through
its consolidated subsidiaries in Argentina, Colombia, Costa Rica, Puerto Rico,
Uruguay and Venezuela. As of December 31, 1997, Mtel Latam also owned equity
interests in joint ventures that conduct one-way messaging operations in
Mexico (49%), Peru (45%), the Dominican Republic (50%), El Salvador (50%),
Ecuador (50%), Guatemala (50%) and Paraguay (40%). The following table sets
forth information as of December 31, 1997 regarding Mtel Latam's operations
and investments:
MTEL LATAM SUBSIDIARIES AND JOINT VENTURES
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
APPROXIMATE
POPULATION PROPORTIONAL
(IN MTEL COMMENCEMENT ACTUAL UNITS UNITS IN
COUNTRY MILLIONS) PARTNER OWNERSHIP OF OPERATIONS IN SERVICE SERVICE
------- ----------- --------------------- --------- -------------- ------------ ------------
<C> <C> <S> <C> <C> <C> <C>
Argentina.......... 34.7 N/A 100.0% April 1994 64,944(1) 64,944(1)
Colombia........... 36.8 N/A 98.0%(2) June 1994 24,893 24,395
Costa Rica......... 3.5 Inversiones Comesal, 75.0% February 1997 2,064 1,548
S.A. de C.V.
Dominican Republic. 8.1 Transmissiones y 50.0% October 1996 9,410 4,705
Proyecciones, S.A.
Ecuador............ 11.5 Isaias Group 50.0% May 1995 14,894 7,447
El Salvador........ 5.8 Inversiones Comesal, 50.0% February 1997 3,855 1,928
S.A. de C.V.
Guatemala.......... 11.3 Europeos, S.A. 50.0% October 1995 16,779 8,390
Mexico............. 95.8 Radio Telefonia Movil 49.0% February 1993 136,690 66,978
Metropolitana S.A. de
C.V.(3)
Paraguay........... 5.5 BEPSA Communications 40.0% February 1993 21,814 8,726
S.R.L.
Peru............... 24.5 Tele 2000, S.A. 45.0% October 1994 9,620 4,329
Puerto Rico........ 3.8 N/A 100.0% October 1996 13,522 13,522
Uruguay............ 3.2 N/A 100.0%(4) September 1995 4,993 4,993
Venezuela.......... 22.0 N/A 100.0%(5) November 1995 10,211 10,211
----- ------- -------
Combined Totals.... 266.5 333,689 222,116
===== ======= =======
</TABLE>
- --------
(1) Reflects the acquisition of RadioMensaje, S.A.C. in July 1997.
(2) Senior management owns the remaining interest.
(3) A wholly-owned subsidiary of Grupo Televisa, a media and
telecommunications conglomerate based in Mexico City.
(4) The 10% equity interest in the joint venture which was not originally
owned by the Company was acquired in the first quarter of 1997.
(5) The 50% equity interest in the joint venture which was not originally
owned by the Company was acquired in the fourth quarter of 1997.
7
<PAGE>
The remaining 20% equity interest in Mtel Latam was acquired by Newbridge
Latin America, L.P. ("Newbridge"), an investment fund, in September 1996.
Newbridge and the Company have entered into a stockholders agreement which
governs the rights and obligations of Newbridge and the Company as
stockholders of Mtel Latam. The stockholders agreement provides that Newbridge
is entitled to elect two of the eight directors comprising the Mtel Latam
Board so long as Newbridge maintains a prescribed voting interest in Mtel
Latam. In addition, the stockholders agreement also requires that seven of the
eight members of the Board of Directors of Mtel Latam approve certain matters,
including the annual business plan, 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.
In February 1997, Mtel Latam completed the sale of its 19% equity interest
in a Brazilian paging operation for a purchase price of $14.3 million. Mtel
Latam received $7.15 million of the proceeds, less certain taxes, fees and
expenses, in February 1997 and the remaining $7.15 million, plus interest at a
rate of 12% per annum, was paid in February 1998. Mtel recorded a gain on the
sale of its equity interest in the Brazilian paging operation of approximately
$7.4 million in the first quarter of 1997. Mtel Latam is currently reviewing
its alternatives for reentering the Brazilian paging market and intends to
seek a controlling interest in any future paging operations in Brazil.
In June 1997, Mtel Latam acquired 100% of the outstanding shares of capital
stock of RadioMensaje, S.A.C. ("RadioMensaje") a paging company in Argentina,
for an aggregate purchase price (in U.S. dollars) of $32.0 million. The
Company believes that the acquisition of RadioMensaje will allow the
operations in Argentina, which Mtel Latam views as one of the markets in Latin
America with significant potential, to achieve efficiencies and economics of
scale. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources-
International."
In 1997, the Company began to divest its operations and investments in the
Asia Pacific region in order to concentrate its international development
efforts in Latin America. A covenant in the SkyTel bank loan agreement, as
amended, requires that the Company complete such divestiture for certain
minimum proceeds on or before December 31, 1998. The Company completed the
sale of its operations in Hong Kong and its equity interests in joint ventures
that operate in China and the Philippines in 1997. The Company is also
involved in discussions regarding the sale of its equity interests in joint
ventures that operate in Indonesia and Malaysia, but there can be no assurance
that such transactions will be completed on or before December 31, 1998 or
that the Company will otherwise be in compliance with this covenant. If these
divestitures are not completed in compliance with this covenant, the Company
will be required to obtain a waiver of this covenant in the SkyTel bank loan
agreement.
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 Company's systems in the
United States, Mexico, Argentina, Colombia, Indonesia, Malaysia, Peru, the
Dominican Republic, Ecuador, Paraguay, Venezuela, Uruguay and Guatemala with
other carriers' systems in the Bahamas, Bermuda, Brazil, Canada, China, Hong
Kong and Singapore. 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.
Certain of 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
8
<PAGE>
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.
MARKETING
Customers of the Company'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. In 1997, the Company's services were
distributed primarily through two channels, a direct sales channel and a
reseller channel. The Company intends in 1998 to expand its distribution
channels to include additional retail distribution and a restructured agent
channel. The Company has also entered into joint development and marketing
agreement 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, 1997, SkyTel maintained a direct sales presence in more than 36
metropolitan areas. SkyTel intends to continue to expand its direct sales
force in 1998.
SkyTel's direct sales efforts have been successful in achieving higher
average revenue per messaging unit in service than many of its competitors.
The Company believes this is due, in part, to its highly trained 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 believes that the intense training
programs that it has established for its sales personnel will enhance their
ability to market and sell services and applications on the Advanced Messaging
Network. The Company also believes that SkyTel's 24-hour customer service has
reinforced the success of its direct sales efforts.
The operating results of the Company can be significantly affected by
subscriber disconnect rates since sales and marketing costs associated with
attracting new subscribers are significant relative to the costs of providing
services to existing customers. 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. Management was successful
in reducing the disconnect rate of the SkyTel direct sales channel in 1997.
Although the Company believes that the disconnect rate of its direct sales
channel will remain stable in 1998 and future periods, the Company cannot
predict the extent to which competitive and other factors, some of which may
be beyond the control of SkyTel, will adversely affect this disconnect rate in
the future.
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.
9
<PAGE>
Resellers. The Company's one-way and advanced messaging services are also
distributed through approximately 125 resellers. Resellers of the Company's
one-way and advanced messaging services generally purchase service in bulk
quantities at wholesale rates and offer the Company's services in conjunction
with services provided on their paging systems. The Company's reselling
partners include the largest paging companies, Bell operating companies and
other telecommunications companies such as AirTouch Paging, American Paging,
Inc., Ameritech Mobile Services, Inc., Arch Communications Group, Inc., AT&T
Wireless Services ("AT&T"), Bell Atlantic Paging, Inc., MCI Telecommunication
Corp. ("MCI") and Paging Network, Inc. ("PageNet"). 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 22%, 35% and 34% of the Company's domestic revenues for the
years ended December 31, 1997, 1996 and 1995, respectively, were attributable
to 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.
In late 1996 and early 1997, the Company restructured its distribution
arrangements and entered into new agreements with its major resellers,
including MCI. These reseller arrangements provide for separate charges for
airtime at wholesale rates and the unbundling of certain support services that
were previously included as components of the reseller product offering. In
addition, under the restructured agreement with MCI, the Company no longer
leases messaging units to MCI, which reduces capital requirements with respect
to this reseller. In the third quarter of 1997, the Company also entered into
an agreement with PageNet pursuant to which PageNet has agreed to resell
services on Mtel's Advanced Messaging Network and Mtel has agreed to use
PageNet as its preferred provider for local and regional paging services. Mtel
has also agreed to resell PageNet's VoiceNow(TM) voice messaging service. In
1998, the Company intends to work with its major resellers to feature the
Company's Advanced Messaging Network to their customers for nationwide text
messaging services in light of the capacity constraints of one-way nationwide
networks. The Company's ability to achieve projected levels of net unit
additions and improved operating results will be dependent, in part, on the
success of the reseller channel.
Prepaid Channel. The Company has developed an innovative prepaid one-way
service offering which includes a device and a fixed number of messages.
Prepaid paging permits consumers to purchase a Motorola pager and the
Company's one-way messaging services in a single package without contracts,
credit verification, monthly bills or long-term commitments. Upon depletion of
the messages or the expiration of services, a prepaid paging subscriber may
obtain additional messaging services through the purchase of a recharge card
which is available at the original place of purchase, select retail locations
or directly from the Company. The Company is seeking to expand the
distribution of prepaid paging and has entered into agreements with national
distribution partners who will offer prepaid paging through a variety of
channels including national retailers, paging and cellular stores and discount
clubs.
Agent Distribution Channels. In 1997, the Company undertook efforts to
improve the profitability of sales and reduce the disconnect rate attributable
to its agent distribution channel. The Company has recently introduced an
independent agent program designed to allow partners to sell the Company's
full line of messaging services. The commission structure of this independent
agent program permits the Company to share the revenue and risks of new
subscribers with the agent. The Company believes that by leveraging the sales
forces of agents who are dedicated to market and customer segments not
targeted by the Company's traditional direct sales and marketing efforts, the
Company can further expand the distribution of its products.
The Company believes that the recent introduction of the Beepwear pager
watch will also facilitate the Company's agent distribution channel and is
consistent with the Company's strategy to promote one-way services that more
efficiently leverage the capacity of the one-way network. The Beepwear pager
watch is manufactured, marketed and distributed by the Motorola/Timex joint
venture through regional and national retailers. The Company is not required
to maintain any inventory or handling costs associated with the Beepwear pager
watch, and all units are customer owned.
10
<PAGE>
Advertising and Marketing Alliances. The Company supports its marketing
efforts with advertising and sales support in broadcast and print media, trade
shows, events, direct mail and telephone marketing. In addition, the Company
has conducted joint marketing programs with companies that provide other
services to similar target audiences. For example, pursuant to joint
development and marketing alliances with Casio, Compaq and Phillips, the
Company's messaging services are co-marketed with such manufacturers' palmtop
and handheld computers. Co-marketing activities include placing messaging
service promotional materials in palmtop and handheld device packaging and
hotlinks between the Company's and the manufacturers' websites.
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 value
added services in addition to its one-way and advanced messaging services such
as SkyTalk and SkyQuote(R) (a stock market quotation service) for an
additional charge. The term of SkyTel's service contracts vary and, in certain
cases, may be terminated by either party upon 30 days' notice after an initial
term, although a number of large customers have service contracts for fixed
terms.
COMPETITION
The Company believes that competition for subscribers for its one-way and
advanced 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 geographic coverage of the
one-way messaging network is comparable to the coverage of many 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.
A number of other companies (including AT&T, PageNet, AirTouch Paging and
certain Bell operating companies) are offering nationwide or expanded regional
one-way services that compete directly with the Company'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 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.
Certain companies such as AT&T and PageNet acquired multiple narrowband PCS
licenses in the auction held by the FCC in 1994. In addition, the FCC
conducted auctions of regional narrowband PCS spectrum. Four companies
acquired licenses in all five regions and, as a result, will be able to
interconnect all five regions and provide nationwide narrowband PCS service.
Certain companies that have acquired narrowband PCS spectrum, such as PageNet
and PageMart, Inc., have announced that they will offer services similar to
the services available on the Company's Advanced Messaging Network, although
Mtel cannot predict when such competing services will be available. PageNet
has announced that it also plans to utilize its narrowband PCS spectrum to
provide a portable voice messaging service. The Company cannot predict the
extent to which PageNet's portable voice messaging service will compete with
the one-way and advanced messaging services provided by the Company.
Over the last three years, the FCC has conducted three separate auctions for
broadband PCS spectrum. 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.
11
<PAGE>
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 any 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.
The Company also experiences 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) enhanced specialized mobile radio services ("ESMR") 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. ESMR and existing two-way voice services primarily offer
integrated vertical dispatch applications (used in taxi, courier and trucking
services) and have indicated that they intend to offer alphanumeric type
messaging and wireless data services.
Certain of the Company's competitors in the United States such as AT&T and
certain Bell operating companies possess substantially greater financial
resources than the Company, and this could have a substantial competitive
impact on SkyTel.
The FCC has maintained in recent years an aggressive program of allocating
additional spectrum for new wireless services in response to congressionally
inspired auction schedules. The Company cannot predict the extent to which the
FCC will make additional spectrum available for services that will compete
with those offered by 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 for the Company's businesses. 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 countries 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. In addition, the Company's international
subsidiaries and joint venture in many countries compete with other wireless
services such as cellular telephone service.
REGULATION
SkyTel's one-way and advanced messaging operations in the United States, as
well as Mtel's other domestic businesses, are subject to regulation by the FCC
under the Communications Act of 1934, as amended (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 Advanced Messaging 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. The Company's second
license relates to a paired channel in the 901-902 MHz frequency band.
12
<PAGE>
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, whichever period is less. Mtel filed an
appeal challenging the condition requiring payment for this license, and in
March 1996 the United States Court of Appeals for the District of Columbia
Circuit issued a decision upholding the FCC's authority under the
Communications Act to impose such a fee. However, the Court of Appeals
remanded the matter to the FCC to consider the issue of Mtel's reliance upon
earlier determinations by the FCC that Mtel would not be required to pay for
the Pioneer's Preference license. The remand proceeding is currently pending
before the FCC. Payment for this license will not be required to be made
unless and until such litigation is finally resolved adversely to Mtel,
although the Company has the option of electing not to acquire the spectrum in
the event the FCC's demand for payment is upheld. Mtel does not currently
utilize the frequency covered by this license.
In 1994, the FCC adopted rules pursuant to which the FCC will utilize
competitive bidding to select Commercial Mobile Radio Service ("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.
Over the last four years, the FCC has 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
site-by-site approach previously used by the FCC. Geographic area licensing
was first utilized for one-way service in the 1994 narrowband PCS auctions and
is now used exclusively for all one-way services involving CMRS facilities.
While the geographic licensing rules do not impact SkyTel's original
nationwide one-way paging frequency or any of its advanced messaging
frequencies which were assigned on an exclusive basis nationwide, SkyTel's
second one-way 931 MHz frequency will be subject to these geographic licensing
rules. The acquisition of additional licenses for this second one-way 931 MHz
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 one-way 931 MHz 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.
13
<PAGE>
During 1997, the FCC completed several rulemaking proceedings that imposed
additional surcharges or costs on the Company, including the Universal Service
Fund, access reform, increased user fees, and charges for toll-free calls
initiated from a pay telephone. In addition, each of the states has been
authorized to impose Universal Service Fund charges based on intrastate
service and the Company expects the individual states to begin imposing such
charges in 1998. The Company, like other companies in the telecommunications
industry that will be affected by these surcharges and costs, intends to pass
on these surcharges and costs where permitted or take other appropriate action
to minimize the impact of such surcharges and costs on the Company. The
Company cannot predict the extent to which these surcharges and costs will
impact the operating expenses of 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 Advanced Messaging Networks.
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 which became effective as of
February 9, 1998. Fifty-four countries adopted the U.S. sponsored Regulatory
Reference Paper that calls for an increase in international competition in the
telecommunications industry and which may have the effect of creating global
markets. 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 a greater 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.
In 1997, the FCC affirmed and scheduled for implementation revised radio
frequency ("RF") standards pursuant to which all licensees are required to
protect the general public and workers from the dangers associated with RF
regulation. The revised federal standards require the Company, either working
independently or in concert with co-located licensees, to safeguard sites from
non-ionizing (i.e., heat-generating) radiation. The Company, and the industry
in general, have not fully assessed the cost of complying with these new
regulations.
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 are
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 the Company's businesses could adversely affect
Mtel's results of operations.
14
<PAGE>
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 Advanced Messaging 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 Advanced Messaging
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, among others, the following federally registered marks: MOBILE
TELECOMMUNICATION TECHNOLOGIES CORP.; MTEL; NATIONWIDE NOW; SKYTEL; SKYTEL 2-
WAY; SKYPAGER; SKYQUOTE; SKYTEL ACCESS; 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, among others: DESTINEER; SKYCODER; SKYFINDER; and
SKYTEL ASSURED. The Company also holds numerous registrations and pending
applications for its trademarks and service marks in 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 Advanced
Messaging Network. 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. In 1997, the Company was issued additional United
States patents further covering the two-way messaging systems including
multicarrier techniques for use in bandlimited channels.
The Company has filed various patent applications with the United States
Patent and Trademark Office, including applications relating to paging
networks and services, a seamless cellular 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 2,300
full and part-time personnel as of December 31, 1997, none of whom is
represented by organized labor.
ITEM 2. PROPERTIES
The Company currently leases a total of approximately 154,000 square feet of
office space in the Mtel Centre in Jackson, Mississippi which serves as the
Company's principal executive offices (the "Mtel Centre") pursuant to a lease
entered into in August 1995. The lease for space in the Mtel Centre has a
monthly rental rate of approximately $186,000 and expires on July 31, 2005.
The Company also leases approximately 163,000 square feet of space in Jackson,
Mississippi for customer service, technical 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 approximately $146,000
and begin to expire on June 30, 2002.
15
<PAGE>
SkyTel currently leases approximately 41,000 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 $164,000 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 24,000 square feet of office space in New York City having an
average aggregate monthly rental rate of approximately $67,000. The term of
this lease expires on December 31, 1999.
The Company and its subsidiaries own or lease office space in approximately
20 cities in 13 states which is used in conjunction with its nationwide
messaging operations. These office leases provide for monthly rental rates
ranging from $450 to $23,500. The Company also leases transmitter and receiver
sites which are used primarily in conjunction with its messaging operations.
These 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, 1997, the Company leased approximately 2,000 transmitter sites in
the United States in connection with its one-way messaging operations and
approximately 3,800 transmitter and receiver sites for the Advanced Messaging
Network for monthly rental rates ranging from approximately $40 to $2,100,
which leases are for various terms.
ITEM 3. LEGAL PROCEEDINGS
On February 20, 1997, a civil complaint was filed 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 alleging violations of Section
10(b) of the Exchange Act against all defendants, and one alleging violations
of Section 20(a) of the Exchange Act against the Company and defendants Palmer
and Puckett. The plaintiffs seek unspecified damages and to certify the case
as a class action. Motions to dismiss the complaint were filed by the Company,
SkyTel and each of the other defendants. On December 4, 1997, the United
States District Court for the District of Columbia granted SkyTel's motion to
dismiss. On January 6, 1998, the United States District Court for the District
of Columbia entered an order transferring the case as to the other defendants
to the United States District Court for the Southern District of Mississippi.
The motions to dismiss the remaining defendants are pending and the defendants
intend to vigorously defend the case. Subsequent to the filing of the
complaint, the Company, as have other companies involved in private securities
litigation, received from the staff of the Securities and Exchange Commission
("SEC") an informal inquiry letter seeking documents pertaining to consultants
and products used in the development and operation of the Advanced Messaging
Network. The Company is cooperating with the SEC staff.
Except as set forth above and described in "Item 1. Business--Regulation",
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, 1998. The Company has entered into an employment
agreement with each of Messrs. John N. Palmer, John T. Stupka, Jai P. Bhagat,
John E. Welsh III, Robert Kaiser and Calvin C. LaRoche. The employment
agreements for Messrs. Palmer, Stupka, Bhagat, Welsh, Kaiser and LaRoche
expire on April 3, 2004, July 31, 2001, April 3, 2002, December 12, 1998,
August 14, 1999 and May 31, 1998, respectively.
16
<PAGE>
Jai P. Bhagat, age 51, has served as Vice Chairman of the Company since May
1995 and as Executive Vice President and a director since October 1988.
Thomas R. Ferguson, age 39, 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.
John E. Harvey, age 51, has served as Senior Vice President of SkyTel since
September 1994. Prior to joining the Company, Mr. Harvey was the proprietor of
Practice Management Services, a medical billing company, from 1992 to 1994.
Robert Kaiser, age 43, 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 48, 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 52, has served as a Senior Vice President-Destineer
since October 1996 and has served as 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.
John N. Palmer, age 63, 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 1, 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.
Robert T. Pike, age 51, 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 the Director and Vice
President of Human Resources.
John T. Stupka, age 48, has served as President and Chief Executive Officer
and a director 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 Southwestern Bell Mobile Systems, Inc. from
November 1985 to August 1995.
John E. Welsh III, age 47, has served as Vice Chairman of the Company since
May 1995, a director of the Company since September 1992, acting Chief
Financial Officer of the Company from February 1996 until August 1996 and
Managing Director of the Company from December 1992 to May 1995. Mr. Welsh was
a principal in Seaport Capital, Inc., a financial advisory and merchant
banking firm, from January 1992 to December 31, 1994.
17
<PAGE>
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 2, 1998,
the Common Stock was held by approximately 3,500 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, 1996 and
1997. This information does not include retail mark-ups, mark-downs or
commissions.
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter................................ $21 7/8 $12 5/8 $10 1/8 $5 1/8
Second Quarter............................... 17 5/8 13 1/2 14 7/8 6
Third Quarter................................ 16 3/4 9 7/8 16 3/4 10 5/8
Fourth Quarter............................... 16 1/8 8 1/8 23 7/8 14
</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" and Note 6 of Notes to Consolidated Financial Statements.
18
<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, 1997 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, 1997 have been audited by
Arthur Andersen LLP, independent public accountants, whose report with respect
to the Consolidated Financial Statements as of December 31, 1996 and December
31, 1997 and for each of the years in the three-year period ended December 31,
1997 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,
--------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
One-way messaging........ $131,595 $150,455 $225,146 $ 311,601 $ 338,022
Advanced messaging....... -- -- 1,213 9,593 33,178
International messaging.. 80 2,485 10,121 20,289 30,602
Other.................... 12,790 10,330 9,511 9,046 6,166
-------- -------- -------- --------- ---------
Total revenues......... 144,465 163,270 245,991 350,529 407,968
Operating income (loss).... 13,547 (24,579) (58,422) (130,947) (34,934)
Interest income (expense),
net....................... (2,691) 1,758 1,180 (38,915) (51,102)
Income (loss) before income
taxes and equity income
(loss).................... 14,949 (21,893) (53,230) (167,200) (83,465)
Equity in income (loss)
from investments.......... 2,705 3,849 946 (1,901) (555)
Net income (loss) before
nonrecurring items........ 16,963 (19,846) (33,686) (133,054) (88,866)
Net income (loss).......... $ 16,963 $(19,846) $(52,027) $(171,822) $ (88,866)
Preferred dividend
requirement............... (1,697) (8,438) (8,438) (11,595) (13,045)
Net income (loss) available
to common stockholders.... $ 15,266 $(28,284) $(60,465) $(183,417) $(101,911)
Income (loss) per common
share..................... $ 0.39 $ (0.77) $ (1.19) $ (3.38) $ (1.87)
CONSOLIDATED BALANCE SHEET
DATA:
Working capital............ $218,410 $185,551 $(34,934) $ 27,042 $ (34,157)
Total assets............... 406,052 715,471 851,414 803,260 741,745
Long-term debt............. 99,398 273,629 333,259 402,491 398,232
Total stockholders'
investment................ 278,717 366,077 423,540 301,395 196,334
Total common shares
outstanding............... 35,818 45,647 54,135 54,404 55,033
</TABLE>
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, 1997 and
certain factors that will affect Mtel's financial condition and results of
operations. Mtel's principal operations include 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.
Certain statements set forth in this Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical facts
constitute forward looking statements under the Private Securities Litigation
Reform Act of 1995 that are subject to risks and uncertainties that could
cause actual results to differ materially from those set forth in the forward
looking statements. Among the factors that could cause
19
<PAGE>
actual results to differ materially are competitive pressures, the continuing
improved performance of the Company's distribution channels, and the timely
availability and market acceptance of new products and value-added services.
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.
RESULTS OF OPERATIONS
Revenues. Consolidated revenues increased 16% in 1997 as compared to 1996
and 43% in 1996 as compared to 1995. The increase in consolidated revenues in
1997 is primarily due to a 246% increase in revenues from advanced messaging
services resulting, in large part, from sales of SkyWord Plus units, an
advanced text messaging service with guaranteed delivery which was introduced
by the Company in April 1997. The number of advanced messaging units in
service increased 598% in 1997 as compared to 1996 and increased 93% in 1996
as compared to 1995.
Revenues from one-way messaging operations in the United States increased 8%
in 1997 as compared to 1996 and 38% in 1996 as compared to 1995. 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 6% in 1997 as compared to 1996 and 19% in 1996 as compared to
1995. Net unit additions on the one-way messaging network decreased in 1997 as
compared to 1996, primarily as a result of the emphasis by the Company's
direct sales force on the sale of advanced messaging services and the
migration of nationwide alphanumeric one-way paging customers to the more
efficient Advanced Messaging Network. Approximately 25% of SkyWord Plus sales
in 1997 were upgrades from SkyTel one-way services.
Overall average revenue per domestic unit in service decreased slightly to
$25.47 in 1997 as compared to $25.73 in 1996. Average revenue per one-way
messaging unit in service was $25.12 in 1997 as compared to $25.78 in 1996,
and average revenue per advanced messaging unit declined to $29.77 in 1997
from $32.44 in 1996. The Company cannot predict future trends in average
revenue per unit because of limited experience with usage charges from
advanced messaging services and the planned introduction of new value added
services in 1998.
In 1998, the Company intends to continue to emphasize the distribution of
its family of advanced messaging services, including SkyWord Plus, two-way
interactive messaging and fixed location services. The Advanced Messaging
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 Advanced Messaging Network and operating costs decline as a
percentage of revenues. The Company also intends to continue to feature its
one-way services through the promotion of products and services which more
efficiently utilize the capacity of the Flex enabled one-way messaging
network, such as the BeepWear pager watch and prepaid paging services, and the
establishment of distribution channels which can effectively market these
products and services. The ability of the Company to continue to achieve
improved operating results will be dependent on the continued improved
performance of its direct and reseller distribution channels, the success of
new distribution channels and the timely availability and market acceptance of
new products and value added services which the Company expects to introduce
on the one-way messaging network and the Advanced Messaging Network in 1998.
In addition, the Company cannot predict the extent to which competitive
advanced messaging services will be available in 1998, if at all.
Revenues from international operations increased 51% in 1997 as compared to
1996 and increased 100% in 1996 as compared to 1995. The increase in 1997 is
primarily due to the inclusion of revenues of RadioMensaje which was acquired
by Mtel Latam, the holding company for Mtel's Latin American operations and
investments, on June 27, 1997. Excluding the impact of RadioMensaje,
international revenue growth would have been approximately 23% in 1997 as
compared to 1996. The increase in international revenues in 1996 as compared
to
20
<PAGE>
1995 was primarily due to maturing operations in Argentina and Colombia and
the inclusion of the first full year of operations in Uruguay, which began
operations as a majority-owned venture in 1995. Mtel's consolidated revenues
during the three years ended December 31, 1997 included revenues recorded by
the following subsidiaries:
<TABLE>
<CAPTION>
% OWNERSHIP AS OF DATE INCLUDED IN
COUNTRY DECEMBER 31, 1997 CONSOLIDATED OPERATING RESULTS
------- ----------------- ------------------------------
<S> <C> <C>
Argentina................. 100% April 1994
Colombia.................. 98% June 1994
Hong Kong*................ 100% June 1995
Uruguay................... 90% September 1995
Puerto Rico............... 100% October 1996
Costa Rica................ 75% February 1997
Venezuela................. 100% December 1997
</TABLE>
--------
*sold in July 1997
For the years ended December 31, 1997, 1996 and 1995, revenues from one-way
messaging operations in the United States provided approximately 83%, 89% and
92% of Mtel's consolidated revenue, respectively. Revenues generated by
advanced messaging operations constituted 8% and 3% of consolidated revenues
in 1997 and 1996, respectively, and were not material in 1995. Revenues from
international messaging operations provided approximately 8%, 6% and 4% of
Mtel's consolidated revenues in 1997, 1996 and 1995, respectively, and other
Mtel operations provided approximately 1%, 2% and 4% of the Company's
consolidated revenues in 1997, 1996 and 1995, respectively.
Expenses. Expenses include operating expenses, selling, general and
administrative expenses and depreciation and amortization.
In September 1995, the Company commenced commercial operation of its
Advanced Messaging Network in the United States. Prior to commencement of
commercial operation, substantially all of the costs of developing and
constructing the Advanced Messaging Network were capitalized in accordance
with generally accepted accounting principles. Subsequently, the Company began
expensing all costs associated with the operation of the Advanced Messaging
Network, began depreciating and amortizing 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 Advanced Messaging Network.
Operating Expenses. Operating expenses primarily consist of salaries,
telephone costs and transmitter and receiver site rentals associated with the
Company's one-way and advanced messaging operations in the United States and
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 8% in
1997 as compared to 1996 and 68% in 1996 as compared to 1995. The increase in
1997 is primarily due to increased transmitter and receiver site rentals
resulting from the continued expansion of coverage of the Company's messaging
networks in the United States and increased messaging unit refurbishment
costs. The increase in 1996 reflects the inclusion for the first time of a
full year of operating expenses related to the Advanced Messaging 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, 1997 also reflect increased telephone
and system costs associated with the increasing one-way and advanced messaging
subscriber base in the United States and the expansion of the Company's
international operations. As a percentage of revenues, operating expenses on a
consolidated basis decreased to 31% in 1997 as compared to 33% in 1996 and 28%
in 1995.
Operating expenses related to the one-way messaging system in the United
States increased 9% in 1997 as compared to 1996 and 31% in 1996 as compared to
1995, and as a percentage of revenues was 23% in 1997 and
21
<PAGE>
1996 and 24% in 1995. Operating expenses related to advanced messaging
operations in the United States increased 13% in 1997 as compared to 1996, but
decreased as a percentage of revenues to 108% in 1997 as compared to 331% in
1996. Operating expenses of the Company's international subsidiaries increased
12% in 1997 as compared to 1996, and 69% in 1996 as compared to 1995, but
decreased as a percentage of revenues to 31% in 1997 as compared to 42% in
1996 and 50% in 1995.
The Company expects to incur increased operating expenses during 1998 and
future periods, primarily as a result of the increase in the number of units
in service on its one-way and advanced messaging networks in the United States
and the continued expansion of coverage of the Advanced Messaging Network. In
addition, operating expenses during 1998 and future periods will reflect
monthly rental expenses recorded in connection with operating lease agreements
entered into with Motorola Inc. ("Motorola") in the third and fourth quarters
of 1997 pursuant to which the Company leased a total of 50,000 SkyWord Plus
units valued at approximately $9.3 million. These lease agreements resulted in
a corresponding decrease in the amount of capital expenditures recorded by the
Company for messaging units during the third and fourth quarters of 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include marketing and advertising costs, personnel
costs associated with the direct sales and marketing staff, costs associated
with customer support operations, and corporate overhead costs, primarily
salaries and administrative expenses. On a consolidated basis, these expenses
increased 1% in 1997 as compared to 1996 and 18% in 1996 as compared to 1995.
The increase in 1997 is primarily due to the inclusion of selling, general and
administrative expenses attributable to RadioMensaje in Argentina which was
acquired by Mtel Latam in June 1997. The increase in 1996 primarily reflects
selling, general and administrative expenses associated with the first full
year of operations of the Advanced Messaging Network and 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. 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 Advanced
Messaging Network. As a percentage of revenues, selling, general and
administrative expenses on a consolidated basis declined to 56% in 1997 as
compared to 65% in 1996 and 79% in 1995.
Selling, general and administrative expenses related to one-way messaging
operations in the United States decreased 3% in 1997 as compared to 1996 and
increased 9% in 1996 as compared to 1995. Selling, general and administrative
expenses related to the advanced messaging operations decreased 3% in 1997 as
compared to 1996. International selling, general and administrative expenses
increased 28% in 1997 as compared to 1996 and increased 30% in 1996 as
compared to 1995, primarily due to the inclusion of additional consolidated
international operations in each of these years.
In 1998, selling, general and administrative expenses on a consolidated
basis are expected to increase as a result of the Company's plans to continue
to expand its direct sales force in the United States and to incur additional
marketing expenses in connection with the promotion of products and services
on its Advanced Messaging Network.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses on a consolidated basis decreased 10% in 1997 as compared to 1996 and
increased 136% in 1996 as compared to 1995. The decrease in 1997 is primarily
due to the 1996 charge to depreciation expense 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 1996 as compared to 1995 is
attributable, in large part, to depreciation and amortization of the network
infrastructure, spectrum costs and other previously capitalized costs related
to the Advanced Messaging Network, which the Company began to expense after
commencement of commercial operation in September 1995. As a percentage of
revenues, depreciation and amortization expenses on a consolidated basis were
22% in 1997 as compared to 29% in 1996 and 17% in 1995.
22
<PAGE>
Operating Income (Loss). The Company reported a consolidated operating loss
of $34.9 million in 1997 as compared to a consolidated operating loss of
$130.9 million in 1996 and $58.4 million in 1995. One-way messaging operations
recorded operating income of $92.7 million in 1997, $52.3 million in 1996 and
$21.2 million in 1995. Advanced messaging operations recorded an operating
loss of $102.9 million in 1997, $119.1 million in 1996 and $54.3 million in
1995, and international operations recorded an operating loss of $22.9 million
in 1997 as compared to $54.1 million in 1996 and $21.4 million in 1995. The
Company expects SkyTel's one-way messaging business in the United States to
continue to report operating income in 1998 and future periods as a result of
the continued growth in profitable units in service, although the rate of
migration of one-way nationwide alphanumeric subscribers to the Advanced
Messaging Network could impact the levels of operating income. The Company
expects to report operating losses on a consolidated basis during the first
nine months of 1998 as a result of continuing operating losses related to its
advanced messaging operations in the United States and international messaging
operations. However, the Company expects to begin to report operating income
on a consolidated basis by the fourth quarter of 1998 based on projected net
unit additions on the Advanced Messaging Network, although this will be
dependent on the continued improved performance of its direct and reseller
distribution channels, the success of new distribution channels and the timely
availability and market acceptance of new products and value added services
which the Company expects to introduce in 1998 on its Advanced Messaging
Network. In addition, the Company cannot predict the extent to which future
operating results will be impacted by the introduction of services competitive
with those available on the Advanced Messaging Network.
Interest Expense and Interest Income. Interest expense increased 22% in 1997
as compared to 1996 and 284% in 1996 as compared to 1995. Interest expense
during the three year period ended December 31, 1997 includes interest on the
$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 which provided
for the payment of interest on the Senior Notes through December 15, 1997)
were used primarily to fund equipment purchases and development and
construction costs related to the Advanced Messaging Network. Interest expense
in 1997 and 1996 also includes interest on borrowings under the Company's bank
credit facility, which reflected a balance of $125.5 million as of December
31, 1997 as compared to $135.5 million as of December 31, 1996. Interest
expense in 1997 also includes interest on notes issued in connection with the
acquisition of RadioMensaje which was completed in June 1997 and borrowings by
Mtel Latam which were incurred in the third and fourth quarters of 1997.
Interest expense is expected to increase in 1998 as a result of additional
borrowings expected to be incurred under the SkyTel bank credit facility and
additional borrowings expected to be incurred by Mtel Latam under the $20
million credit facility established in December 1997. See "Liquidity and
Capital Resources--Capital Requirements--International" and "Liquidity and
Capital Resources--Sources of Funds--Senior Notes."
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 and $25.9 million in interest costs in
1996 and 1995, respectively. The Company did not capitalize any interest costs
in 1997. In 1995, capitalized interest of $22.9 million related to costs
associated with the Advanced Messaging Network incurred prior to commencement
of commercial operations on September 19, 1995. The Company does not
anticipate recording any capitalized interest expense in 1998.
Interest expense in 1997, 1996 and 1995 was offset by interest income of
$4.0 million, $6.2 million and $12.9 million, respectively. Interest income
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. The
amount held in escrow was eliminated with the interest payment due on the
Senior Notes on December 15, 1997. See "Liquidity and Capital Resources--
Sources of Funds."
23
<PAGE>
Provision for Income Taxes. Mtel reported a net loss on a consolidated basis
during each of the years ended December 31, 1997, 1996 and 1995 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 accrued an aggregate of approximately
$8.4 million in each of the years ended December 31, 1997, 1996 and 1995
representing cash dividends on its $2.25 Preferred Stock. In addition, the
Company accrued approximately $4.0 million in 1997 and $3.2 million in 1996
related to 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 (loss), the amount of such dividends is deducted from net
income for the purpose of determining net income (loss) per common share. See
Note 8 of Notes to Consolidated Financial Statements.
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 $0.4 million in 1997, as compared to an equity loss of $1.4
million in 1996 and equity income of $1.2 million in 1995. 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--Sources of Funds--
Disposition of Non-Strategic Assets."
Impairment of Certain Long-Lived Assets. 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."
SFAS No. 121, where applicable, 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 for the year ended December 31,
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.
Of this amount, approximately $27.5 million of the impairment loss related to
certain of the Company's investments in Asia and Europe, and the balance
related to certain domestic investments. See "Liquidity and Capital
Resources--Capital Requirements--International."
In 1997, the Company recorded a $2.2 million loss to write down the carrying
value of its remaining investments in the Asia Pacific region, which are
currently held for sale. The Company also recognized a $1.3 million loss
related to the writeoff of its non-operational investments in the Latin
American region. Such amounts were recorded as loss on sale of assets in the
Company's consolidated financial statements for the year ended December 31,
1997.
Net Income (Loss). The Company reported a consolidated net loss of $88.9
million in 1997 as compared to a consolidated net loss of $171.8 million in
1996 (which included the $38.8 million impairment loss) and $52.0 million in
1995. 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 $1.87 in 1997 as compared to
consolidated net loss per common share of $3.38 in 1996, including the
impairment loss, and $1.19 in 1995.
The Company's one-way messaging operations reported net income of $87.2
million in 1997 as compared to net income of $48.3 million in 1996 and net
income of $20.2 million in 1995. The Company's advanced messaging operations
reported net losses of $148.8 million, $158.2 million and $62.2 million in
1997, 1996 and 1995, respectively, and international operations reported net
losses of $26.5 million, $65.0 million and $21.4 million in 1997, 1996 and
1995, respectively. The net loss from international operations in 1997
included a $2.2
24
<PAGE>
million writedown of the Company's remaining investments in the Asia Pacific
region, which are currently held for sale, and a $1.3 million writedown of
certain non-operational investments in the Latin American region. The
consolidated net loss in 1997 was offset by a gain of approximately $7.4
million related to the sale of the Company's 19% equity interest in a
Brazilian paging operation and a $1.4 million gain on the sale of the
Company's shares of common stock of Wireless Access, Inc. ("Wireless Access").
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
Mercury Paging Ltd. ("MPL"), which operated in the United Kingdom. The
consolidated net losses in 1997, 1996 and 1995 were offset by gains of
approximately $1.3 million, $6.6 million and $2.5 million, respectively, from
the sale of common stock of American Mobile Satellite Corp. ("AMSC") owned by
the Company.
The Company expects to incur a net loss on a consolidated basis in 1998 as a
result of continuing losses from its advanced messaging and international
operations, although one-way messaging operations are expected to continue to
generate net income during 1998 and future periods. The Company expects to
report net income on a consolidated basis during 1999. However, see "Operating
Income (Loss)" above for a discussion of factors that could affect the
Company's future operating results.
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.
LIQUIDITY AND CAPITAL RESOURCES
Capital Requirements
The Company has required significant amounts of capital during the three
year period ended December 31, 1997 to fund the development and expansion of
its one-way and advanced messaging systems in the United States and its one-
way messaging systems in certain countries outside the United States,
primarily in Latin America. Set forth below is information regarding capital
expenditures incurred during the three year period ending December 31, 1997
and projected capital expenditures for 1998.
One-Way Messaging. Mtel incurred capital expenditures of $20.5 million,
$67.5 million and $90.1 million in 1997, 1996 and 1995, respectively, related
to the SkyTel one-way messaging system in the United States. Approximately
$12.2 million, $43.4 million and $59.2 million of these capital expenditures
in 1997, 1996 and 1995, respectively, related to the procurement of messaging
units to support SkyTel's increasing one-way subscriber base, and the balance
was used to fund the purchase of infrastructure equipment for the continued
expansion of coverage of the one-way messaging network. Pager procurement in
1996 and 1995 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
experienced during those periods on the one-way system.
As of December 31, 1997, 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 1998 will be approximately $10-
20 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 net unit additions placed in service on the
SkyTel system.
Advanced Messaging. In September 1995, the Company commenced commercial
operation of its Advanced Messaging Network. The Company incurred capital
expenditures for infrastructure equipment, messaging units, and development
and construction costs related to the Advanced Messaging Network of $45.9
million, $46.0 million and $162.3 million in the years ended December 31,
1997, 1996 and 1995, respectively. Approximately $34.2 million, $8.4 million
and $14.7 million of these capital expenditures in 1997, 1996 and
25
<PAGE>
1995, respectively, related to the purchase of messaging units for use on the
Advanced Messaging Network. The balance of the capital expenditures in 1997
and 1996 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 Advanced Messaging Network.
The Company anticipates that capital expenditures related to its Advanced
Messaging Network in 1998 will total approximately $50-60 million, of which
approximately $35-40 million will be used to procure advanced messaging units.
The balance of the projected capital expenditures will be used to fund the
continued expansion of network coverage in certain major metropolitan areas.
As of December 31, 1997, Mtel had committed to purchase approximately $15.6
million of messaging units for the Advanced Messaging Network from Wireless
Access in 1998. Mtel has also committed to purchase in 1998 approximately $6.0
million of advanced messaging units and approximately $14.2 million of
infrastructure equipment for the continued expansion of coverage of the
Advanced Messaging Network from Motorola. The commitments with Wireless Access
and Motorola relating to the purchase of advanced messaging units may be
satisfied through purchases by the Company's resellers.
The Company is implementing programs designed to reduce the amount of
capital expenditures incurred for messaging units. For example, in the third
quarter of 1997, the Company entered into an arrangement with a third-party
finance company to provide financing to Mtel's customers for a lease-to-own
pager program. Under the lease-to-own program, a finance company will directly
lease paging units to the Company's customers and will be paid a monthly
rental fee for two years. The customer will have the opportunity to purchase
the unit at the conclusion of the two-year period for an additional charge.
The finance company has committed $10.0 million of funding for this program.
In 1998, the Company also plans to implement a program designed to encourage
customer owned and maintained units, and will initially offer the next
generation of advanced messaging units to customers for sale only with no
rental opportunity. The Company cannot predict the extent to which these
programs will result in a reduction of its capital requirements. In addition,
in the third and fourth quarters of 1997, the Company entered into operating
lease agreements with Motorola pursuant to which the Company leased a total of
50,000 SkyWord Plus units having a value of approximately $9.3 million. The
monthly lease payments for these messaging units will be recorded as an
operating expense in the Company's financial statements during the term of
these agreements with Motorola.
In addition to the projected 1998 capital expenditures related to the one-
way messaging network and the Advanced Messaging Network discussed above, the
Company estimates that it will be required to incur capital expenditures in
the amount of $15-20 million to enhance the Company's internal business
systems and support functions.
International. Approximately $10.1 million, $12.4 million and $23.2 million
was required in 1997, 1996 and 1995, respectively, to fund the capital
expenditures and working capital requirements related to the operations in
Argentina, Colombia, Puerto Rico, Uruguay, Costa Rica, Venezuela (which became
majority-owned in December 1997) and Hong Kong (which was sold in July 1997)
where the licenses are held by wholly-owned or majority-owned subsidiaries.
The Company also provided capital of approximately $2.4 million, $8.1 million
and $5.6 million in 1997, 1996 and 1995, respectively, to fund its
proportionate share of capital required by international joint ventures in
which it holds a 50% or less equity interest.
In September 1996, the Company completed the sale of a 20% equity interest
in Mtel Latam for an aggregate purchase price of $35.0 million, of which
approximately $10.2 million 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 was used to fund capital expenditures,
working capital requirements and additional development efforts in the Latin
American region. In connection with the sale of the equity interest in Mtel
Latam, the Company designated 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 is required to
finance its operations and development efforts independent of the Company.
26
<PAGE>
On February 5, 1997, Mtel Latam completed the sale of its 19% equity
interest in a Brazilian paging company for an aggregate purchase price of
$14.3 million. Mtel Latam received $7.15 million of the proceeds less certain
taxes, fees and expenses in February 1997, and the remaining $7.15 million
plus interest at a rate of 12% per annum was paid in February 1998. Mtel
recorded a gain on the sale of its equity interest in the Brazilian paging
operation of approximately $7.4 million in 1997.
On June 27, 1997, Mtel Latam purchased 100% of the outstanding shares of
RadioMensaje, for an aggregate purchase price (in U.S. dollars) of $32.0
million, consisting of $16.0 million in cash and $16.0 million in debt
securities. Debt securities with a principal amount of approximately $8.0
million were issued by Mtel Latam. These notes bear interest at a rate of 10%
per annum during the first three months, increasing 1/2 of 1% per annum each
month thereafter until maturity on June 27, 1998. These notes are classified
as current notes payable on the Company's consolidated balance sheet as of
December 31, 1997. Mtel Latam intends to use additional borrowings under the
Latam Line of Credit (as defined below) to repay these notes at maturity. The
remaining $8.0 million principal amount of debt securities was issued by Mtel
Argentina S.A., a wholly-owned subsidiary of Mtel Latam. These notes bear
interest at a rate of 8% per annum and are payable in semi-annual installments
of principal and interest on each December 30 and June 30 commencing December
30, 1997 and continuing through June 30, 2001. These debt securities are
classified as current and long-term debt on the Company's consolidated balance
sheet as of December 31, 1997.
On July 18, 1997, Mtel Latam entered into a Credit and Security Agreement
(the "Latam Credit Agreement") with Credit Lyonnais New York Branch pursuant
to which Mtel Latam could borrow up to $6.5 million. Borrowings under the
Latam Credit Agreement bore interest at the matched rate (as defined in the
Latam Credit Agreement) plus 2% and matured on February 12, 1998. The $6.5
million in borrowings under the Latam Credit Agreement were reflected as
current notes payable on the Company's consolidated balance sheet as of
December 31, 1997 and were repaid in February 1998.
On December 31, 1997, Mtel Latam established a line of credit arrangement
with Credit Lyonnais New York Branch (the "Latam Line of Credit"). Under the
Latam Line of Credit, Mtel Latam may borrow up to $20.0 million to fund
capital expenditures and working capital requirements (other than
acquisitions). Borrowings under the Latam Line of Credit bear interest at the
alternate base rate (as defined in the agreement) or the London Interbank
Offered Rate ("LIBOR") (as defined in the agreement) and are secured by the
capital stock of Mtel Latam's subsidiaries in Argentina, Colombia and
Venezuela and its equity interest in the Mexican joint venture. Borrowings
under the Latam Line of Credit are evidenced by a demand note and mature on
September 30, 1998 or earlier at the discretion of Credit Lyonnais New York
Branch. As of December 31, 1997, Mtel Latam had borrowings of $7.5 million
outstanding under the Latam Line of Credit at an average interest rate of 13%,
which were reflected as current notes payable on the Company's consolidated
balance sheet as of December 31, 1997. Additional borrowings under the Latam
Line of Credit are subject to the satisfaction of certain conditions, and the
Company intends to use a portion of such additional borrowings to repay the
$8.0 million principal amount of notes issued in the RadioMensaje acquisition
which mature on June 27, 1998.
The Company anticipates that Mtel Latam will require approximately $20-25
million in 1998 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 financings in order to fund these capital
requirements and to repay the Latam Line of Credit, and there can be no
assurance that Mtel Latam will be able to complete any additional financings
on terms acceptable to Mtel Latam.
In 1997, the Company began to divest its operations and investments in the
Asia Pacific region in order to concentrate its international development
efforts in Latin America. A covenant in the SkyTel bank loan agreement
requires that the Company complete such divestiture for certain minimum
proceeds on or before December 31, 1998. In 1997, the Company completed the
sale of its operations in Hong Kong and its equity interests in joint ventures
in China and the Philippines. The Company is currently involved in
negotiations regarding the sale of its equity interests in Malaysia and
Indonesia, but there can be no assurance that such transactions will be
completed on or before December 31, 1998 or otherwise in compliance with this
covenant. If these divestitures are not completed in compliance with this
covenant, the Company will be required to obtain a waiver under the SkyTel
bank loan agreement.
27
<PAGE>
Sources of Funds
The Company has funded its capital requirements during the three years ended
December 31, 1997 with the net proceeds from the sale of the Senior Notes and
the PIK Preferred Stock, borrowings under SkyTel's bank credit facility, net
cash provided by operations and proceeds from the sale of certain non-
strategic assets. Net cash flows from operations on a consolidated basis
totaled $30.1 million, ($47.6) million and $10.6 million for the years ended
December 31, 1997, 1996 and 1995, respectively. The increase in net cash flows
from operations in 1997 as compared to 1996 is primarily due to increased cash
flows generated from internal growth. In 1996, $33.0 million of the net cash
flow deficit was related to changes in certain working capital accounts,
including accounts receivable and accounts payable.
Cash used in investing activities on a consolidated basis totaled $32.6
million, $54.3 million and $207.7 million for the years ended December 31,
1997, 1996 and 1995, respectively. The reduction in net cash used in investing
activities in 1997 as compared to 1996 is primarily due to a reduction in
capital expenditures and investments in international ventures and was
partially offset by proceeds from asset dispositions. A substantial portion of
net cash used in investing activities in 1995 reflected capital expenditures
relating to the development and construction of the Advanced Messaging Network
and a repayment of short-term debt in the amount of $53.7 million.
Cash flows from financing activities reflected net cash used in financing
activities of $3.4 million for the year ended December 31, 1997 as compared to
net cash provided by financing activities of $118.0 million and $61.1 million
for the years ended December 31, 1996 and 1995, respectively. This decrease in
cash from financing activities in 1997 as compared to 1996 is primarily due to
the fact that the Company did not increase its borrowings under the SkyTel
bank credit facility in 1997 and repaid $10.0 million of such borrowings. Net
cash provided by financing activities in 1996 included a $70.0 million
increase in long-term debt and a $55.9 million increase which represents the
net proceeds from the sale of the PIK Preferred Stock.
The Company intends to fund its capital requirements in 1998 from net cash
provided by operating activities and borrowings under SkyTel's bank credit
facility. See "Bank Credit Facility" below for a description of the material
terms of the Company's bank credit facility, as amended, including borrowing
availability thereunder in 1998 and 1999.
Set forth below is a description of the major sources of capital available
to the Company during the three years ended December 31, 1997, as well as
sources of capital expected to be available to the Company through 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. During 1997, the Company reduced its borrowings
outstanding under the bank credit facility by $10.0 million, resulting in
borrowings outstanding under the bank credit facility as of December 31, 1997
in the amount of $125.5 million. In addition, letters of credit in the amount
of $11.3 million had been issued under the bank credit facility as of December
31, 1997, 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. As of December 31, 1997, the Company's
borrowing availability under the bank credit facility was $200 million.
Additional availability is 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
remain at $200 million until December 31, 1998 at which time borrowing
availability will decrease to $175 million if the Bank Group has not approved
additional availability in accordance with the preceding sentence.
28
<PAGE>
The $250.0 million total commitment to SkyTel for borrowings under the
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 100% of the amount of net
proceeds from the issuance of equity by Mtel, 100% of the amount of net
proceeds from the sale or other disposition of any asset not in the ordinary
course of business, and 100% of the amount of net proceeds from the issuance
by Mtel of any subordinated debt, but only to the extent that the cumulative
amount of such net proceeds exceeds $90.0 million.
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 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 assumed by the Company and SkyTel and each
of the subsidiary guarantors shall be released from their obligations under
the bank loan agreement.
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 Advanced
Messaging 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 lending banks 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 March 1997 amendment to the bank credit facility amended certain
financial and operating covenants contained in the original bank loan
agreement to align these covenants with the Company's 1997 business plan. In
addition, the March 1997 amendment requires the Company to comply with a ratio
of total sources (which is defined as the sum of consolidated operating cash
flow, unrestricted cash and cash equivalents, unused availability under the
bank credit facility, any net reduction in consolidated 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 (which is defined as the sum of consolidated capital
expenditures, interest expense repayments, cash taxes actually paid and any
other cash expense) on a quarterly basis commencing with the quarter ending
June 30, 1997. If the Company fails to comply with the required fixed charge
coverage ratio 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.
In October 1997, SkyTel and the bank group completed a further amendment to
the bank credit facility which modified certain covenants. The amendment
included the elimination of the covenant requiring the maintenance of a
prescribed number of one-way messaging units in service and an extension, from
December 31, 1997 to December 31, 1998, to complete the disposition of the
Company's Asian operations and investments. This amendment was completed
without the payment of any additional fees by Mtel.
29
<PAGE>
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 Advanced Messaging 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 indenture relating to the
Senior Notes in the form of additional shares of PIK Preferred Stock.
Dividends on the PIK Preferred Stock are cumulative and have been accrued from
the date of original issue.
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.
Each share of PIK Preferred Stock will be 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. See Note 8 of Notes to Consolidated Financial Statements
for additional information relating to the terms of the PIK Preferred Stock.
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 for capital
expenditures and initial working capital requirements related to the Advanced
Messaging 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 were applied to the payment of interest on the
Senior Notes as of the December 15, 1997 interest payment, 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 indenture relating to the Senior Notes, as amended, 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.
30
<PAGE>
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 multiplied by an established dollar amount
per unit. The amount per unit was established at $125 per unit through
December 31, 1997, reducing to $100 per unit through December 31, 1998 and to
$75 per unit thereafter. See Note 6 of Notes to Consolidated Financial
Statements for additional information relating to the terms of the Senior
Notes.
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.
Telephone Answering Service Operations--Effective March 31, 1997, the
Company completed the sale of its American Communications Exchange ("ACX")
telephone answering service operations for approximately $4.2 million.
Proceeds from the sale equaled the net book value of these operations. As a
result, no gain or loss was recorded on the transaction.
Asian Operations and Investments--On July 15, 1997, the Company completed
the sale of its 100%-owned subsidiary in Hong Kong for an aggregate purchase
price of $1.7 million. During 1997, the Company completed the sale of its
investments in the Philippines and the People's Republic of China. The
aggregate purchase price for these sales totaled $600,000. Pursuant to the
October 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, 1998. As a
result, the Company will be required to complete the sale of its equity
interests in joint ventures that operate in Indonesia and Malaysia for certain
minimum proceeds on or before such date or obtain a waiver of this covenant.
Other--In 1997, 1996 and 1995, the Company sold its shares of common stock
of AMSC resulting in net proceeds of $3.9 million, $8.9 million and $3.8
million, respectively. In December 1997, the Company also sold its capital
stock in Wireless Access in connection with the sale of Wireless Access to
Glenayre Electronics, Inc. for an aggregate purchase price of approximately
$3.2 million. In 1996, 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. The Company received net
pre-tax proceeds of approximately $26.4 million as a result of such sale and
recorded a loss on this transaction of approximately $4.2 million.
YEAR 2000
The Company will be required to modify its internal computer systems and its
messaging networks in light of the date change that will occur in the year
2000. The Company is currently assessing the impact of year 2000 issues on its
operations and the extent of programming changes that will be required to
address this issue. Although final cost estimates have not yet been
determined, the Company does not believe that year 2000 compliance costs will
have a material impact on the Company's results of operations in 1998. The
Company is also working with various vendors whose products and services may
materially impact the Company's year 2000 compliance and is not aware that any
such vendor will be unable to affect timely compliance.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting comprehensive income
and its components. Comprehensive income is defined as all changes in the
equity of a business enterprise from transactions and other events and
circumstances, except those resulting from investments by owners and
distributions to owners. This Statement requires that all items of
31
<PAGE>
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Mtel intends to
comply with the disclosure requirements of this statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This Statement establishes new
standards for reporting information about operating segments in annual
financial statements of public business enterprises and requires disclosure of
certain selected information about operating segments in interim financial
reports. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. Mtel intends to comply with this statement
and has not yet determined the impact of SFAS No. 131 on its current segment
reporting.
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, 1996 and 1997............................... F-3
Statements of Operations for the three years ended December 31, 1997..... F-4
Statements of Changes in Stockholders' Investment for the three years
ended December 31, 1997................................................. F-5
Statements of Cash Flows for the three years ended December 31, 1997..... 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 1998 Annual Meeting of
Stockholders.
32
<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>
33
<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>
34
<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, Guaranty 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. (Exhibit 4.19 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).................................................... I/B/R
4.20 Certificate of Amendment of Restated Certificate of
Incorporation dated May 30, 1996 (Exhibit 4.20 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)....................................... I/B/R
4.21 Amendment No. 4 dated as of October 8, 1997 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 June 30, 1997). I/B/R
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
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.11* 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
10.12* 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
10.13 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
10.14 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
10.15* 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
10.16 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
10.17 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
10.18* 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
10.19 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
10.20 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
10.21 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
10.22 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>
36
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.23 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
10.24 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
10.25 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
10.26 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
10.27 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
10.28 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
10.29 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
10.30* 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
10.31* 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
10.32* 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
10.33 Stock Purchase Agreement dated June 6, 1997 by and among
BGH S.A., Motorola International Development Corporation
and Jacobel S.A., as Sellers, and Mtel Latin America,
Inc., as Purchasers (Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1997)................................................ I/B/R
10.34 Form of Bridge Note of Mtel Latin America, issued as of
June 27, 1997 in the aggregate amount of U.S. $8 million
(Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997)................ I/B/R
10.35 Form of Promissory Note of Mtel Argentina S.A., issued as
of June 27, 1997 in the aggregate amount of U.S. $8
million (Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997)........ I/B/R
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.36 Pledge Agreement dated June 27, 1997 by Mtel Latin
America, Inc., as Pledgor, in favor of The Chase
Manhattan Bank, as Collateral Agent, for the benefit of
BGH S.A., Motorola International Development Corporation
and Jacobel S.A., as Sellers (Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997)..................................... I/B/R
10.37 Credit and Security Agreement dated as of July 18, 1997
among Mtel Latin America, Inc. and Credit Lyonnais New
York Branch. (Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997). I/B/R
10.38 Demand Promissory Note of Mtel Latin America, issued as
of December 31, 1997 in the amount of U.S. $20 million...
10.39 Revised Form of Reseller Agreement.......................
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.
38
<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.
/s/John T. Stupka
By :_________________________________
John T. Stupka
President and Chief Executive
Officer
Date: March 25, 1998
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 25, 1998
____________________________________ Officer and Director
John T. Stupka (Principal Executive
Officer)
/s/Robert Kaiser Senior Vice President-- March 27, 1998
____________________________________ Finance and Chief Financial
Robert Kaiser Officer
(Principal Financial and
Accounting Officer)
/s/Haley Barbour Director March 23, 1998
____________________________________
Haley Barbour
/s/Thomas G. Barksdale Director March 24, 1998
____________________________________
Thomas G. Barksdale
/s/Jai P. Bhagat Director March 25, 1998
____________________________________
Jai P. Bhagat
/s/Gregory B. Maffei Director March 27, 1998
____________________________________
Gregory B. Maffei
/s/John N. Palmer Chairman of the Board March 30, 1998
____________________________________
John N. Palmer
/s/R. Faser Triplett Director March 27, 1998
____________________________________
R. Faser Triplett
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/R. Gerald Turner Director March 25, 1998
____________________________________
R. Gerald Turner
/s/E. Lee Walker Director March 25, 1998
____________________________________
E. Lee Walker
/s/John E. Welsh III Director March 26, 1998
____________________________________
John E. Welsh III
</TABLE>
40
<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, 1996 and 1997............................... F-3
Statements of Operations for the three years ended December 31, 1997..... F-4
Statements of Changes in Stockholders' Investment for the three years
ended December 31, 1997................................................. F-5
Statements of Cash Flows for the three years ended December 31, 1997..... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
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, 1996 and 1997, 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, 1996 and 1997, 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,
February 18, 1998.
F-2
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........................ $ 25,744,724 $ 19,812,116
Accounts receivable, net of allowance for losses. 64,797,525 53,790,128
Assets held for sale............................. 8,000,000 2,173,375
Other current assets............................. 3,725,376 3,179,697
------------ ------------
Total current assets........................... 102,267,625 78,955,316
------------ ------------
Messaging networks:
Property and equipment, net...................... 288,870,518 294,746,109
Certificates of authority and license cost, net.. 153,070,879 150,623,083
Network construction and development costs, net.. 80,173,364 70,383,491
------------ ------------
Total messaging networks....................... 522,114,761 515,752,683
------------ ------------
Goodwill, net...................................... 83,949,489 106,164,387
Investment in unconsolidated international ven-
tures............................................. 29,641,441 16,786,882
Other assets:
Securities restricted for debt service........... 32,546,458 --
Other............................................ 32,740,100 24,085,628
------------ ------------
Total other assets............................. 65,286,558 24,085,628
------------ ------------
$803,259,874 $741,744,896
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT:
Current liabilities:
Current maturities of long-term debt............. $ 31,263 $ 1,021,526
Accounts payable................................. 31,733,303 28,925,887
Accrued liabilities.............................. 43,461,019 61,164,411
Notes payable.................................... -- 22,000,000
------------ ------------
Total current liabilities...................... 75,225,585 113,111,824
------------ ------------
Long-term liabilities.............................. 3,157,320 7,187,943
Long-term debt, net of current maturities.......... 402,491,222 398,231,558
Minority interest.................................. 20,990,363 26,879,386
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 1996 and 1997
($187,500,000 aggregate liquidation value); 7.5%
Cumulative Convertible Accruing PIK Preferred
Stock; shares outstanding: 57,500 in 1996 and
52,500 in 1997.................................. 38,075 38,025
Common stock, par value $.01 per share;
100,000,000 shares authorized; shares
outstanding: 54,404,188 in 1996 and 55,032,602
in 1997......................................... 544,042 550,326
Additional paid-in capital....................... 618,212,220 619,464,704
Accumulated deficit.............................. (316,800,646) (418,711,968)
Cumulative translation adjustment................ (598,307) (5,006,902)
------------ ------------
Total stockholders' investment................. 301,395,384 196,334,185
------------ ------------
$803,259,874 $741,744,896
============ ============
</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,
------------------------------------------
1995 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
Revenues:
U.S. operations.................. $235,870,191 $ 330,239,055 $ 377,366,364
International operations......... 10,120,802 20,289,596 30,601,443
------------ ------------- -------------
245,990,993 350,528,651 407,967,807
Expenses:
Operating........................ 69,000,425 115,784,932 124,492,192
Selling, general and
administrative.................. 193,103,060 226,984,752 228,234,200
Depreciation and amortization.... 42,309,249 99,938,576 90,174,824
Writedown of international and
other assets.................... -- 38,768,024 --
------------ ------------- -------------
304,412,734 481,476,284 442,901,216
------------ ------------- -------------
Operating income (loss)............ (58,421,741) (130,947,633) (34,933,409)
Interest income.................... 12,935,133 6,229,680 4,020,984
Interest expense................... (11,754,931) (45,144,814) (55,122,860)
Gain on sales of assets............ 2,689,150 2,367,976 3,740,970
Other income (expense)............. 1,322,800 295,176 (1,171,021)
------------ ------------- -------------
Income (loss) before income taxes
and equity income (loss).......... (53,229,589) (167,199,615) (83,465,336)
Provision (benefit) for income
taxes............................. (256,494) 2,720,982 4,845,976
Equity in income (loss) from
investments....................... 945,684 (1,901,311) (555,200)
------------ ------------- -------------
Net income (loss).................. $(52,027,411) $(171,821,908) $ (88,866,512)
Preferred dividend requirement..... 8,437,500 11,594,803 13,044,810
------------ ------------- -------------
Net income (loss) available to
common stockholders............... $(60,464,911) $(183,416,711) $(101,911,322)
============ ============= =============
Net income (loss) per common share:
Basic............................ $ (1.19) $ (3.38) $ (1.87)
============ ============= =============
Diluted.......................... $ (1.19) $ (3.38) $ (1.87)
============ ============= =============
</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- ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT IN CAPITAL DEFICIT ADJUSTMENT
--------- ------- ---------- -------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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)
Net loss............... -- -- -- -- -- (88,866,512) --
Preferred stock
dividend requirement.. -- -- -- -- -- (13,044,810) --
Exercise of stock
options............... -- -- 93,696 937 559,956 -- --
Conversion of
convertible
subordinated debt into
common stock.......... -- -- 26,700 267 266,733 -- --
Employee Stock Purchase
Plan.................. -- -- 109,193 1,092 868,177 -- --
Capitalization related
to 1996 sale of Mtel
Latin America, Inc.
minority interest..... -- -- -- -- (1,016,030) -- --
Conversion of PIK
Preferred Stock into
common stock.......... (5,000) (50) 311,325 3,113 573,648 -- --
Issuance of restricted
stock................. -- -- 87,500 875 -- -- --
Currency translation
adjustment............ -- -- -- -- -- -- (4,408,595)
--------- ------- ---------- -------- ------------ ------------- -----------
Balance, December 31,
1997................... 3,802,500 $38,025 55,032,602 $550,326 $619,464,704 $(418,711,968) $(5,006,902)
========= ======= ========== ======== ============ ============= ===========
</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,
------------------------------------------
1995 1996 1997
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................ $ (52,027,411) $(171,821,908) $(88,866,512)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.. 42,309,249 99,938,576 90,174,824
Provision for losses on
accounts receivable and paging
inventory..................... 6,880,223 17,222,560 21,360,283
Amortization of debt issuance
costs......................... 1,164,359 2,112,642 2,468,177
Foreign currency transaction
(gain) loss................... 13,735 660,799 (342,756)
Gain on sales of assets........ (2,689,150) (2,367,976) (3,740,970)
Minority interest (income)
loss.......................... (1,336,535) (955,975) 1,343,795
Equity in (income) loss from
investments................... (945,684) 1,901,311 555,200
Writedown of international and
other assets.................. -- 38,768,024 --
Change in assets and
liabilities:
Increase in accounts
receivable.................. (32,856,244) (11,197,945) (3,810,138)
Decrease in assets held for
sale........................ -- -- 3,631,102
Decrease in other current
assets...................... 1,239,411 4,503,940 2,135,058
Increase (decrease) in
accounts payable and accrued
liabilities................. 48,807,295 (26,337,743) 5,206,615
------------- ------------- ------------
Net Cash Provided By (Used In)
Operating Activities.............. 10,559,248 (47,573,695) 30,114,678
------------- ------------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from asset sales........ 3,840,250 67,729,578 39,806,156
Capital expenditures............. (277,307,997) (118,586,932) (87,121,176)
Acquisition of Argentinean paging
company......................... -- -- (16,000,000)
Increase in investment in
unconsolidated international
ventures........................ (12,267,681) (19,588,525) (4,543,331)
Decrease in other assets......... 24,359,802 16,138,064 35,243,217
Decrease in short-term
investments..................... 53,689,435 -- --
------------- ------------- ------------
Net Cash Used In Investing
Activities........................ (207,686,191) (54,307,815) (32,615,134)
------------- ------------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on long-term
debt............................ (42,792,056) (2,014,661) (11,269,400)
Issuance of debt................. 103,636,680 70,000,000 14,000,000
Payment of dividends on preferred
stock........................... (8,437,500) (8,437,500) (8,437,500)
Sale of stock and exercise of
stock options................... 8,711,774 2,572,071 2,274,748
Issuance of PIK Preferred Stock.. -- 55,893,590 --
------------- ------------- ------------
Net Cash Provided By (Used In)
Financing Activities.............. 61,118,898 118,013,500 (3,432,152)
------------- ------------- ------------
Net increase (decrease) in cash and
cash equivalents.................. (136,008,045) 16,131,990 (5,932,608)
Cash and cash equivalents-beginning
of year........................... 145,620,779 9,612,734 25,744,724
------------- ------------- ------------
CASH AND CASH EQUIVALENTS-END OF
YEAR.............................. $ 9,612,734 $ 25,744,724 $ 19,812,116
============= ============= ============
</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 one-way messaging services in the United States,
advanced messaging services on the narrowband personal communication services
("PCS") network (the "Advanced Messaging Network") in the United States 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 Advanced
Messaging Network, the first such network in the United States that utilizes
frequency licensed by the FCC for narrowband PCS. This network enables
subscribers to send and receive messages 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 subsidiaries and joint ventures, operates one-way wireless
messaging systems in various countries outside the United States, 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 its subsidiaries and joint ventures
with systems in the United States, Canada, Singapore and other countries. See
Note 4.
Mtel is also engaged in other telecommunications-related businesses
including air-to-ground telecommunications operations.
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, 1997, cash and cash equivalents of approximately $4.3 million were
restricted for use by Mtel Latin America, Inc. ("Mtel Latam"), the holding
company for Mtel's Latin American operations and investments.
Accounts Receivable--Accounts receivable balances are presented net of
allowances for losses. Mtel's allowance for losses was $15.0 million as of
December 31, 1996 and $20.4 million as of December 31, 1997.
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>
<CAPTION>
Communications equipment................... 4 to 10 years
<S> <C>
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.
F-7
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Goodwill--Goodwill represents the excess cost over net tangible assets
acquired (see Note 5). 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 to 20 years. Accumulated
amortization related to goodwill at December 31, 1996 and 1997 was $5.6
million and $7.4 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, 1995 and 1996 was $25.9 million and $6.1 million, respectively. The
Company did not capitalize any interest costs during 1997.
Revenue Recognition--Revenue is recorded at the time of customer usage.
Per Share Amounts--For purposes of calculating per share losses, Mtel has
adopted SFAS No. 128, "Earnings Per Share." This statement establishes
standards for computing and presenting earnings per share ("EPS") and requires
the presentation of basic and diluted EPS on the face of the income statement.
In accordance with SFAS No. 128, 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 1995,
1996 and 1997 were 50,812,475, 54,304,109 and 54,604,100, respectively. Basic
and 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, 1997 is primarily
attributable to the tax effect of cumulative net operating loss carryforwards
for federal income tax purposes of $153.4 million which expire in various
amounts during 2003 through 2012. 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 1995, 1996 and 1997 is primarily attributable to state income taxes.
The following represents the Company's deferred tax asset, deferred tax
liability and related valuation allowance at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax asset............................ $134,363,000 $170,894,000
Deferred tax liability........................ (31,299,000) (35,746,000)
Valuation allowance........................... (103,064,000) (135,148,000)
------------ ------------
Net deferred tax asset........................ $ -- $ --
============ ============
</TABLE>
F-8
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments--The carrying amounts at December 31,
1996 and 1997 for cash, accounts receivable, accounts payable, accrued
liabilities, variable rate long-term debt and the RadioMensaje notes payable
are a reasonable estimate of their fair values. For 1996 and 1997, 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.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------- -------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Securities Restricted for
Debt Service................ $32,546,000 $34,307,000 $ -- $ --
Financial Instruments
Included in Other Assets.... 2,616,000 4,871,000 -- --
13.5% Senior Notes........... 265,000,000 264,338,000 265,000,000 306,075,000
6.75% Convertible Debentures. 1,455,000 1,237,000 1,188,000 2,613,600
</TABLE>
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 9.
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 2.
Risk Factors--The Company began commercial operation of its Advanced
Messaging Network in September 1995 and incurred losses attributable to its
advanced messaging operations of $62.2 million, $158.2 million and $148.8
million during 1995, 1996 and 1997, respectively. The Company anticipates that
its advanced messaging operations will continue to incur losses during 1998.
The Company has invested approximately $376.9 million in assets and spectrum
related to the Advanced Messaging Network at December 31, 1997, and the
Company expects to incur capital expenditures to continue expansion of network
coverage and to procure messaging units for its subscriber base. The ability
of the Company to generate sufficient levels of operating cash flow, in order
to recover its investment in the Advanced Messaging Network, is dependent on
the addition of a significant number of units in service. Management's
estimates of the cash flows generated by the Advanced Messaging Network 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,
1997.
Recently Issued Accounting Standards--In June 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting comprehensive income
and its components. Comprehensive income is defined as all changes in the
equity of a business enterprise from transactions and other events and
circumstances, except those resulting from investments by owners and
distributions to owners. This Statement requires that all items of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Mtel intends to
comply with the disclosure requirements of this statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This Statement establishes new
standards for reporting information about operating segments in annual
financial statements of public business enterprises and requires disclosure of
certain selected information
F-9
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
about operating segments in interim financial reports. SFAS No. 131 is
effective for financial statements for fiscal years beginning after December
15, 1997. Mtel intends to comply with this statement and has not yet
determined the impact of SFAS No. 131 on its current segment reporting.
Prior Year Balances--Certain reclassifications have been made to previously
reported balances to conform to the current year presentation.
(2) MESSAGING NETWORKS:
During 1997, Mtel continued to pursue its plan of developing nationwide and
international messaging networks through investments in the United States and
certain Latin American 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 10 for additional information
concerning the Company's business segments.
Property and Equipment--Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Land............................................ $ 259,408 $ 528,001
Building........................................ 4,051,456 1,598,737
Communications equipment........................ 301,886,491 343,074,893
Other........................................... 88,343,099 104,055,692
------------ ------------
394,540,454 449,257,323
Accumulated depreciation........................ (105,669,936) (154,511,214)
------------ ------------
$288,870,518 $294,746,109
============ ============
</TABLE>
Depreciation expense in 1996 included a charge of approximately $7.3 million
which represented 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, 1996 and 1997 was $10.5 million and
$16.8 million, respectively.
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 Advanced Messaging Network,
the Company began amortizing the cost of the license currently being used to
provide advanced messaging 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 subsequently
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
F-10
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. The remand
proceeding is currently pending before the FCC. Payment for the license will
not be required to be made unless and until such litigation is definitively
resolved adversely to Mtel, although the Company has the option of electing
not to acquire the spectrum in the event the FCC's demand for payment is
upheld. The Advanced Messaging 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 one-way messaging network and the Advanced Messaging
Network. These costs include software development costs, site acquisition and
development costs, capitalized interest costs and other 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, 1996 and 1997 was $22.5 million and $35.5
million, respectively.
(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." SFAS No. 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.
In 1996, the Company recognized an impairment loss of approximately $38.8
million for those long-lived assets where the sum of such estimated future
cash flows was less than the carrying amount of such assets. Approximately
$27.5 million of the impairment loss related to certain of the Company's
international investments in Asia and Europe. An additional $11.3 million of
impairment loss related to certain domestic investments.
In 1997, the Company began to divest its operations in the Asia Pacific
region by selling its 100%-owned subsidiary in Hong Kong and its equity
interests in joint ventures in the Philippines and the People's Republic of
China. See Note 4.
In 1997, the Company recorded a $2.2 million loss to write down the carrying
value of its remaining investments in the Asia Pacific region, which are
currently held for sale. In 1997, the Company also recognized a $1.3 million
loss related to the writeoff of its investment in non-operational ventures in
the Latin American region. These losses were recorded as loss on sales of
assets in the Company's consolidated financial statements for the year ended
December 31, 1997.
(4) INTERNATIONAL INVESTMENTS:
Mtel has equity investments in unconsolidated joint ventures that operate
one-way messaging systems in 10 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 joint venture arrangement is abandoned. Once operations are
established by the investee, Mtel 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 a
joint venture arrangement is abandoned, the capitalized costs are charged to
expense. See Note 3 for information on the impairment losses related to the
Company's investment in certain international assets in Asia and Europe.
F-11
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company'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 and exchange rate fluctuations.
Latin America--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 $35.0 million. Mtel Latam received $27.0
million of the proceeds at closing and the remaining $8.0 million was received
in April 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 was used to fund capital
expenditures, working capital requirements and additional development efforts
in the Latin American region. In connection with the sale of the equity
interest in Mtel Latam, Mtel designated Mtel Latam as an "unrestricted
subsidiary" for purposes of the Company's bank credit agreement and the
indenture relating to the Senior Notes (as defined below). As a result of this
designation, Mtel Latam is 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, Uruguay and Venezuela, a 98%-owned
subsidiary in Colombia, and a 75%-owned subsidiary in Costa Rica. 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 40% 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 at the time 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 paging services in Mexico. Mtel Latam recorded equity income of
approximately $1.1 million, $1.8 million and $4.5 million for the years ended
December 31, 1995, 1996 and 1997, respectively, from its investment in CMtel.
As of December 31, 1996 and 1997, the carrying value of Mtel Latam's
investment in CMtel was $9.7 million and $9.8 million, respectively.
Other Mtel Latam Investments--At December 31, 1997, Mtel Latam held 50% or
less equity investments in international joint ventures in Paraguay, Peru,
Ecuador, Guatemala, El Salvador and the Dominican Republic which are in
various stages of operations. For those entities which have commenced
commercial operations, other than CMtel, Mtel Latam's net investment at
December 31, 1997 was approximately $6.4 million as compared to approximately
$13.0 million at December 31, 1996. Aggregate losses from 50% or less owned
investments accounted for using the equity method, other than CMtel, were
approximately $1.5 million, $2.9 million and $3.8 million for the years ended
December 31, 1995, 1996 and 1997, respectively. At December 31, 1997, Mtel
Latam had no net investment in international joint ventures which were not in
commercial operation as compared to a net investment in such non-operational
ventures of $1.8 million at December 31, 1996.
Sale of Equity Interest in Brazilian Joint Venture--On February 5, 1997,
Mtel Latam completed the sale of its 19% equity interest in a Brazilian paging
company for an aggregate purchase price of $14.3 million. Mtel
F-12
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Latam received $7.15 million of the proceeds, less certain taxes, fees and
expenses in February 1997 and the remaining $7.15 million, plus interest at a
rate of 12% per annum, was paid in February 1998. Mtel Latam recorded a gain
on the sale of its equity interest in the Brazilian paging company of
approximately $7.4 million in 1997.
Purchase of Argentine paging company--On June 27, 1997, Mtel Latam purchased
100% of the outstanding shares of RadioMensaje S.A.C., a paging company in
Argentina ("RadioMensaje"), for an aggregate purchase price (in U.S. dollars)
of $32.0 million, consisting of $16.0 million in cash and $16.0 million in
debt securities. See Note 6.
Other Investments--During 1997, the Company completed the sale of its 100%-
owned subsidiary in Hong Kong for an aggregate purchase price of $1.7 million.
During 1997, the Company also completed the sale of its investments in the
Philippines and the People's Republic of China for an aggregate purchase price
of $600,000. There were no significant gains or losses associated with these
sales.
The Company is currently involved in negotiations regarding the disposition
of its equity interests in joint ventures operating in Indonesia and Malaysia,
its remaining interests in the Asia Pacific region. At December 31, 1997, the
Company recorded a $2.2 million loss to write down the carrying value of its
remaining investments in the Asia Pacific region. Pursuant to the October 1997
amendment to the SkyTel bank credit facility (see Note 6), 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, 1998. As a
result, the Company will be required to complete the sale of its equity
interests in the Indonesia and Malaysia joint ventures on or before such date
or obtain a waiver of this covenant.
On July 15, 1996, the Company completed the sale of its 29% equity interest
in Mercury Paging Ltd. ("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 $2.6 million and $0.7
million for the years ended December 31, 1995 and 1996, respectively. For the
year ended December 31, 1995, Mtel received dividends of approximately $1.2
million from MPL.
(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 $49.0 million. The transaction was accounted for as a
purchase of minority interest and resulted in goodwill of approximately $49.0
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 $85.0 million. The transaction resulted in
goodwill of approximately $31.0 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, 1995, the unaudited pro forma net loss and net loss per common
share for the year ended December 31, 1995 would have been $53.9 million and
$1.17 per share, respectively.
F-13
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) DEBT:
A summary of debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
------------ ------------
<S> <C> <C>
13.5% Senior Subordinated Discount Notes due
2002............................................ $265,000,000 $265,000,000
Bank credit facility............................. 135,500,000 125,500,000
6.75% Convertible Subordinated Debentures due
2002 1,455,000 1,188,000
Notes payable RadioMensaje....................... -- 7,501,500
Other notes payable.............................. 567,485 63,584
------------ ------------
402,522,485 399,253,084
Less current maturities.......................... 31,263 1,021,526
------------ ------------
$402,491,222 $398,231,558
============ ============
</TABLE>
Senior Notes--In December 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, consisting of U.S. government securities, to provide for the
payment of interest on the Senior Notes through December 15, 1997. 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 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 established
redemption prices plus accrued and unpaid interest, if any, to the date of
redemption. The Senior Notes will be subject to redemption commencing on
December 15, 1999 at a redemption price equal to 106.750% of the principal
amount thereof plus a premium equal to the present value of any unpaid
interest through December 15, 2000. Commencing on December 15, 2000, the
Senior Notes will be subject to redemption at a redemption price equal to
106.750% of the principal amount thereof plus accrued and unpaid interest
thereon to the redemption date, reducing to 103.375% on December 15, 2001. The
Senior Notes are senior obligations of the Company and rank senior in right of
payment to all subordinated indebtedness of the Company. The indenture
relating to the Senior Notes also contains customary covenants and 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 subsequent to September 30, 1994 multiplied
by an established dollar amount per unit. The amount per unit was established
at $125 per unit through December 31, 1997, reducing to $100 per unit through
December 31, 1998 and to $75 per unit thereafter. In addition, the amendments
to the indenture permit the Company to designate its Latin American and Asian
holding companies as "unrestricted" subsidiaries for purposes 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.
Bank Credit Facility--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,
F-14
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
bore 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 for the two preceding quarters. The borrowings outstanding at December
31, 1997 carried an 8.8% 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 a first priority lien and security interest in
substantially all of the assets of SkyTel, Mtel and Mtel's other U.S.
subsidiaries including pledges of capital stock and notes evidencing
intercompany indebtedness.
On March 27, 1997, SkyTel and the bank group completed an 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
which was approved by the Bank Group. The bank credit facility, as amended in
March 1997, limited the amount of borrowings available thereunder to $175
million increasing to $200 million upon receipt of confirmation of such
compliance as of September 30, 1997. 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 and 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 and contains customary cross default provisions. The
March 1997 amendment requires the Company to comply with a ratio of total
sources (which is defined as the sum of consolidated operating cash flow,
unrestricted cash and cash equivalents, unused availability under the bank
credit facility, any net reduction in consolidated 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 (which is defined as the sum of consolidated capital
expenditures, interest expense repayments, cash taxes actually paid and any
other cash expense) on a quarterly basis. If the Company fails to comply with
the required fixed charge coverage ratio 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. In October 1997, SkyTel and the Bank Group
completed a further amendment to the bank credit facility which modified
certain covenants. The amendment included the elimination of the covenant
requiring the maintenance of a prescribed number of one-way messaging units in
service. In addition, the loan agreement, as amended, requires the Company to
sell its operations and investments in the Asia Pacific region for certain
minimum proceeds by December 31, 1998. The loan agreement, as amended, also
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 assumed by the Company and SkyTel and each of the
subsidiary guarantors shall be released from their obligations under the bank
loan agreement. At December 31, 1997, Mtel and SkyTel were in compliance with
each of the covenants set forth in the bank credit facility, as amended.
The $250.0 million total commitment 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 100% of the amount of net
proceeds from the issuance of equity by Mtel, 100% of the amount of net
proceeds from the sale or other disposition of any asset not in the ordinary
course of business, and 100% of the amount of net proceeds from the issuance
by Mtel of any subordinated debt, but only to the extent that the cumulative
amount of such net proceeds exceeds $90.0
F-15
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
million. As of December 31, 1997, the Company's borrowing availability was
$200 million. Additional availability thereafter is 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 remain at $200 million until December 31, 1998 at which time
borrowing availability will decrease to $175 million if the Bank Group has not
approved additional availability in accordance with the preceding sentence.
Convertible Subordinated Debentures--In 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.
During 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. 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.
RadioMensaje Notes Payable--On June 27, 1997, Mtel Latam purchased 100% of
the outstanding shares of RadioMensaje for an aggregate purchase price (in
U.S. dollars) of $32.0 million, consisting of $16.0 million in cash and $16.0
million in debt securities. Debt securities with a principal amount of
approximately $8.0 million were issued by Mtel Latam. These notes bear
interest at a rate of 10% per annum during the first three months, increasing
1/2 of 1% per annum each month thereafter until maturity on June 27, 1998.
These notes are classified as current notes payable on the Company's
consolidated balance sheet as of December 31, 1997. Mtel Latam intends to use
the Latam Line of Credit (as defined below) to repay these notes at maturity.
The remaining $8.0 million principal amount of debt securities was issued by
Mtel Argentina S.A., a wholly-owned subsidiary of Mtel Latam. These notes bear
interest at a rate of 8% per annum and are payable in semi-annual installments
of principal and interest on each December 30 and June 30 commencing December
30, 1997 and continuing through June 30, 2001. These debt securities are
classified as current and long-term debt on the Company's consolidated balance
sheet as of December 31, 1997. The cash portion of the purchase price was
funded directly by Mtel Latam, independent of Mtel.
Mtel Latam Financings--In 1996, the Company designated Mtel Latam as an
"unrestricted subsidiary" for purposes of the Company's bank credit agreement
and the indenture relating to its Senior Notes. As a result of this
designation, Mtel Latam is required to finance its operations and development
efforts independent of Mtel. On July 18, 1997, Mtel Latam entered into a
Credit and Security Agreement (the "Latam Credit Agreement") with Credit
Lyonnais New York Branch pursuant to which Mtel Latam could borrow up to $6.5
million. Borrowings under the Latam Credit Agreement bore interest at the
matched rate (as defined in the Latam Credit Agreement) plus 2% and matured on
February 12, 1998. The $6.5 million in borrowings under the Latam Credit
Agreement are reflected as current notes payable on the Company's consolidated
balance sheet as of December 31, 1997 and were repaid in February 1998.
On December 31, 1997, Mtel Latam established a line of credit arrangement
with Credit Lyonnais New York Branch (the "Latam Line of Credit"). Under the
Latam Line of Credit, Mtel Latam may borrow up to $20.0 million to fund
capital expenditures and working capital requirements (other than
acquisitions). Borrowings under the Latam Line of Credit bear interest at the
alternate base rate (as defined in the agreement) or the LIBOR rate (as
defined in the agreement) and are secured by the capital stock of Mtel Latam's
subsidiaries in Argentina, Colombia and Venezuela and its equity interest in
the Mexican joint venture. Borrowings under the Latam Line of Credit are
evidenced by a demand note and mature on September 30, 1998 or earlier at the
discretion of Credit Lyonnais New York Branch. As of December 31, 1997, Mtel
Latam had borrowings of $7.5 million outstanding under the Latam Line of
Credit at an average interest rate of 13%, which is reflected as current notes
payable on the Company's consolidated balance sheet as of December 31, 1997.
Additional borrowings under the Latam Line of Credit are subject to the
satisfaction of certain conditions, and the Company intends to use a portion
of such additional borrowings to repay the $8.0 million principal amount of
notes issued in the RadioMensaje acquisition which mature on June 27, 1998.
F-16
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES:
At December 31, 1997, 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, 1998 through
2002 and thereafter are as follows:
<TABLE>
<CAPTION>
MINIMUM
RENTAL
YEAR PAYMENTS
---- -----------
<S> <C>
1998......................................................... $43,772,000
1999......................................................... 32,522,000
2000......................................................... 22,626,000
2001......................................................... 10,890,000
2002......................................................... 6,059,000
Thereafter................................................... 8,799,000
</TABLE>
Rental expense for operating leases was approximately $22.4 million, $38.1
million and $43.1 million during the years ended December 31, 1995, 1996 and
1997, respectively.
The Company currently acquires a significant portion of its messaging units
from two vendors. The ability of the Company to continue to provide messaging
units to its customers is largely dependent on these vendors' ability to
supply such messaging units on a timely basis.
As of December 31, 1997, Mtel had committed to purchase approximately $15.6
million of messaging units for the Advanced Messaging Network from Wireless
Access, Inc. ("Wireless Access") in 1998. Mtel had also committed to purchase
in 1998 approximately $6.0 million of advanced messaging units and
approximately $14.2 million of infrastructure for the continued expansion of
coverage of the Advanced Messaging Network from Motorola, Inc. ("Motorola").
The commitments with Wireless Access and Motorola to purchase advanced
messaging units may be satisfied through purchases by the Company's resellers.
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 complaint 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 defendants have filed motions to dismiss the
complaint and intend to vigorously defend in this litigation. In January 1998,
the litigation was transferred by the United States District Court for the
District of Columbia to the United States District Court for the Southern
District of Mississippi. Subsequent to the filing of the complaint, the
Company, as have other companies involved in private securities litigation,
received from the staff of the Securities and Exchange Commission ("SEC") an
informal inquiry letter seeking documents pertaining to consultants and
products used in the development and operation of the Advanced Messaging
Network. The Company is cooperating with the SEC staff.
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 condition or results of operations of the
Company.
(8) 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
F-17
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
During 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. Holders of the $2.25 Preferred Stock are entitled to receive
quarterly cash dividends at a rate of $0.5625 per quarter. 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. Except as required by law or with respect
to the creation or amendment of senior classes of preferred stock, holders of
$2.25 Preferred Stock do not have voting rights unless quarterly dividends on
the $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 the holders of $2.25 Preferred Stock, voting separately as a class, will
be entitled to elect one director until the dividend arrearage has been paid.
The $2.25 Preferred Stock is redeemable at the option of the holder in the
event of a change of control of the Company (as defined in the Certificate of
Designations defining the rights of the holders of the $2.25 Preferred Stock)
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
7.5% Cumulative Convertible Accruing Pay-in-Kind Preferred Stock (the "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 $7.2 million have been accrued from the date of
original issuance and are reflected as long-term liabilities on the Company's
consolidated balance sheet as of December 31, 1997.
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 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.
F-18
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. In October 1997, Kleiner Perkins Caufield &
Byers converted its PIK Preferred Stock into Mtel Common Stock. 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 annually 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.
(9) 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% on the second, third and fourth
anniversaries of 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 under the 1990 plan.
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 a 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 were earned under the Long-Term
Incentive Plan for the three-year performance cycle ended December 31, 1997.
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
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
F-19
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
36,873 and 109,193 shares of common stock of the Company was issued under the
Stock Purchase Plan during 1996 and 1997, 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, 1996 and
1997 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 1997
------------ ------------- ------------
<S> <C> <C> <C>
Net income (loss)--As reported... $(52,027,411) $(171,821,908) $(88,866,512)
Net income (loss)--Pro forma..... $(55,521,833) $(177,675,832) $(92,489,747)
Net income (loss) per share--As
reported........................ $ (1.19) $ (3.38) $ (1.87)
Net income (loss) per share--Pro
forma........................... $ (1.26) $ (3.49) $ (1.93)
</TABLE>
The fair value of each option on the date of grant is estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Expected life..................................... 5 years 5 years 4 years
Risk-free interest rate........................... 5.39% 6.22% 6.59%
Expected volatility............................... 53% 53% 55%
Dividend yield.................................... -0- -0- -0-
</TABLE>
The weighted average fair value of options granted during 1995, 1996 and
1997 was $13.51, $7.25 and $3.52 per share, respectively.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------------- ------------------- -------------------
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................ 4,738,512 $ 9.25 4,481,781 $12.13 4,821,435 $11.54
Granted............... 709,100 24.44 1,333,500 13.32 294,478 7.07
Exercised............. (936,379) 19.44 (204,093) 16.16 (85,625) 16.80
Canceled.............. (29,452) 16.22 (789,753) 19.34 (351,076) 16.06
OUTSTANDING, END OF
YEAR................... 4,481,781 $12.13 4,821,435 $11.54 4,679,212 $11.01
</TABLE>
Options to purchase 3,489,307 shares of common stock were outstanding and
exercisable at an average exercise price of $10.60 per share at December 31,
1997.
F-20
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ---------------------
NUMBER WEIGHTED AVG. WTD. AVG. NUMBER WTD. AVG.
OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE AT 12/31/97 CONTRACTUAL LIFE PRICE AT 12/31/97 PRICE
----------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 2 to $12.............. 2,924,812 4.1 yrs $ 6.30 2,016,812 $ 4.35
$13 to $23.............. 1,643,900 7.0 yrs $18.09 1,361,995 $16.78
$24 to $34.............. 110,500 7.7 yrs $30.25 110,500 $30.25
</TABLE>
(10) SEGMENT INFORMATION:
Mtel is principally engaged in one-way messaging operations, advanced
messaging operations and international messaging operations. In 1997, the
Company's other businesses included telephone answering services and air-to-
ground telecommunications operations. Effective March 31, 1997, the Company
completed the sale of its American Communications Exchange ("ACX") telephone
answering service operations for approximately $4.2 million. Proceeds from the
sale equaled the net book value of these operations. As a result, no gain or
loss was recorded on the transaction.
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
messaging segments based on various financial and operational factors which
reflect usage of services.
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. International revenues, operating income (loss) and depreciation and
amortization for the year ended December 31, 1997 are comprised of the
Company's operations in Argentina, Colombia, Uruguay, Puerto Rico, Costa Rica
and Venezuela. Net Income (Loss)--International for the years ended December
31, 1995, 1996 and 1997 includes equity income (loss) of $1.2 million, $(1.4)
million and $(0.4) million, respectively, relating to its minority-owned
investments in Mexico and certain other countries. See Note 3 for information
on the recording of an impairment loss of certain long-lived assets. See Note
4 for information on the Company's sale of its investment in operations in
Brazil, Hong Kong and certain other investments in the Asia Pacific region in
1997, the purchase of an Argentine paging company in 1997 and the sale of its
investment in the United Kingdom in 1996. Net Income (Loss)--Other for 1995,
1996 and 1997 includes gains of $2.5 million, $6.6 million and $1.3 million,
respectively, from the sales of the Company's common 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-21
<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,
------------------------------
1995 1996 1997
--------- --------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
REVENUES:
One-way messaging............................ $ 225,146 $ 311,601 $338,022
Advanced messaging........................... 1,213 9,593 33,178
International messaging...................... 10,121 20,289 30,602
Other........................................ 9,511 9,046 6,166
--------- --------- --------
$ 245,991 $ 350,529 $407,968
OPERATING INCOME (LOSS):
One-way messaging............................ $ 21,225 $ 52,253 $ 92,725
Advanced messaging........................... (54,311) (119,092) (102,919)
International messaging...................... (21,392) (54,104) (22,925)
Other........................................ (3,944) (10,004) (1,815)
--------- --------- --------
$(58,422) $(130,947) $(34,934)
DEPRECIATION AND AMORTIZATION:
One-way messaging............................ $ 27,998 $ 51,457 $ 39,270
Advanced messaging........................... 6,314 33,083 42,163
International messaging...................... 4,938 10,315 8,140
Other........................................ 3,059 5,083 602
--------- --------- --------
$ 42,309 $ 99,938 $ 90,175
NET INCOME (LOSS):
One-way messaging............................ $ 20,184 $ 48,306 $ 87,223
Advanced messaging........................... (62,168) (158,203) (148,756)
International messaging...................... (21,380) (65,001) (26,460)
Other........................................ 11,337 3,076 (873)
--------- --------- --------
$(52,027) $(171,822) $(88,866)
TOTAL ASSETS:
One-way messaging............................ $ 254,886 $ 263,437 $211,808
Advanced messaging........................... 378,784 377,628 376,892
International messaging...................... 102,965 70,980 89,214
Other........................................ 114,779 91,215 63,831
--------- --------- --------
$ 851,414 $ 803,260 $741,745
CAPITAL EXPENDITURES:
One-way messaging............................ $ 90,132 $ 67,493 $ 20,478
Advanced messaging........................... 162,339 45,969 45,915
International messaging...................... 12,978 2,637 7,963
Other........................................ 11,859 2,488 12,765
--------- --------- --------
$ 277,308 $ 118,587 $ 87,121
</TABLE>
F-22
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected unaudited quarterly financial data is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
------------------ ------------------ ------------------ ------------------
1996 1997 1996 1997 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 80,584 $ 94,622 $ 88,212 $ 94,908 $ 92,006 $105,236 $ 89,727 $113,202
Operating income (loss). $(26,136) $(10,689) $(18,511) $(10,357) $(17,825) $ (8,095) $(68,475) $ (5,793)
Net income (loss)....... $(28,574) $(21,437) $(28,897) $(23,141) $(32,304) $(22,177) $(82,047) $(22,111)
Net income (loss) per
common share........... $ (0.57) $ (0.45) $ (0.59) $ (0.49) $ (0.65) $ (0.47) $ (1.57) $ (0.46)
</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, 1996
include the impairment loss of international and other assets. See Note 3.
(12) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid by Mtel during the years ended December 31, 1995, 1996 and
1997 amounted to $35.4 million, $46.6 million and $51.9 million, respectively.
No federal income taxes were paid during these years. See Note 5 for
information on the 1995 non-cash acquisitions of minority interest and Note 4
for information on the $16.0 million non-cash portion of the acquisition of an
Argentine paging company in 1997.
F-23
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
FA-1
<PAGE>
SCHEDULE II
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGED TO BALANCE AT
OF COSTS AND ACCOUNTS END OF
DESCRIPTION PERIOD EXPENSES WRITTEN OFF DEDUCTIONS PERIOD
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
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
1997.................. 14,994,856 19,832,317 14,447,859 0 20,379,314
</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
February 18, 1998. 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 II is presented for purposes of complying with the
Securities and Exchange Commissions 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,
February 18, 1998.
FA-3
<PAGE>
EXHIBIT INDEX
<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>
<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, Guaranty 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. (Exhibit 4.19 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).................................................... I/B/R
4.20 Certificate of Amendment of Restated Certificate of
Incorporation dated May 30, 1996 (Exhibit 4.20 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996) ..................................... I/B/R
4.21 Amendment No. 4 dated as of October 8, 1997 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 June 30, 1997). I/B/R
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
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* 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
10.12* 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
10.13 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
10.14 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
10.15* 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
10.16 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.17 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
10.18* 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
10.19 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
10.20 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
10.21 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
10.22 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
10.23 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
10.24 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
10.25 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
10.26 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
10.27 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
10.28 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
10.29 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
10.30* 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.31* 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
10.32* 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
10.33 Stock Purchase Agreement dated June 6, 1997 by and among
BGH S.A., Motorola International Development Corporation
and Jacobel S.A., as Sellers, and Mtel Latin America,
Inc., as Purchasers (Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1997)................................................ I/B/R
10.34 Form of Bridge Note of Mtel Latin America, issued as of
June 27, 1997 in the aggregate amount of U.S. $8 million
(Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997)................ I/B/R
10.35 Form of Promissory Note of Mtel Argentina S.A., issued as
of June 27, 1997 in the aggregate amount of U.S. $8
million (Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997)........ I/B/R
10.36 Pledge Agreement dated June 27, 1997 by Mtel Latin
America, Inc., as Pledgor, in favor of The Chase
Manhattan Bank, as Collateral Agent, for the benefit of
BGH S.A., Motorola International Development Corporation
and Jacobel S.A., as Sellers (Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997)..................................... I/B/R
10.37 Credit and Security Agreement dated as of July 18, 1997
among Mtel Latin America, Inc. and Credit Lyonnais New
York Branch. (Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997). I/B/R
10.38 Demand Promissory Note of Mtel Latin America, issued as
of December 31, 1997 in the amount of U.S. $20 million...
10.39 Revised Form of Reseller Agreement.......................
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.
<PAGE>
EXHIBIT 10.38
DEMAND PROMISSORY NOTE
----------------------
$ 20,000,000 NEW YORK, NEW YORK
AS OF DECEMBER 31, 1997
FOR VALUE RECEIVED, Mtel Latin America, Inc., a Delaware corporation (the
"Borrower"), DOES HEREBY PROMISE TO PAY to the order of CREDIT LYONNAIS NEW YORK
BRANCH (the "Lender") at its office at 1301 Avenue of the Americas, New York,
New York 10019, or such other place as the holder hereof may designate in
writing, in lawful money of the United States of America in immediately
available funds, ON DEMAND (or if no demand has been made, then on date
determined pursuant to Section 3 below), the principal amount of twenty million
United States Dollars ($20,000,000), or the principal balance outstanding
hereunder pursuant to the terms of a certain Letter Agreement referred to below,
and on each Interest Payment Date (as hereinafter defined) interest from the
date of first disbursement hereunder on the balance of principal remaining from
time to time outstanding at the rate ("Interest Rate") defined in this Note.
1. Definitions. For the purposes hereof, the following terms shall have the
-----------
meanings accorded to them therein:
"Alternate Base Rate" shall mean for any day, a rate per annum (rounded
-------------------
upwards to the nearest 1/16 of 1% if not already an integral multiple of 1/16 of
1%) equal to the greatest of (a) the Prime Rate in effect for such day, (b) the
Federal Funds Effective Rate in effect for such day plus 1/2 of 1% or (c) the
Base CD Rate in effect for such day plus 1%. For purposes hereof, "Prime Rate"
----------
shall mean the rate of interest per annum announced by the Lender from time to
time as its stated rate. For purposes of this Note, any change in the Alternate
Base Rate due to a change in the Prime Rate shall be effective on the date such
change in the Prime Rate is effective. "Federal Funds Effective Rate" shall
----------------------------
mean, for any period, a fluctuating interest rate per annum equal for each day
during such period to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published on the succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for the day of such
transactions received by the Lender from three Federal funds brokers of
recognized standing selected by it. "Base CD Rate" shall mean the sum of (a)
------------
the product of (i) the Average Weekly Three-Month Secondary CD Rate times (ii)
Statutory Reserves and (b) the Assessment Rate. "Average Weekly Three-Month
--------------------------
Secondary CD Rate" shall
- -----------------
1
<PAGE>
mean the three-month secondary certificate of deposit ("CD") rate for the most
recent weekly period covered therein in the Federal Reserve Statistical release
entitled "Weekly Summary of Lending and Credit Measures (Averages of daily
figures)" released in the week during which occurs the day for which the CD rate
is being determined. The CD rate so reported shall be in effect, for the
purposes of this definition, for each day of the week in which the release date
of such publication occurs. If such publication or a substitute containing the
foregoing rate information is not published by the Federal Reserve for any week,
such average rate shall be determined by the Lender on the basis of quotations
received by it from three New York City negotiable certificate of deposit
dealers of recognized standing on the first Business Day of the week succeeding
such week for which such rate information is not published. "Statutory Reserves"
------------------
shall mean a fraction (expressed as a decimal) the numerator of which is the
number one and the denominator of which is the number one minus the aggregate
rates (expressed as a decimal) of (A) basic and supplemental reserve
requirements in effect on the date of effectiveness of such Average Weekly
Three-Month Secondary CD Rate, as set forth above under Regulation D of the
Board of Governors of the Federal Reserve System applicable to certificates of
deposit in units of $100,000 or more issued by a "member bank" located in a
"reserve city" (as such terms are used in Regulation D) and (B) marginal reserve
requirements in effect on such date of effectiveness under Regulation D
applicable to time deposits of a "member bank". If for any reason the Lender
shall have determined (which determination shall be conclusive absent manifest
error) that it is unable to ascertain the Base CD Rate or Federal Funds
Effective Rate, or both, for any reason, including, without limitation, the
inability or failure of the Lender to obtain sufficient bids or publications in
accordance with the terms hereof, the Alternate Base Rate shall be determined
without regard to clause (b) or (c), or both, of the first sentence of this
definition, as appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base Rate due to a change
in the Average Weekly Three-Month Secondary CD Rate shall be effective on the
effective date of such change in the CD Rate. Any change in the Alternate Base
Rate due to a change in the Federal Funds Effective Rate shall be effective on
the effective date of such change in the Federal Funds Effective Rate.
"Alternate Base Rate Loan" shall mean a Loan based on the Alternate Base
------------------------
Rate in accordance with this Note.
"Basis Point" shall mean 1/100th of 1%.
-----------
"Business Day" shall mean any day other than a Saturday, Sunday or other
------------
day on which banks in the State of New York are permitted to close; provided,
--------
however, that when used in connection with a Eurodollar Loan, the term "Business
- -------
Day" shall also exclude any day on which banks are not open for dealings in
Dollar deposits on the London Interbank Market.
2
<PAGE>
"Eurodollar Loan" shall mean a loan based on the LIBO Rate in accordance
---------------
with this Note.
"Indebtedness" shall mean, at any time and with respect to any Person, (i)
------------
indebtedness of such Person for borrowed money (whether by loan or the issuance
and sale of debt securities) or for the deferred purchase price of property or
services purchased (other than amounts constituting accrued expenses and trade
payables (payable within 90 days) arising in the ordinary course of business);
(ii) obligations of such Person in respect of letters of credit, acceptance
facilities, or drafts or similar instruments issued or accepted by banks and
other financial institutions for the account of such Person; (iii) obligations
of such Person under capital leases; (iv) deferred payment obligations of such
Person resulting from the adjudication or settlement of any claim or litigation
and (v) indebtedness of others of the type described in clauses (i), (ii), (iii)
and (iv) hereof which such Person has (a) directly or indirectly assumed or
guaranteed in connection with a guaranty or (b) secured by a Lien on the assets
of such Person, whether or not such Person has assumed such indebtedness.
"Interest Payment Date" shall mean (i) as to any Eurodollar Loan having an
---------------------
Interest Period of one, two or three months, the last day of such Interest
Period, and (ii) with respect to any Alternate Base Rate Loan, the last Business
Day of each March and June, commencing on the last Business Day of March 1998.
"Interest Period" shall mean as to any Eurodollar Loan, the period
---------------
commencing on the date of such Loan or the last day of the preceding Interest
Period and ending on the numerically corresponding day (or if there is no
corresponding day, the last day) in the calendar month that is one, two or three
months thereafter as the Borrower may elect; provided, however, that (i) if any
-------- -------
Interest Period would end on a day which shall not be a Business Day, such
Interest Period shall be extended to the next succeeding Business Day, unless
such next succeeding Business Day would fall in the next calendar month, in
which case, such Interest Period shall end on the next preceding Business Day,
and (ii) no Interest Period may be selected which would end later than the
Outside Maturity Date.
"LIBO Rate" shall mean, with respect to any Interest Period for a
---------
Eurodollar Loan, an interest rate per annum equal to the quotient (rounded
upwards to the next 1/100 of 1%) of (A) the average of the rates at which Dollar
deposits approximately equal in principal amount to the Lender's portion of such
Eurodollar Loan and for a maturity equal to the applicable Interest Period are
offered to the Lending Office of the Lender in immediately available funds in
the London Interbank Market for Eurodollars at approximately 11:00 a.m., London
time, two (2) Business Days prior to the commencement of such Interest Period
divided by (B) one minus the applicable statutory reserve requirements of the
Lender, expressed as a decimal (including without duplication or limitation,
basic, supplemental, marginal and emergency reserves), from time to time in
effect under Regulation D or similar regulations of the Board of Governors of
the Federal
3
<PAGE>
Reserve System. It is agreed that for purposes of this definition, Eurodollar
Loans made hereunder shall be deemed to constitute Eurocurrency Liabilities as
defined in Regulation D and to be subject to the reserve requirements of
Regulation D.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
----
lien or charge of any kind whatsoever (including any conditional sale or other
title retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code or
similar law of any jurisdiction).
"Loans" shall be loans to the Borrower on any Business Day and from time to
-----
time on or after the date hereof and prior to the Maturity Date, whether by
demand or otherwise, in an aggregate principal amount at any one time
outstanding for the Lender which will not exceed U$20,000,000.
"Margin" shall mean in the case of Alternate Base Rate Loans, 450 Basis
------
Points per annum and, in the case of Eurodollar Loans, 550 Basis Points per
annum.
"Outside Maturity Date" shall be the latter of (i) May 31, 1998 if no
---------------------
demand has been made and the Borrower has not yet paid its obligations under
certain bridge notes issued by the Borrower to the order of Jacobel S.A., BGH
S.A., and Motorola International Development Corporation, in the aggregate
amount of US$ 8,000,O00 and due on June 27, 1997 (the "Bridge Notes"), or (ii)
September 30, 1998, if the Bridge Notes have been repaid in full by the
Borrower on or prior to May 31, 1998.
"Person" shall mean any natural person, corporation, division of a
------
corporation, partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.
"Pledged Joint Venture" shall mean Communicaciones Mtel S.A. de C.V.
---------------------
"Pledged Subsidiary" shall mean Mtel Argentina S.A., Mtel Colombia S.A.,
------------------
and Telecommunicaciones SkyTel S.A.
"Subsidiary" shall mean, with respect to any Person, (i) any corporation
----------
(whether now existing or hereafter organized) of which at least a majority of
the voting stock having ordinary voting power for the election of directors is,
at the time as of which any determination is being made, directly or indirectly
owned or controlled by such Person and (ii) any partnership, joint venture,
association or other business entity (whether now existing or hereafter
organized) of which more than 50% of the equity interest is, at the time as of
which any determination is being made, directly or indirectly owned or
controlled by such Person.
4
<PAGE>
2. Demand Note.
------------
This Demand Note (this "Note") is the Demand Note referred to in that certain
Letter Agreement of even date between the Borrower and the Lender (the "Letter
Agreement") to which reference is hereby made for the terms and provisions
thereof and for additional rights and limitations of such rights of the Borrower
and Lender thereunder. The payment of this Note is also secured by other
documents, including (i) the pledge agreements executed by the Borrower to
pledge to the Lender its shares of each of its Pledged Subsidiaries and Pledged
Joint Ventures, (ii) the Letter Agreement, and (iii) said other documents
whether now or hereafter executed and delivered to the Lender, together herein
referred to as the "Loan Documents". All of the agreements, conditions,
covenants, provisions and stipulations contained in the Loan Documents which are
to be kept and performed by the Borrower are hereby made a part of this Note to
the same extent and with the same force and effect as if they were fully set
forth herein, and the Borrower covenants and agrees to keep and perform them or
cause them to be kept and performed, strictly in accordance with their terms.
3. Maturity Date
-------------
The final payment of interest and all principal under this Note, if not sooner
paid, shall be paid the earlier of (i) ON DEMAND, or (ii) at the Outside
Maturity Date.
4. Interest.
---------
(a) In the case of a Eurodollar Loan, interest shall be payable at a rate per
annum (computed on the basis of the actual number of days elapsed over a year of
360 days) equal to the LIBO Rate plus the Margin applicable to Eurodollar Loans
as in effect from time to time. Interest shall be payable on each Eurodollar
Loan on each applicable Interest Payment Date, on the date of any prepayment
thereof, at the Maturity Date and on the date of a conversion of such Eurodollar
Loan to an Alternate Base Rate Loan. The Lender shall determine the applicable
LIBO Rate for each Interest Period as soon as practicable on the date when such
determination is to be made in respect of such Interest Period and shall notify
the Borrower of the applicable interest rate so determined. Such determination
shall be conclusive absent manifest error.
(b) In the case of an Alternate Base Rate Loan, interest shall be payable at a
rate per annum (computed on the basis of the actual number of days elapsed over
a year of 365/366 days, as the case may be, during such times as the Alternate
Base Rate is based upon the Prime Rate, and over a year of 360 days at all other
times) equal to the Alternate Base Rate plus the Margin applicable to Alternate
Base Rate Loans. Interest shall be payable on each Alternate Base Rate Loan on
each applicable Interest Payment Date, on the date of any prepayment thereof and
at the Maturity Date.
5
<PAGE>
(c) Interest in respect of any Loan hereunder shall accrue from and including
the date of such Loan to but excluding the date on which such Loan is paid
or if applicable, converted to a Loan of a different type.
5. Default Interest.
-----------------
From and after (i) the occurrence of any failure of the Borrower to pay
principal, interest, or both when due hereunder, or under the Letter Agreement,
or (ii) any default hereunder or under any of the Loan Document, or (iii) the
Maturity Date, whether by demand or otherwise, interest shall accrue on the
amount of principal due and outstanding hereunder at the following rates per
annum: (i) for the remainder of the then current Interest Period for each
Eurodollar Loan, at 2% in excess of the LIBO Rate plus the margin otherwise then
in effect and (ii) for all periods subsequent to the then current Interest
Period for each Eurodollar Loan, for all Alternate Base Rate Loans and for all
other overdue amounts hereunder, at 2% in excess of the Alternate Base Rate plus
the Margin otherwise then in effect.
6. Continuation and Conversion of Loans.
------------------------------------
The Borrower shall have the right, at any time, to convert any Loan or portion
thereof to a successive Loan of a different interest rate type or to continue
any Eurodollar Loan for a successive Interest Period, subject to the following:
(a) the Borrower shall give the Lender prior notice of each continuation or
conversion hereunder, of at least three (3) Business Days for continuation as,
or conversion to, a Eurodollar Loan and one (1) Business Day for conversion to
an Alternate Base Rate Loan; such notice shall be irrevocable and to be
effective, must be received by the Lender no later than 11:00 a.m., New York
City time on the day required;
(b) no Alternate Base Rate Loan (or portion thereof) may be converted to a
Eurodollar Loan and no Eurodollar Loan may be continued as a Eurodollar Loan if,
after such conversion or continuation, and after giving effect to any concurrent
prepayment of Loans, more than ten (10) separate Eurodollar Loans would be
outstanding hereunder with respect to the Lender (for purposes of determining
the number of such Loans outstanding, Loans with different Interest Periods
commencing or ending on different dates shall be counted as different Loans);
(c) the aggregate principal amount of Loans continued as, or converted to,
Eurodollar Loans as part of the same continuation or conversion, shall be
$1,000,000 or such greater amount which is an integral multiple of $500,000;
(d) accrued interest on a Eurodollar Loan (or portion thereof) being converted
to an Alternate Base Rate Loan shall be paid by the Borrower at the time of
conversion;
6
<PAGE>
(e) the Interest Period with respect to a new Eurodollar Loan effected by a
continuation or conversion shall commence on the date of continuation or
conversion;
(f) if a Eurodollar Loan is converted to an Alternate Base Rate Loan other than
on the last day of the Interest Period with respect thereto, the amounts
required by Section 7 hereunder shall be paid upon such conversion; and
(g) each request for a continuation as, or conversion to, a Eurodollar Loan
which fails to state an applicable Interest Period shall be deemed to be a
request for an Interest Period of one month.
Subject to the foregoing, in the event that the Borrower shall not give notice
to continue or convert any Eurodollar Loan as provided above, such Loan (unless
repaid) shall automatically be converted to an Alternate Base Rate Loan at the
expiration of the then current Interest Period.
7. Reimbursement of Lender.
------------------------
The Borrower shall reimburse the Lender on demand for any loss incurred or to be
incurred by it in the reemployment of the funds released (i) by any prepayment
or conversion (for any reason) of any Eurodollar Loan required or permitted
under this Note, if such Loan is prepaid or converted other than on the last day
of the Interest Period for such Loan or (ii) in the event that after the
Borrower delivers a notice under the Section 6 (a) in respect of Eurodollar
Loans, such Loan is not made on the first day of the Interest Period specified
in such notice for any reason other than (I) a suspension or limitation of the
right of the Borrower to select a Eurodollar Loan or (II) a breach by the Lender
of its obligation hereunder. Such loss shall be the amount as reasonably
determined by such Lender as the excess, if any, of (A) the amount of interest
which would have accrued to such Lender on the amount so paid or not borrowed,
continued or converted at a rate of interest equal to the interest rate
applicable to such Loan pursuant to this Note, excluding the Margin, for the
period from the date of such payment or failure to borrow, continue or convert
to the last day (x) in the case of a payment other than on the last day of the
Interest Period for such Loan, of the then current Interest Period for such
Loan, or (y) in the case of such failure to borrow, continue or convert, of the
Interest Period for such Loan which would have commenced on the date of such
failure to borrow, continue or convert, over (B) the amount realized by such
Lender in reemploying the funds not advanced or the funds received in prepayment
or realized from the Loan so continued or converted during the period referred
to above. The Lender shall deliver to the Borrower from time to time one or
more certificates setting forth the amount of such loss (and in reasonable
detail the manner of computation thereof) as determined by the Lender, which
certificates shall be conclusive absent manifest error.
7
<PAGE>
All payments on account of the indebtedness evidenced by this Note shall be
applied first to the payment of all fees and expenses, including collections
costs, and then to the payment of any fees or sums due to the Lender under any
of the other Loan Documents, next toward payment of interest due on the unpaid
principal balance hereof and the remainder, if any, to the principal due
hereunder.
8. Payment On Demand.
------------------
(a) IT IS HEREBY EXPRESSLY AGREED by the Borrower that time is of the essence
hereof, and should any default be made by the Borrower in the payment of any
amounts due and payable under the terms of this Note or any of the other Loan
Documents or in the performance or observance of non-monetary obligations under
the terms of any of the Loan Documents after the expiration of any applicable
notice or grace period, then at the option of the Lender or the holder hereof,
and without notice, the entire unpaid balance of said sums due by the Borrower
hereunder or under the provisions of any of the other Loan Documents shall,
without further notice to the Borrower, become due and payable within two days.
(b) NOTWITHSTANDING anything in this Note to the contrary, it is expressly
understood and agreed by the Borrower that Lender, at any time and without
reason may demand that this Note be immediately paid in full. The demand nature
of this Note shall not be deemed modified by reference herein or in the Letter
Agreement to a default or an event of default. It is expressly agreed by the
Borrower that Lender may exercise its demand rights hereunder whether or not an
event of default has occurred hereunder or under any of the other Loan
Documents.
9. Affirmative Covenants.
----------------------
The Borrower hereby covenants that, from and after the date hereof and so long
as this Note remain outstanding, it shall deliver such audited financial
statements and other information, as the Lender may reasonably request.
10. Negative Covenants.
-------------------
The Borrower hereby covenants that so long as any amount shall remain
outstanding under this Note, the Borrower will not, and will not permit any of
its Subsidiaries, directly or indirectly, to:
8
<PAGE>
10.1 Limitation on Indebtedness.
--------------------------
Incur, assume or suffer to exist any Indebtedness except:
(a) Indebtedness hereunder;
(b) Indebtedness of the Borrower and any of the Borrower's Subsidiaries, which
Indebtedness is in existence on the date hereof and listed on Schedule 1 hereto,
but not any extensions or renewals thereof, unless effected on substantially the
same terms;
(c) purchase money Indebtedness (including Capital Leases) not exceeding
$1,000,000 in aggregate and any one time outstanding; and
(d) intercompany loans and advances from the Borrower to its Subsidiaries.
10.2 Limitations on Liens.
--------------------
Suffer any Lien on its property, except:
(a) deposits under worker's compensation, unemployment insurance and social
security laws or to secure statutory obligations or surety or appeal bonds or
performance or other similar bonds in the ordinary course of business, or
statutory Liens of landlords, carriers, warehousemen, mechanics and material men
and other similar Liens, in respect of liabilities which are not yet due or
which are being contested in good faith, Liens for taxes not yet due and
payable, and Liens for taxes due and payable, the validity or amount of which is
currently being contested in good faith by appropriate proceedings and as to
which foreclosure and other enforcement proceedings shall not have been
commenced (unless fully bonded or otherwise effectively stayed);
(b) purchase money Liens granted in connection with the incurrence of
Indebtedness permitted by this Section 10.1(c), to the vendor or Person
financing the acquisition of property, plant or equipment if (i) such Lien is
limited to the specific assets acquired or, in the case of tangible assets,
other property which is an improvement to or is acquired for specific use in
connection with such acquired property or which is real property being improved
by such acquired property; (ii) the debt secured by the Lien is the unpaid
balance of the acquisition cost of the specific assets on which the Lien is
granted; and (iii) such transaction does not otherwise violate this Note;
(c) Liens arising out of attachments, judgments or awards as to which an appeal
or other appropriate proceedings for contest or review are promptly commenced
(and as to which foreclosure and other enforcement proceedings (i) shall not
have been commenced
9
<PAGE>
(unless fully bonded or otherwise effectively stayed) or (ii) in any event shall
be promptly fully bonded or otherwise effectively stayed);
(d) Liens securing the Indebtedness evidenced hereby or other Indebtedness
owing to the Lender.
(e) rights of first offer or similar rights granted in connection with the
equity interests of a Subsidiary or a Joint Venture.
10.3 Limitations on Sale of Assets.
-----------------------------
Enter into any transactions out of the ordinary course of business whereby the
Borrower or any Subsidiary of the Borrower sells or transfers essentially all of
its right, title and interest in any assets, except for the sale of the stock
held by the Borrower in the Subsidiary in Puerto Rico and in the Joint Venture
in Peru for fair market value.
10.4 Management Fees.
---------------
The Borrower and its Subsidiaries will not pay any management fees or similar
fees to Mobile Telecommunication Technologies Corp. or any of its Subsidiaries,
other than an amount, not to exceed U$4,500,000 in respect to 1997.
10.5 Intercompany Investment.
-----------------------
To the maximum extent permitted by applicable law, any additional investment
made by the Borrower in any of its Subsidiaries after the date hereof shall be
made in the form of an intercompany loan or advance.
11. Remedies.
---------
The remedies of the Lender or the holder hereof as provided in this Note, the
Letter Agreement, and any of the other Loan Documents shall be cumulative and
concurrent, and may be pursued singly, successively, or together against the
Borrower, or any other security at the sole discretion of the Lender or the
holder hereof.
12. Change in Circumstances.
------------------------
In the event that after the date hereof any change in any applicable law or in
the interpretation or administration thereof (including, without limitation, any
request, guideline or policy not having the force of law) by any governmental
authority charged with the administration or interpretation thereof or, with
respect to clause (ii), (iii) or (iv) below any change in conditions, shall
occur which shall:
10
<PAGE>
(i) subject the Lender to, or increase the net amount of, any tax, levy,
impost, duty, charge, fee, deduction or withholding with respect to any
Eurodollar Loan (other than withholding tax imposed by the United States of
America or any political subdivision or taxing authority thereof or therein or
any other tax, levy, impost, duty, charge, fee, deduction or withholding (A)
that is measured with respect to the overall net income of the Lender, and that
is imposed by the United States of America, or by the jurisdiction in which the
Lender is incorporated, in which the Lender is located, managed or controlled or
in which the Lender has its principal office (or any political subdivision or
taxing authority thereof or therein), or (B) that is imposed solely by reason of
the Lender failing to make a declaration of, or otherwise to establish,
nonresidence, or to make any other claim for exemption, or otherwise to comply
with any certification, identification, information, documentation or reporting
requirements prescribed under the laws of the relevant jurisdiction, in those
cases where the Lender may properly make such declaration or claim or so
establish nonresidence or otherwise comply); or
(ii) except as expressly provided in (i) above, change the basis of
taxation of any payment to the Lender of principal of, or any interest on, any
Eurodollar Loan; or
(iii) impose, modify or deem applicable any reserve, deposit or similar
requirement against any assets held by, deposits with or for the account of, or
loans or commitments by, an office of the Lender with respect to any Eurodollar
Loan; or
(iv) except as expressly provided in (i) above, impose upon the Lender or
the London Interbank Market any other condition with respect to any Eurodollar
Loan or this Note;
and the result of any of the foregoing shall be to increase the actual cost to
the Lender of making or maintaining any Eurodollar Loan hereunder or to reduce
the amount of any payment (whether of principal, interest or otherwise) received
or receivable by the Lender, or to require the Lender to make any payment in
connection with any Eurodollar Loan, in each case by or in an amount which the
Lender in its sole judgment shall deem material, then and in each case the
Borrower shall pay to the Lender, such amounts as shall be necessary to
compensate the Lender for such cost, reduction or payment.
13. Waiver.
------
(a) The Borrower hereby waives presentment for payment, demand, notice of
nonpayment, notice of dishonor, protest of any dishonor, notice of protest, and
protest of this Note and all other notices in connection with the delivery,
acceptance, performance, default, or enforcement of the payment of this Note,
and agrees that its liability shall be unconditional without regard to the
liability of any other party and shall not in any manner be affected by any
indulgence, extension of time, renewal, waiver or modification, granted or
consented to by the Lender or holder hereof.
11
<PAGE>
(b) The Lender or any holder hereof shall not by any act or omission or
commission be deemed to waive any of its rights or remedies hereunder unless
such waiver is in writing and signed by the holder hereof, and then only to the
extent specifically set forth therein; a waiver of one event shall not be
construed as continuing or as a bar to or waiver of such right or remedy on a
subsequent event.
14. Assignments.
-----------
In order to facilitate partial assignments of the indebtedness evidenced hereby,
the Lender may exchange this Promissory Note for, and the Borrower will, upon
request of the Lender, issue one or more promissory notes in an aggregate
principal amount equal to the stated principal amount hereof and in the same
form as this Note with such modifications as the Lender may reasonably request
in order to reflect the fact of such assignment.
15. Costs.
-----
If at any time or times hereafter Lender or the holder of this Note employs
counsel for advice with respect to this Note or to intervene, file a petition,
answer, motion or other pleading in any suit or proceeding relating to this
Note, or attempt to collect this Note from or to enforce this Note against the
Borrower, then, in any of such events, all of the reasonable attorneys' fees
arising from such services, and any expenses, costs and charges relating
thereto, shall be an additional liability owing hereunder by the Borrower to
Lender or the holder of this Note and shall be payable on demand and shall bear
interest at the default interest rate set forth hereunder from the date of such
demand.
16. GOVERNING LAW.
-------------
THE VALIDITY OF THIS NOTE, ITS CONSTRUCTION, INTERPRETATION AND ENFORCEMENT, AND
THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPALS OF CONFLICTS OF LAW. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDING ARISING IN CONNECTION WITH THIS NOTE SHALL BE TRIED AND LITIGATED
ONLY IN THE STATE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR, AT THE SOLE OPTION OF LENDER, IN
ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS,
AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. THE
BORROWER AND LENDER EACH WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
--------------------
OBJECT TO VENUE TO THE EXTENT ANY
12
<PAGE>
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS PROVISION. THE BORROWER AND LENDER
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. THE BORROWER AND
LENDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS NOTE MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
13
<PAGE>
IN WITNESS WHEREOF, this Note has been executed as of the day and year
first above written.
MTEL LATIN AMERICA, INC.
By: /s/ John E. Welsh, III
-----------------------------
Title: Acting President and
Chief Operating Officer
14
<PAGE>
SCHEDULE 1
Existing Indebtedness
---------------------
Outstanding as of
Obligor Payee December 31, 1997
- -------------------------- ------------------------ -----------------
Mtel Latin America, Inc. Credit Lyonnais New York 6,500,000.00
Branch
Mtel Latin America, Inc. BGH S.A. 4,508,800.00
Mtel Latin America, Inc. Motorola International 3,200,000.00
Development Corporation
Mtel Latin America, Inc. Jacobel S.A. 291,200.00
Mtel Argentina BGH S.A. 4,508,800.00
Mtel Argentina Motorola International 3,200,000.00
Development Corporation
Mtel Argentina Jacobel S.A. 291,200.00
--------------
Total $22,500,000.00
15
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
1301 Avenue of the Americas
New York, NY 10019
as of December 31, 1997
Mtel Latin America, Inc.
200 South Lamar Street
Security Centre, South Building
Jackson, Mississippi 39201
Attn.: John E. Welsh
Re: Credit Facilities
---------------------
Credit Lyonnais New York Branch (the "Lender") is pleased to advise you that it
has approved your request for a line of credit in the aggregate amount of
U$20,000,000 (the "Line"). Our officers may, at their discretion, make short
term loans to Mtel Latin America, Inc. (the "Borrower") in accordance with the
terms of this Letter, the form of demand promissory note attached hereto as
Exhibit I (the "Demand Note") and such other terms as are mutually agreed
between us from time to time. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to them in the Demand Note.
1. The Line:
---------
Loans under this Line are intended to be used only to meet the normal short term
working capital needs of the Borrower, including the refinancing of outstanding
bridge loans and will not be used to finance any acquisitions. The Loans under
this Line shall bear interest at the rate agreed upon between us under the
attached Demand Note. Subject to the terms of section 2.1 hereof, the initial
loan to the Borrower shall be limited to U$7,500,000. Availability of credit to
the Borrower under this Line shall be subject to the satisfaction of the
conditions under section 2 hereof.
Loans provided under this Line shall be evidenced by the Demand Note, in the
principal amount of the Line, bearing interest at the interest rate defined in
the Demand Note. This Line expires on September 30, 1998, unless earlier
terminated by Lender in its discretion.
<PAGE>
2. Conditions Precedent:
---------------------
2.1 As this line of credit is not a commitment, Borrower's initial request for
a loan is subject to the satisfaction of the following conditions:
(a) the Lender shall have been received (i) a copy of the pledge agreement duly
executed by the Borrower confirming the pledge of the shares of Mtel Argentina
S.A. held by the Borrower, (ii) a certificate of the Secretary of Mtel Argentina
S.A. confirming that the pledge has been duly registered in the stock registry
book of Mtel Argentina S.A.;
(b) the Lender shall have received from Skadden, Arps, Slate, Meagher & Flom,
an opinion in form and substance reasonably satisfactory to the Lender; and
(c) the Lender shall have received from Marval, O'Farrell & Mairal, an opinion
in form and substance reasonably satisfactory to the Lender.
2.2 Any further loans requested by the Borrower are subject to the satisfaction
of the following conditions:
(a) the Lender shall have received a valuation report from Dillon, Read & Co.,
Inc. addressed to the board of directors of the Borrower confirming the going-
concern value of the Borrower in form and substance satisfactory to the Lender.
(b) the Lender shall have received confirmation that the pledge of the stock
held by the Borrower in each of its Pledged Subsidiaries or Joint Ventures was
perfected, including, (i) a copy of all the pledge agreements executed by the
Borrower to pledge to the Lender its shares of each of its Pledged Subsidiaries
and Joint Ventures; and (ii) a certificate of the Secretary of each of the
Pledged Subsidiaries and Joint Ventures confirming that the pledge has been
duly registered in the stock registry book of such Pledged Subsidiary or Joint
Venture or duly noted on the relevant share certificates;
(c) the Lender shall have received written opinions, in form and substance
reasonably satisfactory to it, of the local counsel to the Borrower in Mexico,
Venezuela and Colombia; and
(d) the execution and deliver by the Borrower of such documentation as the
Lender deems appropriate.
3. Representations of Borrower:
----------------------------
The Borrower represents and warrants to the Lender that the execution, delivery
and performance by the Borrower of its obligations under this Facility Letter
and the Demand Note do not and will not conflict with, contravene, violate or
constitute a default under (i) the Certificate of Incorporation or By-laws of
the Borrower, (ii) any lease, indenture, instrument or other
2
<PAGE>
agreement to which the Company or any of its subsidiaries or its property is
subject, (iii) any rule, law or regulation to which the Borrower is subject, or
(iv) any judicial or administrative order or decree of any governmental
authority.
4. Facility Fee:
-------------
The Borrower agrees to pay to the Lender (i) upon the acceptance hereof the
amount of US$150,000 and (ii) the amount of US$150,000 if and when the Borrower
borrows more than US$10,000,000 or the Lender syndicates the facility to another
financial institution.
5. Acceptance:
-----------
If the foregoing is acceptable, please so indicate by signing and returning
this letter to us with the payment of US$150,000 not later than December 31,
1997.
Very truly yours,
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Richard Teitelbaum
-----------------------------
Name: Richard Teitelbaum
Title: Vice President
Agreed and accepted this
31st day of December, 1997
MTEL LATIN AMERICA, INC.
By: /s/ John E. Welsh, III
---------------------------
Name: John E. Welsh, III
Title: Acting President and
Chief Operating Officer
3
<PAGE>
Exhibit 10.39
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:_______________________________________
CONFIDENTIAL
<PAGE>
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.
CONFIDENTIAL
<PAGE>
(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 advanced 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 as of the date of Destineer's invoice. Any balance not paid within
thirty (30) days following such due date shall bear interest from and after the
due date at the lesser of one and one half percent (1 1/2%) per month or the
maximum rate allowed by law. 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.
(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
CONFIDENTIAL
<PAGE>
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 the 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.
CONFIDENTIAL
<PAGE>
(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.
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.
CONFIDENTIAL
<PAGE>
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 and 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 obligations 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 statutes.
(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, each 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 not 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 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.
CONFIDENTIAL
<PAGE>
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
CONFIDENTIAL
<PAGE>
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 of 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 that 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 "A"
ANCILLARY SERVICES
Destineer shall provide the Ancillary Services and rights set forth in the
attachments designated below at the prices set forth in such attachments.
Exhibit "A-1": Training
Exhibit "A-2": Reseller Support Services
Exhibit "A-3": Device Repair and Replacement Services
Exhibit "A-4": Sales and Marketing Services
Exhibit "A-5": License Rights
CONFIDENTIAL
<PAGE>
EXHIBIT "A-1"
TRAINING
1. As a condition of the rights granted to Reseller hereunder to resell SkyTel
Services utilizing the advanced messaging network owned and operated by
Destineer and its Affiliates, all personnel of Reseller involved in the
promotion, marketing and sale of such services shall undergo and successfully
complete the training and certification program established by Destineer for
resellers of such services, which program and certification process shall be
conducted in accordance with Destineer policies and procedures and which may be
amended by Destineer from time to time. Only such personnel of Reseller that
have completed such training and certification program to the satisfaction of
Destineer may represent Reseller in the sale and support of such services. Such
training and certification program shall be implemented on a fair and even basis
with respect to Reseller, as with all resellers of such services, and shall be
imposed on Reseller only to the extent Destineer reasonably believes is
necessary (a) to familiarize such personnel with the advanced messaging network
owned and operated by Destineer and its Affiliates, the SkyTel Services provided
over such network, and use of the related Devices, and (b) for Reseller to
promote and market such services in a professional and competent manner.
2. At no charge to Reseller, Destineer shall, at times and locations mutually
agreeable to the parties, train a mutually agreeable number of Reseller's
personnel to conduct such training and certification programs for Reseller's
employees on behalf of Destineer. To the extent requested by Reseller, Destineer
shall also conduct training and certification programs for Reseller's other
personnel; provided, however, that, in such an event, Reseller shall bear all
costs and expenses associated with such training and certification programs,
shall reimburse Destineer for all reasonable out-of pocket travel and lodging
expenses, and shall pay to Destineer the fees and charges, as applicable, as
specified in the attached pricing schedule.
3. To the extent requested by Reseller, Destineer shall also conduct, at times
and locations mutually agreeable to Reseller and Destineer, training sessions
for employees of Reseller involved in the promotion, marketing and sale of
SkyTel's one-way wireless messaging services. Reseller shall bear all costs and
expenses associated with such training sessions, shall reimburse Destineer for
all reasonable out-of pocket travel and lodging expenses, and shall pay to
Destineer the fees and charges, as applicable, as specified in the attached
pricing schedule.
CONFIDENTIAL
<PAGE>
TRAINING PRICING SCHEDULE
<TABLE>
<CAPTION>
ITEM* PRICE DESCRIPTION
- ------------------------------------------------------------------------------------------------------------------------------------
PRINT MATERIALS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. SkyGuide $5.00 per copy, print Workbook with written exercises and quizzes (SkyTel Core
$5.00 per disk, elec cpy Products/Svcs)
- ------------------------------------------------------------------------------------------------------------------------------------
2. 5-day selling skills course $40.00 per manual, print 12 modules for selling skills: presentation skills;
$5.00 per module, print competition; presenting SkyTel capabilities; intro to
$5.00 per disk, elec cpy Skytel sales process; selling in F1000; building acct.
relationships; letter writing; telemarketing; qualifying
customers and identifying applications; selling the SkyTel
solution; account maintenance; developing an action plan
- ------------------------------------------------------------------------------------------------------------------------------------
3. Customer Service Instructor's Guide $10.00 per manual, print The SkyTel System (one-way system only)
$5.00 per disk, elec cpy
- ------------------------------------------------------------------------------------------------------------------------------------
4. Customer Service Participant Guide $10.00 per manual, print The SkyTel System (one-way system only)
for one-way services $5.00 per disk, elec cpy
- ------------------------------------------------------------------------------------------------------------------------------------
5. Self-study guides $5.00 per copy, print Ex: intro to networked environments; popular LAN-based
$5.00 per disk, elec cpy e-mail systems
- ------------------------------------------------------------------------------------------------------------------------------------
6. Edits to print materials $50 per hour
- ------------------------------------------------------------------------------------------------------------------------------------
AUDIOCASSETTE
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Selling Skills $20.00 per set Set of 6 audiocassettes with workbook (audio scripts and
worksheets)
- ------------------------------------------------------------------------------------------------------------------------------------
VIDEO
- ------------------------------------------------------------------------------------------------------------------------------------
1. Custom Video $250.00 per finished minute Includes scripting, production, and editing
- ------------------------------------------------------------------------------------------------------------------------------------
2. Video duplication $5.00 per tape duplication for custom videotape
- ------------------------------------------------------------------------------------------------------------------------------------
3. 2-Way Coverage $5.00 per tape
- ------------------------------------------------------------------------------------------------------------------------------------
4. 5 minutes to Tango $5.00 per tape covers hardware features for the 2-Way unit
- ------------------------------------------------------------------------------------------------------------------------------------
FACILITATED TRAINING
- ------------------------------------------------------------------------------------------------------------------------------------
Products & Svc, Operations $125 per day Plus T&E, and cost of duplicating materials
Selling Skills $275 per day Plus T&E, and cost of duplicating materials
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTER BASED MATERIALS
- ------------------------------------------------------------------------------------------------------------------------------------
1. COMPEL presentations (multimedia) $5.00 per module; includes Basic PC Requirements: 8 MB RAM; 16 MB preferred
for one-way products and services. speakers notes, all on disk. 486 minimum; Pentium preferred; color monitor
10 modules/disks 10 modules/disks optional: sound blaster compatible sound card
- ------------------------------------------------------------------------------------------------------------------------------------
2. Develop New PowerPoint $4/slide, color electronic version only; PC format
presentations
- ------------------------------------------------------------------------------------------------------------------------------------
3. Existing PowerPoint Presentations $5.00 per disk, electronic
version only
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONFIDENTIAL
<PAGE>
EXHIBIT "A-2"
RESELLER SUPPORT SERVICES
Destineer shall provide telephone support to Reseller five (5) days a week
(excluding Destineer recognized holidays) during the hours of 7:00 a.m. to 7:00
p.m. CST to assist Reseller in Subscriber related matters. To the extent
Reseller utilizes Destineer to support base functions for Subscribers capable of
being supported by Reseller, Destineer reserves the right to charge Reseller a
service fee of $2.00 per call times the number of Subscriber PINs covered by the
call.
CONFIDENTIAL
<PAGE>
EXHIBIT "A-3"
DEVICE REPAIR AND REPLACEMENT SERVICES
Notwithstanding the provisions of Section 9(b) of the Terms and Conditions,
Destineer shall, at Reseller's request, repair or replace defective or damaged
Devices sold to Reseller by Destineer in accordance with Section 6(b) of the
Terms and Conditions, if any, for which claims are made during the applicable
manufacturer's warranty period, subject to any limitations contained in the
applicable manufacturer's warranty. Destineer shall not be responsible for any
costs or expenses related to the repair or replacement of Devices which are not
covered by an applicable manufacturer's warranty (including, without limitation,
shipping costs). In the event that Destineer elects to replace in warranty
Devices in connection with this Exhibit "A-3", Reseller shall reasonably assist
Destineer in coordinating such replacement efforts with its Subscribers.
CONFIDENTIAL
<PAGE>
EXHIBIT "A-4"
SALES AND MARKETING SERVICES
Specific services and pricing have yet to be developed, but, subject to the
mutual agreement of the parties, may be added to this Exhibit "A-4" at a later
time.
CONFIDENTIAL
<PAGE>
EXHIBIT "A-5"
LICENSE RIGHTS
1. To the extent requested by Reseller, and subject to the provisions set forth
herein, Destineer hereby grants to Reseller a non-exclusive, non-transferable
license, during the term of this Agreement, to use the SkyTel Marks solely in
connection with the marketing, advertisement and promotion of the SkyTel
Services; provided, however, that Reseller shall have no such license or right
to use the SkyTel Marks, and Reseller shall be expressly prohibited from using
the SkyTel Marks, in connection with activities performed by Reseller in the
Retail Distribution (as such term is defined below) of the SkyTel Services.
Reseller's use of the SkyTel Marks in all marketing, advertising and promotional
materials and activities shall be subject to the prior written approval of
Destineer, which shall not be unreasonably withheld or delayed. Reseller shall
comply with all guidelines provided by Destineer with respect to the graphic
reproduction and use of the SkyTel Marks. This license cannot be sub-licensed,
assigned or otherwise transferred by Reseller to any third Person without the
express prior written consent of Destineer. The license granted by Destineer to
Reseller hereunder shall automatically and immediately terminate upon any
termination of this Agreement.
2. The license granted to Reseller herein is subject to the reservation in
Destineer of all right, title, and interest in and to the SkyTel Marks.
Reseller's right to use the SkyTel Marks shall be limited to and shall arise
only out of the license granted hereunder. Reseller shall not assert the
invalidity, unenforceability, or contest the ownership by Destineer or its
Affiliates of the SkyTel Marks in any action or proceeding of any kind or
nature, and shall not take any action that may prejudice Destineer's rights in
the SkyTel Marks, render the same generic, or otherwise weaken their validity or
diminish their associated goodwill.
3. In consideration of such license rights, Reseller shall pay to Destineer, on
a monthly basis, a royalty equal to $1.00 per Device activated by Reseller on
the SkyTel Network, from and after the Effective Date, which bears a SkyTel
Mark. Reseller shall (a) cooperate with Destineer in good faith to keep
Destineer timely apprised of the number of Devices utilized by Reseller which
bear or incorporate a SkyTel Mark, and (b) keep and maintain commercially
appropriate books and records as may be reasonably necessary to verify the
number of such Devices utilized by Reseller and the amount of royalties due to
Destineer on account thereof. During the term of this Agreement and for a period
of two (2) years thereafter, Destineer shall be entitled, on reasonable advance
written notice to Reseller, to retain independent certified public accountants
to review Reseller books and records for the purpose of verifying the accuracy
of the accounting for royalties paid to Destineer in accordance with this
Exhibit "A-5". Any underpayment or overpayment determined as a result of the
review will be reflected in the next scheduled royalty payment by Reseller to
Destineer. If such review verifies an underpayment error of greater than five
percent (5.0%) of the aggregate royalties paid for the period being reviewed,
Reseller shall pay the cost of such examination, and in any event, shall
promptly pay to Destineer the amount of such underpayment plus ten percent
(10.0%) annual simple interest on the underpayment, commencing when the
underpayment should have been paid and ending when the underpayment is paid.
4. Reseller's right to utilize the SkyTel Marks, and the license granted
hereunder, is expressly conditioned upon, in addition to Reseller's compliance
with all Terms and Conditions of the Agreement, Reseller meeting and complying
with the following conditions:
(a) Reseller shall use the SkyTel Marks only in connection with the
marketing, advertisement and promotion of the SkyTel Services, and shall at all
times conduct such marketing, advertisement and promotional activities in a
professional and competent manner, as well as within any additional conditions
and limitations which Destineer may impose from time to time.
(b) Reseller shall establish and maintain a customer support division to
assist Subscribers which operates and is available to Subscribers twenty-four
(24) hours a day, seven (7) days a week, and shall comply with all other service
quality standards promulgated by Destineer from time to time.
5. As used herein, the term "Retail Distribution" shall mean and include sales
or other activities performed with or in the following channels: (a) traditional
consumer electronics retailers, (b) direct mail/catalog retailers (e.g.,
Crutchfield, Sharper Image, Hammacher-Schlemmer, and other such mass merchants
selling directly to end-users through direct marketing communications), (c)
direct marketing activities, (d) military retail dealers, (e) office supply and
other specialty dealers (e.g., office/computer supply, beeper stores), and (f)
premium/incentive companies. For purposes of this definition, the term "direct
marketing activities" means any activities conducted by, or in conjunction with,
retailers, including, for example, using outside sales forces or placing
advertisements or promotional materials in catalogs of retail-oriented
companies. The term "direct marketing activities" does not, however, include the
placement of advertisements in media (other than (a) through (f) above) directly
and solely by Reseller.
6. The failure of Reseller to abide by and comply with any of the provisions
set forth in this Exhibit "A-5" shall give Destineer, at its sole discretion,
the right, in addition to any other rights afforded to Destineer in the
Agreement, to immediately revoke and terminate the license granted hereunder.
CONFIDENTIAL
<PAGE>
EXHIBIT "B"
AUTHORIZED DEVICES
<TABLE>
<CAPTION>
MANUFACTURER MODEL EQUIPMENT TYPE BAUD RATE PRICE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE-WAY NETWORK:
Motorola Bravo* Numeric 2400 N/A
Motorola Bravo Plus* Numeric 2400 N/A
Motorola Advisor Gold FLX(TM) Alpha-Flex 6400 $151.00
Motorola Wordline FLX(TM) Alpha-Flex 6400 N/A
Motorola Bravo FLX(TM) Numeric-Flex 6400 $ 74.00
Motorola Pro Encore FLX(TM) Numeric-Flex 6400 $ 79.00
Motorola Pronto FLX(TM) Numeric-Flex 6400 N/A
Motorola Ultra Express FLX(TM) Numeric-Flex 6400 N/A
Motorola Express Extra FLX(TM) Numeric-Flex 6400 N/A
NEC Exec Numeric-Flex 6400 N/A
TWO-WAY NETWORK:
Motorola PageFinder Alphanumeric-Reflex 6400 $185.00
Motorola Tango Alphanumeric-Reflex 6400 $319.00
Wireless Access AccessLink Alphanumeric-Reflex 6400 $349.00
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
* May only be used by Subscribers authorized to receive INTERNATIONAL SERVICE
in non-Flex capable countries. Use of alphanumeric POCSAG pagers by
Subscribers in connection with activations of INTERNATIONAL SERVICE
following the Effective Date shall be subject to Destineer's approval on a
case-by-case basis.
CONFIDENTIAL
<PAGE>
EXHIBIT "C"
SKYTEL MARKS
1. How the World Stays in Touch(SM)
2. Nationwide Now(SM)
3. SkyMail(R)
4. SkyNews(R)
5. SkyPager(R)
6. SkyTalk(R)
7. SkyTel(R)
8. SkyTel logo(R) (one-way and two-way)
9. SkyTel 2-Way(SM)
10. SkyTel Access(TM) Software
11. SkyWord(R)
12. SkyWord Access(TM) Software
13. SkyWriter(TM)
CONFIDENTIAL
<PAGE>
EXHIBIT "D"
SKYTEL SERVICES
I. ONE-WAY NETWORK:
A. BASIC SERVICES: Any one-way wireless messaging capabilities provided by
or through SkyTel in the United States which Destineer makes available
for resale by third parties that constitute "basic services", as defined
under applicable FCC rules, policy statements or other FCC
pronouncements. BASIC SERVICES presently consist of those services
described below.
1. SKYPAGER: Numeric service.
2. SKYWORD: Alphanumeric service.
B. ENHANCED SERVICES: Any one-way wireless messaging capabilities provided
by or through SkyTel in the United States which Destineer makes
available for resale by third parties that constitute "enhanced
services", as defined under applicable FCC rules, policy statements or
other FCC pronouncements. ENHANCED SERVICES presently consist of those
services described below.
1. OPERATOR DISPATCH: Operator assistance to generate alphanumeric
messages.
2. VOICE MAIL: Voice mailbox that accepts detailed messages from
callers and notifies the Subscriber that a message has been received
(generic and SKYTALK branded).
3. SKYNEWS:* News headlines provided twice daily free of charge.
4. INTERNATIONAL SERVICE: Provision of the SkyTel Services, on a
"follow me" basis, over the global messaging network owned and
operated by Destineer's Affiliate, Mtel International, Inc.
C. COVERAGE:
1. NATIONWIDE: Covers service areas in all fifty (50) states.
2. REGIONAL: Divides country into six (6) zones; Subscriber may select
any one (1) zone.
3. METRO: Divides country into sixty (60) zones; Subscriber may select
any one (1) zone.
4. NATIONWIDE NOW: Subscriber may temporarily expand REGIONAL or METRO
coverage to NATIONWIDE coverage.
CONFIDENTIAL
<PAGE>
II. TWO-WAY (ADVANCED MESSAGING) NETWORK:
A. BASIC SERVICES: Any wireless messaging capabilities provided by or
through SkyTel in the United States utilizing narrowband PCS frequencies
which Destineer makes available for resale by third parties that
constitute "basic services", as defined under applicable FCC rules,
policy statements or other FCC pronouncements. BASIC SERVICES presently
consist of those services described below.
1. SKYWORD PLUS: Alphanumeric Services.
2. SKYTEL 2-WAY: Alphanumeric Services.
B. ENHANCED SERVICES: Any wireless messaging capabilities provided by or
through SkyTel in the United States utilizing narrowband PCS frequencies
which Destineer makes available for resale by third parties that
constitute "enhanced services", as defined under applicable FCC rules,
policy statements or other FCC pronouncements. ENHANCED SERVICES
presently consist of those services described below.
1. OPERATOR DISPATCH: Operator assistance to generate alphanumeric
messages.
2. VOICE MAIL: Voice mailbox that accepts detailed messages from
callers and notifies the Subscriber that a SkyTalk message has been
received (generic and SKYTALK branded).
3. SKYNEWS:* News headlines provided twice daily free of charge.
C. COVERAGE: All SKYTEL PLUS and SKYTEL 2-WAY coverage locations across the
nation.
NOTES TO EXHIBIT "D":
* To the extent Reseller utilizes the "SkyNews" service or any other
information service provided by Destineer and its Affiliates which contains
informational content and data ("Licensed Content") supplied through Dow Jones &
Company, Inc. or any other Person unaffiliated with Destineer (a "Content
Provider"), Reseller agrees to, and shall ensure that each of its Subscribers
procuring any such services from Reseller agrees to (through incorporation of
appropriate provisions in its Subscriber agreements), the following: (a) that
Reseller (except to the extent permitted in this Agreement) and its Subscribers
shall not republish, reproduce, redistribute, broadcast, display or resell any
headline, information or other content contained in the Licensed Content, (b)
that the Licensed Content is the property of the Content Provider and its
licensors and may be protected by copyright, and that neither Reseller nor its
Subscribers shall acquire any proprietary interest in the Licensed Content, (c)
that the Content Provider, its licensors, Destineer and its Affiliates disclaim
all warranties, including the implied warranties of merchantability or fitness
for a particular purpose, for the Licensed Content and that the Content
Provider, its licensors, Destineer and its Affiliates disclaim all liability to
Reseller and its Subscribers with respect to the Licensed Content, including,
without limitation, for any negligence or errors in procuring, editing, writing,
reporting or delivering the Licensed Content, and for any inaccuracies or errors
in or omissions from, the Licensed Content, and for any indirect, incidental,
consequential or special damages arising therefrom.
CONFIDENTIAL
<PAGE>
EXHIBIT "E"
RATES AND CHARGES(A)(B)(C)
<TABLE>
<CAPTION>
Advanced Messaging Network
SKYTEL ONE-WAY NETWORK (DESTINEER F1)
SERVICES (SKYTEL F1 & F2) -------------------------
- ----------------------------------- ------------------------------------------------------- SkyWord SkyTel
Basic Services SkyPager SkyWord Plus 2-Way
- -------------------------------------------------------------------------------------------------------------------------------
BASIC SERVICES - MONTHLY RECURRING CHARGES(D)
- -------------------------------------------------------------------------------------------------------------------------------
Coverage Nationwide Regional Metro Nationwide Regional Metro Nationwide Nationwide
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 - 1,000 UIS(e) $13.50 $9.00 $7.25 $39.20 $24.50 $12.50 $18.50 $18.50
1,001 - 2,500 UIS $13.00 $8.75 $7.00 $38.80 $24.40 $12.25 $18.40 $18.40
2,501 - 5,000 UIS $11.00 $8.50 $6.50 $38.30 $24.25 $12.00 $18.25 $18.25
5,001 - 10,000 UIS $11.00 $8.00 $6.25 $37.85 $24.00 $11.50 $18.00 $18.00
10,001 - 20,000 UIS $11.00 $7.50 $5.75 $35.50 $23.75 $11.00 $17.75 $17.75
20,001 - 40,000 UIS $11.00 $7.00 $5.00 $32.50 $23.50 $10.50 $17.50 $17.50
40,001 - 50,000 UIS $11.00 $6.50 $4.75 $31.00 $23.25 $10.00 $17.25 $17.25
50,000 + UIS $11.00 $6.00 $4.50 $28.00 $23.00 $ 9.50 $17.00 $17.00
- -------------------------------------------------------------------------------------------------------------------------------
BASIC SERVICES - OVERCALL INFORMATION
- -------------------------------------------------------------------------------------------------------------------------------
Characters Per Message Block 20 20 20 40 40 40 10 10
Block Allowance/UIS/Month 200 200 400 125 125 125 800 800
Charge/Block in Excess of Allowance 20c 20c 8c 50c 50c 30c 1 1/2c 1 1/2c
- -------------------------------------------------------------------------------------------------------------------------------
ONE TIME CHARGES
- -------------------------------------------------------------------------------------------------------------------------------
Activation Fee(f) $ 0.00 $0.00 $0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Operator Dispatch Registration Fee NA NA NA $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00
- -------------------------------------------------------------------------------------------------------------------------------
ENHANCED SERVICES - MONTHLY RECURRING CHARGES
- -------------------------------------------------------------------------------------------------------------------------------
Personal 800/888 Number $ 2.00 $2.00 $2.00 $ 2.00 $ 2.00 $ 2.00 $ 2.00 $ 2.00
Voice Mail (includes 45 min/mon/UIS):
Generic $ 5.50 $5.50 $5.50 $ 5.50 $ 5.50 $ 5.50 $ 5.50 $ 5.50
SkyTalk Branded $ 5.50 $5.50 $5.50 $ 5.50 $ 5.50 $ 5.50 $ 5.50 $ 5.50
- -------------------------------------------------------------------------------------------------------------------------------
ENHANCED SERVICES - USAGE/OVERCALL CHARGES
- -------------------------------------------------------------------------------------------------------------------------------
Operator Dispatch (charge per message) NA NA NA 50c 50c 50c 50c 50c
Voice Mail (per min. chg. over
45 min. allowance):
Generic 25c 25c 25c 25c 25c 25c 25c 25c
SkyTalk Branded 25c 25c 25c 25c 25c 25c 25c 25c
Nationwide Now (per message block) NA 45c 45c NA 75c 75c NA NA
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONFIDENTIAL
<PAGE>
NOTES:
(a) Services provided over the SkyTel Network to Reseller prior to the
Effective Date for resale to Subscribers which are not identified in the
pricing schedule will continue to be provided on a "grandfather" basis at
Reseller's existing prices through June 30, 1997, at which time such
services shall be eliminated.
(b) Pricing is conditioned on use of FLEX technology pagers. Services provided
in connection with POCSAG pagers will incur an additional 30% surcharge on
monthly recurring fees and an additional 50% surcharge on overcall/usage
charges (with the exception of POCSAG pagers which are utilized by
Subscribers authorized to receive INTERNATIONAL SERVICE in non-FLEX capable
countries). Reseller shall remove all 1200 baud alphanumeric POCSAG pagers
from the SkyTel Network on or before December 31, 1996. Reseller shall
remove all 1200 baud numeric POCSAG pagers from the SkyTel Network on or
before October 1, 1997.
(c) In the event interconnection carriers from which Destineer and its
Affiliates procure toll-free services are allowed, as a result of any rule,
regulation or order implemented by the FCC, to pass through local exchange
carrier or other surcharges which increase Destineer's and its Affiliates'
net toll-free telephone related costs, Destineer reserves the right to
allocate to Reseller those portions of such surcharges that can be
attributed to Reseller's and its Subscriber's usage of the SkyTel Services.
(d) Includes airtime and non-specialized SkyNews services.
(e) For pricing tier purposes, all one-way and two-way UIS are aggregated.
(f) "No charge" pricing conditioned upon activation by Reseller through
electronic means acceptable to Destineer; a $17.50 activation fee will be
imposed for each service account Reseller activates through Destineer
customer service.
CONFIDENTIAL
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL SERVICES(A)
- ---------------------------------------------------------------------------------------------------------------------------
Service Type Simulcast(b) Follow-Me Frequent(c) Follow-Me(d)
- ---------------------------------------------------------------------------------------------------------------------------
CANADA
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numeric:
Monthly Recurring Charge $25.00 $35.00 $3.75
Message Allowance/UIS/Month (20 characters/message limit) 100 100 0
Charge per Message in Excess of Allowance $ 1.00 $ 1.00 $1.00
Alphanumeric:
Monthly Recurring Charge $39.00 $39.00 $3.75
Character Allowance/UIS/Month 1,500 1,500 0
Charge per Character in Excess of Allowance 4c 4c 4c
- ---------------------------------------------------------------------------------------------------------------------------
OTHER COUNTRIES(E)
- ---------------------------------------------------------------------------------------------------------------------------
Numeric:
Monthly Recurring Charge $35.00 $35.00 $3.75
Message Allowance/UIS/Month (20 characters/msg limit) 100 100 0
Charge per Message in Excess of Allowance $ 1.00 $ 1.00 $1.00
Alphanumeric:
Monthly Recurring Charge $39.00 $39.00 $3.75
Character Allowance/UIS/Month 1,500 1,500 0
Charge per Character in Excess of Allowance 4c 4c 4c
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(a) Available for SkyTel One-Way Services only. All charges are in addition to
domestic charges.
(b) Messages broadcast in the United States and in one (1) Subscriber
designated country, which cannot be changed.
(c) Messages broadcast in the United States and in one (1) Subscriber
designated country, which can be changed at Subscriber's discretion.
(d) At Subscriber's direction, messages broadcast in the United States and in
one (1) Subscriber designated country, which can be changed at Subscriber's
discretion.
(e) Any country interconnected to the Global Messaging Network owned and
operated by Destineer's and SkyTel's Affiliate, Mtel International, Inc.
CONFIDENTIAL
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL ONE-WAY VOICE MAIL
- ----------------------------------------------------------------------------------------------------------------
Charges Monthly Recurring Charge Per Minute Usage/Overcall Charges
- ----------------------------------------------------------------------------------------------------------------
OPTION A
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
America Service NA $1.75
Europe Service NA $1.60
Pacific Service NA $1.85
- ----------------------------------------------------------------------------------------------------------------
OPTION B
- ----------------------------------------------------------------------------------------------------------------
20 Minute Talk Time $ 30.00 $1.80
45 Minute Talk Time $ 65.00 $1.80
90 Minute Talk Time $125.00 $1.80
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
International Voice Mail Service conditioned on Subscriber having domestic Voice
Mail service. All Charges are in addition to domestic Voice Mail service
charges.
Usage and overcall transaction rates are per minute, billed in six (6) second
increments.
Message length options are 30 seconds, 1, 2, 3 or 5 minutes, with 3 minutes
being the standard.
Extended talk times delineated in Option B are from any international location
covered by the plan.
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
COM/NAV Realty Corp. ...................................... Delaware
Intelligent Investment Partners, Inc. ..................... Delaware
Mtel American Radiodetermination Corporation*.............. Delaware
Mtel Cellular, Inc.*....................................... Delaware
MobileComm Europe Inc.* ................................... Delaware
Mtel Digital Services, Inc.*............................... Delaware
Mtel Microwave, Inc.*...................................... Delaware
Mtel Service Corporation*.................................. New York
Mtel Space Technologies Corporation*....................... Delaware
Mtel Space Technologies, L.P*. ............................ Delaware
Internet Cafe Inc.*........................................ Mississippi
Mtel Asia, Inc. ........................................... Delaware
FOREIGN SUBSIDIARIES
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
British Virgin
Mtel China, Inc.* ......................................... Islands
SkyTel (UK) Limited*....................................... England and Wales
Mtel (UK) Limited*......................................... England and Wales
OTHER INVESTMENTS
SkyTel (Malaysia) Sdn Bhd.................................. Malaysia
P.T. SkyTelindo Services Sdn Bhd........................... Indonesia
Telepage Limited........................................... Malta
Buscapersona Cia., Ltd. ................................... Ecuador
SkyTel Dominican Republic.................................. Dominican Republic
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
STATE/JURISDICTION
NAME OF INCORPORATION
- ---- ------------------
<S> <C>
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
</TABLE>
- --------
* Inactive corporations owning no assets and currently conducting no business
activities.
2
<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, 1997 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, 1998.
<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, 1997 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 19,812,116
<SECURITIES> 0
<RECEIVABLES> 74,169,442
<ALLOWANCES> 20,379,314
<INVENTORY> 0
<CURRENT-ASSETS> 78,955,316
<PP&E> 449,257,323
<DEPRECIATION> 154,511,214
<TOTAL-ASSETS> 741,744,896
<CURRENT-LIABILITIES> 113,111,824
<BONDS> 398,231,558
38,025
0
<COMMON> 550,326
<OTHER-SE> 195,745,834
<TOTAL-LIABILITY-AND-EQUITY> 741,744,896
<SALES> 407,967,807
<TOTAL-REVENUES> 407,967,807
<CGS> 0
<TOTAL-COSTS> 442,901,216
<OTHER-EXPENSES> 1,171,021
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,122,860
<INCOME-PRETAX> (84,020,536)
<INCOME-TAX> 4,845,976
<INCOME-CONTINUING> (88,866,512)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (88,866,512)
<EPS-PRIMARY> (1.87)
<EPS-DILUTED> (1.87)
</TABLE>
