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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1998
[_]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
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SKYTEL COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
64-0518209
Delaware
(IRS Employer
(State or other jurisdiction Identification No.)
of incorporation or organization)
200 South Lamar Street,
SkyTel 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:
Title of Each Class Name of each exchange on which
registered
None
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share,
together with associated rights to purchase
Series C Junior Participating Preferred Stock
(Title of class)
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: $993,331,686 as of March 18, 1999.
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:
60,080,713 shares of Common Stock, par value $.01 per share, outstanding as of
March 18, 1999.
Documents incorporated by reference in this Annual Report on Form 10-K:
Portions of the definitive proxy statement relating to the 1999 Annual
Meeting of Stockholders in Part III, Items 10 (as related to Directors), 11,
12 and 13.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
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TABLE OF CONTENTS
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PART I
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 16
Item 3. Legal Proceedings.............................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............ 17
Executive Officers of the Registrant........................... 18
PART II
Market for Registrant's Common Equity and Related Stockholder
Item 5. Matters........................................................ 19
Item 6. Selected Financial Data........................................ 20
Management's Discussion and Analysis of Financial Condition and
Item 7. Results of Operations.......................................... 20
Item 8. Financial Statements and Supplementary Data.................... 34
Changes in and Disagreements with Accountants on Accounting and
Item 9. Financial Disclosure........................................... 34
PART III
Item 10. Directors and Executive Officers of the Registrant............. 35
Item 11. Executive Compensation......................................... 35
Item 12. Security Ownership of Certain Beneficial Owners and Management. 35
Item 13. Certain Relationships and Related Transactions................. 35
PART IV
Exhibits, Financial Statements, Financial Statement Schedules
Item 14. and Reports on Form 8-K........................................ 36
Index to Consolidated Financial Statements..................... F-1
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PART I
Certain statements set forth in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 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
SkyTel Communications, Inc. ("SkyTel" or the "Company"), formerly Mobile
Telecommunication Technologies Corp., is a leading provider of wireless
messaging services in the United States. As of December 31, 1998, SkyTel had
approximately 1,429,100 units in service in the United States, which
represents an increase of 30.2% over the approximately 1,097,500 units in
service as of December 31, 1997, and included approximately 1,004,800 domestic
one-way units and 424,300 advanced messaging units. Advanced messaging units
represented approximately 80% of the Company's domestic net unit additions in
1998.
SkyTel provides one-way messaging services in the United States by means of
a 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 regional, nationwide and international one-way messaging services, as well
as local services which are generally provided through contractual
arrangements with other commercial mobile radio service providers.
SkyTel also currently operates a 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 SkyTel. Services
on the Advanced Messaging Network currently include advanced text messaging
services with guaranteed delivery, interactive two-way services and fixed
location services.
SkyTel's strategy is to maintain a 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. The Company intends to focus significant efforts in 1999 on
increasing the market awareness for its advanced messaging and value-added
services, expanding its distribution network in order to take advantage of the
capacity available on the Advanced Messaging Network, and continuing to expand
the distribution of 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.
SkyTel, through its consolidated subsidiaries and joint ventures, also
operates nationwide one-way messaging systems in 12 countries outside the
United States, primarily in Latin America. As of December 31, 1998, SkyTel had
approximately 237,000 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.
SkyTel also provides its subscribers with access to an international network
using SkyTel's proprietary technology that interconnects the systems operated
by the Company's international subsidiaries and joint ventures with the
systems in the United States, the Bahamas, Bermuda, Brazil, Canada, China,
Hong Kong, the Philippines and Singapore.
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SkyTel was incorporated in Delaware on October 21, 1988. On November 18,
1988, SkyTel (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 SkyTel 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. On May 22, 1998, the
Company changed its name from Mobile Telecommunication Technologies Corp. to
SkyTel Communications, Inc.
Unless the context otherwise requires, references to SkyTel or the Company
herein include SkyTel and its subsidiaries. SkyTel's executive offices are
located at 200 South Lamar Street, SkyTel Centre, South Building, Jackson,
Mississippi 39201, and its telephone number is (601) 944-1300.
Set forth below is a description of the Company's businesses. The Company's
businesses have been classified into four business segments: One-Way
Messaging, Advanced Messaging, International, and Other. See Note 9 of Notes
to Consolidated Financial Statements for certain financial information
concerning these business segments.
One-Way Messaging Network
SkyTel provides one-way messaging services in thousands of cities and towns
in the United States by means of a 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; a 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, 1998, 1997 and 1996, one-way messaging operations in
the United States accounted for approximately 66%, 83% and 89% 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, email/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 from the satellite 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. A
redundant satellite system enhances the Company's ability to maintain
operations in the event of any disruption in satellite service.
SkyTel's proprietary and unique "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 Jackson, Mississippi and Plano,
Texas (which was relocated from Washington, D.C. during the third quarter of
1998) before being transmitted to the satellite uplink. Both operations
centers maintain a full backup power plant and generator. Local messages are
generally routed through local paging systems operated by other commercial
radio service providers.
SkyTel leases fully redundant satellite capacity and the uplink facilities
utilized in the SkyTel one-way messaging systems through SpaceCom Systems,
Inc. ("SpaceCom") under an agreement which expires in January 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.
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Advanced Messaging Network
The Company's Advanced Messaging Network, which began commercial operation
in September 1995, 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 SkyTel and
incorporates low-power transmission technology. The Advanced Messaging Network
is currently operational in approximately 250 Metropolitan Statistical Areas
in the United States covering approximately 80% of the population. For the
years ended December 31, 1998, 1997 and 1996, advanced messaging operations in
the United States accounted for approximately 27%, 8% and 3% of the
consolidated revenues of the Company, respectively.
Over-the-air transmissions on the Advanced Messaging Network utilize an
innovative multi-carrier modulation technology. The Advanced Messaging Network
produces a combined transmission rate 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 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. 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.
SkyTel leases satellite capacity and uplink facilities utilized in the
Advanced Messaging Network through SpaceCom. The operations center in Jackson,
Mississippi also serves as the network operations center for the Advanced
Messaging Network. The Plano operations center will serve as a backup center
for the Advanced Messaging Network beginning in the third quarter of 1999.
During 1998, the Company continued to expand the coverage of the Advanced
Messaging Network, focusing on a number of the largest metropolitan areas in
the United States. The Company plans to continue its coverage expansion
program in additional markets in 1999 to further enhance the Company's
interactive two-way services.
The Company believes that network performance, reliability and expanded
coverage, together with the availability of smaller and improved messaging
devices, new value-added service offerings and the addition of new
distribution channels will result in increasing levels of units in service on
the Advanced Messaging Network during 1999. The Company intends to focus
significant efforts in 1999 on increasing the market awareness for its
advanced messaging services and value-added services and expanding its
distribution network in order to take advantage of the capacity available on
the Advanced Messaging Network. The ability of the Company to achieve improved
operating results will be dependent on the performance of its existing
distribution channels, the successful implementation of new distribution
channels and the market acceptance of such value-added services. In addition,
the Company cannot predict the extent to which competitive advanced messaging
services or other competitive telecommunication services will impact the
Company's future operating results.
Services and Features
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
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international basis, with regional coverage in six regions, three of which
correspond to the Eastern, Central and Western (which includes both the
Mountain and Pacific) time zones and three of which provide coverage in the
Southwest, Midwest and Southeast regions of the United States. SkyTel also
offers several additional one-way service coverage options, including metro
local service, which provides one-way coverage over one of sixty 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.
As part of its strategic plan, the Company 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
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, Inc. ("Motorola")
and Timex Corporation ("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 to purchasers of the BeepWear pager watch who elect to
subscribe to such services through June 1999. 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
device 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 Advanced Messaging Network currently features two primary services, an
advanced text messaging service which is marketed under the name SkyWord
Plus(R) and a two-way interactive messaging service which is marketed under
the name SkyWriter(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
SkyWriter service enables subscribers to compose and send text messages to,
and receive text messages from, an advanced messaging device or an Internet
email 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.
In 1998, the Company introduced an advanced text messaging service with
guaranteed delivery that allows subscribers to respond to a message directly
from the messaging device. The SkyReplysm service, which is available on the
new Motorola PF1500 and the Glenayre AccessMate devices, allows subscribers to
have a series of replies pre-programmed into the device. The SkyReply service
also allows 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.
The Company also recently introduced a text-to-voice service which allows
SkyWriter customers to type a message on their device and address the message
to a telephone number. The system will then call the number and read the text
message to the person answering the call via a computerized voice. In
addition, the Company plans to introduce a new product in 1999 that integrates
messages from multiple communications ports into a single point of contact.
This new service, called Message Centersm, provides a consolidated message
notification service which includes messages received via email, voice mail,
cellular telephone, pager or fax, and delivers the information to in-boxes on
the Motorola PageWriter 2000 device. Filtering and forwarding options allow
the
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user to clearly define and control the extent of notification and information
such user wants to receive. In addition, all messages, emails, faxes and voice
mail notifications are available to the customer 24 hours a day on a password-
protected Web site.
The Company continued to enhance its Internet-based messaging services in
1998, adding numerous features to facilitate efficient, flexible messaging. An
estimated 88 million email 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 email address that allows
subscribers to receive email messages, and in the case of units on the
Advanced Messaging Network, to originate or respond directly from the device
or through any Internet email package. Messages are delivered via a reliable,
high availability Internet email gateway technology maintained by the Company.
As of February 1999, approximately 5.5 million messages per month were
delivered through the Internet to one-way and advanced messaging subscribers,
as compared to approximately 2.3 million as of February 1998.
The SkyTel Web site's most utilized feature continues to be the "Send a
Message" function which permits anyone with Web browser access to compose and
transmit messages. In addition to sending messages, the "Send a Message"
function provides confirmation of delivery of all messages sent to SkyWriter
devices and the ability to view responses from these devices. The SkyTel Web
site also allows users to set up and maintain address books, permits
transmission of broadcast messages to large groups with a single entry, and
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 expand the functionality and
applications of its messaging networks. The Company offers a software
developers kit that allows software developers and others to develop unique
and differentiated applications that seamlessly interface with, and maximize
the capabilities of, the Company's messaging networks. The software
development kit enables connectivity from a variety of common computing
platforms to the Company's networks via modem, the Internet or wireless
devices. The Company also offers 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, giving
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 and 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. Alliances with
companies such
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as JP Systems, Inc. and Microsoft Corporation ("Microsoft") enable SkyTel to
integrate is advanced messaging services with popular handheld devices such as
3Com's Palm III and Microsoft's Windows CE products. In addition, the Company
has 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 continued to work with Motorola and Glenayre Technologies, Inc.
("Glenayre") to design and develop new messaging devices with advanced
functionality that utilize the Company's Advanced Messaging Network. In
December 1997, the Company introduced the PageWriter 2000, a 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 also introduced several smaller, lighter-weight advanced
messaging devices with enhanced sensitivity and performance. The Glenayre
AccessMate and AccessLink II and the Motorola PF1500 and PageWriter 2000 are
programmable for additional services "over the air" as new services become
available.
During 1998, the Company continued its efforts to develop applications for
fixed wireless services on the Advanced Messaging Network. In 1998, the
Company entered into several additional commercial fixed wireless service
contracts totaling approximately 225,000 fixed wireless units, and currently
has total units under such contracts of approximately 329,500 fixed wireless
units. The development of fixed wireless service has been impacted by delays
in the commercial availability of transceivers which are cost effectively
priced, and the conversion of a significant number of the fixed wireless units
under contract into units in service are dependent, in part, on the commercial
availability of such transceivers. Motorola expects that fixed wireless
transceivers will be commercially available in the second quarter of 1999. The
Company intends to continue to pursue new fixed wireless applications in 1999,
as well as to continue development efforts with current customers. The Company
cannot predict the extent to which its efforts in promoting fixed wireless
applications will be successful and believes that a substantial number of the
fixed wireless units under contract will not be placed in service until 2000
or later.
Value-Added Features. 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 voice mail 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. In 1998, the Company's voice mail feature was enhanced to
allow the caller to mark the message urgent and to allow the subscriber to
receive Caller ID information. A subscriber electing to receive enhanced voice
mail would receive a pager notification that would include the voice mail
alert, the Caller ID of the originating telephone and whether the caller
marked the message "Urgent." The Company's one-way and advanced messaging
systems may also be utilized to notify subscribers of calls recorded on their
office, home or cellular voice mail system.
In the second quarter of 1998, the Company introduced the first Caller ID
services available in the messaging industry. The Caller ID feature allows a
subscriber receiving a numeric message or SkyTalk voice message to see the
sender's name or other identification with the message or SkyTalk
notification. This feature, which is available with SkyWord on the one-way
network, and SkyWord Plus and SkyWriter on the Advanced Messaging Network,
allows subscribers to prioritize their responses to messages based on the
identity of the sender.
The Company 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 or on a personal broadcast basis
as selected by the individual subscriber. The use of over-the-air programming
enables the Company to commence, terminate or change information services as
requested by the subscriber. In 1998,
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the Company expanded the functionality of the SkyTel Web site through the
introduction of its SkyTel Custom Newscasts SM. This service provides a Web
location where subscribers to advanced messaging services can browse a menu of
information updates on subjects ranging from financial market updates to
sports or weather reports. The subscriber can mark his or her update
selections at the Web site and will immediately begin to receive the
information updates on his or her advanced messaging device at the next
scheduled broadcast times. The new selections are programmed into the device
via over-the-air programming, and within a few minutes, the subscriber
receives a confirmation on the pager that the changes have been made. The
Company currently has relationships with a number of information providers
such as Bloomberg, MSNBC, Fortune, USA Today, The Weather Channel and others.
The two-way capability of the Advanced Messaging Network also enables the
Company to offer on-demand information services. After initial enrollment for
an on-demand service, a subscriber may communicate from his or her device to a
personal identification number or Internet email address requesting a specific
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 through DataLink Systems Corp., and
expects to introduce additional on-demand information services in 1999.
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 features in addition to its one-way and advanced messaging services,
such as Caller ID and information services, 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.
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International
Mtel Latin America, Inc. ("Mtel Latam"), which is a 76% owned subsidiary of
the Company, serves as the holding company for the Company's Latin American
operations and investments. Mtel Latam's subsidiaries conduct one-way
messaging operations in Argentina, Colombia, Costa Rica, Uruguay and
Venezuela. Mtel Latam also owns equity interests in joint ventures that
conduct one-way messaging operations in Mexico (49%), the Dominican Republic
(50%), El Salvador (35%), Ecuador (50%), Guatemala (50%) and Paraguay (40%).
The following table sets forth information regarding Mtel Latam's current
operations and investments:
Mtel Latam Subsidiaries and Joint Ventures
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December 31, 1998
-------------------------
Approximate Current Proportional
Population Mtel Latam Commencement Actual Units Units in
Country (in millions) Partner Ownership of Operations in Service Service
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Argentina............... 35.7 N/A 100.0% April 1994 53,295 53,295
Colombia................ 36.9 N/A 100.0% June 1994 19,523 19,133
Costa Rica.............. 3.7 N/A 100.0% February 1997 4,131 3,098
Dominican Republic...... 8.1 Transmissionesy 50.0% October 1996 9,885 4,943
Proyecciones, S.A.
Ecuador................. 12.0 Isaias Group 50.0% May 1995 15,220 7,610
El Salvador............. 6.2 Inversiones 35.0% February 1997 5,877 2,939
Comesal, S.A. de
C.V.
Guatemala............... 11.5 Comunicaciones 50.0% October 1995 23,812 11,906
Inalambricas, S.A.
Mexico.................. 99.0 Radio Telefonia 49.0% February 1992 221,019 108,299
MovilMetropolitana,
S.A. de C.V.
Paraguay................ 5.2 BEPSA 40.0% February 1993 12,009 4,804
Communications
S.R.L.
Uruguay................. 3.2 N/A 100.0% September 1995 5,353 5,353
Venezuela............... 22.8 N/A 100.0% November 1995 15,633 15,633
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Combined Totals......... 244.3 385,757 237,013
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In September 1996, Newbridge Latin America, L.P. ("Newbridge") acquired a
20% equity interest in Mtel Latam. The equity interest in Mtel Latam held by
Newbridge increased to 24% on July 1, 1998 in connection with the transfer by
Mtel Latam of 100% of the outstanding shares of its wholly-owned subsidiary,
Mtel Puerto Rico, Inc. ("Mtel Puerto Rico"), to a wholly-owned subsidiary of
SkyTel. See Note 9 of Notes to Consolidated Financial Statements.
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.
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The Company also owns and operates an international network which
interconnects one-way messaging systems on the 931 MHz frequency in various
countries utilizing SkyTel's proprietary messaging software. The Company's
international network currently interconnects the Company's systems in the
United States, Mexico, Argentina, Colombia, Costa Rica, Indonesia, Malaysia,
the Dominican Republic, Ecuador, Paraguay, Venezuela, Uruguay and Guatemala
with other carriers' systems in the Bahamas, Bermuda, Brazil, Canada, China,
Hong Kong, Singapore, Peru and the Philippines. 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.
SkyTel'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 SkyTel
for licensed technology); inflation; and exchange rate fluctuations. SkyTel's
international operations and joint ventures also experience significant
competition in the countries in which they operate. SkyTel 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 SkyTel'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. SkyTel'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 SkyTel's international operations
and investments. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 4 of Notes to
Consolidated Financial Statements for additional information regarding the
operating results, capital requirements and sources of funds relating to the
company's operations in Latin America.
The Company has divested a substantial portion of its operations and
investments in the Asia Pacific region in order to concentrate its
international development efforts in Latin America. The Company completed the
sale of its operations in Hong Kong and its equity interests in joint ventures
in China and the Philippines in 1997, and currently holds minority equity
interests in joint ventures that operate in Indonesia and Malaysia.
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 1998, the Company's services were
distributed primarily through a direct sales channel, a reseller channel, a
prepaid channel and a restructured agent channel.
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, 1998, SkyTel maintained a direct sales presence in more than 36
metropolitan areas. SkyTel intends to significantly expand its direct sales
force in 1999, although the Company anticipates that it will not realize
increased sales productivity as a result of such expansion until the latter
part of 1999.
SkyTel's direct sales efforts have been successful in achieving higher
average revenue per 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. 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 messaging units placed in service by its direct sales channel that
were comparable to industry standards. 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 the Company's disconnect rate in the
future.
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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 maintains an airport marketing program utilizing kiosks located inside
airport terminals to provide services to frequent travelers and to 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 from locations in the Cincinnati, Salt Lake
City and San Jose airports.
Resellers. The Company's one-way and advanced messaging services are also
distributed through approximately 160 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 MCI Worldcom, Inc., Paging Network,
Inc. ("PageNet"), AirTouch Paging, Ameritech Mobile Services, Inc., Arch
Communications Group Inc. and Bell Atlantic Mobile. 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 20%, 22% and 35% of the Company's domestic revenues for the
years ended December 31, 1998, 1997 and 1996, 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.
The Company experienced increasing disconnect rates in its reseller channel
in 1997 and 1998. In addition, certain resellers have recently introduced or
announced plans to introduce competing advanced messaging services. The
Company cannot predict the extent to which such competing services will
adversely affect the Company's future operating results.
Prepaid Channel. The Company has developed an innovative prepaid one-way
service offering which includes a device and a fixed number of message units
that can be used for messages or features such as Caller ID or operator
dispatch. Prepaid paging permits consumers to purchase a 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 introduced a prepaid numeric product
in 1997 and introduced a prepaid text-messaging package in 1998. The Company
has entered into agreements with national distribution partners who offer
prepaid paging through a variety of channels, including Big Planet, a direct
network marketing firm that provides communications and technology products
and leverages SkyTel's national broadcast capabilities to keep Big Planet
sales representatives updated on product announcements and news of interest
via custom broadcasts; Swatch, who introduced their own innovative numeric
paging product, the Beep Box, combining it with SkyTel's prepaid service for
sale through leading electronics retailers, Swatch stores and on-line; and
Topp Telecom, a leading retail distributor of prepaid cellular which
introduced its branded version of SkyTel prepaid paging.
Agent Distribution Channels. The Company continued to distribute its full
line of messaging products through an independent agent program in 1998. 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 to 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 major agent distribution channels currently consist of independent
retail, Internet and solutions-based distribution. The Company's primary
retail distribution effort in 1998 involved the BeepWear pager watch, an
alphanumeric pager watch manufactured and distributed by a joint venture
comprised of Motorola and Timex.
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Available through more than 3,000 retail points of presence, the Company
activated over 17,000 BeepWear devices while maintaining no inventory or
direct distribution costs. In the fourth quarter of 1998, The Motorola/Timex
joint venture introduced an enhanced version of the BeepWear pager watch that
includes an organizer and address book feature. This device also features
Flextime, which utilizes the Company's network to automatically adjust the
watch time as the user travels between time zones. Internet and solutions-
based distribution was affected through companies such as Prodigy Services
Corporation, an Internet service provider, and JP Systems, Inc. an advanced
messaging software solutions provider, who market SkyTel products and services
directly to their customers. All subscriber devices are customer-owned and
advance payment is required prior to shipment.
Advertising and Marketing Alliances. The Company supports its marketing
efforts with advertising and sales support in broadcast, Internet and print
media, trade shows, events, direct mail and in-bound telephone marketing.
SkyTel also plans to introduce on-line shopping for prepaid one-way products
during the second quarter of 1999, and plans to use banner advertisements at
certain highly frequented Web sites. In addition, the Company has conducted
joint marketing programs with companies that provide other services to similar
target audiences. For example, plans are in development for co-marketing with
Bloomberg L.P. and Palm Computing, a subsidiary of 3Com. Co-marketing
activities under consideration include co-branded advertising, promotional
materials in packaging, hotlinks between the companies' Web sites and banners
on Bloomberg terminals.
The Company intends to focus significant efforts in 1999 on expanding its
distribution network and recently announced several initiatives in this
regard. In February 1999, the Company entered into an agreement with Office
Depot, the world's largest seller of office products with more than 650 office
supply retail stores located in 40 states and the District of Columbia. Office
Depot has agreed to distribute a broad line of the Company's one-way and
advanced messaging services through its domestic retail locations commencing
in the second quarter of 1999, initially through more than 500 retail stores
located in major metropolitan areas across the United States and expanding to
Office Depot store locations in secondary markets throughout the remainder of
the year. The Company will also be expanding the coverage of its Advanced
Messaging Network in certain areas serviced by Office Depot store locations as
part of the agreement. Messaging devices sold to customers under this
arrangement will be procured by Office Depot directly from the manufacturer.
The Company believes that Office Depot will assist the Company in its efforts
to increase the overall awareness of its one-way and advanced messaging
services and to expand distribution of its services to consumers as well as
small and medium-sized businesses.
The Company has also developed a program designed to expand the distribution
and increase the market awareness of advanced messaging services in small and
medium-sized markets. Under the "local partner" program, a local wireless
carrier or other third party would provide capital to expand the coverage of
the Company's Advanced Messaging Network in a designated market and would
become an exclusive reseller of "local only" advanced messaging service in
that market. Customers who subscribe to the "local only" service will also
have the option to obtain nationwide coverage on demand for specified periods
of time. In February 1999, the Company entered into its first agreement under
the "local partner" program with ValuePage, Inc. ("ValuePage"), a paging
service provider based in Jackson, Mississippi. ValuePage has agreed to expand
the coverage of the Advanced Messaging Network in the Jackson and Vicksburg,
Mississippi markets and will serve as an exclusive reseller of the Company's
"local only" advanced messaging services in those markets. ValuePage also has
a right of first offer to enter into a similar relationship in a number of
other small and medium-sized Southeastern markets.
The ability of the Company to continue to achieve improved operating results
will be dependent on the performance of its existing distribution channels and
the successful implementation of new distribution channels. Although the
Company intends to focus significant efforts in 1999 on expanding its
distribution network for one-way and advanced messaging services, there can be
no assurance that the Company will be successful in these efforts or that such
new distribution channels will be successful in marketing and distributing the
Company's services.
Competition
The Company believes that competition for subscribers for its one-way and
advanced messaging services in the United States is based primarily on the
quality and breadth of service offered, the geographic area covered
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by the system and 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 the geographic coverage of the one-way messaging network
is comparable to the coverage of many of its competitors. The Company also
believes that its Advanced Messaging Network, which began commercial operation
in 1995, currently offers service quality product offerings and value-added
features not currently available from its competitors that provide advanced
messaging services. Further, the Company believes that its efforts to expand
the geographic coverage of its Advanced Messaging Network in 1997 and 1998
provide customers coverage comparable to the coverage currently provided by
such competitors. The Company believes that competitors offering or planning
to offer nationwide one-way messaging services or advanced messaging services
in the United States will continue to emphasize pricing as a significant
competitive factor. SkyTel believes that it effectively competes with such
competitors by providing its customers reliable and redundant networks,
responsive customer service and support, and additional value-added services
and features.
A number of companies (including PageNet, AirTouch Paging, Metrocall,
MobileComm and PageMart) offer nationwide or expanded regional one-way
services that compete directly with the Company's one-way and advanced
messaging services. In addition, in 1998 a number of companies (including
Ardis Company, a subsidiary of American Mobile Satellite Corporation,
BellSouth Wireless Data, Nextel Communications, ConXus and PageMart Wireless)
began to actively market and promote advanced messaging services that directly
compete with those offered by the Company, and others such as PageNet have
announced plans to introduce such services in 1999. Certain of these companies
have succeeded in establishing a significant market presence for their one-way
services, which the Company believes will enhance their ability to compete in
the advanced messaging business. In addition, several of these companies
currently resell SkyTel messaging services. The Company cannot predict the
extent to which competing nationwide or expanded regional one-way or advanced
messaging services will affect SkyTel's subscriber base.
Several companies in the United States currently offer regional and
nationwide broadband PCS service. Although broadband PCS was designed
primarily for two-way voice communications, most broadband PCS licensees are
offering numeric and text messaging as a supplemental service available on
their networks. Although the Company believes that narrowband PCS is better
suited for short 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.
Cellular, broadband PCS and other providers of wireless voice services are
experiencing a period of significant growth as service costs are decreasing,
multi-mode and multi-band phones with extended battery life are proliferating
and single-rate plans which eliminate or minimize long-distance charges are
becoming more common. While the Company believes that these services compete
with the Company's one-way and advanced messaging services, the Company
believes that for its primary target market, the mobile professional, there
continue to be certain advantages to the Company's messaging services.
Nationwide messaging service provides instant notification and screening of
calls; provides greater in-building penetration, increasing the likelihood of
timely message reception; provides better battery life on average; and allows
the message recipient to remain in control and choose to return calls at his
or her convenience. The Company further believes that complementary aspects
exist between the two services which are demonstrated by the fact that a
significant portion of SkyTel's customers are also users of wireless voice
services.
Certain of the Company's competitors in the United States such as AirTouch
Paging, 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
mandated auction procedures. 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.
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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 SkyTel
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 operating results in
Latin America in 1998 were impacted by general economic conditions prevailing
throughout the region, as well as increased competition from cellular
telephone and other telecommunications services. In 1998, the Company began to
introduce new product offerings in certain countries in an effort to
accelerate the development of the messaging market in Latin America and
intends to continue these efforts in 1999. The Company cannot predict the
extent to which such new product offerings will be successful or the extent to
which competitive services will continue to affect future operating results of
the Company's Latin American operations.
Regulation
SkyTel's one-way and advanced messaging operations in the United States, as
well as SkyTel'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 901-902 MHz and 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 is for a paired channel in the 901-902 MHz and 930-
931 MHz bands. A request by the Company to modify this second license to have
the forward path frequency changed from 930-931 MHz to 940-941 MHz is
currently pending before the FCC.
The FCC rules require nationwide narrowband PCS licensees to provide
coverage to a composite area of 750,000 square kilometers or 37.5% of the
United States population within five years of the initial license grant date
and to provide coverage to a composite area of 1,500,000 square kilometers or
75% of the United States population within ten years of the initial grant
date. The Company has complied with the first requirement with respect to the
nationwide narrowband PCS license used by the Advanced Messaging Network and
currently provides coverage to approximately 80% of the United States
population. The Company has until September 1999 to comply with the first
buildout requirement with respect to its second narrowband PCS license, and
intends to request a waiver of such requirement for the second license in
light of the extensive buildout of the Advanced Messaging Network that has
been undertaken by the Company. In the event that such a waiver is not
obtained, the Company is developing a contingency plan to affect compliance
with the initial buildout requirements by the September 1999 deadline.
In 1994, the FCC also awarded the Company an unpaired narrowband PCS license
pursuant to a Pioneer's Preference. However, the issuance of this nationwide
narrowband PCS license was conditioned by the FCC upon, among other things,
the payment of a license fee in the amount of $33.0 million. SkyTel filed an
appeal challenging the condition requiring payment for this license, and the
United States Court of Appeals for the District of Columbia Circuit issued a
decision in 1996 remanding the matter to the FCC to consider the issue of
SkyTel's reliance upon earlier determinations by the FCC that SkyTel would not
be required to pay for the Pioneer's Preference license. In 1998, the FCC
issued a decision in the remand proceeding which reconfirmed its decision to
require payment of the $33.0 million license fee. SkyTel determined that the
value of this license had decreased substantially since its original issuance
and returned the license to the FCC in lieu of payment of the license fee.
SkyTel did not utilize the frequency covered by this license.
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The FCC's rules require 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
will soon be 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 narrowband PCS
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 area in which SkyTel does not currently operate may require
SkyTel to participate in an FCC auction in those areas where the Company does
not now operate. 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 licenses for SkyTel's one-way nationwide messaging operations expire
in April 1999, and renewal applications have been timely filed by the Company.
The Company's nationwide narrowband PCS licenses expire in September 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 and that it is entitled to an
"expectancy of renewal" with respect to each of the licenses that are
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.
During 1997 and 1998, 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 pay telephones. In addition, each of the states has been
authorized to impose Universal Service Fund charges based on intrastate
service and certain states began to impose such charges in 1998. The Company,
like other companies in the telecommunications industry affected by these
surcharges and costs, has passed on these surcharges and costs when permitted
or has taken other appropriate action to minimize the impact of such
surcharges and costs on the Company. The Company cannot predict the extent to
which regulatory or legislative actions imposing additional surcharges and
costs will impact operating expenses of the Company in the future.
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
SkyTel 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 limit aliens and foreign
governments or their representatives from owning cumulatively more than a 25%
equity interest in the Company except as set forth below.
In 1997, the World Trade Organization Group on Basic Telecommunications
adopted certain principles regarding foreign ownership of companies in the
telecommunications industry which became effective in 1998. Fifty-four
countries adopted the U.S.-sponsored Regulatory Reference Paper that calls for
an
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increase in international competition in the telecommunications industry and
which may have the effect of creating global markets. Although the 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 an indirect ownership interest above the limitations currently imposed
by the FCC if the country in which the foreign entity is organized grants
reciprocal rights.
The FCC has imposed radio frequency ("RF") operation standards pursuant to
which all licensees are required to protect the general public and employees
from the dangers associated with the emissions from RF equipment. The 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 Communications Assistance to Law Enforcement Act (CALEA) requires
communications carriers, including the Company, to make certain capabilities
available to law enforcement agencies to assist them in intercepting
communications. The requirements applicable to the Company under CALEA are not
expected to be issued until 2000, and the Company cannot assess the costs that
might be incurred in effecting compliance.
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 or enactment of legislation affecting SkyTel's
domestic or international operations or the allocation of spectrum for
services that compete with the Company's businesses could adversely affect
SkyTel's results of operations.
Sources of Equipment
The satellite capacity and most components of the infrastructure equipment
which the Company uses in providing its one-way and advanced messaging
services generally are available from multiple sources, and the Company
anticipates that such satellite capacity and equipment will be available in
sufficient quantities in the foreseeable future. Certain types of messaging
devices 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 cannot predict the extent to which it may experience delays in the
delivery of advanced messaging devices.
Trademarks, Patents and Copyrights
The Company holds a number of United States trademarks and service marks,
including, among others, the following federally-registered marks: SKYTEL,
NATIONWIDE NOW, 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. 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, 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 certain
technological aspects of the Advanced Messaging Network, including multi-
carrier modulation techniques. The Company has filed various patent
applications with the United States Patent and Trademark Office, including
applications relating to one-way and advanced messaging networks and services.
The Company also holds patents and patent applications to protect its
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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 3,600
full and part-time personnel as of December 31, 1998, none of whom is
represented by organized labor.
Item 2. Properties
The Company currently leases a total of approximately 159,900 square feet of
office space in the SkyTel Centre in Jackson, Mississippi which serves as the
Company's principal executive offices (the "SkyTel Centre") pursuant to a
lease entered into in August 1995. The lease for space in the SkyTel Centre
has a monthly rental rate of approximately $189,600 and expires on July 31,
2005. The Company also leases approximately 162,300 square feet of additional
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 $154,000 and begin to expire on October 15, 2004.
SkyTel currently leases approximately 42,500 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
$170,800 plus SkyTel's proportionate share of operating costs and taxes. 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 leases a total of 26,700 square feet of space in Plano, Texas
that serves as the Company's second network operations center, which was
previously located in Washington, DC. The lease has a monthly rental of
$20,200 and expires in 2003, with a five-year renewal option at the then
current market rate. The Company also leases a total of 37,400 square feet of
space in Wayne, New Jersey which serves as the headquarters for its Paging
Solutions division. The lease has a monthly rental of $52,200 and expires in
June 2000.
SkyTel has entered into a lease agreement for approximately 71,400 square
feet of space in the Dallas-Fort Worth Metroplex which will serve as a second
customer service center. The lease for the facility expires in 2009 and will
have a monthly rental rate of $37,366, beginning on the earlier of completion
of renovation of the space or June 1, 1999.
The Company and its subsidiaries own or lease office space in approximately
23 cities in 17 states which is used in conjunction with its nationwide
messaging operations. These office leases provide for monthly rental rates
ranging from $510 to $29,100. 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, 1998, the Company leased approximately 1,969 transmitter sites in
the United States in connection with its one-way messaging operations and
approximately 4,210 transmitter and receiver sites for the Advanced Messaging
Network for monthly rental rates ranging from approximately $15 to $2,400,
which leases are for various terms.
Item 3. Legal Proceedings
In February 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 P. Bhagat and John N. Palmer, Civil Action No. 1:97CV00337. The
complaint had 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. In December 1997, the United States
16
<PAGE>
District Court for the District of Columbia granted a motion dismissing SkyTel
Corp. as a defendant in the litigation, and in January 1998 transferred the
case to the United States District Court for the Southern District of
Mississipppi. On August 1, 1998, the plaintiffs, the Company and the
individual defendants executed a stipulation of settlement, and the settlement
received final approval from the United States District Court for the Southern
District of Mississippi on November 6, 1998. No appeals were filed and the
case has been resolved. 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 cooperated with the SEC staff and has had no contact with
the staff since November 1997. See Note 6 of Notes to Consolidated Financial
Statements.
Except as set forth above, 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
The Company did not submit any matter to a vote of the Company's security
holders during the Fourth quarter of the year ended December 31, 1998. The
Company's 1999 Annual Meeting of Stockholders will be held on May 20, 1999.
17
<PAGE>
Executive Officers of the Registrant
Set forth below is information concerning the executive officers of the
Company as of March 1, 1999. The Company has entered into an employment
agreement with each of Messrs. John N. Palmer, John T. Stupka, Jai P. Bhagat
and Robert Kaiser. The employment agreements for Messrs. Palmer, Stupka,
Bhagat and Kaiser expire on April 3, 2004, July 31, 2001, April 3, 2002 and
August 14, 1999, respectively.
Jai P. Bhagat, age 52, has served as Vice Chairman of the Company since May
1995 and as Executive Vice President and a director since October 1988.
Robert Kaiser, age 44, 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 49, has served as 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 53, has served as 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 SkyTel, Mr. LaRoche was employed by International Business Machines
Corporation for 24 years.
Larry Meschberger, age 48, has served as Senior Vice President of Network
Operations of the Company since February 1998. Prior to joining SkyTel, Mr.
Meschberger served as the Director of Systems Engineering for Alcotel Network
Systems in Richardson, Texas, a microwave systems design company, from
September 1997 to February 1998. Prior to joining Alcotel, Mr. Meschberger was
employed by COMSAT-RSI of McKinny, Texas, a microwave systems installation
company, as Vice President and General Manager and Vice President of
Operations from October 1995 to March 1997. Mr. Meschberger previously served
as Vice President of Operations of JEFA International of Plano, Texas, a
microwave systems installation company, for approximately seven years.
John N. Palmer, age 64, 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 52, has served as Senior Vice President--Direct Sales of
the Company since June 1998 and served as Senior Vice President--
Administration from October 1995 to June 1998. Prior to joining SkyTel, Mr.
Pike was employed for approximately six years by MCI both as the Director and
Vice President of Human Resources.
John T. Stupka, age 49, 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 48, 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. Prior to
joining the Company Mr. Welsh was a principal in Seaport Capital, Inc., a
financial advisory and merchant banking firm, from January 1992 to December
31, 1994.
18
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of the Company has been traded in the over-the-counter
market and quoted on The Nasdaq Stock Market under the symbol SKYT since May
26, 1998, and prior thereto was traded in the over-the-counter market and
quoted on The Nasdaq Stock Market under the symbol MTEL. As of March 18, 1999,
the Common Stock was held by approximately 3,100 holders of record. The table
below sets forth the reported high and low sales prices for the Common Stock
on The Nasdaq Stock Market for the years ended December 31, 1997 and 1998.
This information does not include retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
1997 1998
----------- ------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter................................. 10 1/8 5 1/8 26 3/16 19 5/8
Second Quarter................................ 14 7/8 6 27 1/8 19 1/4
Third Quarter................................. 16 3/4 10 5/8 25 1/16 12 15/16
Fourth Quarter................................ 23 7/8 14 24 1/2 12
</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 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 5 of Notes to Consolidated Financial Statements.
19
<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, 1998 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, 1998 have been audited by
Arthur Andersen LLP, independent public accountants, whose report with respect
to the Consolidated Financial Statements as of December 31, 1997 and December
31, 1998 and for each of the years in the three-year period ended December 31,
1998 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."
Selected Financial Data
SkyTel Communications, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- --------- --------- --------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
One-way messaging........ $150,455 $225,146 $ 311,601 $ 338,022 $345,339
Advanced messaging....... -- 1,213 9,593 33,178 138,233
International messaging.. 2,485 10,121 20,289 30,602 31,990
Other.................... 10,330 9,511 9,046 6,166 2,732
-------- -------- --------- --------- --------
Total revenues......... 163,270 245,991 350,529 407,968 518,294
Operating income (loss).... (24,579) (58,422) (130,947) (34,934) 33,220
Interest income (expense),
net....................... 1,758 1,180 (38,915) (51,102) (53,926)
Loss before income taxes
and equity income (loss).. (21,893) (53,230) (167,200) (83,465) (21,267)
Equity in income (loss)
from investments.......... 3,849 946 (1,901) (555) 2,210
Net loss before
nonrecurring items........ (19,846) (33,686) (133,054) (88,866) (22,508)
Cumulative effect of a
change in accounting
principle................. -- -- -- -- (58,129)
Net loss................... $(19,846) $(52,027) $(171,822) $ (88,866) $(80,637)
Preferred dividend
requirement............... (8,438) (8,438) (11,595) (13,045) (10,511)
Net loss to common
stockholders.............. $(28,284) $(60,465) $(183,417) $(101,911) $(91,148)
Loss per common share...... $ (0.77) $ (1.19) $ (3.38) $ (1.87) $ (1.57)
Consolidated Balance Sheet
Data:
Working capital............ $185,551 $(34,934) $ 27,042 $ (34,157) $(46,191)
Total assets............... 715,471 851,414 803,260 741,745 633,197
Long-term debt............. 273,629 333,259 402,491 398,232 364,662
Total stockholders'
investment................ 366,077 423,540 301,395 196,334 123,945
Total common shares
outstanding............... 45,647 54,135 54,404 55,033 60,024
</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 SkyTel for the three years ended December 31, 1998,
and certain factors that may affect SkyTel's financial condition and results
of operations. SkyTel's principal operations include one-way messaging
services in the United States,
20
<PAGE>
advanced messaging services provided on the narrowband PCS network in the
United States and international one-way messaging operations, primarily in
Latin America. See Note 9 of Notes to Consolidated Financial Statements for
information regarding the Company's business segments.
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. Such forward-looking statements 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 actual results to differ materially are competitive pressures, the
performance of the Company's existing distribution channels, the successful
implementation of new distribution channels and the market acceptance of new
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 27% in 1998 as compared to 1997
and 16% in 1997 as compared to 1996. The increases in consolidated revenues
are primarily due to the growth in revenues from advanced messaging services
which increased 317% in 1998 and 246% in 1997. The number of advanced
messaging units in service increased 168% in 1998 as compared to 1997 and
increased 941% in 1997 as compared to 1996. Revenues from oneway messaging
operations in the United States increased 2% in 1998 as compared to 1997 and
8% in 1997 as compared to 1996. One-way units in service in the United States
increased 7% in 1998 as compared to 1997 and 5% in 1997 as compared to 1996.
As of December 31, 1998, the Company had approximately 1,004,800 one-way
units in service in the United States, which included approximately 50,900
prepaid one-way units, as compared to approximately 938,900 one-way units in
service as of December 31, 1997. SkyTel also had approximately 424,300
advanced messaging units in service as of December 31, 1998 as compared to
approximately 158,600 advanced messaging units in service as of December 31,
1997. Approximately 17.2% of net unit additions placed in service on the
Advanced Messaging Network in 1998 represented conversions from SkyTel's one-
way to advanced messaging services, as compared to approximately 25.0% of net
unit additions on the Advanced Messaging Network in 1997.
Overall average monthly revenue per domestic unit in service increased to
$32.79 in 1998 as compared to $31.41 in 1997. Average monthly revenue per one-
way messaging unit in service was $30.69 in 1998 as compared to $30.72 in
1997, and average monthly revenue per advanced messaging unit in service was
$39.55 in 1998 as compared to $40.64 in 1997. The Company anticipates that
overall average monthly revenue per domestic unit in service will continue to
decline in future periods as a result of changes to the Company's pricing
plans for advanced messaging services that include increased character
allotments, the implementation of usage-related billing arrangements for
certain major customers, and the reduction of equipment rental revenues
resulting from the Company's strategy to encourage customer-owned advanced
messaging units. In addition, the Company plans to introduce new lower priced
advanced messaging service offerings in 1999, such as "local only" service and
campus applications, which will be limited in scope of service and which are
designed to increase the Company's return on its investment. These new service
offerings could also impact average monthly revenue per domestic unit in
service. The Company cannot predict the extent to which any decline in average
monthly revenue per domestic unit in service will be offset by revenues from
value-added features, such as Caller ID and broadcast information services,
because of the Company's limited experience in offering such features.
The Company intends to focus significant efforts in 1999 on increasing the
market awareness for its advanced messaging and value-added services and
expanding its distribution network for advanced messaging services. The
Company also intends to continue to expand the distribution of its one-way
services through the promotion of products and services which more efficiently
utilize the capacity of the FLEX(R)-enabled one-way
21
<PAGE>
messaging network, such as the BeepWear(TM) pager watch and prepaid paging
services. The ability of the Company to continue to achieve improved operating
results will be dependent on the performance of the Company's existing
distribution channels, the successful implementation of new distribution
channels and the market acceptance of new value-added services. In addition,
the Company cannot predict the extent to which competitive advanced messaging
services or other competitive telecommunication services will impact the
Company's future operating results.
SkyTel's consolidated revenues during the three years ended December 31,
1998 included revenues recorded by the Company's international operations in
Argentina, Colombia, Costa Rica, Puerto Rico, Uruguay and Venezuela. Revenues
from the Company's international operations increased 4.2% in 1998 as compared
to 1997 and increased 51% in 1997 as compared to 1996. Revenues from
international operations reported by the Company in 1998 decreased, in part,
as a result of the transfer as of June 30, 1998 of the Company's Puerto Rican
operations from Mtel Latin America, Inc. ("Mtel Latam"), the holding company
for the Company's Latin American operations, to a wholly-owned domestic
operating subsidiary and the inclusion of the operating results of the Puerto
Rican operations as part of the Company's domestic one-way messaging business
segment as of such date. The increase in revenues in 1997 is primarily due to
the inclusion of revenues of RadioMensaje S.A.C. ("RadioMensaje"), a paging
company in Argentina which was acquired by Mtel Latam in June 1997. Excluding
the impact of RadioMensaje, international revenue growth would have been
approximately 23% in 1997 as compared to 1996.
The Company's operating results in Latin America in 1998 were impacted by
general economic conditions prevailing throughout the region, as well as
increased competition from cellular telephone and other telecommunications
services. In 1998, the Company began to introduce new product offerings in
certain countries in an effort to accelerate the development of the messaging
market in Latin America, and intends to continue these efforts in 1999. The
Company cannot predict the extent to which such new product offerings will be
successful, or the extent to which competitive services will continue to
affect future operating results of the Company's Latin American operations.
For the years ended December 31, 1998, 1997 and 1996, revenues from one-way
messaging operations in the United States provided approximately 66%, 83% and
89% of SkyTel's consolidated revenue, respectively. Revenues from advanced
messaging operations constituted 27%, 8% and 3% of consolidated revenues in
1998, 1997 and 1996, respectively. Revenues from international messaging
operations provided approximately 6%, 8% and 6% of SkyTel's consolidated
revenues in 1998, 1997 and 1996, respectively, and other SkyTel operations
provided approximately 1%, 1% and 2% of the Company's consolidated revenues in
1998, 1997 and 1996, respectively. See Note 9 of Notes to Consolidated
Financial Statements.
Expenses. Expenses include operating expenses, selling, general and
administrative expenses and depreciation and amortization.
Operating Expenses. Operating expenses primarily consist of telephone costs
and transmitter and receiver site rentals associated with the Company's one-
way and advanced messaging operations in the United States and one-way
operations in Latin America, as well as expenses associated with the
maintenance of the Company's domestic and international operating equipment
and facilities. On a consolidated basis, operating expenses increased 16% in
1998 as compared to 1997 and 8% in 1997 as compared to 1996. Operating
expenses in 1998 and 1997 included expenses recorded by the Company in
connection with certain 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 $9.3
million. These lease agreements, which are for a term of three years, resulted
in a decrease in the amount of capital expenditures for advanced messaging
devices incurred during the second half of 1997 and 1998. Operating expenses
in each of the three years ended December 31, 1998 also reflected increased
transmitter and receiver site rentals resulting from the continued expansion
of coverage of the Company's messaging networks in the United States,
increased device refurbishment costs, and increased telephone and system costs
associated with the increasing one-way and advanced messaging subscriber base
in the United States. As a percentage of revenues, operating expenses on a
consolidated basis decreased to 28% in 1998 as compared to 31% in 1997 and 33%
in 1996.
22
<PAGE>
Operating expenses related to the one-way messaging system in the United
States decreased 4% in 1998 as compared to 1997 and increased 9% in 1997 as
compared to 1996. Operating expenses related to advanced messaging operations
in the United States increased 68% in 1998 as compared to 1997 and increased
13% in 1997 as compared to 1996. Operating expenses of the Company's
international subsidiaries decreased 6% in 1998 as compared to 1997, and
increased 12% in 1997 as compared to 1996.
The Company expects to continue to incur increased operating expenses during
1999 and future periods, primarily as a result of the projected 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.
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 10% in 1998 as compared to 1997 and 1% in 1997 as compared to 1996.
The increase in 1998 primarily reflects increased advertising expenses
incurred in connection with the promotion of products and services on the
Advanced Messaging Network, and costs associated with the expansion of
customer support operations, such as customer service, operator dispatch and
billing and collections, to service the increasing number of units in service
on the Company's one-way and advanced messaging networks in the United States.
As a percentage of revenues, selling, general and administrative expenses on a
consolidated basis declined to 49% in 1998 as compared to 56% in 1997 and 65%
in 1996.
Selling, general and administrative expenses related to one-way messaging
operations in the United States increased 6% in 1998 as compared to 1997 and
decreased 3% in 1997 as compared to 1996. Selling, general and administrative
expenses related to the advanced messaging operations increased 33% in 1998 as
compared to 1997 and decreased 3% in 1997 as compared to 1996. International
selling, general and administrative expenses decreased 14% in 1998 as compared
to 1997 and increased 28% in 1997 as compared to 1996.
The Company anticipates that selling, general and administrative expenses on
a consolidated basis will continue to increase in 1999 and future periods as a
result of the Company's plans to significantly expand its direct sales force
in the United States and to continue to actively market and promote the
products and services on its Advanced Messaging Network. In addition, the
Company plans to open a second customer service and support center in the
Dallas/Ft. Worth area in 1999.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses on a consolidated basis decreased 1% in 1998 as compared to 1997 and
decreased 10% in 1997 as compared to 1996. In the third quarter of 1998, the
Company adopted Statement of Position 98-5, "Reporting on the Costs of Start-
Up Activities" (the "SOP"), effective as of January 1, 1998. The adoption of
the SOP resulted in a one-time, non-cash charge of $58.1 million of previously
capitalized start-up costs relating primarily to the development and
construction of the Advanced Messaging Network. As a result of the adoption of
the SOP, depreciation and amortization expenses were reduced by approximately
$10.0 million in 1998. See "Cumulative Effect of Change in Accounting
Principle" below. The decrease in depreciation and amortization expenses in
1997 is primarily due to a charge to depreciation expense recorded in 1996 of
approximately $7.3 million, which represented a writedown of the book value of
obsolete paging equipment to fair market value and an adjustment resulting
from a physical pager inventory reconciliation. As a percentage of revenues,
depreciation and amortization expenses on a consolidated basis were 17% in
1998 as compared to 22% in 1997 and 29% in 1996. Future depreciation and
amortization expenses will be dependent on the extent to which the Company
continues to pursue its strategy of encouraging customer-owned messaging
devices.
Impairment of Certain Long-Lived Assets. In 1995, the Financial Accounting
Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121, where
applicable, required that each long-lived asset be reviewed on an individual
23
<PAGE>
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 amount of
the impairment loss is the difference between the carrying amount of the
impaired asset and the fair value of 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. 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.
Operating Income (Loss). The Company reported consolidated operating income
of $33.2 million in 1998 as compared to a consolidated operating loss of $34.9
million in 1997 and a consolidated operating loss of $130.9 million in 1996.
One-way messaging operations recorded operating income of $90.0 million in
1998, $92.7 million in 1997 and $52.3 million in 1996. Advanced messaging
operations, recorded an operating loss of $36.4 million in 1998, $102.9
million in 1997 and $119.1 million in 1996, and international operations
recorded an operating loss of $14.9 million in 1998 as compared to $22.9
million in 1997 and $54.1 million in 1996. Future levels of operating income
will be dependent on the performance of the Company's existing distribution
channels, the successful implementation of new distribution channels and the
market acceptance of new value-added services. In addition, the Company cannot
predict the extent to which competitive advanced messaging services or other
competitive telecommunication services will impact the Company's future
operating results.
Interest Expense and Interest Income. Interest expense increased 0.03% in
1998 as compared to 1997 and increased 22% in 1997 as compared to 1996.
Interest expense during the three-year period ended December 31, 1998 includes
interest on $265 million principal amount of 13.5% Senior Subordinated
Discount Notes due 2002 (the "Senior Notes") issued in December 1994 and
interest on borrowings under the Company's bank credit facility, which were
$92.5 million as of December 31, 1998 as compared to $125.5 million as of
December 31, 1997. The increase in interest expense in 1997 reflects interest
accrued on $16 million principal amount of notes issued in connection with the
acquisition of RadioMensaje which was completed in June 1997.
See Note 5 of Notes to Consolidated Financial Statements regarding certain
interest rate swaps involving the Company's Senior Notes which were completed
in April 1998. These interest rate swaps did not affect the amount of interest
expense reported by the Company in 1998 with respect to the Senior Notes.
Interest expense in 1998, 1997 and 1996 was offset by interest income of
$1.2 million, $4.0 million and $6.2 million, respectively. Interest income in
1997 and 1996 represented income generated by the investment of the net
proceeds from the sale of the Senior Notes held in escrow for the payment of
interest on the Senior Notes. The amount held in escrow was eliminated with
the interest payment on the Senior Notes made on December 15, 1997.
Provision for Income Taxes. SkyTel reported a net loss on a consolidated
basis during each of the years ended December 31, 1998, 1997 and 1996 and,
accordingly, no provision for federal income taxes has been made for such
periods. See Note 1 of Notes to Consolidated Financial Statements for
information regarding the Company's net operating loss carryforwards. 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, 1998, 1997 and 1996 which
represented cash dividends on its $2.25 Cumulative Convertible Exchangeable
Preferred Stock (the "$2.25 Preferred Stock"). In addition, the Company
accrued approximately $2.1 million in 1998, $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 1996. Dividends on the PIK Preferred Stock in 1998
represent dividends accrued through May 15, 1998, the date on which all shares
of PIK Preferred Stock were converted by the holders thereof
24
<PAGE>
into 3.4 million shares of Common Stock of the Company. 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,
did not affect reported consolidated net income (loss), the amount of such
dividends were taken into account for the purpose of determining consolidated
net income (loss) per common share. See Note 7 of Notes to Consolidated
Financial Statements.
Equity in Income (Loss) from Investments. The Company generally records its
share of the operating results of its international joint ventures in which it
holds an equity interest of 20% to 50% using the equity method of accounting.
The Company recorded equity income attributable to such international joint
ventures of $2.2 million in 1998 as compared to an equity loss of $0.4 million
in 1997 and an equity loss of $1.4 million in 1996. The equity income in 1998
includes $3.6 million of equity income attributable to the Company's Mexican
joint venture which was offset by equity losses attributable to the Company's
other Latin American joint ventures.
Cumulative Effect of Change in Accounting Principle. In April 1998, the
Accounting Standards Executive Committee ("AcSEC") issued Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities." The SOP, which
is effective for fiscal years beginning after December 15, 1998, requires all
companies to expense, on or before March 31, 1999, all start-up costs
previously capitalized, and thereafter to expense all costs of start-up
activities as incurred. The SOP broadly defines start-up activities as one-
time activities related to the opening of a new facility, the introduction of
a new product or service, the commencement of business in a new territory, the
establishment of business with a new class of customer, the initiation of a
new process in an existing facility or the commencement of a new operation.
Prior to the issuance of the SOP, all companies had the option of capitalizing
or expensing costs associated with start-up activities in accordance with
generally accepted accounting principles. Early adoption of the SOP was
encouraged by the AcSEC.
The Company elected to adopt the SOP in the quarter ended September 30, 1998
and recorded a one-time, non-cash charge of $58.1 million, representing start-
up costs primarily incurred in conjunction with the development and
construction of the Company's Advanced Messaging Network. The adoption of the
SOP was effective as of January 1, 1998 and was recorded as a cumulative
effect of a change in accounting principle.
Net Income (Loss). The Company reported a consolidated net loss of $80.6
million in 1998 as compared to a consolidated net loss of $88.9 million in
1997 and $171.8 million in 1996, but reported consolidated net income of $1.8
million for the fourth quarter of 1998. The consolidated net loss in 1998
included the one-time, non-cash charge of $58.1 million resulting from the
adoption of the SOP. 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 $1.57 in 1998 as compared to
consolidated net loss per common share of $1.87 in 1997 and $3.38 in 1996.
The consolidated net loss in 1997 included a $2.2 million writedown of the
Company's remaining investments in the Asia Pacific region 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 from 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. which was acquired by Glenayre
Technologies, Inc. ("Glenayre"). The consolidated net losses in 1997 and 1996
were offset by gains of approximately $1.3 million and $6.6 million,
respectively, from the sale by the Company of shares of common stock of
American Mobile Satellite Corp. The consolidated net loss in 1996 included the
$38.8 million impairment loss and a net loss of approximately $4.2 million
recorded on the sale of the Company's 29% equity interest in Mercury Paging
Ltd. which operated in the United Kingdom.
The Company's one-way messaging operations reported net income of $85.2
million in 1998 as compared to net income of $87.2 million in 1997 and net
income of $48.3 million in 1996. The Company's advanced messaging operations
reported a net loss of $133.0 million (which included $52.8 million of the
non-cash charge resulting from the adoption of the SOP), $148.8 million and
$158.2 million in 1998, 1997 and 1996, respectively. International operations
reported a net loss of $23.8 million, $26.5 million and $65.0 million in 1998,
1997 and 1996, respectively.
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<PAGE>
Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to market risk from changes in foreign currency
exchange rates and interest rates, which could impact its results of
operations and financial condition. SkyTel manages its exposure to these
market risks through its regular operating and financing activities and, when
deemed appropriate, through the use of derivative financial instruments. The
Company uses derivative financial instruments as risk management tools and not
for speculative or trading purposes.
Foreign 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 many of the countries in which the Company has investments.
Interest Rates. The Company's policy is to manage interest rates through use
of a combination of fixed and variable rate debt. To manage this risk, the
Company has entered into certain interest rate swap agreements with respect to
the Senior Notes. See "Sources of Funds -- Senior Notes."
The table below provides information about the Company's risk exposure
associated with changing interest rates. All items described in thousands of
dollars.
<TABLE>
<CAPTION>
Long-term Debt
------------------------------------------
Average Average
Interest Interest
Expected Maturity Fixed Rate Rate Variable Rate Rate
----------------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C>
1999 1,500 8.00% -- --
2000 1,000 8.00% 42,500 7.40%
2001 4,506 8.00% 50,000 7.40%
2002 266,157 13.47% -- --
2003 -- -- -- --
-------- ----- ------- ----
Total $273,163 13.33% $92,500 7.40%
======== ===== ======= ====
Fair Value at 12/31/98 $308,688 $92,500
-------- -------
</TABLE>
Liquidity and Capital Resources
The Company has required substantial amounts of capital during the three-
year period ended December 31, 1998 to fund capital expenditures and working
capital requirements related to the expansion and operation of its one-way and
advanced messaging systems in the United States and its one-way messaging
systems in Latin America. The Company has funded its domestic capital
requirements during the three years ended December 31, 1998 with the net
proceeds from the sale of the Senior Notes and the PIK Preferred Stock,
borrowings under SkyTel Corp.'s bank credit facility, net cash provided by
operating activities and proceeds from the sale of certain non-strategic
assets. The Company intends to fund its domestic capital requirements in 1999
and future periods from net cash provided by operating activities and, to the
extent necessary, borrowings under SkyTel Corp.'s bank credit facility.
Mtel Latam has funded its capital requirements for the three years ended
December 31, 1998 primarily with the proceeds from the sale of equity
securities, the proceeds from the sale of its 19% equity interest in Brazil
which was completed in February 1997 and bank borrowings. The Company believes
that Mtel Latam's existing sources of funds described below will be adequate
to finance its capital requirements through the end of 1999. However, Mtel
Latam will be required to seek additional debt or equity financing in order to
repay the Latam Line of Credit (as defined below) and to fund its long-term
capital requirements, and there can be no assurance that Mtel Latam will be
able to complete any additional financings on terms acceptable to Mtel Latam,
if at all. If Mtel Latam is unable to secure such additional financing, Mtel
Latam would be required to seek an extension of the maturity date of the Latam
Line of Credit, and would be required to reduce its funding to certain
countries which could adversely affect Mtel Latam's results of operations and
prospects in Latin America.
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<PAGE>
Capital Requirements
OneWay Messaging. SkyTel incurred capital expenditures of $18.4 million,
$20.5 million and $67.5 million in 1998, 1997 and 1996, respectively, related
to the oneway messaging system in the United States. Approximately $12.1
million, $12.2 million and $43.4 million of these capital expenditures in
1998, 1997 and 1996, respectively, related to the procurement of messaging
devices for the Company's 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 included
a substantial number of high-speed FLEX pagers which were exchanged for
slower-speed POCSAG units then in service on the one-way messaging system in
the United States to alleviate capacity constraints on the one-way system.
As of December 31, 1998, the Company had no formal commitments for capital
expenditures related to the one-way messaging network, but management
anticipates that such capital expenditures in 1999 will be approximately $20.0
million to $30.0 million. A significant portion of these projected capital
expenditures will be used for the procurement of one-way messaging devices,
and projected capital requirements could vary based upon the net unit
additions placed in service by the Company's direct sales force on the one-way
messaging network.
Advanced Messaging. The Company incurred capital expenditures for
infrastructure equipment and messaging devices related to the Advanced
Messaging Network of $35.2 million, $45.9 million and $46.0 million in the
years ended December 31, 1998, 1997 and 1996, respectively. Approximately
$20.0 million, $34.2 million and $8.4 million of these capital expenditures in
1998, 1997 and 1996, respectively, related to the purchase of advanced
messaging devices. The balance of the capital expenditures in 1998 and 1997
was primarily used to purchase infrastructure equipment in connection with the
expansion of coverage of the Advanced Messaging Network, and the balance of
the capital expenditures in 1996 was primarily used to fund the Company's
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 1999 will total approximately $35.0 million to $45.0
million, a substantial portion of which will be used to fund the continued
expansion of network coverage. The balance of such projected capital
expenditures in 1999 will be used to procure advanced messaging devices. The
amount of capital expenditures in 1999 will be dependent on the extent to
which the Company continues to pursue its strategy of encouraging customer-
owned advanced messaging devices.
As of December 31, 1998, SkyTel had committed to purchase approximately $4.1
million of advanced messaging devices from Glenayre in 1999. As of December
31, 1998, SkyTel had also committed to purchase in 1999 approximately $9.8
million of advanced messaging devices and approximately $15.6 million of
infrastructure equipment for the Advanced Messaging Network from Motorola. The
commitments relating to the purchase of advanced messaging devices from
Glenayre and Motorola will be reduced by purchases made by the Company's
resellers.
The Company has undertaken a strategy to encourage customer owned and
maintained advanced messaging devices in order to reduce the amount of capital
expenditures incurred by the Company. The Company currently requires customers
to purchase certain advanced messaging devices which were introduced in 1998
and offers a twelve-month installment purchase option. In addition, in the
third quarter of 1997, the Company entered into an arrangement with a third-
party finance company to make financing available directly to customers under
a lease-to-own pager program. Under the lease-to-own program, the finance
company leases devices directly to the Company's customers and is paid a
monthly rental fee by the customer for two years. The customer has the
opportunity to purchase the device 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. Customer owned and maintained units in service on
the Advanced Messaging Network increased to 57% in 1998 as compared to 45% in
1997.
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 $9.3 million. The monthly lease
payments for these messaging units have been recorded as an operating expense
in the Company's financial statements during the term of these agreements, and
resulted in a decrease in the amount of capital expenditures during the second
half of 1997 and 1998.
27
<PAGE>
International. Approximately $6.0 million, $10.1 million and $12.4 million
was required in 1998, 1997 and 1996, respectively, to fund capital
expenditures and working capital requirements related to the Company's
operations in Argentina, Colombia, Puerto Rico, Uruguay, Costa Rica, Venezuela
and Hong Kong (which was sold in July 1997) where the licenses are held by
wholly-owned subsidiaries. The Company also provided capital of approximately
$0.8 million, $2.4 million and $8.1 million in 1998, 1997 and 1996,
respectively, to fund its proportionate share of capital required by the
international joint ventures in which it holds a 50% or less equity interest.
In addition, in June 1997, Mtel Latam acquired 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.
The Company estimates that it will require approximately $4.0 million to
$5.0 million in 1999 to fund working capital requirements and capital
expenditures of its Latin American subsidiaries and capital contributions to
its joint ventures in Latin America. However, this amount may vary depending
on the success of Mtel Latam's business strategy and the rate of its Latin
American development efforts.
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. The Company completed the sale of its operations in
Hong Kong and its equity interests in joint ventures that operated in China
and the Philippines in 1997, and currently holds minority investments in joint
ventures that operate in Indonesia and Malaysia. The Company did not require
any material amounts of capital for its operations in the Asia Pacific region
in 1998 and does not expect to require material amounts of capital for this
purpose in the future.
Sources of Funds
The Company recorded net cash provided by operating activities of $93.8
million and $30.1 million for the years ended December 31, 1998 and 1997,
respectively, and net cash used in operating activities of $47.6 million for
the year ended December 31, 1996. The net cash provided from operating
activities in 1998 and 1997 resulted primarily from the increase in the number
of units in service on the Company's one-way and advanced messaging networks.
In 1996, $33.0 million of the net cash used in operating activities reflected
changes in certain working capital accounts, including accounts receivable and
accounts payable.
Cash flows used in investing activities totaled $64.6 million, $32.6 million
and $54.3 million for the years ended December 31, 1998, 1997 and 1996,
respectively, and primarily represent capital expenditures and working capital
for the Company's domestic businesses. Cash flows used in investing activities
in 1997 also included the cash portion of the purchase price (US$16.0 million)
paid by Mtel Latam for RadioMensaje in Argentina. Cash flows used in investing
activities were offset in 1997 and 1996 by proceeds from asset dispositions.
Cash flows from financing activities for the years ended December 31, 1998
and 1997 reflected net cash used in financing activities of $32.1 million and
$3.4 million, respectively. Net cash used in financing activities in 1998 and
1997 reflected the repayment of $33.6 million and $11.3 million of long-term
debt, respectively, and the payment of cash dividends on the $2.25 Preferred
Stock. For the year ended December 31, 1996, the Company reported $118.0
million of net cash provided by financing activities, which reflected $70.0
million of borrowings under the SkyTel Corp. bank credit facility and $55.9
million of net proceeds from the sale of the PIK Preferred Stock.
Set forth below is a description of other major sources of capital available
to the Company during the three years ended December 31, 1998, as well as
sources of capital expected to be available to the Company in the future. The
following summary does not purport to be complete and is qualified in its
entirety by reference to the various agreements and documents which have been
filed or incorporated by reference in filings with the SEC.
Bank Credit Facility. In December 1995, SkyTel Corp., a wholly-owned
subsidiary of the Company, 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 Corp. is also provided with
access to letters of credit from Credit Lyonnais New York Branch in an amount
not to exceed $20.0 million. The Company may incur borrowings under the credit
facility until the maturity date of December 31, 2001, and such borrowings may
be used for capital expenditures, working capital and other general
28
<PAGE>
corporate purposes. During 1998, the Company repaid $33.0 million of
borrowings outstanding under the bank credit facility, and had borrowings
outstanding under the bank credit facility as of December 31, 1998 in the
amount of $92.5 million. In addition, letters of credit in the amount of $4.2
million had been issued under the bank credit facility as of December 31,
1998, and the borrowing availability has been reduced by a corresponding
amount. The Company's borrowing availability under the bank credit facility,
as amended, was $78.3 million as of December 31, 1998.
The $250.0 million total commitment to SkyTel Corp. under the bank credit
facility reduces quarterly commencing on March 31, 1999. The quarterly
reductions in the commitment are $22.5 million in each quarter in 1999,
$27.5 million in each quarter in 2000 and $12.5 million in 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 Corp. is
obligated to repay the amount of such excess. The bank 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 securities by
SkyTel, 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 SkyTel 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 bank credit facility is secured by a first
priority lien on, and security interest in, substantially all of the assets of
the Company, SkyTel Corp. 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 certain
covenants, including covenants limiting the incurrence of additional
indebtedness and restricting the payment of cash dividends by both SkyTel
Corp. and the Company; requires SkyTel Corp. 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 provide that SkyTel Corp. 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 Corp. under the bank credit
facility shall be assumed by the Company and SkyTel Corp. and each of the
subsidiary guarantors shall be released from their obligations under the bank
loan agreement.
PIK Preferred Stock. In April and May of 1996, the Company completed the
sale of 57,500 shares of the PIK Preferred Stock for an aggregate purchase
price of $57.5 million. The net 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.
Dividends accrued on the PIK Preferred Stock at an annual rate of 7.5% (or $75
per share of PIK Preferred Stock) and were payable in the form of additional
shares of PIK Preferred Stock. Each share of PIK Preferred Stock was
convertible into shares of Common Stock of the Company at conversion prices
ranging from $17.90 to $18.19 per share.
In May 1998, the Company made an offer to the holders of its PIK Preferred
Stock in order to encourage the voluntary conversion of the PIK Preferred
Stock into Common Stock of the Company. The Company agreed to reduce the
conversion price of the PIK Preferred Stock by 0.81% for any holder who
converted shares of PIK Preferred Stock into Common Stock of the Company on or
before May 15, 1998. The holders of the PIK Preferred Stock converted all the
outstanding shares of PIK Preferred Stock, together with all shares of PIK
Preferred Stock accrued as dividends as of the date of conversion, into an
aggregate of 3.4 million shares of Common Stock of the Company. As a result of
the conversion, the Company is no longer required to accrue dividends on the
PIK Preferred Stock. See Note 7 of Notes to Consolidated Financial Statements.
Senior Notes. In December 1994, SkyTel issued $265.0 million principal
amount of 13.5% Senior Subordinated Discount Notes due December 15, 2002 in an
underwritten public offering. The net proceeds received by SkyTel 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
a deposit of $93.6 million to purchase a portfolio of U.S. government
securities to provide for the payment of interest on the Senior Notes through
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<PAGE>
December 15, 1997, were used by the Company for capital expenditures,
development costs 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. 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 or
consolidations. The indenture also contains customary cross default
provisions.
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 5 of Notes to Consolidated Financial
Statements for additional information relating to the terms of the Senior
Notes.
In April 1998, the Company entered into certain interest rate swap
agreements with respect to the Senior Notes. These agreements involve the
exchange of interest obligations on fixed and floating interest rate debt
without the exchange of the underlying principal amounts. The agreements have
varying maturities but in no instance exceed the maturity date of the Senior
Notes. The interest rate swap agreements establish an effective interest rate
of 10.75% on the Senior Notes through December 15, 2000. During the period
from December 15, 2000 to December 15, 2002, the Company will be required to
make payments to the swap counterparty in an amount equal to 12.07% multiplied
by the principal amount of the Senior Notes plus a redemption premium of
6.75%. During this period, the Company will receive an amount equal to the
three-month London Interbank Offered Rate ("LIBOR") plus 1% (6.07% as of
December 31, 1998) multiplied by the principal amount of the Senior Notes plus
a redemption premium of 6.75%. The Company is continuing to record an amount
equal to 13.5% of the principal amount of the Senior Notes as interest expense
in its consolidated statements of operations.
International. 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.
In January 1999, Mtel Latam completed the sale of 10,000 shares of
Cumulative Accruing Pay-In-Kind Preferred Stock ("Latam Preferred Stock") for
a total purchase price of $10,000,000. The Latam Preferred Stock accrues
dividends, which are payable in the form of additional shares of Latam
Preferred Stock, at an annual compounded rate of 25% or $250 per share the
first year, 30% or $300 per share the second year and 35% or $350 per share
the third year and will accrue quarterly. The Latam Preferred Stock ranks
senior to the common stock of Mtel Latam with respect to dividend rights and
rights upon liquidation. The Latam Preferred Stock is redeemable, in whole or
in part, at the option of Mtel Latam, at any time after the first anniversary
of the issuance date, at a redemption price of $1,010 for each share to be
redeemed, plus an amount equal to all accrued but unpaid dividends. The holder
of the Latam Preferred Stock may require Mtel Latam to redeem the Latam
Preferred Stock upon the occurrence of certain events, including the merger or
consolidation of Mtel Latam, the completion of an initial public offering by
Mtel Latam or the occurrence of a change of control of Mtel Latam. In
addition, Mtel Latam may not incur aggregate indebtedness for borrowed money
in excess of $20 million so long as the Latam Preferred Stock remains
outstanding.
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Mtel Latam maintains a secured revolving line of credit with Credit Lyonnais
New York Branch (the "Latam Line of Credit"). Under the Latam Line of Credit,
as amended, 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" or LIBOR (as such terms are defined in the agreement relating to the
Latam Line of Credit, as amended) 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 December 31, 1999 or
earlier at the discretion of Credit Lyonnais New York Branch. As of December
31, 1998, Mtel Latam had borrowings of $20.0 million outstanding under the
Latam Line of Credit at an average interest rate of 11.2%, which were used to
fund capital expenditures and working capital requirements in 1998 and to
repay $8.0 million principal amount of debt securities issued in connection
with the acquisition of RadioMensaje that matured in June 1998. Approximately
$6.5 million of the net proceeds from the sale of the Latam Preferred Stock in
January 1999 was used to repay a portion of the indebtedness outstanding under
the Latam Line of Credit.
Disposition of NonStrategic 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 restrictions imposed under the
SkyTel Corp. bank credit facility and the indenture relating to the Senior
Notes, the disposition of certain assets. The Company completed the
disposition of various domestic and international assets which resulted in
gross proceeds to the Company of $10.4 million in 1997 and $35.3 million in
1996.
Year 2000 Readiness
Overview. It is difficult to pick up a business publication today that does
not discuss the implications of the Year 2000 ("Y2K"). The Y2K issue exists
because many computer systems and applications, including those embedded in
equipment and facilities, use two-digit rather than four-digit date fields to
designate an applicable year. As a result, the systems and applications
utilized by certain companies may not properly recognize the Year 2000, or
certain dates prior or subsequent thereto, or process data which includes a
reference to the Year 2000, potentially causing data miscalculations or
inaccuracies, or operational malfunctions or failures.
Since late 1997, the Company has devoted significant efforts to address Y2K
issues. The Company has developed a comprehensive, company-wide plan to
identify, evaluate and remediate Y2K issues (the "Y2K Project Plan") and has
established a Y2K Project Office to coordinate the implementation of the
Company's Y2K Project Plan. The Company has also established a cross-
functional steering committee, which is comprised of management personnel from
key departments in the Company, that is responsible for oversight of Y2K
readiness activities. The Y2K Project Office and steering committee report to
the Company's Senior Vice President-Finance and Chief Financial Officer. The
Company has retained a third-party consulting firm to assist the Company in
evaluating the methodology contained in, and the completeness of, the Y2K
Project Plan.
The Company's Y2K Project Plan is focused on those areas which are critical
to maintaining uninterrupted service to the Company's customers and includes
network systems, applications and infrastructure for the provision of one-way
and advanced messaging services and business information systems and
applications. In addition, the Y2K Project Plan includes a review of the Y2K
readiness of the Company's vendors, resellers, suppliers and other third
parties who have material relationships with the Company and its subsidiaries
(collectively, "External Parties"). The major phases of the Company's Y2K
Project Plan with respect to each of these categories include an inventory of
all hardware and software components with possible date implications, an
assessment of the Y2K readiness of all inventory items, the remediation of all
Y2K issues which have been identified in the assessment phase, and validation-
testing and certification as to Y2K readiness of any items requiring
remediation. A consulting firm has been retained by the Company to
independently validate the Y2K testing procedures utilized by the Company and
to conduct an independent review of the Company's Y2K readiness in certain
mission-critical areas.
Status. The Company's Y2K Project Plan with respect to its network
operations in the United States includes hardware and software components of
the one-way and advanced messaging network operation centers, transmitters,
receivers and other equipment comprising the radio frequency ("RF")
infrastructure of the
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<PAGE>
Company's messaging networks which are located at more than 4,400 sites
throughout the United States, and one-way and advanced messaging subscriber
devices. The Company has completed the inventory and assessment phases and has
completed approximately 98% of the remediation and validation-
testing/certification phases for the mission-critical hardware and software
components of the Company's one-way and advanced messaging network operation
centers. The Company intends to continue to conduct periodic Y2K testing of
its network operation centers during the remainder of 1999.
The Company has substantially completed the inventory and assessment phases
and is approximately 80% complete with the remediation phase of its Y2K
Project Plan that relates to the information technology portion of its RF
infrastructure. The Company has completed internal testing of those RF
infrastructure components which it has identified to date as requiring
remediation and has scheduled final testing of all RF infrastructure
components in conjunction with the manufacturers of its infrastructure
equipment in the second quarter of 1999. In addition, the Company is working
with the manufacturers of its RF infrastructure equipment to develop
additional testing procedures to ensure the synchronization of certain
mission-critical infrastructure components with the network operation centers.
The Company expects that these additional testing procedures will also be
completed in the second quarter of 1999.
The Company has been working with the manufacturers of one-way and advanced
messaging subscriber devices in order to confirm the Y2K readiness of such
devices. Based upon validation-testing conducted directly by the Company as
well as testing conducted in conjunction with the device manufacturers, the
Company has confirmed that all subscriber devices utilized on its networks are
Y2K compliant in all material respects, with the exception of approximately
100,000 older models of subscriber devices currently in use on the Company's
networks. Certain of these models will require manual reordering of message
files on January 1, 2000 and others will require manual resetting of the
calendar function on March 1, 2000, but the ability of these devices to
receive messages transmitted through the Company's network will not be
impacted. The Company has included information regarding the date issues
involving such models of subscriber devices on the SkyTel Y2K Web site.
The Company's Y2K Project Plan for its business information systems and
applications involves all hardware and software components which relate to
major internal business and administrative functions, such as customer
service, billing, inventory, and credit and collections. In early 1998, the
Company retained a software engineering consulting firm to assist the Company
in the assessment and remediation phases related to the Company's business
information systems, software and applications. The Company has completed the
inventory phase, and estimates that over 90% of the assessment phase and over
70% of the remediation phase of its mission-critical hardware and software
comprising its business systems has been completed. The Company estimates that
it has completed over 30% of the validation-testing/certification phase for
its business information systems and applications and expects this phase to be
completed on or before June 30, 1999. The remediation effort relating to
certain of the Company's business systems involves the decommissioning of
certain hardware and software and the installation of new hardware and
software which has been certified as Y2K compliant. A significant portion of
the remaining remediation and validation-testing/certification phases of the
Y2K Project Plan related to the Company's business information systems and
applications will be completed when such new hardware and software is
installed in the second quarter of 1999.
The Company has completed the inventory and assessment phases of the Y2K
Project Plan with respect to the operations conducted by its subsidiaries in
Latin America. Since the Company licenses its one-way messaging network
operations software to such subsidiaries and the one-way messaging networks in
Latin America generally use equipment, including subscriber devices, and
software of the type utilized by the Company's one-way messaging network in
the United States, the Company intends to apply the experience obtained in
remediating and testing its domestic one-way network operations center, RF
infrastructure and subscriber devices in Latin America. As a result, the
schedule for the remediation and validation-testing/certification phases of
the Y2K Project Plan related to the Latin American operations was structured
to take advantage of the Company's domestic experience. The Company estimates
that Mtel Latam has completed approximately 50% of the remediation phase and
has completed approximately 30% of the validation-testing/certification phase
for the mission-critical components of
32
<PAGE>
the network operation centers, RF infrastructure and subscriber devices of its
Latin American subsidiaries. The Company expects to substantially complete
such phases on or before June 30, 1999.
The Company participated with a third-party vendor in the development of the
business information software which is used by the Company's Latin American
subsidiaries. The Company has completed the inventory and assessment phases
and estimates that it has completed approximately 70% of the remediation and
validation-testing/certification phases with respect to the business systems
and applications used by its Latin American operations. Mtel Latam expects to
complete these phases on or before June 30, 1999.
Mtel Latam has minority investments in joint ventures in certain countries
in Latin America which interconnect with the Company's international network.
Although Mtel Latam does not control or designate the management of these
joint ventures, Mtel Latam is assisting the management teams of these joint
ventures in their Y2K readiness efforts and is encouraging such management
teams to adopt a methodology similar to the Y2K Plan adopted by the Company.
These joint ventures also license the Company's one-way messaging network
operations software and use equipment similar to that used by the Company's
subsidiaries in Latin America, and processes utilized by Mtel Latam in
completing the Y2K Project Plan for its Latin American subsidiaries will be
made available to these joint ventures.
External Parties. The Company is working directly with various mission-
critical External Parties such as its major equipment vendors,
telecommunications service providers, local radio common carriers and
resellers to assess and certify Y2K readiness, and has conducted or intends to
conduct testing procedures with certain of these External Parties in order to
confirm Y2K readiness. In addition, the Company has identified and prioritized
other External Parties that provide equipment and services to the Company for
purposes of assessing their Y2K readiness and has forwarded inquiries to more
than 5,000 other External Parties in order to obtain reasonable assurance of
their Y2K readiness. The Company intends to assess all the responses it
receives from External Parties to evaluate Y2K readiness and to forward
follow-up communications when appropriate. The Company is also using the
Internet as a resource for determining the Y2K readiness of External Parties.
The Company is scheduled to complete its evaluation of the Y2K readiness of
External Parties by mid-year 1999, although this will be dependent on the
efforts of the External Parties. The Company also plans to further communicate
with certain External Parties during the second half of 1999 for purposes of
additional follow-up reviews, as appropriate.
Contingency Plans. Contingency planning to maintain and restore service in
the event of natural disasters or technical problems has been part of the
Company's standard operating procedures, and the Company intends to leverage
this experience in the development of contingency plans related to the
Company's Y2K readiness. The Company has also retained a nationally recognized
contingency planning consulting firm to perform a business risk assessment and
impact analysis and to assist the Company in preparing a contingency plan for
its critical business functions and processes. The contingency plan will
include: (i) a business impact analysis designed to identify and quantify the
potential impact on the Company in the event of an interruption of normal
business operations; (ii) an incident management plan to be used by senior
management and support personnel when responding to incidents that might
interrupt or impact the Company's ability to maintain normal business
operations; and (iii) business resumption plans and procedures to address
interruptions or failures of the Company's essential functions and services,
such as network operations and infrastructure, business systems and
applications or those provided by mission-critical External Parties. The
Company expects to complete and finalize its contingency plan by June 30,
1999.
Costs. The Company's estimate of the total cost of its Y2K readiness
efforts, based on amounts expended or committed to date, plus estimated
amounts of additional remediation costs, is approximately $5.0 million to
$10.0 million, of which approximately $2.0 million has been incurred through
December 31, 1998. The estimated Y2K costs have not been independently
verified and may vary in the event of unforeseen Y2K remediation costs or
costs related to the implementation of the Company's contingency plans which
have not yet been completed. Certain costs budgeted for the procurement of
upgrades or replacements of the Company's network and business information
systems have not been included in this amount since these upgrades or
replacements were being
33
<PAGE>
made by the Company independent of Y2K readiness. In addition, the estimated
Y2K costs do not include the Company's internal costs, such as compensation
and benefits of employees delegated Y2K responsibilities, since such costs are
not internally allocated by the Company. The Company expects to fund its Y2K
compliance efforts with cash flows from operations.
The failure by the Company or certain External Parties to achieve Y2K
readiness with respect to any mission-critical aspect of the Company's
business could result in an interruption in, or a failure of, certain normal
operations or business activities of the Company. Such failures could
materially and adversely affect the Company's results of operations, financial
condition or liquidity. For example, the Company's networks are interconnected
with, or dependent upon, systems operated by third parties, including
telecommunications service providers and public utilities, and the ability of
the Company's networks to operate is dependent on these External Parties.
Since External Parties are responsible for addressing their own Y2K readiness,
the Company is unable to determine at this time whether any Y2K-related
interruptions or failures will occur or the extent to which any such
interruptions or failures might have a material impact on the Company's
results of operations, financial condition or liquidity. The Company's Y2K
Project Plan is expected to reduce the level of uncertainty regarding the
Company's Y2K readiness and the Y2K readiness of External Parties. The Company
believes that, as the Y2K Project Plan described above progresses, the
possibility of significant interruptions or failures of the Company's
operations as a result of Y2K issues should be substantially reduced.
Certain information regarding the Company's Y2K readiness activities
constitutes forward-looking statements under the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are based upon certain
assumptions, and there can be no assurance that the Company's expectations
will be achieved, that there will not be delays or increased costs associated
with the Company's Y2K readiness activities or that the Company will be
successful in remediating all Y2K issues. Factors that could impact the
success of the Company's Y2K Project Plan include the availability of
personnel trained in specified technical areas involved in the Company's
businesses, the ability to locate and correct all relevant software code in
its network and business systems that could be affected by the Year 2000 and
the successful remediation of Y2K issues by mission-critical External Parties
such as telecommunications service providers or energy companies.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement, which applies to all entities, establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value. SFAS No. 133 is effective for financial statements for fiscal years
beginning after June 15, 1999. SkyTel intends to comply with this statement
and has not yet determined the impact of SFAS No. 133 on its consolidated
financial statements.
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Financial Statements--
Balance Sheets--December 31, 1997 and 1998............................... F-3
Statements of Operations for the three years ended December 31, 1998..... F-4
Statements of Comprehensive Income for the three years ended December 31,
1998.................................................................... F-5
Statements of Changes in Stockholders' Investment for the three years
ended December 31, 1998................................................. F-6
Statements of Cash Flows for the three years ended December 31, 1998..... F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
34
<PAGE>
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 1999 Annual Meeting of
Stockholders.
35
<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 those 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 on Form 10-K.
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 may be 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 SEC 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 Certificate of Amendment of Restated Certificate of
Incorporation of the Company filed May 30, 1996 with the
Secretary of State of the State of Delaware (Exhibit
4.20 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996)........................... I/B/R
3.3 Certificate of Amendment of the Restated Certificate of
Incorporation of the Company filed May 22, 1998 with the
Secretary of State of the State of Delaware (Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998)............................ I/B/R
3.4 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
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
------- ----------- ----------
<C> <S> <C>
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
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 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>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
------- ----------- ----------
<C> <S> <C>
4.15 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
4.16 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, 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
4.17 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
4.18 Amendment No. 5 dated as of October 20, 1998 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. ................................
4.19 Specimen Stock Certificate of the Company (filed as
Exhibit 4.27 to the Registration Statement of the
Company of Form S-8 filed on May 28, 1998).............. 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
10.3* 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
10.4* 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
10.5* 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
10.6* 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
10.7 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
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
------- ----------- ----------
<C> <S> <C>
10.8* 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
10.9* 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
10.10* 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
10.11 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
10.12* 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
10.13 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
10.14 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
10.15* 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
10.16 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
10.17 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
10.18 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
10.19 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
10.20 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
10.21* 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
10.22* 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
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
------- ----------- ----------
<C> <S> <C>
10.23* 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
10.24 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 Purchaser (Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1997)............................................... I/B/R
10.25 Form of Bridge Note of Mtel Latin America, issued as of
June 27, 1997 in the aggregate Amount of US$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
10.26 Form of Promissory Note of Mtel Argentina S.A., issued as
of June 27, 1997 in the aggregate amount of US$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
10.27 Pledge Agreement dated June 27, 1997 by Mtel Latin
America, Inc., as Pledgor, in favor of 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
10.28 Revised Form of Reseller Agreement.......................
10.29* 1998 Outside Directors' Stock Option Plan (Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998)............................ I/B/R
10.30* Form of Stock Option Agreement under the 1998 Outside
Directors' Stock Option Plan (filed as Exhibit 99.1 of
the Registration Statement of the Company on Form S-8
filed on May 28, 1998).................................. I/B/R
10.31 Amended and Restated Credit Facility dated as of December
31, 1998 between Mtel Latin America, Inc. and Credit
Lyonnais New York Branch ...............................
10.32 Amended and Restated Demand Promissory Note of Mtel Latin
America, Inc. issued as of December 31, 1998 in the
aggregate amount of US$20,000,000.......................
10.33 Stock Purchase Agreement dated as of January 28, 1999 by
and between Mtel Latin America, Inc. and Microsoft
Corporation.............................................
10.34 Form of Change of Control and Severance Benefits
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.
40
<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.
Skytel Communications, Inc.
/s/ John T. Stupka
By: _________________________________
John T. Stupka
President and Chief Executive
Officer
Date: March 25, 1999
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, 1999
______________________________________ Officer and Director
John T. Stupka (Principal Executive
Officer)
/s/ Robert Kaiser Senior Vice President- March 25, 1999
______________________________________ Finance and Chief
Robert Kaiser Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Haley Barbour Director March 22, 1999
______________________________________
Haley Barbour
/s/ Thomas G. Barksdale Director March 22, 1999
______________________________________
Thomas G. Barksdale
/s/ Jai P. Bhagat Director March 25, 1999
______________________________________
Jai P. Bhagat
/s/ Gregory B. Maffei Director March 25, 1999
______________________________________
Gregory B. Maffei
/s/ John N. Palmer Chairman of the Board March 25, 1999
______________________________________
John N. Palmer
/s/ R. Faser Triplett Director March 25, 1999
______________________________________
R. Faser Triplett
/s/ R. Gerald Turner Director March 22, 1999
______________________________________
R. Gerald Turner
/s/ E. Lee Walker Director March 25, 1999
______________________________________
E. Lee Walker
/s/ John E. Welsh III Director March 25, 1999
______________________________________
John E. Welsh III
</TABLE>
41
<PAGE>
SKYTEL COMMUNICATIONS, INC. 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, 1997 and 1998 .............................. F-3
Statements of Operations for the three years ended December 31, 1998 .... F-4
Statements of Comprehensive Income for the three years ended December 31,
1998 ................................................................... F-5
Statements of Changes in Stockholders' Investment for the three years
ended December 31, 1998 ................................................ F-6
Statements of Cash Flows for the three years ended December 31, 1998 .... F-7
Notes to Consolidated Financial Statements .............................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of SkyTel Communications, Inc.:
We have audited the accompanying consolidated balance sheets of SkyTel
Communications, Inc., formerly Mobile Telecommunication Technologies Corp., (a
Delaware corporation) and subsidiaries as of December 31, 1997 and 1998, and
the related consolidated statements of operations, comprehensive income,
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 SkyTel Communications,
Inc. and subsidiaries as of December 31, 1997 and 1998, and the results of
their operations and their cash flows for each of the years in the three year
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 1998, the Company changed its method of accounting for start-up
activities.
ARTHUR ANDERSEN LLP
Jackson, Mississippi,
February 17, 1999.
F-2
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1998
------------- ------------
<S> <C> <C>
Assets:
Current assets-
Cash and cash equivalents....................... $ 19,812,116 $ 17,000,752
Accounts receivable, net of allowance for
losses......................................... 53,790,128 49,553,165
Assets held for sale............................ 2,173,375 2,050,233
Other current assets............................ 3,179,697 5,395,254
------------- ------------
Total current assets.......................... 78,955,316 73,999,404
------------- ------------
Messaging networks-
Property and equipment, net..................... 281,243,829 260,702,952
Certificates of authority and license cost, net. 150,102,050 142,741,719
Network construction and development costs, net. 84,406,804 21,644,749
------------- ------------
Total messaging networks...................... 515,752,683 425,089,420
------------- ------------
Goodwill, net..................................... 106,164,387 102,089,718
Investment in unconsolidated international
ventures......................................... 16,786,882 11,797,993
Other assets...................................... 24,085,628 20,220,290
------------- ------------
$ 741,744,896 $633,196,825
============= ============
Liabilities and Stockholders' Investment:
Current liabilities-
Current maturities of long-term debt............ $ 1,021,526 $ 1,000,900
Accounts payable................................ 28,925,887 35,567,612
Accrued liabilities............................. 61,164,411 63,621,537
Notes payable................................... 22,000,000 20,000,000
------------- ------------
Total current liabilities..................... 113,111,824 120,190,049
------------- ------------
Long-term liabilities............................. 7,187,943 --
Long-term debt, net of current maturities......... 398,231,558 364,662,400
Minority interest................................. 26,879,386 24,399,687
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 1997 and 1998
($187,500,000 aggregate liquidation value);
7.5% Cumulative Convertible Accruing PIK
Preferred Stock; shares outstanding: 52,500 in
1997 and 0 in 1998............................. 38,025 37,500
Common stock, par value $.01 per share;
100,000,000 shares authorized; shares
outstanding: 55,032,602 in 1997 and 60,024,227
in 1998........................................ 550,326 600,242
Additional paid-in capital...................... 619,464,704 638,583,669
Accumulated deficit............................. (418,711,968) (509,859,814)
Cumulative translation adjustment............... (5,006,902) (5,416,908)
------------- ------------
Total stockholders' investment................ 196,334,185 123,944,689
------------- ------------
$ 741,744,896 $633,196,825
============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1997 1998
-------------- ------------- ------------
<S> <C> <C> <C>
Revenues:
U.S. operations................. $ 330,239,055 $ 377,366,364 $486,303,850
International operations........ 20,289,596 30,601,443 31,989,980
-------------- ------------- ------------
350,528,651 407,967,807 518,293,830
Expenses:
Operating....................... 115,784,932 124,492,192 144,330,086
Selling, general and
administrative................. 226,984,752 228,234,200 251,546,104
Depreciation and amortization... 99,938,576 90,174,824 89,197,166
Writedown of international and
other assets................... 38,768,024 -- --
-------------- ------------- ------------
481,476,284 442,901,216 485,073,356
-------------- ------------- ------------
Operating income (loss)........... (130,947,633) (34,933,409) 33,220,474
Interest income................... 6,229,680 4,020,984 1,210,345
Interest expense.................. (45,144,814) (55,122,860) (55,136,790)
Gain (loss) on sales of assets.... 2,367,976 3,740,970 (772,536)
Other income (expense)............ 295,176 (1,171,021) 211,181
-------------- ------------- ------------
Loss before income taxes and
equity income (loss)............. (167,199,615) (83,465,336) (21,267,326)
Provision for income taxes........ 2,720,982 4,845,976 3,450,288
Equity in income (loss) from
investments...................... (1,901,311) (555,200) 2,209,723
-------------- ------------- ------------
Net loss before cumulative effect
of a change in accounting
principle........................ (171,821,908) (88,866,512) (22,507,891)
Cumulative effect of a change in
accounting principle............. -- -- (58,128,849)
-------------- ------------- ------------
Net loss.......................... $ (171,821,908) $ (88,866,512) $(80,636,740)
Preferred dividend requirement.... 11,594,803 13,044,810 10,511,106
-------------- ------------- ------------
Net loss to common stockholders... $ (183,416,711) $(101,911,322) $(91,147,846)
============== ============= ============
Net loss per common share
Basic........................... $ (3.38) $ (1.87) $ (1.57)
============== ============= ============
Diluted......................... $ (3.38) $ (1.87) $ (1.57)
============== ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1997 1998
-------------- ------------- ------------
<S> <C> <C> <C>
Net loss.......................... $ (171,821,908) $ (88,866,512) $(80,636,740)
Other comprehensive income (loss),
net of tax Foreign currency
translation adjustments.......... 894,115 (4,408,595) (410,006)
-------------- ------------- ------------
Comprehensive loss................ (170,927,793) (93,275,107) (81,046,746)
Preferred dividend requirement.... 11,594,803 13,044,810 10,511,106
-------------- ------------- ------------
Comprehensive loss to common
stockholders..................... $ (182,522,596) $(106,319,917) $(91,557,852)
============== ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Cumulative
------------------ ------------------- Paid-In Accumulated Translation
Shares Amount Shares Amount Capital Deficit Adjustment
--------- ------- ---------- -------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
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)
Net loss............... -- -- -- -- -- (80,636,740) --
Preferred stock
dividend requirement.. -- -- -- -- -- (10,511,106) --
Exercise of stock
options............... -- -- 1,461,575 14,616 7,798,372 --
Conversion of
convertible
subordinated debt into
common stock.......... -- -- 3,100 31 30,969 -- --
Employee stock purchase
plan.................. -- -- 105,309 1,053 1,449,265 -- --
Conversion of PIK
preferred stock into
common stock.......... (52,500) (525) 3,421,641 34,216 9,227,855 --
Issuance of restricted
stock................. -- -- -- -- 612,504 -- --
Currency translation
adjustment............ -- -- -- -- -- -- (410,006)
--------- ------- ---------- -------- ------------ ------------- -----------
Balance, December 31,
1998................... 3,750,000 $37,500 60,024,227 $600,242 $638,583,669 $(509,859,814) $(5,416,908)
========= ======= ========== ======== ============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1997 1998
------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating
Activities:
Net loss.......................... $(171,821,908) $(88,866,512) $(80,636,740)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization... 99,938,576 90,174,824 89,197,166
Provision for losses on accounts
receivable and paging
inventory...................... 17,222,560 21,360,283 21,136,578
Amortization of debt issuance
costs.......................... 2,112,642 2,468,177 2,528,462
Write-off of start-up costs..... -- -- 58,128,849
Capitalized interest charge..... -- -- 3,566,429
Foreign currency transaction
(gain) loss.................... 660,799 (342,756) 79,407
(Gain) loss on sales of assets.. (2,367,976) (3,740,970) 772,536
Minority interest (income) loss. (955,975) 1,343,795 (3,006,570)
Equity in (income) loss from
investments.................... 1,901,311 555,200 (2,209,723)
Write-down of international and
other assets................... 38,768,024 -- --
Change in assets and
liabilities:
Increase in accounts
receivable................... (11,197,945) (3,810,138) (5,310,287)
Decrease in assets held for
sale......................... -- 3,631,102 21,690
(Increase) decrease in other
current assets............... 4,503,940 2,135,058 (1,997,465)
Increase (decrease) in
accounts payable, accrued
liabilities and notes
payable...................... (26,337,743) 5,206,615 11,574,669
------------- ------------ ------------
Net Cash Provided By (Used In)
Operating Activities............. (47,573,695) 30,114,678 93,845,001
------------- ------------ ------------
Cash Flows From Investing
Activities:
Proceeds from asset sales......... 67,729,578 39,806,156 2,220,329
Capital expenditures.............. (118,586,932) (87,121,176) (68,048,087)
Acquisition of Argentinean paging
company.......................... -- (16,000,000) --
Increase in investment in
unconsolidated international
ventures......................... (19,588,525) (4,543,331) (528,950)
Decrease in other assets.......... 16,138,064 35,243,217 1,800,189
------------- ------------ ------------
Net Cash Used In Investing
Activities......................... (54,307,815) (32,615,134) (64,556,519)
------------- ------------ ------------
Cash Flows From Financing
Activities:
Principal payments on long-term
debt............................. (2,014,661) (11,269,400) (33,569,158)
Issuance of debt.................. 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.................... 2,572,071 2,274,748 9,906,812
Issuance of PIK preferred stock... 55,893,590 -- --
------------- ------------ ------------
Net Cash Provided By (Used In)
Financing Activities............... 118,013,500 (3,432,152) (32,099,846)
------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents................... 16,131,990 (5,932,608) (2,811,364)
Cash and cash equivalents-beginning
of year............................ 9,612,734 25,744,724 19,812,116
------------- ------------ ------------
Cash and cash equivalents-end of
year............................... $ 25,744,724 $ 19,812,116 $ 17,000,752
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
SkyTel Communications, Inc. ("SkyTel" or the "Company"), formerly Mobile
Telecommunication Technologies Corp., is a leading provider of nationwide
messaging services in the United States. SkyTel'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. The Company's wholly-owned subsidiary, SkyTel Corp.,
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 utilized
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 SkyTel. The
Company's 100%-owned subsidiary, SkyTel Corp. (formerly known as Destineer
Corp.), holds the FCC license utilized by this network.
SkyTel, 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. SkyTel also provides its subscribers
with access to an international messaging network that utilizes SkyTel'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.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of SkyTel and its majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents--SkyTel considers all cash investments purchased
with a maturity of three months or less to be cash equivalents. As of December
31, 1998, cash and cash equivalents of approximately $3.3 million were
restricted for use by Mtel Latin America, Inc. ("Mtel Latam"), the holding
company for SkyTel's Latin American operations and investments.
Accounts Receivable--Accounts receivable balances are presented net of
allowances for losses. SkyTel's allowance for losses was $20.4 million as of
December 31, 1997 and $22.8 million as of December 31, 1998.
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-8
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Goodwill--Goodwill represents the excess cost over net tangible assets
acquired. 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. In 1995, the
Company acquired the 9.7% of the outstanding shares of SkyTel Corp. Common
Stock and the 19.9% of the outstanding shares of Destineer Common Stock that
it did not already own. Goodwill at December 31, 1998 is primarily
attributable to these transactions. Accumulated amortization related to
goodwill at December 31, 1997 and 1998 was $7.4 million and $11.5 million,
respectively.
Interest Capitalization--In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 34, SkyTel 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 year ended December
31, 1996 was $6.1 million. The Company did not capitalize any interest costs
during 1997 or 1998.
Revenue Recognition--Service and rental revenues are recorded at the time of
customer usage. The sales of messaging units are recognized at the time of
sale, net of unit costs.
Per Share Amounts--For purposes of calculating per share losses, SkyTel 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 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 1996, 1997
and 1998 were 54,304,109, 54,604,100 and 57,934,287, 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--SkyTel's deferred tax asset as of December 31, 1998 is
primarily attributable to the tax effect of cumulative net operating loss
carryforwards for federal income tax purposes of $176.6 million which expire
in various amounts during the period 2003 through 2013. 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
for income taxes in 1996, 1997 and 1998 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, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Deferred tax asset........................... $ 170,894,000 $ 195,686,000
Deferred tax liability....................... (35,746,000) (31,699,000)
Valuation allowance.......................... (135,148,000) (163,987,000)
------------- -------------
Net deferred tax asset....................... $ -- $ --
</TABLE>
F-9
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments--The carrying amounts at December 31,
1997 and 1998 for cash, accounts receivable, accounts payable, accrued
liabilities, variable rate long-term debt and the RadioMensaje notes payable
are reasonable estimates of their fair values. For 1997 and 1998, 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. See Note 5.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
------------------------- -------------------------
Carrying Carrying
Value Fair Value Value Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
13.5% Senior Notes......... $265,000,000 $306,075,000 $265,000,000 $300,775,000
6.75% Convertible
Debentures................ 1,188,000 2,613,600 1,157,000 2,560,441
</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 8.
Use of Estimates--Financial statements prepared in accordance with generally
accepted accounting principles require the use of management estimates. Actual
results could differ from these 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.
Recently Issued Accounting Standards--In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133--"Accounting for Derivative Instruments
and Hedging Activities." This statement, which applies to all entities,
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS No. 133 is effective for
financial statements for fiscal years beginning after June 15, 1999. SkyTel
intends to comply with this statement and has not yet determined the impact of
SFAS No. 133 on its consolidated financial statements.
Prior Year Balances--Certain reclassifications have been made to previously
reported balances to conform to the current year presentation.
(2) MESSAGING NETWORKS:
During 1998, SkyTel 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, 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 9 for additional information
concerning the Company's business segments.
F-10
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment--Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Land........................................ $ 528,001 $ 336,207
Buildings................................... 1,598,737 570,955
Communications equipment.................... 325,637,010 358,302,811
Other....................................... 104,055,692 106,528,073
------------- -------------
431,819,440 465,738,046
Accumulated depreciation.................... (150,575,611) (205,035,094)
------------- -------------
$ 281,243,829 $ 260,702,952
============= =============
</TABLE>
Depreciation expense in 1996 included a charge of approximately $7.3 million
associated with the 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--Costs of certificates of
authority are primarily associated with the acquisition of one-way paging 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, 1997 and 1998 was $15.7 million and $15.4
million, respectively.
SkyTel Corp. 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 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.
Network Construction and Development Costs--Network construction and
development costs represent the costs associated with the construction and
development of the one-way and advanced messaging networks. These costs
include software development 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, 1997 and 1998 was $40.6 million and $31.7
million, respectively.
Statement of Position 98-5--In April 1998, the Accounting Standards
Executive Committee ("AcSEC") issued Statement of Position 98-5 ("SOP"),
"Reporting on the Costs of Start-Up Activities." The SOP, which is effective
for fiscal years beginning after December 15, 1998, requires all companies to
expense, on or before March 31, 1999, all start-up costs previously
capitalized, and thereafter to expense all costs of start-up activities as
incurred. Early adoption of the SOP was encouraged by the AcSEC. Prior to the
issuance of the SOP, SkyTel capitalized costs associated with start-up
activities in accordance with generally accepted accounting principles. The
SOP broadly defines start-up activities as one-time activities related to the
opening of a new facility, the introduction of a new product or service, the
commencement of business in a new territory, the establishment of business
with a new class of customer, the initiation of a new process in an existing
facility or the commencement of a new operation. The Company elected to adopt
the SOP in 1998 and recorded a one-time, non-cash charge of $58.1 million,
representing start-up costs primarily incurred in conjunction with the
development and construction of the Company's Advanced Messaging Network. The
adoption of the SOP was effective as of January 1, 1998 and was recorded as a
cumulative effect of a change in accounting principle.
F-11
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(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 121
requires analysis of each asset on an individual basis, where applicable,
versus the analysis of the aggregate asset values 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. The Company recorded a $2.2 million loss to write down the
carrying value of its remaining investments in the Asia Pacific region. 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 a loss on sales of assets in the Company's
consolidated financial statements for the year ended December 31, 1997.
(4) LATIN AMERICAN AND OTHER INTERNATIONAL INVESTMENTS:
SkyTel has equity investments in unconsolidated joint ventures that operate
one-way messaging systems outside the United States. Costs incurred by the
Company in establishing these international joint ventures include property
and equipment, software development costs and other costs of establishing
business operations. SkyTel 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.
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.
Capitalization of 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 effects of this transaction are reflected within
minority interest on SkyTel's balance sheet. SkyTel 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, SkyTel 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
SkyTel Common Stock based on the then fair market value of the Mtel Latam
Common Stock upon the
F-12
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
On July 1, 1998 Mtel Latam transferred 100% of the outstanding shares of its
wholly-owned subsidiary, Mtel Puerto Rico, Inc. ("Mtel Puerto Rico") to a
wholly-owned subsidiary of SkyTel. As a result of this transaction, SkyTel's
ownership interest in Mtel Latam was reduced from 80% to 76%, and the
ownership interest in Mtel Latam held by Newbridge was increased from 20% to
24%. Effective in the third quarter of 1998, the results of operations of Mtel
Puerto Rico were included in the results of operations for the Company's
domestic one-way messaging segment. Prior to July 1998, the results of
operations of Mtel Puerto Rico were included in the results of operations of
the Company's international segment.
Mtel Latam provides one-way messaging services through majority-owned
subsidiaries in Argentina, Colombia, Costa Rica, Uruguay and Venezuela.
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 35% 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 $1.8 million, $4.5 million and $3.6 million for the years ended
December 31, 1996, 1997 and 1998, respectively, from its investment in CMtel.
As of December 31, 1997 and 1998, the carrying value of Mtel Latam's
investment in CMtel was $9.8 million and $10.4 million, respectively.
Other Mtel Latam Investments--At December 31, 1998, Mtel Latam held 50% or
less equity investments in international joint ventures in the Dominican
Republic, Ecuador, El Salvador, Guatemala and Paraguay. As of December 31,
1997 and 1998, the carrying value of Mtel Latam's investment in 50% or less
owned investments accounted for using the equity method, other than CMtel, was
approximately $6.4 million and $4.7 million, respectively. Aggregate losses
from 50% or less owned investments accounted for using the equity method,
other than CMtel, were approximately $2.9 million, $3.8 million and $1.2
million for the years ended December 31, 1996, 1997 and 1998, respectively. At
December 31, 1997 and 1998, Mtel Latam had no net investment in international
joint ventures which were not in commercial operation.
Sale of Equity Interest in Brazilian Joint Venture--In February 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 received 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--In June 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. Debt securities with a principal amount of approximately $8.0
million were issued by Mtel Latam. These notes were repaid in May 1998. The
remaining $8.0 million principal amount of debt securities was issued by Mtel
Argentina S.A., a wholly-owned subsidiary of Mtel Latam. The cash portion of
the purchase price was funded directly by Mtel Latam, independent of SkyTel.
F-13
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other Investments--During 1997, the Company completed the sale of its 100%-
owned Hong Kong subsidiary for an aggregate purchase price of $1.7 million and
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 currently holds minority equity investments in joint ventures
operating in Indonesia and Malaysia, its remaining interests in the Asia
Pacific region. 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.
In July 1996, the Company completed the sale of its 29% equity interest in
Mercury Paging Ltd. ("MPL"), which operated in the United Kingdom, and
received net pre-tax proceeds of approximately $26.4 million. The Company
recorded a net after-tax loss on the sale of its equity interest in MPL of
approximately $4.2 million. SkyTel recorded equity income from MPL of
approximately $0.7 million for the year ended December 31, 1996. MPL was
considered a non-strategic asset because it did not operate on the 931 MHz
frequency in the United Kingdom.
(5) DEBT:
A summary of debt is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998
------------ ------------
<S> <C> <C>
13.5% Senior Subordinated Discount Notes due
2002......................................... $265,000,000 $265,000,000
Bank credit facility.......................... 125,500,000 92,500,000
6.75% Convertible Subordinated Debentures due
2002......................................... 1,188,000 1,157,000
Notes payable--RadioMensaje................... 7,501,500 7,006,300
Other notes payable........................... 63,584 --
------------ ------------
399,253,084 365,663,300
Less current maturities....................... 1,021,526 1,000,900
------------ ------------
$398,231,558 $364,662,400
============ ============
</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
began funding interest payments on the Senior Notes commencing with the
interest payment paid 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 redemption price, commencing on December 15, 1999, is 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 Company is required to offer to repurchase the Senior Notes at a
purchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest in the event of a "change of control" of the Company as
defined in the indenture relating to the Senior Notes. The Senior Notes are
senior obligations of the Company and rank senior in right of
F-14
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
In April 1998, the Company entered into certain interest rate swap
agreements with respect to the $265 million outstanding principal amount of
its Senior Notes. These agreements involve the exchange of interest
obligations on fixed and floating interest rate debt without the exchange of
the underlying principal amounts. The agreements have varying maturities but
in no instance exceed the maturity date of the Senior Notes. The interest rate
swap agreements establish an effective interest rate of 10.75% on the Senior
Notes through December 15, 2000. During the period from December 15, 2000 to
December 15, 2002, the Company will be required to make payments to the swap
counterparty in an amount equal to 12.07% multiplied by the principal amount
of the Senior Notes plus a redemption premium of 6.75%. During this period,
the Company will receive an amount equal to the 3-month London Interbank
Offered Rate ("LIBOR") plus 1% (6.07% at December 31, 1998) multiplied by the
principal amount of the Senior Notes plus a redemption premium of 6.75%. The
Company is continuing to record an amount equal to 13.5% of the principal
amount of the Senior Notes as interest expense in its consolidated statements
of operations.
Bank Credit Facility--SkyTel Corp. has a $250.0 million secured revolving
credit facility (the "bank credit facility") with a final maturity date 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 bore interest at the option of SkyTel Corp. at (i) the
alternate base rate (as defined in the credit facility) plus 2% or (ii) the
London Interbank Offered Rate ("LIBOR") plus 3%, through December 31, 1997.
Borrowings thereafter bear interest at the option of SkyTel Corp. 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 Corp. for the two preceding
quarters. The borrowings outstanding at December 31, 1998 carried a 7.4%
average interest rate as of that date. Borrowings under the bank credit
facility are guaranteed by SkyTel and its U.S. subsidiaries and are secured by
a first priority lien and security interest in substantially all of the assets
of SkyTel Corp., SkyTel and SkyTel's other U.S. subsidiaries, including
pledges of capital stock and notes evidencing intercompany indebtedness.
In March 1997, SkyTel Corp. 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
F-15
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
credit facility, as amended, contains 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
Corp. and the Company, and requires SkyTel Corp. 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 October 1997 and October 1998, SkyTel Corp. and the Bank Group
completed further amendments to the bank credit facility which modified
certain covenants. The amendments included the elimination of the covenant
requiring the maintenance of a prescribed number of one-way messaging units in
service and the elimination of the requirement to sell certain assets in Asia
for certain minimum proceeds. 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 Corp. 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 Corp. under the
bank credit facility shall be assumed by the Company and SkyTel Corp. and each
of the subsidiary guarantors shall be released from their obligations under
the bank loan agreement. At December 31, 1998, SkyTel and SkyTel Corp. 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 Corp. 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
Corp. 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 SkyTel,
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 SkyTel of any subordinated debt, but only to the
extent that the cumulative amount of such net proceeds exceeds $90.0 million.
As of December 31, 1998, the Company's borrowing availability was $78.3
million.
The Company did not incur any additional borrowings under the bank credit
facility during the years ended December 31, 1997 and 1998. The outstanding
balance of the bank credit facility was $125,500,000 and $92,500,000 at
December 31, 1997 and 1998, respectively, and was reduced by $10.0 million and
$33.0 million during each of the respective years.
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. As of
December 31, 1998, the holders of the Debentures have converted $85.1 in
aggregate principal into SkyTel Common Stock. Of this total, $82.2 million was
converted in 1994 pursuant to a conversion offer made by the Company. During
the years 1992 through 1998, the holders of the Debentures have converted an
additional $2.9 million in aggregate principal amount of Debentures into
SkyTel Common Stock. The aggregate principal amount of the Debentures for the
years ended December 31, 1997 and 1998 was $1,188,000 and $1,157,000 ,
respectively. 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--Mtel Argentina S.A., a wholly-owned subsidiary
of Mtel Latam, issued $8.0 million principal amount of debt securities in
connection with the purchase of RadioMensaje. See Note 4. 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. The balance on these notes at
December 31, 1997 and 1998 was $7,501,500 and $7,006,300, respectively.
Latam Notes Payable--In addition to long-term debt, SkyTel's current
liabilities reflect notes payable of Mtel Latam of $22,000,000 and $20,000,000
at December 31, 1997 and 1998, respectively. In December 1997,
F-16
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
December 31, 1999 or earlier at the discretion of Credit Lyonnais New York
Branch. As of December 31, 1998, Mtel Latam had borrowings of $20.0 million
outstanding under the Latam Line of Credit at an average interest rate of
11.2%, which is reflected as current notes payable on the Company's
consolidated balance sheet as of December 31, 1998.
(6) COMMITMENTS AND CONTINGENCIES:
At December 31, 1998, SkyTel was committed under noncancelable operating
leases expiring on various dates. The leases are primarily for the rental of
office space and antenna sites. Annual commitments for rental payments on such
leases in each of the years ending December 31, 1999 through 2003 and
thereafter are as follows:
<TABLE>
<CAPTION>
Minimum Rental
---------------------------------
Year Payments
---- -----------
<S> <C>
1999................. $48,988,000
2000................. 36,624,000
2001................. 20,993,000
2002................. 13,983,000
2003................. 8,357,000
Thereafter........... 6,948,000
</TABLE>
Rental expense for operating leases was approximately $38.1 million, $43.1
million and $50.3 million during the years ended December 31, 1996, 1997 and
1998, 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, 1998, SkyTel had committed to purchase approximately $4.1
million of messaging units for the Advanced Messaging Network from Glenayre
Technologies, Inc. ("Glenayre") in 1999. SkyTel had also committed to purchase
in 1999 approximately $9.8 million of advanced messaging units and
approximately $15.6 million of infrastructure for the continued expansion of
coverage of the Advanced Messaging Network from Motorola, Inc. ("Motorola").
The commitments with Glenayre and Motorola to purchase advanced messaging
units may be satisfied through purchases by the Company's resellers.
In February 1997, certain litigation was filed in the United States District
Court for the District of Columbia against the Company, its wholly-owned
subsidiary SkyTel Corp., and seven current and former officers and directors.
The complaint alleged certain violations of the Securities Exchange Act of
1934, as amended, during the period January 19, 1995 through February 22,
1996. The plaintiffs sought unspecified damages and to have the case certified
as a class action. In December 1997, the United States District Court for the
District of Columbia granted a motion dismissing SkyTel Corp. as a defendant
in the litigation, and in January 1998 transferred the case to the United
States District Court for the Southern District of Mississippi. On May 4,
1998,
F-17
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Company entered into an agreement in principle to settle this litigation
without any admission of liability on the part of the Company or any of the
individual defendants. Under the terms of the agreement in principle, SkyTel
agreed to make a cash payment of approximately $1.9 million into a settlement
fund. In addition, SkyTel's directors' and officers' liability insurer
separately agreed to make a cash contribution to a settlement fund. The
Company recorded a charge to other expenses in its consolidated statements of
operations in the amount of $2.8 million related to the costs of this
litigation and the proposed settlement. On August 1, 1998, the plaintiffs, the
Company and the individual defendants executed a stipulation of settlement,
and the settlement received final approval from the United States District
Court for the Southern District of Mississippi on November 6, 1998.
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. In the opinion
of management, none of these other matters is expected to have a material
adverse effect upon the financial condition or results of operations of the
Company.
(7) STOCKHOLDERS' INVESTMENT:
In July 1989, SkyTel declared a dividend of one stock purchase right for
each outstanding share of SkyTel Common Stock. Under certain conditions, each
right may be exercised to purchase from SkyTel one one-hundredth of a share of
SkyTel 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 SkyTel Common
Stock or after commencement of a tender offer or exchange offer for 20% or
more of the outstanding shares of SkyTel Common Stock. The purchase rights,
which do not have voting rights, expire in August 1999 and may be redeemed by
SkyTel at a price of $.01 per right at any time prior to their expiration or
the acquisition of 20% of the outstanding shares of SkyTel Common Stock. In
the event that SkyTel is acquired in a merger or other business transaction
not approved by the SkyTel Board of Directors, each holder of a right shall
have the right to receive that number of shares of SkyTel 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 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, would
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.
F-18
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In April and May 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. Dividends on the
PIK Preferred Stock accrued at an annual rate of 7.5% (or $75 per share of PIK
Preferred Stock) and were payable in additional shares of PIK Preferred Stock.
Cumulative unpaid dividends on the PIK Preferred Stock of $7.2 million had
been accrued from the date of original issuance and were reflected as long-
term liabilities on the Company's consolidated balance sheet as of December
31, 1997.
In May 1998, the Company made an offer to the holders of the PIK Preferred
Stock in order to encourage the voluntary conversion of the PIK Preferred
Stock into Common Stock of the Company. The Company agreed to reduce the
conversion price of the PIK Preferred Stock by 0.81% for any holder who
converted shares of PIK Preferred Stock into Common Stock of the Company on or
before May 15, 1998. The holders of the PIK Preferred Stock converted all the
outstanding shares of PIK Preferred Stock, together with all shares of PIK
Preferred Stock accrued as dividends as of the date of conversion, into an
aggregate of 3.4 million shares of Common Stock of the Company. As a result of
the conversion, the Company no longer accrues approximately $4.5 million of
annual stock dividends on the PIK Preferred Stock. Although dividends on the
PIK Preferred Stock were not treated as an expense on the Company's
consolidated statements of operations and, therefore, did not affect reported
net income, such dividends were deducted from net income for the purpose of
determining net income (loss) per common share.
(8) EXECUTIVE INCENTIVE PLANS AND STOCK-BASED COMPENSATION:
SkyTel's executive incentive plans (the "Executive Incentive Plans") provide
for the granting of stock options, stock appreciation rights, performance
units and restricted stock to officers and employees for a maximum of
8,500,000 shares of SkyTel Common Stock. Under the Executive Incentive Plans
options may be granted to purchase shares of SkyTel Common Stock at a price
not less than the fair market value on the date of grant. Option rights issued
prior to January 1, 1996 generally become exercisable as to 33 1/3% of the
shares of SkyTel 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 issued on or
after January 1, 1996 generally become exercisable as to 25% of the shares of
SkyTel 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 Executive
Incentive Plans.
SkyTel also has adopted a Long-Term Management Incentive Plan (the "Long-
Term Incentive Plan") which 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 SkyTel'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. SkyTel has reserved 500,000 shares from its
authorized but unissued shares of common stock for awards pursuant to the
Long-Term Incentive Plan. No awards have yet been earned under the Long-Term
Incentive Plan.
The Company's 1993 Employee Stock Purchase Plan (the "Stock Purchase Plan")
authorizes the granting of options to purchase up to 500,000 shares of SkyTel
Common Stock to the Company's employees. All employees of the Company and its
subsidiaries who are not executive officers of the Company and who have
F-19
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
been employed for six months or more are eligible to elect to be granted
options under the Stock Purchase Plan. The purchase price for optioned stock
will be the lesser of (a) 85 percent of the fair market value of the common
stock on the date of grant or (b) 85 percent of such fair market value on the
date of exercise of the option. Employees may elect to have up to 10 percent
of their compensation withheld from their pay and applied to purchase SkyTel
Common Stock under the Stock Purchase Plan. A total of 109,193 and 105,309
shares of common stock of the Company was issued under the Stock Purchase Plan
during 1997 and 1998, respectively.
In March 1998, the Board of Directors of the Company adopted the 1998
Outside Directors' Stock Option Plan (the "Outside Directors' Plan"). The
Outside Directors' Plan provides each non-employee director with (i) a grant
of non-qualified options to purchase 10,000 shares of SkyTel Common Stock upon
his or her initial election as a director of the Company, (ii) an annual grant
of non-qualified options to purchase shares of SkyTel Common Stock, with the
number of shares of common stock based upon achievement of certain performance
criteria, and (iii) the right to receive non-qualified options to purchase
shares of SkyTel Common Stock in lieu of receiving annual directors' fees in
cash. Option rights granted under the Outside Directors' Plan become
exercisable in accordance with terms similar to options granted under the
Executive Incentive Plans. There was no compensation expense attributable to
these options.
Prior to the adoption of the Outside Directors' Plan SkyTel had also granted
directors who are not officers of SkyTel 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
Executive Incentive Plans. 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 1996, 1997 and
1998 in accordance with SFAS No. 123, the Company's net loss and net loss per
share would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------ ------------
<S> <C> <C> <C>
Net loss--As reported................ $(171,821,908) $(88,866,512) $(80,636,740)
Net loss--Pro forma.................. $(177,675,832) $(92,489,747) $(83,945,140)
Net loss per share--As reported...... $ (3.38) $ (1.87) $ (1.57)
Net loss per share--Pro forma........ $ (3.49) $ (1.93) $ (1.63)
</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>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Expected life........................................... 5 years 4 years 4 years
Risk-free interest rate................................. 6.22% 6.59% 5.10%
Expected volatility..................................... 53% 55% 68%
Dividend yield.......................................... -0- -0- -0-
</TABLE>
The weighted average fair value of options granted during 1996, 1997 and
1998 was $7.25, $3.52 and $12.06 per share, respectively.
F-20
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
Number Average Number Average Average
of Exercise Of Exercise Number Exercise
Options Price Options Price Of Options Price
--------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 4,481,781 $12.13 4,821,435 $11.54 4,679,212 $11.01
Granted............... 1,333,500 13.32 294,478 7.07 368,540 21.55
Exercised............. (204,093) 16.16 (85,625) 16.80 (1,447,687) 5.19
Canceled.............. (789,753) 19.34 (351,076) 16.06 (194,125) 15.66
Outstanding, end of
year................... 4,821,435 $11.54 4,679,212 $11.01 3,405,940 14.19
</TABLE>
Options to purchase 2,468,439 shares of common stock were outstanding and
exercisable at an average exercise price of $14.15 per share at December 31,
1998.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ---------------------
Range of Number Weighted Avg. Wtd. Avg. Number Wtd. Avg.
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/98 Contractual Life Price at 12/31/98 Price
-------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$2 to $12 1,704,500 5.1 yrs $ 8.91 1,189,500 $ 8.39
$13 to $23 1,617,940 6.4 yrs $18.94 1,204,439 $18.84
$24 to $34 83,500 7.0 yrs $29.75 74,500 $30.36
</TABLE>
(9) SEGMENT INFORMATION:
SkyTel has adopted SFAS No. 131--"Disclosures about Segments of an
Enterprise and Related Information." The Company is organized based on the
products and services that it offers and geographically for all international
units. Under this organizational structure, the Company operates in three
principal areas: domestic one-way messaging operations, domestic advanced
messaging operations and international messaging operations. In 1998, the
Company's "other" category is primarily composed of air-to-ground
telecommunications operations. In 1997 and 1996, the "other" category included
telephone answering services and air-to-ground telecommunications operations.
Effective July 1, 1998, the results of Mtel Puerto Rico are included in the
results of operations for the Company's domestic one-way messaging segment.
Prior to July 1, 1998, the results of operations of Mtel Puerto Rico were
included in the Company's international messaging segment. See Note 4.
A summary of operations for Mtel Puerto Rico is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, Six Months Ended
-------------- ---------------------
June
30, December 31,
1996 1997 1998 1998
----- ------- ------- ------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C>
Revenues................................. $ 89 $ 1,319 $ 1,890 $ 1,780
Operating cashflow....................... (858) (3,294) (1,239) (1,002)
Depreciation and amortization............ 89 462 250 511
Interest income.......................... 54 176 36 3
Interest expense......................... -- -- -- 103
Provision for income taxes............... -- -- -- --
Cumulative effect of a change in
accounting principle.................... -- -- (391) --
Net loss................................. $(893) $(3,580) $(1,843) $(1,632)
</TABLE>
F-21
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For purposes of reporting net 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.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. See Note 1.
SEGMENT PROFIT AND LOSS AND SEGMENT ASSETS
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------------------
One-Way Advanced International
Messaging Messaging Messaging Other Consolidated
--------- --------- ------------- ------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $345,339 $ 138,233 $ 31,990 $ 2,732 $518,294
Operating cashflow...... 134,596 749 (7,801) (5,126) 122,418
Depreciation and
amortization........... 44,893 37,106 7,064 134 89,197
Interest income......... 3 -- 475 732 1,210
Interest expense........ 108 43,748 8,504 2,777 55,137
Equity in income from
investments............ -- -- 2,210 -- 2,210
Provision for income
taxes.................. 3,043 -- 406 -- 3,449
Cumulative effect of a
change in accounting
principle.............. -- (52,791) (5,338) -- (58,129)
Net income (loss)....... $ 85,210 $(132,994) $(23,750) $(9,103) $(80,637)
Total assets............ 188,278 319,069 69,514 56,336 633,197
Capital expenditures.... 18,400 35,210 3,430 11,008 68,048
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-------------------------------------------------------
One-Way Advanced International
Messaging Messaging Messaging Other Consolidated
--------- --------- ------------- ------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $338,022 $ 33,178 $ 30,602 $6,166 $407,968
Operating cashflow...... 131,995 (60,756) (14,785) (1,213) 55,241
Depreciation and
amortization........... 39,270 42,163 8,140 602 90,175
Interest income......... -- -- 3,417 604 4,021
Interest expense........ 68 45,797 8,186 1,072 55,123
Equity in income (loss)
from investments....... -- -- (362) (193) (555)
Provision for income
taxes.................. 4,004 42 735 65 4,846
Net income (loss)....... $ 87,223 $(148,756) $(26,460) $ (873) $(88,866)
Total assets............ 211,808 376,892 89,214 63,831 741,745
Capital expenditures.... 20,478 45,915 7,963 12,765 87,121
</TABLE>
F-22
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-------------------------------------------------------
One-Way Advanced International
Messaging Messaging Messaging Other Consolidated
--------- --------- ------------- ------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $311,601 $ 9,593 $ 20,289 $9,046 $ 350,529
Operating cashflow...... 108,150 (82,179) (16,327) (1,885) 7,759
Depreciation and
amortization........... 51,458 33,083 10,315 5,083 99,939
Writedown of
international and other
assets................. 4,440 3,830 27,462 3,036 38,768
Interest income......... -- -- 1,205 5,025 6,230
Interest expense........ 1,490 39,566 7,304 (3,215) 45,145
Equity in income (loss)
from investments....... -- -- (1,405) (496) (1,901)
Provision (benefit) for
income taxes........... 1,913 (455) 337 926 2,721
Net income (loss)....... $ 48,306 $(158,203) $(65,001) $3,076 $(171,822)
Total assets............ 263,437 377,628 70,980 91,215 803,260
Capital expenditures.... 67,493 45,969 2,637 2,488 118,587
</TABLE>
GEOGRAPHIC INFORMATION
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
1996 1997 1998
----------------- ----------------- -----------------
Long- Long- Long-
Lived Lived Lived
Revenues Assets Revenues Assets Revenues Assets
-------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Domestic................. $330,240 $645,465 $377,366 $593,565 $486,304 $505,042
International............ 20,289 55,527 30,602 69,224 31,990 54,155
-------- -------- -------- -------- -------- --------
Consolidated........... $350,529 $700,992 $407,968 $662,789 $518,294 $559,197
======== ======== ======== ======== ======== ========
</TABLE>
(10) QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected unaudited quarterly financial data is as follows:
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31,
------------------ ------------------ ------------------ ------------------
1997 1998 1997 1998 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 94,622 $121,514 $ 94,908 $126,120 $105,236 $132,643 $113,202 $138,017
Operating income (loss). $(10,689) $ 3,190 $(10,357) $ 5,676 $ (8,095) $ 10,531 $ (5,793) $ 13,823
Cumulative effect of a
change in accounting
principle.............. $ -- $ 58,129 $ -- $ -- $ -- $ -- $ -- $ --
Net income (loss)....... $(21,437) $(68,068) $(23,141) $ (9,673) $(22,177) $ (4,705) $(22,111) $ 1,809
Net income (loss) per
common share........... $ (0.45) $ (1.29) $ (0.49) $ (0.22) $ (0.47) $ (0.11) $ (0.46) $ (0.01)
</TABLE>
Net loss per share is calculated by dividing the net loss to common
stockholders 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.
F-23
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid by SkyTel during the years ended December 31, 1996, 1997 and
1998 amounted to $46.6 million, $51.9 million and $46.7 million, respectively.
No federal income taxes were paid during these years. See Note 4 for
information on the $16.0 million non-cash portion of the acquisition of an
Argentine paging company in 1997.
F-24
<PAGE>
SKYTEL COMMUNICATIONS, INC. 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
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and Accounts end of
Description of period expenses written off Deductions period
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
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
1998.................. 20,379,314 20,149,011 17,778,005 0 22,750,320
</TABLE>
FA-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of SkyTel Communications, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of SkyTel Communications, Inc., formerly
Mobile Telecommunication Technologies Corp., included in this Form 10-K, and
have issued our report thereon dated February 17, 1999. 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 17, 1999.
FA-3
<PAGE>
Exhibit 4.18
AMENDMENT NO. 5 (the "Amendment") dated as of October 20,
1998 to the Credit, Security, Guaranty and Pledge Agreement
dated as of December 21, 1995 (the "Agreement"), among
SKYTEL CORP., a Delaware corporation ("SkyTel"), SKYTEL
COMMUNICATIONS, INC. (formerly known as Mobile
Telecommunication Technologies Corp.), a Delaware
corporation ("Mtel"), the Subsidiaries of Mtel referred to
therein, the lenders referred to therein (the "Lenders"),
THE CHASE MANHATTAN BANK (formerly known as Chemical Bank),
as administrative agent for the Lenders (the "Administrative
Agent"), CREDIT LYONNAIS NEW YORK BRANCH, as documentation
agent, and J.P. MORGAN SECURITIES INC. and CIBC, INC., as
co-syndication agents.
INTRODUCTORY STATEMENT
----------------------
All capitalized terms not otherwise defined in this Amendment are used
herein as defined in the Agreement.
The Borrower has presented the Lenders with a revised business plan
and operating strategy which includes the consolidation of the one-way paging
services provided by SkyTel and U.S. Paging and the advanced narrow-band
personal communication services provided by Destineer and the merger of SkyTel
and U.S. Paging into Destineer (the "Proposed Merger"). In connection
therewith, the Borrower has requested that the Agreement be amended to modify
certain provisions of the Agreement as hereinafter set forth.
In consideration of the mutual agreements contained herein and other
good and valuable consideration, the parties hereto hereby agree as follows:
SECTION 1. Amendment to the Agreement. Subject to the provisions of
--------------------------
Section 2 hereof, the Agreement is hereby amended effective as of the Amendment
Effective Date or the Merger Effective Date, as the case may be (such terms
being used herein as defined in Section 2 hereof) as follows:
(A) The words "SkyTel Corp., a Delaware corporation" appearing in the
opening paragraph thereof is hereby amended to read "SkyTel Corp. (formerly
known as Destineer Corporation, successor by merger to SkyTel Corp. and United
States Paging Corporation), a Delaware corporation."
<PAGE>
(B) The definition of "Consolidated EBITDA" appearing in Article 1 of
the Agreement is hereby amended by deleting the proviso appearing at the end of
clause (e) appearing therein.
(C) The definition of "Destineer Licenses" appearing in Article 1 of
the Agreement is hereby amended by changing each reference to "Destineer"
appearing therein to "SkyTel".
(D) The definition of "Material Adverse Effect" appearing in Article 1
of the Agreement is hereby amended by (i) deleting the words "or Destineer's"
and "or Destineer" appearing in clause (d) thereof and (ii) changing the
reference to "Destineer" appearing in the second proviso to "SkyTel".
(E) The definition of "Pagers" appearing in Article 1 hereof is hereby
amended in its entirety to read as follows:
"'Pagers' shall mean pagers or personal messaging units of SkyTel."
------
(F) Sections 3.24, 5.14, 5.16(b), 6.23, 7(l) and 7(m) of the Agreement
are each hereby amended by changing all references to "Destineer" appearing
therein to "SkyTel".
(G) Sections 5.16(b) and 6.23 of the Agreement are each further
amended by changing all references to "national two-way messaging system" and
"two-way personal communication services" appearing therein to "advanced narrow-
band personal communication services".
(H) Section 5.1(a) of the Agreement is hereby amended by (x) deleting
the phrase "SkyTel and U.S. Paging on a combined basis" in each instance that it
appears in such Section 5.1(a) and replacing such phrase with the word "SkyTel",
(y) deleting the words "SkyTel and Destineer" appearing in clause (i) and
inserting in lieu thereof the words "the one-way paging business of SkyTel and
the advanced narrow-band personal communication business of SkyTel" and (z)
deleting the words "each of SkyTel and U.S. Paging" appearing in subclause (A)
and inserting in its place the word "SkyTel".
(I) Section 5.1(b) of the Agreement is hereby amended by deleting the
phrase "SkyTel and U.S. Paging on a combined basis" in each instance that it
appears in such Section 5.1(b) and replacing such phrase with the word "SkyTel".
(J) Section 5.1(e) of the Agreement is hereby amended by (x) deleting
the words "SkyTel and Destineer" appearing in clause (ii) and inserting in lieu
thereof the words "the one-way paging business of SkyTel and the advanced
narrow-band personal communication business of SkyTel" and (y) deleting the
phrase "SkyTel and U.S. Paging on a combined basis" appearing in clause (iv) and
replacing such phrase with the word "SkyTel".
-2-
<PAGE>
(K) Section 5.1(i) of the Agreement is hereby amended by deleting the
words "combined financial plan of SkyTel and U.S. Paging" and inserting in lieu
thereof the words "financial plan of SkyTel".
(L) Clause (i) of Section 5.2 of the Agreement is hereby amended by
adding the words "except as otherwise permitted by Section 6.4 hereof"
immediately after the word "franchises" appearing therein:
(M) Section 5.21(b) of the Agreement is hereby amended by deleting the
existing text in its entirety and inserting in its place the words "Not Used".
(N) Section 6.4(j) of the Agreement is hereby amended by (x) adding
the words "or Destineer" after the words "U.S. Paging" appearing in clause (i)
therein and (y) adding the following clause (l) immediately preceding the last
sentence thereof:
"(l) sales of revenue streams and/or leases that are non-recourse to
SkyTel (except for customary representations) in connection with
the leasing of Pagers to retail customers in an amount not to
exceed $10,000,000 in the aggregate."
(O) Section 6.7 of the Agreement is hereby amended by adding the
following proviso at the end thereof:
"provided, however, that the notice required by clause (i) above
-------- -------
shall not be applicable with respect to the Proposed Merger (as
defined in Amendment No. 5 to the Agreement); provided further that
-------- -------
the Administrative Agent is promptly notified in writing upon
consummation of the Proposed Merger."
(P) Section 6.8 of the Agreement is hereby amended by adding the
following clause (iii) at the end thereof:
"or (iii) sales of revenue streams and/or leases that are non-recourse
to SkyTel (except for customary representations) in connection with
the leasing of Pagers to retail customers in an amount not to exceed
$10,000,000 in the aggregate."
(Q) Section 6.16 of the Agreement is hereby amended in its entirety to
read as follows:
"Section 6.16. Total Debt to EBITDA Ratio of SkyTel. At any time,
------------------------------------
permit the ratio of Total Debt of SkyTel (excluding amounts
attributable to SkyTel's advanced narrow-band personal communication
business) to Annualized EBITDA of SkyTel (excluding any amounts
attributable to SkyTel's advanced narrow-band personal communication
business) to exceed 2.0 to 1.0."
-3-
<PAGE>
(R) Section 6.17 of the Agreement is hereby amended by adding the
parenthetical "(excluding amounts attributable to SkyTel's advanced narrow-band
personal communication business)" immediately after the word "SkyTel" appearing
therein.
(S) Section 6.18(b) of the Agreement is hereby amended by adding the
parenthetical "(excluding amounts attributable to SkyTel's advanced narrow-band
personal communication business)" immediately after the word "SkyTel" appearing
therein.
(T) Section 6.19 of the Agreement is hereby amended by adding the
parenthetical "(excluding amounts attributable to SkyTel's advanced narrow-band
personal communication business)" immediately after the word "SkyTel" appearing
therein.
(U) Section 7(k) of the Agreement is hereby amended by deleting the
words "Destineer and" appearing in clause (i) thereof.
SECTION 2. Conditions to Effectiveness. This Amendment is effective
---------------------------
(i) with respect to clauses (L), (M), (N) and (P) above, as of the first date on
which all of the following conditions precedent have been satisfied in full (the
"Amendment Effective Date") and (ii) with respect to each other clause set forth
in Section 1 above (other than clauses (L), (M), (N) and (P)), the later to
occur of (x) the Amendment Effective Date and (y) the date on which the Proposed
Merger is consummated (the "Merger Effective Date"):
(A) the Administrative Agent shall have received executed counterparts
of this Amendment, which, when taken together, bear the signatures of the Credit
Parties and those Lenders required by Section 13.9 of the Agreement; and
(B) all legal matters in connection with this Amendment shall be
reasonably satisfactory to Morgan, Lewis & Bockius LLP, counsel for the Agents.
SECTION 3. Representations and Warranties. The Credit Parties hereby
------------------------------
represent and warrant to the Lenders that:
(A) after giving effect to this Amendment, the representations and
warranties contained in the Agreement and in the other Fundamental Documents are
true and correct in all material respects on and as of the date hereof as if
such representations and warranties had been made on and as of the date hereof
(except to the extent such representations and warranties expressly relate to an
earlier date); and
(B) after giving effect to this Amendment, the Credit Parties are in
compliance with all the terms and provisions set forth in the Agreement and the
other Fundamental Documents and no Default or Event of Default has occurred or
is continuing under the Agreement.
-4-
<PAGE>
SECTION 4. Full Force and Effect.
---------------------
Except as expressly set forth herein, this Amendment does not
constitute a waiver or modification of any provision of the Agreement or a
waiver of any Default or Event of Default under the Agreement, in either case
whether or not known to the Agents. Except as expressly amended hereby, the
Agreement shall continue in full force and effect in accordance with the
provisions thereof on the date hereof. As used in the Agreement, the terms
"Credit Agreement", "this Agreement", "herein", "hereafter", "hereto", "hereof",
and words of similar import, shall, unless the context otherwise requires, mean
the Agreement as amended by this Amendment. References to the terms "Agreement"
or "Credit Agreement" appearing in the Exhibits or Schedules to the Agreement,
shall, unless the context otherwise requires, mean the Agreement as amended by
this Amendment.
SECTION 5. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
--------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WHICH ARE
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW
YORK.
SECTION 6. Counterparts. This Amendment may be executed in two or
------------
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one instrument.
SECTION 7. Expenses. The Borrower agrees to pay all reasonable out-
--------
of-pocket expenses incurred by the Agents in connection with the preparation,
execution and delivery of this Amendment and any other documentation
contemplated hereby, including, but not limited to, the reasonable fees and
disbursements of counsel for the Agents.
SECTION 8. Headings. The headings of this Amendment are for the
--------
purposes of reference only and shall not affect the construction of, or be taken
into consideration in interpreting, this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their duly authorized officers, all as of the date and year
first written above.
BORROWER:
SKYTEL CORP.
By: /s/ Robert Kaiser
___________________________
Name:
Title:
-5-
<PAGE>
GUARANTORS:
SKYTEL COMMUNICATIONS, INC. (formerly
known as Mobile Telecommunication
Technologies Corp.)
MTEL PAGING, INC.
MTEL INTERNATIONAL, INC.
UNITED STATES PAGING CORPORATION
DESTINEER CORPORATION
MOBILECOMM EUROPE INC.
MTEL SPACE TECHNOLOGIES CORPORATION
MTEL TECHNOLOGIES, INC.
MTEL MAINE, INC.
COM/NAV REALTY CORP.
INTELLIGENT INVESTMENT PARTNERS, INC.
MTEL PUERTO RICO, INC.
By: /s/ Robert Kaiser
___________________________
Name:
Title:
LENDERS:
THE CHASE MANHATTAN BANK (formerly known
as Chemical Bank), individually and as
Administrative Agent
Executed in
New York, New York
By: /s/ John J. Huber III
___________________________
Name: John J. Huber III
Title: Managing Director
CREDIT LYONNAIS NEW YORK BRANCH,
as Documentation Agent
By: /s/ B- My-
___________________________
Name:
Title:
-6-
<PAGE>
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: /s/ B- My-
___________________________
Name:
Title:
J.P. MORGAN SECURITIES INC.,
as Co-Syndication Agent
By: ___________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ R. Blake Witherington
___________________________
Name: R. Blake Witherington
Title: Vice President
CIBC INC., individually and as
Co-Syndication Agent
By: /s/ Cynthia McCahill
___________________________
Name: Cynthia McCahill
Title: Executive Director
C/BC Oppenheimer Corp.,
AS AGENT
ABN AMRO BANK N.V.
By: ___________________________
Name:
Title:
By: ___________________________
Name:
Title:
-7-
<PAGE>
NATIONSBANK, N.A. (formerly known as
The Boatmen's National Bank of St. Louis)
By: /S/ Todd Shipley
___________________________
Name: Todd Shipley
Title: Senior Vice President
BEAR STEARNS INVESTMENT PRODUCTS
By: /s/ Harry Rosenberg
________________________
Name: Harry Rosenberg
Title: Authorized Secretary
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Mark E. Mylon
________________________
Name: Mark E. Mylon
Title: Manager - Operations
KZH PAMCO LLC
By:
________________________
Name:
Title:
KZH-CNC LLC
By: /s/ Virginia Conway
_______________________
Name: Virginia Conway
Title: Authorized Agent
TORONTO DOMINION (TEXAS), INC.
By: /s/ Debbie A. Greene
________________________
Name: Debbie A. Greene
Title: Vice President
-8-
<PAGE>
Exhibit 10.28
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
__________ (__) year(s) 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
--------------------------------
"Reseller"
- -------------------------------- --------------------------------
By: By:
----------------------------- -----------------------------
Title: Title:
-------------------------- --------------------------
Date: Date:
--------------------------- ---------------------------
CONFIDENTIAL
<PAGE>
Terms and Conditions
Page 1 of 4
TERMS AND CONDITIONS
1. Definitions.
(a) Affiliate: As applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition, "control" (including with correlative
meanings, the terms "controlling", "controlled by", and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
that Person through the ownership of voting securities, by contract or
otherwise.
(b) Ancillary Services: The ancillary services, support and rights
identified and described in more detail in Exhibit A attached hereto.
(c) Cap Code: A Device specific identification code, to be assigned by
Reseller to each Device placed in service on the SkyTel Network in accordance
with the provisions of Section 6(d) below.
(d) Confidential Information: Any business, marketing, sales,
financial or technical information including, without limitation, any
information relating to the present and future business operations or financial
condition, and all other information of any kind which may reasonably be deemed
confidential or proprietary, disclosed by one party to the other pursuant to
this Agreement, which is designated or identified as "confidential",
"proprietary", or in some other manner to indicate its confidential nature.
Notwithstanding the above, "Confidential Information" does not include
information that (i) is or becomes generally known or available by publication,
commercial use, or otherwise through no fault of the receiving party; (ii) was
known by the receiving party at the time of disclosure by the disclosing party
as evidenced by competent written proof; (iii) is independently developed by the
receiving party without use of the disclosing party's Confidential Information;
or (iv) is lawfully obtained from a third Person who has the right to make such
disclosure.
(e) Device: Any wireless messaging unit that Destineer, in its sole
discretion, deems acceptable for use on the SkyTel Network, a current listing of
which is set forth in Exhibit B attached hereto.
(f) Effective Date: The date this Agreement is executed by Destineer.
Notwithstanding the Effective Date of this Agreement, if Reseller is an existing
reseller of Destineer or its Affiliates, pricing under this Agreement shall not
become effective until the first day of the first Destineer billing cycle
immediately following the Effective Date.
(g) Person: Any individual, company, corporation, firm, partnership,
joint venture, association, organization or trust, in each case whether or not
having a separate legal identity.
(h) PIN: A unique, Subscriber specific, personal identification number
or other form of identification 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 listed in Exhibit C attached hereto, as Exhibit C may be amended from time
to time.
(k) SkyTel Network: Collectively, the wireless messaging systems owned
and operated by Destineer and its Affiliates to provide the Services.
(l) Services or SkyTel Services: The wireless messaging service
offerings provided by Destineer and its Affiliates as more fully described in
Exhibit D attached hereto. Notwithstanding anything to the contrary herein,
Destineer may modify, add or discontinue its Services offerings upon notice to
Reseller at least ninety (90) days prior to the effective date of such action.
(m) Subscriber: A customer of Reseller that, by virtue of the reseller
relationship established hereunder, is an end-user of the Services.
(n) UIS or Unit in Service: A revenue generating Device that is
activated by Reseller on the SkyTel Network to receive the Services.
2. Authority.
(a) Destineer grants Reseller a non-exclusive right to resell the
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 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) As a condition to the rights and authority granted herein,
Reseller shall activate at least 250 UIS within twelve (12) months following the
Effective Date and shall maintain at least 250 UIS throughout the remainder of
the term of the Agreement.
(c) Notwithstanding the provisions of Section 2(a) above, all
personnel of Reseller involved in the promotion, marketing and sale of 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.
(d) Notwithstanding anything to the contrary herein, Destineer and its
Affiliates expressly reserve the right to promote, solicit, market and sell the
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 Services in accordance
with the pricing schedules 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 anything to the contrary herein, Destineer reserves the right to
modify the fees and charges set forth in Exhibit E; provided, however, that (i)
Destineer may not increase such fees and charges until expiration of the Initial
Term, and (ii) Destineer may increase such fees and charges only upon at least
thirty (30) days' advance written notice to Reseller. Prices charged by Reseller
to Subscribers for the Services shall be determined solely by Reseller.
(b) To the extent requested by Reseller, Reseller shall compensate
Destineer for the Ancillary Services in accordance with the rates and charges
set forth in Exhibit A attached hereto.
(c) Destineer shall invoice Reseller on a monthly basis for all fees
and charges accruing hereunder. Such fees and charges shall be due and payable
by Reseller within thirty (30) days following the date of Destineer's invoice.
Any balance not paid by 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 sales, use and other such governmentally imposed or
authorized taxes, fees, surcharges and/or assessments relating to this
Agreement, the Services and/or the Devices 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]
CONFIDENTIAL
<PAGE>
Terms and Conditions
Page 2 of 4
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 Services are adequately trained, prior to the commencement
of any such operations, and are competent to perform their respective duties.
(b) In providing the Services to its Subscribers, Reseller shall
comply with all laws, rules and regulations applicable to the activities of
Reseller hereunder, as well as with all message length, message volume and other
such operational procedures and limitations established by Destineer from time
to time.
(c) 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 Services to Subscribers or
otherwise make any claims, representations or warranties in connection with the
Services other than expressly authorized by Destineer.
(e) Destineer shall have the right to approve the form of agreement
used by Reseller in connection with its provision of the Services to its
Subscribers. Such form of agreement shall include, among other provisions,
disclaimers and limitations of liabilities consistent with the provisions set
forth in Section 9 below. Any changes by Reseller to the form of such agreements
shall be subject to the prior consent of Destineer.
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 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
within the continental United States, Alaska and Hawaii, and shall ensure that
the 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 Services. All Devices placed
in service on the SkyTel Network by or through Reseller shall comply with the
provisions of this Agreement. Notwithstanding anything to the contrary herein,
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 Advanced 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. Reseller shall bear all responsibility for
procurement of Devices provided by Reseller to Subscribers for use on the SkyTel
Network. Destineer shall have no obligation to provide Devices to Reseller or
its Subscribers.
(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
Advanced Messaging network owned and operated by Destineer and its Affiliates,
may include, without limitation, coding and activation of the Devices at the
manufacturer level or by or at the direction of Destineer.
(d) Cap Code and PIN Coordination.
(i) Reseller shall assign Cap Codes and PINs to Devices utilized
by Subscribers only from blocks of Cap Codes and PINs to be allocated to
Reseller by Destineer. Destineer will use commercially reasonable efforts to
make a sufficient number of Cap Codes and PINs available to Reseller as shall be
necessary to service the number of Subscribers which Reseller, in the exercise
of its reasonable judgment, projects will utilize the 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. Branding. Reseller shall have no right or authority to market, promote
or sell the 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-3 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) EXCEPT TO THE EXTENT EXPRESSLY SET FORTH HEREIN, DESTINEER AND ITS
AFFILIATES MAKE NO WARRANTIES, EITHER EXPRESS OR IMPLIED, CONCERNING THE
SERVICES, THE SKYTEL NETWORK, THE DEVICES 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 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) Reseller acknowledges that the term "Guaranteed Delivery" (or
terms of similar connotation), as used in conjunction with the Services provided
over the
CONFIDENTIAL
<PAGE>
Terms and Conditions
Page 3 of 4
Advanced Messaging network, refers to certain technical functionality of the
network and the ability of the network to repeatedly deliver messages to a
Device for a predetermined period until receipt is acknowledged, as well as the
ability of the network to make undelivered messages available for retrieval.
Reseller further acknowledges that Destineer's and its Affiliates' use of any
such term does not constitute a representation or warranty, express or implied,
regarding any of the Services.
10. Term.
(a) The Initial Term of this Agreement shall be as specified on the
signature page of this Agreement. Upon expiration of the Initial Term, the term
of this Agreement shall automatically renew (i) until December 31 of the year in
which the Initial Term expires and (ii) for additional, successive one (1) year
terms as of each January 1 thereafter, 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) 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 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, 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.
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 inure 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.
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
CONFIDENTIAL
<PAGE>
Terms and Conditions
Page 4 of 4
To Reseller: See address specified on the signature page of this Agreement.
or to such other address or addresses as either party may from time to time
designate as to itself by like notice.
16. Miscellaneous.
(a) Laws, Rules, and Regulations. This Agreement is subject to all laws,
rules, regulations, and ordinances relative to, among other things, the
provision of wireless messaging services, including, without limitation, the
Communications Act of 1934 and the Telecommunications Act of 1996, as amended,
and all rules and regulations promulgated thereunder.
(b) Force Majeure. Neither party will be liable for any nonperformance
under this Agreement due to causes beyond its reasonable control that could not
have been reasonably anticipated by the non-performing party as of the Effective
Date and that cannot be reasonably avoided or overcome; provided that the non-
performing party gives the other party prompt written notice of such cause
promptly, and in any event within fifteen (15) calendar days of discovery
thereof.
(c) Independent Parties. None of the provisions of this Agreement shall
be deemed to constitute a partnership, joint venture, or any other such
relationship between the parties hereto, and neither party shall have any
authority to bind the other in any manner. Neither party shall have or hold
itself out as having any right, authority or agency to act on behalf of the
other party in any capacity or in any manner, except as may be specifically
authorized in this Agreement.
(d) Applicable Law. The validity, construction and performance of this
Agreement will be governed by and construed in accordance with the laws of the
State of Delaware, without regard to the principles of conflict of law.
(e) Attorneys' Fees. If any action shall be brought on account of any
breach of or to enforce or interpret any of the terms, covenants or conditions
of this Agreement, the prevailing party shall be entitled to recover from the
other, as part of the prevailing party's costs, a reasonable attorneys' fee
(f) 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.
(g) No Waiver. No delay or failure by either party 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 to enforce any
right under this Agreement will not be deemed a waiver of future enforcement of
that or any other right.
(h) 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.
(i) 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.
(j) 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.
(k) 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 the parties or any of their respective 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.
Revised February 17, 1999
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: License Rights
CONFIDENTIAL
<PAGE>
Exhibit A-1
Page 1 of 1
Exhibit A-1
Training
1. As a condition of the rights granted to Reseller hereunder to resell
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 program established by Destineer for resellers of such
Services. Only such personnel of Reseller that have completed such training
program to the satisfaction of Destineer may represent Reseller in the sale and
support of such Services. Such training 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
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 programs for Reseller's employees on behalf
of Destineer. To the extent requested by Reseller, Destineer shall also conduct
training programs for Reseller's other personnel; provided, however, that, in
such an event, Reseller shall bear all costs and expenses associated with such
training programs, shall reimburse Destineer for all reasonable out-of pocket
travel and lodging expenses, and shall compensate Destineer for such efforts in
accordance with its then current time and materials rates and charges, which
rates and charges Destineer shall make available to Reseller upon request.
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 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 compensate
Destineer for such efforts in accordance with its then current time and
materials rates and charges, which rates and charges Destineer shall make
available to Reseller upon request.
Revised February 17, 1999
CONFIDENTIAL
<PAGE>
Exhibit A-2
Page 1 of 1
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.
Revised October 10, 1996
CONFIDENTIAL
<PAGE>
Exhibit A-3
Page 1 of 1
Exhibit A-3
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 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 review Reseller's books and records for the
purpose of verifying the accuracy of the accounting for royalties paid to
Destineer in accordance with this Exhibit A-3. 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 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. The failure of Reseller to abide by and comply with any of the provisions
set forth in this Exhibit A-3 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.
Revised February 17, 1999
CONFIDENTIAL
<PAGE>
Exhibit B
Page 1 of 1
Exhibit B
Authorized Devices*
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Manufacturer Model Equipment Type Baud Rate
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
One-Way Network:
Motorola Bravo/TM**/ POCSAG Numeric 1200
Motorola Bravo Plus/**/ POCSAG Numeric 1200
Motorola Advisor/TM**/ POCSAG Alphanumeric 1200
Motorola Bravo FLX/TM/ Numeric-Flex 6400
Motorola Pro Encore FLX/TM/ Numeric-Flex 6400
Motorola Pronto FLX/TM/ Numeric-Flex 6400
Motorola Ultra Express FLX/TM/ Numeric-Flex 6400
Motorola Express Extra FLX/TM/ Numeric-Flex 6400
Motorola Digitz/TM/ Numeric-Flex 6400
Motorola Jazz/TM/ Numeric-Flex 6400
NEC Exec Numeric-Flex 6400
Sony MP 1000 Numeric-Flex 6400
Motorola Advisor Gold FLX/TM/ Alphanumeric-Flex 6400
Motorola Wordline FLX/TM/ Alphanumeric-Flex 6400
Motorola/Timex Beepwear/TM/ Alphanumeric-Flex 6400
Advanced Messaging Network:
Motorola PageFinder/TM/ Alphanumeric-Reflex 6400
Motorola PF1500/TM/ Alphanumeric-Reflex 6400
Motorola Tango/TM/ Alphanumeric-Reflex 6400
Motorola PageWriter 2000/TM/ Alphanumeric-Reflex 6400
Wireless Access AccessMate/TM/ Alphanumeric-Reflex 6400
Wireless Access AccessLink/TM/ Alphanumeric-Reflex 6400
Wireless Access AccessLink II/TM/ Alphanumeric-Reflex 6400
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
* Listing is not necessarily exhaustive. Non-listed pagers that equal or
exceed the specifications of the "flex" and/or "reflex" Devices listed in
the above may be activated on the SkyTel Network with proper authorization.
** May only be used by Subscribers authorized to receive International Service
in non-Flex capable countries.
Revised February 17, 1999
CONFIDENTIAL
<PAGE>
Exhibit C
Page 1 of 1
Exhibit C
SkyTel Marks
1. Nationwide Now(R)
2. SkyPager(R)
3. SkyReply(R)
4. SkyTalk(R)
5. SkyTel(R)
6. SkyTel logo(R) (one-way and two-way)
7. SkyTel 2-Way/SM/
8. SkyTel Access(R) Software
9. SkyTel Quick Access/TM/ Software
10. SkyWord(R)
11. SkyWord(R) Plus
12. SkyWord Access(R) Software
13. SkyWriter(R)
Revised February 17, 1999
CONFIDENTIAL
<PAGE>
Exhibit D
Page 1 of 2
Exhibit D
SkyTel Services
I. ONE-WAY SERVICES:
A. Basic Services: Basic Services presently consist of those services
described below.
1. SkyPager: Numeric service.
2. SkyWord: Alphanumeric service.
B. Enhanced Services: Enhanced Services presently consist of those
services described below.
1. Operator Dispatch: Operator assistance to generate alphanumeric
messages.
2. Page Recall: Allows end-user to retrieve messages transmitted
within the last 99 hours at no additional charge.
3. Voice Mail: Voice mailbox that accepts detailed messages from
callers and notifies the end-user that a message has been
received.
4. Informational Services:* News headlines and other informational
services.
5. Nationwide Now: End-user may temporarily expand Regional or Metro
coverage to Nationwide coverage.
6. Caller ID: Provides caller identification when numeric or Voice
Mail message sent to alphanumeric Service plan. Not available
with SkyPager Services.
7. International Service: Provision of the Services over the global
messaging network owned and operated by Destineer's Affiliates in
selected countries throughout the world.
8. Personal 800/888 Access Number: Allows the message sender to dial
the end-user directly, without having to enter a separate PIN
through use of a general access number.
C. Coverage:
1. Nationwide: Covers service areas in all fifty (50) states.
2. Regional: Divides country into six (6) zones; end-user may select
any (1) zone. Regions include East, Central, West, Southeast,
Midwest and Southwest.
3. Metro: Covers selected metropolitan areas.
CONFIDENTIAL
<PAGE>
Exhibit D
Page 2 of 2
II. ADVANCED MESSAGING SERVICES:
A. Basic Services: Basic Services presently consist of those services
described below.
1. SkyWord Plus: Alphanumeric services that ensure message delivery
through confirmation from the network operations center and a
store and forward platform. For example, if a SkyWord Plus end-
user is temporarily out of coverage, has his/her pager turned
off, etc., messages transmitted to the end-user will be
automatically stored and delivered when he/she returns to a full
service coverage area or turns his/her pager back on. SkyWord
Plus services are also equipped with a feature that detects
errors in message transmissions and automatically retransmits
corrected messages.
2. SkyWriter: Alphanumeric services that consist of SkyWord Plus
capabilities plus the additional ability for the end-user to
compose and transmit text messages directly from the messaging
device, either in response to a message received or as an
original message.
B. Enhanced Services: Enhanced Services presently consist of those
services described below.
1. Operator Dispatch: Operator assistance to generate alphanumeric
messages.
2. Page Recall: Allows end-user, at no additional charge, to
retrieve messages transmitted within the last 99 hours for
SkyWord Plus services and within the last 72 hours for SkyWriter
services.
3. Voice Mail: Voice mailbox that accepts detailed messages from
callers and notifies the end-user that a message has been
received.
4. Informational Services:* News headlines and other informational
services.
5. Caller ID: Provides caller identification when numeric or Voice
Mail message sent to end-user.
6. SkyReply: Allows SkyWord Plus end-user to send one (1) "canned"
response to messages received. Not available for use with the
PageFinder(TM) Device.
7. Response Service: Allows SkyWord Plus end-user to send unlimited
"canned" responses to messages received. Any messages transmitted
in connection with the Response Service are aggregated with other
usage under the underlying SkyWord Plus Service plan and will be
subject to normal overcall rates if the monthly usage allowance
is exceeded.
8. Personal 800/888 Access Number: Allows the message sender to dial
the end-user directly, without having to enter a separate PIN
through use of a general access number.
C. Coverage: All SkyWord Plus and SkyWriter coverage locations across
the nation.
Notes to Exhibit D:
* To the extent Reseller utilizes any information service provided by Destineer
and its Affiliates which contains informational content and data ("Licensed
Content") supplied through any 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
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, and (b) 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.
Revised February 17, 1999
CONFIDENTIAL
<PAGE>
Exhibit E
Page 1 of 4
Exhibit E
RATES AND CHARGES/(a)/
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SKYTEL One-Way Network Advanced Messaging Network
SERVICES (SkyTel F1 & F2) (Destineer F1)
- --------------------------------------------------------------------------------------------------------------------------------
Basic Services SkyPager SkyWord SkyWord Plus SkyWriter
- --------------------------------------------------------------------------------------------------------------------------------
Basic Services - Monthly Recurring Charges
- --------------------------------------------------------------------------------------------------------------------------------
Coverage Nationwide Regional Metro Nationwide Regional Metro Nationwide Nationwide
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 - 1,000 UIS/(b)/ $13.50 $9.00 $6.00 $39.20 $24.50 $10.00 $18.50 $18.50
1,001 - 2,500 UIS $13.00 $8.75 $6.00 $38.80 $24.40 $10.00 $18.40 $18.40
2,501 - 5,000 UIS $11.00 $8.50 $6.00 $38.30 $24.25 $10.00 $18.25 $18.25
5,001 - 10,000 UIS $11.00 $8.00 $6.00 $37.85 $24.00 $10.00 $18.00 $18.00
10,001 - 20,000 UIS $11.00 $7.50 $5.50 $35.50 $23.75 $10.00 $17.75 $17.75
20,001 - 40,000 UIS $11.00 $7.00 $5.00 $32.50 $23.50 $ 9.50 $17.50 $17.50
40,001 - 50,000 UIS $11.00 $6.50 $4.75 $31.00 $23.25 $ 9.00 $17.25 $17.25
50,001 - 99,999 UIS $11.00 $6.00 $4.50 $28.00 $23.00 $ 9.00 $17.00 $17.00
100,000 + UIS $11.00 $6.00 $4.50 $28.00 $23.00 $ 9.00 $17.00 $17.00
- --------------------------------------------------------------------------------------------------------------------------------
Basic Services - Activation Fee, Usage Allowance and Overcall Information
- --------------------------------------------------------------------------------------------------------------------------------
Activation Fee N/C/(c)/ N/C/(c)/ N/C/(c)/ N/C/(c)/ N/C/(c)/ N/C/(c)/ N/C/(c)/ N/C/(c)/
Characters Per Message Block/(d)/ 20 20 20 40 40 40 10 10
Block Allowance/UIS/Month/(d)/ 200 200 400 125 125 125 1000 1000
Charge/Block in Excess of Allowance 20c 20c 8c 50c 50c 30c 1 1/2c 1 1/2c
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Enhanced (Optional) Services - Per Subscriber Charges
- -----------------------------------------------------------------------------------------------------------------------
Description Charge Allowance
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operator Dispatch (not applicable with numeric Services) $5.00 activation fee N/A
Nationwide Now: SkyPager Services N/C N/A
SkyWord Services N/C N/A
North American Roaming/(e)/: SkyPager Services $2.50 per month N/A
SkyWord Services $2.50 per month N/A
Voice Mail Service:
Generic $5.50 per month 45 minutes per month
SkyTalk Branded $5.50 per month 45 minutes per month
Caller ID Service (not available with SkyPager Services) $9.95 activation fee/$2.00 per month N/A
SkyReply Service/(f)/ $9.95 activation fee/$2.00 per month includes replies
Response Service/(g)/ $9.95 activation fee see footnote /(g)/
Personal 800/888 Number $2.00 per month N/A
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------
Enhanced (Optional) Services - Per Subscriber Charges
- ------------------------------------------------------------------------------------
Description Overcall/Usage Charge
- ------------------------------------------------------------------------------------
<S> <C>
Operator Dispatch (not applicable with numeric Services) 50c per 80 char. block
Nationwide Now: SkyPager Services 45c per message
SkyWord Services 75c per 125 char. block
North American Roaming(e): SkyPager Services 50c per message
SkyWord Services $1.00 per 120 char. block
Voice Mail Service:
Generic 25c per minute
SkyTalk Branded 25c per minute
Caller ID Service (not available with SkyPager Services) N/A
SkyReply Service/(f)/ N/A
Response Service/(g)/ see footnote /(g)/
Personal 800/888 Number N/A
- ------------------------------------------------------------------------------------
</TABLE>
CONFIDENTIAL
<PAGE>
Exhibit E
Page 2 of 4
Notes:
(a) 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).
(b) For pricing tier purposes, all UIS are aggregated for determination of the
appropriate SkyPager, SkyWord, SkyWord Plus and SkyWriter UIS pricing
tiers.
(c) "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.
(d) Applies to all forms of usage, including e-mail and voice mail
notifications.
(e) Provides roaming capabilities in Mexico and Canada, as well as for service
in the United States. Only for use in connection with a nationwide SkyPager
or SkyWord Service Plan. Charges are in addition to the other nationwide
SkyPager or SkyWord Service charges. Additional per minute access charges
will also be applicable for system access via telephone from Mexico.
(f) Available in connection with all SkyWord Plus Service plans. Not available
for use with the PageFinder/TM/ Device.
(g) Available in connection with all SkyWord Plus Service plans. Any messages
transmitted from the Device in connection with the Response Service are
aggregated with other usage under the underlying SkyWord Plus Service plan
and will be subject to normal overcall rates if the monthly usage allowance
is exceeded.
Revised February 17, 1999
CONFIDENTIAL
<PAGE>
Exhibit E
Page 3 of 4
<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.
Revised October 11, 1996
CONFIDENTIAL
<PAGE>
Exhibit E
Page 4 of 4
<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.
Revised October 14, 1996
CONFIDENTIAL
<PAGE>
EXHIBIT 10.31
CREDIT LYONNAIS NEW YORK BRANCH
1301 Avenue of the Americas
New York, NY 10019
as of December 31, 1998
Mtel Latin America, Inc.
200 South Lamar Street
Security Centre, South Building
Jackson, Mississippi 39201
Attn.: John E. Welsh
Re: Amended and Restated Credit Facility
----------------------------------------
Credit Lyonnais New York Branch (the "Lender") is pleased to advise you that it
has approved your request to amend the Facility Letter and Demand Note, dated as
of December 31, 1997, for a revolving credit facility in the amount of
US$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 "Amended and Restated 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 Amended
and Restated 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. The Loans under this Line shall bear
interest at the rate agreed upon between us under the attached Amended and
Restated Demand Note. 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 may be borrowed, repaid and reborrowed at the
discretion of the Lender and under the terms of the Amended and Restated Demand
Note.
Loans provided under this Line shall be evidenced by the Amended and Restated
Demand Note, in the principal amount of the Line, bearing interest at the
interest rate defined in the Amended and Restated Demand Note. This Line
expires on December 31, 1999, or January 29, 1999 (a) if Newbridge Partners,
LLP (or some other investor satisfactory to the Lender) has not funded a minimum
of $10 million for the purchase of the Borrower's PIK preferred securities (b) a
warrant agreement in form and substance satisfactory to the Lender has not been
executed or
<PAGE>
(c) the Borrower has not established a segregated account at the Lender for the
payments to be made under Section 7(c) of the Amended and Restated Demand Note,
or unless earlier terminated by Lender in its discretion.
2. Conditions Precedent:
---------------------
The effectiveness of this Amended and Restated Facility Letter is subject to the
satisfaction in full of the following conditions precedent (the first date on
which all such conditions have been satisfied being herein referred to as the
"Effective Date"):
(a) the Lender shall have received the financial statements of the Borrower and
its Consolidated Subsidiaries, for the period ended on September 30, 1998;
(b) Newbridge Partners, LLP (or such other investors satisfactory to the Lender
in their discretion) shall have committed to purchase an amount
satisfactory to the Lender of the Borrower's PIK preferred securities;
(c) the Lender shall be satisfied that the management fees otherwise payable to
SkyTel Communications, Inc. will be deferred for a period longer than the
Outside Maturity of the Amended and Restated Demand Note;
(d) no material adverse change shall have occurred with respect to the
business, assets, property, condition (financial or otherwise) or prospects
of the Borrower and its Consolidated Subsidiaries, taken as a whole, in
each case, since December 31, 1997;
(e) the Lender shall be satisfied that the transactions contemplated hereby
will not violate, in any material respect, any provision of Applicable Law
(including, without limitation, ERISA and the provisions of Regulations T,
U and X of the Board of Governors of the Federal Reserve System), and will
not violate any order of any court or other agency of the United States or
any state thereof applicable to the Borrower or any of its respective
properties or assets;
(f) the Lender shall have received such other documents as it may require;
(g) the execution and delivery by the Borrower of such documentation as the
Lender deems appropriate;
(h) the Lender shall have received executed counterparts of this Amended and
Restated Facility Letter and the Amended and Restated Demand Note; and
(i) all legal matters in connection with this Note shall be reasonably
satisfactory to Morgan, Lewis & Bockius LLP, counsel for the Lender.
2
<PAGE>
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 Amended and
Restated Facility Letter and the Amended and Restated 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 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. Commitment Fees.
----------------
The Borrower agrees to pay in arrears to the Lender a commitment fee of 1% per
annum (computed on the basis of the actual number of days elapsed over a year of
360 days), on the average daily amount, if any, by which the Lender's commitment
(as such commitment may be permanently reduced in accordance with the provisions
of the Amended and Restated Demand Note) exceeds the sum of the Lender's
aggregate principal amount of outstanding Loans during the preceding period or
quarter. Such commitment fees shall be payable on the last Business Day of each
March, June, September and December in each year (commencing on the last
Business Day March 1999), on any date on which the total commitment is reduced
or on which the total commitment or any portion thereof is terminated (in each
case, in accordance with the terms hereof). Such commitment fees shall commence
to accrue for the Lender from the Date hereof.
5. Acceptance:
-----------
If the foregoing is acceptable, please so indicate by signing and returning
this Amended and Restated Facility Letter and the Amended and Restated Demand
Note to us not later than December 31, 1998.
Very truly yours,
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Bruce M. Yeager
Name: Bruce M. Yeager
Title: Senior Vice President
3
<PAGE>
Agreed and accepted this
31st day of December, 1998
MTEL LATIN AMERICA, INC.
By: /s/ Robert Kaiser
Name:
Title:
Agreed and accepted this
31st day of December, 1998
MTEL INTERNATIONAL, INC.
By: /s/ Robert Kaiser
Name:
Title:
4
<PAGE>
EXHIBIT 10.32
EXHIBIT I
AMENDED AND RESTATED DEMAND PROMISSORY NOTE
-------------------------------------------
$ 20,000,000 New York, New York
as of December 31, 1998
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 a 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 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
1
<PAGE>
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 ef fectiveness 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.
"Capital Expenditures" shall mean, with respect to any Person for any period,
--------------------
the sum of (i) the aggregate of all expenditures (whether paid in cash or
accrued as a liability) by such Person during that period which, in accordance
with GAAP, are or should be included in "additions to property, plant or
equipment" or similar items reflected in the statement of cash flows of such
Person and (ii) to the extent not covered by clause (i)
2
<PAGE>
hereof, the aggregate of all expenditures by such Person to acquire by purchase
or otherwise the business, property or fixed assets of, or stock or other
evidence of beneficial ownership of, any other Person (other than the portion of
such expenditures allocable in accordance with GAAP to net current assets).
"Capital Lease" shall mean, as applied to any Person, any lease of any property
-------------
(whether real, personal or mixed) by that Person as lessee which, in accordance
with GAAP, is or should be accounted for as a capital lease on the balance sheet
of that Person.
"Eurodollar Loan" shall mean a loan based on the LIBO Rate in accordance with
---------------
this Note.
"Event of Default" shall having the meaning given such term in Section 12
----------------
hereof.
"Governmental Authority" shall mean any federal, state, municipal or other
----------------------
governmental department, commission, board, bureau, agency or instrumentality,
or any court or arbitrator, in each case whether of the United States or a
foreign jurisdiction.
"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 1999.
"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
3
<PAGE>
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 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, 5.00% per annum
------
and, in the case of Eurodollar Loans, 6.00% per annum, increasing in each case
by 50 Basis Points on June 30, 1999 and September 30, 1999.
"Material Adverse Effect" shall mean any event or condition that (a) has a
-----------------------
material adverse effect on the business, assets, properties, operations,
condition (financial or otherwise) or prospects of the Borrower or the Borrower
and its Consolidated Subsidiaries taken as a whole, (b) materially impairs the
ability of the Borrower, to perform any of its respective obligations under this
Note or any Loan Document, or (c) materially impairs the validity or
enforceability of, or materially impairs the rights or remedies available to the
Lender under, this Note or any Loan Document; provided, however, that any event
-------- -------
or condition will be deemed to have a "Material Adverse Effect", if such event
or condition when taken together with all other events or conditions occurring
or in existence at such time with respect to the Borrower or any of its
Subsidiaries (including all other events and conditions which, but for the fact
that any representation or warranty contained herein is subject to a "Material
Adverse Effect" exception, would cause such representation or warranty to be
untrue) would result in a
4
<PAGE>
"Material Adverse Effect", even though, individually, such event or condition
would not do so.
"Net Cash Proceeds" shall mean cash payments received (including any cash
-----------------
payments received by way of repayment of intercompany Indebtedness, special
dividend or deferred payment of principal pursuant to a note or installment
receivable or otherwise, but only as and when received) from any sale, lease,
transfer or other disposition or issuance of Indebtedness, equity securities or
other ownership interests of the Borrower, a Subsidiary of the Borrower or a
Joint Venture or any property or other assets of the Borrower or a Subsidiary of
the Borrower in each case net of (A) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, (B) any taxes
payable and reasonably estimated income taxes as a consequence of such sale,
lease, transfer or other disposition and (C) all distributions and other
payments made to holders of interests in the Borrower, Subsidiary or Joint
Venture owned by Persons other than the Borrower as a result of such sale,
lease, transfer or other disposition.
"Outside Maturity Date" shall be December 31, 1999.
---------------------
"Permitted Encumbrances" shall mean Liens permitted under Section 11.2 hereof.
----------------------
"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 Radiomensaje 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.
2. Demand Note.
------------
This Amended and Restated Demand Note (this "Note") is the Demand Note referred
to in that certain Amended and Restated Letter Agreement of even date between
the Borrower and the Lender (the "Letter Agreement") to which reference is
hereby made for
5
<PAGE>
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, (ii) January 29, 1999 if (a)
Newbridge Partners, LLP (or some other investor satisfactory to the Lender) has
not funded a minimum of $10 million for the purchase of the Borrower's PIK
preferred securities, (b) a warrant agreement in form and substance satisfactory
to the Lender has not been executed or (c) the Borrower has not established a
segregated account at the Lender for the payments to be made under Section 7(c)
of this Note, or (iii) 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 pay able on
each Alternate Base Rate Loan on each applicable Interest Payment Date, on
the date of any prepayment thereof and at the Maturity Date.
6
<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 or Event of 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 3% 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 3% 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;
7
<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 8 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. Mandatory Termination or Reduction of Commitments; Prepayment of Loans.
-----------------------------------------------------------------------
(a) The total commitment shall be automatically and permanently reduced by an
amount equal to one hundred percent (100%) of the Net Cash Proceeds from
the issuance by the Borrower of any equity securities or additional
Indebtedness, except for the PIK preferred securities to be subscribed by
Newbridge Partners, LLP, or such other investors satisfactory to the Lender
in its discretion, which proceeds will be used within 29 days of the date
hereof to reduce the outstanding Loans. Any reduction of the total
commitment pursuant to this Section 7(a) shall occur substantially
simultaneously with the receipt by the Borrower of such proceeds.
(b) The total commitment shall be automatically and permanently reduced by an
amount equal to one hundred percent (100%) of the Net Cash Proceeds from
any asset sale permitted hereunder or otherwise consented to by the Lender,
except for the first $1 million of Net Cash Proceeds which will be used to
reduce the outstanding Loans but not reduce total commitment. Any
reduction in the total commitment pursuant to this Section 7(b) shall occur
substantially simultaneously with the receipt by the Borrower of the
applicable Net Cash Proceeds.
(c) Any and all distributions, interest, management fees or similar fees paid
in cash with respect to the shares of the Pledged Joint Venture or the
issuer thereof will be paid directly to a segregated account maintained by
the Borrower at the Lender. So long as the Loans have not matured, either
by demand or otherwise, the Borrower shall have free access to said
segregated account.
8
<PAGE>
8. 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 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
the Lender as the excess, if any, of (A) the amount of interest which would have
accrued to the 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 the 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.
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.
9. 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.
9
<PAGE>
(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.
10. Affirmative Covenants.
----------------------
The Borrower hereby covenants that so long as any amount shall remain
outstanding under this Note, the Borrower will:
10.1 Financial Statements and Reports.
--------------------------------
Deliver to the Lender:
(a) As soon as is practicable, but in any event within ninety (90) days after
the end of each fiscal year of the Borrower, (i) the audited consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as at the end
of, and the related statements of operations, changes in stockholders'
investment and cash flows for, such year, and the comparable financial
statements as at the end of, and for, the preceding fiscal year;
(b) As soon as is practicable, but in any event within sixty (60) days after
the end of each of the first three fiscal quarters of each fiscal year, the
unaudited consolidated and consolidating balance sheets of the Borrower and its
Consolidated Subsidiaries as at the end of, and the related unaudited statements
of operations, changes in stockholders' investment and cash flows for, such
quarter and for the period from the beginning of the then current fiscal year to
the end of such fiscal quarter and the comparable financial statements as at the
end of, and for, the corresponding periods in the preceding fiscal year;
(c) Within forty (40) days after the end of each month, a copy of the Monthly
Operating Statement of the Borrower and its Consolidated Subsidiaries in a form
mutually agreed upon by the Borrower and the Lender (a "Monthly Operating
Statement");
(d) Promptly upon any executive officer of the Borrower obtaining knowledge
(i) of any default or (ii) that any Person has given any notice to the Borrower
or any Subsidiary of the Borrower or taken any other action with respect to a
claimed default or event or condition of the type referred to in paragraph (c)
of Article 12, a certificate of the president or Chief Financial Officer of the
Borrower specifying the nature and period of existence of any such condition or
event, or specifying the notice given or action taken by such holder or Person
and the nature of such default or claimed Event of Default and what action the
Borrower have taken, are taking and propose to take with respect thereto;
10
<PAGE>
(e) Promptly upon any executive officer of the Borrower obtaining knowledge of
(i) the institution of, or threat of, any action, suit, proceeding,
investigation or arbitration by any Governmental Authority or other Person
against or affecting the Borrower, any Subsidiary of the Borrower or any of
their respective property or assets, including, without limitation, any such
action, suit, proceeding, investigation or arbitration relating to any material
paging license or concessions or any notice, oral or written, of the intention
of any issuing agency to revoke, suspend, cancel, amend or not renew for any
reason any material paging license or concession or (ii) any material
development in any such action, suit, proceeding, investigation or arbitration
(whether or not previously disclosed to the Lender), which might reasonably be
expected to have a Material Adverse Effect, the Borrower shall promptly give
notice thereof to the Lender and provide such other information as may be
reasonably available to it (without waiver of any applicable evidentiary
privilege) to enable the Lender to evaluate such matters; and, in addition to
the requirements set forth in clauses (i) and (ii) of this Section 10.1(e), the
Borrower upon request shall promptly give to the Lender notice of the status of
any action, suit, proceeding, investigation or arbitration covered by a report
delivered to the Lender pursuant to clause (i) or (ii) above to the Lender and
provide such other information as may be reasonably available to it (without
waiver of any applicable evidentiary privilege) to enable the Lender to evaluate
such matters;
(f) With reasonable promptness, such other information and data with respect to
the Borrower or any Subsidiary of the Borrower or any Joint Venture as from time
to time may be reasonably requested by the Lender.
10.2 Corporate Existence; Compliance with Statutes; Maintenance of
-------------------------------------------------------------
Properties.
- ----------
(a) Do or cause to be done all things necessary to (i) preserve, renew and keep
in full force and effect its corporate existence, material rights, permits and
franchises, including without limitation, the paging licenses and (ii) comply in
all material respects with all provisions of applicable law, and all applicable
restrictions imposed by, any Governmental Authority (including without
limitation, all state laws and regulations).
(b) Keep its properties which are material to its business in good repair,
working order and condition consistent with industry practice and, from time to
time (i) make all appropriate repairs, renewals, replacements, additions and
improvements thereto and (ii) comply at all times in all material respects with
the provisions of all material leases and other material agreements to which it
is a party so as to prevent any loss or forfeiture thereof or thereunder.
10.3 Taxes and Charges; Indebtedness in Ordinary Course of Business.
--------------------------------------------------------------
(a) Duly pay and discharge, or cause to be paid and discharged, before the same
shall become delinquent, all federal, state or local taxes, assessments, levies
and other governmental charges, imposed upon the Borrower or any of its
respective properties, sales and activities, or any part thereof, or upon the
income or profits therefrom, the
11
<PAGE>
failure to make payment of which could have a Material Adverse Effect, as well
as all claims for labor, materials, or supplies which if unpaid might by law
become a Lien upon any of the property of the Borrower; provided, however, that
-------- -------
any such tax, assessment, charge, levy or claim need not be paid if the validity
or amount thereof shall currently be contested in good faith by appropriate
proceedings and if the Borrower shall have set aside on its books proper
reserves (the presentation of which is segregated to the extent required by
GAAP) adequate with respect thereto if reserves shall be deemed necessary by the
Borrower in accordance with GAAP; and provided, further, that the Borrower will
-------- -------
pay all such taxes, assessments, levies, other governmental charges or claims
forthwith upon the commencement of proceedings to foreclose any Lien which may
have attached as security therefor (unless the same is fully bonded or otherwise
effectively stayed). The Borrower will promptly pay when due, or in conformance
with customary trade terms, all other indebtedness incident to its operations,
except (i) any such indebtedness the validity or amount of which shall currently
be contested in good faith by appropriate proceedings and if the Borrower shall
have set aside on their books proper reserves (the presentation of which is
segregated to the extent required by GAAP) adequate with respect thereto if
reserves shall be deemed necessary by the Borrower in accordance with GAAP,
provided, that the Borrower will pay all such indebtedness which, if unpaid,
- --------
might result in a Lien on its properties or the property of any of its
Subsidiaries, except Permitted Encumbrances and (ii) any such indebtedness the
failure to make payment of which could not have a Material Adverse Effect.
(b) With reasonable promptness, such other information and data with respect
to the Borrower or any Subsidiary of the Borrower or any Joint Venture as from
time to time may be reasonably requested by the Lender.
10.4 Access to Books and Records; Examinations.
-----------------------------------------
Maintain or cause to be maintained at all times true and complete books and
records of its financial operations (in accordance with GAAP) and provide each
of the Lender and their designated representatives access to all such books and
records and to any of its proper ties or assets during regular business hours
and after reasonable notice, in order that the Lender may make such audits and
examinations and make abstracts from such books, accounts, records and other
related papers and may discuss the affairs, finances and accounts with, and be
advised as to the same by, officers and independent accountants, all as the
Lender may deem appropriate for the purpose of verifying the various reports
delivered to the Lender pursuant to this Note or for otherwise ascertaining
compliance with this Note.
10.5 Issuance of Warrants.
--------------------
The Borrower shall execute a warrant agreement, in form and substance
satisfactory to the Lender, by January 29, 1999, pursuant to which the Borrower
will issue warrants to the Lender, or its designee, for up to 5% of the
Borrower's currently issued
12
<PAGE>
and outstanding stock. When exercised, the warrant holders will receive shares
of the Borrower's common stock. The warrants will vest in accordance with the
following schedule, but only if this Note remains in effect at each such date:
Date Percent Interest
---- ----------------
at the date hereof 2.0%
6/30/99 0.5%
9/30/99 0.5%
12/31/99 2.0%
If the Loans are prepaid in full, the commitments terminated, and this Note is
terminated prior to December 31, 1999, warrants which have vested prior to such
termination shall remain vested, however, warrants with a scheduled vesting date
-------
after such termination shall automatically be canceled.
10.6 Capital Market Transactions.
---------------------------
(a) The Borrower will use commercially reasonable efforts to proceed with a
capital markets transaction as soon as market conditions permit such an
offering.
(b) The Borrower will use commercially reasonable efforts to afford the Lender
and the Toronto-Dominion Bank ("TD") the opportunity to provide any new bank
financing and will afford the securities affiliates of the Lender and TD the
opportunity to act as exclusive underwriters/placement agents with a third
institution of the Borrower's choice for any public offering or private
placement of its debt, provided that the Lender, TD and the other
underwriter/placement agent have equal standing and equal economics, and co-
manager for any public offering or private placement of equity securities
occurring within one year after the date hereof, provided, however, that neither
-------- -------
the Lender, TD nor their affiliates shall have any obligation to provide any
such financing or to place any such securities.
11. 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:
11.1 Limitation on Indebtedness.
--------------------------
Incur, assume or suffer to exist any Indebtedness except:
(a) Indebtedness hereunder;
13
<PAGE>
(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 at any one time outstanding;
(d) intercompany loans and advances from the Borrower to its Subsidiaries; and
(e) short-term local currency borrowings by the Borrower or Subsidiaries of the
Borrower for working capital needs, on terms and conditions acceptable to the
Lender, in an aggregate outstanding at any one time not to exceed an amount to
be determined by the Lender.
11.2 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 Section 11.1(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 (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.
14
<PAGE>
(e) rights of first offer or similar rights granted in connection with the
equity interests of a Subsidiary or a Joint Venture.
11.3 Changes in Business.
-------------------
Engage in any line of business other than (i) those lines of business in
existence on the date hereof and (ii) other lines of business for the delivery
of advanced messaging services, or other messaging products that are integrally
related to such lines of business.
11.4 Limitations on Sale of Assets.
-----------------------------
Enter into any transactions out of the ordinary course of business, whether in
one transaction or a series of transactions, that wind up, liquidate or dissolve
its affairs, or merge or consolidate, or sell or otherwise dispose of all or any
part of its property or assets, or purchase, lease or otherwise acquire all or
any part of the property or assets of any Person, or a majority of the capital
stock of any Subsidiary, or agree to do or suffer any of the foregoing.
11.5 Dividends and other Restricted Payments.
---------------------------------------
Declare, make or incur any liability to make any cash distribution or cash
dividend on account of shares of any class of stock of the Borrower or any
Subsidiary of the Borrower now or hereafter outstanding.
11.6 Intercompany Investment.
-----------------------
(a) Make capital contributions to non-consolidated operations/affiliates in
excess of $550,000.
(b) To the maximum extent permitted by applicable law, any 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.
11.7 Limitations on Capital Expenditures.
-----------------------------------
Make or incur any obligation to make Capital Expenditures (including obligations
under Capital Leases) in the aggregate for the Borrower and its Subsidiaries in
excess of $4,000,000.
11.8 Prohibition of Change in Control.
---------------------------------
Agree to, or permit any change of control provision in any contract or a
material change in the management services agreement with SkyTel Communications,
Inc. without the Lender's prior approval.
15
<PAGE>
12. Events of Default
-----------------
In the case of the happening and during the continuance of any of the
following events (herein called "Events of Default"):
-----------------
(a) any representation or warranty made by the Borrower in this Note or any
representation and warranty made at any time after the date hereof by the
Borrower in connection with this Note, or any statement or representation made
at any time after the date hereof, in any report, financial statement,
certificate or other document furnished by or on behalf of the Borrower or any
Subsidiary of the Borrower to the Lender under or in connection with this Note,
shall prove to have been, or to be, taken together with all such other
representations and warranties, false or misleading in any material respect when
made or delivered; provided, however, that no Event of Default shall occur
-------- -------
hereunder based on the inaccuracy of any financial projections unless such
financial projections were not prepared in good faith or when made, did not
represent the reasonable, good faith opinion of the Borrower or Subsidiary of
the Borrower of the most probable course of its business;
(b) default shall be made by the Borrower in the due observance or performance
of any covenant, condition or agreement to be observed or performed pursuant to
the terms of this Note;
(c) default in payment shall be made with respect to any Indebtedness (other
than the Indebtedness incurred by the Borrower hereunder) of the Borrower or any
Subsidiary of the Borrower in an amount or amounts in excess of $2,000,000 in
the aggregate, or any other default shall occur with respect to the performance
of any other obligation incurred in connection with any such Indebtedness, if
the effect of such other default is, or with the giving of notice or passage of
time or both would be, to accelerate the maturity, of such Indebtedness or to
permit the holder thereof (after giving effect to any applicable grace periods)
to cause such Indebtedness to become due prior to its stated maturity, or any
such Indebtedness shall not be paid when due, whether at the due date thereof or
at acceleration thereof or otherwise, or any other circumstance shall arise
(other than the mere passage of time) by reason of which the Borrower or any
Subsidiary of the Borrower is required (prior to any scheduled redemption or
repurchase) to redeem or repurchase, or offer to holders the opportunity to have
redeemed or repurchased, any such Indebtedness;
(d) the Borrower or any Subsidiary of the Borrower shall generally not pay its
debts as they become due or shall admit in writing its inability to pay its
debts, or shall make a general assignment for the benefit of creditors; or the
Borrower or any Subsidiary of the Borrower shall commence any case, proceeding
or other action seeking to have an order for relief entered on its behalf as
debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seeking appointment of a receiver, administrative receiver,
trustee,
16
<PAGE>
custodian or other similar official for it or for all or any substantial part of
its property, or shall file an answer or other pleading in any such case,
proceeding or other action admitting the material allegations of any petition,
complaint or similar pleading filed against it or consenting to the relief
sought therein; or the Borrower or any Subsidiary of the Borrower shall take any
action to authorize any of the foregoing;
(e) any involuntary case, proceeding or other action against any the Borrower
or any Subsidiary of the Borrower shall be commenced seeking to have an order
for relief entered against it as debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking
appointment of a receiver, administrative receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property, and
such case, proceeding or other action (i) results in the entry of any order for
relief against it or (ii) shall remain undismissed for a period of sixty (60)
days;
(f) final judgment(s) for the payment of money in excess of $2,000,000, in the
aggregate, shall be rendered in the aggregate, against the Borrower or any
Subsidiary of the Borrower and within thirty (30) days from the entry of such
judgment(s), it shall not have been discharged or stayed pending appeal or shall
not have been discharged within thirty (30) days from the entry of a final order
of affirmance on appeal;
(g) a "change in management" shall occur; for purposes hereof, a "change in
---------
management" shall mean the failure of the then-current CEO of SkyTel
- ----------
Communications, Inc. to continue his/her services as the CEO of the Borrower for
any reason, including, without limitation, termination of employment, death or
disability (the term "disability" as used herein meaning an inability continuing
for one hundred and eighty (180) consecutive days); or
(h) SkyTel Communications, Inc. fails to guarantee the Borrower's obligation
(i) when the Credit, Security, Guaranty and Pledge Agreement dated as of
December 21, 1995 among SkyTel Corp., SkyTel Communications, Inc., the
subsidiaries referred to therein, the Lender referred to therein, The Chase
Manhattan Bank as Administrative Agent, Credit Lyonnais New York Branch as
Documentation Agent and J.P. Morgan Securities, Inc. and CIBC, Inc. as Co-
Syndication Agents (the "SkyTel Credit Agreement") is replaced or substantially
amended or (ii) if and when SkyTel Communications, Inc. seeks a waiver or
amendment under the SkyTel Credit Agreement to authorize SkyTel to repurchase
any of its 13- 1/2% Senior Notes due 2002, in each case to the extent permitted
by the indenture relating to such Notes.
13. 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,
17
<PAGE>
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.
14. 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:
(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.
18
<PAGE>
15. 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.
(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.
16. 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.
17. 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.
18. 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
19
<PAGE>
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 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.
20
<PAGE>
IN WITNESS WHEREOF, this Note has been executed as of the day and year
first above written.
MTEL LATIN AMERICA, INC.
By: _______________________
Name:
Title:
AGREED AND CONSENTED TO:
CREDIT LYONNAIS NEW YORK BRANCH
By:________________________
Name:
Title:
21
<PAGE>
Schedule 1
[to be completed by the Borrower]
22
<PAGE>
Exhibit 10.33
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
MTEL LATIN AMERICA, INC.
AND
MICROSOFT CORPORATION
dated as of January 28, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
1.1 Agreement to Purchase and Sell 1
1.2 Closing 1
1.3 Delivery and Payment 1
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Incorporation and Organization 2
2.2 Authority 2
2.3 Capital Structure 3
2.4 Consents and Approvals 3
2.5 No Violations 4
2.6 Financial Statements 4
2.7 Absence of Certain Changes or Events 5
2.8 Exemption from Securities Act 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
3.1 Incorporation and Organization 6
3.2 Authority 6
3.3 Consents and Approvals 6
3.4 No Violations 7
3.5 Investment Representation 7
i
<PAGE>
ARTICLE IV
CONDITIONS TO CLOSING
<TABLE>
<S> <C>
4.1 Conditions to Obligations of the Purchaser 8
4.2 Conditions to Obligations of the Company 9
</TABLE>
ii
<PAGE>
ARTICLE V
TERMINATION
<TABLE>
<S> <C>
5.1 Termination 9
</TABLE>
ARTICLE VI
MISCELLANEOUS
<TABLE>
<S> <C>
6.1 Collateral Agreements, Amendments and
Waivers 10
6.2 Transfer of the Preferred Shares 10
6.3 Deferral of SkyTel Management Fee 10
6.4 Successors and Assigns 11
6.5 Survival of Representations, Warranties
and Agreements 11
6.6 Expenses 11
6.7 Invalid Provisions 11
6.8 Notices 11
6.9 Public Announcement 13
6.10 Certain Definitions 13
(a) "Business Day 13
(b) "person" 13
(c) "Transfer" 13
6.11 No Third-Party Beneficiaries 13
6.12 Governing Law 14
6.13 Counterparts. 14
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of January 28,
---------
1999, by and between Mtel Latin America, Inc., a Delaware corporation (the
"Company"), and Microsoft Corporation, a Washington corporation (the
- --------
"Purchaser").
---------
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
-------------------------------------
1.1 Agreement to Purchase and Sell. Upon the basis of the
------------------------------
representations and warranties, for the consideration, and subject to the terms
and conditions set forth in this Agreement, the Company agrees to sell to the
Purchaser, and the Purchaser agrees to purchase from the Company, 10,000 shares
of preferred stock, par value $0.01 per share, of the Company (the "Preferred
---------
Stock"), designated as the Cumulative Accruing Pay-In-Kind Preferred Stock (the
- -----
"Preferred Shares") and having the preferences and rights set forth in the form
----------------
of Certificate of Designation attached as Exhibit A hereto (the "Certificate of
--------- --------------
Designation"), in each case free and clear of all claims, liens, charges and
- -----------
encumbrances of any nature whatsoever, at the Closing referred to in Section 1.2
hereof, and, in consideration of the sale of the Preferred Shares by the Company
to the Purchaser, the Purchaser agrees to pay in the aggregate to the Company
$10,000,000 (the "Purchase Price").
--------------
1.2 Closing. The closing of the transactions contemplated hereby (the
-------
"Closing") shall take place at the offices of Skadden, Arps, Slate,
-------
Meagher & Flom, LLP, 919
<PAGE>
Third Avenue, New York, New York 10022, on January 28, 1999, or at such other
place or time as the Purchaser and the Company shall mutually agree in writing.
The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
------------
1.3 Delivery and Payment. At the Closing, (a) the Company shall deliver or
--------------------
cause to be delivered to the Purchaser (i) a stock certificate evidencing the
Preferred Shares issued in the name of the Purchaser, and (ii) all other
documents, instruments and writings required to be delivered by the Company to
the Purchaser pursuant to this Agreement or otherwise required in connection
herewith, and (b) the Purchaser shall deliver or cause to be delivered to the
Company (i) the Purchase Price, by wire transfer of immediately available funds
to the account of the Company, and (ii) all other documents, instruments and
writings required to be delivered by the Purchaser to the Company pursuant to
this Agreement or otherwise required in connection herewith.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to the Purchaser as
follows:
2.1 Incorporation and Organization. The Company is a corporation duly
------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has full corporate power and authority to own and operate its
assets and properties and carry on its businesses as presently
<PAGE>
conducted and is duly qualified to do business and is in good standing in all
jurisdictions in which the ownership or occupancy of its properties or its
activities presently makes such qualification necessary, except where the
failure to so qualify or be in good standing would not have a material adverse
effect upon the businesses, properties or assets of the Company and its
subsidiaries taken as a whole.
2.2 Authority. The Company has all requisite corporate power and authority
---------
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action of the Company. The Board of
Directors of the Company has approved the issuance and sale of the Preferred
Shares and the other transactions contemplated by this Agreement. This Agreement
has been duly and validly executed and delivered by the Company and constitutes
a valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
2.3 Capital Structure. The authorized capital stock of the Company
-----------------
consists of 15,000,000 shares of common stock, par value $0.01 per
share, of the Company (the "Common Stock") and 200,000 shares of Preferred
------------
Stock. At the close of business on January 22, 1999, 8,347,437 shares
<PAGE>
of Common Stock and no shares of Preferred Stock were issued and outstanding.
At the close of business on January 22, 1999, a total of 1,000,000 shares of
Common Stock were reserved for issuance upon the exercise of the options, stock
appreciation rights and other rights granted under the Company's Stock Option
Plan, and a total of 417,372 shares of Common Stock were reserved for issuance
upon the exercise of the Company's warrants, expiring December 31, 2002, to
purchase shares of Common Stock. Except as set forth in this Section 2.3, as
disclosed on Schedule 2.3 hereto or as contemplated by this Agreement, there are
no options, warrants, calls, rights, commitments or agreements of any character
to which the Company or any subsidiary of the Company is a party or by which it
is bound obligating the Company or any subsidiary of the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of the Company or obligating the Company to grant, extend or enter
into any such option, warrant, call, right, commitment or agreement.
2.4 Consents and Approvals. Assuming the accuracy of the representation of
----------------------
the Purchaser set forth in Section 3.5 hereof, all authorizations, approvals and
consents, if any, required to be obtained from, and all registrations,
declarations and filings, if any, required to be made with all governmental
authorities and regulatory bodies to permit the Company to execute and deliver,
and to perform its obligations under, this Agreement have been obtained or made,
as the case may be, and all such authorizations, approvals, consents,
registrations, declarations and filings are in full force and effect, except
where failure to obtain and/or maintain in full force and effect such
authorizations, approvals, consents, registrations, declarations and filings
<PAGE>
would not have a material adverse effect upon the execution and delivery
of, and upon the performance of the Company's obligations under, this Agreement.
2.5 No Violations. Neither the execution or delivery by the Company, nor the
-------------
consummation by the Company of the transactions herein contemplated, nor the
fulfillment by the Company of the terms and provisions hereof (i) will conflict
with, violate or result in a breach of, any of the terms, conditions or
provisions of any law, regulation, order, writ, injunction, decree,
determination or award of any court, governmental department, board,
agency or instrumentality or any arbitrator, applicable to the Company
including, without limitation, the Communications Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the "Communications Act"),
------------------
(ii) will conflict with, violate or result in a breach of, or constitute a
default under, any of the terms, conditions or provisions of the Company's
certificate of incorporation and by-laws, (iii) will conflict with, violate or
result in a breach of, or constitute a default under, any of the terms,
conditions or provisions of any loan agreement, indenture, trust, deed or other
agreement or instrument to which the Company is a party or by which it is bound
or (iv) result in the creation or imposition of any lien, charge, security
interest or encumbrance of any nature whatsoever upon any of the Company's
property or assets (including, without limitation, the Preferred Shares to be
acquired by the Purchaser pursuant to this Agreement). The Company is not in
default under any agreement to which it is a party which would have a material
adverse effect on the Company's ability to perform its obligation under this
Agreement.
<PAGE>
2.6 Financial Statements. The Company has furnished or made available to the
--------------------
Purchaser copies of the following financial statements: (i) the audited
consolidated Financial Statements (as defined below) of the Company and its
subsidiaries as of and for the fiscal year ended December 31, 1997, together
with reports of Arthur Andersen LLP, the Company's independent public
accountants, on such consolidated Financial Statements, and (ii) the unaudited
consolidated Financial Statements of the Company and its subsidiaries as of and
for the nine-month period ended September 30, 1998. "Financial Statements"
--------------------
shall mean the balance sheet as of the date(s) indicated and the related
statements of operations, cash flows and changes in stockholder's equity
(including all related notes and schedules thereto) for the period(s) indicated.
The Financial Statements referred to in clauses (i) and (ii) above collectively
are referred to as the "Company Statements." All of the Company Statements have
------------------
been prepared in accordance with United States generally accepted accounting
principles, except as set forth in the notes thereto, and fairly present in all
material respects (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the consolidated financial position of the Company
and its consolidated subsidiaries as of the date thereof and the consolidated
results of operations of the Company and its consolidated subsidiaries for the
respective periods covered thereby.
2.7 Absence of Certain Changes or Events. Except (i) as disclosed in the
------------------------------------
Company Statements or (ii) as contemplated by, permitted by or disclosed in
this Agreement, since December 31, 1997, the Company and its subsidiaries have
conducted their respective businesses in the ordinary course, and there has not
been any material adverse change in the financial condition, results of
operations, business,
<PAGE>
properties, assets or liabilities of the Company and its subsidiaries taken as a
whole.
2.8 Exemption from Securities Act . Assuming that the representations,
-----------------------------
warranties and acknowledgments of the Purchaser provided for in Article III of
this Agreement or otherwise herein are true and correct, the sale of the
Preferred Shares pursuant to this Agreement will be exempt from the registration
provisions of the Securities Act of 1933, as amended (the "Securities Act"),
---------------
and the registration provisions of any blue sky or other state securities law
or regulation (hereinafter collectively referred to as "blue sky laws") of any
applicable jurisdiction.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
The Purchaser hereby represents and warrants to the Company as
follows:
3.1 Incorporation and Organization. The Purchaser is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Washington and has full corporate power and authority to own and operate its
assets and properties and carry on its businesses as presently conducted.
3.2 Authority. The Purchaser has all requisite power and authority
---------
(corporate, or otherwise) to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by the Purchaser of
this Agreement and the consummation by the Purchaser of the transactions
contemplated hereby have been duly authorized by all necessary action of the
Purchaser. This Agreement has been duly and validly executed and delivered by
the Purchaser and constitutes a valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought.
<PAGE>
3.3 Consents and Approvals. All authorizations, approvals and
----------------------
consents, if any, required to be obtained from, and all registrations,
declarations and filings, if any, required to be made with, all governmental
authorities and regulatory bodies to permit the Purchaser to execute and
deliver, and to perform its obligations under, this Agreement have been obtained
or made, as the case may be, and all such authorizations, approvals, consents,
registrations, declarations and filings are in full force and effect, except
where failure to obtain and/or maintain in full force and effect such
authorizations, approvals, consents, registrations, declarations and filings
would not have a material adverse effect upon the execution and delivery of, and
upon the performance of the Purchaser's obligations under, this Agreement.
3.4 No Violations. Neither the execution or delivery by the
-------------
Purchaser of this Agreement, nor the consummation by the Purchaser of the
transactions herein contemplated, nor the fulfillment by the Purchaser of the
terms and provisions hereof (i) will conflict with, violate or result in a
breach of, any of the terms, conditions or provisions of any law, regulation,
order, writ, injunction, decree, determination or award of any court,
governmental department, board, agency or instrumentality or any arbitrator,
applicable to the Purchaser including, without limitation, the Communications
Act, (ii) will conflict with, violate or result in a breach of, or constitute a
default under, any of the terms, conditions or provisions of the Purchaser's
certificate of incorporation (or other organizational documents) and by-laws, or
(iii) will conflict with, violate or result in a breach of, or constitute a
default under, any of the terms, conditions or provisions of any loan agreement,
indenture, trust, deed or other agreement or instrument to which the Purchaser
is a party or
<PAGE>
by which it or he is bound, except where such conflict, violation or breach will
not have a material adverse effect on the Purchaser's execution, delivery,
consummation or fulfillment of this Agreement. The Purchaser is not in default
under any agreement to which it is a party which default could impair its
ability to perform its obligations under this Agreement.
(a) Investment Representation. The Purchaser represents that (i) the
-------------------------
Purchaser is acquiring the Preferred Shares for its own account, for
investment purposes only, and not with a view to the resale or offer for
sale thereof or with any present intention of distributing or selling or
offering for sale any of the Preferred Shares; (ii) the Purchaser is an
"accredited investor" within the meaning of Rule 501 of Regulation D of the
Securities Act or a similar institutional investor; (iii) the Purchaser
understands that the Preferred Shares have not been and will not be
registered under the Securities Act or any blue sky laws in reliance, in
part, upon the representations, warranties and covenants contained herein;
(iv) the Purchaser understands that it cannot make or cause to be made any
Transfer (as defined in Section 6.10 hereof) of the Preferred Shares except
in accordance with this Agreement; (v) the Purchaser and the Purchaser's
advisors have sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of an
investment in the Preferred Shares, have received all information deemed by
them to be necessary or appropriate to evaluate the risks and merits of an
investment in the Preferred Shares, have received all information requested
from the Company, and have had the opportunity to ask questions of and
receive answers from representatives of the Company concerning the
<PAGE>
Company; (vi) the Purchaser is capable of bearing the economic risk of such
investment, including a complete loss of the investment in the Preferred
Shares; and (vii) the Purchaser has the authority to make the
representations contained in this Article III.
(b) The Purchaser agrees that the following restrictive legend shall be placed
on certificates representing the Preferred Shares and that Transfer of any
or all of the Preferred Shares, except in accordance with this Agreement,
shall be refused by the Company's transfer agent:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT
BE OFFERED, SOLD, EXCHANGED, ASSIGNED, TRANSFERRED, PLEDGED, GIFTED,
HYPOTHECATED, ENCUMBERED OR OTHERWISE DISPOSED OF OR TRANSFERRED, EXCEPT IN
ACCORDANCE WITH THE TERMS OF THE STOCK PURCHASE AGREEMENT, DATED AS OF
JANUARY 28, 1999, BY AND BETWEEN MTEL LATIN AMERICA, INC. AND MICROSOFT
CORPORATION.
<PAGE>
ARTICLE IV
CONDITIONS TO CLOSING
---------------------
4.1 Conditions to Obligations of the Purchaser. The obligations of the
------------------------------------------
Purchaser to consummate the transactions contemplated hereby are subject to the
fulfillment of each of the following conditions:
(a) the representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects at and as of
the Closing with the same effect as though such representations and
warranties had been made as of the Closing, and the Company shall have
performed and complied in all material respects with all other terms
required by this Agreement to be performed or complied with by the Company
at or prior to the Closing; and
(b) no action or proceeding shall have been instituted or threatened for the
purpose or with the probable or reasonably likely effect of enjoining or
preventing the consummation of this Agreement or seeking damages on account
thereof; and
4.2 Conditions to Obligations of the Company. The obligations of the
----------------------------------------
Company to consummate the transactions contemplated hereby are subject to
the fulfillment of the following conditions:
(a) the representations and warranties of the Purchaser contained in this
Agreement shall be true and correct in all material respects at and as of
the Closing with the same effect as though such representations and
warranties had been made as of the Closing, and the Purchaser shall have
performed and complied in all material respects with all other terms
required by this Agreement to
<PAGE>
be performed or complied with by the Purchaser at or prior to the Closing;
and
(b) no action or proceeding shall have been instituted or threatened for the
purpose or with the probable or reasonably likely effect of enjoining or
preventing the consummation of this Agreement or seeking damages on account
thereof.
<PAGE>
ARTICLE V
TERMINATION
-----------
5.1 Termination. This Agreement may be terminated prior to the Closing (a)
-----------
by the mutual consent of the Purchaser and the Company, (b) by the Company (i)
upon the failure of the Purchaser to perform or comply in all material respects
with any of its covenants or agreements contained herein prior to the Closing or
(ii) if any representation or warranty of the Purchaser hereunder shall not have
been true and correct in all material respects as of the time at which it was
made, or (c) by the Purchaser (i) upon the failure of the Company to perform or
comply in all material respects with any of its covenants or agreements
contained herein prior to the Closing, or (ii) if any representation or warranty
of the Company hereunder shall not have been true and correct in all material
respects as of the time at which such was made; provided, however, that no
-------- -------
party may terminate this Agreement pursuant to clauses (b)(i) or (ii) or (c)(i)
or (ii) above if such party is, at the time of any such attempted termination,
in breach of any term hereof. The termination by any party pursuant to this
Section 5.1 shall not be deemed a waiver of any claim such party may have
against the other party or parties hereunder.
<PAGE>
ARTICLE VI
MISCELLANEOUS
-------------
6.1 Collateral Agreements, Amendments and Waivers. This Agreement (together
---------------------------------------------
with the documents delivered pursuant hereto) supersedes all prior documents,
understandings and agreements, oral or written, relating to this transaction
and, except for any confidentiality agreement currently existing between the
parties, constitutes the entire understanding between the parties with respect
to the subject matter hereof. Any modification or amendment to, or waiver of,
any provision of this Agreement may be made only by an instrument in writing
executed by the party against whom enforcement thereof is sought.
6.2 Transfer of the Preferred Shares. The Purchaser shall not make or cause
--------------------------------
to be made any Transfer of the Preferred Shares except with the prior written
consent of the Company, which consent shall not be unreasonably withheld.
6.3 Deferral of SkyTel Management Fee. So long as any Preferred Shares are
---------------------------------
outstanding, the "Management Fee" payable by the Company to SkyTel
Communications, Inc. ("SkyTel") pursuant to the Management Agreement, dated as
------
of September 19, 1996, by and between the Company, Mtel International, Inc. and
SkyTel, shall not be paid quarterly but shall accrue, with interest compounded
at a rate of eighteen percent (18%) per annum, and shall be paid immediately
following the redemption of all outstanding Preferred Shares or at such other
time as there are no longer any Preferred Shares outstanding.
<PAGE>
6.4 Successors and Assigns. Neither the Purchaser's nor the Company's
----------------------
rights or obligations under this Agreement shall be assigned, except
for an assignment by the Purchaser of its rights and obligations under this
Agreement in connection with a Transfer of the Preferred Shares in accordance
with Section 6.2 of this Agreement with the prior written consent of the
Company, which consent shall not be unreasonably withheld. Any assignment in
violation of the foregoing shall be null and void. Subject to the preceding
sentences of this Section 6.4, the provisions of this Agreement (and, unless
otherwise expressly provided therein, of any document delivered pursuant to this
Agreement) shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
6.5 Survival of Representations, Warranties and Agreements. Except for
------------------------------------------------------
Sections 6.2 and 6.3 hereof, none of the representations, warranties and
covenants of the parties contained in this Agreement shall survive the Closing.
6.6 Expenses. Each party shall pay all costs and expenses incurred by it
--------
in connection with the negotiation, execution and delivery of this Agreement
and the transactions contemplated hereby.
6.7 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable under present or future laws, then, if
possible, such illegal, invalid or unenforceable provision will be modified to
such extent as is necessary to comply with such present or future laws and such
modification shall not affect any other provision hereof, provided that if such
provision may not be so modified such illegality, invalidity or unenforceability
will not affect any
<PAGE>
other provision, but this Agreement will be reformed, construed and enforced as
if such invalid, illegal or unenforceable provision had never been contained
herein.
6.8 Notices. In any case where any notice or other communication is
-------
required or permitted to be given hereunder (including, without limitation, any
change in the information set forth in this Section 6.8) such notice or
communication shall be in writing and (a) personally delivered, (b) sent by
registered United States mail, postage prepaid, return receipt requested, (c)
transmitted by telecopy (which is confirmed) or (d) sent by way of a recognized
overnight courier service, postage prepaid, return receipt requested with
instructions to deliver on the next Business Day, in each case as follows:
If to the Company, to:
SkyTel Communications, Inc.
200 South Lamar Street
Mtel Centre, South Building
Jackson, Mississippi 39201
Attention: Thomas R. Ferguson
Telecopy: (601) 944-7158
with a copy to:
SkyTel Communications, Inc.
200 South Lamar Street
Mtel Centre, South Building
Jackson, Mississippi 39201
Attention: Leonard G. Kriss, Esq.
Telecopy: (601) 944-7291
<PAGE>
If to the Purchaser, to:
Microsoft Corporation
One Microsoft Way
Redmond, Washington 98052-6933
Attention: Gregory B. Maffei
Telecopy: (425) 936-2625
with a copy to:
Microsoft Corporation
One Microsoft Way
Redmond, Washington 98052-6933
Attention: Robert A. Eschelman
Telecopy: (425) 869-1327
provided that in the event any of the parties referred to above desires to
- --------
designate another address or telecopier number to which such notices should be
sent to such party, such party may designate such other address or telecopier
number by giving notice to the other party to this Agreement in writing as set
forth in this Section 6.8 (provided that any change of address or telecopier
number shall be effective only upon receipt thereof). Any person who becomes a
party to this Agreement shall provide its address and telecopier number to the
Company, which shall promptly provide such information to each other party to
this Agreement.
All such notices or other communications shall be deemed to have been
given or received (i) upon receipt if personally delivered, (ii) on the fifth
day following posting if sent by registered United States mail, (iii) when sent
if confirmed by telecopy or (iv) on the next Business Day following deposit with
an overnight courier.
<PAGE>
6.9 Public Announcement. Until the termination of this Agreement, neither
-------------------
the Company nor the Purchaser shall issue or cause the publication of any press
release or other public announcement with respect to the transactions
contemplated by this Agreement without the consent of the other parties, which
consent shall not be unreasonably withheld, provided that each party may issue
such press releases or public announcements as shall be required by law in which
event such party shall give the other parties a reasonable opportunity to review
and comment thereon.
6.10 Certain Definitions. Unless the context otherwise requires, the
-------------------
following terms shall have the meanings ascribed to them below:
(a) "Business Day " shall mean any calendar day which is not a Saturday,
------------
Sunday or legal holiday or a day on which banking institutions in the State
of New York are permitted to be closed.
(b) "person" shall mean an individual, firm, trust, association, corporation,
------
partnership, limited partnership, government (whether federal, state, local
or other political subdivision, or any agency or bureau of any of them) or
other entity.
(c) "Transfer" shall mean any offer, transfer sale, exchange, assignment,
--------
pledge, hypothecation, gift, grant of security interest in or lien on,
placement in a trust (voting or otherwise) or any other disposition or
encumbrance.
<PAGE>
6.11 No Third-Party Beneficiaries. No person or entity not a party to
----------------------------
this Agreement shall be deemed to be a third-party beneficiary hereunder or
entitled to any rights hereunder.
6.12 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OR CHOICE OF LAW. THE PARTIES HERETO AGREE THAT THE VENUE WITH
RESPECT TO ANY ACTION OR SUIT COMMENCED BY EITHER OF THEM IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE IN A FEDERAL OR STATE COURT
OF COMPETENT JURISDICTION IN THE UNITED STATES.
6.13 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which may be executed by one or more of the parties
hereto, but all of which, when taken together, shall constitute but one
agreement binding upon all of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
MTEL LATIN AMERICA, INC.
By: /s/ John E. Welsh III
-----------------------------------
Name: John E. Welsh III
Title: Vice Chairman
MICROSOFT CORPORATION
By: /s/ Gregory B. Maffei
-----------------------------------
Name: Gregory B. Maffei
Title: Chief Financial Officer
<PAGE>
Schedule 2.3
Capital Structure
-----------------
None
<PAGE>
EXHIBIT 10.34
SKYTEL COMMUNICATIONS, INC.
CHANGE OF CONTROL SEVERANCE BENEFITS AGREEMENT
This AGREEMENT is made and entered into as of the ___ day of _________,
_____ ("Effective Date") by and between __________ (the "Executive") and SkyTel
Communications, Inc., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Company desires to continue to employ the Executive and to
enter into an agreement to provide for severance benefits to the Executive upon
a Change of Control (as hereinafter defined) of the Company, subject to the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS.
Unless the context otherwise requires, the following terms shall have the
meaning ascribed to them below:
(a) "Cause" means the occurrence of any of the following:
-----
(i) the commission by the Executive of any act of fraud or
embezzlement against the Company of any affiliate;
(ii) the conviction of the Executive of a felony;
(iii) the breach by the Executive of any restrictive covenant or
non-competition/non-solicitation provision applicable to
Executive; or
(iv) the willful and continual failure by the Executive to
perform any of his duties or responsibilities and the
failure of the Executive to cure the same within thirty
(30) days after written notice thereof from the Company.
(b) "Change of Control" means the occurrence of any of the following
-----------------
events:
(i) any "person" or "group," as such terms are used under
Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), other than the
Company, any trustee or any other fiduciary holding
securities under an employee benefit plan of the Company,
or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of Common Stock of the
Company, is or becomes the "beneficial owner" (as defined
in Rule 13d-3
<PAGE>
under the Exchange Act), of securities of the Company
representing thirty percent (30%) or more of the combined
voting power of the Company's voting securities then
outstanding;
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of
Directors of the Company, cease for any reason to
constitute a majority thereof (unless the election, or
nomination for election by the Company's stockholders, of
such director was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of such period or whose election
or nomination for election was previously so approved).
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with another corporation,
other than (A) a merger or consolidation which would result
in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting
securities of the surviving entity) more than eighty
percent (80%) of the combined voting power of the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation,
or (B) a merger or consolidation affected to implement a
recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires more
than thirty percent (30%) of the combined voting power of
the Company's voting securities then outstanding voting
securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or any agreement for the sale or
disposition by the Company of all or substantially all of
the Company's assets.
(c) "Confidential Information" means data and information relating to
------------------------
the business of the Company which is or has been disclosed to the
Executive during the term of his or her employment with the Company
or any of its subsidiaries or of which the Executive became aware
as a consequence of or through his or her relationship to the
Company or any of its subsidiaries. Confidential Information shall
not include any data or information that has been voluntarily
disclosed to the public by the Company (except where such public
disclosure has been made by the Executive without authorization),
or that has been independently developed and disclosed by others,
or that otherwise enters the public domain through lawful means.
2
<PAGE>
(d) "Good Reason" means the occurrence of any of the following events:
-----------
(i) the modification of the Executive's job title, position or
responsibilities without the Executive's prior written
consent;
(ii) the change of the location where the Executive is based to
a location which is more than thirty-five (35) miles from
his present location without the Executive's prior written
consent; or
(iii) the reduction of the Executive's actual or projected annual
salary and bonus by more than ten percent (10%) from the
sum of the highest rate of the Executive's actual annual
salary and bonus in effect within two years immediately
preceding the Change of Control.
2. BENEFITS UPON A CHANGE OF CONTROL
(a) Severance Benefits. If the Executive's employment with the Company
------------------
is terminated (i) by the Company (or by the acquiring or successor
business entity following a Change of Control) other than for
Cause, death or disability, or (ii) by the Executive for Good
Reason, in either event within a period beginning 180 days before,
and ending one year after, the date of a Change of Control, the
Executive shall receive a severance benefit in an amount equal to
two times the sum of:
(x) the Executive's highest annual cash base salary in effect
within two years immediately preceding the Change of
Control; plus
(y) the average of the Executive's annual bonuses paid for the
two calendar years immediately preceding the Change of
Control.
(b) Form of Payment. The amount of the severance benefit provided in
---------------
Section 2(a) hereof shall be paid to Executive in two installments,
the first installment payable as soon as practicable after the
occurrence of the event giving rise to the payment of the severance
benefit by the Company hereunder, but in no event more than thirty
(30) days thereafter, and the second installment payable one year
following the occurrence of such event provided, however, that the
severance benefit payable by the Company pursuant to Section 2(a)
hereof will be reduced by any other cash payments made to the
Executive pursuant to any other written agreement between the
Executive and the Company as a result of the occurrence of a Change
of Control.
(c) Parachute Payment Offset. Notwithstanding the provisions of
------------------------
Section 2(a) hereof, if payments and benefits under this Agreement
when combined with all other "payments in the nature of
compensation" (within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code") payable in the event
of a Change of Control would result in a "parachute payment" within
the meaning of Code Section 280G of the Code, as determined by the
Company, then the aggregate payments and benefits hereunder shall
not exceed the largest amount (when combined
3
<PAGE>
with all other "payments in the nature of compensation"), as
determined by the Company, that can be paid to the Executive by the
Company without resulting in a "parachute payment." In the event
the aggregate payments and benefits hereunder are required to be
reduced, Executive shall be entitled to choose which payments and
benefits hereunder will be reduced.
3. MITIGATION. The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, and the amount of any payment or benefit provided for in this
Agreement shall not be reduced by any compensation earned by the Executive
as a result of employment by another employee or by retirement benefits
except as provided in Sections 2(b) and 2(c) hereof.
4. NON-COMPETITION, NON-SOLICITATION AND NON-DISCLOSURE OF PROPRIETARY
INFORMATION.
(a) Agreement Not to Compete. The Executive agrees that for a period
------------------------
of one(1) year after the termination of his employment with the
Company (the "Applicable Period"), the Executive will not (except
with the prior written consent of the Company) engage in or assist
indirectly, whether as an officer, director, partner, owner,
employee, consultant, agent or otherwise, or have a controlling
interest in any business or enterprise that competes in the United
States with the business of providing one-way or two-way messaging
businesses in which the Company and its subsidiaries are engaged.
(b) Agreement Not to Solicit Customers. The Executive agrees that
----------------------------------
during the Applicable Period he will not, either directly or
indirectly, on the Executive's own behalf or in the service of or
on behalf of others, solicit or divert, or attempt to solicit or
divert any individual or entity (i) which was a customer of the
Company or any of its subsidiaries affiliates or joint ventures, or
(ii) with whom the Executive had direct or indirect contact as part
of his employment during the Executive's last year of employment
with the Company or any of its subsidiaries, affiliates or joint
ventures.
(c) Agreement Not to Solicit Employees. The Executive agrees that
----------------------------------
during the Applicable Period he will not, either directly or
indirectly, on the Executive's own behalf or in the service of or
on behalf of others, solicit, divert or hire away, or attempt to
solicit, divert or hire away, any person employed by the Company or
any of its subsidiaries, affiliates or joint ventures.
(d) Agreement Not to Disclose Confidential Information.
--------------------------------------------------
(i) Confidentiality. All Confidential Information and all
---------------
physical embodiments thereof received or developed by the
Executive while employed by the Company are confidential
and will remain the sole and exclusive property of the
Company. The Executive will hold such Confidential
Information in trust and strictest confidence and will not
use, reproduce, distribute, publicly disclose or otherwise
disseminate to any third party any Confidential
4
<PAGE>
Information or any physical embodiments thereof for a
period of two (2) years following the termination of
Executive's employment with the Company.
(ii) Return of Company Property. Upon termination of the
--------------------------
Executive's employment with the Company, the Executive
will promptly deliver to the Company all property
belonging to the Company including, without limitation,
all Confidential Information then in the Executive's
custody, control or possession.
(e) Terms of This Section Not to Supersede Other Restrictive Provisions.
-------------------------------------------------------------------
The terms and conditions contained in this Section shall not
supersede the terms and conditions of any other agreements
applicable to the Executive, but are in addition thereto.
5. TERM. This Agreement shall remain in effect until earlier of (a) one year
after the occurrence of a Change of Control; or (b) three years from the
Effective Date of this Agreement; provided that if a Change of Control
occurs between the second and third years following the Effective Date,
this Agreement will terminate one year after the Change of Control.
6. NO GUARANTEE OF EMPLOYMENT. Notwithstanding any other provision of this
Agreement to the contrary, nothing in this Agreement shall entitle the
Executive to be employed for any certain period of time by the Company or
its subsidiaries or affiliates, and the Company or the Executive shall have
the right to terminate the employment relationship at any time.
7. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants
to the Executive that: (a) this Agreement has been duly authorized,
executed and delivered to the Company and constitutes the valid and binding
obligation of the Company enforceable in accordance with its terms; (b) the
execution and delivery of this Agreement by the Company does not violate
any provision of applicable law, rule or regulation, or the certificate of
incorporation or bylaws of the Company.
8. WAIVER OF BREACH. It is agreed that failure on the part of one party to
this Agreement to seek to enforce this Agreement as to a specific breach
will not constitute a waiver by that party of its or his right to enforce
the Agreement as to similar or other breaches of the Agreement thereafter.
9. AMENDMENTS; FURTHER ACTIONS. This Agreement may not be altered, modified or
amended except by a written instrument signed by each of the parties
hereto. The Company shall take whatever additional actions may be necessary
or appropriate to carry out its obligations under this Agreement and to
permit the Executive to enforce his other rights and benefits hereunder.
10. ASSIGNMENT; SURVIVAL OF RIGHTS.
5
<PAGE>
(a) Neither this Agreement nor any of the rights or obligations
hereunder may be assigned or delegated by the Executive, provided,
however, that this Agreement and all the benefits to which the
Executive is entitled hereunder shall inure to the benefit of and
be enforceable by the estate of the Executive and the Executive's
personal or legal representatives, executors, administrators, heirs
and beneficiaries.
(b) This Agreement shall be binding upon the Company and its successors
and assigns. Upon the occurrence of a Change of Control, the
Company shall assign this Agreement to the acquiring or successor
business entity effective as of the date of such Change of Control,
and such acquiring or successor business entity shall assume and
perform all of the obligations, terms and provisions imposed by
this Agreement upon the Company. The Company shall take whatever
actions are necessary or appropriate to assure that such acquiring
or successor entity expressly assumes the obligations of the
Company to Executive under this Agreement and shall cause such
successor business entity to evidence the assumption of such
obligations in an agreement satisfactory to the Executive.
11. SEVERABILITY. In the event that any one or more of the provisions of this
Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby.
12. ENTIRE AGREEMENT. This agreement contains the entire understanding of the
parties with respect to the subject matter hereof.
13. NOTICES. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by United State registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Executive to:
_______________________
_______________________
If to the Company to:
SkyTel Communications, Inc.
200 South Lamar Street
Skytel Centre, South Building
Jackson, Mississippi 39201
Attn: Senior Vice President and General Counsel
or to such other address as the Executive or the Company shall designate
in writing in accordance with this Section 13, except that notices
regarding changes in address shall be effective only upon receipt.
6
<PAGE>
14. HEADINGS. Heading to sections in this Agreement are for the convenience of
parties only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
15. GOVERNING LAW. This Agreement shall be governed by the laws of the State
of Mississippi without reference to the principles of conflict of laws.
The parties hereto consent to the jurisdiction of the federal and state
courts of the State of Mississippi in connection with any claim of
controversy arising out of or in connection with this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written.
SKYTEL COMMUNICATIONS, INC.
__________________________________________
Name:
Title:
EXECUTIVE
__________________________________________
Name:
Title:
7
<PAGE>
Exhibit 21.1
SUBSIDIARIES
STATE/JURISDICTION
NAME OF INCORPORATION
- ---- ----------------
DOMESTIC SUBSIDIARIES
SkyTel Corp....................................... Delaware
Mtel Technologies, Inc............................. Delaware
Mtel Maine, Inc.................................... Delaware
Mtel International, Inc............................ Delaware
Mtel Latin America, 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
SkyTel Telecomnicaciones 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, S.A.*...................... Costa Rica
Fagem Electronica, S.A............................. Costa Rica
Mtel Colombia S.A.................................. Colombia
Radio Aviso S.A.................................... Uruguay
Nubal S.A.......................................... Uruguay
Mtel China, Inc.*.................................. British Virgin Islands
SkyTel (UK) Limited*............................... England and Wales
Mtel (UK) Limited*................................. England and Wales
OTHER INVESTMENTS
SkyTel Systems (Malaysia) Sdn Bhd.................. Malaysia
P.T. SkyTelindo Services Sdn Bhd................... Indonesia
Buscapersona Cia., Ltd............................. Ecuador
Mtel Dominicana, S.A............................... Dominican Republic
Mtel Guatemala S.A................................. Guatemala
SkyTel Panama*..................................... Panama
Communicaciones Mtel S.A. de C.V................... Mexico
Mtel Paraguay S.A.E.C.A............................ Paraguay
* Inactive corporations currently conducting no business activities.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 17, 1999 included in this Annual Report on Form 10-K for
the year ended December 31, 1998 into SkyTel Communication, Inc.'s, formerly
Mobile Telecommunication Technologies Corp., previously filed Registration
Statements on Form S-8, File Nos. 33-31617, 33-42494, 33-55722, 33-62032, 33-
64583 and 333-53727 and Registration Statement on Form S-3, File No. 333-16245.
ARTHUR ANDERSEN LLP
Jackson, Mississippi,
March 29, 1999.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Consolidated
Balance Sheet as of December 31, 1998 and Consolidated Statement of Operations
for the year ended December 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 17,000,752
<SECURITIES> 0
<RECEIVABLES> 72,303,485
<ALLOWANCES> 22,750,320
<INVENTORY> 0
<CURRENT-ASSETS> 73,999,404
<PP&E> 465,738,046
<DEPRECIATION> 205,035,094
<TOTAL-ASSETS> 633,196,825
<CURRENT-LIABILITIES> 120,190,049
<BONDS> 364,662,400
37,500
0
<COMMON> 600,242
<OTHER-SE> 123,306,947
<TOTAL-LIABILITY-AND-EQUITY> 633,196,825
<SALES> 518,293,830
<TOTAL-REVENUES> 518,293,830
<CGS> 0
<TOTAL-COSTS> 485,073,356
<OTHER-EXPENSES> 211,181
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,136,790
<INCOME-PRETAX> (19,057,603)
<INCOME-TAX> 3,450,288
<INCOME-CONTINUING> (22,507,891)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (58,128,849)
<NET-INCOME> (80,636,740)
<EPS-PRIMARY> (1.57)
<EPS-DILUTED> (1.57)
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