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Filed Pursuant to Rule 424(B)(3)
Registration No. 333-15523
[PAGNET LOGO]
OFFER TO EXCHANGE
10% SENIOR SUBORDINATED NOTES DUE OCTOBER 15, 2008
FOR
ALL OUTSTANDING 10% SENIOR SUBORDINATED NOTES DUE OCTOBER 15, 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME ON DECEMBER 23, 1996,
UNLESS EXTENDED
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Paging Network, Inc., a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal" and, together with the Prospectus, the "Exchange
Offer"), to exchange up to an aggregate principal amount of $500,000,000 of its
registered 10% Senior Subordinated Notes due October 15, 2008 (the "Exchange
Notes") for up to an aggregate principal amount of $500,000,000 of its
outstanding unregistered 10% Senior Subordinated Notes due October 15, 2008 (the
"Outstanding Notes"). The terms of the Exchange Notes are identical in all
material respects to those of the Outstanding Notes, except for certain transfer
restrictions and registration rights relating to the Outstanding Notes and
except for certain interest provisions related to such registration rights. The
Exchange Notes will be issued pursuant to, and entitled to the benefits of, the
Indenture (as defined herein) governing the Outstanding Notes. The Exchange
Notes and the Outstanding Notes are sometimes referred to collectively as the
"Notes."
The Notes are unsecured obligations of the Company and are subordinate in
right of payment to all Senior Debt of the Company. As of October 28, 1996, the
aggregate amount of Senior Debt outstanding was $24.5 million, and approximately
$333.2 million was available for borrowing under the Company's Credit Agreement
(as defined herein).
The Company will accept for exchange any and all Outstanding Notes which
are properly tendered in the Exchange Offer prior to 5:00 p.m., New York time,
on December 23, 1996, or such later date to which it is extended by the Company
in its sole discretion (the "Expiration Date"). The Exchange Offer will not in
any event be extended to a date beyond January 31, 1997. Tenders of Outstanding
Notes may be withdrawn at any time prior to 5:00 p.m., New York time, on the
Expiration Date. If the Company terminates the Exchange Offer and does not
accept for exchange any Outstanding Notes with respect to the Exchange Offer,
the Company will promptly return the Outstanding Notes to the holders thereof.
The Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange, but is otherwise subject to
certain customary conditions. The Outstanding Notes may be tendered only in
integral multiples of $1,000.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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The date of this Prospectus is November 12, 1996.
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THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE COMPANY. ANY SUCH REQUEST SHOULD BE DIRECTED TO MARY V. HAYNES, VICE
PRESIDENT -- INVESTOR AND PUBLIC RELATIONS, PAGING NETWORK, INC., 4965 PRESTON
PARK BLVD., SUITE 600, PLANO, TEXAS 75093, TELEPHONE NUMBER (972) 985-4100. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AT
LEAST FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE.
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Exchange and Registration Rights
Agreement dated October 16, 1996 (the "Registration Rights Agreement") by and
among the Company, Goldman, Sachs & Co., Salomon Brothers Inc and Bear, Stearns
& Co. Inc., as the initial purchasers (the "Initial Purchasers") with respect to
the initial sale of the Outstanding Notes. Based on positions taken by the staff
of the Securities and Exchange Commission (the "Commission") that have been
enunciated in no-action letters issued in Exxon Capital Holdings Corp. (May 13,
1988) and Morgan Stanley & Co. Inc. (June 5, 1991), among others, the Company
believes that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for Outstanding Notes may be offered for resale, resold and otherwise
transferred by the respective holders thereof (other than any such holder which
is (i) an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), or (ii) a
broker-dealer who acquired Outstanding Notes for resale pursuant to an exemption
from the registration requirements of the Securities Act) without compliance
with the registration and prospectus delivery provisions under the Securities
Act, provided that (A) such Exchange Notes are acquired in the ordinary course
of such holders' business, (B) such holders are not engaged in, and do not
intend to engage in, and have no arrangement or understanding with any person to
participate in, a distribution of such Exchange Notes, and (C) as provided in
the next paragraph certain broker-dealers will be subject to a prospectus
delivery requirement with respect to resales of such Exchange Notes.
Each holder who is a broker-dealer and who receives Exchange Notes for its
own account in exchange for Outstanding Notes that were acquired by it as a
result of market making activities or other trading activities (a "Participating
Broker-Dealer") will be required to acknowledge that it will deliver a
prospectus in connection with any resale by it of such Exchange Notes. To date,
the staff of the Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as the exchange
pursuant to the Exchange Offer (other than a resale of an unsold allotment from
the sale of the Outstanding Notes to the Initial Purchasers thereof) with the
Prospectus contained in the registration statement (the "Exchange Offer
Registration Statement"), under the Securities Act, relating to the Exchange
Offer. Pursuant to the Registration Rights Agreement, the Company has agreed to
permit Participating Broker-Dealers and other persons, if any, subject to
similar prospectus delivery requirements to use this Prospectus in connection
with the resale of such Exchange Notes. The Company has agreed that, for a
period of 90 days after the Exchange Offer has been consummated, it will make
this Prospectus, and any amendment or supplement to this Prospectus, available
to any broker-dealer that requests such documents in the Letter of Transmittal.
Prior to the Exchange Offer, there has been no public market for the
Exchange Notes. There can be no assurance as to the liquidity of any markets
that may develop for the Exchange Notes, the ability of holders to sell the
Exchange Notes or the price at which holders would be able to sell the Exchange
Notes. The Company does not intend to list the Exchange Notes for trading on any
national securities exchange or over-the-counter market system. Future trading
prices of the Exchange Notes will depend on many factors, including, among other
things, prevailing interest rates, the Company's operating results and the
market for similar securities. Historically, the market for securities similar
to the Exchange Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that any market for the Exchange Notes, if
such market develops, will not be subject to similar disruptions.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay certain expenses incident to the Exchange Offer.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER, OR A SOLICITATION
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
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<S> <C>
Available Information................................................................. 4
Incorporation of Certain Information by Reference..................................... 4
Prospectus Summary.................................................................... 6
Risk Factors.......................................................................... 14
Use of Proceeds....................................................................... 17
Capitalization........................................................................ 18
The Exchange Offer.................................................................... 18
Selected Financial and Operating Data................................................. 26
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 28
Business.............................................................................. 34
Description of Senior Debt............................................................ 46
Description of the Exchange Notes..................................................... 47
United States Federal Income Tax Consequences of the Exchange of Notes................ 65
Plan of Distribution.................................................................. 66
Legal Matters......................................................................... 67
Experts............................................................................... 67
Index to Financial Statements......................................................... F-1
</TABLE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the Exchange Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Company is subject to the periodic reporting
and other informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Periodic reports, proxy statements and other
information filed by the Company with the Commission may be inspected at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, or at its regional offices located at the Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, 13th Floor, New York, New York 10048. The Commission also
maintains a Web site that contains reports, proxy and information statements,
and other information regarding the Company at http://www.sec.gov. Copies of
such material can be obtained from the Company upon request.
The Company has agreed to file with the Commission, to the extent
permitted, and distribute to holders of the Exchange Notes reports, information
and documents specified in Section 13 and 15(d) of the Exchange Act, so long as
the Exchange Notes are outstanding, whether or not the Company is subject to
such informational requirements of the Exchange Act.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents heretofore filed by the Company with the Commission
are hereby incorporated herein by reference: (i) the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995; (ii) the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June
30, 1996; (iii) the Company's Current Report on Form 8-K/A dated April 3, 1995,
which includes audited financial statements of Comtech, Inc. -- Paging Division,
SNET Paging, Inc. and TNI Associates, Inc. and unaudited pro forma combined
condensed financial statements; (iv) the Company's Current Report on Form 8-K
dated October 31, 1995, which includes audited financial statements of Celpage,
Inc. (Atlanta Branch) and unaudited pro forma combined condensed financial
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statements; (v) the Company's Current Report on Form 8-K dated October 16, 1996;
and (vi) all other reports filed by the Registrant pursuant to Section 13(a) or
15(d) of the Exchange Act since the end of the fiscal year covered by the Annual
Report referred to in (i) above. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the consummation of the Exchange Offer shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. Holders of
the Outstanding Notes should carefully consider the factors set forth in "Risk
Factors."
THE COMPANY
Paging Network, Inc. (the "Company") is the largest provider of paging
services in the United States. As of June 30, 1996, the Company had
approximately 7.9 million pagers in service in the United States, more than the
combined number of pagers in service of the second and third largest U.S.
providers of paging services. The Company provides paging services in all 50
states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico,
including local paging service in virtually all of the largest 100 markets (in
population) in the United States. The Company believes that it is one of the
fastest growing major providers of paging and wireless messaging services in the
United States and that it has the lowest cost operating structure, which enables
it to compete aggressively on price while maintaining high quality service. See
"Business -- Strategy."
The Company's revenues from services, rent and maintenance, plus product
sales, less the cost of products sold ("Net Revenues"), and the number of pagers
in service with its subscribers have increased rapidly over the past five years.
The Company's Net Revenues have grown from $111.2 million in 1990 to $552.6
million in 1995, a compound annual rate of approximately 38%. From January 1,
1990 to December 31, 1995, the number of pagers in service with subscribers of
the Company (net of dispositions of paging operations) has grown at a compound
annual rate of approximately 49%. From 1990 to 1995, earnings before interest,
income taxes, depreciation and amortization ("EBITDA") have increased from $39.3
million to $201.1 million, representing a compound annual growth rate of
approximately 39%. (EBITDA is not a measure defined in generally accepted
accounting principles and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles.) See "Business -- General."
The Company's strategy is to strengthen its industry leadership by
continuing to provide superior paging and messaging services at prices generally
below those of the competition. The Company intends to significantly increase
its market share and the number of paging units in service in its direct and
indirect sales channels and its National Accounts Division by focusing on a
variety of new products and services. The Company also intends to enhance the
overall effectiveness of its nationwide digital transmission network for one-way
messaging services. Key components of the Company's strategy include:
LOW-COST STRUCTURE -- Management believes the key to its success in the
paging and wireless communications industry is its ability to provide low-cost,
high-quality service. The Company has achieved its status as a low-cost provider
because of two primary factors. First, because the Company is one of the largest
volume purchasers of pagers and paging infrastructure equipment, it is able to
obtain volume discounts not available to many of its competitors. Second, the
Company has made investments which improve the efficiency of its operations,
including investments in administrative and customer information systems and
high-quality, large-capacity transmission systems which allow the Company to
serve more customers on fewer frequencies and to operate with less manpower.
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CONTINUED GROWTH IN CORE PAGING BUSINESS -- The Company currently
provides local, regional and nationwide paging services utilizing primarily
numeric display and alphanumeric display pagers, with voice mail available as a
supplemental service. The Company is also the exclusive wireless provider of CNN
news, sports, and financial market headlines. In 1995, exclusive of
acquisitions, pagers in service with subscribers of the Company grew by
approximately 2 million units, or 45%. Through a combination of increased
penetration and market share gains, the Company believes its core paging
business will continue to provide significant future growth.
SUPERIOR GEOGRAPHIC COVERAGE AND NETWORK INFRASTRUCTURE -- The Company
believes that its geographic coverage and state-of-the-art paging network
combine to provide a superior paging service. The Company provides paging
services in virtually all of the largest 100 markets (in population) in the
United States and its paging system reaches more than 90% of the U.S.
population. The Company utilizes state-of-the-art network infrastructure
equipment which enables it to service a high number of pagers per frequency,
lowering the Company's infrastructure expenditure per subscriber.
SPECTRUM -- The Company believes that it has accumulated sufficient
spectrum to accommodate growth across the country for the foreseeable future and
considers its extensive spectrum holdings to be one of its most important
strategic assets. The Company has five nationwide frequencies for its paging
services, more than any other paging provider, and significant local frequencies
in the major U.S. markets. In addition, in 1994 the Company acquired three
nationwide narrowband personal communication services ("PCS") frequencies in a
Federal Communications Commission ("FCC") auction at a cost of $197 million. In
1996 the Company participated in the FCC auction of specialized mobile radio
("SMR") frequency licenses, and ultimately won two to four blocks of two-way
spectrum across the United States for a total of $45.6 million. The Company is
in the process of purchasing exclusive rights to certain of these SMR
frequencies from incumbent operators. Expenditures for such purchases are
estimated to total $200 million in 1996 and 1997. Total SMR frequency acquired
is expected to approximate three times the frequency acquired in the 1994 PCS
auctions.
The Company will utilize the PCS and SMR frequencies to offer products
requiring two-way service, such as VoiceNow(R) and low-cost, nationwide
alphanumeric service. To increase network capacity, a paging carrier can either
add additional transmitters to the system or utilize additional spectrum. The
Company believes utilizing SMR frequencies, rather than adding transmitters,
will provide a greater return on investment and allow for significantly greater
numbers of subscribers.
TWO-WAY WIRELESS SERVICES -- The Company is working with Motorola, Inc. and
Glenayre Technologies, Inc. to deploy a new nationwide two-way digital
transmission network using its PCS and SMR frequencies which it believes will be
the highest quality, most extensive and most cost-effective network of its kind
in the country. This network will represent the next generation of wireless
messaging technology, with greater speed and capacity than existing networks.
Management believes that this network and the Company's nationwide frequencies
will offer significant strategic opportunities. While paging will remain the
Company's core business, this network will be a strategic asset that allows
further penetration of the business market with new communications services and
new opportunities for growth in the consumer market.
- - VOICENOW(R) -- The new two-way network will initially be used primarily for
VoiceNow(R), the Company's new digitized voice messaging service, which the
Company is currently field testing. Because of its features, the Company
believes VoiceNow(R) will appeal to the consumer market not traditionally
reached by paging services as well as businesses. VoiceNow(R) subscribers will
carry a portable receiver, approximately the same size as an alphanumeric
pager, that is capable of receiving, storing and playing brief digitized voice
messages. The Company expects to price the VoiceNow(R) service at
approximately $9.95 per month for local service plus the lease of the
subscriber device. Once technological and marketing tests are complete, the
Company intends to begin commercial deployment throughout the country. The
Company expects to have several hundred units in service with selected
commercial customers by the end of 1996 and a major launch of the product in
the first quarter of 1997.
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- - OTHER NEW TWO-WAY WIRELESS SERVICES -- In addition to the traditional paging
services and VoiceNow(R), the Company expects to introduce other two-way
messaging products, such as a new, low-cost, nationwide alphanumeric paging
and data messaging services. The new alphanumeric service is expected to be
deployed over the Company's new nationwide two-way network in 1997. The new
two-way network uses less spectrum by determining the location of the
alphanumeric pager and sending the message via typically the closest
transmitter, rather than by all transmitters simultaneously. By utilizing the
closest transmitter to send the message the costs of providing nationwide
alphanumeric service approximates the cost of providing local alphanumeric
service today. The Company expects that this new low-cost system will enable
it to provide nationwide alphanumeric service to customers at lower prices and
that this will increase the demand for alphanumeric paging and will expand the
Company's market position.
DISTRIBUTION -- The Company believes its distribution channels provide the
broadest marketing reach in the industry. The Company uses three distribution
channels -- direct, indirect and its National Accounts Division. In the direct
channel, the Company leases or sells pagers to customers and charges a monthly
fee for paging service. In the indirect channel, the Company sells pagers to
third parties and provides paging service at reduced rates. The resellers, in
turn, lease or resell the pagers to their own subscribers and resell the
Company's paging service under marketing agreements. The reseller is responsible
for customer service, billing and other associated expenses. Through its
National Accounts Division, the Company partners with other companies that are
regional or national in scope with large client bases. These partners market the
Company's paging services to their customers or potential customers, with the
Company providing a variety of services, which can include pager leasing,
customer service, order fulfillment, and billing. Throughout 1995 and 1996 the
Company has been selected by a variety of companies to provide these services,
including Citizens Telecom, Comcast Cellular, Communications Expo, GTE Telephone
Operations ("GTE"), MCI Communications ("MCI"), Sprint TeleCommunications
Venture ("Sprint"), and TransNational Communications International. The Company
believes these marketing affiliates, which primarily reach the consumer market,
also offer an excellent means of selling, distributing and servicing its
VoiceNow(R) product.
INTERNATIONAL EXPANSION -- On April 1, 1996, the Company, with its Canadian
partner, Madison Venture Corp., commenced offering paging services in Canada. In
September 1996, the Company announced that it had purchased a 25% interest in a
Spanish paging company. The Company is considering other opportunities for
international expansion. Paging market penetration in many international markets
is relatively low, and many such markets have only a small number of existing
paging providers. The Company believes that in these areas its strategy of
low-cost, high quality service is likely to be successful. The Company's goal is
to create a portfolio of international operations. The Company expects to invest
up to $100 million in this endeavor through 1998, including approximately $32
million invested to date. Additional investments will depend on such factors as
growth rates, new market opportunities and execution of financing plans that
maximize value for the Company's stockholders.
RECENT DEVELOPMENTS
On October 24, 1996, the Company reported consolidated Net Revenues for the
third quarter of 1996 of $180.8 million and EBITDA of $65 million. EBITDA
margins for such period were 36%. The Company added 562,706 net new subscribers
in service during the quarter. These results include the impact from the
Company's international operations, which accounted for $2.5 million in EBITDA
losses and 12,358 net new subscribers in service. The Company's domestic EBITDA
margins were 37.5%.
On October 16, 1996 the Company completed an offering of $500 million of
the Outstanding Notes, the net proceeds of which were used to repay
approximately $417.2 million of revolving loans and accrued interest under its
Credit Agreement, with the balance to be used for frequency acquisitions,
capital expenditures and general corporate purposes.
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THE EXCHANGE OFFER
THE EXCHANGE NOTES.......The form and terms of the Exchange Notes are identical
in all material respects to the terms of the
Outstanding Notes for which they may be exchanged
pursuant to the Exchange Offer, except for certain
transfer restrictions and registration rights relating
to the Outstanding Notes and except for certain
interest provisions relating to such registration
rights described below under "Description of the
Exchange Notes."
THE EXCHANGE OFFER.......The Company is offering to exchange up to $500,000,000
aggregate principal amount of its registered 10% Senior
Subordinated Notes due October 15, 2008 (the "Exchange
Notes") for up to $500,000,000 aggregate principal
amount of its outstanding unregistered 10% Senior
Subordinated Notes due October 15, 2008 (the
"Outstanding Notes"). Outstanding Notes may be
exchanged only in integral multiples of $1,000.
EXPIRATION DATE;
WITHDRAWAL OF TENDER...The Exchange Offer will expire at 5:00 p.m., New York
time, on December 23, 1996, or such later date to which
it is extended by the Company in its sole discretion
(the "Expiration Date"). The Exchange Offer will not in
any event be extended to a date beyond January 31,
1997. The tender of Outstanding Notes pursuant to the
Exchange Offer may be withdrawn at any time prior to
5:00 p.m., New York time, on the Expiration Date. Any
Outstanding Notes not accepted for exchange for any
reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
CERTAIN CONDITIONS TO
THE EXCHANGE OFFER.....The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Certain Conditions to the
Exchange Offer."
PROCEDURES FOR TENDERING
OUTSTANDING NOTES......Each holder of Outstanding Notes wishing to accept the
Exchange Offer must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such Letter of Transmittal,
or such facsimile, together with such Outstanding Notes
(or a timely confirmation of book-entry transfer of
such Outstanding Notes, if such procedure is available)
and any other required documentation to the Exchange
Agent (as defined) at the address set forth herein. By
executing the Letter of Transmittal, each holder will
represent to the Company that, among other things, (i)
any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, (ii)
it is not engaging in, and does not intend to engage
in, a distribution of the Exchange Notes, (iii) it has
no arrangement with any person to participate in the
distribution of the Exchange Notes and (iv) it is not
an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company.
INTEREST ON THE EXCHANGE
NOTES..................The Exchange Notes will bear interest from October 16,
1996 at the rate of 10% per annum, payable on April 15
and October 15, commencing April 15, 1997, to holders
of record on the immediately preceding April 1 and
October 1, respectively. Holders of Outstanding Notes
whose Outstanding Notes are accepted for exchange will
be deemed to have waived
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the right to receive any payment in respect of interest
on the Outstanding Notes.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS..... Any beneficial owner whose Outstanding Notes are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to
tender such Outstanding Notes in the Exchange Offer
should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on its own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering its Outstanding Notes,
either make appropriate arrangements to register
ownership of the Outstanding Notes in such owner's name
or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership
may take considerable time and may not be able to be
completed prior to the Expiration Date.
GUARANTEED DELIVERY
PROCEDURES............ Holders of Notes who wish to tender their Outstanding
Notes and whose Outstanding Notes are not immediately
available or who cannot deliver their Outstanding
Notes, the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the Exchange
Agent prior to the Expiration Date, must tender their
Outstanding Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
REGISTRATION
REQUIREMENTS.......... The Company has agreed to use its best efforts to
consummate the Exchange Offer to offer holders of the
Outstanding Notes an opportunity to exchange their
Outstanding Notes for the Exchange Notes which will be
issued without legends restricting the transfer
thereof. However, if on or before the date of
consummation of the Exchange Offer the existing
Commission interpretations are changed such that the
Exchange Notes would not in general be freely
transferable on such date, the Company has agreed, in
lieu of effecting registration of the Exchange Notes,
to use its best efforts to cause a registration
statement under the Securities Act relating to a shelf
registration of the Outstanding Notes for resale by
holders (the "Resale Registration") to become effective
and to remain effective for a period of up to three
years after the time and date as of which the
Commission declares the Resale Registration effective.
See "The Exchange Offer -- Purpose and Effect of the
Exchange Offer."
CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS.... For a discussion of certain federal income tax
considerations relating to the exchange of Notes, see
"United States Federal Income Tax Consequences of the
Exchange of Notes."
USE OF PROCEEDS......... There will be no cash proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
EXCHANGE AGENT.......... Fleet National Bank is the Exchange Agent. The address
and telephone number of the Exchange Agent are set
forth in "The Exchange Offer -- Exchange Agent."
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SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
SECURITIES.............. $500,000,000 aggregate principal amount of 10% Senior
Subordinated Notes due October 15, 2008.
MATURITY DATE........... October 15, 2008.
INTEREST PAYMENT DATES.. April 15 and October 15, commencing April 15, 1997.
OPTIONAL REDEMPTION..... The Exchange Notes will be redeemable, in whole or in
part, at the option of the Company at any time on or
after October 15, 2001 at the redemption prices set
forth herein plus accrued interest to the redemption
date.
REPURCHASE OBLIGATION... The Company will be required to offer to repurchase all
outstanding Exchange Notes at 101% of principal amount
plus accrued interest promptly after the occurrence of
a Change of Control (as defined). See "Description of
the Exchange Notes -- Covenants -- Change of Control."
MANDATORY SINKING
FUND.................. None.
RANKING................. The Exchange Notes will be general unsecured
obligations of the Company and will be subordinated to
all existing and future Senior Debt (as defined) of the
Company. The Indenture pursuant to which the Exchange
Notes are to be issued will provide that the Company
will not incur any debt that is subordinate in right of
payment to any Senior Debt of the Company and senior in
right of payment to the Exchange Notes. The Exchange
Notes will rank pari passu with the Company's 11.75%
Senior Subordinated Notes due May 15, 2002, the
Company's 8.875% Senior Subordinated Notes due February
1, 2006, and the Company's 10.125% Senior Subordinated
Notes due August 1, 2007. See "Description of the
Exchange Notes -- Covenants -- Limitation on Certain
Debt" and " -- Subordination."
CERTAIN COVENANTS....... The Indenture will contain certain covenants that,
among other things, limit the ability of the Company
and its subsidiaries to incur indebtedness, pay
dividends, engage in transactions with affiliates, sell
assets, and engage in mergers and consolidations and
other acquisitions. See "Description of the Exchange
Notes -- Covenants."
- --------------------------------------------------------------------------------
11
<PAGE> 12
- --------------------------------------------------------------------------------
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
The summary financial data presented below are derived from the audited and
unaudited consolidated financial statements of the Company. The unaudited
financial statements include all adjustments, consisting of normal recurring
adjustments, which management considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the six months ended June 30, 1996, are not necessarily indicative
of the results that may be expected for the entire year ending December 31,
1996. The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus and
should be read in conjunction with such information and statements. Throughout
this section the Company makes reference to EBITDA, which is defined as earnings
before interest, income taxes, depreciation and amortization. EBITDA is a key
performance measure used in the paging industry and is one of the financial
measures by which the Company's covenants are calculated under the agreements
governing its debt obligations. EBITDA is not a measure defined in generally
accepted accounting principles and should not be considered in isolation or as a
substitute for measures of performance in accordance with generally accepted
accounting principles.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Services, rent and maintenance
revenues........................... $145,793 $206,198 $294,979 $389,919 $532,079 $240,310 $325,811
Product sales........................ 20,575 51,600 78,915 99,765 113,943 54,756 59,741
-------- -------- -------- -------- -------- -------- --------
Total revenues....................... 166,368 257,798 373,894 489,684 646,022 295,066 385,552
Cost of product sold................. (13,126) (35,909) (62,495) (78,102) (93,414) (44,346) (50,476)
-------- -------- -------- -------- -------- -------- --------
153,242 221,889 311,399 411,582 552,608 250,720 335,076
Services, rent and maintenance
expenses........................... 25,093 37,437 57,343 74,453 109,484 48,727 69,561
Selling expenses..................... 21,491 34,135 44,836 60,555 67,561 31,938 39,081
General and administrative
expenses........................... 49,397 74,754 108,993 136,539 174,432 81,240 102,867
Depreciation and amortization........ 41,154 58,683 87,430 107,362 148,997 67,420 96,855
-------- -------- -------- -------- -------- -------- --------
Total operating expenses............. 137,135 205,009 298,602 378,909 500,474 229,325 308,364
-------- -------- -------- -------- -------- -------- --------
Operating income..................... 16,107 16,880 12,797 32,673 52,134 21,395 26,712
Interest expense..................... 25,365 23,638 32,808 53,717 102,846 44,385 59,888
Interest income...................... -- -- -- 3,079 6,511 -- 2,538
-------- -------- -------- -------- -------- -------- --------
Loss before extraordinary item....... (9,258) (6,758) (20,011) (17,965) (44,201) (22,990) (30,638)
Extraordinary item(1)................ -- (14,884) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net loss............................. $ (9,258) $(21,642) $(20,011) $(17,965) $(44,201) $(22,990) $(30,638)
======== ======== ======== ======== ======== ======== ========
Net loss per common share(2):
Before extraordinary item.......... $ (0.11) $ (0.06) $ (0.20) $ (0.18) $ (0.43) $ (0.23) $ (0.30)
Extraordinary item................. -- (0.15) -- -- -- -- --
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<CAPTION>
DECEMBER 31, JUNE 30, 1996
-------------------------------------------------------------- ---------------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
--------- --------- --------- --------- ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets............... $190,645 $304,747 $371,556 $706,008 $1,228,338 $1,218,022 $1,443,772
Long-term obligations,
including current
maturities............... 146,029 267,000 342,500 504,000 1,150,000 1,195,516 1,421,266
Total stockholders' equity
(deficit)................ 16,578 (4,818) (23,366) (39,908) (80,784) (109,233) (109,233)
</TABLE>
12
<PAGE> 13
- --------------------------------------------------------------------------------
<TABLE>
OTHER DATA:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Pagers in service (at end of period)... 1,281,643 2,077,954 3,068,569 4,408,842 6,737,907 5,415,269 7,881,764
Pagers in service per employee
(at end of period)................... 765 778 974 1,103 1,441 1,301 1,500
EBITDA (in thousands).................. $ 57,261 $ 75,563 $ 100,227 $ 140,035 $ 201,131 $ 88,815 $ 123,567
Capital expenditures (in thousands).... $ 71,875 $ 145,970 $ 145,625 $ 213,308 $ 312,289 $ 120,400 $ 191,340
EBITDA as a percentage of Net
Revenues(4).......................... 37.4% 34.1% 32.2% 34.0% 36.4% 35.4% 36.9%
Ratio of earnings to fixed
charges(5,6)......................... -- -- -- -- -- -- --
Ratio of EBITDA to interest expense.... 2.26x 3.20x 3.05x 2.61x 1.96x 2.00x 2.06x
Ratio of long-term obligations,
including current maturities, to
EBITDA(7)............................ 2.55x 3.53x 3.42x 3.60x 5.72x 4.88x 5.07x
Pro forma ratio of latest twelve
months' EBITDA to interest
expense(8)........................... -- -- -- -- -- -- 1.60x
Pro forma ratio of long-term
obligations to latest twelve months'
EBITDA(8)............................ -- -- -- -- -- -- 6.03x
<FN>
- ---------------
(1) Represents an extraordinary charge to terminate certain interest rate swaps
and to write-off loan origination fees associated with the Company's prior
credit agreement for its senior bank debt.
(2) Per share amounts have been restated to reflect stock splits in 1991, 1993
and 1995.
(3) As adjusted to give effect to the issuance of the Outstanding Notes and the
application of the net proceeds thereof. See "Use of Proceeds."
(4) Net Revenues represent revenues from services, rent and maintenance plus
product sales less cost of products sold.
(5) Earnings consist of loss before extraordinary item plus fixed charges. Fixed
charges consist of interest expense, amortization of debt financing costs,
and the portion of rental expense which management believes is
representative of the interest component of rental expense. For the years
ended December 31, 1991, 1992, 1993, 1994, and 1995, and for the six months
ended June 30, 1995 and 1996, earnings were insufficient to cover fixed
charges by $9.3 million, $6.8 million, $20.0 million, $18.0 million, $44.2
million, $23.0 million and $30.6 million, respectively.
(6) The pro forma deficiency of earnings available to cover fixed charges for
the year ended December 31, 1995 and the six months ended June 30, 1996 is
$47.4 million and $33.4 million, respectively, assuming a portion of the net
proceeds from the Outstanding Notes was used to repay borrowings under the
Credit Agreement as of January 1, 1995 and January 1, 1996, respectively.
(7) The ratios of long-term obligations to EBITDA for the six months ended June
30, 1995 and 1996 have been calculated as long-term obligations outstanding
as of June 30, 1995 and 1996 divided by EBITDA for the twelve months ended
June 30, 1995 and 1996, respectively.
(8) The pro forma ratio of the latest 12 months' EBITDA to interest expense and
the pro forma ratio of long-term obligations to the latest 12 months' EBITDA
assume the sale of the Outstanding Notes occurred on July 1, 1995 and that
the net proceeds were used to repay borrowings under the Credit Agreement.
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE> 14
RISK FACTORS
Prior to tendering Outstanding Notes in the Exchange Offer, holders of
Outstanding Notes should read this entire Prospectus carefully and should
consider, among other things, the risks and the speculative factors inherent in
and affecting the Company's business described below and throughout this
Prospectus.
SUBSTANTIAL CURRENT AND FUTURE INDEBTEDNESS
As a result of its rapid growth, the Company has incurred significant
amounts of indebtedness. As of October 28, 1996 the Company had $1.4 billion
(including the Outstanding Notes) in principal amount of senior subordinated
notes outstanding. The Company may make additional borrowings under the Credit
Agreement (as defined in "Description of Senior Debt"), although at October 28,
1996 no borrowings were outstanding under the Credit Agreement. In order to
continue its growth, the Company anticipates that the incurrence of additional
indebtedness will be required to continue to expand its paging business, develop
a new nationwide digital transmission network for digitized voice and two-way
data messaging services (including its new VoiceNow[Registered Trademark]
service), and pursue international opportunities. If the Company's cash flow
from operations were to decrease substantially and the Company continued to
pursue its growth strategy, the Company could experience difficulty in meeting
its debt service requirements without additional financing. However, if the
Company's cash flow from operations did decrease substantially, the Company
could modify its expansion strategy to reduce or eliminate the need for
additional financing. No assurance can be given that, in the event the Company
were to require additional financing, such additional financing, debt or
equity, would be available to the Company. The Company is not at the present
time experiencing difficulty meeting its debt service requirements and does not
anticipate that it will have any difficulty meeting its debt service
requirements after the issuance of the Exchange Notes contemplated by this
Prospectus. See "Description of Senior Debt," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
CURRENT AND FUTURE NET LOSSES
The Company has incurred a net loss in each year except the year ended
December 31, 1988, although since 1983 the Company has had EBITDA in each year.
(EBITDA is not a measure defined in generally accepted accounting principles and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.) A significant contributing factor to these net losses has been the
interest expense on borrowings by the Company to fund its growth and, in periods
prior to 1991, to make cash distributions to stockholders. For the years ended
December 31, 1991, 1992, 1993, 1994 and 1995, the Company had net losses of $9.3
million, $21.6 million, $20.0 million, $18.0 million and $44.2 million,
respectively. For the years ended December 31, 1991, 1992, 1993, 1994 and 1995,
the Company incurred interest expense of $25.4 million, $23.6 million, $32.8
million, $53.7 million and $102.8 million, respectively. At December 31, 1991
the stockholders' equity of the Company was $16.6 million and at December 31,
1992, 1993, 1994 and 1995, the stockholders' deficit of the Company was $4.8
million, $23.4 million, $39.9 million and $80.8 million, respectively. In
addition, due to the Company's strategy of continued growth and geographic
expansion, the Company's capital expenditures have exceeded its EBITDA in each
year since 1983. The Company expects that this trend will continue in 1996, and
possibly in future years, if the Company continues to pursue its growth
strategy. See "Selected Financial and Operating Data."
DEFICIENCY OF EARNINGS TO FIXED CHARGES
Fixed charges of the Company exceeded its earnings before extraordinary
item and fixed charges by $9.3 million, $6.8 million, $20.0 million, $18.0
million and $44.2 million for the years ended December 31, 1991, 1992, 1993,
1994 and 1995, respectively. There can be no assurance that the Company's
earnings before fixed charges will be sufficient to pay interest on the Notes.
14
<PAGE> 15
RISKS OF NEW NATIONWIDE NETWORK AND VOICENOW(R)
The Company will be required to make substantial capital expenditures in
order to develop its new nationwide digital transmission network. While the new
network may be used to provide a variety of digitized voice and two-way data
messaging services, the new network will initially be used primarily for
VoiceNow(R), the Company's new digitized voice messaging service. Once
technological and marketing tests are complete, the Company intends to begin
commercial deployment throughout the country. The Company expects to have
several hundred units in service with selected commercial customers by the end
of 1996 and a major launch of the product in the first quarter of 1997. The
Company currently estimates that the capital expenditures to build the two-way
network, exclusive of the costs of acquiring other frequencies and of
VoiceNow(R) subscriber devices, may total approximately $200 million over 1996
and 1997. However, these capital expenditures could be significantly higher
based on several factors, including the cost of equipment and the design and
configuration of the network. Because VoiceNow(R) is a new service, it has no
existing market, and there can be no assurance that a market for VoiceNow(R)
will develop. In addition, the network requires the use of new technology, and
there can be no assurance that such technology can be successfully applied to
the new network.
COMPETITION AND TECHNOLOGICAL CHANGE
The Company faces direct competition in all the locations in which it
operates. VoiceNow(R) will compete with other existing and future messaging
services and broadband PCS operators. Some of the Company's competitors, which
include certain Regional Bell Operating Companies, possess greater financial and
other resources than the Company. In addition, future technological advances in
the telecommunications industry could create new services or products
competitive with the paging services currently provided by the Company.
Moreover, as the Company introduces new product lines, some of its existing
customers may upgrade from its other products. There can be no assurance that
the Company would not be adversely affected in the event of such competition or
as a result of technological change. See "Business -- Competition."
GOVERNMENT REGULATION/COST OF ADDITIONAL FREQUENCIES
The paging industry is subject to regulation by the FCC and various state
regulatory agencies. There can be no assurance that those agencies will not
adopt regulations or take other actions that would adversely affect the business
of the Company. See "Business -- Regulation." The FCC requires many of those
seeking new frequencies, including the Company and its competitors, to purchase
them through an auction process where more than one person seeks the same
frequency or there are otherwise conflicting applications. In addition, the
Company may purchase additional frequencies from third parties. The Company
cannot predict the cost of acquiring additional frequencies in the future.
SUBORDINATION OF DEBT SECURITIES
The Outstanding Notes are, and the Exchange Notes will be, subordinated
obligations of the Company. By reason of such subordination, in the event of
insolvency, creditors of the Company who are not holders of the Notes may
recover more, ratably, than the holders of the Notes. See "Description of the
Exchange Notes -- Subordination." Claims of creditors of the Company's
subsidiaries will generally have priority with respect to the assets of such
subsidiaries over the claims of the Company and the holders of the Company's
indebtedness, including the Exchange Notes.
INTERNATIONAL OPERATIONS
The Company's international operations are subject to certain political,
economic and other uncertainties, including, among others, risks of war,
expropriation, nationalization, renegotiation or nullification of existing
licenses or treaties, taxation and resource development policies, foreign
exchange and currency restrictions, changing political conditions and other
risks relating to foreign governmental sovereignty.
15
<PAGE> 16
HOLDING COMPANY STRUCTURE
The Company is a holding company which derives all of its operating income
and cash flow from its subsidiaries. The Company must rely entirely upon
distributions from its subsidiaries to generate the funds necessary to meet its
obligations, including the payment of principal and interest on the Notes. The
ability of the Company's subsidiaries to make such payments will be subject to,
among other things, applicable state laws. Claims of creditors of the Company's
subsidiaries will generally have priority with respect to the assets of such
subsidiaries over the claims of the Company and the holders of the Company's
indebtedness. The capital stock of the Company's domestic subsidiaries (as well
as the assets of the Company and its domestic subsidiaries) is pledged to the
Company's bank lenders to secure the Company's obligations under the Credit
Agreement. The Indenture will, among other things, limit the amount of debt that
may be incurred by the Company and its subsidiaries. However, these limitations
are subject to a number of important qualifications. See "Description of the
Exchange Notes -- Covenants."
LIMITED MARKET FOR THE NOTES
Prior to the Exchange Offer, there has been no public market for the
Outstanding Notes. There can be no assurance as to the liquidity of any markets
that may develop for the Exchange Notes, the ability of holders to sell the
Exchange Notes, or the price at which holders would be able to sell the Exchange
Notes. The Company does not intend to list the Exchange Notes for trading on any
national securities exchange or over-the-counter market system. Future trading
prices of the Exchange Notes will depend on many factors, including, among other
things, prevailing interest rates, the Company's operating results, and the
market for similar securities. Historically, the market for securities similar
to the Exchange Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities.
The Outstanding Notes are currently eligible for quotation through the
Private Offerings, Resales and Trading Through Automated Linkages System
("PORTAL") of the National Association of Securities Dealers, Inc. Prior to the
date hereof, there has been only a limited private trading market for the
Outstanding Notes. To the extent Outstanding Notes are tendered and accepted in
the exchange, the principal amount of remaining Outstanding Notes will decrease.
Following the consummation of the Exchange Offer, holders of the Outstanding
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Outstanding Notes could be
adversely affected.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Prospectus, such as those concerning
future financial performance and growth, are not historical facts. Such
forward-looking statements are subject to risks and uncertainties and actual
results could differ materially from those set forth in the forward-looking
statements. Among the factors that could cause actual future results to differ
materially from those indicated by the forward-looking statements are
competitive pressures, timing and techniques used in marketing by third-party
distributors and acceptance of the Company's services in the marketplace.
16
<PAGE> 17
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive, in exchange,
Outstanding Notes in like principal amount. The form and terms of the Exchange
Notes are identical in all material respects to the form and terms of the
Outstanding Notes, except as otherwise described herein under "The Exchange
Offer -- Terms of the Exchange Offer." The Outstanding Notes surrendered in
exchange for the Exchange Notes will be retired and cancelled and cannot be
reissued. Accordingly, issuance of the Exchange Notes will not result in any
increase in the outstanding debt of the Company.
17
<PAGE> 18
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1996, and as adjusted to give effect to the issuance
of the Outstanding Notes on October 16, 1996 and the application of $417.2
million of the net proceeds thereof to repay borrowings outstanding and accrued
interest under the Credit Agreement. The issuance of the Exchange Notes will not
result in any increase in the outstanding debt of the Company. See "Use of
Proceeds." This information should be read in conjunction with the Company's
Consolidated Financial Statements and related notes appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term obligations(1):
Borrowings under the Credit Agreement(2)...................... $ 403,250 $ --
11.75% Senior Subordinated Notes due May 15, 2002(3).......... 200,000 200,000
8.875% Senior Subordinated Notes due February 1, 2006......... 300,000 300,000
10.125% Senior Subordinated Notes due August 1, 2007.......... 400,000 400,000
10% Senior Subordinated Notes due October 15, 2008............ -- 500,000
Other......................................................... 25,697 25,697
---------- ----------
Total long-term obligations.............................. 1,328,947 1,425,697
Stockholders' deficit(4):
Common stock, $.01 par value (250,000,000 shares authorized;
102,534,887 shares outstanding)............................ 1,026 1,026
Paid-in capital............................................... 124,084 124,084
Accumulated deficit........................................... (256,139) (256,139)
---------- ----------
Total stockholders' deficit.............................. (131,029) (131,029)
---------- ----------
Total capitalization............................................ $1,197,918 $ 1,294,668
========== ==========
</TABLE>
- ---------------
(1) See Note 4 of Notes to Consolidated Financial Statements for the years ended
December 31, 1995 and 1994.
(2) At October 28, 1996, the Company had no revolving indebtedness outstanding
under the Credit Agreement.
(3) The Company anticipates that it will redeem the 11.75% Senior Subordinated
Notes due May 15, 2002 on May 15, 1997, the first date on which such Notes
may be redeemed at the option of the Company.
(4) The Company has authorized 25,000,000 shares of preferred stock, $0.01 par
value per share. At September 30, 1996 there were no preferred shares
issued or outstanding.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Outstanding Notes on October 16, 1996,
the Company and the Initial Purchasers entered into an Exchange and Registration
Rights Agreement ("Registration Rights Agreement"), pursuant to which the
Company agreed (i) to file with the Commission, within 30 days following the
closing of the issue of the Outstanding Notes to the Initial Purchasers (the
"Closing"), an Exchange Offer Registration Statement relating to the Exchange
Offer, pursuant to which securities substantially identical to the Outstanding
Notes (except that such securities will not contain terms with respect to the
special interest payments described below or transfer restrictions) would be
offered in exchange for Outstanding Notes tendered at the option of the holders
thereof and (ii) to use its best efforts to cause the Exchange Offer
Registration Statement to become effective as soon as practicable, but no later
than 75 days following the Closing.
18
<PAGE> 19
If on or before the date of consummation of the Exchange Offer the existing
Commission interpretations are changed such that the Exchange Notes would not in
general be freely transferable on such date, the Company has agreed, in lieu of
effecting registration of the Exchange Notes, to use its best efforts to cause a
registration statement under the Securities Act relating to a shelf registration
of the Outstanding Notes for resale by holders (the "Resale Registration") to
become effective and to remain effective for a period of up to three years after
the time and date as of which the Commission declares the Resale Registration
effective. The Company would, in the event of the Resale Registration, provide
to the holders of the Outstanding Notes copies of the prospectus that is a part
of the registration statement filed in connection with the Resale Registration,
notify such holders when the Resale Registration for the Outstanding Notes has
become effective and take certain other actions as are required to permit
unrestricted resales of the Outstanding Notes.
The interest rate on the Outstanding Notes is subject to increase under
certain circumstances if the Company is not in compliance with its obligations
under the Registration Rights Agreement. See "Description of the Exchange Notes
- -- Registration Rights; Exchange Offer." Unless the context requires otherwise,
the term "holder" with respect to the Exchange Offer means the registered holder
of the Outstanding Notes or any other person who has obtained a properly
completed bond power from the registered holder.
Each holder of the Outstanding Notes who wishes to exchange such
Outstanding Notes for Exchange Notes in the Exchange Offer will be required to
make certain representations, including representations that (i) any Exchange
Notes to be received by it or any person or entity designated by such holder to
receive Exchange Notes ("designated holder") will be acquired in the ordinary
course of its (or any designated holder's) business, (ii) it (or any designated
holder) is not engaging in, and does not intend to engage in, a distribution of
the Exchange Notes, (iii) it (or any designated holder) has no arrangement with
any person to participate in the distribution of the Exchange Notes and (iv) it
(or any designated holder) is not an "affiliate," as defined in Rule 405 under
the Securities Act, of the Company, or, if it (or any designated holder) is an
affiliate, will comply with the registration and prospectus delivery
requirements of the Securities Act.
RESALE OF EXCHANGE NOTES
Based on positions taken by the staff of the Commission that have been
enunciated in no-action letters issued to third parties, the Company believes
that, except as described below, Exchange Notes issued pursuant to the Exchange
Offer in exchange for Outstanding Notes may be offered for resale, resold and
otherwise transferred by the holders thereof (other than any holder which is (i)
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, or (ii) a broker-dealer who acquired Outstanding Notes for
resale pursuant to an exemption from the registration requirements of the
Securities Act) without compliance with the registration and prospectus delivery
requirements under the Securities Act, provided that (A) such Exchange Notes are
acquired in the ordinary course of such holders' business, (B) such holders are
not engaged in, and do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution of such Exchange
Notes, and (C) as provided in the next paragraph certain broker-dealers will be
subject to a prospectus delivery requirement with respect to resales of such
Exchange Notes. Holders who tender Outstanding Notes in the Exchange Offer with
the intention or for the purpose of participating in a distribution of the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale of the
Exchange Notes (unless an exemption from such requirements is otherwise
available).
Each holder who is a broker-dealer and who receives Exchange Notes for its
own account in exchange for Outstanding Notes that were acquired by it as a
result of market making activities or other trading activities (a "Participating
Broker-Dealer") will be required to acknowledge that it will deliver a
prospectus in connection with any resale by it of such Exchange Notes. To date,
the staff of the Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as the exchange
19
<PAGE> 20
pursuant to the Exchange Offer (other than a resale of an unsold allotment from
the sale of the Outstanding Notes to the Initial Purchasers thereof) with the
Prospectus contained in the Exchange Offer Registration Statement. Pursuant to
the Registration Rights Agreement, the Company has agreed to permit
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use this Prospectus in connection with the
resale of such Exchange Notes. The Company has agreed that, for a period of 90
days after the Exchange Offer has been consummated, it will make this
Prospectus, and any amendment or supplement to this Prospectus, available to any
broker-dealer that requests such documents in the Letter of Transmittal.
This Prospectus may be used for an offer to resell, resale or other
retransfer of Exchange Notes only as specifically set forth herein. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Outstanding Notes properly tendered and not withdrawn prior to 5:00 p.m.,
New York time, on the Expiration Date. The Company will issue $1,000 principal
amount of Exchange Notes in exchange for each $1,000 principal amount of
Outstanding Notes surrendered pursuant to the Exchange Offer. Outstanding Notes
may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Outstanding Notes, except that the Exchange Notes will be
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and will not have the benefit of any registration rights
agreements or special interest provisions relating thereto. The Exchange Notes
will evidence the same debt as the Outstanding Notes. The Exchange Notes will be
issued under and entitled to the benefits of the Indenture dated as of July 15,
1995 between the Company, and Shawmut Bank, N.A. and Second Supplemental
Indenture dated as of October 15, 1996, between the Company and Fleet National
Bank, as successor to Shawmut Bank, N.A. (the "Trustee") (the Indenture and
Second Supplemental Indenture being referred to herein as the "Indenture"),
which also authorized the issuance of the Outstanding Notes, such that both
series will be treated as a single class of debt securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered for exchange. Holders of Outstanding
Notes do not have any appraisal or dissenters' rights in connection with the
Exchange Offer.
As of the date of this Prospectus, $500,000,000 aggregate principal amount
of the Outstanding Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Outstanding
Notes. There will be no fixed record date for determining registered holders of
Outstanding Notes entitled to participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Outstanding Notes which are not tendered for exchange in the Exchange Offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits such holders have under the Indenture and the Registration
Rights Agreement.
The Company shall be deemed to have accepted for exchange properly tendered
Outstanding Notes when, as and if the Company gives oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering holders for the purposes of receiving the Exchange Notes from the
Company. The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Outstanding Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
specified below under "-- Certain Conditions to the Exchange Offer."
20
<PAGE> 21
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York time on December
23, 1996, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean 5:00 p.m., New York
time, on the latest date to which the Exchange Offer is extended. The Exchange
Offer will not in any event be extended beyond January 31, 1997.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Outstanding Notes an announcement thereof, each prior to 9:00 a.m.,
New York time, on the next business day after the previously scheduled
Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Notes, to extend the Exchange Offer or to terminate
the Exchange Offer if any of the conditions set forth below under "-- Certain
Conditions to the Exchange Offer" shall not have been satisfied, by giving oral
or written notice of such delay, extension or termination to the Exchange Agent
or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders of
Outstanding Notes. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered holders, and the Company may extend the Exchange Offer if the
Company determines that an extension is appropriate, depending upon the
significance of the amendment and the manner of disclosure to the registered
holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from October 16, 1996 at a rate of
10% per annum, payable on April 15 and October 15, commencing April 15, 1997.
Holders of Outstanding Notes whose Outstanding Notes are accepted for exchange
will be deemed to have waived the right to receive any payment in respect of
interest on the Outstanding Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any Exchange Notes for, any
Outstanding Notes, and may terminate the Exchange Offer as provided herein
before the acceptance of any Outstanding Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the Company's reasonable judgment, might materially impair the
ability of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Company's reasonable judgment,
might materially impair the ability of the Company to proceed with the
Exchange Offer; or
(c) any governmental approval has not been obtained, which approval
the Company shall reasonably deem necessary for the consummation of the
Exchange Offer as contemplated hereby.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable judgment. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right, and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part.
21
<PAGE> 22
PROCEDURES FOR TENDERING
Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the Exchange
Agent prior to 5:00 p.m., New York time, on the Expiration Date. In addition,
either (i) Outstanding Notes must be received by the Exchange Agent along with
the Letter of Transmittal, or (ii) a timely confirmation of book-entry transfer
(a "Book-Entry Confirmation") of such Outstanding Notes, if such procedure is
available, into the Exchange Agent's account at the Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth below under "-- Exchange Agent" prior to 5:00 p.m., New
York time, on the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTERS OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Outstanding Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Outstanding Notes to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on its own behalf, such owner
must, prior to completing and executing the Letter of Transmittal and delivering
its Outstanding Notes, either make appropriate arrangements to register
ownership of the Outstanding Notes in such owner's name or obtain a properly
completed bond power from the registered holder of Outstanding Notes. The
transfer of registered ownership may take considerable time and may not be able
to be completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case may be, must be guaranteed by an Eligible Institution (as
defined below) unless the Outstanding Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantor must be a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act which is a member of a recognized signature guarantee program (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by a properly completed bond power, in
each case signed by such registered holder as such registered holder's name
appears on such Outstanding Notes with the signature thereon guaranteed by an
Eligible Institution.
If the Letter of Transmittal (or any Outstanding Notes) or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a
22
<PAGE> 23
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, evidence satisfactory to the Company
of their authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Outstanding Notes and withdrawal of tendered
Outstanding Notes will be determined by the Company in its sole discretion,
which determination will be final and binding. The Company reserves the absolute
right to reject any and all Outstanding Notes not properly tendered or any
Outstanding Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of tender as to particular
Outstanding Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Outstanding Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of
Outstanding Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Outstanding Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In all cases, issuance of Exchange Notes for Outstanding Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of Outstanding Notes or a timely Book-Entry
Confirmation of such Outstanding Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted tendered Outstanding Notes
when, as and if the Company has given written and oral notice thereof to the
Exchange Agent. If any tendered Outstanding Notes are not exchanged pursuant to
the the Exchange Offer for any reason or if Outstanding Notes are submitted for
a greater principal amount than the holder desires to exchange, such
unacceptable or non-exchanged Outstanding Notes will be returned without expense
to the tendering holder thereof (or, in the case of Outstanding Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, such non-exchanged Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Outstanding Notes by causing
the Book-Entry Transfer Facility to transfer such Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address set
forth below under "-- Exchange Agent" on or prior to the Expiration Date or, if
the guaranteed delivery procedures described below are to be complied with,
within the time period provided under such procedures. Delivery of documents to
the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
23
<PAGE> 24
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available, or (ii) who cannot deliver
their Outstanding Notes, the Letter of Transmittal or any other required
documents to the Exchange Agent on or prior to the Expiration Date, or (iii) who
are unable to complete the procedure for book-entry transfer on a timely basis,
may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Outstanding Notes and the principal amount of Outstanding Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three (3) New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together
with the Outstanding Notes or a Book-Entry Confirmation, as the case may
be, and any other documents required by the Letter of Transmittal will be
deposited with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Outstanding Notes in proper
form for transfer or a Book-Entry Confirmation, as the case may be, and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three (3) New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "-- Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Outstanding Notes to be withdrawn, identify the Outstanding Notes
to be withdrawn (including the principal amount of such Outstanding Notes), and
(where certificates for Outstanding Notes have been transmitted) specify the
name in which such Outstanding Notes were registered, if different from that of
the withdrawing holder. If certificates for Outstanding Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing holder must also submit the serial
numbers of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Outstanding Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Outstanding Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Outstanding Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any
Outstanding Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of Outstanding Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such Outstanding
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility for the Outstanding Notes) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Outstanding Notes may be retendered by following one of the procedures described
under "-- Procedures for Tendering" above at any time on or prior to the
Expiration Date.
24
<PAGE> 25
<TABLE>
EXCHANGE AGENT
Fleet National Bank has been appointed as Exchange Agent of the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for the Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<S> <C> <C>
By Mail/Overnight Courier: By Hand: By Facsimile:
Fleet National Bank Fleet National Bank (860) 986-7908
Corporate Trust Operations c/o First Chicago Trust Co. (For Eligible Institutions Only)
777 Main Street, MSN 224 14 Wall Street, 8th Floor Confirm by Telephone:
Hartford, CT 06115 Window No. 2 (860) 986-1271
Attn: Patricia Williams New York, NY 10005
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitations
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$300,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees, printing costs and
related fees and expenses.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Outstanding Notes pursuant to the Exchange Offer. If, however, Exchange Notes
or Outstanding Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of Outstanding Notes tendered, or if
tendered Outstanding Notes are registered in the name of any person other than
the person signing the Letter of Transmittal, or if a transfer tax is imposed
for any reason other than the exchange of Outstanding Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer applicable to such Outstanding Notes, as set forth
in the legend thereon, as a consequence of the issuance of the Outstanding Notes
pursuant to the exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Outstanding Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the
Outstanding Notes under the Securities Act.
25
<PAGE> 26
<TABLE>
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial data for the five years ended December 31,
1995 are derived from the audited Consolidated Financial Statements of the
Company. The financial data for the six-month periods ended June 30, 1995 and
1996, are derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring adjustments,
which management considers necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the six months ended June 30, 1996, are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1996. The
data presented below should be read in conjunction with the Company's
Consolidated Financial Statements, related notes and other financial information
included or incorporated herein. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Throughout this section the
Company makes reference to EBITDA, which is defined as earnings before interest,
income taxes, depreciation and amortization. EBITDA is a key performance measure
used in the paging industry and is one of the financial measures by which the
Company's covenants are calculated under the agreements governing its debt
obligations. EBITDA is not a measure defined in generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance in accordance with generally accepted accounting
principles.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Services, rent and maintenance
revenues........................... $145,793 $206,198 $294,979 $389,919 $532,079 $240,310 $325,811
Product sales........................ 20,575 51,600 78,915 99,765 113,943 54,756 59,741
-------- -------- -------- -------- -------- -------- --------
Total revenues....................... 166,368 257,798 373,894 489,684 646,022 295,066 385,552
Cost of product sold................. (13,126) (35,909) (62,495) (78,102) (93,414) (44,346) (50,476)
-------- -------- -------- -------- -------- -------- --------
153,242 221,889 311,399 411,582 552,608 250,720 335,076
Services, rent and maintenance
expenses........................... 25,093 37,437 57,343 74,453 109,484 48,727 69,561
Selling expenses..................... 21,491 34,135 44,836 60,555 67,561 31,938 39,081
General and administrative
expenses........................... 49,397 74,754 108,993 136,539 174,432 81,240 102,867
Depreciation and amortization........ 41,154 58,683 87,430 107,362 148,997 67,420 96,855
-------- -------- -------- -------- -------- -------- --------
Total operating expenses............. 137,135 205,009 298,602 378,909 500,474 229,325 308,364
-------- -------- -------- -------- -------- -------- --------
Operating income..................... 16,107 16,880 12,797 32,673 52,134 21,395 26,712
Interest expense..................... 25,365 23,638 32,808 53,717 102,846 44,385 59,888
Interest income...................... -- -- -- 3,079 6,511 -- 2,538
-------- -------- -------- -------- -------- -------- --------
Loss before extraordinary item....... (9,258) (6,758) (20,011) (17,965) (44,201) (22,990) (30,638)
Extraordinary item(1)................ -- (14,884) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net loss............................. $ (9,258) $(21,642) $(20,011) $(17,965) $(44,201) $(22,990) $(30,638)
======== ======== ======== ======== ======== ======== ========
Net loss per common share(2):
Before extraordinary item.......... $ (0.11) $ (0.06) $ (0.20) $ (0.18) $ (0.43) $ (0.23) $ (0.30)
Extraordinary item................. -- (0.15) -- -- -- -- --
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<CAPTION>
DECEMBER 31, JUNE 30, 1996
-------------------------------------------------------------- ---------------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
--------- --------- --------- --------- ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets............... $190,645 $304,747 $371,556 $706,008 $1,228,338 $1,218,022 $1,443,772
Long-term obligations,
including current
maturities............... 146,029 267,000 342,500 504,000 1,150,000 1,195,516 1,421,266
Total stockholders' equity
(deficit)................ 16,578 (4,818) (23,366) (39,908) (80,784) (109,233) (109,233)
</TABLE>
26
<PAGE> 27
<TABLE>
OTHER DATA:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Pagers in service (at end of period)... 1,281,643 2,077,954 3,068,569 4,408,842 6,737,907 5,415,269 7,881,764
Pagers in service per employee (at end
of period)........................... 765 778 974 1,103 1,441 1,301 1,500
EBITDA (in thousands).................. $ 57,261 $ 75,563 $ 100,227 $ 140,035 $ 201,131 $ 88,815 $ 123,567
Capital expenditures (in thousands).... $ 71,875 $ 145,970 $ 145,625 $ 213,308 $ 312,289 $ 120,400 $ 191,340
EBITDA as a percentage of Net
Revenues(4).......................... 37.4% 34.1% 32.2% 34.0% 36.4% 35.4% 36.9%
Ratio of earnings to fixed
charges(5, 6)........................ -- -- -- -- -- -- --
Ratio of EBITDA to interest expense.... 2.26x 3.20x 3.05x 2.61x 1.96x 2.00x 2.06x
Ratio of long-term obligations,
including current maturities, to
EBITDA(7)............................ 2.55x 3.53x 3.42x 3.60x 5.72x 4.88x 5.07x
Pro forma ratio of latest twelve
months' EBITDA to interest
expense(8)........................... -- -- -- -- -- -- 1.60x
Pro forma ratio of long-term
obligations to latest twelve months'
EBITDA(8)............................ -- -- -- -- -- -- 6.03x
<FN>
- ---------------
(1) Represents an extraordinary charge to terminate certain interest rate swaps
and to write-off loan origination fees associated with the Company's prior
credit agreement for its senior bank debt.
(2) Per share amounts have been restated to reflect stock splits in 1991, 1993
and 1995.
(3) As adjusted to give effect to the issuance of the Outstanding Notes and the
application of the net proceeds thereof. See "Use of Proceeds."
(4) Net Revenues represent revenues from services, rent and maintenance plus
product sales less cost of products sold.
(5) Earnings consist of loss before extraordinary item plus fixed charges. Fixed
charges consist of interest expense, amortization of debt financing costs,
and the portion of rental expense which management believes is
representative of the interest component of rental expense. For the years
ended December 31, 1991, 1992, 1993, 1994, and 1995, and for the six months
ended June 30, 1995 and 1996, earnings were insufficient to cover fixed
charges by $9.3 million, $6.8 million, $20.0 million, $18.0 million, $44.2
million, $23.0 million and $30.6 million, respectively.
(6) The pro forma deficiency of earnings available to cover fixed charges for
the year ended December 31, 1995 and the six months ended June 30, 1996 is
$47.4 million and $33.4 million, respectively, assuming a portion of the net
proceeds from the Outstanding Notes was used to repay borrowings under the
Credit Agreement as of January 1, 1995 and January 1, 1996, respectively.
(7) The ratios of long-term obligations to EBITDA for the six months ended June
30, 1995 and 1996 have been calculated as long-term obligations outstanding
as of June 30, 1995 and 1996 divided by EBITDA for the twelve months ended
June 30, 1995 and 1996, respectively.
(8) The pro forma ratio of the latest 12 months' EBITDA to interest expense and
the pro forma ratio of long-term obligations to the latest 12 months' EBITDA
assume the sale of the Outstanding Notes occurred on July 1, 1995 and that
the net proceeds were used to repay borrowings under the Credit Agreement.
</TABLE>
27
<PAGE> 28
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 the Company for the three years ended December 31, 1995
and the six months ended June 30, 1995 and 1996. It should be read in
conjunction with the Consolidated Financial Statements of the Company and the
related notes included elsewhere in this Prospectus. Throughout this section the
Company makes reference to EBITDA, which is defined as earnings before interest,
income taxes, depreciation and amortization. EBITDA is a key performance measure
used in the paging industry and is one of the financial measures by which the
Company's covenants are calculated under the agreements governing its debt
obligations. EBITDA is not a measure defined in generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance in accordance with generally accepted accounting
principles.
RESULTS OF OPERATIONS
The following table presents certain items in the Consolidated Statements
of Operations as a percentage of revenues from services, rent and maintenance
plus product sales less the cost of products sold ("Net Revenues") for the years
ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995
and 1996.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Services, rent and maintenance................ 18.4 18.1 19.8 19.4 20.7
Selling....................................... 14.4 14.7 12.2 12.8 11.7
General and administrative.................... 35.0 33.2 31.6 32.4 30.7
Depreciation and amortization................. 28.1 26.1 27.0 26.9 28.9
----- ----- ----- ----- -----
Operating income................................ 4.1 7.9 9.4 8.5 8.0
Net loss........................................ (6.4) (4.4) (8.0) (9.2) (9.1)
EBITDA.......................................... 32.2 34.0 36.4 35.4 36.9
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Net Revenues for the six months ended June 30, 1996 increased 33.6% over
the same period ended June 30, 1995. Revenues from service, rent and
maintenance, which the Company considers its primary business, increased 35.6%
to $325.8 million for the six months ended June 30, 1996 compared to $240.3
million for the six months ended June 30, 1995. The increase was primarily due
to continued growth in the number of pagers in service with subscribers of the
Company. The number of pagers in service with subscribers at June 30, 1996 was
7,881,764, compared to 5,415,269 pagers in service with subscribers at June 30,
1995, an increase of 45.5%. Contributing to the growth in the number of pagers
in service with subscribers is the Company's expanding local and national
third-party reseller customer base, which includes the impact of the Company's
National Accounts Division. The Company's National Accounts Division represents
a new distribution strategy which gives the Company an opportunity to reach into
broader markets, including consumers, by partnering with large companies that
are regional or national in scope and have large client bases. In addition, the
Company's National Accounts Division includes customer relationships with
national resellers, where it sells pagers to major third parties and provides
paging service at reduced rates. The resellers, in turn, lease or resell the
pagers to their own subscribers and resell the Company's paging service under
marketing agreements. As the Company increases reliance on distribution of
pagers and paging services through resellers and marketing affiliates, the
Company may experience increased variability in quarterly results relating to
the net addition of pagers.
28
<PAGE> 29
Product sales, less cost of products sold, remained relatively flat for the
six month periods ended June 30, 1996 and 1995 ($9.3 million and $10.4 million,
respectively).
Services, rent and maintenance expenses increased 42.8% to $69.6 million
(20.7% of Net Revenues) for the six months ended June 30, 1996, compared to
$48.7 million (19.4% of Net Revenues) for the six months ended June 30, 1995.
This increase in services, rent and maintenance expenses and the increase as a
percentage of Net Revenues were a result of growth in the number of pagers in
service with subscribers of the Company, expenses associated with an increase in
transmitter sites in order to ensure reliable transmission of enhanced messaging
services, and expansion of the nationwide transmission networks.
For the six months ended June 30, 1996, selling expenses increased 22.4% to
$39.1 million (11.7% of Net Revenues) from $31.9 million (12.8% of Net Revenues)
for the six months ended June 30, 1995. This increase resulted from the addition
of sales personnel to support continued growth in both Net Revenues and the
number of pagers in service with subscribers. The decline in selling expenses as
a percentage of Net Revenues is primarily attributable to the expansion of local
and national third-party resellers, for which the Company incurred less selling
costs on units placed in service through this channel than through the direct
channel. In addition, since sales commissions are paid at the time a new unit is
placed in service and not in subsequent months when the unit continues to
generate revenue, the Company's continued growth in the number of pagers in
service results in the decline in selling expenses as a percentage of the Net
Revenues.
General and administrative expenses increased 26.6% to $102.9 million
(30.7% of Net Revenues) for the six months ended June 30, 1996, compared to
$81.2 million (32.4% of Net Revenues) for six months ended June 30, 1995. The
increase in general and administrative expenses occurred to support the growth
in the number of pagers in service with subscribers of the Company. The decline
in general and administrative expenses as a percentage of Net Revenues is
primarily attributable to the improved revenue performance of operations opened
in 1992 through 1994. Historically, domestic start-up operations have typically
required three to four years to achieve results similar to the Company's more
mature operations.
Depreciation and amortization expenses increased 43.7% to $96.9 million
(28.9% of Net Revenues) for the first six months of 1996 compared to $67.4
million (26.9% of Net Revenues) for the first six months of 1995. The increases
in depreciation and amortization expenses were primarily attributable to the
increase in the number of pagers owned by the Company and leased to subscribers;
the increase in other paging equipment, primarily in the number of transmitters,
to support the increase in the number of units in service with subscribers; and
the acquisitions discussed in Note 7 to the consolidated financial statements.
Operating income increased from $21.4 million for the six months ended June
30, 1995 to $26.7 million for the six months ended June 30, 1996.
As a result of the above factors, for the six months ended June 30, 1996,
EBITDA increased 39.1% to $123.6 million (36.9% of Net Revenues) compared to
$88.8 million (35.4% of Net Revenues) for the corresponding period in 1995.
EBITDA and the percent of Net Revenues were negatively impacted by the start-up
operations in the Company's international operations. For the six months ended
June 30, 1996, domestic EBITDA increased 41.8% to $125.9 million (37.6% of Net
Revenues).
Interest expense increased $15.5 million for the six month period ended
June 30, 1996, as compared to the corresponding period in 1995, due to a higher
average level of indebtedness outstanding in 1996. The average level of
indebtedness outstanding during the six months ended June 30, 1996 was
approximately $1.2 billion compared to approximately $721.5 million outstanding
during the six months ended June 30, 1995.
Interest income for the six months ended June 30, 1996 was $2.5 million.
The interest income was a result of investing the net proceeds of the 10.125%
Senior Subordinated Notes issued in July 1995.
29
<PAGE> 30
YEARS ENDED DECEMBER 31, 1995, DECEMBER 31, 1994 AND DECEMBER 31, 1993
Net Revenues for the year ended December 31, 1995 were $552.6 million, an
increase of 34.3% over $411.6 million for the year ended December 31, 1994. Net
Revenues for the year ended December 31, 1994 increased 32.2% from $311.4
million for the year ended December 31, 1993. Revenues from services, rent and
maintenance, which the Company considers its primary business, increased 36.5%
to $532.1 million for the year ended December 31, 1995, compared to $389.9
million for the year ended December 31, 1994. Services, rent and maintenance
revenues for the year ended December 31, 1994 increased 32.2% from $295.0
million for the year ended December 31, 1993. These increases were primarily due
to continued growth in the number of pagers in service with subscribers of the
Company. The number of pagers in service with subscribers at December 31, 1995,
1994 and 1993 was 6,737,907, 4,408,842, and 3,068,569, respectively. The
increase in the pagers in service with subscribers from December 31, 1994 to
December 31, 1995 and from December 31, 1993 to December 31, 1994 was 52.8% and
43.7%, respectively. The net gains in pagers in service in 1995 was 2,329,065,
which includes the impact of the Company's National Accounts Division and
approximately 343,000 pagers from the acquisition of certain paging assets of
Comtech, Inc. -- Paging Division ("Comtech"); SNET Paging, Inc. and its wholly
owned subsidiary, TNI Associates, Inc. ("SNET Paging"); PageAmerica of
California; PageAmerica of Florida; Page Florida; International Paging Corp.;
and Celpage, Inc. -- Atlanta Branch ("Celpage"). The Company's National Accounts
Division represents a new distribution strategy which gives the Company an
opportunity to reach into a broader market, including consumers, by partnering
with large companies that are regional or national in scope and have large
client bases. In addition, the Company's National Accounts Division includes
customer relationships with national resellers, where it sells pagers to major
third parties and provides paging service at reduced rates. The resellers, in
turn, lease or resell the pagers to their own subscribers and resell the
Company's paging service under marketing agreements.
Product sales, less cost of products sold, was relatively flat for the year
ended December 31, 1995 compared to the year ended December 31, 1994.
Product sales, less cost of products sold, were $20.5 million (3.7% of Net
Revenues) for 1995 compared to $21.7 million (5.3% of Net Revenues) for 1994.
Product sales, less cost of products sold, were $16.4 million (5.3% of Net
Revenues) for the year ended December 31, 1993. The increase in product sales,
less cost of products sold, from 1993 to 1994 was primarily attributable to the
Company's continued expansion through indirect sales channels, which accounted
for 1,994,867 and 1,204,850 pagers in service with subscribers at December 31,
1994 and 1993, respectively, an increase of 65.6%. The decline in product sales,
less cost of products sold, as a percentage of Net Revenues in 1995 is primarily
attributable to a lower product sales margin being derived in 1995 than in 1994
as a result of more competitive pricing for product sales. Management expects
this competitive pricing trend to continue in 1996.
Services, rent and maintenance expenses for the year ended December 31,
1995 increased 47.1% to $109.5 million (19.8% of Net Revenues) compared to $74.5
million (18.1% of Net Revenues) for the year ended December 31, 1994. Services,
rent and maintenance expenses for the year ended December 31, 1994 increased by
29.8% from $57.3 million (18.4% of Net Revenues) for the year ended December 31,
1993. These increases in services, rent and maintenance expenses and the
increase as a percentage of Net Revenues from 1994 to 1995 were a result of
growth in the number of pagers in service with subscribers of the Company
(including pagers added through acquisitions), expenses associated with an
increase in transmitter sites in order to ensure reliable transmission of
enhanced messaging services, and expansion of nationwide transmission networks.
For the year ended December 31, 1995, selling expenses increased 11.6% to
$67.6 million (12.2% of Net Revenues) from $60.6 million (14.7% of Net Revenues)
for the year ended December 31, 1994. Selling expenses for the year ended
December 31, 1994 increased by 35.1% from $44.8 million (14.4% of Net Revenues)
for the year ended December 31, 1993. These increases resulted from the addition
of sales personnel to support continued growth in both Net Revenues and the
number of pagers in service with subscribers. The increase in selling expenses
as a percentage of Net Revenues from 1993 to 1994 was also attributable in part
to additional expenditures for advertising. Advertising expenditures
30
<PAGE> 31
increased from approximately $2.0 million (0.7% of Net Revenues) in 1993 to $7.8
million (1.9% of Net Revenues) in 1994. The decline in selling expenses as a
percentage of Net Revenues for 1995 as compared to the prior year was
attributable primarily to the expansion of local and national third-party
resellers, for which the Company incurred less selling costs on units placed in
service through this channel than through the direct channel. In addition, since
sales commissions are paid at the time a new unit is placed in service and not
in subsequent months when the unit continues to generate revenue, the Company's
continued growth in the number of pagers in service results in the decline in
selling expenses as a percentage of the Net Revenues.
General and administrative expenses increased 27.8% to $174.4 million
(31.6% of Net Revenues) for the year ended December 31, 1995, compared to $136.5
million (33.2% of Net Revenues) for the year ended December 31, 1994. General
and administrative expenses for the year ended December 31, 1994 increased by
25.3% from $109.0 million (35.0% of Net Revenues) for the year ended December
31, 1993. The increase in general and administrative expenses occurred to
support the growth in the number of pagers in service with subscribers of the
Company including pagers added through acquisitions. The decline in general and
administrative expenses as a percentage of Net Revenues is primarily
attributable to the improved revenue performance of operations opened in 1992
through 1994. Domestic start-up operations typically require three to four years
to achieve results similar to the Company's more mature businesses.
Depreciation and amortization expenses increased for the year ended
December 31, 1995, as compared to the prior year by 38.8% from $107.4 million to
$149.0 million. Depreciation and amortization expenses for the year ended
December 31, 1994 increased by 22.8% from $87.4 million for the year ended
December 31, 1993. These increases in depreciation and amortization expenses
were primarily attributable to the increase in the number of pagers owned by the
Company and leased to subscribers; the increase in other paging equipment,
primarily in the number of transmitters, to support the increase in the number
of units in service with subscribers; and the aforementioned acquisitions.
Operating income increased 59.6% from $32.7 million for the year ended
December 31, 1994 to $52.1 million for the year ended December 31, 1995.
Operating income for the year ended December 31, 1994 increased 155.3% from
$12.8 million for the year ended December 31, 1993.
As a result of the above factors, for the year ended December 31, 1995,
EBITDA increased 43.6% to $201.1 million (36.4% of Net Revenues) compared to
$140.0 million (34.0% of Net Revenues) for 1994. EBITDA for the year ended
December 31, 1994 increased by 39.7% from $100.2 million (32.2% of Net Revenues)
for the year ended December 31, 1993. The increase in EBITDA margins from 1994
to 1995 and from 1993 to 1994 was primarily attributable to the improved revenue
performance of operations opened in 1992 through 1994.
Interest expense for the years ended December 31, 1995, 1994 and 1993 was
$102.8 million, $53.7 million and $32.8 million, respectively. These increases
in interest expense were primarily due to the average level of indebtedness
outstanding during these years. The average level of indebtedness outstanding
during 1995, 1994 and 1993 was approximately $916.6 million, $490.2 million and
$302.0 million, respectively. Included in interest expense for 1995 was the
write-off of approximately $6.6 million of debt issuance costs related to the
amended and restated $450.0 million credit agreement.
Interest income for the year ended December 31, 1995 was $6.5 million,
compared to $3.1 million for 1994. The interest income in 1995 was the result of
investing the remaining net proceeds of the 10.125% Senior Subordinated Notes.
The interest income in 1994 was a result of investing the remaining net proceeds
of the 8.875% Senior Subordinated Notes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations and expansion into new markets and product lines
require substantial capital investment for the development and installation of
wireless communications systems and for the procurement of pagers and paging
equipment. Capital expenditures (excluding payments for PCS and
31
<PAGE> 32
SMR licenses and acquisitions) were $191.3 million and $120.4 million for the
six months ended June 30, 1996 and 1995, respectively, and $312.3 million,
$213.3 million and $145.6 million for the years ended December 31, 1995, 1994
and 1993, respectively. These investments have been funded by net cash provided
by operating activities and borrowings. The Company's net cash provided by
operating activities was $15.5 million and $34.9 million for the six months
ended June 30, 1996 and 1995, respectively, and $160.6 million, $107.7 million
and $81.7 million for the years ended December 31, 1995, 1994 and 1993,
respectively. The increase in net cash provided by operating activities from
1994 to 1995 was $52.9 million, of which $32.3 million was due to an increase in
accounts payable, arising from a significant amount of paging and other
equipment purchased in the fourth quarter of 1995. Inventories increased from
$14.1 million at December 31, 1995 to $32.3 million at June 30, 1996, largely
due to purchases to support the Company's expanding third-party reseller and
marketing affiliate distribution channels.
In 1994 the Company acquired three nationwide narrowband PCS frequencies in
an FCC auction at a cost of $197 million. In 1996 the Company participated in
the FCC auction of SMR frequency licenses, and ultimately won two to four blocks
of two-way spectrum across the United States for a total of $45.6 million. The
Company is in the process of purchasing exclusive rights to certain of these SMR
frequencies from incumbent operators. Expenditures for such purchases are
estimated to total $200 million in 1996 and 1997.
The Company intends to employ these PCS and SMR frequencies to build a
two-way network over which it can deploy new products such as its new voice
messaging service, VoiceNow(R). The Company currently estimates that the capital
expenditures to build the two-way network, exclusive of the costs of acquiring
SMR frequencies and of VoiceNow(R) subscriber devices, may total approximately
$200 million over 1996 and 1997.
During 1995, the Company acquired certain paging assets of Comtech, SNET
Paging, two subsidiaries of PageAmerica, Page Florida, International Paging
Corp., and Celpage, including various frequencies and approximately 343,000
pagers in service. The payments for these purchases aggregated approximately
$117.6 million, subject to increase or decrease based on post-closing events of
certain acquisitions.
The Credit Agreement provides for a $1.0 billion revolving loan. Under the
Credit Agreement, the Company is able to borrow, provided it meets certain
financial covenants, the lesser of $1.0 billion or an amount based upon a
calculation which is reduced by total outstanding indebtedness for borrowed
monies (as defined) and outstanding letters of credit. The amount available for
borrowing is equal to a specified multiple of EBITDA for the most recently ended
fiscal quarter multiplied by four. As of September 30, 1996, the Company had
$405.5 million of borrowings outstanding including accrued interest under its
Credit Agreement and had $431.6 million available for additional borrowings. The
Credit Agreement expires on December 31, 2004. The maximum borrowings which may
be outstanding under the Credit Agreement begin reducing on June 30, 2001.
On July 24, 1995 the Company completed an offering of $400 million of
10.125% Notes, the net proceeds of which were used to repay $68.9 million of
revolving loans under a prior credit agreement and an aggregate of approximately
$47.1 million was paid to complete certain acquisitions, with the balance used
for frequency acquisitions, capital expenditures and general corporate purposes.
The Company initially expects to invest approximately $100 million in its
international operations through 1998, including approximately $32 million
invested to date. Additional investments will depend on such factors as growth
rates, new market opportunities and execution of financing plans that maximize
value for the Company's stockholders.
It is anticipated that 1996 net cash from operating activities will be
insufficient to completely fund 1996 capital expenditures (including the costs
to build the two-way network, but excluding frequency purchases and
international opportunities), which are expected to exceed $470 million. A
portion of these expenditures will be funded with existing cash and cash
equivalents and additional borrowings.
32
<PAGE> 33
The Company currently estimates 1996 net additional borrowings may aggregate in
excess of $250 million.
It is anticipated that 1997 net cash from operating activities will be
insufficient to completely fund 1997 capital expenditures (including the costs
to build the two-way network, but excluding frequency purchases and
international opportunities), which are expected to exceed $500 million.
Inflation is not a material factor affecting the Company's business. Paging
system equipment and transmission costs have not increased and pager costs have
actually declined significantly over time; these lower costs have been reflected
in lower prices charged to the Company's subscribers. General operating expenses
such as salaries, employee benefits and occupancy costs are, however, subject to
normal inflationary pressures.
RECENT DEVELOPMENTS
On October 24, 1996, the Company reported consolidated Net Revenues for the
third quarter of 1996 of $180.8 million and EBITDA of $65 million. EBITDA
margins for such period were 36%. The Company added 562,706 net new subscribers
in service during the quarter. These results include the impact from the
Company's international operations, which accounted for $2.5 million in EBITDA
losses and 12,358 net new subscribers in service. The Company's domestic EBITDA
margins were 37.5%.
On October 16, 1996 the Company completed an offering of $500 million of
the Outstanding Notes, the net proceeds of which were used to repay
approximately $417.2 million of revolving loans and accrued interest under its
Credit Agreement, with the balance to be used for frequency acquisitions,
capital expenditures and general corporate purposes.
33
<PAGE> 34
BUSINESS
HISTORY
The Company commenced paging operations in June 1982 through the
acquisition of established paging operations. Within two years of commencing
operations, the Company had acquired six paging and related communications
services enterprises, having an aggregate of approximately 41,000 pagers in
service with subscribers as of their respective dates of acquisition by the
Company. In 1983, the Company began to build new paging systems in geographic
markets not previously served by the Company and since then has established 49
new independent paging operations in major metropolitan markets and regional
clusters. As a result of its expansion, the Company had approximately 7.9
million pagers in service with its paging subscribers as of June 30, 1996.
GENERAL
The Company is the largest provider of paging services in the United
States. As of June 30, 1996 the Company had approximately 7.9 million pagers in
service in the United States, more than the combined number of pagers in service
of the second and third largest U.S. providers of paging services. The Company
provides paging services in all 50 states, the District of Columbia, the U.S.
Virgin Islands and Puerto Rico, including local paging service in virtually all
of the largest 100 markets (in population) in the United States. The Company
believes that it is one of the fastest growing major providers of paging
services in the United States and that it has the lowest cost operating
structure, which enables it to compete aggressively on price while maintaining
high quality service. See "-- Strategy," below.
The Company provides local, wide area metropolitan, multi-state regional
and nationwide paging service. Its digital transmission system reaches a
geographic area containing more than 90% of the United States population. The
Company currently provides numeric display and alphanumeric display as its basic
types of paging service. All paging services can be used with the Company's
PageMail(R) or PageMail Box(SM) voice messaging and personalized/automated
answering services. In developing its paging systems, the Company seeks to
achieve optimal building penetration and wide area coverage. As part of its
paging operations, the Company sells, leases and repairs pagers. The Company is
licensed by the FCC to provide service in the geographic markets in which it
conducts paging operations. See "-- Regulation," below. In 1994 the Company
acquired three nationwide narrowband PCS frequencies in an FCC auction at a cost
of $197 million. In 1996 the Company participated in the FCC auction of SMR
frequency licenses, and ultimately won two to four blocks of two-way spectrum
across the United States for a total of $45.6 million. The Company is in the
process of purchasing exclusive rights to certain of these SMR frequencies from
incumbent operators. Expenditures for such purchases are estimated to total $200
million in 1996 and 1997. The Company intends to employ these PCS and SMR
frequencies to build a two-way network over which it can deploy new products
such as its new voice messaging service, VoiceNow(R).
The Company's Net Revenues and the number of pagers in service with its
subscribers have increased rapidly over the past five years. The Company's Net
Revenues have grown from $111.2 million in 1990 to $552.6 million in 1995, a
compound annual rate of approximately 38%, and EBITDA has increased from $39.3
million in 1990 to $201.1 million in 1995, a compound annual rate of
approximately 39%. (EBITDA is not a measure defined in generally accepted
accounting principles and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles.) From January 1, 1990 to December 31, 1995, the
number of pagers in service with subscribers of the Company (net of dispositions
of paging operations) has grown at a compound annual rate of approximately 49%.
The Company has incurred a net loss in each year except the year ended December
31, 1988. A significant contributing factor to these net losses has been the
interest expense on borrowings by the Company to fund its growth and, in periods
prior to 1991, to make cash distributions to stockholders. For the years ended
December 31, 1991, 1992, 1993, 1994 and 1995, the Company had net losses of $9.3
million, $21.6 million, $20.0 million, $18.0 million and $44.2 million,
respectively. For the years ended December 31, 1991, 1992, 1993, 1994 and 1995,
the Company
34
<PAGE> 35
incurred interest expense of $25.4 million, $23.6 million, $32.8 million, $53.7
million and $102.8 million, respectively. At December 31, 1991 the total
stockholders' equity of the Company was $16.6 million and at December 31, 1992,
1993, 1994 and 1995, the stockholders' deficit of the Company was $4.8 million,
$23.4 million, $39.9 million and $80.8 million, respectively.
APPROXIMATE NUMBER OF PAGERS IN SERVICE WITH SUBSCRIBERS OF THE COMPANY
<TABLE>
<CAPTION>
INCREASE
(DECREASE) INCREASE
PAGERS IN IN PAGERS IN PAGERS PAGERS IN
FOR THE SERVICE AT THROUGH THROUGH SERVICE
YEARS ENDED BEGINNING ACQUISITIONS INTERNAL AT END
DECEMBER 31, OF PERIOD (DISPOSITIONS) GROWTH OF PERIOD
- ------------ ---------- -------------- --------- ---------
<S> <C> <C> <C> <C>
1982....................................... -0- 36,120 -0- 36,120
1983....................................... 36,120 5,150 18,451 59,721
1984....................................... 59,721 -0- 30,474 90,195
1985....................................... 90,195 -0- 28,555 118,750
1986....................................... 118,750 -0- 46,566 165,316
1987....................................... 165,316 (4,910) 100,197 260,603
1988....................................... 260,603 (20,656) 153,817 393,764
1989....................................... 393,764 -0- 230,411 624,175
1990....................................... 624,175 (31,323) 299,537 892,389
1991....................................... 892,389 -0- 389,254 1,281,643
1992....................................... 1,281,643 -0- 796,311 2,077,954
1993....................................... 2,077,954 -0- 990,615 3,068,569
1994....................................... 3,068,569 -0- 1,340,273 4,408,842
1995....................................... 4,408,842 343,412 1,985,653 6,737,907
1996 (through June 30)..................... 6,737,907 -0- 1,143,857 7,881,764
</TABLE>
The Company is organized under the laws of the State of Delaware and
conducts its domestic business through its wholly owned subsidiaries. The term
"Company" as used herein refers to both the Company and its subsidiaries unless
the context otherwise requires. The Company's executive offices are located at
4965 Preston Park Boulevard, Suite 600, Plano, Texas 75093. The telephone number
of the Company's executive offices is (972) 985-4100.
PAGING INDUSTRY BACKGROUND
The paging industry has been in existence since 1949 when the FCC allocated
a group of radio frequencies for use in providing one-way and two-way types of
mobile communications services. The industry grew slowly at first as the quality
and reliability of equipment was developed and the market began to perceive the
benefits of mobile communications. Many of the paging industry pioneers started
in the business as an adjunct to their existing telephone answering service or
mobile radio sales and service businesses.
Equipment reliability improved dramatically in the 1970s, and potential
customers gained a better understanding of the time savings and efficiencies
that paging services could provide. In addition, the energy crisis of the early
1970s stimulated industry growth as people sought ways to conserve gasoline and
increase motion efficiency.
The 1980s saw the most significant developments in the industry. First came
the introduction of the numeric display pager which supplanted tone and voice
pagers as the most popular paging product; then the FCC allocated a block of
additional frequencies which expanded the capacity of the industry and allowed
new market entrants in markets where additional frequencies were previously
unavailable; and finally, the industry began consolidating as certain Regional
Bell Operating Companies made significant acquisitions of paging operations.
35
<PAGE> 36
Historically, the industry has been fragmented, with a large number of
small local operators. Despite the acquisitions made by certain Regional Bell
Operating Companies and the consolidation of the industry in the 1980s, at
present there are still more than 600 licensed paging companies in the United
States. However, management believes that approximately 50% of the pagers in
service in the United States now are served by the six companies in the industry
having the largest subscriber bases, of which the Company has the largest
subscriber base.
Although the growth rate of the paging industry is difficult to determine
precisely, industry sources estimate that the number of pagers in service
increased at a compound annual growth rate of approximately 28% during the five
year period ended December 31, 1995. The Company believes there will be
continued rapid growth in the number of subscribers for paging and other one-way
wireless communications services like VoiceNow(R). Industry sources estimate
there were approximately 34 million pagers in service in the United States as of
December 31, 1995.
PAGING OPERATIONS
In general, paging provides a communications link to a paging service
subscriber throughout the paging service area. Each paging subscriber is
assigned a distinct telephone number which the caller dials to activate the
subscriber's pager. When a telephone call for a subscriber is received at one of
the Company's computerized paging terminals, the Company transmits a radio
signal to the subscriber's pager (a pocket-sized radio receiver carried by the
subscriber), which causes the pager to emit a beep or vibrate and, in most
cases, to provide the subscriber with additional information from the caller.
Depending on the type of pager in use, the subscriber may respond based on
information displayed by the pager, or by calling his or her home or office to
receive the message. A pager has an advantage over a landline telephone in that
the pager's reception is not restricted to a single location and, compared to a
cellular portable telephone, a pager is smaller, has a longer battery life,
better building penetration and, most importantly, is substantially less
expensive to use.
The Company currently provides primarily two types of paging service:
numeric display and alphanumeric display. A numeric display pager permits a
caller to transmit to the subscriber a numeric message that may consist of a
telephone number, an account number or coded information, and has the memory
capability to store several such numeric messages that can be recalled by the
subscriber when desired. Alphanumeric display paging service allows subscribers
to receive and store messages consisting of both numbers and letters. The
Company provides numeric display, tone-only and alphanumeric display service in
all its markets.
Numeric display paging service, which was introduced by the paging industry
around 1980, represented approximately 93% of the Company's pagers in service at
December 31, 1995. Alphanumeric display service, which was introduced in the
mid-1980s, but which the Company has only recently begun to market aggressively,
represented 6% of the Company's pagers in service at December 31, 1995.
The effective operating radius of a paging transmitter is approximately 20
to 30 miles from the point of transmission and varies depending upon the terrain
of the coverage area and the characteristics of the transmitter site. The
Company's paging operations link paging transmitters in order to form networks.
The Company's local paging service is offered in almost all United States
population centers of 400,000 or more, which include virtually all of the
largest 100 markets (in population) in the United States. Local paging provides
service in a broad geographic area surrounding the population center and often
includes smaller towns nearby. The Company's regional paging service options
include multi-state areas. The Company's nationwide paging service, which is
marketed under the name PageNet Nationwide(R) Paging, provides paging
transmission service covering a geographic area containing more than 90% of the
United States population in all 50 states, the District of Columbia, the U.S.
Virgin Islands and Puerto Rico. The Company believes that it offers subscribers
a superior nationwide paging service at competitive prices. In addition to the
nationwide narrowband PCS frequencies acquired in the FCC auction, the Company
has acquired three frequencies for its nationwide paging services.
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<PAGE> 37
Primarily in conjunction with its numeric display and alphanumeric display
paging services, the Company also provides voice messaging and
personalized/automated answering services, marketed under the names
PageMail(R)or PageMail BoxSM, enabling a caller to leave a recorded message that
is stored in the Company's computerized message retrieval center. When a message
is left, the subscriber is automatically alerted through a page and can retrieve
the stored voice message by calling the Company's paging terminal. PageMail(R)
or PageMail BoxSM are in use in conjunction with approximately 11.7% of the
pagers in service with subscribers of the Company on June 30, 1996.
The Company is working with Motorola, Inc. and Glenayre Technologies, Inc.
to develop a new nationwide digital transmission network for advanced messaging
services ("InFLEXion"). The first product to be introduced on the new network
will be VoiceNow(R), which the Company commenced field testing in 1996. Unlike
PageMail(R) and PageMail BoxSM, which require that a subscriber call the
Company's paging terminal to retrieve messages, VoiceNow(R) subscribers will
carry a portable receiver, approximately the same size as an alphanumeric pager,
that is capable of receiving, storing and playing brief voice messages.
The Company has three distribution channels -- direct, indirect and its
National Accounts Division. In the direct channel, the Company leases or sells
pagers to customers and charges a monthly service fee for paging service. In the
indirect channel, the Company sells pagers to third parties and provides paging
service at reduced rates. The resellers, in turn, lease or resell the pagers to
their own subscribers and resell the Company's paging service under marketing
agreements. Through its National Accounts Division, the Company partners with
other companies that are regional or national in scope with large client bases.
These partners market the Company's paging services to their customers or
potential customers, with the Company providing a variety of services, which can
include pager leasing, customer service, order fulfillment, and billing. The
following table sets forth the respective numbers and percentages of pagers that
are (i) serviced directly by the Company, including certain of the units placed
in service through its National Accounts Division, (ii) serviced directly by the
Company and owned by the subscribers and (iii) serviced by the Company through
resellers and which may be owned by the third party resellers or by their
subscribers.
OWNERSHIP OF PAGERS IN SERVICE WITH SUBSCRIBERS OF THE COMPANY
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
------------------ ------------------ ------------------ ------------------ -------------------
NUMBER % NUMBER % NUMBER % NUMBER % NUMBER %
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Company
owned... 994,149 77.6% 1,365,278 65.7% 1,741,934 56.8% 2,234,460 50.7% 3,355,449 49.8%
Subscriber
owned... 96,813 7.5 162,382 7.8 206,086 6.7 232,896 5.3 339,237 5.0
Third
party
reseller... 190,681 14.9 550,294 26.5 1,120,549 36.5 1,941,486 44.0 3,043,221 45.2
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
TOTAL... 1,281,643 100.0% 2,077,954 100.0% 3,068,569 100.0% 4,408,842 100.0% 6,737,907 100.0%
========= ===== ========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
The increase in the Company's subscriber base serviced and owned by the
Company in 1995 was primarily due to an increase in the Company's units placed
in service by the direct sales force and by the creation of its National
Accounts Division, which began to produce significant subscriber additions in
mid-1995.
The increase in the Company's subscriber base placed in service through
resellers was largely due to the successful expansion of a program begun in 1990
that targeted the use of resellers to sell to market segments that the Company's
direct sales force had been unsuccessful in reaching.
Subscribers who buy pagers pay a monthly paging service fee if they
contract with the Company for paging services, and they may contract
additionally to receive repair service from the Company. For leasing
subscribers, repair is included in the monthly rental charge, which is generally
combined with the paging service charge for an "all-in-one" monthly fee.
Generally there is no separate usage charge in either case. Leasing rates and
purchase prices for pagers vary widely by market region, service type and the
volume of pagers purchased or leased by the subscriber. The Company does not
manufacture any
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<PAGE> 38
pagers. Instead, it purchases the pagers that it sells and leases, primarily
from a single manufacturer. See "-- System Equipment and Pagers" below.
STRATEGY
The Company's strategy is to strengthen its industry leadership by
continuing to provide superior paging and messaging services at prices generally
below those of the competition. The Company intends to significantly increase
its market share and the number of paging units in service in its direct and
indirect sales channels and its National Accounts Division, by focusing on a
variety of new products and services. The Company also intends to enhance the
overall effectiveness of its nationwide digital transmission network for one-way
messaging services. Key components of the Company's strategy include:
LOW-COST STRUCTURE -- Management believes the key to its success in the
paging and wireless communications industry is its ability to provide low-cost,
high-quality service. The Company has achieved its status as a low-cost provider
because of two primary factors. First, because the Company is one of the largest
volume purchasers of pagers and paging infrastructure equipment, it is able to
obtain volume discounts not available to many of its competitors. Second, the
Company has made investments which improve the efficiency of its operations,
including investments in administrative and customer information systems and
high-quality, large-capacity transmission systems which allow the Company to
serve more customers on fewer frequencies and to operate with less manpower.
CONTINUED GROWTH IN CORE PAGING BUSINESS -- The Company currently provides
local, regional and nationwide paging services utilizing primarily numeric
display and alphanumeric display pagers, with voice mail available as a
supplemental service. The Company is also the exclusive wireless provider of CNN
news, sports, and financial market headlines. In 1995, exclusive of
acquisitions, pagers in service with subscribers of the Company grew by
approximately 2 million units, or 45%. Through a combination of increased
penetration and market share gains, the Company believes its core paging
business will continue to provide significant future growth.
SUPERIOR GEOGRAPHIC COVERAGE AND NETWORK INFRASTRUCTURE -- The Company
believes that its geographic coverage and state-of-the-art paging network
combine to provide a superior paging service. The Company provides paging
services in virtually all of the largest 100 markets (in population) in the
United States and its paging system reaches more than 90 percent of the U.S.
population. The Company utilizes state-of-the-art network infrastructure
equipment which enables it to service a high number of pagers per frequency,
lowering the Company's infrastructure expenditure per subscriber.
SPECTRUM -- The Company believes that it has accumulated sufficient
spectrum to accommodate growth across the country for the foreseeable future and
considers its extensive spectrum holdings to be one of its most important
strategic assets. The Company has five nationwide frequencies for its paging
services, more than any other paging provider, and significant local frequencies
in the major U.S. markets. In addition, in 1994 the Company acquired three
nationwide narrowband PCS frequencies in an FCC auction at a cost of $197
million. In 1996 the Company participated in the FCC auction of SMR frequency
licenses, and ultimately won two to four blocks of two-way spectrum across the
United States for a total of $45.6 million. The Company is in the process of
purchasing exclusive rights to certain of these SMR frequencies from incumbent
operators. Expenditures for such purchases are estimated to total $200 million
in 1996 and 1997. Total SMR frequency acquired is expected to approximate three
times the frequency acquired in the 1994 PCS auctions.
The Company will utilize the PCS and SMR frequencies to offer products
requiring two-way service, such as VoiceNow(R) and low-cost, nationwide
alphanumeric service. To increase network capacity, a paging carrier can either
add additional transmitters to the system or utilize additional spectrum. The
Company believes utilizing SMR frequencies, rather than adding transmitters,
will provide a greater return on investment and allow for significantly greater
numbers of subscribers.
TWO WAY WIRELESS SERVICES -- The Company is working with Motorola, Inc. and
Glenayre Technologies, Inc. to deploy a new nationwide two-way digital
transmission network using its PCS and
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<PAGE> 39
SMR frequencies which it believes will be the highest quality, most extensive
and most cost-effective network of its kind in the country. This network will
represent the next generation of wireless messaging technology, with greater
speed and capacity than existing networks. Management believes that this network
and the Company's nationwide frequencies will offer significant strategic
opportunities. While paging will remain the Company's core business, this
network will be a strategic asset that allows further penetration of the
business market with new communications services and new opportunities for
growth in the consumer market.
- - VOICENOW(R) -- The new two-way network will initially be used primarily for
VoiceNow(R), the Company's new digitized voice messaging service, which the
Company is currently field testing. Because of its features, the Company
believes VoiceNow(R) will appeal to the consumer market not traditionally
reached by paging services as well as businesses. VoiceNow(R) subscribers will
carry a portable receiver, approximately the same size as an alphanumeric
pager, that is capable of receiving, storing and playing brief digitized voice
messages. The Company expects to price the VoiceNow(R) service at
approximately $9.95 per month for local service plus the lease of the
subscriber device. Each subscriber will be assigned a distinct telephone
number which the caller dials to leave a voice message. When the voice message
for a subscriber is received at one of the Company's computer terminals, the
terminal directs the network to broadcast a short radio signal to the
VoiceNow(R) device. The device will send a reply signal which will allow the
network to identify the subscriber's location. The voice message will then be
sent to the device typically via the transmitter closest to the subscriber.
The device will emit a tone or vibrate to alert the subscriber that a voice
message has been received and stored in the device. The subscriber can then
listen to the message at any time. The device will have a volume control so
that the subscriber can listen to the voice message in confidence or can allow
other people to listen to it as well. The VoiceNow(R) network will be capable
of confirming receipt of the message and resending it if it is not received
without subscriber intervention. The Company anticipates that the initial
devices will hold four minutes of messages (with any additional messages being
stored on the Company's network for later delivery) and will have rewind, fast
forward, cueing, pause and delete capabilities and a long (approximately six
weeks) battery life. Once technological and marketing tests are complete, the
Company intends to begin commercial deployment throughout the country. The
Company expects to have several hundred units in service with selected
commercial customers by the end of 1996 and a major launch of the product in
the first quarter of 1997.
- - OTHER NEW TWO-WAY WIRELESS SERVICES -- In addition to the traditional paging
services and VoiceNow(R), the Company expects to introduce other two-way
messaging products, such as a new, low-cost, nationwide alphanumeric paging
and data messaging services. The new alphanumeric service is expected to be
deployed over the Company's new nationwide two-way network in 1997. The new
two-way network uses less spectrum by determining the location of the
alphanumeric pager, and sending the message via typically the closest
transmitter, rather than by all transmitters simultaneously. By utilizing the
closest transmitter to send the message the costs of providing nationwide
alphanumeric service approximates the cost of providing local alphanumeric
service today. The Company expects that this new low-cost system will enable
it to provide nationwide alphanumeric service to customers at lower prices and
that this will increase the demand for alphanumeric paging and will expand the
Company's market position.
DISTRIBUTION -- The Company believes its distribution channels provide the
broadest marketing reach in the industry. The Company uses three distribution
channels -- direct, indirect and its National Accounts Division. In the direct
channel, the Company leases or sells pagers to customers and charges a monthly
fee for paging service. In the indirect channel, the Company sells pagers to
third parties and provides paging service at reduced rates. The resellers, in
turn, lease or resell the pagers to their own subscribers and resell the
Company's paging service under marketing agreements. The reseller is responsible
for customer service, billing, and other associated expenses. Through its
National Accounts Division, the Company partners with other companies that are
regional or national in scope with large client bases. These partners market the
Company's paging services to their customers or potential customers, with the
Company providing a variety of services, which can include pager leasing,
customer
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<PAGE> 40
service, order fulfillment, and billing. Throughout 1995 and 1996 the Company
has been selected by a variety of companies to provide these services, including
Citizens Telecom, Comcast Cellular, Communications Expo, GTE, MCI, Sprint, and
TransNational Communications International. The Company believes these marketing
affiliates, which primarily reach the consumer market, also offer an excellent
means of selling, distributing and servicing its VoiceNow(R) product.
INTERNATIONAL EXPANSION -- On April 1, 1996, the Company's wholly owned
subsidiary, PageNet Canada, with its Canadian partner, Madison Venture Corp.,
commenced offering paging services in Canada. Based in Toronto, PageNet Canada
currently offers paging services in Montreal, Ottawa, Quebec City, Toronto and
Vancouver and provides paging transmission services covering a geographic area
containing more than 90% of the Canadian population. As of June 30, 1996 PageNet
Canada had approximately 6,000 paging units in service. In September 1996, the
Company announced that it had purchased a 25% interest in Sociedad de
Radiotelefonia Movil, S.A., which owns Compania Europea de Radiobusqueda, S.A.
("CERSA"), a Spanish paging company. The Company also announced that it had
entered into an agreement to provide operational assistance to CERSA. The
Company's agreement includes an option to acquire an additional 26% of CERSA if
Spanish foreign ownership restrictions change to permit such ownership. CERSA,
which began operations in 1993 and is currently the third largest paging carrier
in Spain, with approximately 20% of the total paging units in service in Spain,
provides local and nationwide paging services and has approximately 25,000 units
in service. The Company is considering other opportunities for international
expansion.
Paging market penetration in many international markets is relatively low,
and many such markets have only a small number of existing paging providers. The
Company believes that in these areas its strategy of low-cost, high quality
service is likely to be successful. The Company's goal is to create a portfolio
of international operations. The Company expects to invest up to $100 million in
this endeavor through 1998, including approximately $32 million invested to
date. Additional investments will depend on such factors as growth rates, new
market opportunities and execution of financing plans that maximize value for
the Company's stockholders.
ACQUISITION OF OTHER PAGING PROVIDERS -- The Company believes the paging
industry will experience additional consolidation which may create strategic
acquisition opportunities for the Company in the future. While much of the
Company's future growth will be internally generated, management believes that
the Company's current scale of operations now makes it possible to effectively
and efficiently integrate acquired paging operations into its own operations
while maintaining its low-cost structure. The Company will continue to consider
strategic acquisitions and combinations.
MARKETING
The Company's paging services are marketed through a regionally-deployed
direct sales force, some 6,000 nationwide resellers, and several marketing
affiliates such as GTE, MCI, and Sprint. As of December 31, 1995, direct sales
(which includes those from marketing affiliates) accounted for approximately 54%
of the Company's overall pagers in service and the indirect channel (which
include resellers and retailers) represented approximately 46%.
The Company promotes its many products and services through the use of
direct mail, print, radio, television, and Yellow Page advertising,
telemarketing, and co-op programs.
All of the Company's sales representatives that support the direct channel
are located in field locations across the U.S. and Canada. Historically, a
majority of the Company's subscribers were generated through the direct sales
force. The direct sales market should continue to increase and remain an
important source of new subscribers.
The Company provides services under marketing agreements with third-party
marketing organizations, or "resellers," in bulk quantities at wholesale rates
that are lower than the Company's retail rates through its direct sales channel.
The resellers endeavor to resell the Company's services to end users or
retailers who, in turn, market to the end user for a higher price. The Company's
costs of handling and
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<PAGE> 41
billing bulk reseller accounts are generally lower than the costs of handling
and billing its other accounts. The portion of the Company's subscriber base
placed in service through resellers accounted for approximately 37% of the
Company's pagers in service at December 31, 1993, approximately 44% at December
31, 1994 and approximately 45% at December 31, 1995. Resellers represented
approximately 61% of the Company's net unit additions during 1994, and
approximately 47% of the Company's net unit additions during 1995. The
successful expansion of the reseller program that began in 1990 targeted the use
of resellers to those market segments which it was not cost-effective for the
Company's direct sales force to reach. Management believes that this sales
channel generates attractive incremental cash flow contribution and enables the
Company to increase operating efficiencies and lower per unit costs by further
amortizing its network infrastructure investment over a larger subscriber base.
In addition, because other companies bear the economic burden of pager capital
investment, direct selling expense, and certain administrative costs, management
believes that the resulting cash flow stream from pagers serviced through
resellers represents an attractive return on the Company's total capital
investment.
The Company's National Accounts Division represents a large growth area for
the Company. Paging units and services are offered to potential customers
through business arrangements with national companies that have large customer
bases. The Company also handles the fulfillment for the national accounts
through its National Accounts Division locations in Richardson and Plano, Texas.
Subscribers to the Company's paging and other communications services are
generally individuals and organizations whose businesses require a high degree
of mobility or involve multiple work locations. Typical paging subscribers
include, among others, medical personnel, sales and service organizations,
specialty trades, construction and manufacturing companies, and governmental
agencies.
The Company is not dependent on any single customer. No single subscriber
or reseller accounted for more than 2.6% of the Company's Net Revenues in 1995.
SYSTEM EQUIPMENT AND PAGERS
The equipment used in the Company's paging operations is available for
purchase from multiple sources, and the Company anticipates that equipment and
pagers will continue to be available to the Company in the foreseeable future,
consistent with normal manufacturing and delivery lead times. Because of the
high degree of compatibility among different models of transmitters, computers
and other paging equipment manufactured by suppliers, the Company is able to
design its systems without being dependent upon any single source of such
equipment. The Company continually evaluates new developments in paging
technology in connection with the design and enhancement of its paging systems
and selection of products to be offered to subscribers.
The Company does not manufacture any of the pagers or related transmitting
and computerized paging terminal equipment used in the Company's paging
operations. In order to achieve significant cost savings from volume purchases,
the Company currently purchases a vast majority of its pagers from Motorola,
Inc. The Company purchases its transmitters from three competing sources and its
paging terminals from Glenayre Technologies, Inc., a manufacturer of mobile
communications equipment. Motorola, Inc. will provide VoiceNow(R) subscriber
devices to the Company. Motorola, Inc. and Glenayre Technologies, Inc. will
provide the transmission and network equipment for VoiceNow(R). Motorola, Inc.
has agreed to sell its VoiceNow(R) subscriber devices to the Company on a
first-to-market basis in the United States for a period of six months from beta
system acceptance by the Company. After the end of this six-month period,
Motorola, Inc. may provide VoiceNow(R) subscriber devices to other companies.
Glenayre Technologies, Inc. has agreed to a commercial exclusivity period
relating to the deployment of the PCS InFLEXion system, which is used to provide
VoiceNow(R). Glenayre Technologies, Inc. agreed to delay the commercial turn-on
of InFLEXion systems for other service providers in the United States, Canada,
and Brazil until an InFLEXion portable pager device is commercially available to
paging service providers other than the Company, or April 1, 1997, whichever is
earlier.
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The Company's rapid expansion, including greater market share of existing
markets, requires significant capital expenditures, including purchases of
additional transmitters, paging terminals, and new pagers.
COMPETITION
The Company experiences direct competition from one or more competitors in
all the locations in which it operates. Competition for subscribers to the
Company's paging services in most geographic markets is based primarily on
price, quality of services offered and the geographic area covered. The Company
believes that its price, quality of its services and its geographic coverage
areas generally compare favorably with those of its competitors.
Although some of the Company's competitors are small privately-owned
companies serving only one market area, others are subsidiaries or divisions of
larger companies, such as regulated Bell operating companies, that provide
paging services in multiple market areas. In addition, the industry has been
experiencing a significant amount of consolidation over the last year, as
various competitors attempt to expand their service area and market share. Among
the Company's competitors are AT&T Wireless Messaging, Air Touch Communications,
Inc., Arch Communications Group, Inc., and MobileMedia Communications, Inc.
(using the trade name MobileComm via their recent acquisition of the MobileComm
subsidiary of Bell South). Certain of these competitors possess financial
resources greater than those of the Company.
A variety of wireless two-way communication technologies, including
cellular telephone service, narrowband and broadband personal communications
services, Enhanced Specialized Mobile Radio, and mobile satellite services, are
currently in use or under development. Although these technologies currently are
more highly priced than paging services or are not commercially available,
technological improvements could result in increased capacity and efficiency for
wireless two-way communication and, accordingly, could result in increased
competition for the Company. In addition, future technological advances in the
telecommunications industry could create new services or products competitive
with the paging services currently provided by the Company. Recent and proposed
regulatory changes by the FCC are aimed at encouraging such technological
advances and new services, such as narrowband and broadband PCS, which will
increase the amount of spectrum available for paging or similar services. There
can be no assurance that the Company would not be adversely affected in the
event of such technological change.
REGULATION
The Company's paging operations are subject to regulation by the FCC under
the Communications Act of 1934, as amended (the "Communications Act").
Currently, paging services are offered over radio frequencies the FCC has
allocated for either common carrier or private carrier use. A radio common
carrier ("RCC") is generally licensed with respect to a specific radio frequency
in a particular locality or region. Private carrier paging ("PCP") licenses may
be on either exclusive or shared frequencies, as discussed below. The Company's
operations are all classified as Commercial Mobile Radio Services ("CMRS") and
are subject to common carrier regulation by the FCC. The FCC has granted the
Company RCC and PCP licenses to use the radio frequencies necessary to conduct
its paging operations. Licenses issued by the FCC to the Company set forth the
technical parameters, such as power strength and tower height, under which the
Company is authorized to use those frequencies.
In late 1993, the FCC separated the frequencies used for PCP into two
groups. The larger group of frequencies, which the Company utilizes in its
operations, are available only on an exclusive basis. The FCC has recognized
three types of exclusivity: local, regional and national, each requiring a
specified number of transmission sites to qualify. Licensees granted local and
regional exclusivity will receive the exclusive right to use the specific
frequency in the area served by their system as defined by coverage contours and
separation requirements. Licenses granted nationwide exclusivity will have the
sole right to use that frequency anywhere in the United States, not just in the
specific areas they actually serve. Any
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<PAGE> 43
exclusivity rights granted by the FCC are subject to continued sharing with
facilities in place or applied for on or prior to October 14, 1993. Exclusivity
rights with respect to a proposed local, regional or nationwide system may be
lost if the licensee fails to actually build and place the system in operation
with the required number of transmitters.
The Communications Act was amended in August 1993 ("August 1993
Amendments") to permit the FCC to grant applications for new services which are
mutually exclusive by competitive bidding including broadband and narrowband
PCS. The August 1993 Amendments also required the FCC to conduct a rulemaking to
determine whether non-assigned frequencies for existing services will be
auctioned. The August 1993 Amendments do not permit auctions to be used for
license renewals or license modifications. The FCC has initiated a rulemaking
proceeding in which it is considering changes to its application process for RCC
and PCP frequencies. The FCC will likely adopt a competitive bidding process for
all paging frequencies and may choose to rely on geographic parameters rather
than transmitter coverage contours, i.e., market area licensing, for licenses
awarded in the competitive bidding process. Market area licensing proposals will
require additional coverage area for the Company's frequencies to be purchased
at auction. In the interim, subject to the exclusivity rules, the FCC is only
accepting certain applications to enable carriers to modify existing paging
systems. The Company believes that a reasonable process for assigning licenses
by competitive bidding will be beneficial in that the Company will have a
greater degree of control over whether it obtains licenses that it desires in
order to offer additional service(s) than it did under the lottery, comparative
hearing or other assignment processes which the FCC has used.
At the first such auction, held in July 1994, the Company was a successful
bidder for three newly allocated nationwide narrowband PCS frequencies which it
will hold on an exclusive basis. Current FCC regulations do not permit the
Company to acquire more than three narrowband PCS licenses in any market and,
because the Company has already acquired three nationwide narrowband PCS
licenses, prohibit the Company from participating in further narrowband PCS
auctions. In April, 1996, the FCC auctioned frequencies in the 900 MHz range,
which previously have been utilized for SMR services, and the Company acquired
126 such licenses across the United States for a total cost of $45.6 million.
The Company participated in this auction as a method of obtaining additional
frequencies for future needs. The Company is in the process of purchasing
exclusive rights to certain of these frequencies from incumbent operators. Each
FCC license held by the Company has construction and operational requirements.
The FCC licenses granted to the Company are varying terms of up to 10
years, at the end of which time renewal applications must be approved by the
FCC. In the past, FCC renewal applications routinely have been granted in most
cases upon a demonstration of compliance with FCC regulations and adequate
service to the public. The FCC has granted each renewal license the Company has
filed. Although the Company is unaware of any circumstances which would prevent
the grant of any pending or future renewal applications, no assurance can be
given that any of the Company's licenses will be renewed by the FCC.
Furthermore, although revocation and involuntary modification of licenses are
extraordinary regulatory measures, the FCC has the authority to restrict the
operation of licensed facilities or revoke or modify licenses. No license of the
Company has ever been revoked or modified involuntarily.
The Communications Act requires licensees, such as the Company to obtain
prior approval from the FCC of the transfer of control of any construction
permit or station license, or any rights thereunder. The Communications Act also
requires prior approval by the FCC of acquisitions of other paging companies by
the Company and transfers by the Company of a controlling interest in any of its
licenses or construction permits, or any rights thereunder. The FCC has approved
each acquisition and transfer of control for which the Company has sought
approval. The Company also regularly applies for FCC authority to use additional
frequencies, modify the technical parameters of existing licenses, expand its
service territory, provide new services and modify the conditions under which it
provides service. Although there can be no assurance that any requests for
approval of applications filed by the Company will be approved or acted upon in
a timely manner by the FCC, or that the FCC will grant the relief requested,
subject to the forthcoming rules for competitive bidding, the Company knows of
no reason to
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believe any such requests, applications or relief will not be approved or
granted. The Company makes no representations, however, about the continued
availability of additional frequencies used to provide paging services.
The Communications Act also limits foreign ownership of entities that
directly or indirectly hold certain licenses from the FCC, including certain of
those held by the Company. Because the Company holds licenses from the FCC only
through its subsidiaries, up to 25% of the Company's stock can be owned or voted
by aliens or their representatives, a foreign government or its representatives,
or a foreign corporation. If the Company were to directly hold FCC licenses, the
Communications Act would allow up to 20% of the Company's stock to be owned or
voted by aliens or their representatives, a foreign government or its
representatives, or a foreign corporation. Based upon information obtained by
it, the Company believes that substantially less than 25% of its issued and
outstanding common stock is owned by aliens or their representatives, foreign
governments or their representatives or foreign corporations.
The Company obtains telephone numbers for its paging service from the
predominant local telephone company, which is known as the Numbering Plan Area
("NPA") Code Administrator. Under the 1996 Act, the FCC has adopted a process
through which telephone company administrators are intended to be replaced by
neutral third parties in 1997. Increased demand for numbers, particularly in
metropolitan areas, is causing depletion of numbers in certain area codes ("NPA
codes"). As this occurs, the Code Administrator devises a relief plan. Recent
plans have included certain elements that could impact on the Company's
operations including the take-back of numbers already assigned for use and
service-specific plans whereby only certain services, such as paging and
cellular, would be assigned numbers using a new NPA code. The Company, along
with two other paging companies, filed a request for declaratory ruling with the
FCC to establish federal policies that will preclude discriminatory and unfair
elements of relief plans. In January 1995 the FCC issued a declaratory ruling
substantially granting the relief requested by the Company and prohibiting
unreasonable discrimination in assigning numbers. Subsequently, certain
participants to state proceedings continue to advocate numbering relief plans
contrary to the FCC's ruling. The Company can provide no assurance that such
plans will not be adopted by a state commission. In addition, the Company is
actively participating at the state level in proceedings before public service
commissions where individual NPA code relief plans are being filed for approval
and contain objectionable elements.
In addition to potential regulation by the FCC, several states have the
authority to regulate paging services, except where such regulation constitutes
rate or entry, both of which have been preempted by the August 1993 Amendments,
as interpreted by the FCC. Appeals of the FCC action with respect to rate
regulation are pending, but the Company believes the FCC will be upheld in its
preemption of rate regulation by state commissions. A few states have also
indicated that they are considering continuing to assert jurisdiction over
transfers of paging company's assets or operations. Nevertheless, all state
approvals of acquisitions or transfers made by the Company have been approved,
and the Company knows of no reason to believe such approvals will not continue
to be granted in connection with any future requests, even if states exercise
that review. The August 1993 Amendments do not preempt state regulatory
authority over other aspects of the Company's operations, and some states may
choose to exercise such authority.
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act")
was signed into law. This new legislation amends the Communications Act of 1934,
as amended, and modifies the Consent Decrees governing the provision of
telecommunications services by the Bell Operating Companies and the GTE
Companies. The new legislation is intended to promote competition in local
exchange services through the removal of legal or other barriers to entry. Under
the 1996 Act, the Bell Operating Companies and other local exchange carriers may
be permitted to jointly market commercial mobile service in conjunction with
their traditional local exchange services. It imposes upon all
telecommunications carriers the duty to interconnect with the facilities and
equipment of other telecommunications carriers. The FCC has interpreted the 1996
Act to require local exchange carriers to compensate wireless carriers if
terminating LEC originated calls on the wireless carrier's network.
Simultaneously, the FCC found unlawful certain charges levied against paging
carriers in the past that have been assessed on a monthly
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<PAGE> 45
basis for the use of certain network facilities, including telephone numbers.
These findings by the FCC will be challenged at the FCC and in the courts. The
Company cannot predict with certainty the ultimate outcome of these proceedings.
For paging carriers, compensation amounts may be determined in subsequent
proceedings either at the federal or state level, or may be determined based on
negotiations between the local exchange companies, and the paging carriers. Any
agreements reached between the local exchange carriers and paging companies may
be required to be submitted to state regulatory commissions for approval. The
1996 Act, as ultimately interpreted by the appropriate regulatory bodies, may
require commercial mobile service providers such as the Company to contribute to
"Universal Service" or other funds to assure the continued availability of local
exchange service to high costs areas as well as contribute funds to cover the
costs of number portability and dialing parity implementation. It limits the
circumstances under which states and local governments may deny a request by a
commercial mobile service provider to place facilities, and gives the FCC the
authority to preempt the states in some circumstances.
TRADEMARKS
The Company markets its paging and related services under various names and
marks, including PageNet(R), PageMail(R), PageMate(R), Voice Now(R), PageNet
Nationwide(R), SurePage(R), FaxNow(R), MessageNow(R) and the Company's "beeper
man" logo, all of which are federally registered service marks. The Company's
federal mark registrations expire at various times between 2000 and 2005, unless
they are then renewed by the Company. The Company has filed applications with
the United States Patent and Trademark Office to register additional names and
marks.
CORPORATE ORGANIZATION
The Company conducts its domestic operations through 50 wholly owned
subsidiaries of the Company, each of which operates in a specified geographic
area. The Company's subsidiaries operate as largely independent business units,
consistent with senior management's philosophy that a decentralized organization
is more responsive to market demands and provides greater incentives to
employees. Each subsidiary makes its own staffing, administrative, operational
and marketing decisions within guidelines established by the senior executive
officers of the Company in the annual budget process. Except for his or her
participation in the Company's stock option plans, the General Manager of each
subsidiary is compensated primarily on the basis of the performance of the
subsidiary over which he or she has oversight responsibility without regard to
the performance of other subsidiaries of the Company.
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<PAGE> 46
DESCRIPTION OF SENIOR DEBT
As of October 28, 1996, the Company had no borrowings outstanding and
approximately $333.2 million was available for borrowing under its Second
Amended and Restated Credit Agreement dated as of June 5, 1996 (the "Credit
Agreement"). In addition to the Credit Agreement borrowings and accrued
interest, Senior Debt, as defined in the Credit Agreement, includes the
Company's $22.6 million non-recourse guarantee of a portion of the borrowings of
Paging Network of Canada Inc. and Madison Telecommunications Holdings Inc.
The Credit Agreement provides for a $1 billion revolving credit facility
with a group of 36 lenders. The Company is able to borrow, provided it meets
certain financial covenants, the lesser of $1 billion or an amount based upon
several calculations including a calculation which is reduced by total
outstanding indebtedness for borrowed monies (as defined) and outstanding
letters of credit. The amount available for borrowing calculation is equal to a
specified multiple of EBITDA for the most recently ended fiscal quarter
multiplied by four. The Credit Agreement expires on December 31, 2004. The
maximum borrowings which may be outstanding under the Credit Agreement begin
reducing in 2001.
Under the Credit Agreement, the Company may designate all or a portion of
the revolving loan borrowings thereunder to be either a Base Rate loan or a
LIBOR Rate loan. The portion designated as a Base Rate loan bears interest at a
rate equal to the sum of (i) the higher of (a) the rate established by the
Administrative Agent from time to time as its reference rate for the
determination of interest rates for loans of varying maturities in U.S. Dollars
to U.S. persons, and (b) the Federal funds rate plus .50%, and (ii) a predefined
amount (the "spread") ranging from 0% to 1.00% based on the level of borrowings
outstanding relative to annualized earnings. The portion designated as a LIBOR
Rate loan bears interest at a rate equal to the London Interbank Offered Rate
plus a spread ranging from .625% to 2.00% based on the level of borrowings
outstanding relative to annualized EBITDA.
The capital stock of the Company's domestic subsidiaries (as well as the
assets of the Company and its domestic subsidiaries) is pledged to the Company's
bank lenders to secure the Company's obligations under the Credit Agreement. The
Credit Agreement prohibits the Company from paying cash dividends or other cash
distributions to stockholders. The Credit Agreement also prohibits the Company
from paying more than a total of $5 million in connection with the purchase of
Common Stock.
The Credit Agreement contains other covenants that, among other things,
limit the ability of the Company and its subsidiaries to incur indebtedness,
engage in transactions with affiliates, dispose of assets, and engage in
mergers, consolidations and acquisitions.
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<PAGE> 47
DESCRIPTION OF THE EXCHANGE NOTES
The following summaries of certain provisions of the Exchange Notes and the
Indenture do not purport to be complete and are subject, and are qualified in
their entirety by reference, to all the provisions of the Indenture, including
the definitions therein of certain terms. Capitalized terms not otherwise
defined herein have the meaning given to them in the Indenture.
The Outstanding Notes were issued, and the Exchange Notes will be issued,
under the Indenture. The form and terms of the Exchange Notes will be the same
as the form and terms of the Outstanding Notes, except that the Exchange Notes
will be registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and will not have the benefit of any
registration rights agreement or special interest provisions relating thereto.
The Exchange Notes will evidence the same indebtedness as the Outstanding Notes,
will be entitled to the benefits of the Indenture, and will be treated as a
single class under the Indenture with any Outstanding Notes that remain
outstanding after the Exchange Offer. The Outstanding Notes and the Exchange
Notes will be considered collectively to be a single class for all purposes
under the Indenture, including waivers, amendments, redemptions and Offers to
Purchase, and for purposes of this Description of the Exchange Notes (except
under the caption "-- Registration Rights; Exchange Offer"), all references
herein to "Notes" shall be deemed to refer collectively to the Outstanding Notes
and any Exchange Notes, unless the context otherwise requires.
GENERAL
The Exchange Notes will bear interest from October 16, 1996 at the rate of
10% per annum. Interest on the Exchange Notes will be payable on April 15 and
October 15, commencing April 15, 1997 to the person in whose name the Exchange
Note (or any Predecessor Exchange Note) is registered at the close of business
on the April 1 or October 1 next preceding such interest payment date.
(sec.sec. 301 and 307) Interest on the Exchange Notes shall be computed on the
basis of a 360-day year of twelve 30-day months. (sec. 310) Payments of
principal and interest will be made in immediately available funds. At the
option of the Company, principal of and premium, if any, and interest on the
Exchange Notes may be paid at the corporate trust office of the Trustee or by
check mailed to the registered address of such holders. ([Sections] 301, 305 and
1002)
Holders of Outstanding Notes whose Outstanding Notes are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of interest on the Outstanding Notes.
OPTIONAL REDEMPTION
The Exchange Notes will be subject to redemption, at the option of the
Company, in whole or in part, at any time on or after October 15, 2001 and prior
to maturity, upon not less than 30 nor more than 60 days notice mailed to each
holder of Exchange Notes to be redeemed at his address appearing in the Security
Register, in amounts of $1,000 or an integral multiple of $1,000, at the
following Redemption Prices (expressed as percentages of principal amount) plus
accrued interest to but excluding the Redemption Date (subject to the right of
holders of record on the relevant Regular Record Date to receive interest due on
an Interest Payment Date that is on or prior to the Redemption Date). If
redeemed during the 12-month period beginning October 15, of the years
indicated,
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----- ----------
<S> <C> <C>
2001........................................................... 105.000 %
2002........................................................... 103.333 %
2003........................................................... 101.667 %
2004 and thereafter............................................ 100%
</TABLE>
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<PAGE> 48
If less than all the Notes are to be redeemed, the Trustee shall select, in
such manner as it shall deem fair and appropriate, the particular Notes to be
redeemed or any portion thereof that is an integral multiple of $1,000.
([Sections] 203, 1101, 1105 and 1107)
The Exchange Notes will not have the benefit of any sinking fund
obligations.
SUBORDINATION
The Exchange Notes will, to the extent set forth in the Indenture, be
subordinate in right of payment to the prior payment in full of all Senior Debt.
Upon any payment or distribution of assets of the Company to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, the holders of Senior Debt will first be entitled to
receive payment in full of principal of (and premium, if any) and interest on,
such Senior Debt before the holders of Exchange Notes are entitled to receive
any payment of principal of (and premium, if any) or interest on the Exchange
Notes or on account of the purchase or redemption or other acquisition of
Exchange Notes by the Company or any subsidiary of the Company. In the event
that notwithstanding the foregoing, the Trustee or the holder of any Exchange
Note receives any payment or distribution of assets of the Company of any kind
or character (excluding shares of stock of the Company or securities of the
Company provided for in a plan of reorganization or readjustment which are
subordinate in right of payment to all Senior Debt to substantially the same
extent as the Exchange Notes are so subordinated), before all the Senior Debt is
paid in full, then such payment or distribution will be required to be paid over
or delivered forthwith to the trustee in bankruptcy or other Person making
payment or distribution of assets of the Company for application to the payment
of all Senior Debt remaining unpaid, to the extent necessary to pay the Senior
Debt in full. ([Section] 1402)
The Company may not make any payments on account of the Exchange Notes or
on account of the purchase or redemption or other acquisition of Exchange Notes
if there shall have occurred and be continuing a default in the payment of
principal of (or premium, if any) or interest on Senior Debt, the payment of
commitment or facility fees, letter of credit fees and agency fees under a
Credit Facility, and payments with respect to letter of credit reimbursement
arrangements with one or more lenders under a Credit Facility when due (a
"Senior Payment Default"). In addition, if any default (other than a Senior
Payment Default) with respect to any Senior Debt permitting the holders thereof
(or a trustee on behalf thereof) to accelerate the maturity thereof (a "Senior
Nonmonetary Default") has occurred and is continuing and the Company and the
Trustee have received written notice thereof from the Agent Bank for a Credit
Facility or from an authorized person on behalf of any Designated Senior Debt,
then the Company may not make any payments on account of the Exchange Notes or
on account of the purchase or redemption or other acquisition of Exchange Notes
for a period (a "blockage period") commencing on the date the Company and the
Trustee receive such written notice and ending on the earlier of (x) 179 days
after such date and (y) the date, if any, on which the Senior Debt to which such
default relates is discharged or such default is waived or otherwise cured. In
any event, not more than one blockage period may be commenced during any period
of 360 consecutive days, and there shall be a period of at least 181 consecutive
days in each period of 360 consecutive days when no blockage period is in
effect. No Senior Nonmonetary Default that existed or was continuing on the date
of the commencement of any blockage period with respect to the Senior Debt
initiating such blockage period will be, or can be, made the basis for the
commencement of a subsequent blockage period, unless such default has been cured
or waived for a period of not less than 90 consecutive days. In the event that,
notwithstanding the foregoing, the Company makes any payment to the Trustee or
the holder of any Exchange Note prohibited by the subordination provisions, then
such payment will be required to be paid over and delivered forthwith to the
holders of the Senior Debt remaining unpaid, to the extent necessary to pay in
full all the Senior Debt. For the purposes hereof, "Designated Senior Debt"
means any Senior Debt (other than under a Credit Facility which has an Agent
Bank) in an original principal amount of not less than $75 million where the
instrument governing such Senior Debt expressly states that such Debt is
"Designated Senior Debt" for purposes of the Indenture and a Board Resolution
setting forth such designation by the Company has been filed with the Trustee.
([Section] 1403)
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<PAGE> 49
By reason of such subordination, in the event of insolvency, creditors of
the Company who are not holders of Senior Debt or of the Exchange Notes may
recover less, ratably, than holders of Senior Debt and may recover more,
ratably, than the holders of the Exchange Notes.
"Senior Debt" means (a) the principal of (and premium, if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding) on, penalties
and any obligation of the Company for reimbursement, indemnities and fees
relating to, Debt outstanding pursuant to a Credit Facility, (b) all other Debt
for money borrowed of the Company referred to in the definition of Debt other
than clauses (iv), (vi) and (vii) (with respect to clauses (iv) and (vi) of such
definition) thereof and other than the Company's 11.75% Senior Subordinated
Notes due May 15, 2002, the Company's 8.875% Senior Subordinated Notes due
February 1, 2006, and the Company's 10.125% Senior Subordinated Notes due August
1, 2007, (c) payment obligations of the Company under interest rate swap or
similar agreements or foreign currency hedge, exchange or similar agreements
required by a Credit Facility, where the counterparty to such agreement is a
lender or former lender under such Credit Facility, and (d) all renewals,
extensions, modifications, refinancings, refundings and amendments of any Debt
or payment obligations referred to in clause (a), (b), or (c) above(including,
without limitation, any interest rate swap or similar agreements or foreign
currency hedge, exchange or similar agreements that are entered into by the
Company for the purpose of modifying, terminating or hedging any agreement that
constitutes Senior Debt under clause (c) above whether or not such modification,
termination or hedge was required by a Credit Facility and whether or not the
counterparty to such agreement is a lender or former lender under such Credit
Facility), unless, in the case of any particular Debt referred to above, (A)
such Debt is owed to a Restricted Subsidiary of the Company, (B) the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Debt is not superior in right of payment to the
Notes, (C) such Debt is Incurred in violation of the Indenture, other than Debt
Incurred under a Credit Facility not to exceed $200 million aggregate principal
amount at any one time outstanding so long as the lender of such Debt did not
have actual knowledge that such Debt was Incurred in violation of the Indenture,
or (D) such Debt is by its terms subordinate in right of payment in respect of
any other Debt of the Company. ([Section] 101)
The subordination provisions described above will cease to be applicable to
the Exchange Notes upon any defeasance or covenant defeasance of the Exchange
Notes as described under "Defeasance and Covenant Defeasance." (Article
Thirteen)
As of October 28, 1996, the aggregate amount of Senior Debt outstanding was
$24.5 million. The Company may from time to time hereafter incur additional Debt
constituting Senior Debt under the Credit Agreement or otherwise, subject to the
limitation on consolidated Debt described below.
REGISTRATION RIGHTS; EXCHANGE OFFER
The Company has entered into a Registration Rights Agreement pursuant to
which the Company agreed, for the benefit of the holders of the Outstanding
Notes, (i) to file with the Commission, within 30 days following the Closing an
Exchange Offer Registration Statement, and (ii) to use its best efforts to cause
the Exchange Offer Registration Statement to become effective as soon as
practicable, but no later than 75 days following the Closing. The Company has
further agreed to hold the Exchange Offer open for at least 30 days, and to
issue Exchange Notes for all Outstanding Notes validly tendered and not
withdrawn before the expiration of the Exchange Offer.
The Exchange Notes do not have the benefit of a registration rights
agreement.
If on or before the date of consummation of the Exchange Offer the existing
Commission interpretations are changed such that the Exchange Notes would not in
general be freely transferable on such date, the Company will, in lieu of
effecting registration of Exchange Notes, use its best efforts to cause a
registration statement under the Securities Act relating to a shelf registration
of the Outstanding Notes for resale by holders (the "Resale Registration") to
become effective and to remain effective for a period of up to three years after
the time and date as of which the Commission declares the Resale Registration
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<PAGE> 50
effective. The Company would, in the event of the Resale Registration, provide
to the holders of the Outstanding Notes copies of the prospectus that is a part
of the registration statement filed in connection with the Resale Registration,
notify such holders when the Resale Registration for the Outstanding Notes has
become effective and take certain other actions as are required to permit
unrestricted resales of the Outstanding Notes. A holder of Outstanding Notes
that sells such Notes pursuant to the Resale Registration generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to such a holder (including certain indemnification obligations).
In the event that (i) the Company has not filed the Exchange Offer
Registration Statement (or, if applicable, a registration statement relating to
the Resale Registration) within 30 days following the Closing, (ii) such
applicable registration statement has not become effective within 75 days
following the Closing, (iii) the Exchange Offer if any has not been consummated
within 45 days after the initial effective date of the Exchange Offer
Registration Statement or (iv) any registration statement required by the
Registration Rights Agreement is filed and declared effective but shall
thereafter cease to be effective (except as specifically permitted therein)
without being succeeded promptly by an additional registration statement filed
and declared effective (any such event referred to in clauses (i) through (iv),
a "Registration Default"), then the per annum interest rate on the Outstanding
Notes will increase by adding 0.5% thereto for the period from the first day on
which the Registration Default occurs to the first day on which no Registration
Default is in effect (at which time the interest rate will be reduced by such
additional amount). If the Company has not consummated the Exchange Offer (or,
if applicable, the Resale Registration has not become effective) within 120 days
following the Closing, then the per annum interest rate on the Outstanding Notes
will increase by adding an additional 0.5% thereto for the period from such
120th day to the day on which the Company consummates the Exchange Offer or a
Resale Registration becomes effective (at which time the interest rate will be
reduced by such additional amount).
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete. A copy of the Registration Rights
Agreement has been filed as an exhibit to the registration statement of which
this Prospectus is a part.
COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON CONSOLIDATED DEBT
The Company may not, and may not permit any Restricted Subsidiary to, Incur
any Debt unless, immediately after giving effect to the Incurrence of such Debt
and the receipt and application of the proceeds thereof, the ratio of the
aggregate principal amount (or Attributable Value, or Accreted Value in the case
of an Original Issue Discount Security, as the case may be) of Debt of the
Company and its Restricted Subsidiaries outstanding as of the most recent
available quarterly or annual balance sheet to Pro Forma Consolidated Cash Flow
for the most recently ended full fiscal quarter multiplied by four, determined
on a pro forma basis as if any such Debt had been Incurred and the proceeds
thereof had been applied at the beginning of such fiscal quarter, would be not
more than 6.5 to 1.
Notwithstanding the foregoing, the Company may, and may permit any
Restricted Subsidiary to, Incur the following without regard to the foregoing
limitation: (i) Debt under a Credit Facility in an aggregate principal amount
not to exceed $100 million at any one time outstanding; (ii) Debt evidenced by
the Notes; (iii) Debt owed by the Company to any Wholly owned Restricted
Subsidiary of the Company or owed by any Restricted Subsidiary of the Company to
the Company or any Wholly owned Restricted Subsidiary of the Company (but only
so long as such Debt is held by the Company or such a Wholly owned Restricted
Subsidiary); (iv) Debt Incurred or Incurrable in respect of letters of credit,
bankers' acceptances or similar facilities not to exceed $10 million at any one
time outstanding; (v) Capital Lease Obligations whose Attributable Value will
not exceed $2 million at any one time
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<PAGE> 51
outstanding; (vi) Debt (including trade letters of credit) which (a) constitutes
all or a part of the purchase price of property or (b) is Incurred prior to, at
the time of, or within 270 days after the acquisition of such property for the
purpose of financing all or any part of the purchase price thereof, not to
exceed $6 million at any one time outstanding; (vii) Debt of a Person guaranteed
by the Company or a Restricted Subsidiary in connection with a transaction which
results in such Person becoming a Restricted Subsidiary of the Company, provided
such Debt was not Incurred in anticipation of, and was outstanding prior to,
such transaction; (viii) Debt arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business, provided that such Debt
is extinguished within two Business Days of its Incurrence; and (ix) renewals,
refundings or extensions of outstanding Debt, in any case in an amount not to
exceed the outstanding principal amount of the Debt so refinanced plus the
amount of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Debt refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such refinancing
by means of a tender offer or privately negotiated repurchase, plus the expenses
of the Company incurred in connection with such refinancing, provided that, (A)
in the case of any refinancing of the Notes or any pari passu Debt, such
refinancing Debt is made pari passu or subordinate in right of payment to the
Notes, (B) in the case of any refinancing of Debt that is subordinate in right
of payment to the Notes, such refinancing Debt is made subordinate in right of
payment to the Notes, and (C) in the case of any refinancing of pari passu or
subordinated Debt, such refinancing Debt does not have an Average Life less than
the Average Life of the Debt being refinanced and does not have a final
scheduled maturity earlier than the final scheduled maturity, or permit
redemption at the option of the holder earlier than the earliest date of
redemption at the option of the holder, of the Debt being refinanced.
([Section]1008)
LIMITATION ON CERTAIN DEBT
The Indenture provides that so long as any of the Notes are Outstanding the
Company will not Incur or suffer to exist any Debt that is by its terms
subordinate in right of payment to any Senior Debt of the Company and that is
senior in right of payment to the Notes. ([Section]1009)
LIMITATION ON RESTRICTED PAYMENTS
The Company (i) may not, directly or indirectly, declare or pay any
dividend, or make any distribution, in respect of its Capital Stock or to the
holders thereof (including pursuant to a merger or consolidation of the Company,
but excluding any dividends or distributions payable solely in shares of its
Capital Stock (other than Disqualified Stock) or in options, warrants or other
rights to acquire its Capital Stock (other than Disqualified Stock)), (ii) may
not, and may not permit any Restricted Subsidiary of the Company to, directly or
indirectly, purchase, redeem or otherwise acquire or retire for value (a) any
Capital Stock of the Company or any Related Person of the Company or (b) any
options, warrants, or rights to purchase or acquire shares of Capital Stock of
the Company or any Related Person of the Company, (iii) may not make, or permit
any Restricted Subsidiary of the Company to make, any loan, advance, capital
contribution to or investment in, or payment on a Guarantee of any obligation
of, any Affiliate or any Related Person, other than the Company or a Wholly
owned Restricted Subsidiary of the Company, and (iv) may not, and may not permit
any Restricted Subsidiary of the Company to, redeem, defease, repurchase, retire
or otherwise acquire or retire for value prior to any scheduled maturity,
repayment or sinking fund payment, Debt of the Company which is subordinate in
right of payment to the Notes (each of clauses (i) through (iv) being a
"Restricted Payment"), if: (1) an Event of Default, or an event that with the
lapse of time or the giving of notice, or both, would constitute an Event of
Default, shall have occurred and be continuing, or (2) upon giving effect to
such Restricted Payment, the aggregate of all Restricted Payments from the date
of the Indenture exceeds the sum of: (a) the remainder of (x) 100% of cumulative
Consolidated Cash Flow after December 31, 1993 through the last day of the last
full fiscal quarter immediately preceding such Restricted Payment for which
quarterly or annual financial statements of the Company are available minus (y)
the product of 1.4 times cumulative Consolidated Interest Expense after December
31, 1993 through the last day of the last full fiscal quarter immediately
preceding such Restricted Payment for which quarterly or annual financial
statements of the
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Company are available; and (b) 100% of the aggregate net proceeds after the date
of the Indenture (including the fair value of property other than cash) from the
issuance of Capital Stock (other than Disqualified Stock) of the Company and
options, warrants or other rights on Capital Stock (other than Disqualified
Stock) of the Company and the principal amount of Debt of the Company that has
been converted into Capital Stock (other than Disqualified Stock) of the Company
after the date of the Indenture.
The foregoing provision will not be violated by reason of (i) the payment
of any dividend within 60 days after declaration thereof if at the declaration
date such payment would have complied with the foregoing provision; (ii)
Restricted Payments consisting of investments in telecommunications businesses
in an aggregate amount not exceeding $50 million; (iii) payment in redemption of
Capital Stock of the Company or options to purchase such Capital Stock granted
to officers or employees of the Company pursuant to the 1982 Incentive Stock
Option Plan in connection with the severance or termination of officers or
employees not to exceed $3 million in the aggregate; and (iv) the making of
other Restricted Payments not in excess of $25 million. Any payment made
pursuant to clause (i), (ii), (iii) or (iv) of this paragraph shall be a
Restricted Payment for purposes of calculating aggregate Restricted Payments
under the next preceding paragraph.([Section] 1010)
LIMITATIONS CONCERNING DISTRIBUTIONS BY AND TRANSFERS TO RESTRICTED
SUBSIDIARIES
The Company may not, and may not permit any Restricted Subsidiary of the
Company to, suffer to exist any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company (i) to pay, directly or indirectly,
dividends or make any other distributions in respect of its Capital Stock or pay
any Debt or other obligation owed to the Company or any other Restricted
Subsidiary of the Company; (ii) to make loans or advances to the Company or any
Restricted Subsidiary of the Company; or (iii) to transfer any of its property
or assets to the Company. Notwithstanding the foregoing, the Company may, and
may permit any Restricted Subsidiary to, suffer to exist any such encumbrance or
restriction on the ability of any Restricted Subsidiary of the Company if and to
the extent (i) subject to the provisions described under "Mergers,
Consolidations and Certain Sales and Purchases of Assets," such encumbrance or
restriction existed prior to the time any Person became a Restricted Subsidiary
of the Company and such restriction or encumbrance was not Incurred in
anticipation of such acquisition of such Person by the Company; (ii) subject to
the provisions described under "Mergers, Consolidations and Certain Sales and
Purchases of Assets," "Limitation on Certain Asset Dispositions" and "Limitation
on Issuances and Sales of Capital Stock of Wholly owned Restricted
Subsidiaries," such encumbrance or restriction exists by reason of a customary
merger or acquisition agreement for the purchase or acquisition of the stock or
assets of the Company or any of its Restricted Subsidiaries by another Person;
(iii) such encumbrance or restriction is contained in an operating lease for
real property and is effective only upon the occurrence and during the
continuance of a default in the payment of rent; and (iv) such encumbrance or
restriction is the result of applicable corporate law or regulation relating to
the payment of dividends or distributions.([Section] 1011)
LIMITATION ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The Company may not, and may not permit any Restricted Subsidiary of the
Company to, directly or indirectly, enter into any transaction after the date of
the Indenture with any Affiliate or Related Person (other than the Company or a
Wholly owned Restricted Subsidiary of the Company), unless (1) a majority of the
disinterested members of the Board of Directors of the Company determines in its
good faith judgment evidenced by a Board Resolution that the terms of such
transaction are in the best interests of the Company or such Restricted
Subsidiary; and (2) such transaction is, in the good faith judgment of the Board
of Directors evidenced by a Board Resolution, on terms no less favorable to the
Company or such Restricted Subsidiary than those that could be obtained in a
comparable arm's-length transaction with an entity that is not an Affiliate or a
Related Person.([Section] 1012)
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LIMITATION ON CERTAIN ASSET DISPOSITIONS
The Company may not, and may not permit any Restricted Subsidiary of the
Company to, make any Asset Disposition in one or more transactions unless: (i)
the Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such sale or other disposition at least equal to
the fair market value for the assets sold or disposed of as determined by the
Board of Directors; (ii) the consideration for such disposition consists of cash
or readily marketable cash equivalents or the assumption of Debt of the Company
or other obligations relating to such assets and release from all liability on
the Debt or other obligations assumed; and (iii) all Net Available Proceeds,
less any amounts invested within 180 days of such disposition in accordance with
the next sentence, in assets related to the business of the Company, of such
disposition and from the sale of any marketable cash equivalents received
therein are applied within 180 days of such disposition, (A) first, to the
permanent reduction of any Debt then outstanding under a Credit Facility to the
extent the terms of such Credit Facility require such application or prohibit
prepayment of the Notes or other Debt to be prepaid as described in this
paragraph, (B) second, to the repayment of any other Senior Debt to the extent
the terms of such Debt require such application or prohibit prepayment of the
Notes or other Debt to be prepaid as described in this paragraph, (C) third, to
the extent remaining Net Available Proceeds exceed $5 million, to make an offer
to purchase the Company's outstanding 11.75% Senior Subordinated Notes due May
15, 2002, and (D) fourth, to the extent remaining Net Available Proceeds exceed
$5 million, to make an Offer to Purchase the Notes Outstanding, the Company's
outstanding 8.875% Senior Subordinated Notes due February 1, 2006, the Company's
outstanding 10.125% Senior Subordinated Notes due August 1, 2007, and other pari
passu Debt, on a pro rata basis according to their respective principal amounts
then outstanding (or Accreted Value in the case of an Original Issue Discount
Security), at 100% of their principal amount plus accrued interest to the date
of the purchase. Notwithstanding the foregoing, the Company shall not be
required to repurchase or redeem Notes or to repay other Debt pursuant to clause
(iii) above unless the Net Available Proceeds from any Asset Disposition, less
any amounts invested within 180 days of such disposition in assets related to
the business of the Company, exceed $5 million (such lesser amount to be carried
forward on a cumulative basis for any fiscal year). The Company shall not be
entitled to any credit against such obligation to purchase Notes for the
principal amount of any Notes acquired by the Company otherwise than pursuant to
such Offer to Purchase. These provisions will not apply to a transaction which
is permitted under the provisions described under "Mergers, Consolidations and
Certain Sales and Purchases of Assets."([Section]1013)
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED RESTRICTED
SUBSIDIARIES
The Company (i) shall not, and shall not permit any Wholly owned Restricted
Subsidiary to, transfer, convey, sell, lease or otherwise dispose of any Capital
Stock of such or any other Wholly owned Restricted Subsidiary to any Person
(other than the Company or a Wholly owned Restricted Subsidiary) unless such
transfer, conveyance, sale, lease or other disposition is of all the Capital
Stock of such Wholly owned Restricted Subsidiary and the Net Available Proceeds
from such transfer, conveyance, sale, lease or other disposition are applied in
accordance with "Limitation on Certain Asset Dispositions" and (ii) shall not
permit any Wholly owned Restricted Subsidiary to issue shares of its Capital
Stock (other than directors' qualifying shares), or securities convertible into,
or warrants, rights or options to subscribe for or purchase shares of, its
Capital Stock to any Person other than to the Company or a Wholly owned
Restricted Subsidiary.([Section]1014)
PROVISION OF FINANCIAL INFORMATION
So long as any of the Exchange Notes are Outstanding, the Company will file
with the Commission the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to Section 13(a) or 15(d) of the 1934 Act if the Company were subject to such
Sections and will also provide to all holders and file with the Trustee copies
of such reports.([Section]1015)
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MERGERS, CONSOLIDATIONS AND CERTAIN SALES AND PURCHASES OF ASSETS
The Company (i) may not consolidate with or merge into any other Person or
permit any other Person to consolidate with or merge into the Company or any
Restricted Subsidiary of the Company (in a transaction in which such Restricted
Subsidiary remains a Restricted Subsidiary of the Company); (ii) may not,
directly or indirectly, transfer, convey, sell, lease or otherwise dispose of
all or substantially all of its assets; (iii) may not, and may not permit any
Restricted Subsidiary of the Company to, directly or indirectly, acquire Capital
Stock of any other Person such that such Person becomes a Restricted Subsidiary
of the Company; and (iv) may not, and may not permit any Restricted Subsidiary
of the Company to, directly or indirectly, purchase, lease or otherwise acquire
(x) all or substantially all of the assets or (y) any existing business (whether
existing as a separate entity, subsidiary, division, unit or otherwise) of any
Person unless: (1) immediately before and after giving effect to such
transaction and treating any Debt Incurred by the Company or a Restricted
Subsidiary of the Company as a result of such transaction as having been
Incurred by the Company or such Restricted Subsidiary at the time of the
transaction, no Event of Default or event that with the passing of time or the
giving of notice, or both, shall constitute an Event of Default shall have
occurred and be continuing; (2) in a transaction in which the Company does not
survive or in which the Company conveys, sells, leases or otherwise disposes of
all or substantially all of its assets, the successor entity to the Company is
organized under the laws of the United States or any State thereof or the
District of Columbia and expressly assumes, by a supplemental indenture executed
and delivered to the Trustee in form satisfactory to the Trustee, all of the
Company's obligations under the Indenture; and (3) immediately after giving
effect to such transaction, the Company and its Restricted Subsidiaries or the
successor entity to the Company and its Restricted Subsidiaries would have a
ratio of aggregate principal amount (or Attributable Value, or Accreted Value in
the case of an Original Discount Security, as the case may be) of Debt
outstanding as of the most recent available quarterly or annual balance sheet to
Pro Forma Consolidated Cash Flow for the most recently ended full fiscal quarter
multiplied by four, determined on a pro forma basis as if any such transaction
had taken place at the beginning of such fiscal quarter, of not more than 6.5 to
1; provided, however, that the provisions of this clause (3) shall not apply to
transactions described in clauses (i) through (iv) above which are (x) between
the Company and one or more of its Wholly owned Restricted Subsidiaries or (y)
between two or more Wholly owned Restricted Subsidiaries of the Company.
Notwithstanding the foregoing, the Company or any Restricted Subsidiary of
the Company may acquire the Capital Stock of a Person in a transaction in which
such Person becomes a Restricted Subsidiary of the Company or directly or
indirectly purchase, lease or otherwise acquire (x) all or substantially all of
the assets or (y) any existing business (whether existing as a separate entity,
subsidiary, division, unit or otherwise) of any Person so long as the sum of the
consideration paid for such Capital Stock or assets and the Debt assumed in
connection therewith plus the sum of the aggregate amount of consideration paid
for all other such acquisitions consummated during the twelve-month period
immediately preceding the date of such acquisition and the Debt Incurred in
connection therewith does not exceed 5% of Consolidated Tangible Assets of the
Company immediately prior to such acquisition.([Section] 801)
CHANGE OF CONTROL
Within 30 days following the date of the consummation of a transaction
resulting in a Change of Control, the Company will commence an Offer to Purchase
all Notes Outstanding at a purchase price equal to 101% of their aggregate
principal amount plus accrued interest to the date of purchase. A Change of
Control will be deemed to have occurred at such time after the date of the
Indenture as any Person or any Persons (other than The Golder Thoma Fund or any
of its officers), acting together which would constitute a "group" (a "Group")
for purposes of Section 13(d) of the 1934 Act, together with any Affiliates or
Related Persons thereof, shall beneficially own at least 50% of the total voting
power of all classes of Voting Stock of the Company or at such time as any
Person or Group, together with any Affiliates or Related Persons thereof,
succeeds in having sufficient of its nominees elected to the Board of Directors
of the Company such that such nominees, when added to any existing director
remaining on the Board of Directors of the Company after such election who is an
Affiliate or Related Person of such Person
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or Group, will constitute a majority of the Board of Directors of the Company;
provided, however, that this provision shall not apply to any Person or Group,
or the Affiliates or Related Persons thereof, who shall have succeeded on or
prior to the date of the Indenture in electing directors which constitute a
majority of the Board of Directors.([Section] 1016)
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided. ([Section] 101)
"Accreted Value" of any Original Issue Discount Security as of or to any
date of determination means an amount equal to the sum of (i) the issue price of
such Original Issue Discount Security as determined in accordance with Section
1273 of the Internal Revenue Code plus (ii) the aggregate of the portions of the
original issue discount (the excess of the amounts considered as part of the
"stated redemption price at maturity" of such Original Issue Discount Security
within the meaning of Section 1273(a)(2) of the Code or any successor
provisions, whether denominated as principal or interest, over the issue price
of such Original Issue Discount Security) that shall theretofore have accrued
pursuant to Section 1272 of the Code (without regard to Section 1272(a)(7) of
the Code) from the date of issue of such Original Issue Discount Security to the
end of the preceding fiscal quarter, plus (iii) accrued and unpaid interest to
the date such Accreted Value is paid (without duplication of any amount set
forth in (ii) above), minus all amounts theretofore paid in respect of such
Original Issue Discount Security, which amounts are considered as part of the
"stated redemption price at maturity" of such Original Issue Discount Security
within the meaning of Section 1273(a)(2) of the Code or any successor provisions
(whether such amounts paid were denominated principal or interest).
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Restricted Subsidiaries
(including a consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to another Person in a transaction in which such
Restricted Subsidiary ceases to be a Restricted Subsidiary, but excluding a
disposition by a Restricted Subsidiary of such Person to such Person or a Wholly
owned Restricted Subsidiary of such Person or by such Person to a Wholly owned
Restricted Subsidiary of such Person, and excluding the creation of a lien,
pledge or security interest) of (i) shares of Capital Stock (other than
directors' qualifying shares) or other ownership interests of a Restricted
Subsidiary of such Person, (ii) substantially all of the assets of such Person
or any of its Restricted Subsidiaries representing a division or line of
business or (iii) other assets or rights of such Person or any of its Restricted
Subsidiaries outside of the ordinary course of business.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount of
rent required to be paid by such Person under such lease during the initial term
thereof as determined in accordance with generally accepted accounting
principles, discounted from the last date of such initial term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of a penalty, such net amount shall
also include the amount of such penalty, but no rent shall be considered as
required to be paid under such lease subsequent to the first date upon
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which it may be so terminated. "Attributable Value" means, as to a Capital Lease
Obligation under which any Person is at the time liable and at any date as of
which the amount thereof is to be determined, the capitalized amount thereof
that would appear on the face of a balance sheet of such Person in accordance
with generally accepted accounting principles.
"Average Life" means, as of the date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates of
each successive scheduled principal or liquidation value payments of such Debt
or Preferred Stock, respectively, and the amount of such principal or
liquidation value payments, by (ii) the sum of all such principal or liquidation
value payments.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in the City of Boston,
Massachusetts or the Borough of Manhattan, The City of New York, New York are
authorized or obligated by law or executive order to close.
"Capital Expenditures" means, with respect to any Person for any period,
the aggregate of all direct and indirect expenditures (including capitalized
interest) of such Person during such period which are required to be included in
property, plant or equipment or similar tangible property account, including,
without limitation, additions to equipment and leasehold improvements, on a
consolidated balance sheet of such Person and its Restricted Subsidiaries
prepared in accordance with generally accepted accounting principles.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Cash Flow" of any Person means for any period the
Consolidated Net Income of such Person for such period increased by (i)
Consolidated Interest Expense of such Person for such period, plus (ii)
Consolidated Income Tax Expense of such Person for such period, plus (iii) the
consolidated depreciation and amortization expense included in the income
statement of such Person and its Restricted Subsidiaries for such period, plus
(iv) other non-cash charges deducted from consolidated revenues in determining
Consolidated Net Income for such period, minus (v) non-cash items increasing
consolidated revenues for such period.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person and its Restricted
Subsidiaries for such period.
"Consolidated Interest Expense" of any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of such Person and its Restricted
Subsidiaries for such period determined in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of Debt
discounts; (ii) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities; (iii) fees with respect to interest rate swap
or similar agreements or foreign currency hedge, exchange or similar agreements,
other than fees or charges related to the acquisition or termination thereof
which are not allocable to interest expense in accordance
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with generally accepted accounting principles; and (iv) Preferred Stock
dividends declared and payable in cash.
"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its Restricted Subsidiaries
for such period determined in accordance with generally accepted accounting
principles; provided that there shall be excluded therefrom (a) the net income
(or loss) of any Person acquired by such Person or a Restricted Subsidiary of
such Person in a pooling-of-interests transaction for any period prior to the
date of such transaction, (b) the net income (but not the net loss) of any
Restricted Subsidiary of such Person which is subject to restrictions which
prevent the payment of dividends and the making of distributions (by loans,
advances, intercompany transfers or otherwise) to such Person to the extent of
such restrictions, (c) the net income (or loss) of any Person that is not a
Restricted Subsidiary of such Person except to the extent of the amount of
dividends or other distributions actually paid to such Person by such other
Person during such period, (d) gains or losses on Asset Dispositions by such
Person or its Restricted Subsidiaries and (e) all extraordinary gains and
extraordinary losses.
"Consolidated Tangible Assets" of any Person means the sum of the Tangible
Assets of such Person and its Restricted Subsidiaries after eliminating
inter-company items, all determined in accordance with generally accepted
accounting principles, including appropriate deductions for any minority
interest in Tangible Assets of such Restricted Subsidiaries; provided, however,
that, with respect to the Company and its Restricted Subsidiaries, adjustments
following the date of the Indenture to the accounting books and records of the
Company and its Restricted Subsidiaries in accordance with Accounting Principles
Board Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise
resulting from the acquisition of control of the Company by another Person shall
not be given effect.
"Credit Facility" means a credit or loan agreement or facility (which may
include a revolving or working capital facility) with a bank or other financial
institution or group of banks or other financial institutions, as such agreement
or facility may be amended (including any amendment and restatement thereof),
modified, supplemented, restated or replaced from time to time.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person, (iv) every obligation of such Person issued or assumed
as the deferred purchase price of property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every Capital Lease Obligation of such Person, (vi) the maximum
fixed redemption or repurchase price of Redeemable Stock of such Person at the
time of determination and (vii) every obligation of the type referred to in
clauses (i) through (vi) of another Person and all dividends of another Person
the payment of which, in either case, such Person has Guaranteed or for which
such Person is responsible or liable, directly or indirectly, as obligor,
Guarantor or otherwise.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the Company, any
Restricted Subsidiary of the Company or the holder thereof, in whole or in part,
on or prior to the Stated Maturity of the Notes.
"Golder Thoma Fund" means The Golder Thoma Fund, L.P., an Illinois limited
partnership, each general partner thereof and any successor thereto.
"Guaranty" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any Debt
of any other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including, without limitation, any obligation of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt or
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to purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Debt, (ii) to purchase property, securities or services for
the purpose of assuring the holder of such Debt of the payment of such Debt, or
(iii) to maintain working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Debt (and "Guaranteed," "Guaranteeing" and "Guarantor" shall
have meanings correlative to the foregoing); provided, however, that the
Guaranty by any Person shall not include endorsements by such Person for
collection or deposit, in either case, in the ordinary course of business.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
or the recording, as required pursuant to generally accepted accounting
principles or otherwise, of any such Debt or other obligation on the balance
sheet of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring"
shall have meanings correlative to the foregoing); provided, however, that a
change in generally accepted accounting principles that results in an obligation
of such Person that exists at such time becoming Debt shall not be deemed an
Incurrence of such Debt.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable cash equivalents received (including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets or
received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
Incurred and all federal, state, provincial, foreign and local taxes required to
be accrued as a liability as a consequence of such Asset Disposition, (ii) all
payments made by such Person or its Restricted Subsidiaries on any Debt which is
secured by such assets in accordance with the terms of any Lien upon or with
respect to such assets or which must by the terms of such Lien, or in order to
obtain a necessary consent to such Asset Disposition or by applicable law be
repaid out of the proceeds from such Asset Disposition, and (iii) all
distributions and other payments made to minority interest holders in Restricted
Subsidiaries of such Person or joint ventures as a result of such Asset
Disposition.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first class mail, postage prepaid, to each holder at its address appearing in
the Securities Register on the date of the Offer offering to purchase up to the
principal amount of Notes specified in such Offer at the purchase price
specified in such Offer. Unless otherwise required by applicable law, the Offer
shall specify an expiration date (the "Expiration Date") of the Offer to
Purchase which shall be, subject to any contrary requirements of applicable law,
not less than 30 days or more than 60 days after the date of such Offer and a
settlement date (the "Purchase Date") for the purchase of Notes within five
Business Days after the Expiration Date. The Company shall notify the Trustee at
least 15 Business Days (or such shorter period as is acceptable to the Trustee)
prior to the mailing of the Offer of the Company's obligation to make an Offer
to Purchase, and the Offer shall be mailed by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company. The Offer
shall contain information concerning the business of the Company and its
Subsidiaries which the Company in good faith believes will enable such holders
to make an informed decision with respect to the Offer to Purchase (which at a
minimum will include (i) the most recent annual and quarterly financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the documents required to be filed with the
Trustee pursuant to the provisions described under "Covenants -- Provision of
Financial Information" (which requirements may be satisfied by delivery of such
documents together with the Offer), (ii) a description of material developments
in the Company's business subsequent to the
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date of the latest of such financial statements referred to in clause (i)
(including a description of the events requiring the Company to make the Offer
to Purchase), (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the Company to make
the Offer to Purchase and (iv) any other information required by applicable law
to be included therein. The Offer shall contain all instructions and materials
necessary to enable such holders to tender Notes pursuant to the Offer to
Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding Notes offered to
be purchased by the Company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such has been determined pursuant to
the Section of the Indenture requiring the Offer to Purchase) (the
"Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Indenture);
(5) that the holder may tender all or any portion of the Notes
registered in the name of such holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the purchase price will become due and
payable upon each Note accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each holder electing to tender a Note pursuant to the Offer
to Purchase will be required to surrender such Note at the place or places
specified in the Offer prior to the close of business on the Expiration
Date (such Note being, if the Company or the Trustee so requires, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the holder
thereof or his attorney duly authorized in writing and bearing appropriate
signature guarantees);
(10) that holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or its Paying Agent) receives, not later
than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder, the
principal amount of the Note the holder tendered, the certificate number of
the Note the holder tendered and a statement that such holder is
withdrawing all or a portion of such tender;
(11) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase all such Notes and (b)
if Notes in an aggregate principal amount in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase Notes having an aggregate principal amount equal to
the Purchase Amount on a pro rata basis (with such adjustments as may be
deemed appropriate so that only Notes in denominations of $1,000 or
integral multiples thereof shall be purchased); and
(12) that in case of any holder whose Note is purchased only in part,
the Company shall execute, and the Trustee shall authenticate and deliver
to such holder without service charge, a new Note or Notes, of any
authorized denomination as requested by such holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of
the Note so tendered.
"pari passu," when used with respect to the ranking of any Debt of any
Person in relation to other Debt of such Person, means that such Debt (a) either
(i) is not subordinate in right of payment to any other Debt of such Person or
(ii) is subordinate in right of payment to the same Debt of such Person as is
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the other and is so subordinate to the same extent and (b) is not subordinate in
right of payment to the other or to any Debt of such Person as to which the
other is not so subordinate.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Pro Forma Consolidated Cash Flow" of any Person means for any period the
Consolidated Cash Flow of such Person for such period calculated on a pro forma
basis to give effect to any Asset Disposition or acquisition of assets not in
the ordinary course of business (including acquisitions of other Persons by
merger, consolidation or purchase of Capital Stock) during such period as if
such acquisition had taken place on the first day of such period.
"Redeemable Stock" means any equity security that by its terms or otherwise
is required to be redeemed prior to the Stated Maturity of the Notes, or is
redeemable at the option of the holder thereof at any time prior to the Stated
Maturity of the Notes.
"Related Person" of any Person means, without limitation, any other Person
owning (a) 5% or more of the outstanding Common Stock of such Person or (b) 5%
or more of the Voting Stock of such Person.
"Restricted Subsidiary" of the Company means any Subsidiary, whether
existing on or after the date of the Indenture, unless such Subsidiary is an
Unrestricted Subsidiary.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person, or by such Person
and one or more other Subsidiaries thereof or (ii) any other Person (other than
a corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Tangible Assets" of any Person means, at any date, the gross book value as
shown by the accounting books and records of such Person of all its property
both real and personal, less (i) the net book value of all its licenses,
patents, patent applications, copyrights, trademarks, trade names, goodwill,
non-compete agreements or organizational expenses and other like intangibles,
(ii) unamortized Debt discount and expense, (iii) all reserves for depreciation,
obsolescence, depletion and amortization of its properties and (iv) all other
proper reserves which in accordance with generally accepted accounting
principles should be provided in connection with the business conducted by such
Person; provided, however, that, with respect to the Company and its Restricted
Subsidiaries, adjustments following the date of the Indenture to the accounting
books and records of the Company and its Restricted Subsidiaries in accordance
with Accounting Principles Board Opinions Nos. 16 and 17 (or successor opinions
thereto) or otherwise resulting from the acquisition of control of the Company
by another Person shall not be given effect.
"Unrestricted Subsidiary" means (1) any Subsidiary designated as such by
the Board of Directors as set forth below where (a) neither the Company nor any
of its other Subsidiaries (other than another Unrestricted Subsidiary) (i)
provides credit support for, or Guaranty of, any Debt of such Subsidiary or any
Subsidiary of such Subsidiary (including any undertaking, agreement or
instrument evidencing such Debt) or (ii) is directly or indirectly liable for
any Debt of such Subsidiary or any Subsidiary of such Subsidiary, and (b) no
default with respect to any Debt of such Subsidiary or any Subsidiary of such
Subsidiary (including any right which the holders thereof may have to take
enforcement action against such Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Debt of the Company and its Restricted
Subsidiaries to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity and
(2) any Subsidiary of an Unrestricted Subsidiary. Subject to the foregoing, the
Board of Directors may designate any Subsidiary to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, any other Subsidiary of the Company which is not a Subsidiary
of the Subsidiary
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to be so designated or otherwise an Unrestricted Subsidiary, provided that
either (x) the Subsidiary to be so designated has total assets of $1,000 or less
or (y) immediately after giving effect to such designation, the Company could
Incur at least $1.00 of additional Debt pursuant to the first paragraph under
"Covenants -- Limitation on Consolidated Debt" above. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary, provided
that, immediately after giving effect to such designation, the Company could
Incur at least $1.00 of additional Debt pursuant to the first paragraph under
"Covenants -- Limitation on Consolidated Debt" above.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly owned
Restricted Subsidiaries of such Person.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay any interest on any Note when due, continued for 30 days; (b) failure to pay
principal of (or premium, if any, on) any Note when due; (c) default in the
payment of principal and interest on Notes required to be purchased pursuant to
an Offer to Purchase as described under "-- Covenants -- Limitation on Certain
Asset Dispositions" and "-- Covenants -- Change of Control" when due and
payable; (d) failure to perform or comply with the provisions described under
"-- Covenants -- Mergers, Consolidations and Certain Sales and Purchases of
Assets"; (e) failure to perform or breach of any other covenant or warranty of
the Company in the Indenture, continued for 60 days after written notice from
the Trustee or holders of at least 25% in principal amount of the Notes
Outstanding as provided in the Indenture; (f) a default under any bonds,
debentures, notes or other evidences of indebtedness of the Company or any
Restricted Subsidiary of the Company or under any mortgages, indentures or
instruments under which there may be issued or by which there may be secured or
evidenced any indebtedness by the Company or any Restricted Subsidiary of the
Company, in any case with a principal amount of at least $5 million outstanding,
which shall have resulted in such indebtedness becoming or being declared due
and payable prior to the date on which it would otherwise be due and payable or
which shall constitute the failure to pay principal when due at the stated
maturity of such indebtedness; (g) the rendering of a final judgment or
judgments (not subject to appeal) against the Company or any of its Restricted
Subsidiaries in an aggregate amount in excess of $5 million which remains
unstayed, in effect and unpaid for a period of 60 consecutive days thereafter;
and (h) certain events in bankruptcy, insolvency or reorganization affecting the
Company or any Restricted Subsidiary of the Company. ([Section] 501)
If an Event of Default (other than an Event of Default described in clause
(h) above) with respect to the Notes shall occur and be continuing, either the
Trustee or the holders of at least 25% in aggregate principal amount of the
Notes by notice as provided in the Indenture may declare the principal amount of
the Notes to be due and payable immediately. If an Event of Default described in
clause (h) above with respect to the Notes shall occur, the principal amount of
all the Notes will automatically, and without any action by the Trustee or any
holder, become immediately due and payable. After any such acceleration, but
before a judgment or decree based on acceleration, the holders of a majority in
aggregate principal amount of the Notes may, under certain circumstances,
rescind and annul such acceleration if all Events of Default, other than the
non-payment of accelerated principal (or other specified amount), have been
cured or waived as provided in the Indenture. ([Section] 502) For information
as to waiver of defaults, see "Modification and Waiver."
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights
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or powers under the Indenture at the request or direction of any of the holders,
unless such holders shall have offered to the Trustee reasonable indemnity.
([Section] 603) Subject to such provisions for the indemnification of the
Trustee, the holders of a majority in aggregate principal amount of the Notes
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the Notes. ([Section] 512)
No holder of an Exchange Note will have any right to institute any
proceeding with respect to the Indenture, or for the appointment of a receiver
or a trustee, or for any other remedy thereunder, unless (i) such holder has
previously given to the Trustee written notice of a continuing Event of Default
with respect to the Notes, (ii) the holders of at least 25% in aggregate
principal amount of the Notes have made written request, and such holder or
holders have offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee and (iii) the Trustee has failed to institute such
proceeding, and has not received from the holders of a majority in aggregate
principal amount of the Notes a direction inconsistent with such request, within
60 days after such notice, request and offer. ([Section] 507) However, such
limitations do not apply to a suit instituted by a holder of an Exchange Note
for the enforcement of payment of the principal of or any premium or interest on
such Exchange Note on or after the applicable due date specified in such
Exchange Note. ([Section] 508)
The Company will be required to furnish to the Trustee annually a statement
by certain of its officers as to whether or not the Company, to their knowledge,
is in default in the performance or observance of any of the terms, provisions
and conditions of the Indentures and, if so, specifying all such known defaults.
([Section] 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of a majority in aggregate
principal amount of the Notes; provided, however, that no such modification or
amendment may, without the consent of the holder of each Note Outstanding
affected thereby, (a) change the Stated Maturity of the principal of, or any
instalment of interest on, any Note, (b) reduce the principal amount of (or the
premium) or interest on, any Note, (c) change the place or currency of payment
of principal of (or premium) or interest on, any Note, (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Note, (e) reduce the above-stated percentage of Notes Outstanding necessary to
modify or amend the Indenture, (f) reduce the percentage of aggregate principal
amount of Notes Outstanding necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults, (g) modify any
provisions of the Indenture relating to the modification and amendment of the
Indenture or the waiver of past defaults or covenants, except as otherwise
specified, (h) modify any of the provisions of the Indenture relating to the
subordination of the Notes in a manner adverse to the holders, or (i) following
the mailing of an offer with respect to an Offer to Purchase the Notes as
described under "-- Covenants -- Limitation on Certain Asset Dispositions" and
" -- Change of Control," modify the Indenture with respect to such Offer to
Purchase in a manner adverse to such holder. ([Sections] 902 and 1017)
The holders of a majority in principal amount of the Notes may
prospectively waive compliance by the Company with certain restrictive
provisions of the Indenture. (Section 1017) The holders of a majority in
principal amount of the Notes may waive any past default under the Indenture,
except a default in the payment of principal, premium or interest and certain
covenants and provisions of the Indenture which cannot be amended without the
consent of the holder of each Note affected. ([Section] 513)
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that (A) if applicable, the Company will be
discharged from any and all obligations in respect of the Notes (including the
provisions referred to under "Subordination") or (B) if applicable, the Company
may omit to comply with certain restrictive covenants, and that such omission
shall not be deemed to be an Event of Default under the Indenture and the Notes,
in either case (A) or (B) upon irrevocable deposit with the Trustee, in trust,
of money and/or U.S. government obligations which will provide money in an
amount sufficient in the opinion of a nationally recognized firm of
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independent certified public accountants to pay the principal of and premium, if
any, and each instalment of interest, if any, on the Notes. With respect to
clause (B), the obligations under the Indenture other than with respect to such
covenants and the Events of Default other than the Events of Default relating to
such covenants shall remain in full force and effect. Such trust may only be
established if, among other things (i) with respect to clause (A), the Company
has received from, or there has been published by, the Internal Revenue Service
a ruling or there has been a change in law, which in the Opinion of Counsel
provides that holders of the Notes will not recognize gain or loss for Federal
income tax purposes as a result of such deposit, defeasance and discharge and
will be subject to Federal income tax on the same amount, in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred; or, with respect to clause (B), the Company has
delivered to the Trustee an Opinion of Counsel to the effect that the holders of
the Notes will not recognize gain or loss for Federal income tax purposes as a
result of such deposit and defeasance and will be subject to Federal income tax
on the same amount, in the same manner and at the same times as would have been
the case if such deposit and defeasance had not occurred; (ii) no Event of
Default or event that with the passing of time or the giving of notice, or both,
shall constitute an Event of Default has occurred and is continuing; (iii) such
deposit shall not cause the trust so created to be subject to the Investment
Company Act of 1940 unless such trust shall be registered under such Act or
exempt from registration; (iv) no default in the payment of principal or
interest on any Senior Debt or which results in the Senior Debt becoming due and
payable or permits the holders of Senior Debt to declare such Debt due and
payable in advance of its stated maturity has occurred and is continuing; and
(v) certain other customary conditions precedent are satisfied. (Article
Thirteen)
FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES
Exchange Notes will be issued only in fully registered form, without
interest coupons, in denominations of $1,000 and integral multiples thereof.
Exchange Notes will not be issued in bearer form.
CERTAIN BOOK-ENTRY PROCEDURES FOR GLOBAL NOTES. The descriptions of the
operations and procedures of the Depository Trust Company ("DTC") that follow
are provided solely as a matter of convenience. These operations and procedures
are solely within the control of DTC and are subject to change from time to
time. The Company takes no responsibility for these operations and procedures
and urges investors to contact DTC or its participants directly to discuss these
matters.
Some or all of the Exchange Notes may be represented, in whole or in part,
by one or more Global Notes which will have an aggregate principal amount equal
to that of the Exchange Notes represented thereby. Each Global Note will be
registered in the name of DTC, or a nominee thereof, will be deposited with DTC
or nominee or a custodian therefor and will bear a legend regarding the
restrictions on exchanges and registration of transfer thereof referred to
below.
DTC may determine to discontinue providing its services with respect to the
Global Notes at any time by giving reasonable written notice to the Trustee and
the Company and discharging its responsibilities under applicable law. In
addition, the Company at its sole discretion may terminate the services of DTC
(or substitute depositary or its successor) with respect to the Global Notes.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code, and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants ("participants") and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
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AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL NOTE,
DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE CONSIDERED THE SOLE OWNER AND
HOLDER OF THE EXCHANGE NOTES REPRESENTED BY SUCH GLOBAL NOTE FOR ALL PURPOSES
UNDER THE INDENTURE AND THE EXCHANGE NOTES. A beneficial interest in a Global
Note may not be exchanged for an Exchange Note in certificated form unless (i)
DTC (x) notifies the Company that it is unwilling or unable to continue as
Depositary for the Global Note or (y) has ceased to be a clearing agency
registered under the Exchange Act, and in either case the Company thereupon
fails to appoint a successor Depositary, (ii) the Company, at its option,
notifies the Trustee in writing that all Global Notes shall be exchanged in
whole for Exchange Notes that are not Global Notes, or (iii) there shall have
occurred and be continuing an Event of Default or any event which after notice
or lapse of time or both would be an Event of Default with respect to the
Exchange Notes. In all cases, certificated Exchange Notes delivered in exchange
for any Global Note or beneficial interests therein will be registered in the
names, and issued in any approved denominations, requested by or on behalf of
the Depositary (in accordance with its customary procedures).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such persons may be limited to
that extent. Because DTC can act only on behalf of its participants, which in
turn act on behalf of indirect participants and certain banks, the ability of a
person having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.
Payments of the principal of, premium, if any, and interest on Global Notes
will be made to DTC or its nominee as the registered owner thereof. Neither the
Company, the Trustee nor any of their respective agents will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee , upon receipt of any payment
of principal or interest in respect of a Global Note representing any Exchange
Notes held by it or its nominee, will immediately credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Note for such Exchange Notes as shown on
the records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Note held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
registered in "street name." Such payments will be the responsibility of such
participants.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes only at the direction of one or more
participants to whose account with DTC interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Exchange Notes as to which such participant or participants has or have
given such direction. However, if there is an Event of Default under the Notes,
DTC reserves the right to exchange the Global Notes for Exchange Notes in
certificated form, and to distribute such Exchange Notes to its participants.
NOTICES
Notices to holders of Exchange Notes will be given by mail to the addresses
of such holders as they may appear in the applicable Register. ([Sections] 101
and 106)
TITLE
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name an Exchange Note is registered as the absolute
owner thereof (whether or not such Exchange Note may be overdue) for the purpose
of making payment and for all other purposes. ([Section] 308)
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GOVERNING LAW
The Indenture and the Exchange Notes will be governed by, and construed in
accordance with, the law of the State of New York. ([Section] 112)
REGARDING THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the continuance of an Event of Default, the Trustee
will exercise such rights and powers vested in the Trustee under the Indenture
and use the same degree of care and skill in such exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. ([Sections] 601 and 603)
The Indenture and provisions of the Trust Indenture Act of 1939
incorporated by reference therein contain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases or to realize on certain property received by it in respect of
any such claim as security or otherwise. The Trustee is permitted to engage in
other transactions with the Company or any Affiliate; provided, however, that if
the Trustee acquires any conflicting interest (as defined in the Indenture or in
the Trust Indenture Act), it must eliminate such conflict or resign.
([Section] 608)
Fleet National Bank serves as the Trustee under the Indenture dated as of
May 15, 1992 relating to the Company's 11.75% Senior Subordinated Notes due May
15, 2002 (the "11.75% Notes"), as the Trustee under the Indenture dated as of
January 15, 1994 relating to the Company's 8.875% Senior Subordinated Notes due
February 1, 2006, and as the Trustee for the Company's 10.125% Senior
Subordinated Notes due August 1, 2007 issued under the Indenture dated as of
July 15, 1995 and the First Supplemental Indenture thereto dated as of July 15,
1995. Upon the occurrence of an Event of Default, or any event of default under
any such other indenture, the Trustee may be deemed to have a conflicting
interest with respect to the Notes for purposes of the Trust Indenture Act of
1939 and, accordingly, may be required to resign as trustee under the Indenture.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes as reflected in the Company's accounting records on the date
of the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OF NOTES
The following summary of all material federal income tax consequences of
the exchange of Notes is based on the opinion of Bingham, Dana & Gould LLP,
counsel to the Company, which opinion has been filed as an exhibit to the
Registration Statement. Such opinion is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the final, temporary and
proposed regulations promulgated thereunder, and administrative rulings and
judicial decisions in effect as of the date hereof, all of which are subject to
change (possibly with retroactive effect) or different interpretations. The
following summary is not binding on the Internal Revenue Service ("IRS") and
there can be no assurance that the IRS will take a similar view with respect to
the tax consequences described below. No ruling has been or will be requested by
the Company from the IRS on any tax matters relating to the Notes or the
Exchange Offer. This discussion is for general information only and does not
purport to address the possible federal income tax consequences or any state,
local or foreign tax consequences of the acquisition, ownership and disposition
of the Notes or the Exchange Notes other than the exchange of Outstanding Notes
for Exchange Notes in this Exchange Offer.
This summary deals only with holders that will hold Notes as capital assets
and does not address tax considerations applicable to investors that may be
subject to special tax rules, such as banks, tax exempt organizations, insurance
companies, dealers in securities or currencies, persons that will hold Notes as
a
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position in a "straddle" for tax purposes, persons that hold Notes that are a
hedge or that are hedged against currency risks or that are part of a conversion
transaction, or persons that have a "functional currency" other than the U.S.
dollar. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
APPLICATION OF THE FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE,
LOCAL OR FOREIGN TAXING JURISDICTION.
The exchange of the Outstanding Notes for Exchange Notes pursuant to the
Exchange Offer should not be treated as an "exchange" because the Exchange Notes
should not be considered to differ materially in kind or extent from the
Outstanding Notes. Rather, the Exchange Notes received by a holder of the
Outstanding Notes should be treated as a continuation of the Outstanding Notes
in the hands of such holder. As a result, there should be no federal income tax
consequences to holders exchanging the Outstanding Notes for the Exchange Notes
pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Based on positions taken by the staff of the Commission that have been
enunciated in no-action letters issued to Exxon Capital Holdings Corp. and
Morgan Stanley & Co. Inc., among others, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer in exchange for Outstanding Notes
may be offered for resale, resold and otherwise transferred by holders thereof
(other than any such holder which is (i) an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act, or (ii) a broker-dealer who
acquired Outstanding Notes for resale pursuant to an exemption from the
registration requirements of the Securities Act) without compliance with the
registration and prospectus delivery provisions under the Securities Act,
provided that (A) such Exchange Notes are acquired in the ordinary course of
such holders' business, (B) such holders are not engaged in, and do not intend
to engage in, and have no arrangement or understanding with any person to
participate in, a distribution of such Exchange Notes, and (C) as provided in
the next paragraph certain broker-dealers will be subject to a prospectus
delivery requirement with respect to resales of such Exchange Notes.
Each holder who is a broker-dealer and who receives Exchange Notes for its
own account in exchange for Outstanding Notes that were acquired by it as a
result of market making activities or other trading activities (a "Participating
Broker-Dealer") will be required to acknowledge that it will deliver a
prospectus in connection with any resale by it of such Exchange Notes. To date,
the staff of the Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as the exchange
pursuant to the Exchange Offer (other than a resale of an unsold allotment from
the sale of the Outstanding Notes to the Initial Purchasers thereof) with the
Prospectus contained in the Exchange Offer Registration Statement. Pursuant to
the Registration Rights Agreement, the Company has agreed to permit
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use this Prospectus in connection with the
resale of such Exchange Notes. The Company has agreed that, for a period of 90
days after the Exchange Offer has been consummated, it will make this
Prospectus, and any amendment or supplement to this Prospectus, available to any
broker-dealer that requests such documents in the Letter of Transmittal.
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company. In addition, each holder who is a broker-dealer
and who receives Exchange Notes for its own account in exchange for Outstanding
Notes that were acquired by it as a result of market-making activities or other
trading activities, will be required to acknowledge that it will deliver a
prospectus in connection with any resale by it of such Exchange Notes. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
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Holders who tender Outstanding Notes in the Exchange Offer with the
intention to participate in a distribution of the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale of the Exchange Notes (unless an exemption
from such requirements is otherwise available).
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$300,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees, printing costs and
related fees and expenses.
LEGAL MATTERS
Certain legal matters regarding the validity of the Exchange Notes offered
hereby and the United States federal income tax consequences of the Exchange
Offer will be passed upon for the Company by Bingham, Dana & Gould LLP, Boston,
Massachusetts.
EXPERTS
The consolidated financial statements and schedule of the Company appearing
in the Company's Annual Report (Form 10-K) for the year ended December 31, 1995
and appearing in or incorporated by reference in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports appearing or incorporated by reference therein and herein. Such
consolidated financial statements and schedule are included or incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
The financial statements of Comtech, Inc. -- Paging Division as of December
31, 1994 and 1993 and for the years then ended appearing in the Company's
Current Report (Form 8-K/A) dated April 3, 1995, have been audited by McGladrey
& Pullen, LLP, independent auditors, as set forth in their report appearing
therein and incorporated by reference herein. Such financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of SNET Paging, Inc., as of December
31, 1994 and 1993 and for the years then ended, appearing in the Company's
Current Report (Form 8-K/A) dated April 3, 1995, have been audited by Coopers &
Lybrand L.L.P., independent auditors, as set forth in their report appearing
therein and incorporated by reference herein. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of TNI Associates as of December 31,
1992 and 1991 and for the years then ended, appearing in the Company's Current
Report (Form 8-K/A) dated April 3, 1995, have been audited by Coopers & Lybrand
L.L.P., independent auditors, as set forth in their report appearing therein and
incorporated by reference herein. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
67
<PAGE> 68
The financial statements of Celpage, Inc. (Atlanta Branch) at March 31,
1995 and for the ten months then ended, appearing in the Company's Current
Report (Form 8-K) dated October 31, 1995, have been audited by Price Waterhouse,
independent auditors, as set forth in their report appearing therein and
incorporated by reference herein. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The statements set forth under "Business -- Regulation" have been made
under the authority of Reed Smith Shaw & McClay, attorneys, Washington, D.C., as
experts in telecommunications law. Holders of the Outstanding Notes should not
rely on Reed Smith Shaw & McClay with respect to any matters other than as set
forth under the caption "Business -- Regulation."
68
<PAGE> 69
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors................................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993,
1994 and 1995............................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993,
1994 and 1995............................................................... F-5
Consolidated Statements of Stockholders' Deficit for the Years Ended December
31, 1993, 1994 and 1995..................................................... F-6
Notes to Consolidated Financial Statements..................................... F-7
UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996.......... F-16
Consolidated Statements of Operations for the six months ended June 30, 1995
and 1996.................................................................... F-17
Consolidated Statements of Cash Flows for the six months ended June 30, 1995
and 1996.................................................................... F-18
Notes to Consolidated Financial Statements..................................... F-19
</TABLE>
F-1
<PAGE> 70
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Paging Network, Inc.
We have audited the accompanying consolidated balance sheets of Paging
Network, Inc. as of December 31, 1994 and 1995, and the related consolidated
statements of operations, cash flows and stockholders' deficit for each of the
three years in the period ended December 31, 1995. 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 consolidated financial position of Paging Network,
Inc. at December 31, 1994 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 16, 1996
F-2
<PAGE> 71
PAGING NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 2,451 $ 198,182
Accounts receivable (less allowance for doubtful accounts of
$3,806 and $4,704 in 1994 and 1995, respectively)............ 22,389 41,335
Inventories..................................................... 9,932 14,084
Prepaid expenses................................................ 4,603 8,814
--------- ----------
Total current assets.................................... 39,375 262,415
Property, equipment and leasehold improvements, at cost........... 583,620 841,022
Less accumulated depreciation and amortization.................. (161,711) (225,413)
--------- ----------
Net property, equipment and leasehold improvements...... 421,909 615,609
Intangible assets:
PCS licenses.................................................... 197,272 197,272
Excess of cost over fair market value of net assets acquired
(less accumulated amortization of $4,470 and $5,110 in 1994
and 1995, respectively)...................................... 10,023 29,421
Other (less accumulated amortization of $12,487 and $25,220 in
1994 and 1995, respectively)................................. 37,429 123,621
--------- ----------
Net intangible assets................................... 244,724 350,314
--------- ----------
$ 706,008 $1,228,338
========= ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Payable for PCS licenses........................................ $ 157,600 $ --
Accounts payable................................................ 27,916 69,776
Accrued expenses................................................ 39,201 69,091
Customer deposits............................................... 17,199 20,255
--------- ----------
Total current liabilities............................... 241,916 159,122
Long-term obligations............................................. 504,000 1,150,000
Commitments and contingencies -- --
Stockholders' deficit:
Common Stock -- $.01 par, authorized 250,000,000 shares; issued
and outstanding 101,405,800 shares at December 31, 1994 and
102,245,807 shares at December 31, 1995...................... 1,014 1,022
Paid-in capital................................................. 118,384 121,701
Accumulated deficit............................................. (159,306) (203,507)
--------- ----------
Total stockholders' deficit............................. (39,908) (80,784)
--------- ----------
$ 706,008 $1,228,338
========= ==========
</TABLE>
See accompanying notes
F-3
<PAGE> 72
PAGING NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Services, rent and maintenance revenues.................. $294,979 $389,919 $532,079
Product sales............................................ 78,915 99,765 113,943
-------- -------- --------
Total revenues................................. 373,894 489,684 646,022
Cost of products sold.................................... (62,495) (78,102) (93,414)
-------- -------- --------
311,399 411,582 552,608
Operating expenses:
Services, rent and maintenance......................... 57,343 74,453 109,484
Selling................................................ 44,836 60,555 67,561
General and administrative............................. 108,993 136,539 174,432
Depreciation and amortization.......................... 87,430 107,362 148,997
-------- -------- --------
Total operating expenses....................... 298,602 378,909 500,474
-------- -------- --------
Operating income......................................... 12,797 32,673 52,134
Other income (expense):
Interest expense....................................... (32,808) (53,717) (102,846)
Interest income........................................ -- 3,079 6,511
-------- -------- --------
Total other income (expense)................... (32,808) (50,638) (96,335)
-------- -------- --------
Net loss................................................. $(20,011) $(17,965) $(44,201)
======== ======== ========
Net loss per share....................................... $ (0.20) $ (0.18) $ (0.43)
======== ======== ========
</TABLE>
See accompanying notes
F-4
<PAGE> 73
PAGING NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss............................................ $ (20,011) $ (17,965) $ (44,201)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation and amortization.................... 87,430 107,362 148,997
Accounts receivable loss provision............... 11,525 11,664 12,209
Write-off of debt issuance costs on $450 million
credit agreement............................... -- -- 6,641
Amortization of debt issuance costs.............. 2,385 2,764 4,313
Payment of consent solicitation on 11.75% Senior
Notes.......................................... -- (5,896) --
Changes in operating assets and liabilities:
Accounts receivable.............................. (9,039) (20,289) (28,393)
Inventories...................................... 837 (2,501) (3,495)
Prepaid expenses................................. (1,298) 711 (4,144)
Accounts payable................................. (1,452) 9,532 41,860
Accrued expenses................................. 8,615 18,941 24,715
Customer deposits................................ 2,694 3,421 2,127
--------- --------- ---------
Net cash provided by operating activities............. 81,686 107,744 160,629
--------- --------- ---------
Investing activities:
Additions to property, equipment and leasehold
improvements..................................... (145,625) (213,308) (312,289)
Payments for PCS licenses........................... -- (39,672) (157,600)
Payments for business acquisitions.................. -- (5,705) (111,872)
Other............................................... (3,094) (2,154) (7,626)
--------- --------- ---------
Net cash used in investing activities................. (148,719) (260,839) (589,387)
--------- --------- ---------
Financing activities:
Increase in long-term obligations under credit
agreements....................................... 155,000 4,000 564,850
Repayments of long-term obligations under credit
agreements....................................... (79,500) (142,500) (318,850)
Proceeds from Senior Notes offerings................ -- 300,000 400,000
Debt issuance costs on Senior Notes offerings....... -- (8,250) (10,132)
Debt issuance costs on credit agreements............ (8,400) -- (13,531)
Proceeds from exercise of Common Stock options...... 1,463 1,423 3,325
Other............................................... (326) (1,618) (1,173)
--------- --------- ---------
Net cash provided by financing activities............. 68,237 153,055 624,489
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents......................................... 1,204 (40) 195,731
Cash and cash equivalents at beginning of year........ 1,287 2,491 2,451
--------- --------- ---------
Cash and cash equivalents at end of year.............. $ 2,491 $ 2,451 $ 198,182
========= ========= =========
</TABLE>
See accompanying notes
F-5
<PAGE> 74
PAGING NETWORK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT DEFICIT
------ -------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992................ $1,006 $115,506 $(121,330) $ (4,818)
Issuance of 524,394 shares of Common
Stock upon exercise of stock
options.............................. 5 1,458 -- 1,463
Net loss................................ -- -- (20,011) (20,011)
------ -------- --------- --------
Balance, December 31, 1993................ 1,011 116,964 (141,341) (23,366)
Issuance of 319,302 shares of Common
Stock upon exercise of stock
options.............................. 3 1,420 -- 1,423
Net loss................................ -- -- (17,965) (17,965)
------ -------- --------- --------
Balance, December 31, 1994................ 1,014 118,384 (159,306) (39,908)
Issuance of 840,007 shares of Common
Stock upon exercise of stock
options.............................. 8 3,317 -- 3,325
Net loss................................ -- -- (44,201) (44,201)
------ -------- --------- --------
Balance, December 31, 1995................ $1,022 $121,701 $(203,507) $ (80,784)
====== ======== ========= ========
</TABLE>
See accompanying notes
F-6
<PAGE> 75
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The Company -- Paging Network, Inc. (the Company) is a provider of paging
and wireless messaging services. The Company provides paging services in all 50
states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico,
including local paging service in virtually all of the largest 100 markets (in
population) in the United States. The consolidated financial statements include
the accounts of all of its wholly-owned subsidiaries. All intercompany
transactions have been eliminated.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Inventories -- Inventories consist of pagers which are held specifically
for resale. Inventories are stated at the lower of cost or market, with cost
determined on a first-in, first-out basis.
Property, equipment and leasehold improvements -- Property, equipment and
leasehold improvements are stated at cost, less accumulated depreciation and
amortization. Expenditures for maintenance are charged to expense as incurred.
Upon retirement of units of equipment, the costs of units retired and the
related accumulated depreciation amounts are removed from the accounts.
Depreciation and amortization are computed using the straight-line method based
on the following estimated useful lives:
<TABLE>
<S> <C>
Machinery and equipment........................................ 3 to 7 years
Pagers......................................................... 4 years
Furniture and fixtures......................................... 7 years
Leasehold improvements......................................... 5 years*
Buildings and building improvements............................ 20 years
</TABLE>
- ---------------
* or term of lease if shorter
The Company does not manufacture any of the pagers or related transmitting
and computerized paging terminal equipment used in the Company's paging
operations. The Company currently purchases the vast majority of its pagers from
Motorola, Inc. However, pagers are available for purchase from multiple sources,
consistent with normal manufacturing and delivery lead times.
Intangible assets -- The excess of the cost of acquired net assets of
paging companies over the aggregate fair values assigned to identified tangible
and intangible net assets acquired is amortized over twenty years on a
straightline basis.
Other intangible assets -- Other intangible assets generally consist of
narrowband personal communications services (PCS) licenses (see Note 12), other
paging licenses, customer lists, debt issuance costs, and start-up costs and
Federal Communications Commission (FCC) application costs, and are amortized on
a straight-line basis over their estimated useful lives ranging from 18 months
to twelve years.
The Company continually evaluates intangible assets to determine whether
current events and circumstances warrant adjustment to the carrying values or
amortization periods.
Income taxes -- Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." If it is more likely than not that some portion
or all of a deferred tax asset will not be realized, a valuation allowance is
recognized.
F-7
<PAGE> 76
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications -- Certain 1993 and 1994 amounts have been reclassified
to conform with the 1995 presentation.
2. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The cost of property, equipment and leasehold improvements consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment............................ $248,652 $ 394,331
Pagers............................................. 278,791 372,128
Furniture and fixtures............................. 35,381 46,189
Leasehold improvements............................. 20,796 25,036
Land, buildings and building improvements.......... -- 3,338
-------- ----------
Total cost............................... $583,620 $ 841,022
======== ==========
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Accrued compensation, benefits and related items... $ 7,024 $ 8,231
Accrued taxes...................................... 6,420 9,900
Accrued interest................................... 14,284 34,670
Other accrued expenses............................. 11,473 16,290
-------- ----------
Total accrued expenses................... $ 39,201 $ 69,091
======== ==========
</TABLE>
4. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Revolving loan..................................... $ 4,000 $ --
Term loans due March 31, 2002...................... -- 250,000
11.75% Senior Subordinated Notes due May 15,
2002............................................. 200,000 200,000
8.875% Senior Subordinated Notes due February 1,
2006............................................. 300,000 300,000
10.125% Senior Subordinated Notes due August 1,
2007............................................. -- 400,000
-------- ----------
Total long-term obligations.............. $504,000 $1,150,000
======== ==========
</TABLE>
On May 2, 1995 the Company established a new $750.0 million credit facility
under a new credit agreement with a group of 44 lenders (the Credit Agreement),
which amended and restated a $450.0 million credit agreement (the Old Credit
Agreement). The Credit Agreement as amended provides for a $100.0 million term
loan, a $150.0 million term loan, and a $500.0 million revolving loan under
which the Company is able to borrow, provided it meets certain financial
covenants, the lesser of
F-8
<PAGE> 77
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$750.0 million or an amount based upon a calculation which is reduced by total
outstanding indebtedness for borrowed monies (as defined) and outstanding
letters of credit. The amount available for borrowing calculation is equal to a
specified multiple of earnings before interest, income taxes, depreciation and
amortization for the most recent three calendar months times four. Prepayments
of borrowings under the Credit Agreement may be required should certain defined
tests not be met. As of December 31, 1995, the Company had $250.0 million of
term loan borrowings outstanding under its Credit Agreement and approximately
$326.2 million was available for borrowing under the revolving credit facility.
The Credit Agreement expires on March 31, 2002. In connection with the
consummation of the Credit Agreement, in 1995 the Company expensed debt issuance
costs of approximately $6.6 million related to the Old Credit Agreement.
Under the terms of the Credit Agreement, the credit facility is permanently
reduced as follows:
<TABLE>
<CAPTION>
PERMANENT REDUCTIONS
-------------------------------------------------------
TYPE OF LOAN 1998 1999 2000 2001 2002
- ------------------------------------- ------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
100.0 million term loan.............. $10,000 $ 20,000 $ 20,000 $ 30,000 $ 20,000
150.0 million term loan.............. -- 1,000 2,000 2,000 145,000
500.0 million revolving loan......... 50,000 100,000 100,000 150,000 100,000
</TABLE>
Under the Credit Agreement, the Company may designate all or a portion of
the $100.0 million term loan and revolving loan to be either a Base Rate loan or
a London Interbank Offered Rate (LIBOR) loan. At December 31, 1995, the Company
had designated the $100.0 million term loan as a LIBOR Rate loan which bears
interest at a rate equal to the LIBOR rate plus a spread of 2.25% based on the
Company's total leverage ratio as defined. The interest rate for the $100.0
million LIBOR Rate loan at December 31, 1995 was 7.90%. Under the Credit
Agreement, the $150.0 million term loan is designated to be a LIBOR Rate loan
which bears interest at a rate equal to the LIBOR rate plus a spread of 2.875%.
The interest rate for the $150.0 million LIBOR Rate loan at December 31, 1995
was 8.695%.
The Credit Agreement prohibits the Company from paying cash dividends or
other cash distributions to stockholders. The Credit Agreement also prohibits
the Company from paying more than a total $2.0 million in connection with the
purchase of Common Stock owned by employees whose employment with the Company is
terminated (see Note 6). The Credit Agreement contains other covenants that,
among other things, limit the ability of the Company and its subsidiaries to
incur indebtedness, engage in transactions with affiliates, dispose of assets,
and engage in mergers, consolidations, and other acquisitions. Amounts owing
under the Credit Agreement are secured by a security interest in substantially
all of the Company's assets, the assets of the Company's subsidiaries and the
capital stock of the subsidiaries of the Company.
The 11.75% Senior Subordinated Notes (11.75% Notes), the 8.875% Senior
Subordinated Notes (8.875% Notes), and the 10.125% Senior Subordinated Notes
(10.125% Notes) are redeemable on or after May 15, 1997, February 1, 1999, and
August 1, 2000, respectively, at the option of the Company, in whole or in part
from time to time, at certain prices declining annually to 100 percent of the
principal amount on or after May 15, 1999, February 1, 2002, and August 1, 2003,
respectively, plus accrued interest. The 11.75% Notes, the 8.875% Notes, and the
10.125% Notes are subordinated in right of payment to all senior debt, and
contain various covenants that, among other things, limit the type and amount of
debt the Company may incur and limit restricted payments and distributions (as
defined), asset dispositions, mergers and asset purchases.
Based on quoted market prices, the fair value of the 11.75% Notes, the
8.875% Notes, and the 10.125% Notes at December 31, 1995 was $221.3 million,
$307.1 million, and $435.5 million, respectively.
F-9
<PAGE> 78
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1994, the Company received consent from holders of its 11.75%
Notes to amend the Indenture governing the 11.75% Notes. The purpose of this
amendment was to provide the Company with greater flexibility in pursuing
corporate opportunities (including the incurrence of additional debt) and to
conform certain covenants in the Indenture to the less restrictive covenants
contained in the indenture governing the Company's 8.875% Notes. The Company
paid an aggregate of $5.9 million to the holders of the 11.75% Notes who had
given consent and the Indenture was amended accordingly.
5. INCOME TAXES
For the years ended December 31, 1993, 1994 and 1995, the Company had no
provision or benefit for income taxes because the deferred benefit from the
operating losses was offset by an increase in the valuation allowance of $9.5
million, $6.8 million, and $14.6 million, respectively. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 44,794 $ 74,038
Deferred revenue................................... 1,030 2,003
Bad debt reserve................................... 1,484 1,834
Other tax credit carryforwards..................... 721 691
Other.............................................. 6,640 3,907
-------- --------
Total deferred tax assets.................. 54,669 82,473
Valuation allowance................................ (36,036) (50,642)
-------- --------
Net deferred tax assets.................... 18,633 31,831
Deferred tax liabilities:
Depreciation....................................... (17,789) (28,122)
Amortization....................................... (844) (3,709)
-------- --------
Total deferred tax liabilities............. (18,633) (31,831)
-------- --------
$ -- $ --
======== ========
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $190 million that expire in years 1999 through 2010.
6. STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock option plans. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
The 1982 Incentive Stock Option Plan, as amended (1982 Plan), for officers
and key employees of the Company provides for the granting of stock options
intended to qualify as Incentive Stock Options (ISOs) to purchase Common Stock
at not less than 100% of the fair market value on the date the option is
granted, as determined by the Board of Directors. No further options may be
granted under the 1982 Plan. At December 31, 1995, options for 432,040 shares
were exercisable under the 1982 plan, of which 430,102 shares were fully vested.
F-10
<PAGE> 79
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options granted were exercisable immediately, or in installments as the
Board of Directors determined at the time it granted such options, and have a
duration of ten years from the date of grant. Any stock issued is subject to
repurchase at the option of the Company which occurs at the exercise price for
the unvested portion of the shares issued and at fair market value, as defined
or allowed in the Stock Option Agreement, for the vested portion. Such options
vest ratably over a five-year period from the date they first become
exercisable. However, in the event of a change in ownership control of the
Company, all options vest immediately.
The 1991 Stock Option Plan (1991 Plan) for officers and key employees of
the Company provides for the granting of ISOs and non-statutory options to
purchase Common Stock at not less than 100% of the fair market value on the date
the options are granted. The 1991 Plan is administered by a committee consisting
of two members of the Board (Committee). Approximately 2.05 million shares
remain available for grant under the 1991 Plan at December 31, 1995. A total of
1.10 million shares were vested and exercisable under the 1991 Plan at December
31, 1995. Options granted under the 1991 Plan are non-transferable except by the
laws of descent and distribution and are exercisable upon vesting, which occurs
either immediately or in installments, as the Board of Directors or the
Committee may determine at the time it grants such options.
The 1992 Stock Option Plan for Directors (Directors' Plan), for
non-employee Directors of the Company, provides for the granting of
non-statutory options to purchase Common Stock at not less than 100% of the fair
market value on the date the options are granted. The Directors' Plan is
administered by the Committee. The total number of shares of Common Stock with
respect to which options may be granted under the Directors' Plan may not exceed
750,000. Approximately 480,000 shares remain available for grant under the
Directors' Plan at December 31, 1995. A total of 72,000 shares were vested and
exercisable at December 31, 1995. Options granted under the Directors' Plan are
non-transferable except by the laws of descent and distribution and are
exercisable upon vesting, which occurs either immediately or in installments, as
the Board of Directors or the Committee may determine at the time it grants such
options.
With respect to the 1991 Plan and Directors' Plan, notwithstanding the
above, ten business days before a merger or a change in the ownership control of
the Company or a sale of substantially all the assets of the Company, all
options issued vest immediately and become exercisable in full; upon a merger or
a change in ownership control of the Company or the sale of substantially all
the assets of the Company, all options issued under the 1991 Plan and Directors'
Plan which have not been exercised terminate.
Information concerning options at December 31, 1993, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Outstanding January 1................. 5,239,540 4,773,106 4,737,420
Granted............................. 1,390,994 522,400 1,605,800
Cancelled........................... (1,333,034) (238,784) (838,478)
Exercised........................... (524,394) (319,302) (840,007)
------------ ------------ ------------
Outstanding December 31............... 4,773,106 4,737,420 4,664,735
============ ============ ============
Options exercisable................... 1,705,092 1,862,826 1,601,440
============ ============ ============
Option price range-options
outstanding......................... $0.40-$12.67 $0.40-$16.50 $2.67-$23.56
Option price range-options
exercised........................... $0.40-$ 8.05 $0.40-$ 9.59 $0.40-$14.38
</TABLE>
F-11
<PAGE> 80
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS
The Company has operating leases for office and transmitting sites with
lease terms ranging from a month to approximately ten years. There are no
significant renewal or purchase options. In most cases, the Company expects that
in the normal course of business, leases will be renewed or replaced by other
leases. Total rent expense for 1993, 1994 and 1995 was approximately $23.2
million, $31.2 million, and $47.9 million, respectively.
The following is a schedule by year of future minimum rental payments
required under operating leases that have remaining noncancellable lease terms
in excess of one year at December 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31:
--------------
(IN THOUSANDS)
<S> <C>
1996.......................................................... $ 20,501
1997.......................................................... 19,101
1998.......................................................... 13,489
1999.......................................................... 10,379
2000.......................................................... 7,144
Later years................................................... 5,674
-------
Total minimum payments required.......................... $ 76,288
=======
</TABLE>
8. CONTINGENCIES
The Company is involved in various lawsuits arising in the normal course of
business. In management's opinion, the ultimate outcome of these lawsuits will
not have a material adverse effect on the Company's financial position or
results of operations.
9. COMMON STOCK AND NET LOSS PER SHARE
Net loss per share amounts are computed based on the weighted average
number of common shares outstanding. The number of shares used to compute per
share amounts for the years ended December 31, 1993, 1994 and 1995, was 101.0
million, 101.2 million, and 101.9 million, respectively.
On May 18, 1995, pursuant to stockholder approval, the Company increased
the number of authorized shares of stock from 250.0 million to 275.0 million, of
which 250.0 million are Common Stock and 25.0 million are preferred stock. As of
December 31, 1995 there were no preferred shares issued or outstanding.
Effective September 15, 1995, the Company effected a two-for-one stock
split recorded in the form of a 100.0% stock dividend paid September 29, 1995.
Share and per share amounts for all periods presented have been restated to
reflect the stock split.
On February 14, 1996, the Board of Directors of the Company approved an
employee stock purchase plan of up to 2.0 million shares of the Company's Common
Stock. This matter is subject to stockholder approval.
10. STATEMENT OF CASH FLOWS INFORMATION
Cash and cash equivalents include highly liquid debt instruments with an
original maturity of three months or less. As of December 31, 1995, cash
equivalents also include investments in money market instruments, which are
carried at fair market value. Cash payments made for interest for the years
ended December 31, 1995, 1994 and 1993 were approximately $71.2 million, $40.5
million, and $29.4 million,
F-12
<PAGE> 81
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively. There were no significant federal or state income taxes paid or
refunded for the years ended December 31, 1995, 1994 and 1993.
11. EMPLOYEE BENEFIT PLANS
Effective January 1, 1993, the Company adopted a plan to provide retirement
benefits under the provisions of Section 401(k) of the Internal Revenue Code
(Code) for all employees who have completed a specified term of service. As of
December 31, 1995 the Company contributions equalled 25% of employee
contributions up to a maximum of 4% of the employee's compensation. Effective
January 1, 1996, the Company contributions equal 50% of employee contributions
up to a maximum of 6% of the employee's compensation. Employees may elect to
contribute up to 15% of their compensation on a pre-tax basis, not to exceed the
maximum amount allowed as determined by the Code. The Company's contributions
aggregated approximately $300,000 in 1993, $400,000 in 1994, and $460,000 in
1995.
12. NARROWBAND PERSONAL COMMUNICATIONS SERVICES LICENSES
During July 1994, the Company participated in an auction of narrowband PCS
frequencies conducted by the FCC. As a result of the auction, the Company
acquired three nationwide narrowband PCS frequencies for a total purchase price
of $197.0 million. The Company paid $39.4 million of this amount to the FCC in
August 1994. As of December 31, 1994, the unpaid amount of $157.6 million was
included in current liabilities in the accompanying balance sheet. In 1995, the
Company was granted licenses for all three nationwide narrowband PCS frequencies
and paid the $157.6 million remaining purchase price. Amortization of narrowband
PCS licenses will commence when placed in service, which is expected to be
during the second half of 1996.
13. STOCK PURCHASE RIGHTS
In September 1994, the Board of Directors of the Company adopted a Stock
Purchase Rights Plan and declared a distribution of one common share purchase
right for each outstanding share of the Company's Common Stock. This dividend
distribution occurred on September 28, 1994 to shareholders of record as of the
close of business on that date.
Generally, the rights will become exercisable only if a person or group (i)
acquires 20% or more of the Company's Common Stock or (ii) announces a tender
offer that would result in ownership of 20% or more of the Company's Common
Stock or (iii) is declared to be an "Adverse Person" by the Board of Directors.
Adverse Person includes any person or group who owns at least 10% of the
Company's Common Stock and attempts an action that would adversely impact the
Company.
Once a person or group has acquired 20% or more of the outstanding Common
Stock of the Company, each right may entitle its holder (other than the 20%
person or group) to purchase, at an exercise price of $150, shares of Common
Stock of the Company (or of any company that acquires the Company) at a price
equal to 50% of their current market price. Under certain circumstances, the
Continuing Directors (as defined in the rights plan) may exchange the rights for
Common Stock (or equivalent securities) on a one-for-one basis.
Until declaration of an Adverse Person, or ten (10) days after public
announcement that any person or group has acquired 20% or more of the Common
Stock of the Company, the rights are redeemable at the option of the Board of
Directors, in certain cases with the concurrence of the Continuing Directors.
Thereafter, they may be redeemed by the Continuing Directors in connection with
certain acquisitions not involving any acquiring person or Adverse Person or in
certain circumstances following a disposition of
F-13
<PAGE> 82
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares by the acquiring person or Adverse Person. The redemption price is $0.01
per right. The rights will expire on September 27, 2004, unless redeemed prior
to that date.
14. ACQUISITIONS
During 1995 the Company acquired certain paging assets of Comtech,
Inc. -- Paging Division; SNET Paging, Inc. and its wholly owned subsidiary, TNI
Associates, Inc.; two subsidiaries of PageAmerica Group, Inc.; Page Florida;
International Paging Corp.; and Celpage, Inc. -- Atlanta Branch, including
various frequencies and approximately 343,000 pagers in service. The cost of
these purchases aggregated approximately $123.6 million, subject to increase or
decrease based on post-closing events of certain acquisitions.
The acquisitions have been accounted for under the purchase method and,
accordingly, the operating results of these entities have been included in the
consolidated operating results of the Company since the respective dates of
their acquisition. The aggregate purchase price of the acquisitions was
allocated as follows: $85.0 million to identified intangibles, $16.4 million to
equipment, $2.7 million to current assets, and $19.5 million to excess of cost
over fair market value of net assets acquired (which is amortized over twenty
years on a straight-line basis).
The following represents the unaudited pro forma results of operations as
if the above acquisitions had occurred as of January 1, 1994, after giving
effect to certain adjustments, including amortization of intangibles resulting
from the allocation of the purchase price and interest expense on acquisition
debt.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
--------------------- ---------------------
(IN THOUSANDS, EXCEPT (IN THOUSANDS, EXCEPT
PER SHARE PER SHARE
INFORMATION) INFORMATION)
<S> <C> <C>
Total revenues........................ $ 538,229 $ 665,235
Net revenues.......................... 449,909 567,847
Operating income...................... 23,885 46,411
Net loss.............................. (34,937) (54,422)
Net loss per share.................... (0.35) (0.53)
</TABLE>
The pro forma results given above are not necessarily indicative of what
actually would have occurred if the acquisitions had been in effect during the
periods presented, and is not intended to be a projection of future results or
trends.
F-14
<PAGE> 83
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial information for the two years ended December 31, 1995
is summarized below.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995:
Services, rent and maintenance revenues...... $116,132 $124,178 $139,771 $151,998
Product sales................................ 25,973 28,783 29,336 29,851
-------- -------- -------- --------
Total revenues..................... 142,105 152,961 169,107 181,849
Cost of products sold........................ (20,646) (23,700) (23,607) (25,461)
-------- -------- -------- --------
121,459 129,261 145,500 156,388
Operating income............................. 10,696 10,699 14,857 15,882
Net loss..................................... (6,821) (16,169)(1) (10,046) (11,165)
Net loss per share........................... (0.07) (0.16)(1) (0.10) (0.11)
1994:
Services, rent and maintenance revenues...... $ 86,039 $ 93,934 $101,741 $108,205
Product sales................................ 22,333 24,869 26,664 25,899
-------- -------- -------- --------
Total revenues..................... 108,372 118,803 128,405 134,104
Cost of products sold........................ (17,718) (19,489) (20,402) (20,493)
-------- -------- -------- --------
90,654 99,314 108,003 113,611
Operating income............................. 3,856 7,177 9,716 11,924
Net loss..................................... (7,729) (5,468) (3,171) (1,597)
Net loss per share........................... (0.08) (0.05) (0.03) (0.02)
</TABLE>
- ---------------
(1) Includes the write-off of debt issuance costs of approximately $6.6 million
related to the Old Credit Agreement (see Note 4).
F-15
<PAGE> 84
PAGING NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 198,182 $ 34,333
Accounts receivable, less allowance for doubtful accounts...... 41,335 43,716
Inventories.................................................... 14,084 32,264
Prepaid expenses............................................... 5,495 7,452
---------- ----------
Total current assets................................... 259,096 117,765
Property, equipment and leasehold improvements, at cost.......... 841,022 993,283
Less accumulated depreciation.................................. (225,413) (272,129)
---------- ----------
Net property, equipment and leasehold improvements..... 615,609 721,154
Other non-current assets:
PCS licenses................................................... 197,272 197,272
Other licenses, net............................................ 48,625 54,351
Other intangible assets, net................................... 67,438 61,852
Other non-current assets, net.................................. 40,298 65,628
---------- ----------
Total other non-current assets......................... 353,633 379,103
---------- ----------
$1,228,338 $1,218,022
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable............................................... $ 69,776 $ 42,901
Accrued expenses............................................... 69,091 67,847
Customer deposits.............................................. 20,255 20,991
---------- ----------
Total current liabilities.............................. 159,122 131,739
Long-term obligations............................................ 1,150,000 1,195,516
Commitments and contingencies.................................... -- --
Stockholders' deficit:
Common Stock: $.01 par, 250,000,000 shares authorized,
102,534,887 and 102,245,807 shares issued and outstanding in
1996 and 1995, respectively................................. 1,022 1,025
Paid-in capital................................................ 121,701 123,887
Accumulated deficit............................................ (203,507) (234,145)
---------- ----------
Total stockholders' deficit............................ (80,784) (109,233)
---------- ----------
$1,228,338 $1,218,022
========== ==========
</TABLE>
See accompanying notes
F-16
<PAGE> 85
PAGING NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Services, rent and maintenance revenues............................ $240,310 $325,811
Product sales...................................................... 54,756 59,741
-------- --------
Total revenues........................................... 295,066 385,552
Cost of products sold.............................................. (44,346) (50,476)
-------- --------
250,720 335,076
Operating expenses:
Services, rent and maintenance................................... 48,727 69,561
Selling.......................................................... 31,938 39,081
General and administrative....................................... 81,240 102,867
Depreciation and amortization.................................... 67,420 96,855
-------- --------
Total operating expenses................................. 229,325 308,364
-------- --------
Operating income................................................... 21,395 26,712
Other income (expense):
Interest expense................................................. (44,385) (59,888)
Interest income.................................................. -- 2,538
-------- --------
Total other income (expense)............................. (44,385) (57,350)
-------- --------
Net loss........................................................... $(22,990) $(30,638)
======== ========
Net loss per share................................................. $ (0.23) $ (0.30)
======== ========
</TABLE>
See accompanying notes
F-17
<PAGE> 86
PAGING NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
-----------------------
1995 1996
--------- ---------
<S> <C> <C>
Operating activities:
Net loss........................................................ $ (22,990) $ (30,638)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.............................. 67,420 96,855
Provision for doubtful accounts............................ 5,176 5,817
Debt issuance costs........................................ (13,531) (3,432)
Write off of debt issuance costs........................... 6,641 --
Amortization of debt issuance costs........................ 1,978 2,573
Changes in operating assets and liabilities:
Accounts receivable........................................ (5,774) (8,198)
Inventories................................................ (2,433) (18,180)
Prepaid expenses........................................... (216) (1,957)
Accounts payable........................................... (6,414) (26,875)
Accrued expenses........................................... 3,865 (1,244)
Customer deposits.......................................... 1,186 736
--------- ---------
Net cash provided by operating activities......................... 34,908 15,457
--------- ---------
Investing activities:
Capital expenditures............................................ (120,400) (191,340)
Payments for licenses........................................... (157,600) (7,683)
Payments for business acquisitions and investments.............. (62,772) (5,276)
Restricted cash invested in money market instruments............ -- (19,200)
Other........................................................... (3,610) (3,464)
--------- ---------
Net cash used in investing activities............................. (344,382) (226,963)
--------- ---------
Financing activities:
Borrowings under credit agreements.............................. 556,850 45,516
Repayments of long-term obligations............................. (250,000) --
Proceeds from exercise of Common Stock options.................. 1,749 2,149
Other........................................................... (776) (8)
--------- ---------
Net cash provided by financing activities......................... 307,823 47,657
--------- ---------
Net decrease in cash and cash equivalents......................... (1,651) (163,849)
Cash and cash equivalents at beginning of period.................. 2,451 198,182
--------- ---------
Cash and cash equivalents at end of period........................ $ 800 $ 34,333
========= =========
</TABLE>
See accompanying notes
F-18
<PAGE> 87
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. THE COMPANY
Paging Network, Inc. (the Company) is a provider of paging and wireless
messaging services. The Company provides paging services in all 50 states, the
District of Columbia, the U.S. Virgin Islands, Puerto Rico, and Canada,
including local paging service in virtually all of the largest 100 markets (in
population) in the United States. The consolidated financial statements include
the accounts of all of its wholly and majority owned subsidiaries. All
intercompany transactions have been eliminated.
2. UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim consolidated financial information contained herein is
unaudited but, in the opinion of management, includes all adjustments, which are
of a normal recurring nature, necessary for a fair presentation of the financial
position, results of operations, and cash flows for the periods presented. These
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The balance sheet at December 31,
1995, has been derived from the audited financial statements at that date.
Results of operations for the periods presented herein are not necessarily
indicative of results of operations for the entire year. These financial
statements and related notes should be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
3. STATEMENT OF CASH FLOWS INFORMATION
Cash and cash equivalents include highly liquid debt instruments with an
original maturity of three months or less and investments in money market
instruments. Cash payments made for interest during the six months ended June
30, 1996 and 1995 were approximately $59.4 million and $32.0 million,
respectively. There were no significant federal or state income taxes paid or
refunded for the six months ended June 30, 1996 and 1995.
4. LONG-TERM OBLIGATIONS
On June 5, 1996, the Company amended its credit agreement with its group of
lenders (the Credit Agreement). The Credit Agreement provides for a $1.0 billion
revolving loan. Under the Credit Agreement, the Company is able to borrow,
provided it meets certain financial covenants, the lesser of $1.0 billion or an
amount based upon a calculation which is reduced by total outstanding
indebtedness for borrowed monies (as defined) and outstanding letters of credit.
The amount available for borrowing is equal to a specified multiple of
annualized earnings before interest, income taxes, depreciation and amortization
based on the most recent three calendar months. As of June 30, 1996, the Company
had $274.3 million of borrowings outstanding under its Credit Agreement and had
approximately $504.5 million available for additional borrowings. The Credit
Agreement expires on December 31, 2004. The maximum borrowings which may be
outstanding under the revolving loan begin reducing on June 30, 2001. In
addition, the Company has $500.0 million available for potential future
offerings of public debt securities under shelf registration statements filed
with the Securities and Exchange Commission in 1995 and 1993.
On June 5, 1996, the Company's wholly-owned Canadian subsidiary, Paging
Network of Canada Inc. (PageNet Canada), along with its majority-owned Canadian
subsidiary, Madison Telecommunications
F-19
<PAGE> 88
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Holdings, Inc. (MadTel Holdings), established new credit facilities in Canada.
The credit facilities are denominated in Canadian dollars. The amounts reported
herein are the U.S. dollar equivalents as of June 30, 1996. The credit
agreements provide for borrowings in the amounts of $40.3 million and $25.7
million, respectively. The Company is a guarantor of both credit agreements to
the extent of the cash collateral deposited with the lender. Madison Venture
Corp., the minority interest shareholder in MadTel Holdings, is an additional
guarantor of the MadTel Holdings credit agreement. Other non-current assets
include $19.2 million of cash deposited with the lender to collateralize such
borrowings. Under the credit agreements, PageNet Canada and MadTel Holdings are
able to borrow $20.2 million and $16.5 million, respectively, provided these
borrowings are collateralized. The remaining amounts are available for borrowing
provided they are either collateralized or certain financial covenants are met
by the borrowers. As of June 30, 1996, PageNet Canada had $11.0 million and
MadTel Holdings had $10.2 million of borrowings outstanding under the credit
facilities. The maximum borrowings which may be outstanding under the credit
facilities begin reducing on June 30, 1999. Both credit agreements expire on
June 30, 2003.
5. INCOME TAX PROVISION
No provision or benefit for income taxes has been made for the six months
ended June 30, 1996 and 1995 as the deferred benefit from operating losses was
offset by the increase in the valuation allowance.
6. COMMON STOCK AND NET LOSS PER SHARE
Net loss per share amounts are computed based on the weighted average
number of common shares outstanding. The number of shares used to compute per
share amounts for the six months ended June 30, 1996 and 1995 were 102.4 and
101.7 million, respectively.
The Company has 275.0 million authorized shares, of which 250.0 million are
Common Stock and 25.0 million are preferred stock. As of June 30, 1996 there
were no preferred shares issued or outstanding.
Effective September 15, 1995, the Company effected a two-for-one stock
split recorded in the form of a 100.0% stock dividend paid September 29, 1995.
Share and per share amounts for 1995 periods presented have been restated to
reflect the stock split.
On May 23, 1996, the Company's stockholders approved an employee stock
purchase plan of up to 2.0 million shares of the Company's Common Stock, which
the Company intends to implement on January 1, 1997.
7. ACQUISITIONS
During 1995, the Company acquired certain paging assets of Comtech,
Inc. -- Paging Division; SNET Paging, Inc. and its wholly owned subsidiary, TNI
Associates, Inc.; two subsidiaries of PageAmerica Group, Inc.; Page Florida;
International Paging Corp.; and Celpage, Inc. -- Atlanta Branch, including
various frequencies and approximately 343,000 pagers in service. The cost of
these purchases aggregated approximately $123.6 million, subject to increase or
decrease based on post-closing events of certain acquisitions.
F-20
<PAGE> 89
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following represents the unaudited pro forma results of operations as
if the above acquisitions had occurred as of January 1, 1995, after giving
effect to certain adjustments, including amortization of intangibles resulting
from the allocation of the purchase price and interest expense on acquisition
debt.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995
----------------------
(IN THOUSANDS, EXCEPT
PER SHARE INFORMATION)
<S> <C>
Total revenues............................................ $311,591
Net revenues.............................................. 264,085
Operating income.......................................... 17,127
Net loss.................................................. (31,041)
Net loss per share........................................ (0.31)
</TABLE>
The pro forma results given above are not necessarily indicative of what
actually would have occurred if the acquisitions had been in effect during the
periods presented, and are not intended to be a projection of future results or
trends.
F-21
<PAGE> 90
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