<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____.
COMMISSION FILE NO. 0-19494
PAGING NETWORK, INC.
(Exact name of the Registrant as specified in charter)
DELAWARE 04-2740516
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4965 PRESTON PARK BOULEVARD, SUITE 800
PLANO, TEXAS 75093
(Address of principal executive offices, including zip code)
(972) 985-4100
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of the latest practicable date.
<TABLE>
<S> <C>
Title Shares Outstanding as of April 30, 1998
--------------------------------- ---------------------------------------
Common Stock, $ .01 par value 103,356,295
</TABLE>
The Company's Common Stock is publicly traded on the Nasdaq Stock Market
under the symbol "PAGE".
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Index to Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Paging Network, Inc. Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 (Unaudited).............................................................3
Paging Network, Inc. Consolidated Statements of Operations
for the Three Months Ended March 31, 1998 and 1997 (Unaudited)...............................................4
Paging Network, Inc. Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and 1997 (Unaudited)...............................................5
Paging Network, Inc. Notes to Consolidated Financial Statements ..................................................6
</TABLE>
2
<PAGE> 3
PAGING NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 5,374 $ 2,924
Accounts receivable, less allowance
for doubtful accounts ...................................................... 61,948 63,288
Inventories ................................................................... 26,055 24,114
Prepaid expenses and other assets ............................................. 16,340 14,888
----------- -----------
Total current assets ....................................................... 109,717 105,214
Property, equipment, and leasehold improvements, at cost .......................... 1,292,147 1,387,560
Less accumulated depreciation ................................................. (441,994) (469,526)
----------- -----------
Net property, equipment, and leasehold improvements ........................ 850,153 918,034
Other non-current assets, at cost ................................................. 668,752 659,661
Less accumulated amortization ................................................. (94,206) (85,676)
----------- -----------
Net other non-current assets ............................................... 574,546 573,985
----------- -----------
$ 1,534,416 $ 1,597,233
=========== ===========
LIABILITIES AND SHAREOWNERS' DEFICIT
Current liabilities:
Accounts payable .............................................................. $ 34,600 $ 42,640
Accrued interest .............................................................. 35,761 40,085
Accrued expenses .............................................................. 34,801 36,854
Accrued restructuring costs, current portion .................................. 15,351 --
Customer deposits ............................................................. 24,056 24,460
Deferred revenue .............................................................. 15,035 11,634
----------- -----------
Total current liabilities .................................................. 159,604 155,673
----------- -----------
Long-term obligations ............................................................. 1,781,431 1,779,491
Accrued restructuring costs, non-current portion .................................. 15,707 --
Minority interest ................................................................. 3,049 --
Commitments and contingencies ..................................................... -- --
Shareowners' deficit:
Common Stock - $.01 par, authorized 250,000,000 shares; 103,314,944 and
102,659,915 shares issued and outstanding in 1998 and 1997, respectively.... 1,033 1,027
Paid-in capital ............................................................... 130,015 124,908
Accumulated deficit ........................................................... (557,146) (464,774)
Other comprehensive income .................................................... 723 908
----------- -----------
Total shareowners' deficit ................................................. (425,375) (337,931)
----------- -----------
$ 1,534,416 $ 1,597,233
=========== ===========
</TABLE>
See accompanying notes
3
<PAGE> 4
PAGING NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Services, rent and maintenance revenues ............. $ 229,861 $ 188,880
Product sales ....................................... 25,889 36,368
--------- ---------
Total revenues .................................. 255,750 225,248
Cost of products sold ............................... (21,103) (31,357)
--------- ---------
234,647 193,891
Operating expenses:
Services, rent and maintenance .................. 51,823 40,942
Selling ......................................... 21,490 28,271
General and administrative ...................... 70,071 60,398
Depreciation and amortization ................... 73,868 64,468
Restructuring charge ............................ 74,000 --
--------- ---------
Total operating expenses ................... 291,252 194,079
--------- ---------
Operating loss ...................................... (56,605) (188)
Other income (expense):
Interest expense ................................ (36,778) (37,826)
Interest income ................................. 512 992
Minority interest ............................... 499 25
Equity in loss of an unconsolidated subsidiary .. -- (317)
--------- ---------
Total other income (expense) ............... (35,767) (37,126)
--------- ---------
Net loss ............................................ $ (92,372) $ (37,314)
========= =========
Net loss per share (basic and diluted) .............. $ (0.90) $ (0.36)
========= =========
</TABLE>
See accompanying notes
4
<PAGE> 5
PAGING NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net loss ................................................... $ (92,372) $ (37,314)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Restructuring charge ................................ 74,000 --
Depreciation ........................................ 66,454 59,059
Amortization ........................................ 7,414 5,409
Provision for doubtful accounts ..................... 4,724 4,163
Amortization of debt issuance costs ................. 1,112 2,471
Minority interest ................................... (499) (25)
Equity in loss of an unconsolidated subsidiary ...... -- 317
Changes in operating assets and liabilities:
Accounts receivable ................................. (3,377) (7,367)
Inventories ......................................... (1,327) (5,118)
Prepaid expenses and other assets ................... (1,322) (6,974)
Accounts payable .................................... (10,252) 8,495
Accrued expenses and accrued interest ............... (6,710) 7,559
Accrued restructuring costs ......................... (929) --
Customer deposits and deferred revenue .............. 2,997 3,305
--------- ---------
Net cash provided by operating activities ...................... 39,913 33,980
--------- ---------
Investing activities:
Capital expenditures ....................................... (43,249) (102,990)
Payments for spectrum licenses ............................. (3,979) (47,835)
Business acquisitions and joint venture investments ........ (3,500) (1,769)
Restricted cash invested in money market instruments ....... -- (2,022)
Other, net ................................................. 10,852 (251)
--------- ---------
Net cash used in investing activities .......................... (39,876) (154,867)
--------- ---------
Financing activities:
Borrowings of long-term obligations ........................ 79,201 120,228
Repayments of long-term obligations ........................ (81,346) --
Proceeds from exercise of Common Stock options ............. 4,558 --
Other ...................................................... -- 182
--------- ---------
Net cash provided by financing activities ...................... 2,413 120,410
--------- ---------
Net increase (decrease) in cash and cash equivalents ........... 2,450 (477)
Cash and cash equivalents at beginning of period ............... 2,924 3,777
--------- ---------
Cash and cash equivalents at end of period ..................... $ 5,374 $ 3,300
========= =========
</TABLE>
See accompanying notes
5
<PAGE> 6
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
1. THE COMPANY
Paging Network, Inc. (the Company) is a provider of wireless
messaging and information delivery services. The Company provides
service in all 50 states, the District of Columbia, the U.S. Virgin
Islands, Puerto Rico, and Canada, including local service in all of the
largest 100 markets (in population) in the United States, and owns
interests in wireless messaging companies in Spain and Brazil. The
consolidated financial statements include the accounts of all of its
wholly and majority-owned subsidiaries. Effective January 1, 1998, the
Company began consolidating the results of its Spanish subsidiary,
which had previously been accounted for under the equity method of
accounting. 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, except for the
restructuring charge discussed in Note 3, 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, these
financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. The balance sheet as of December 31,
1997, has been derived from the audited financial statements as of 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,
1997. Certain 1997 amounts have been reclassified to conform with the
1998 presentation.
3. RESTRUCTURING CHARGE
On February 8, 1998, the Company's Board of Directors approved
a restructuring of the Company's domestic operations (the
Restructuring). As part of the Restructuring, the Company is
reorganizing its operations to expand its sales organization, eliminate
local and redundant administrative operations, and consolidate certain
key support functions. The Company expects to eliminate approximately
1,600 positions, net of positions added, through the consolidation of
redundant administrative operations and certain key support functions
today located in offices throughout the country into central facilities
(the Centers of Excellence). As a result of the Restructuring, the
Company recorded a charge of $74.0 million, or $0.72 per share (basic
and diluted), during the quarter ended March 31, 1998. The components
of the charge include (in thousands):
<TABLE>
<S> <C>
Write-down of property and equipment $38,900
Lease obligations and terminations 18,900
Severance and related benefits 12,700
Other 3,500
-------
Total restructuring charge $74,000
=======
</TABLE>
6
<PAGE> 7
The write-down of property and equipment relates to a non-cash
charge to reduce the carrying amount of certain machinery and
equipment, furniture and fixtures, and leasehold improvements that the
Company will not continue to utilize following the Restructuring to
their estimated net realizable value as of the date such assets are
projected to be disposed of or abandoned by the Company, allowing for
the recognition of normal depreciation expense on such assets through
their projected disposal date. The net realizable value of these assets
was determined based on management's estimates, which considered such
factors as the nature and age of the assets to be disposed of, the
timing of the assets' disposal, and the method and potential costs of
the disposal. Such estimates are subject to change.
The provision for lease obligations and terminations relates
primarily to future lease commitments on local and regional office
facilities that will be closed as part of the Restructuring. The charge
represents future lease obligations, net of projected sublease
income, on such leases past the dates the offices will be closed by the
Company, or, for certain leases, the cost of terminating the leases
prior to their scheduled expiration. Projected sublease income was
based on management estimates which are subject to change. Cash
payments on the leases and lease terminations will occur over the
remaining lease terms, the majority of which expire prior to 2003.
During the first quarter of 1998, cash payments totaling approximately
$0.6 million were made for lease termination costs and charged against
accrued restructuring costs.
Through the elimination of certain local and regional
administrative operations and the consolidation of certain support
functions, the Company will eliminate approximately 1,600 net
positions. As a result of eliminating these positions, the Company will
involuntarily terminate an estimated 2,150 personnel. The majority of
the positions to be eliminated are in the local and regional offices
which will be closed as a result of the Restructuring. All of the
severance and benefits costs to be paid by the Company will be paid
during the remainder of 1998 and in 1999.
The Company's restructuring activity as of March 31, 1998 is as
follows (in thousands):
<TABLE>
<CAPTION>
Reserve
initially Utilization of Reserve Remaining
established Cash Non-Cash Reserve
----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Fixed assets impairments $38,900 $ -- $38,900 $ --
Lease obligation costs 18,900 542 -- 18,358
Severance costs 12,700 -- -- 12,700
Other 3,500 387 3,113 --
------- ------- ------- -------
Total $74,000 $ 929 $42,013 $31,058
======= ======= ======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT AND OTHER ASSETS
Included in inventories, property and equipment, and other
non-current assets at March 31, 1998, is approximately $30 million of
assets which are directly attributable to the Company's VoiceNow(R)
service and thus cannot be utilized for other wireless communication
services. While the Company currently believes such assets are
recoverable, the ultimate recoverability of such assets is dependent
upon the economic viability of the VoiceNow service. The Company will
reassess the recoverability of the assets directly attributable to the
VoiceNow service following the reintroduction of the VoiceNow service
under a revised strategy in the second quarter of 1998.
In April 1998, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued Statement
of Position 98-5 "Reporting on the Costs of Start-Up Activities" (SOP
98-5), effective for years beginning after December 15, 1998. SOP 98-5
requires the expensing of all start-up costs as incurred as well as
writing off the remaining balance of capitalized start-up costs at the
date of adoption of SOP 98-5 as the cumulative effect of a change in
accounting principle. Start-up activities are defined as those one-time
activities related to opening a new facility, introducing a new product
or service, conducting business in a new territory, conducting business
with a new class of customer, or initiating a significant new process
in an existing facility. The Company will be required to adopt the
provision of SOP 98-5 effective January 1, 1999. The impact of the
adoption of SOP 98-5 has not been determined at this time.
7
<PAGE> 8
5. LONG-TERM OBLIGATIONS
As of March 31, 1998, the Company had $535.0 million of
borrowings outstanding under its domestic $1.0 billion revolving credit
agreement (the Credit Agreement).
6. INCOME TAX PROVISION
No provision or benefit for income taxes has been made for the
three months ended March 31, 1998 and 1997, as the deferred benefit
from operating losses was offset by the increase in the valuation
allowance.
7. 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 three months ended March 31, 1998
and 1997 were 102.9 million and 102.6 million, respectively. The
average number of options to purchase shares of the Company's Common
Stock during the three months ended March 31, 1998 and 1997 was 6.4
million and 6.5 million, respectively, at exercise prices ranging from
$2.67 per share to $14.38 per share. These stock options were not
included in the computation of diluted earnings per share because the
effect of assuming their exercise would have been antidilutive.
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
March 31, 1998, there were no preferred shares issued or outstanding.
8. COMPREHENSIVE LOSS
As of January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), which establishes new rules for the reporting and
display of comprehensive loss and its components. SFAS 130 requires
certain items, including foreign currency translation adjustments,
which prior to adoption were reported separately in shareowners'
deficit, to be included in other comprehensive loss. The adoption of
SFAS 130 had no impact on the Company's net loss or shareowners'
deficit.
Comprehensive loss for the three months ended March 31, 1998
and 1997, is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
-------- --------
<S> <C> <C>
Net loss $(92,372) $(37,314)
Foreign currency translation adjustments (185) 170
-------- --------
Comprehensive loss $(92,557) $(37,144)
======== ========
</TABLE>
9. 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
March 31, 1998, cash equivalents also include investments in money
market instruments, which are carried at fair market value. Cash
payments made for interest during the three months ended March 31, 1998
and 1997, were approximately $40.0 million and $32.3 million,
respectively, net of interest capitalized of $4.6 million and $3.0
million, respectively. There were no significant federal or state
income taxes paid or refunded for the three months ended March 31, 1998
and 1997.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this filing which are not historical facts,
including but not limited to future capital expenditures, future borrowings,
international investments expectations, introduction of new services, expected
annual recurring performance improvements and cost savings as a result of the
Restructuring, and sales productivity increases and incremental annual increases
in revenues expected to result from the Restructuring together with associated
price increases, are forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward-looking statements. Among the factors that could cause
actual future results to differ materially are competitive pressures, growth
rates, new market opportunities, supplier constraints, market conditions, timing
and techniques used in marketing by third parties, new technologies, and
acceptance of the Company's services in the marketplace.
RESULTS OF OPERATIONS
Throughout this section the Company makes reference to earnings before
interest, income taxes, depreciation, amortization, minority interest, equity in
loss of an unconsolidated subsidiary, and restructuring charge (EBITDA). EBITDA
is a key performance measure used in the wireless messaging 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.
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 three months ended March 31, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
------ ------
<S> <C> <C>
Net Revenues....................................... 100.0% 100.0%
Operating expenses:
Services, rent and maintenance............... 22.1(1) 21.1(1)
Selling...................................... 9.1(1) 14.6(1)
General and administrative................... 29.9 31.1
Depreciation and amortization................ 31.5(1) 33.3(1)
Restructuring charge......................... 31.5 --
----- -----
Operating loss..................................... (24.1) (0.1)
Net loss........................................... (39.4) (19.2)
EBITDA............................................. 38.9 33.2
EBITDA for domestic operations..................... 40.0 34.4
EBITDA for core domestic paging operations (2)..... 40.4 37.8
</TABLE>
(1) Excluding direct costs attributable to the Company's voice messaging
(VoiceNow) service , which was introduced during the first quarter of 1997,
services, rent and maintenance expenses, selling expenses, and depreciation
and amortization expense as a percentage of Net Revenues were 21.9%, 9.0%,
and 29.8%, respectively, for the three months ended March 31, 1998, and were
20.6%, 11.7%, and 33.3%, respectively, for the three months ended March 31,
1997.
(2) Represents EBITDA for the Company's domestic operations, excluding its
domestic advanced messaging services (primarily VoiceNow service).
9
<PAGE> 10
Net Revenues for the three-month period ended March 31, 1998, were
$234.6 million, an increase of 21.0% over $193.9 million for the comparable
period ended March 31, 1997. Revenues from services, rent and maintenance, which
the Company considers its primary business, increased 21.7% to $229.9 million
for the three months ended March 31, 1998, compared to $188.9 million for the
three months ended March 31, 1997. These increases were primarily due to
continued growth in the number of units in service with subscribers of the
Company. The number of units in service with subscribers at March 31, 1998 was
10,478,683 compared to 9,132,495 units in service with subscribers at March 31,
1997, an increase of 14.7%. The Company's local and national third-party
resellers represented 48.6% and 68.6%, respectively, of the Company's net unit
additions for the three months ended March 31, 1998 and 1997. The Company is
reviewing its pricing structure along all lines of its businesses, has
instituted certain price increases for existing customers, anticipates certain
additional increases, and has set appropriate minimum pricing levels for new
business; however, the impact of such actions cannot be determined at this time.
Product sales, less cost of products sold, were relatively flat for the
three months ended March 31, 1998, compared to the same period in 1997. Product
sales, less cost of products sold, were $4.8 million (2.0% of Net Revenues) for
the first quarter of 1998 compared to $5.0 million (2.6% of Net Revenues) for
the first quarter of 1997.
Services, rent and maintenance expenses increased 26.6% to $51.8
million (22.1% of Net Revenues) for the three months ended March 31, 1998,
compared to $40.9 million (21.1% of Net Revenues) for the three months ended
March 31, 1997. The increase in services, rent and maintenance expenses and the
increase as a percentage of Net Revenues for the three months ended March 31,
1998 were primarily attributable to an increase in telephone expenses associated
with the regulation recently enacted which requires that providers of payphones
be compensated for all calls placed from payphones to toll free numbers. This
requirement increased the Company's cost of providing toll free number service
commencing in the fourth quarter of 1997. In addition, the increase in services,
rent and maintenance expenses for the three months ended March 31, 1998 was the
result of the continued growth in the number of units in service with
subscribers of the Company, expenses associated with an increase in transmitter
sites, and expansion of the nationwide transmission networks.
Selling expenses decreased 24.0% to $21.5 million (9.1% of Net
Revenues) for the three months ended March 31, 1998, from $28.3 million (14.6%
of Net Revenues) for the three months ended March 31, 1997. The decrease in
selling expenses and the decrease as a percentage of Net Revenues resulted
primarily from the decrease in certain marketing research, development costs,
and advertising expenses associated with the Company's VoiceNow service, along
with a lower amount of sales commissions paid in conjunction with the decline in
net additions in units in service with subscribers of the Company for the first
three months of 1998, compared to the corresponding period of 1997. The
marketing research, development costs, and advertising expenses associated with
the Company's VoiceNow service were $0.3 million and $5.5 million (0.1% and 2.9%
of Net Revenues), respectively, for the three months ended March 31, 1998 and
1997.
General and administrative expenses increased 16.0% to $70.1 million
(29.9% of Net Revenues) for the first quarter of 1998, compared to $60.4 million
(31.1% of Net Revenues) for the corresponding period of 1997. The increase in
general and administrative expenses for the first quarter of 1998 occurred to
support the growth in the number of units in service with subscribers of the
Company. The decrease in general and administrative expenses as a percentage of
Net Revenues for the three months ended March 31, 1998 was primarily due to the
general and administrative expenses being absorbed by a larger subscriber base.
Depreciation and amortization expense increased 14.6% to $73.9 million
(31.5% of Net Revenues) for the three months ended March 31, 1998, compared to
$64.5 million (33.3% of Net Revenues) for the three months ended March 31, 1997.
The increase in depreciation and amortization expense was primarily
attributable to the increase in the number of subscriber devices owned by the
Company and leased to subscribers, the expansion of the nationwide transmission
networks, and the increase in computer and wireless messaging equipment used by
the Company in its operations.
The Company recorded a restructuring charge of $74.0 million during the
three months ended March 31, 1998, as a result of a reorganization of the
Company's sales, administrative, and certain key support functions. See further
discussion in Note 3 to the Consolidated Financial Statements.
10
<PAGE> 11
As a result of the above factors, EBITDA increased 42.0% to $91.3
million (38.9% of Net Revenues) for the first quarter of 1998, compared to $64.3
million (33.2% of Net Revenues) for the corresponding period in 1997. EBITDA and
EBITDA as a percentage of Net Revenues were negatively impacted by the Company's
international operations and its VoiceNow service. Effective January 1, 1998,
the Company began consolidating the results of its Spanish subsidiary. The
Company's international operations and VoiceNow service resulted in a decrease
to EBITDA of $1.1 million and $0.9 million, respectively, in the first quarter
of 1998 and $2.1 million and $6.4 million, respectively, in the first quarter of
1997. EBITDA for the Company's domestic operations increased 39.1% to $92.3
million (40.0% of Net Revenues) for the first quarter of 1998, compared to $66.4
million (34.4% of Net Revenues) for the first quarter of 1997. Excluding the
Company's VoiceNow operations, EBITDA for the Company's core domestic paging
operations increased 28.1% to $93.2 million (40.4% of Net Revenues) for the
first quarter of 1998, compared to $72.8 million (37.8% of Net Revenues) for the
first quarter of 1997.
Interest expense, net of amounts capitalized, was relatively flat for
the three months ended March 31, 1998, compared to the same period of 1997.
Interest expense, net of amounts capitalized, was $36.8 million for the first
quarter of 1998, compared to $37.8 million for the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations and expansion into new markets and product
lines have required substantial capital investment for the development and
installation of wireless communications systems and for the procurement of
various types and brands of pagers (the subscriber devices) and related
equipment. Capital expenditures (excluding payments for licenses) were $43.2
million for the three months ended March 31, 1998, compared to $103.0 million
for the same period in 1997. The Company's capital expenditures related to the
buildout of the advanced two-way wireless network to be utilized as a platform
for new enhanced messaging services decreased from $21.0 million for the three
months ended March 31, 1997 to $9.6 million for the three months ended March 31,
1998. The Company's core domestic capital expenditures decreased from $81.1
million for the three months ended March 31, 1997 to $28.9 million for the
corresponding period in 1998. The decrease in core domestic capital expenditures
in 1998 was primarily due to a reduction in the Company's network-related
expenditures pertaining to geographic coverage and capacity expansion. The
Company has instituted programs to utilize subscriber devices more effectively
and to more closely control subscriber device capital expenditures, including
efficiencies established in the logistics management of the subscriber device
ordering process. For the first three months of 1998, capital expenditures were
funded by net cash provided by operating activities of $39.9 million.
The amount of capital expenditures may fluctuate from quarter to
quarter and on an annual basis due to several factors; however, the Company
anticipates the total amount of capital expenditures in 1998 (including capital
expenditures made in connection with the Company's expansion of its two-way
advanced network and to establish the Centers of Excellence in connection with
the Company's Restructuring) to be relatively consistent with the amount
incurred in 1997.
During April 1996, the Company concluded its participation in a Federal
Communications Commission auction of specialized mobile radio (SMR) frequency
licenses, and ultimately acquired rights to two to four blocks of two-way
spectrum in markets across the United States for a purchase price of $45.6
million. The Company is in the process of purchasing exclusive rights to certain
of these SMR frequencies from incumbent operators. The total cost of the
investment will be approximately $235 million (including the $45.6 million
auction purchase price), of which $109 million, $93 million, and $4 million,
respectively, was paid in 1996, 1997, and the first quarter of 1998.
The Company intends to utilize its narrowband personal communications
services (PCS) and SMR frequencies for additional capacity as needed for its
existing operations, such as digital and alphanumeric services, and to build an
advanced two-way network over which it can deploy new enhanced messaging
services and customized wireless information. The Company expended $47 million
in 1996 and $104 million in 1997 to construct the advanced two-way network. The
Company expects to spend an additional $75 million to $100 million in total in
1998 and 1999 (including approximately $10 million incurred in the first three
months of 1998) to achieve nationwide coverage with its advanced two-way
network. Additional capital expenditures for the advanced two-way network will
be determined based on the market introduction and success of new products.
11
<PAGE> 12
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 domestic indebtedness
for borrowed monies (as defined) and outstanding letters of credit. The amount
of total indebtedness allowed is equal to 6.5 times last quarter's annualized
domestic EBITDA. As of March 31, 1998, the Company had $535.0 million of
borrowings outstanding under the Credit Agreement and, under the terms of the
Credit Agreement, an additional $465.0 million was available for borrowings as
of that date. Such amount may fluctuate from quarter to quarter during 1998
based on the domestic EBITDA for the respective quarter of 1998. As of April 30,
1998, the Company had $552.0 million of borrowings outstanding under its Credit
Agreement. Maximum borrowings which may be outstanding under the Credit
Agreement are permanently reduced beginning on June 30, 2001 and the Credit
Agreement expires on December 31, 2004.
The two credit agreements of the Company's Canadian subsidiaries
provide for total borrowings of approximately $75 million. As of March 31, 1998,
approximately $42 million of borrowings were outstanding under the credit
facilities. Additional borrowings are available under these facilities, provided
such borrowings are either collateralized or certain financial covenants are
met. Maximum borrowings which may be outstanding under the credit facilities
begin reducing on March 31, 2001, and both credit agreements expire on December
31, 2004.
Free cash flow, defined as EBITDA after capital expenditures (excluding
the costs of acquiring SMR frequency licenses) and debt service, for the
Company's core domestic operations was $47.5 million for the three months ended
March 31, 1998. Free cash flow is not a measure defined in generally accepted
accounting principles and should not be considered in isolation or as a
substitute for a measure of performance in accordance with generally accepted
accounting principles. The deficiency in free cash flow for the Company's core
domestic operations for the three months ended March 31, 1997 was $33.6 million.
Free cash flow for the Company's consolidated operations was $11.7 million for
the three months ended March 31, 1998, compared to a deficiency of $75.5 million
for the same period in 1997. The improvements in free cash flow in 1998 were
primarily the result of a decrease in capital expenditures and an increase in
EBITDA in the Company's core domestic paging operations, as previously noted.
The costs of acquiring SMR frequency licenses totaled $4.0 million and $47.2
million, respectively, for the three months ended March 31, 1998 and 1997. The
amount of capital expenditures and SMR frequency purchases may fluctuate from
quarter to quarter and on an annual basis due to several factors.
RESTRUCTURING
On February 8, 1998 the Company's Board of Directors approved the
Restructuring. As part of the Restructuring, the Company is reorganizing its
operations to expand its sales organization, eliminate local and redundant
administrative operations, and consolidate certain key support functions. The
Company expects to eliminate approximately 1,600 positions, net of positions
added, through the consolidation of redundant administrative operations and key
support functions today located in offices throughout the country into the
Centers of Excellence. The Company will also expand its sales organization. The
Company expects to realize annual recurring performance improvements and cost
savings of $45 million to $55 million when the Restructuring is completed in mid
1999. Additionally, the Company presently estimates that the Restructuring will
result in sales productivity increases that, together with associated price
increases, will total approximately $75 million in incremental annual revenues
upon its completion. As a result of the Restructuring, the Company recorded a
charge of $74.0 million during the quarter ended March 31, 1998 as discussed in
Note 3 to the Consolidated Financial Statements.
12
<PAGE> 13
VOICENOW
The Company is in the process of reviewing its strategy for marketing
its VoiceNow service, which was introduced in Dallas/Fort Worth, Atlanta, and
Sacramento during 1997. The VoiceNow service has not met the Company's original
expectations in those markets. The Company introduced the VoiceNow service in
the Chicago market under a revised strategy in the second quarter of 1998. The
Company believes that, based on the foreseeable growth in its existing services
and the potential for future services, substantially all of the spectrum and
advanced two-way network constructed for its VoiceNow service can be utilized
for non-VoiceNow services, including existing services and new advanced
information offerings and messaging services.
Included in inventories, property and equipment, and other non-current
assets at March 31, 1998, is approximately $30 million of assets which are
directly attributable to the Company's VoiceNow service and thus cannot be
utilized for other wireless communications services. While the Company currently
believes such assets are recoverable, the ultimate recoverability of such assets
is dependent upon the economic viability of the VoiceNow service. The Company
will reassess the recoverability of the assets directly attributable to the
VoiceNow service following the introduction of the VoiceNow service in the
Chicago market in the second quarter of 1998.
YEAR 2000
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (Year 2000) approaches. The Year
2000 problem is pervasive and complex and virtually every computer operation in
the country will be affected in some way by the rollover of the two-digit year
value to 00. The Company has identified the status of all computer applications
and systems with reference to Year 2000 compliance. Most applications are
already compliant, and those that are not have been earmarked for retirement,
replacement, or modification to ensure uninterrupted service to the Company's
subscribers. In addition, a task force of Company personnel is working closely
with Motorola Inc., Glenayre Technologies Inc., and certain other vendors that
currently supply the Company with subscriber devices, wireless messaging
terminals, and network facilities to ensure that all of their products and
services are Year 2000 compliant as well.
The Company is committed to having its systems Year 2000 compliant well
in advance of January 1, 2000, and is utilizing both internal and external
resources to identify, correct or reprogram, and test its systems. At the
present time, the expense associated with the Year 2000 compliance program has
not been fully assessed. It is anticipated that all reprogramming efforts will
be completed in sufficient time to allow for proper testing of the systems. To
date, confirmations have been received from the Company's primary processing
vendors that plans are being developed to address processing of transactions in
the Year 2000. The Company believes its planning efforts are adequate to address
the Year 2000 compliance. However, the Company's business, financial position,
or results of operations could be materially adversely affected by the failure
of its computer systems and applications, or those operated by other parties, to
properly operate or manage dates beyond 1999.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131). The Company will initially
adopt SFAS 131 in its 1998 annual financial statements. SFAS 131 supersedes
Statement of Financial Accounting Standards No. 14, "Financial Reporting for
Segments of a Business Enterprise," and requires that a public company report
annual and interim financial and descriptive information about its reportable
operating segments pursuant to criteria that differ from current accounting
practice. Operating segments, as defined, are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision-maker in deciding how to allocate resources and in
assessing performance. Because this statement addresses how supplemental
financial information is disclosed in annual and interim reports, the adoption
of SFAS 131 will have no impact on the Company's financial statements, but may
require the disclosure of segment information.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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 business or consolidated financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The exhibits listed on the accompanying index to exhibits are
filed as part of this quarterly report.
(b) Reports on Form 8-K.
On January 8, 1998, the Company filed a Current Report on Form
8-K relating to the retirement of George M. Perrin from the
Company's Board of Directors, effective January 31, 1998.
On February 13, 1998, the Company filed a Current Report on
Form 8-K relating to the announcement of the Restructuring.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PAGING NETWORK, INC.
Date: May 8, 1998 By: /s/ John P. Frazee, Jr.
----------------------------------------------
John P. Frazee, Jr.
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 8, 1998 By: /s/ Mark A. Knickrehm
----------------------------------------------
Mark A. Knickrehm
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------
<S> <C>
4.1 Articles Sixth, Seventh, Eighth, Twelfth, and Thirteenth of the
Restated Certificate of Incorporation of the Registrant, as
amended (1)
4.2 Articles II, III, and VII and Section I of Article VIII of the
Registrant's By-laws, as amended (1)
4.3 Form of Indenture (2)
4.4 Article V, Sections I, VI, and VII of the Registrant's By-Laws, as
amended (4)
10.1 1982 Incentive Stock Option Plan, as amended and restated (1)
10.2 Form of Stock Option Agreement executed by recipients of options
granted under the 1982 Incentive Stock Option Plan (1)
10.3 Form of Management Agreement executed by recipients of options
granted under the 1982 Incentive Stock Option Plan (1)
10.4 Form of Vesting Agreement executed by recipients of options
granted under the 1982 Incentive Stock Option Plan (1)
10.5 1991 Stock Option Plan (1)
10.6 Form of Stock Option Agreement executed by recipients of options
granted under the 1991 Stock Option Plan (1)
10.7 Form of Indemnification Agreement executed by recipients of
options granted under the 1991 Stock Option Plan (1)
10.8 Form of First Amendment to Vesting Agreement executed by
recipients of options granted under the 1982 Incentive Stock
Option Plan (1)
10.9 Form of First Amendment to Management Agreement executed by
recipients of options granted under the 1982 Incentive Stock
Option Plan (1)
10.10 1992 Stock Option Plan for Directors (3)
10.11 Amended and Restated Credit Agreement dated as of May 2, 1995
among the Registrant, NationsBank of Texas, N.A., Toronto Dominion
(Texas), Inc., The First National Bank of Boston, and certain
other lenders (4)
10.12 Amendment No. 1 dated as of December 12, 1995 to the Amended and
Restated Credit Agreement dated as of May 2, 1995 among the
Registrant, NationsBank of Texas, N.A., Toronto Dominion (Texas),
Inc., The First National Bank of Boston, and certain other lenders
(5)
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------
<S> <C>
10.13 Second Amended and Restated Credit Agreement dated as of June 5,
1996, among the Registrant, NationsBank of Texas, N.A., Toronto
Dominion (Texas), Inc., The First National Bank of Boston, Chase
Securities Inc., and certain other lenders (6)
10.14 Loan Agreement dated as of June 5, 1996 among Paging Network of
Canada Inc., The Toronto-Dominion Bank, and such other financial
institutions as become banks (6)
10.15 Loan Agreement dated as of June 5, 1996 among Madison
Telecommunications Holdings, Inc., The Toronto-Dominion Bank, and
such other financial institutions as become banks (6)
10.16 1991 Stock Option Plan, as amended and approved by shareowners on
May 22, 1997 (7)
10.17 1992 Stock Option Plan for Directors, as amended and restated and
approved by shareowners on May 22, 1997 (7)
10.18 1997 Restricted Stock Plan and approved by shareowners on May 22,
1997 (7)
10.19 Employment Agreement dated as of August 4, 1997 among the
Registrant and John P. Frazee, Jr. (8)
10.20 1992 Stock Option Plan for Directors, as amended and restated on
December 10, 1997 (9)
10.21 First Amendment dated April 18, 1997 to the Loan Agreement dated
as of June 5, 1996 among Paging Network of Canada Inc., The
Toronto-Dominion Bank, and such other financial institutions as
become banks (9)
10.22 First Amendment dated April 18, 1997 to the Loan Agreement dated
as of June 5, 1996 among Madison Telecommunications Holdings,
Inc., The Toronto-Dominion Bank, and such other financial
institutions as become banks (9)
10.23 1992 Director Compensation Plan, as amended and restated on April
22, 1998 (10)
12 Ratio of Earnings to Fixed Charges for the three months ended
March 31, 1998 and 1997 (10)
27 Financial Data Schedule (10)
</TABLE>
-----------------------------------------------------------------
(1) Previously filed as an exhibit to Registration Statement
No. 33-42253 on Form S-1 and incorporated herein by
reference.
(2) Previously filed as an exhibit to Registration Statement
No. 33-46803 on Form S-1 and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1991.
(4) Previously filed as an exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1995.
<PAGE> 18
(5) Previously filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995.
(6) Previously filed as an exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996.
(7) Previously filed as an exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1997.
(8) Previously filed as an exhibit to the Registrants'
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1997.
(9) Previously filed as an exhibit to the Registrants' Annual
Report on Form 10-K for the fiscal year ended December 31,
1997.
(10) Filed herewith.
<PAGE> 1
EXHIBIT 10.23
PAGING NETWORK, INC.
1992 DIRECTOR COMPENSATION PLAN
(AS AMENDED AND RESTATED APRIL 22, 1998)
1. PURPOSE. The purpose of this Plan is to advance the interests of
PAGING NETWORK INC. (the "Company") by providing an opportunity for non-employee
directors of the Company to purchase Common Stock of the Company through the
exercise of options granted under the Plan and, on an elective basis, to (i)
receive grants of options on shares or shares in lieu of directors fees, and
(ii) defer receipt of director fees until a date, and in a manner, determined by
each director.
2. EFFECTIVE DATE. This 1992 Stock Option Plan for Directors (the
"Plan") became effective on May 21, 1992 (the "Effective Date"), the date it
was adopted by the Board of Directors of the Company (the "Board") and approved
by the stockholders of the Company. The Plan was amended and restated by the
Board on January 9, 1997, subject to stockholder approval, which was given on
May 22, 1997, and was further amended by the Board on December 10, 1997 and
April 22, 1998.
3. STOCK SUBJECT TO THE PLAN. Awards of Common Stock and options to
purchase shares of the $.01 par value common stock of the Company ("Common
Stock") may be granted under the Plan. At no time shall the number of shares of
Common Stock then outstanding which are attributable to the grant of shares
under the Plan or the exercise of options granted under the Plan plus the number
of shares then issuable upon exercise of outstanding options granted under the
Plan exceed 750,000 shares, subject, however, to the adjustment provisions of
Paragraph 9 of the Plan. Any shares subject to an option which for any reason
expires or is terminated unexercised as to such shares may again be the subject
of an option under the Plan. The shares delivered under the Plan may, in
whole or in part, be either authorized but unissued shares or issued shares
reacquired by the Company.
4. OPTIONS.
(a) Nonelective Grants.
(i) Initial Election. On the day of a person's initial
election as a director, each eligible director who is not an employee
of the Company shall receive an option to purchase 45,000 shares of
Common Stock.
(ii) Subsequent Grants. On the day immediately following the
date on which an eligible director's most recently granted option under
this Plan (other than as an Elective Grant, defined in subsection (b)
below) has become exercisable in full, such director shall receive a
further option to purchase 45,000 shares of Common Stock.
<PAGE> 2
(b) Elective Grants.
(i) Grant & Conditions Thereto. Subject to the following
qualifications, any eligible director shall receive a grant under the
Plan of either (x) that whole number of shares of Common Stock having a
fair market value equal to or most nearly approaching the amount of the
director's annual retainer and meeting fees, as the case may be, as and
when otherwise payable in cash or (y) an option, granted on the second
Monday of January beginning in January, 1997, to purchase that whole
number of shares of Common Stock resulting in an option having a value,
determined under the method and assumptions for valuing options most
recently employed for purposes of the Company's annual proxy statement
to stockholders, equal to or most nearly approaching the amount of the
director's annual retainer fee for the year and the meetings fees
payable to the director assuming his attendance at each of the Board
meetings, and meetings of committees of the Board of which he is a
member, for the coming year. Grants of shares or options pursuant to
this Section 4(b) are here referred to as "Elective Grants."
(ii) Election Procedures. To receive an Elective Grant with
respect to any calendar year's retainer and meetings fees, a director
must elect in writing to receive shares or options in lieu of the
Company's payment in cash of the directors' annual retainer and meeting
fees for such year. Any such election shall be made by written notice
to the Company to forego any cash payment of the retainer and meeting
fees taken into consideration in determining the number of shares
subject to such Grant, such notice to be given prior to the beginning
of that calendar year (or on or prior to May 22, 1997, in the case of
Elective Grants to otherwise be made in respect of 1997). Such election
shall not affect his or her right to cash compensation in accordance
with the Company's director compensation policies as in effect from
time to time for any number of Board or committee meetings attended in
a calendar year in excess of the number taken into account in
determining the number of shares subject to an Elective Grant in option
form made to the director in January of that year. Such election shall
specify whether the director wishes to receive an Elective Grant of
shares, or of options, as provided above. Combinations of shares and
options for the same calendar year are not permitted. Each such
election shall be irrevocable as to a calendar year once that year
begins, except that in the event the stockholders should fail to
approve this amended and restated Plan, all such elections shall be
immediately revoked and the director promptly paid in cash any fees
theretofore withheld pursuant to such election. Any such election may
be of continuing effect, i.e., to carry over from year to year, until
revoked as to a year or years subsequent to the year in which revoked.
(c) Effect of Lack of Shares. In the event that on any date on
which shares or options are to be granted hereunder, there is not a sufficient
number of shares available to implement fully the grants then to be made, then
each such director entitled to a grant at such time shall receive a pro rata
portion of the grant contemplated
2
<PAGE> 3
by the preceding provisions. In addition, if the grants which are to be made but
cannot be fully implemented are Elective Grants, then the director's agreement
to forego fees shall be deemed automatically revoked to the same extent.
5. ADMINISTRATION. The Plan shall be administered by the Stock
Option/Compensation Committee of the Board (the "Committee"). The members of
the Committee shall be elected by the Board, which shall have the discretion to
remove any member of the Committee for any reason. Subject to the provisions of
the Plan, the Committee shall have full power to construe and interpret the
Plan and to establish, amend and rescind rules and regulations for its
administration. Any decisions made with respect thereto shall be final and
binding on the Company, any director receiving grants hereunder and all other
persons.
6. DURATION OF THE PLAN. This Plan shall terminate on January 20, 2002
unless terminated earlier pursuant to Paragraph 10, and no options or shares may
be granted thereafter;
7. ELIGIBILITY. Any person who is a director of the Company and who is
not an employee of the Company and who has not been an employee of the Company
during the 24 months preceding the date of grant is eligible to have an option
granted to him or her and to elect to receive Elective Grants.
8. TERMS AND CONDITIONS OF OPTIONS. Options granted under the Plan shall
be evidenced by stock option agreements in such form and containing such terms
and conditions as the Committee shall determine; provided, however, that such
agreements shall evidence among their terms and conditions the following:
(a) Price. The purchase price per share of Common Stock payable upon
the exercise of each option granted hereunder shall be 100% of the fair
market value of the stock on the day the option is granted or, in the event
there is no fair market value available on the day the option is granted, on
the date next following the day the option is granted for which a fair market
value is available.
(b) Number of Shares. Each option agreement shall specify the number
of shares to which it pertains.
(c) Exercise of Options. In general, each option grant shall be
exercisable for the full amount or for any part thereof and at such intervals or
in such installments as the Committee may determine at the time it grants such
option; provided, however, that no option shall be exercisable with respect to
any shares later than ten years after the date of the grant of such option.
However, Elective Grants of options shall become exercisable as to one-twelfth,
two-twelfths, and so on, of the number of shares covered by each such Grant (or
the nearest lower number of whole shares, if less) on the last day of the first
through twelfth calendar months to end subsequent to the date such Grant was
made (including the January in which such grant was made). Notwithstanding the
foregoing, no option grant pursuant to this amended and restated Plan, Elective
Grant
3
<PAGE> 4
or otherwise, may be exercised until the shareholders of the Company shall have
approved this amended and restated Plan.
(d) Notice of Exercise and Payment. An option shall be exercisable
only by delivery of a written notice to the Company's Treasurer or any other
officer of the Company designated by the Committee to accept such notices on its
behalf, specifying the number of shares for which it is exercised. If shares to
be purchased are not at that time effectively registered under the Securities
Act of 1933, as amended, the optionee shall include with such notice a letter,
in form and substance satisfactory to the Company, confirming that the shares
are being purchased for the optionee's own account for investment and not with a
view to distribution and acknowledging the consequences for resale of absence of
registration. Payment shall be made in full at the time the option is exercised.
Payment shall be made by (i) check, (ii) if permitted by the Committee and
stated in the option agreement, by delivery and assignment to the Company of
shares of Common Stock having a value equal to the option price, (iii) if
permitted by the Committee, by delivery of a written notice stating that a
market sell order has been placed with a broker with respect to shares of Common
Stock issuable upon exercise of the option and that the broker has been directed
to pay a sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the aggregate exercise price of the option or the portion
thereof so exercised, or (iv) by a combination of (i) and (ii). The value of the
Common Stock for such purpose shall be its fair market value as of the date the
option is exercised, as determined in accordance with procedures to be
established by the Committee.
(e) Withholding Taxes; Delivery of Shares. The Company's obligation
to deliver shares of Common Stock under the Plan or upon exercise of an option,
in whole or in part, shall be subject to the optionee's satisfaction of all
applicable federal, state and local tax withholding obligations.
(f) Non-Transferability. No option shall be transferable by the
optionee otherwise than by will or the laws of descent and distribution, and
each option shall be exercisable during the optionee's lifetime only by the
optionee (or the optionee's guardian or legal representative).
(g) Termination of Options. Each option agreement shall
contain provisions for the termination of the options granted thereunder if the
optionee ceases for any reason to be a director of the Company no more favorable
to the optionee than the following:
(i) if the optionee ceases to be a director of the Company for
any reason other than disability or death, he may at any time within a
period of three months after he ceased to be a director exercise each
of his options to the extent that the option was exercisable by him on
the date on which he ceased to be a director;
4
<PAGE> 5
(ii) if the optionee ceases to be a director of the Company
because of disability within the meaning of Section 22(e)(3) of the
Code, he may at any time within a period of one year after such
termination exercise his option to the extent that the option was
exercisable by him on the date he ceased to be a director; and
(iii) if the optionee dies at a time when he might have
exercised the option, then his estate, personal representative or
beneficiary to whom it has been transferred pursuant to Paragraph 8(f)
hereof may, at any time within a period of one year after the
optionee's death, or the termination of the option pursuant to this
Plan, whichever is earlier, exercise it to the extent the optionee
might have exercised it at the time of his death.
(h) Rights as Stockholder. An optionee shall have no rights as a
stockholder with respect to any shares covered by his option until the date the
option has been exercised and the full purchase price for such shares has been
received by the Company.
9. STOCK DIVIDENDS; STOCK SPLITS; STOCK COMBINATIONS;
RECAPITALIZATIONS. Appropriate adjustment shall be made in the maximum number of
shares of Common Stock subject to the Plan and in the number, kind, and option
price of shares covered by outstanding options granted hereunder to give effect
to any stock dividends, stock splits, stock combinations, recapitalizations and
other similar changes in the capital structure of the Company after the
effective date of the Plan.
10. MERGER; SALE OF ASSETS; DISSOLUTION. Notwithstanding anything to the
contrary contained in this Plan, in the event of a "Change of Control," as
defined herein, every option outstanding hereunder will become immediately
exercisable in full. In the event of a change in the Common Stock resulting from
a merger or similar reorganization, the number and kind of shares which
thereafter may be optioned and sold under the Plan and the number and kind of
shares then subject to options granted hereunder and the price per share thereof
will be appropriately adjusted, in such manner as the Committee may deem
equitable, to prevent substantial dilution or enlargement of the rights
available or granted hereunder.
A "Change of Control" shall be deemed to have occurred if the event
set forth in any one of the following paragraphs shall have occurred:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of PageNet representing 25% or more of the combined
voting power of PageNet's then outstanding securities (not including in such
securities beneficially owned by such Person any securities acquired directly
from PageNet), other than any Person who becomes such a Beneficial Owner in
connection with a transaction described in clause (i) of paragraph (c) below;
or
5
<PAGE> 6
(b) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who on the date
hereof constitute the Board, and any new director whose appointment or election
by the Board or nomination for election by PageNet's shareowners was approved or
recommended by at least two-thirds (2/3) of the directors then still in office
who either were directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or recommended (other than a
new director whose initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of PageNet); or
(c) there is consummated a merger or consolidation of PageNet or
any direct or indirect subsidiary of PageNet with any other corporation, other
than (i) a merger or consolidation which would result in the voting securities
of PageNet outstanding immediately prior to such merger or consolidation
continuing to represent, in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of PageNet, at
least 65% of the combined voting power of the securities of PageNet or such
surviving entity or any parent thereof outstanding immediately after such merger
or consolidation (either by remaining outstanding or by being converted into
voting securities of the surviving entity or parent thereof), or (ii) a merger
or consolidation effected to implement a recapitalization of PageNet, or similar
transaction, in which no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of PageNet representing 25% or more of the combined
voting power of PageNet's then outstanding securities (not including in the
securities Beneficially Owned by such Person any securities acquired directly
from PageNet); or
(d) the shareowners of PageNet approve a plan of complete
liquidation or dissolution of PageNet or there is consummated an agreement for
the sale or disposition by PageNet of all or substantially all of PageNet's
assets, other than a sale or disposition by PageNet of all or substantially all
of the PageNet's assets to an entity, at least 65% of the combined voting power
of the outstanding securities of which are owned by shareowners of PageNet in
substantially the same proportions as their ownership of PageNet immediately
prior to such sale.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred by virtue of the consummation of any transaction or
series of integrated transactions immediately following which the record holders
of the Common Stock of PageNet immediately prior to such transaction or series
of transactions continue to have substantially the same proportionate ownership
in an entity which owns all or substantially all of the assets of PageNet
immediately following such transaction or series of transactions.
For purposes of this Section 10, (a) "Person" shall mean any person
or entity other than (1) any employee plan established by PageNet, (2) PageNet
or any of its affiliates (as defined in Rule 12b-2 promulgated under the
Exchange Act), (3) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (4) a corporation owned, directly or indirectly,
by shareowners of PageNet in
6
<PAGE> 7
substantially the same proportions as their ownership of PageNet and (b)
"Beneficial Owner" shall have the meaning set forth in Rule 12d-3 under the
Exchange Act.
11. TERMINATION OR AMENDMENT OF PLAN.
(a) The Board may at any time terminate the Plan, or make such
changes in or additions to the Plan as it deems advisable without further action
on the part of the stockholders of the Company, provided: (i) that no such
termination or amendment shall adversely affect or impair any then outstanding
option or any shares at the time subject to options without the consent of the
optionee holding such option; (ii) no amendment shall adversely affect any
director's or beneficiary's rights to any director compensation deferred under
this Plan, without his consent, with respect to amounts credited prior to such
amendment; and (iii) that any such amendment which requires stockholder approval
in order to comply with applicable provisions of the Code, rules promulgated
pursuant to Section 16 of the Securities Exchange Act of 1934, applicable state
law, or NASD or exchange listing requirements shall be subject to approval by
the stockholders of the Company within one year from the effective date of such
amendment and shall be null and void if such approval is not obtained.
(b) Upon termination of the Plan, the remaining balance of the
directors' Deferred Compensation Accounts (as defined in Section 13 below) shall
be paid to the directors (or to their respective beneficiaries, as the case may
be), in lump sums as soon as practicable but no more than thirty (30) days
following the termination of the Plan.
12. DEFERRED ELECTIONS. Upon a director's election to the Board (or on
or prior to May 22, 1998, in the case of Deferral Elections to be made in
respect of 1998), and on or prior to the first day of each fiscal year of the
Company thereafter until a director ceases to be a director of the Company, each
director shall execute and file an annual election document (the "Deferral
Election") with the Treasurer of the Company, specifying whether or not such
director's annual retainer and meeting compensation for the year for which the
election is to be effective is to be deferred and if so, the investment option
to which the deferral shall be credited and the form, method and timing of
distribution of the deferrals. The Deferral Election shall control the
distribution of all amounts deferred pursuant to the Deferral Election and shall
be irrevocable as to such amounts. A Deferral Election must be made for each
year a director remains a director of the Company. Directors electing to defer
annual retainer and meeting compensation for any year may not make an election
under Section 4(b) of the Plan for such year, and any prior election made under
Section 4(b) shall have no effect on such deferred amounts. If a director fails
to execute and file a Deferral Election for any year, the director's annual
retainer and meeting compensation for that year would be paid to him as earned,
without deferral, pursuant to his election under Section 4(b) of the Plan.
7
<PAGE> 8
(a) Deferrals shall be no less than one hundred percent (100%) of
all compensation payable to a director in the year he elects to defer. In
addition, each director shall elect in his Deferral Election the percent of the
deferral that shall be credited among the deferral options (the "Deferred
Options") described below:
(i) credits ("Investment Fund Credits") equivalent to amounts
invested in such investment fund that is selected by the Committee for
this purpose, or in any other or additional fund or funds as the
Committee shall determine (each an "Investment Fund," and together the
"Investment Funds"); and
(ii) share units ("Share Units"), a unit equivalent to a share
of Common Stock of the Company (the "Common Stock").
Directors may elect to transfer their deferred compensation from one
Deferral Option to a different Deferral Option, including transferring
Investment Fund Credits from one Investment Fund to a different Investment Fund;
provided, however, that in no event may any such election become effective
sooner than six (6) months following the effective date of any prior transfer
election. A transfer election pursuant to this Subsection 12(a) shall be made in
the form of a document prescribed by the Committee to be executed by the
director and filed with the Treasurer of the Company.
Notwithstanding the foregoing, the Committee may, from time to time,
discontinue any of the Investment Funds described in clause (i) above. In such
event, each director shall execute an election in the form of a document
prescribed by the Committee and filed with the Treasurer of the Company, to
transfer the amounts deferred in the discontinued Investment Fund to such other
Deferral Options as the Committee shall make available at such time. In the
event that the director shall fail to timely elect a new Deferral Option, such
amounts shall be transferred to a Deferral Option that the Committee deems
appropriate.
(b) Directors shall elect on the Deferral Election the form, method
and timing of distribution of amounts deferred hereunder. Distributions under
this Section 12 shall begin as soon as practicable following the date specified
in each director's Deferral Election, but may not begin earlier than thirty (30)
days after the date on which a director ceases to be a director for any reason;
provided, however, that in no event may distribution commence later than thirty
(30) days after the date on which a director attains age seventy (70). Such
payment shall be made, pursuant to the director's election in the Deferral
Election, (i) in the form of a lump-sum payment or (ii) in substantially equal
annual installments over a period not to exceed fifteen (15) years. If a
director elects installment payments, the unpaid balance thereof shall continue
to accrue interest, earnings and dividend equivalents, computed in accordance
with the provisions of Section 13 below, and shall be prorated and paid over
the installment period. Notwithstanding the foregoing, in the event a director
ceases to be a director of the Company for any reason other than retirement or
his death, the total amount credited to his Deferred Compensation Account as of
such
8
<PAGE> 9
date shall be payable to the director in a lump sum as soon as practicable
following such date.
A director may change his prior distribution election at any time, and from
time to time; provided, however, that any such distribution election shall not
become effective until the first (1st) anniversary of the date such distribution
election is made; and provided, further, that no distribution election with
respect to the distribution of amounts attributable to any deferral will be
effective if the director is, or is scheduled to be, receiving distributions
with respect to such deferral within one (1) year following the date such
subsequent distribution election is made. In the event an election does not
become effective, the prior valid election of such director shall govern the
form, method and timing of distribution.
A director shall elect on the Deferral Election, with respect to Share
Units, to receive amounts so credited in cash, in shares of Common Stock, or in
any combination thereof.
The amount to be paid in cash with respect to distributions of Share Units
shall be equal to the product of (a) the number of Share Units in respect of
which payment is to be made, and (b) the price of a share of Common Stock on
The Nasdaq Stock Market during such period immediately preceding the date of
distribution, as the Company shall determine.
(c) If a director fails to make a valid timely election with
respect to method of payment, the director shall receive the total amount
credited to his Deferred Compensation Account in ten (10) substantially equal
annual installments. If a director fails to make a valid timely election with
respect to timing of payment, distribution shall commence thirty (30) days after
the date on which the director attains age seventy (70). If a director fails to
make a valid timely election with respect to whether payment shall be in cash or
in shares of the Common Stock, those amounts credited as Share Units shall be
distributed in shares of Common Stock, and all other amounts credited shall be
distributed in cash.
(d) In the event a director dies prior to the distribution of any
or all of such director's Deferred Compensation Account, all amounts credited to
such account shall be paid to the beneficiary designated in writing at any time
or from time to time by the director with the approval of the Company or,
failing such a designation, to the spouse, children (per stirpes), parents or
estate (in that order) of the director (all such entities being herein included
within the term "beneficiary"). Such distribution shall be made in the form and
at such time as was applicable to the director; provided, however, that the
director's beneficiary may elect to receive the balance of the director's
Deferred Compensation Account in an immediate lump-sum distribution, and in the
form of cash or in shares of Common Stock, or in a combination thereof.
9
<PAGE> 10
13. DEFERRED ELECTION CREDITS. During such period as amounts are
standing to the credit of a director hereunder, with respect to each such
director, the Company shall credit to a book reserve account (the "Deferred
Compensation Account") established for this purpose the amount deferred by such
director under Section 12 above.
(a) Amounts credited to a director's Deferred Compensation Account
with respect to each Investment Fund shall be credited with interest and
earnings (including gains and losses) equivalent to the amounts that would have
accrued during such period had the amount so credited been actually invested in
such Investment Fund. Interest and earnings on such amounts shall be computed
from the date such deferrals are credited to the Deferred Compensation Account
through the date of distribution to a director or his designated beneficiary, in
accordance with Subsection 12(d) above.
(b) If amounts are deferred as Share Units, then the number of
such Share Units shall be determined on the basis of the price of the Common
Stock on The Nasdaq Stock Market during such period immediately preceding and/or
immediately following the date the Share Units are credited, as the Company
shall determine.
(c) As of each payment date for dividends, if any, on Common Stock
with respect to which Share Units are standing to the credit of a director until
the director's entire Deferred Compensation Account has been distributed, such
Deferred Compensation Account shall be credited with dividend equivalents equal
to the sum of all cash dividends, if any, that such director would have received
on such date, had the director been the owner of a number of shares of Common
Stock equal to the number of Share Units in the director's Deferred Compensation
Account on the record date for such dividend. The amount so credited shall be
converted into additional Share Units with the number of Share Units being
determined on the basis of the price of Common Stock on The Nasdaq Stock Market
during such period immediately preceding and/or immediately following the
payment date for the dividend, as the Company shall determine.
14. DEFERRED ELECTION -- MISCELLANEOUS.
(a) Title to, and beneficial ownership of, any assets, whether in
cash or otherwise, that the Company may designate to pay the deferred
compensation hereunder shall at all times prior to payment remain an asset of
the Company, and neither a director nor his designated beneficiary shall have
any property interest whatsoever in any specific assets of the Company.
(b) If the director so requests and if the director provides
satisfactory evidence of financial hardship, the Company may, in its sole and
absolute discretion, permit a distribution of all or a portion of the director's
Deferred Compensation Account prior to the date on which payments would have
commenced under Section 12 hereof.
10
<PAGE> 11
(c) If the Company shall be adjudicated or determined to be
insolvent by a court of competent jurisdiction, either in bankruptcy or
otherwise, the amount credited to each director's Deferred Compensation Account
on the date of such proceeding shall constitute a debt of the Company to each
such director in any such proceeding.
(d) Except as otherwise required by applicable law, no rights under
the Plan as to deferred compensation, contingent or otherwise, shall be
assignable or subject to any encumbrance, pledge or charge of any nature, except
that, under such rules and regulation as the Company may establish, a director
may designate a beneficiary to receive, in the event of death, any amount that
would otherwise have been payable to such director or that may become payable on
account of, or following, his death except that, if any amount shall become
payable to the executor or administrator of such director's estate, then such
executor or administrator may transfer the right to the payment of any such
amount to the person, persons or entity (including a trust) entitled thereto
under the will of such director or, in case of intestacy, under the laws
relating to intestacy. Directors shall not have any interest in any funds or
specific assets of the Company, except as expressly provided herein.
(e) Nothing contained in this Plan and no action taken pursuant to
the provisions of this Plan shall create or be construed to create a trust of
any kind or fiduciary relationship between the Company and a director, his
designated beneficiary, or any other person. To the extent that any person
acquires a right to receive payments from the Company under this Plan, such
rights shall be no greater than the right of any unsecured general creditor of
the Company.
15. INTERPRETATION. The Company intends that transactions under this
Plan will be exempt under amended Rule 16b-3 promulgated under Section 16 of the
Securities Exchange Act of 1934, as amended, unless otherwise determined by the
Company.
11
<PAGE> 1
EXHIBIT 12
PAGING NETWORK, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Earnings:
Net loss ................................... $(92,372) $(37,314)
Fixed charges, less capitalized interest ... 43,302 43,460
-------- --------
Earnings ................................ $(49,070) $ 6,146
======== ========
Fixed charges:
Interest expense, including interest
capitalized ........................... $ 40,245 $ 38,355
Amortization of deferred financing costs ... 1,112 2,471
Interest portion of rental expense ......... 6,524 5,634
-------- --------
Fixed charges ........................... $ 47,881 $ 46,460
======== ========
Ratio of earnings to fixed charges ......... $ -- $ --
======== ========
Deficiency of earnings available to cover
fixed charges .......................... $(96,951) $(40,314)
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,374
<SECURITIES> 0
<RECEIVABLES> 69,917
<ALLOWANCES> 7,969
<INVENTORY> 26,055
<CURRENT-ASSETS> 109,717
<PP&E> 1,292,147
<DEPRECIATION> (441,994)
<TOTAL-ASSETS> 1,534,416
<CURRENT-LIABILITIES> 159,604
<BONDS> 1,781,431
0
0
<COMMON> 1,033
<OTHER-SE> (426,408)
<TOTAL-LIABILITY-AND-EQUITY> 1,534,416
<SALES> 4,786
<TOTAL-REVENUES> 255,750
<CGS> 21,103
<TOTAL-COSTS> 291,252
<OTHER-EXPENSES> 35,767
<LOSS-PROVISION> 4,724
<INTEREST-EXPENSE> 36,778
<INCOME-PRETAX> (92,372)
<INCOME-TAX> 0
<INCOME-CONTINUING> (92,372)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (92,372)
<EPS-PRIMARY> (0.90)
<EPS-DILUTED> (0.90)
</TABLE>
