SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996.
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to ___________
Commission file number 1-13002
PAGING PARTNERS CORPORATION
(Name of small business issuer as specified in its charter)
Delaware 22-3281446
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Freehold Office Plaza
4249 Route 9 North, Building 2
Freehold, New Jersey 07728
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 409-7088
Securities registered under Section 12(b) of the Securities Exchange Act
of 1934:
Name of each exchange
Title of Each Class on which registered
------------------- -------------------
Common Stock, $0.01 par value Boston Stock Exchange
Securities registered under Section 12(g) of the Securities Exchange Act
of 1934:
Title of Each Class
-------------------
None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the securities Exchange Act of 1934 during the past 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. |X| Yes |_| No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X| Yes |_| No
The revenues of registrant for the fiscal year ended December 31, 1996
were approximately $6,910,000.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of March 21, 1997, was approximately $3,319,000 based upon a
last sales price of $1.125
As of March 21, 1997, there were 6,265,000 shares of the registrant's
Common Stock outstanding.
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PART I
ITEM 1. BUSINESS
General
Paging Partners Corporation (the "Company" or "Paging Partners") operates
technologically advanced paging systems which provide one-way wireless messaging
services. The Company's Metro system, which broadcasts on 931.7875 MHz (The
"Metro System"), initially focused on the New York Metropolitan area and
currently provides service over portions of seven states (New York, New Jersey,
Connecticut, Pennsylvania, Maryland, Virginia and Delaware) and Washington, D.C.
The Company commenced construction of its Metro System in November 1990 and
initiated service in June 1991.
During 1994 the Company obtained licenses from the Federal Communications
Commission ("FCC") to construct a paging system (its "Corridor System")
operating on a single frequency (929.6375 MHz) in the territory extending along
Interstate I-95 from Baltimore/Washington to Boston (the "Northeast Corridor").
The Company has completed sufficient construction of the Corridor system to
ensure exclusive operation on the 929.6375 MHz frequency throughout the
Corridor, including the metropolitan areas of Baltimore/Washington, D.C.,
Philadelphia, New York, and Boston and now provides continuous service from
Boston to Washington, D.C. Because the Corridor System is independent of the
company's Metro System, the Company continues to operate both Systems, and has
the flexibility to provide Resellers customized access to service on either
System.
The Company has recently been granted licenses by the FCC for a third 900
MHz frequency covering most of the I-95 Northeast Corridor. In connection with
this grant, the Company has entered into a sharing agreement with another
carrier which was granted licenses for the frequency covering substantially the
same territory. Pursuant to this sharing agreement, the Company may use up to 50
percent of the available air-time.
The Company does not market its services directly to paging subscribers.
The Company acts exclusively as a wholesaler and offers access to its wireless
communications systems to paging service companies, retailers and other third
parties which, in turn, directly solicit and service subscribers. In addition,
the Company solicits private network operators, radio common carriers ("RCC")
and other service providers (collectively with the paging service companies,
retailers and other parties described in the preceding sentence, "Resellers")
which have a need for access to transmission facilities in the territories
served by the Company's systems. Because the Company does not compete with
Resellers for the business of subscribers, management believes Resellers are
more likely to sell the Company's services than those of vertically integrated
paging system operators, although there can be no assurance that this, in fact,
is the case. The Company believes that by working exclusively with Resellers it
can successfully develop and market its paging systems without the costs of the
in-house sales and service personnel otherwise necessary to solicit and service
individual subscribers.
By utilizing technologically advanced transmission systems, the Company
emphasizes and has been successful in providing high quality services targeted
toward the higher end of the paging market - pagers which receive alphanumeric
messages (i.e., messages consisting of both numbers and letters). Consequently,
the proportion of the pagers serviced by the Company which are alphanumeric far
exceeds the industry average. As part of its emphasis on data transmission and
alphanumeric services, the Company is developing proprietary software which will
enable the Company to format and transmit large quantities of information
received from multiple sources so that Resellers can offer subscribers the
ability to receive customized information on topics preselected by the
subscriber.
The Company's emphasis on alphanumeric services is highlighted by its
AlphaPlus(R) software and services, and more recently, by its agreement with
Motorola whereby the Company broadcasts over its systems branded information
services made available to it by Motorola. AlphaPlus allows subscribers to
select from information services provided by the Company (such as customized
message dispatch, traffic, sports, weather, financial updates, and news
headlines), the content to be received by their pagers. The Company's agreement
with Motorola will allow it to supplement its AlphaPlus offerings by making
available over its Systems branded information services developed by Motorola
through its alliances with leading service providers. The first of these
services, ESPNET.To.Go(TM), was made available in May, 1996 followed by CNBC
Street Line(TM) in January 1997.
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Background; Strategy
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
wireless communications services. Over the years, technological advances,
including the use of computerized devices to transmit and receive messages, have
enhanced the capacity of pagers to transmit, receive and store large volumes of
data. Consequently, pagers and the paging industry have evolved from the
familiar single alert tone "beeper" providing service to a small network of
doctors and other professionals to include a wide array of devices capable of
receiving and storing substantial amounts of data.
In recent years, the paging industry has placed an increased emphasis on
data transmission services as both businesses and consumers have found new
applications for paging receivers. Technological advances and changing business
and consumer demands are rapidly expanding the market from traditional pagers
("beepers") to one which includes alphanumeric pagers capable of receiving and
storing thousands of characters, as well as a wide variety of wireless data
receivers.
From inception, the Company's principal operating strategy has been to act
as a wholesaler and market access to its transmission systems to Resellers
which, in turn, directly solicit and service subscribers. As part of this
strategy, the Company has determined not to market its transmission system
directly to individual subscribers. This permits the Company to operate with
less personnel than vertically integrated paging companies and removes the
threat of competition between the Company and substantially all of its
Resellers. The Company directly solicits service providers, including private
network operators and other RCCs, which have a need for bulk paging or data
transmission services in the territory served by the Company's transmission
facilities. Such accounts are typically given direct access to the Company's
computers. Consequently, day-to-day servicing of such accounts does not require
intervention by the Company's personnel.
Another key strategy of the Company has been to concentrate on providing
data and information transmission services targeted toward the higher end of the
market. One aspect of this strategy has been the Company's focus on developing
technologically advanced systems designed for alphanumeric paging services.
Successful marketing of alphanumeric services requires the ability to deliver a
signal which will not be corrupted. The Company's Metro and Corridor systems
were designed and constructed to address the needs of alphanumeric subscribers.
The success of the Company's efforts to stress its alphanumeric capabilities is
evidenced by the fact that the proportion of alphanumeric pagers which it
services far exceeds the proportion of alphanumeric pagers in service throughout
the industry.
Another element of the Company's strategy is its willingness to adapt its
transmission facilities for applications demanded by the marketplace. Because
the Company acts as a wholesaler, it does not dictate the services offered
subscribers or the uses made of its Systems by parties with a need for bulk
paging. By maintaining flexible technologically advanced Systems, the Company
hopes to be able to satisfy the evolving needs of the wireless marketplace.
In the immediate future, the Company intends to continue to expand by
adding Resellers and hence new subscribers to its Metro and Corridor Systems. As
part of its strategy to increase the penetration of its Systems the Company will
continue to seek to increase and customize the information services available to
subscribers. As part of this effort, the Company will seek to develop
proprietary software which will enable it to format and transmit large volumes
of information received from multiple sources so that Resellers can offer
subscribers the ability to receive customized information on topics preselected
by the subscriber. In addition, the Company will consider licensing to the
operators of other paging systems the right to use its proprietary software.
Examples of the Company's efforts in this area include its AlphaPlus(R) software
and services, and its agreement with Motorola regarding branded information
services.
In addition to providing paging services in the Northeast Corridor, the
Company, from time to time, may consider entering new geographical markets. Such
expansion could occur through the acquisition of new licenses in auctions
conducted by the FCC or the acquisition of existing paging systems, including
licenses, from current license holders.
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Paging Operations
Subscriber Services
The pagers currently used by subscribers to the Company's Systems provide
two basic types of service, digital display and alphanumeric display - each of
which can be combined with a variety of enhancements to increase a pager's
utility. A digital display pager permits a caller, utilizing a touch tone
telephone, to transmit to the subscriber a numeric message consisting of a
series of numbers, such as a telephone number, an account number or coded
information. Digital display pagers have the capacity to store several numeric
messages that can be recalled on demand. An alphanumeric display pager allows
subscribers to receive and store messages consisting of both numbers and
letters. Alphanumeric pagers common in the industry today have sufficient memory
to store thousands of characters.
Digital display paging service, which was introduced by the paging
industry over 10 years ago, today represents a majority of the pagers in
service. Alphanumeric display service, introduced in the mid-1980s, constitutes
a relatively small portion of the pagers in use, primarily due to the difficulty
of accurately inputting the message to be delivered and in ensuring accurate
receipt of the message by the subscriber's pager. The success of the Company's
focus on alphanumeric services is evidenced by the fact that of the pagers
served by the Company, over 30% are alphanumeric as compared to an industry
average of approximately 10%.
Traditionally, the message to be delivered to an alphanumeric pager was
transcribed by an operator of the paging company during a telephone conversation
with the party desiring to send the message. Today, a properly equipped
transmission facility, such as the Company's, permits callers to input messages
directly into the transmission facility either by using a personal computer
equipped with a modem or a dedicated input device such as an AlphaMate(TM)
manufactured by Motorola. For those parties lacking such equipment, the Company
assigns to subscribers a telephone number answered at a dispatch center selected
by the subscriber which will take a message when a party calls the subscriber's
pager telephone number seeking to send an alphanumeric message. To ensure that
data transmitted is received accurately by the subscriber's pager, the Company
designs and operates its system so that its transmitters send out a synchronized
radio signal. This reduces interference and increases the probability that the
message will be received accurately.
The Company's AlphaSelectSM software allows Resellers to select several
independent alphanumeric dispatch companies (i.e., companies that have the
equipment necessary to properly input alphanumeric messages into the Company's
central computers) for their subscribers. The AlphaSelectSM software was
designed exclusively for the Company, and enables Resellers not only to provide
a choice of several dispatch companies, but also to provide subscribers with the
opportunity to select a private "800" or local telephone number with a custom
answer phrase of their choosing.
Message Mail is an enhancement that allows a Reseller to add a custom
greeting to a pager and which gives the subscriber the ability to retrieve the
last ten numeric messages that were sent to the pager. In addition, the Company
provides a feature that enables a caller to leave a voice (voice mail) message
for a subscriber which the subscriber can retrieve by calling his voice mail box
at the Company's facility. A subscriber's pager displays a numeric code alerting
the subscriber whenever a voice mail message is left.
As part of its AlphaPlus(R) service, the Company transmits a variety of
information services which Resellers can sell to their subscribers. This service
allows subscribers to receive information on their alphanumeric pagers which
they can review at their convenience. Currently, the information provided by the
Company includes headline news stories, hourly financial updates, sports scores
and a variety of other "infotainment" items purchased by the Company from
various third party information providers. The Company provides additional
premium information services, including more detailed sports, weather,
financial, traffic and emergency information, which Resellers can sell to
individual subscribers. The Company has entered into an arrangement with
Motorola whereby the Company will make available branded information services
developed by Motorola through its alliance with leading information service
providers. The Company began transmitting the first of these, ESPNET.To.Go,(TM)
in May, 1996 followed by CNBC Street Line(TM) in January 1997. The Company
intends to transmit additional information services as they are made available
by Motorola, as well as services supplied by other providers.
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The Company's programming software allows the subscriber (through its
Reseller) to select any of the enhancements offered by the Company at the
initial programming of a pager or at any time that the pager is in service. In
addition, because the Company has incorporated Motorola's FLEX(TM) OTA (over the
air) technology into its systems, a subscriber need not bring his pager to the
Reseller for adjustments when he decides to add on new enhancements. The Company
constantly monitors the paging market to determine what new enhancements it
might successfully sell to Resellers.
Network Services
In addition to marketing its paging Systems and related services to
Resellers, the Company also markets these Systems to private network operators,
RCCs and service providers which have a need for bulk paging or data
transmission services in the territories serviced by the Company's transmission
facilities. The Company has entered into arrangements with other RCCs and
private network customers, permitting such parties to "network" their systems
with the Company's and expand the coverage offered to their end users. More
recently, the Company has allowed Resellers to directly connect their switches
into the Company's terminal, permitting Resellers to service their subscribers
through the Company's Systems. The Company charges for such access on either a
fixed fee or per-usage basis.
The Company has also entered into arrangements with specialized
information providers (for example, sports scores/lines, stock quotes, emergency
information) which have a "niche" subscriber base but which do not have their
own transmission facilities, whereby the Company transmits data selected by the
information provider for receipt by that provider's customers. Each of these
arrangements differs depending upon the amount of data to be transmitted and
time of transmission. By maintaining technologically sophisticated flexible
transmission systems, the Company hopes to profit from new applications of
wireless information services as they are developed.
Marketing
Rather than solicit and service individual subscribers directly, the
Company recruits Resellers which, in effect, act as the Company's salesforce.
The Resellers purchase from the Company, on a wholesale basis, access to its
transmission system which, in the case of paging service providers and
retailers, they provide to individual members of the general public. The Company
recruits Resellers through industry contacts, its seminar program, and a small
sales force.
Management believes that Resellers are attracted to the Company because of
the quality of coverage provided by its paging systems, the computerized nature
of the Company's operations, which allows the Reseller 24-hour access to its
accounts, and the responsiveness of the Company to each of its Resellers. In
addition, because the Company incorporated Motorola's FLEX OTA technology into
its systems, a Reseller can change the services received by a subscriber without
requiring the subscriber to bring his pager in for adjustment.
As part of its marketing efforts, the Company conducts seminars for
Resellers, potential Resellers and other interested members of the paging
industry. These programs give the Company an opportunity to maintain contact
with each of its Resellers. Further, they afford the Company the opportunity to
update Resellers on the service enhancements available. The Company provides
technical, marketing, sales and operations support to its Resellers and will
participate with Resellers in their efforts to solicit large volume subscribers.
The Company employs sales representatives to directly solicit Resellers in their
respective territories.
The Company's current Resellers are from both within and without the
communications industry. The Resellers include answering services, two-way radio
companies and other participants in the communications industry seeking to
expand the services offered to their customers; nationwide paging companies
which rely upon the Company to service their customers in territories serviced
by the Company's Systems; private network operators and other radio common
carriers which supplement their transmission facilities by networking into the
Company's facilities; retailers, electronics distributors and other specialty
retail outlets seeking to supplement their product lines and information
providers which rely on the Company to transmit information to their
subscribers. The Company has constructed both of its paging Systems as a series
of interconnected modules, which allows the Company to give Resellers the
ability to offer services to subscribers in only those portions of the service
area which the subscriber designates. The Company makes such subregional
services available at rates below those for service throughout the Company's
service area.
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When a Reseller decides to market the Company's services, it is provided
with on-line access to the Company's computer terminal and can directly
activate, deactivate or modify the services provided to a subscriber's pager.
Because the Reseller, through its computer terminal, interacts directly with the
Company's computers, there is no incremental cost to the Company. Further,
because the Company's computers are active 24 hours a day, Resellers can service
accounts at their convenience.
As a convenience to its Resellers, the Company maintains an inventory of
pagers and Resellers can either purchase pagers from industry suppliers or
purchase pagers from the Company. Each Reseller maintains its own sales,
marketing and accounting staff and directly services, bills and collects
payments from its subscribers. The Company derives the majority of its revenue
from a per-unit monthly fee, not dependent on usage, charged to Resellers for
each active pager. This fee, along with any other amounts due for incremental
services provided to a subscriber, must be paid by the Reseller regardless of
whether the subscriber pays the Reseller. Because each Reseller has direct
access to the Company's computers, billing disputes between the Company and its
Resellers, common throughout the industry, are virtually eliminated.
The Company is not dependent on any single Reseller. No single Reseller
accounted for more than 5% of the Company's gross revenues during 1995 or 1996.
Sources of Equipment
The Company does not manufacture any of the pagers or related transmitting
and computerized paging terminal equipment used in its operations, all of which
are available from a variety of sources. The Company anticipates that pagers and
paging equipment will continue to be available to the Company, its Resellers and
subscribers in the foreseeable future, consistent with normal manufacturing and
delivery lead times. Due to the high degree of compatibility among different
models of transmitters, computers and other paging and voice mail equipment
available from suppliers, the Company has been able to design its paging
networks so as not to be dependent upon any single source for such equipment.
To achieve cost savings from volume purchases and simplify inventory
control, the Company currently purchases substantially all of its pagers from
Motorola. Although this makes the Company dependent on Motorola's lead times in
ensuring that it has sufficient inventory, the Company has not, to date,
experienced significant delays as a result of such lead times. Nevertheless,
there can be no assurance that it will not experience such delays in the future.
The Company currently purchases its transmitters and paging network
equipment from Motorola. The Company's terminal equipment has a modular design,
which will allow significant future expansion by adding or replacing modules
rather than replacing the entire system. The Company believes that its
investment in technologically advanced transmission equipment reduces its cost
of maintenance and system expansion over the long term. The Company believes
that its paging system equipment is among the most technologically sophisticated
in the paging industry.
Data Receipt and Transmission
A key strategy of the Company has been to emphasize the utility of pagers
and devices equipped with paging receivers to receive large volumes of data on a
timely and economical basis. In furtherance of this strategy, the Company
transmits a variety of information streams, including headline news stories,
hourly financial updates, sports scores, traffic, weather and an assortment of
what is referred to as "infotainment," for receipt by its subscribers.
Additional categories of information are added periodically in response to
market demand.
As part of its emphasis on data transmission, the Company continues to
seek to develop software capable of receiving large volumes of information,
analyzing the information to determine what is relevant to a particular
subscriber and then reformatting the information for transmission over the
Company's systems for receipt by subscribers. Fully developed, such software
would allow a paging receiver to function as a personal information device
receiving an individualized data stream selected by the subscriber and broadcast
over the Company's systems.
To increase the visibility of its AlphaPlus(R) services, the Company
entered into an agreement with Motorola whereby the Company will make available
to subscribers branded information services developed by Motorola through its
alliances with leading service providers. The first of these services,
ESPNET.To.Go(TM), was made available in May 1996, followed by CNBC
StreetLine(TM) in January 1997.
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In addition to attracting subscribers to the Company's Systems, management
believes that the software developed in connection with the Company's
AlphaPlus(R) services may be of interest to other radio paging system operators.
Consequently, the Company will seek to profit from the information market by
distributing to other system operators preprocessed information for transmission
to their subscribers or processing software developed by the Company.
In addition to information services broadcast by the Company, the
Company's systems have been designed to allow subscribers to send information
for receipt on their pagers. Developments in software and information processing
equipment, such as the Motorola AlphaMate(TM), allow subscribers to a properly
equipped facility, such as the Company's, to receive messages sent by an
appropriate device directly to the operator's facility for transmission to the
subscriber. Such a facility allows a subscriber to receive messages directly
from his office without the possibility of transcription errors. In addition,
existing technology permits information broadcast over a paging system to be
received on a computer equipped with a paging modem. Management anticipates that
as paging systems evolve they will be capable of transmitting virtually all
electronic data currently transmitted over traditional telephone lines.
Competition
The Company faces intense competition from operators of other wireless
transmission systems in its efforts to recruit Resellers. Such competition is
based upon price, as well as on the quality and variety of services offered, and
the geographic area covered. The Company's Resellers in turn face intense
competition from operators of other wireless message transmission system as well
as the Resellers representing such systems. Many of the competitors of the
Company and its Resellers, which include local, regional and national paging
companies, possess greater financial, technical and other resources than the
Company. Certain competitors offer wider coverage than does the Company and
certain competitors follow a low-price discounting strategy to expand market
share.
Management believes that the quality of the service the Company provides,
as well as the variety of enhancements offered, appeal to Resellers. To date,
the Company has focused its efforts on providing higher end alphanumeric and
data transmission services. The merits of this strategy are attested to by the
fact that the proportion of the pagers served by the Company which are
alphanumeric far exceeds the proportion of pagers throughout the industry which
are alphanumeric. Moreover, management believes that because the Company
concentrates on Resellers and does not maintain a competitive sales force,
Resellers are more likely to rely upon the Company than on its competitors,
although there can be no assurance this, in fact, is the case. Further, because
the Company does not compete with Resellers, the Company provides more
responsive service to Resellers, which leads to improved loyalty and makes the
Company more attractive to potential Resellers.
The Company's Metro System competes with at least ten other paging system
operators in the New York metropolitan area and others throughout its coverage
area. These include systems operated by Paging Network, Inc., Mobilemedia
Communications, Inc., a division of MobileMedia Corporation, and SkyTel, a
division of Mobile Telecommunications Technologies Corp., as well as systems
operated by privately owned companies. The Company's Corridor System competes
with several or more competitors in all regions of the Northeast Corridor. Some
of these competitors are small, privately owned companies serving only one
market area, while others are larger companies, including those mentioned above,
that provide service in more than one market and, in some cases, continuous
coverage throughout the Northeast Corridor of the United States.
A number of technologies, including cellular telephone service, personal
communications service ("PCS"), enhanced specialized mobile radio, low-speed
data networks and mobile satellite services are competitive forms of technology
used in, or projected to be used for, wireless one-and two-way communications.
Management believes that paging will remain one of the lowest-cost forms of
wireless messaging due to the low-cost infrastructure associated with paging
systems, as well as advances in technology that will provide for reduced paging
costs.
Future technological developments in the wireless communications industry
and the enhancement of current technologies will likely create new products and
services competitive with the paging services currently offered by the Company.
There can be no assurance that the Company will not be adversely affected by
such technological changes.
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Regulation
The Company's paging operations are subject to regulation by the FCC under
the Communications Act of 1934, as amended (the "Communications Act") and the
Telecommunications Act of 1996. Prior to August 1996, paging services were
primarily offered over radio frequencies that the FCC allocated for either
common carriage [the licensees for which are known as radio common carriers
("RCCs")], or private carriage [the licensees for which are known as private
carrier paging operators ("PCPs")]. RCCs are granted an exclusive license to a
particular radio frequency in a particular locality or region. In 1994,
qualified PCPs were granted authority to obtain exclusive use of their licensed
frequencies. The Company operated its Metro System pursuant to RCC licenses. The
Company's Corridor System was operated pursuant to PCP licenses, but the Company
has been granted exclusive use of its regional PCP frequency throughout the
Northeast Corridor.
The Omnibus Budget Reconciliation Act of 1993 (the "Budget Act"), amended
the Communications Act by eliminating many of the distinctions between RCC's and
PCP's and by creating a new category called commercial mobile radio services
("CMRS"). In general, changes caused by the creation of the commercial mobile
radio services category affecting current paging services (i.e., those utilized
frequencies allocated by the FCC as of January 1, 1993) became effective in
August 1996, as determined by the FCC Rules. In March of 1994, the FCC
promulgated regulations to implement these new statutory requirements. Further
regulations went into effect on January 2, 1995. In August 1996, PCP licensees
became subject to the same obligations as RCC's.
The Company operates its paging systems pursuant to licenses granted by
the FCC. Licenses issued by the FCC set forth the technical parameters, such as
power output and tower height, under which the Company is authorized to use its
allocated frequencies. The FCC licenses granted to the Company are for varying
terms of up to 10 years, at the end of which time renewal applications must be
approved by the FCC. Most of the Company's current licenses begin expiring in
1999. FCC renewals are routinely granted in most cases upon a demonstration of
compliance with FCC regulations and adequate service to the public. Although the
Company is unaware of the existence of any circumstances which would prevent the
grant of any pending or future renewal applications, no assurance can be given
that the Company's licenses will be renewed by the FCC in the future.
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 Budget Act also amended the Communications Act to authorize the FCC to
use competitive bidding to issue initial licenses for the use of frequencies for
which there are mutually exclusive applications and where the license will be
used to offer service for compensation. The FCC has stated that the future
issuance of CMRS licenses will generally be subject to competitive bidding,
though competitive bidding will not be required of the renewal of existing
licenses. On February 8, 1996, the FCC froze all applications for new licenses
and major modifications to existing licenses on the 929 and 931 Mhz frequencies.
In February 1997, the FCC issued a Report and Order setting forth its geographic
licensing rules and auction procedures. This action was taken in anticipation of
geographic licensing and possible auction of licenses for the affected
frequencies. Competitive bidding requirements for such licenses in any market
could increase the company's cost of entry into that market to the extent of
prevailing market prices for such licenses, but may result in a more efficient
granting of licenses. The FCC has also imposed a new structure of regulatory
fees, which the Company will have to pay with respect to its FCC licenses. The
Company believes that these regulatory fees will not have any material adverse
effect on the Company's business.
The Communications Act requires licensees such as the Company to obtain
prior approval from the FCC for the assignment of any station license or the
transfer of control of any entity holding such licenses. The Communications Act
also requires prior approval by the FCC of acquisitions of paging companies. The
Company also applies for FCC authority to use frequencies, modify the technical
parameters of existing licenses, expand its service territory and provide new
services. Although there can be no assurance that any requests for approval or
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, the Company
has no reason to believe any such requests, applications or relief will not be
approved or granted.
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The Communications Act limits foreign ownership of entities that hold
certain licenses from the FCC. Because of this limitation, no more than 20% of
the Company's stock may be owned directly or voted by non-U.S. citizens or their
representatives, a foreign government or its representatives, or a foreign
corporation, and none of the Company's officers or directors may be non-U.S.
citizens. The Company believes that the foreign ownership of its stock is well
below the 20% limitation referred to above. If the Company obtains knowledge
that the foreign ownership of its stock exceeds 20%, it would have to either
seek approval from the FCC for the additional foreign ownership or redeem Common
Stock at its current market value from foreign shareholders in an amount
sufficient to reduce such ownership to below 20%. Presently, both Congress and
the FCC are reviewing the viability of this foreign ownership limitation.
In connection with state regulation under the amendments to the
Communications Act included in the Budget Act, states generally are prohibited
from regulating the entry of or the rates charged by any commercial mobile radio
service provider. The new law does not, however, prohibit a state from
regulating other terms and conditions of commercial mobile radio services. These
new statutory provisions took effect in August 1994.
From time to time, legislation and regulations which could potentially
affect the Company, either beneficially or adversely, are proposed by federal
and state legislators and regulators. As stated above, management is currently
aware of the FCC's Report and Order on geographical licenses and auctions which
could have a material adverse impact on the Company's ability to expand its
operations. However, management is not aware of any such legislation or
regulations which would have a material adverse impact on the Company's current
operations. The foregoing does not purport to be a complete summary of all
present or proposed regulations or legislation relating to the Company's paging
operations.
Employees
As of March 21, 1997, the Company had 26 full-time employees and one
part-time employee. The Company believes that its relationships with its
employees are generally good.
ITEM 2. PROPERTY
The Company's principal office is located in approximately 4,300 square
feet of leased space at Freehold Office Plaza, 4249 Route 9 North, Building 2,
Freehold, New Jersey. The fixed rent on the lease, which expires August 31,
1999, is currently approximately $71,000 per year. The fixed rent will increase
approximately 6% on September 1, 1997. In addition to fixed rent, the lease
requires the Company to pay its proportionate share of certain maintenance
expenses and any increase in real estate taxes and insurance costs. The Company
leases approximately 230 locations for its transmitters on commercial broadcast
towers, buildings and other fixed structures. In addition, the Company leases
space in New York, Pennsylvania, Maryland, and Massachusetts, primarily to house
equipment related to its paging systems. The rental payable for such leases,
together with those for the Company's transmitter locations, aggregated
approximately $130,000 per month, as of December 31, 1996.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
9
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Warrants are traded over the counter on the
NASDAQ SmallCap Market under the Symbols PPAR and PPARW, respectively. Over the
counter market quotations reflect inter-dealer prices without mark-up, mark-down
or commissions, and may not represent actual transactions. The quarterly high
and low bid prices for the Company's Common Stock and Warrants for the past two
years as reported by the National Association of Securities Dealers, Inc., are
as follows:
Common Stock: 1995 Common Stock: 1996
Quarter High Low Quarter High Low
First Quarter 6 5/8 3 7/8 First Quarter 3 1/2 2 3/4
Second Quarter 4 1/8 2 1/2 Second Quarter 3 3/8 2 1/2
Third Quarter 3 3/8 2 1/2 Third Quarter 3 3/8 1 3/8
Fourth Quarter 3 21/32 2 1/2 Fourth Quarter 3 1/4 3/4
Warrants:
Quarter High Low Quarter High Low
First Quarter 1 5/8 3/4 First Quarter 1 3/16 3/4
Second Quarter 1 1/16 7/16 Second Quarter 1 1/8 5/8
Third Quarter 1 3/4 Third Quarter 3/4 3/8
Fourth Quarter 1 1/4 11/16 Fourth Quarter 11/16 1/16
On March 21, 1997, the closing bid prices of the Company's Common Stock
and Warrants were 1.125 and $.125, respectively. As of March 21, 1997, there
were approximately 80 record holders of the Company's Common Stock. The number
of record holders does not reflect the number of beneficial owners of the
Company's Common Stock for whom shares are held by banks, brokerage firms and
others. Based on information requests received from representatives of such
beneficial owners, management believes that there are at least 800 beneficial
holders of the Company's Common Stock. At the Company's request, trading in the
Company's Units was suspended in February, 1996.
Dividends
The payment of dividends is contingent upon the Company's revenues and
earnings, if any, capital requirements and general financial condition. The
payment of dividends is currently prohibited by the Company's Credit Agreement
with Motorola. It is the present intention of the Company's Board of Directors
to retain its earnings, if any, for use in the Company's business.
Recent Sale of Unregistered Securities
On May 7, 1996, the Company sold 857,143 shares of its Common Stock in a
private placement to a group of thirteen investors, including Allen & Company,
for an aggregate price of $1.5 million. In March 1997, the Company sold 515,000
shares of its Common Stock in a private placement to an institutional investor
and four of the Company's directors for an aggregate purchase price of $531,093.
Both of the foregoing placements were exempt from the registration requirements
of the Securities Act of 1933, as amended, by virtue of the exemption provided
in Section 4(2) of the Act. In both placements, the Company made offers only to
a limited number of investors who were approached directly by the Company or its
placement agent, the investors, each of whom was "accredited" (as that term is
defined in Regulation D) acknowledged that the shares had not been registered
under the Act and agreed that they could not be sold unless they were
10
<PAGE>
registered for sale under the Act or an exemption from registration was
available. Further, appropriate legends were affixed to the certificates
representing the shares and stop orders were given to the Company's stock
transfer agent.
In connection with the May 1996 placement, Bentley Securities Corporation
acted as placement agent for the Company and received a fee of $75,000.
11
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results Of Operations
The Table below presents certain items in the Company's statements of
operations in dollars and as percentages of total revenues and changes therein
for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995 Change
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Service 4,950,000 71.7 3,510 000 64.2 1,440,000 41.0
Equipment Sales 1,960,000 28.3 1,964,000 35.8 (4,000) (0.2)
---------- ----- ---------- ----- --------
Total Revenue 6,910,000 100.0 5,474,000 100.0 1,436,000 26.2
---------- ----- ---------- ----- --------
Operating Expenses:
Service 3,416,000 49.4 2,303,000 42.1 1,113,000 48.3
Cost of Equipment
Sold 2,136,000 30.9 2,110,000 38.6 26,000 1.2
Selling 1,250,000 18.1 1,072,000 19.5 178,000 16.7
General and
Administrative 1,608,000 23.3 1,544,000 28.2 64,000 4.0
---------- ----- ---------- ----- --------
8,410,000 121.7 7,029,000 128.4 1,381,000 19.6
---------- ----- ---------- ----- --------
EBITDA (1,500,000) (21.7) (1,555,000) (28.4) 55,000 3.5
Depreciation and
amortization 1,056,000 15.3 790,000 14.4 266,000 33.7
---------- ----- ---------- ----- --------
Loss from operations (2,556,000) (37.0) (2,345,000) (42.8) (211,000) (9.0)
Interest and other
expense (Income) 160,000 2.3 (7,000) (.1) 167,000 --
---------- ----- ---------- ----- --------
Net loss (2,716,000) (39.3) (2,338,000) (42.7) (378,000) (16.2)
---------- ----- ---------- ----- --------
</TABLE>
- ----------
The service component of revenue increased during the periods presented
reflecting the continuing penetration of both the Metro and Corridor Systems.
Service cost includes transmission site rentals, telephone interconnect
services, message dispatch costs, and the costs (mostly personnel-related) of
the Company's engineering function. The increases in such costs are primarily
attributable to an increase in the number of transmission sites, which grew from
145 at the beginning of 1995 to over 230 at the end of 1996; increased telephone
expenses reflecting both the growth in utilization of the Company's systems and
the initial infrastructure for the Corridor System; and increased message
dispatch costs resulting from greater alphanumeric penetration.
Equipment sales and cost of equipment sold were essentially unchanged in
1996 as compared to 1995. The Company continues to sell pagers as an
accommodation to Resellers and not as a source of profit but its competitors
have been offering even more aggressive pricing to certain Resellers, reducing
the Company's unit pager sales. Additionally, during the third quarter of 1996,
the Company determined it had excess inventory of certain types of pagers. This
excess has since been sold at reduced prices, widening loss margins on pager
sales. Management has streamlined the Company's product offerings to reduce the
likelihood of future excess inventory accumulation and to reduce the need for
working capital investment in pager inventory.
Selling expenses increased as a result of an increase in the number of the
Company's sales and marketing personnel from a peak of thirteen full-time
equivalent positions during 1995 to a peak of twenty during 1996. This increase
was partially offset by the elimination of the position of Vice President Sales
and Marketing as of July 1, 1996 and the market launching expenses for the
Corridor System incurred during the first half of 1995 which were not repeated
in 1996.
Increases in general and administrative expenses were driven by personnel
and salary increases, most notably the addition of a new Executive Vice
President/General Manager in June 1996.
12
<PAGE>
EBITDA reflects the Company's earnings (excluding interest and
non-operating items) before taxes, depreciation and amortization, and measures
the Company's operating cash flows, which the Company considers to be a
significant measure of performance. EBITDA is commonly used in the paging
industry and by financial analysts and others who follow the industry to measure
operating performance, but should not be considered in isolation or as an
alternative to measures of operating performance or cash flows pursuant to
generally accepted accounting principles. EBITDA did not change significantly
from 1995 to 1996 as expense growth kept pace with revenue growth during 1996.
Interest and other expense was $160,000 for the year ended December 31,
1996, mostly reflecting interest expense for the Company's equipment financing
with Motorola. This compares to interest and other income of $7,000 for 1995
reflecting interest income on unused proceeds of the Company's initial public
offering offset by a $50,000 write off of a joint venture investment.
Depreciation increased as the Company put into service equipment purchased
for the final portion of the Corridor System. Additionally, in recognition of
the faster pace of product obsolescence in the telecommunications industry, the
Company is depreciating this equipment more rapidly than in the past.
Net loss increased consistent with the increases in depreciation and
interest expense noted above.
Liquidity and Capital Resources
In May 1994 the Company completed its initial public offering of 1,800,000
Units from which it derived net proceeds of $8,942,000. In June 1995, the
Company secured $1.5 million of equipment financing from Motorola. Borrowings
under this financing bear interest at the 90-day commercial paper rate plus 6%
and are collateralized by the Company's assets. By the end of 1996 the Company
had utilized $1,468,000 of the amount available from Motorola. By the end of the
first quarter of 1996 the Company had expended substantially all of the proceeds
from its initial public offering. Consequently, in May 1996 the Company
completed a private placement of 857,143 shares of its Common Stock from which
it derived net proceeds of $1,300,000. In March 1997, the Company completed a
private placement of Common Stock from which it derived net proceeds in excess
of $500,000. In addition, in March 1997 the Company restructured the repayment
terms of its loan from Motorola and obtained an increase in this credit line to
$2.27 million.
By relying primarily upon Resellers to build its subscriber base, the Company
has been able to avoid many of the expenses associated with the solicitation and
servicing of subscribers. Nevertheless, the construction and initial operation
of a paging system requires substantial expenditures which can only be recouped,
if at all, from the subsequent operation of the system.. Consistent with the
Company's expectations, capital expenditures were $1,644,000 for 1995, primarily
as a result of the construction of the Company's Corridor System. Capital
expenditures continued to be significant ($770,000) during 1996 as the Company
supplemented its Corridor System. The Company used net cash of $1,039,000 in its
operations during 1996 as compared to $1,734,000 during 1995. This use of cash
reflects primarily the expenditures associated with the operation and initial
marketing activities related to the Corridor System and the Company's software
development efforts. The reduction in the use of cash from 1995 to 1996 reflects
management's efforts to decrease working capital requirements through
streamlining of pager inventory and more stringent receivable collection
policies.
In July 1995 the Company agreed to pay $340,000, $130,000 of which is payable
in service credits, in connection with the acquisition of licenses and related
assets intended to expand its Metro System to the Washington, D.C. market. Of
the $210,000 to be paid in cash, $185,000 has already been paid and $25,000 is
due during 1997.
13
<PAGE>
In August 1996 the Company was granted licenses by the FCC for a third 900
MHz frequency covering most of the I-95 Northeast Corridor. To date, the Company
has capitalized approximately $60,000 of professional and regulatory fees
incurred in connection with the grant of these licenses. In connection with the
grant of these licenses, the Company entered into a sharing agreement with
another carrier which was also granted licenses for this frequency covering
substantially the same territory. Pursuant to this sharing agreement, the
Company may use up to 50% of the available air time.
In March 1997, Motorola agreed to restructure the Company's loan to eliminate
principal payments during the first half of 1997 and to reduce the amount of the
principal payments by approximately $10,000 per month below their original level
during the second half of 1997. In connection with this restructuring, Motorola
also agreed to amend certain financial convenants to be consistent with the
Company's current business plan. Absent the modification of the covenants, the
Company would have been in default on its loan agreement with Motorola,
entitling Motorola to demand immediate repayment of all outstanding amounts. In
addition to rescheduling the principal payments due under the Company's loan,
Motorola also increased the amount available under this credit line from $1.5
million to $2.27 million.
In connection with the restructuring of the Company's loan, Motorola required
the Company to raise net proceeds of $500,000 in the form of equity or $700,000
of subordinated debt. To satisfy this condition, in March 1997, the Company sold
an aggregate of 515,000 of shares of Common Stock to an institutional investor
and four of the Company's directors for aggregate net proceeds in excess of
$500,000. Further, the Company agreed that if it were to fail to meet the
revised financial covenants, it would grant Motorola warrants to purchase up to
180,000 shares of Common Stock exercisable at a price of one cent per share, and
engage an investment banker to liquidate the Company. Management believes that
if the Company's business continues to improve as it has during the past six
months, it will meet the revised financial covenants in the Motorola loan.
On its Report on Form 10-QSB for the quarter ended June 30, 1996, management
noted that if the Company were to continue operating as it was then doing, the
Company would not have sufficient cash to achieve its business goals. Based upon
its assessment of the Company's operations, management altered some of the
Company's operating policies to reduce the Company's working capital needs and
elected to respond to the price-competitive environment of the paging industry.
Since the Company determined to simplify its pricing policies and offer
resellers discounts on incremental units in service, the Company's revenues have
increased consistently on a month-to-month basis.
To preserve its cash, the Company has adopted stringent collection procedures
and streamlined the categories of products included in inventory. In addition,
certain vendors were issued stock in satisfaction of amounts due from the
Company and members of management agreed to defer all or portions of their
salaries. As a result of the cash saving measures taken by management and the
growth in the Company's revenues, it appears that the Company will begin to
generate cash from operations during 1997. Of course, actual results may differ
as a result of factors over which the Company has no control, including
continued price and product competition by the Company's competitors or a
general slowing of the economy in the territory served by the Company's systems.
ITEM 7. FINANCIAL STATEMENTS
See Index to Financial Statements, Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
14
<PAGE>
PAGING PARTNERS CORPORATION
INDEX
Report of Independent Certified Public Accountants ......................... 16
Balance Sheet .............................................................. 17
Statements of Operations ................................................... 18
Statements of Changes in Stockholders' Equity .............................. 19
Statements of Cash Flows ................................................... 20
Notes to Financial Statements .............................................. 21
15
<PAGE>
[LETTERHEAD OF BERENSON & COMPANY LLP]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Paging Partners Corporation
Freehold, NJ
We have audited the accompanying balance sheet of Paging Partners Corporation as
of December 31, 1996, and the related statements of operations, changes in
stockholders' equity, and cash flows for the years ended December 31, 1996 and
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 financial position of Paging Partners Corporation as
of December 31, 1996 and the results of its operations and its cash flows for
the years ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
/s/ Berenson & Company LLP
New York, NY
February 6, 1997, except notes 5 and 10 as to which the date is March 1, 1997.
16
<PAGE>
PAGING PARTNERS CORPORATION
BALANCE SHEET
December 31, 1996
Assets
Current assets:
Cash and cash equivalents................................... $ 507,000
Accounts receivable (net of allowances of $108,000) ........ 555,000
Inventory .................................................. 93,000
Other current assets ....................................... 69,000
------------
Total current assets .................................. 1,224,000
Property and equipment ......................................... 4,800,000
Licenses (less accumulated amortization of $643,000) ........... 667,000
------------
$ 6,691,000
============
Liabilities
Current liabilities:
Current maturities of notes payable ........................ $ 170,000
Accounts payable and accrued expenses ...................... 614,000
------------
Total current liabilities .............................. 784,000
Notes payable (less current maturities) ........................ 1,335,000
------------
2,119,000
------------
Commitments
Stockholders' Equity
Common stock, $.01 par value, 20,000,000 shares authorized ..... 57,000
Preferred stock, $.01 par value, 1,000,000 shares
authorized (none issued) ..................................... 12,044,000
Additional paid-in capital ..................................... (7,529,000)
------------
Accumulated deficit ............................................ 4,572,000
------------
$ 6,691,000
============
The accompanying notes to financial statements are an integral part hereof
17
<PAGE>
PAGING PARTNERS CORPORATION
STATEMENTS OF OPERATIONS
Year Ended December 31,
---------------------------
1996 1995
----------- -----------
Revenues:
Service ...................................... $ 4,950,000 $ 3,510,000
Equipment sales .............................. 1,960,000 1,964,000
----------- -----------
6,910,000 5,474,000
----------- -----------
Expenses:
Service ...................................... 3,416,000 2,303,000
Cost of equipment sold ....................... 2,136,000 2,110,000
Selling ...................................... 1,250,000 1,072,000
Administrative ............................... 1,608,000 1,544,000
----------- -----------
8,410,000 7,029,000
----------- -----------
Loss from operations before depreciation
and amortization .............................. (1,500,000) (1,555,000)
Depreciation and amortization .................. 1,056,000 790,000
----------- -----------
Loss from operations ........................... (2,556,000) (2,345,000)
Interest and other income (expense) - net ...... (160,000) 7,000
NET LOSS ....................................... $(2,716,000) $(2,338,000)
=========== ===========
NET LOSS PER COMMON SHARE ...................... $ (0.50) $ (0.49)
=========== ===========
Weighted average common shares outstanding ..... 5,371,000 4,800,000
=========== ===========
The accompanying notes to financial statements are an integral part hereof.
18
<PAGE>
PAGING PARTNERS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Unrealized
Common Stock Paid-In Accumulated Loss On
Shares Amount Capital Deficit Securities
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1994 4,800,000 $ 48,000 $10,663,000 $(2,475,000) $ (36,000)
Net loss (2,338,000)
Other 36,000
----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1995 4,800,000 48,000 10,663,000 (4,813,000) -0-
Net Proceeds of private 857,000 9,000 1,291,000
placement
Net loss (2,716,000)
Other 16,000 -0- 90,000
=========== =========== =========== =========== ===========
BALANCE - DECEMBER 31, 1996 $ 5,673,000 $ 57,000 $12,044,000 $(7,529,000) $ -0-
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part hereof
19
<PAGE>
PAGING PARTNERS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
December 31,
------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $(2,716,000) $(2,338,000)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation ............................................... 928,000 681,000
Amortization ............................................... 128,000 109,000
Non-cash compensation ...................................... 34,000 -0-
Loss on joint venture investment ........................... -0- 50,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable net
of allowances and deferred revenue ....................... 41,000 (72,000)
(Increase) decrease in other assets ........................ (12,000) 99,000
Decrease in inventory ...................................... 289,000 341,000
(Decrease) Increase in accounts payable and accrued expenses 269,000 (604,000)
----------- -----------
Net cash used by operating activities ................. (1,039,000) (1,734,000)
----------- -----------
Cash flows from investing activities:
Redemption of marketable securities ........................... -0- 4,595,000
Acquisition of property and equipment ......................... (230,000) (706,000)
Acquisition of licenses ....................................... (62,000) (43,000)
Joint venture investment ...................................... -0- (50,000)
----------- -----------
Net cash provided (used) by investing activities ...... (292,000) 3,796,000
----------- -----------
Cash flows from financing activities:
Net proceeds from private equity placement .................... 1,300,000 -0-
Proceeds from stock option exercise ........................... 46,000 -0-
Repayment of notes payable .................................... (61,000) (1,812,000)
----------- -----------
Net cash provided (used) by financing activities ...... 1,285,000 (1,812,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents ............ (46,000) 250,000
Cash and cash equivalents-beginning of year ..................... 553,000 303,000
----------- -----------
Cash and cash equivalents-end of year ........................... $ 507,000 $ 553,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest ........................................ $ 150,000 $ 91,000
Debt incurred for the purchase of equipment ................... 540,000 938,000
Other ......................................................... 10,000 (36,000)
Debt incurred for license acquisition ......................... -0- 100,000
Deferral of revenue in connection with license acquisition .... -0- 130,000
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
20
<PAGE>
PAGING PARTNERS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The Company and Basis of Presentation:
Paging Partners Corporation ("The Company") was incorporated in February 1994
to acquire all of the partnership interests and business of Paging Partners,
L.P. ("L.P.") a limited partnership, in exchange for 2,939,605 shares of the
Company's common stock, pursuant to a reorganization agreement effective
simultaneously with the closing of the initial public offering. The
acquisition by the Company of L.P. has been accounted for as a combination of
companies under common control in a manner similar to a pooling of interests
and, accordingly, the historical basis of the assets and liabilities was
recorded by the Company.
The Company operates two paging systems providing one-way wireless messaging
services in portions of ten states from New Hampshire to Virginia.
2. Capitalization:
a. Initial Public Offering:
In May 1994, the Company completed an initial public offering of 1,800,000
units at $6.00 per unit. Each unit consists of one share of common stock and
one redeemable common stock purchase warrant. The Company issued the units to
the underwriter for a total of $10,800,000. Net proceeds to the Company after
underwriting costs was $8,942,000.
In connection with the initial public offering, the Company sold to the
representative of the underwriters, for an aggregate of $100, the right to
purchase up to an aggregate of 170,000 units. The units are identical to
those described herein except that the warrants are not redeemable and have
an exercise price equal to 122% of the exercise price of the warrants
described below.
Each warrant entitles the holder to purchase one share of common stock of the
Company for $6.60, subject to adjustment in certain circumstances, at any
time during the period commencing May 19, 1995 and ending on May 19, 1999.
The Company may call the warrants for redemption, in whole or in part, at a
price of $.01 per warrant at any time after they become exerciseable upon 30
days' notice if the last sale price of the common stock has been at least
175% of the then exercise price of the warrants for the 20 consecutive
trading days ending on the third day prior to the date on which the notice of
redemption is given.
b. Private Equity Placement
In May 1996 the Company completed a private placement of 857,143 shares of
its Common Stock for gross proceeds of $1.5 million yielding net proceeds of
$1,300,000 after deduction of placement agent and professional fees,
including $130,000 of placement agent fees paid to affiliates of one of the
Company's directors.
21
<PAGE>
PAGING PARTNERS CORPORATION
NOTES TO FINANCIAL STATEMENTS
c. Options:
The Company has adopted a stock option plan (the "Plan"), pursuant to which
options to purchase shares of the Company's common stock, intended to qualify
as "incentive stock options" may be granted to employees and directors of the
Company and independent contractors providing services to the Company. A
total of 400,000 shares of common stock have been reserved for issuance under
the Plan. Options are exercisable for terms of six months to ten years from
the date granted. Details are as follows:
Number Option
of Shares Price Range
--------- -----------
1996
Granted 176,700 $1.38 - 4.38
Exercised 16,000 $2.88
Canceled 110,600 $2.75 - 6.00
Outstanding, December 31 260,600 $1.38 - 6.25
Exercisable, December 31 129,350 $2.75 - 6.25
1995
Outstanding, January 1. 145,500 $4.18 - 6.25
Granted 71,300 $2.75 - 3.25
Canceled 6,300 $2.75
Outstanding, December 31 210,500 $2.75 - 6.25
Exercisable, December 31 103,000 $4.18 - 6.25
The Company continues to measure compensation cost pursuant to APB No. 25, as
permitted by the Financial Accounting Standards Board (FASB) Statement No. 123.
Had compensation cost been determined on the basis of FASB Statement No. 123,
net income and earnings per share would have been reduced as follows:
1996 1995
---- ----
Net Loss:
As reported $(2,716,000) $(2,338,000)
Pro forma $(2,733,000) $(2,346,000)
Primary Earnings
per share:
As reported $ (0.50) $ (0.49)
Pro forma $ (0.51) $ (0.50)
22
<PAGE>
PAGING PARTNERS CORPORATION
NOTES TO FINANCIAL STATEMENTS
The fair value of compensation was computed using an option-pricing model which
took into account the following factors as of the grant date:
o the exercise price and expected life of the option
o the current price of the stock and its expected volatility
o expected dividends, if any, on the stock
o the risk-free interest rate for the expected term of the option using
the Treasury Note rate with a remaining term equal to the expected life
of the options.
3. Significant Accounting Policies:
a. Cash and Cash Equivalents:
Investments in liquid, marketable securities with original maturities of less
than three months are considered to be cash equivalents and are carried at
amortized cost.
b. Inventory:
Inventory is stated at the lower of cost (first-in, first-out basis) or
market, and consists of pagers for resale.
c. Property and Equipment:
Property and equipment are recorded at cost. The Company provides for
depreciation using the straight-line method over the estimated useful lives
ranging from 5 to 10 years.
d. Licenses:
Licenses are amortized using the straight-line method over their terms (10
years).
e. Income Taxes:
Income taxes for the Company have been provided for the tax effects of
transactions reported in the financial statements and will consist of taxes
currently due plus deferred taxes related primarily to differences between
the basis of assets for financial and income tax reporting.
f. Concentration of Risk:
The Company maintains its cash and cash equivalents in one commercial bank
and one money market fund which invests solely in securities issued by the US
government. The Company's accounts receivable are due from resellers located
in the Northeast and Mid-Atlantic regions of the United States and the
ability to collect is based upon economic conditions in the area. The Company
purchases substantially all of its paging system equipment and pagers for
resale from Motorola. However, such items are also available from Motorola's
competitors.
g. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
23
<PAGE>
PAGING PARTNERS CORPORATION
NOTES TO FINANCIAL STATEMENTS
h. Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable and accounts payable approximate fair value
because of the short maturity of these instruments. The carrying amounts of
notes payable approximate fair value because of similar current rates at
which the Company could borrow funds with consistent remaining maturities.
4. Property and Equipment:
Transmission and other paging .............................. $6,340,000
equipment
Telephone and computer equipment ........................... 493,000
Other ...................................................... 138,000
----------
6,971,000
Less accumulated depreciation ......................... 2,171,000
----------
$4,800,000
==========
5. Notes Payable:
a. Equipment financing:
In June 1995, Motorola agreed to provide financing for up to $1.5 million of
equipment to complete the build-out of the Company's Corridor paging system.
Simultaneous with the above financing, the Company prepaid the remaining $1.8
million principal balance of its bank loan. This prepayment was financed
through the sale of certain of the Company's marketable securities.
$1,486,000 has been borrowed under the Motorola arrangement through December
31, 1996, bearing interest at the 90-day commercial paper rate +6% and are
collateralized by all of the Company's assets.
On March 14, 1997, Motorola and the Company amended their financing
agreement. The borrowing limit has been raised to $2.27 million and the
timing of principal payments has been restructured as reflected in the
maturity schedule below. Financial covenants have been adjusted to be
consistent with recent operating performance trends.
b. Other:
In connection with the transaction described in Note 6, the Company has a
note payable in three equal quarterly principal installments of $12,500 plus
interest at prime + 1%.
Principal maturities of notes payable are as follows:
1997........................................................... $170,000
1998........................................................... 384,000
1999........................................................... 444,000
2000........................................................... 504,000
2001........................................................... 3,000
Interest expense for 1996 and 1995 was $150,000 and $100,000, respectively.
24
<PAGE>
PAGING PARTNERS CORPORATION
NOTES TO FINANCIAL STATEMENTS
6. Asset Purchase:
In July 1995, the Company purchased certain equipment and paging licenses
that allow the Company to expand one of its paging systems to encompass the
Philadelphia, Baltimore and Washington, DC areas. Consideration consisted of
cash, notes payable, and service credits aggregating $340,000.
7. Other Expenses:
During 1995, the Company invested $50,000 in a joint venture to bid on
certain PCS licenses to be auctioned by the FCC. The joint venture was
terminated in August 1995 and the Company has written off its investment.
8. Commitments:
a. Leases/Related Parties:
The Company leases office space, satellite transmission services, and
transmitter sites both on a month-to-month basis and under noncancelable
operating leases which provide for increased rentals based upon increases in
real estate taxes, operating costs or selected price indices.
Minimum annual rentals under leases expiring at various times through January
2006 are as follows:
1997............................................. $1,323,000
1998............................................. 883,000
1999............................................. 581,000
2000............................................. 294,000
2001............................................. 106,000
Thereafter....................................... 160,000
Rent expense was $1,483,000 and $1,170,000 for 1996 and 1995, respectively.
b. Employment Agreements:
The Company has employment agreements with four executives and consulting
agreements with two former executives with total compensation due as follows:
1997 $487,000
1998 405,000
1999 96,000
c. Royalty Agreement
The Company has royalty agreements with a branded information service
provider with estimated minimum payments as follows:
1997 $ 72,000
1998 72,000
1999 18,000
25
<PAGE>
PAGING PARTNERS CORPORATION
NOTES TO FINANCIAL STATEMENTS
9. Income Taxes:
The Company is permitted to recognize currently the future benefit of its net
operating loss carryforwards and future tax deductions for expenses previously
recorded for financial reporting purposes. At December 31, 1996, the Company had
available net operating loss carryforwards of approximately $5,700,000 expiring
through 2011.
As of December 31, 1996, the recorded deferred tax asset, representing the
expected benefit from the future realization of the net operating losses, net of
the valuation allowance, was $-0-. The sources of the deferred tax asset and the
tax effect is as follows:
Net operating loss carry forward benefit $2,280,000
Valuation allowance (2,280,000)
----------
Deferred tax asset $ -0-
==========
10. Subsequent Event:
On March 13, 1997, the Company completed a private placement of 515,000
shares of its Common Stock at $1.03125 per share for gross proceeds of $532,000
yielding estimated net proceeds in excess of $500,000 after deduction of
professional fees and other expenses. 115,000 of the shares were purchased by
members of the Company's Board of Directors.
26
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The Company has a classified Board of Directors of five persons divided into
three classes. Directors of each class are elected at the annual meeting of
stockholders held in the year in which the term for such class expires and serve
for three years. Below is the name and age of each director, the year in which
he or she became a director of the Company, the year in which his or her term
expires, his or her principal occupations during the last five years and any
other directorships in publicly-held companies. Unless otherwise indicated, the
following information is current as of March 21, 1997.
Term expired in 1996:
Robert M. Davidoff, 70, has served as a director of the Company since its
organization in February 1994. He is currently serving as Managing Director of
Carl Marks & Co., Inc., an investment banking firm, where he has been employed
since June 1950. He is also a general partner of CMNY Capital, L.P., a small
business investment company founded in March 1962, and chairman of CM Capital
Corporation, an investment vehicle which he founded in March 1982, both of which
are affiliated with Carl Marks & Co., Inc. Mr. Davidoff is currently serving on
the Board of Directors of Hubco Exploration, Inc., Marisa Christina Corporation,
Sidari Corp. and Rex Stores Corporation, all of which are publicly held
corporations.
Richard J. Giacchi, 48, founded the Company along with Leonard Fink in August
1990. He served as the President of the general partner of Paging Partners,
L.P., since its formation and was appointed a director and the President and
Chief Executive Officer of the Company upon its organization in February 1994.
From March 1986 to October 1990, Mr. Giacchi was employed as the Director of
Engineering for O.R. Estman, Inc. (also known as Satellite Paging), a company
which provides paging services. In this position, Mr. Giacchi's responsibilities
included design, construction and maintenance of a wide-area paging system
operating throughout the Northeast Corridor.
Although the terms of Messrs. Davidoff and Giacchi were scheduled to expire
in 1996, they have continued to serve as directors because the Company
determined not to hold an annual meeting during 1996. Their positions will be
subject to election at the Company's next annual meeting.
Term expires in 1997:
Leonard D. Fink, 58, founded the Company along with Mr. Giacchi in August
1990. Mr. Fink served as Secretary and Treasurer of the general partner of
Paging Partners, L.P., since its formation and was appointed Chairman of the
Company upon its organization in February 1994. Since August 1984, Mr. Fink has
served as President of MessageBank, Inc., a privately held voice
mail/telecommunications service business which he founded and continues to own.
From June 1964 through February 1983, Mr. Fink served as President of Phone
Depots, Inc., a radio common carrier paging business he founded and subsequently
sold to Paging Network, Inc. (PageNet).
Term expires in 1998:
Monte Engler, 55, served as legal advisor to Paging Partners, L.P.,
predecessor to the Company, since its inception, and as a director of the
Company since its organization in February 1994. He is currently a partner at
the law firm of Phillips Nizer Benjamin Krim & Ballon LLP specializing in
telecommunications matters, where he has worked since November 1984. In
addition, Mr. Engler currently serves as the attorney for the New York State
Radio Common Carrier Association, a paging company trade association. Mr. Engler
was one of the founders of and formerly counsel to the predecessor company to
Cellular One, the non-wireline cellular operator in the New York metropolitan
area.
Rochelle B. King, 59, served as an investment banker to Paging Partners,
L.P., since its inception and as a director of the Company since its
organization in February 1994. From January 1992 to the present, she has been a
Senior Advisor to Bentley Associates, L.P., and Bentley Securities Corporation,
investment banking firms. In April 1989, she established King Investment Banking
Services to provide financial services and consulting to the broadcasting, media
and communications industries, which she continues today. Ms. King has served as
an independent general partner in Kagan Media Partners, a Paine Webber public
limited partnership, since its inception in January 1989, and from April 1989 to
January 1990 on the Mabon Nugent & Co., independent advisory board of
Euro-American Media Partners.
27
<PAGE>
The names of the directors and executive officers of the Company and their
respective ages and positions are as follows:
Name Age Position
---- --- --------
Leonard D. Fink 58 Chairman of the Board of Directors
Richard J. Giacchi 48 President, Chief Executive Officer and Director
Keith J. Powell 42 Executive Vice President and General Manager
Jeffrey M. Bachrach 41 Vice President, Chief Financial Officer,
Treasurer and Secretary
Robert M. Davidoff 70 Director
Monte Engler 55 Director
Rochelle B. King 59 Director
Set forth below is information concerning certain executive officers and key
personnel of the Company.
Keith J. Powell, 42, has served as Executive Vice President and General
Manager of the Company since June 1996. From April 1992 through May 1996, he was
Vice President and General Manager first for PageNet of New York and then
PageNet of New Jersey. From 1983 to 1992 Mr. Powell held various positions
including Vice President, Marketing with the Texwipe Company, a manufacturer of
engineered products for aerospace, electronics and biomedical markets.
Jeffrey M. Bachrach, 41, has served as the Company's Vice President, Finance,
and Principal Financial and Accounting Officer, since September 1994. From 1988
to December 1992, Mr. Bachrach served as the Vice President, Finance, and
Principal Accounting Officer of Polymerix, Inc., a publicly held company engaged
in the manufacture of plastic lumber. In October 1992 Trimax of Long Island,
Inc., a subsidiary of Polymerix, filed for protection under Chapter 11 of the
Bankruptcy Code in the U.S. Bankruptcy Court, Eastern District of New York. From
January 1993 to March 1994, Mr. Bachrach was employed as the Vice President,
Finance of Sadat Associates, Inc., a privately held environmental consultant.
Frank Atkinson, 51, has served as a consultant to the Company since its
inception and became Vice President, Director of Management Information Systems
of the Company in May 1994. In December 1993, Mr. Atkinson founded Atkinson
Micro Systems, a company engaged in the design of telecommunications software.
Prior to that, from November 1982 to November 1993, Mr. Atkinson was Vice
President of Atlanta Micro Software, Inc., a telecommunications software company
which he also founded.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to Mr. Giacchi, the
Company's Chief Executive Officer, during the years ended December 31, 1994,
1995 and 1996. Mr. Giacchi was the only employee of the Company whose
compensation exceeded $100,000 during such years.
Summary Compensation Table
================================================================================
Annual Compensation
================================================================================
Salary Bonus Other Annual
Name and Principal Position Year ($) ($) Compensation
- --------------------------------------------------------------------------------
Richard J. Giacchi
President and Chief 1996 146,000 0 --
Executive Officer
- --------------------------------------------------------------------------------
1995 136,000 0 --
- --------------------------------------------------------------------------------
1994 126,000 25,000 --
================================================================================
28
<PAGE>
Compensation Arrangements
The Company entered into five-year employment agreements with Mr. Giacchi and
Mr. Fink effective May 1994. Mr. Giacchi agreed to devote his entire working
time and attention to the business of the Company during the term of his
agreement. Mr. Fink agreed to devote such of his working time and attention to
the business of the Company as is necessary for him to effectively perform his
duties under his agreement. Mr. Fink currently serves as President of
MessageBank, Inc., a corporation which he founded and continues to own, which is
engaged in the provision of voice mail services and is permitted by the terms of
his agreement to continue to serve in such capacity and to engage in such other
non-competing business activities as will not prevent him from performing his
duties on behalf of the Company. Mr. Giacchi and Mr. Fink have also agreed not
to compete with the business of the Company for a period of two years following
termination of their respective employment agreements.
Pursuant to his employment, Mr. Giacchi received a salary of $130,000 for the
first contract year, and $140,000 for the second contract year and is entitled
to receive $150,000 for the contract year ending May 1997. In addition, Mr.
Giacchi received as a bonus incentive compensation of $25,000 for services
rendered prior to December 31, 1994. The Company also provides Mr. Giacchi with
certain disability and life insurance in addition to that provided to its
employees generally, and the use of an automobile. Mr. Giacchi's compensation
for contract years beginning May 1997 shall be as determined by the Compensation
Committee of the Board of Directors provided that in no event will his base
salary for any contract year be less than the base salary for the previous
contract year, plus 7%, and the maximum incentive compensation that can be
earned during any calendar year shall not be less than the maximum incentive
compensation which could have been earned during the previous calendar year. To
enable the Company to preserve cash, Mr. Giacchi has agreed to defer receipt of
approximately 20% of his current salary and to temporarily forego the salary
increase due in May 1997. As of March 21, 1997, Mr. Giacchi has deferred receipt
of a total of $10,000 of his salary.
Pursuant to his employment agreement, Mr. Fink received a salary of $40,000
for the first contract year and $45,000 for the second contract year and is
entitled to receive $50,000 for the contract year ending May 1997. In addition,
Mr. Fink received incentive compensation of $10,000 for services rendered prior
to December 31, 1994. Mr. Fink's compensation for contract years beginning May
1997 shall be as determined by the Compensation Committee of the Board of
Directors provided that in no event will his base salary for any contract year
be less than the salary for the previous contract year, plus 7%, and the maximum
incentive compensation that can be earned during any calendar year shall not be
less than the maximum incentive compensation which could have been earned during
the previous calendar year. To enable the Company to preserve cash, Mr. Fink has
agreed to defer receipt of his entire salary, commencing September 1996. As of
March 21, 1997, Mr. Fink had deferred receipt of a total of $27,000 of his
salary.
The Company also has entered into employment agreements with Jeffrey
Bachrach and Frank Atkinson.
Mr. Bachrach's current employment agreement, as amended, is effective
through September 30, 1998, and, if not terminated by either party, renews on a
year-to-year basis thereafter. The agreement provides for an annual salary of
$88,000 through September 30, 1996, $99,000 thereafter through September 30,
1997 and $110,000 thereafter through September 30, 1998. In addition, the
Company granted to Mr. Bachrach options to purchase an aggregate of 40,000
shares of the Company's Common Stock, exercisable at the fair market prices of
the Common Stock as determined on the respective dates of grant of the options.
To facilitate Mr. Bachrach's exercise of his stock options, the Company agreed
to pay to him at such time as he should choose to exercise his options
exercisable during the second half of 1997 for 10,000 shares him an amount equal
to the exercise price of such options, $8,750 in the aggregate. To enable the
Company to preserve cash, Mr. Bachrach has agreed to defer receipt of a portion
of his salary. As of March 21, 1997, Mr. Bachrach had deferred receipt of a
total of $5,000 of his salary.
Mr. Atkinson's current employment agreement is effective through May 26,
1998, and, if not terminated by either party, renews on a year-to-year basis
thereafter. The agreement provided for an annual salary of $85,000 through May
26, 1996, $92,000 thereafter through May 26, 1997 and $101,000 thereafter
through May 26, 1998, plus a bonus each year of $7,000 and a car allowance of
$500 per month. As an inducement to Mr. Atkinson to become employed by the
Company, the Company issued him 13,421 shares of Common Stock. The Company has
granted to Mr. Atkinson options to purchase 75,000 shares of the Company's
Common Stock, exercisable at the various fair market prices of the Common Stock
as determined on the respective dates of grant of the options. To enable the
Company to preserve cash, Mr. Atkinson has agreed to defer receipt of the $7,000
bonus otherwise payable in May 1997.
29
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 21, 1997, the Company had outstanding and entitled to vote
6,265,000 shares of Common Stock, par value $.01 per share ("Common Stock"), and
1,800,000 Common Stock Purchase Warrants ("Warrants"). In addition, the
representative of the underwriters of the Company's initial public offering held
options to purchase 170,000 units ("Unit"), each Unit consisting of one share of
Common Stock and one Warrant, and the Company had issued an aggregate of 262,000
options, exercisable at various prices, to its employees for services rendered
to the Company.
To the knowledge of the Company the following table sets forth the
ownership of the Company's Common Stock as of March 21, 1997, by each person
owning more than 5% of such Common Stock, by each officer and director and by
all officers and directors as a group:
Number Percentage
of Beneficially
Name of Beneficial Owner Shares Owned
------------------------ ------ -----
Richard J. and Celeste Giacchi(1)(2) 1,012,406 16.2%
Leonard D. and Nancy Fink(1)(3) 1,000,372 16.0%
Allen & Company 443,571 7.1%
Dolphin Offshore Partners, L.P. 400,000 6.4%
Robert Davidoff(1)(4) 280,168 4.5%
Rochelle B. King(1)(5) 135,139 2.2%
Monte Engler(1)(6) 39,396 *
Keith Powell(7) 35,000 *
Jeffrey Bachrach(7) 12,500 *
All directors and officers as a
group (7 persons)(2)(3)(4)(5)(6)(7) 2,519,980 39.9%
- ----------
* Less than 1%
30
<PAGE>
(1) The business address of Mr. And Mrs. Fink, Mr. and Mrs. Giacchi, Mr.
Bachrach and Mr. Powell is c/o Paging Partners, 4249 Route 9 North,
Freehold, New Jersey 07728. The business address of Robert Davidoff is c/o
Carl Marks & Co., Inc. 135 E. 57th Street, New York, New York 10022. The
business address of Rochelle B. King is c/o Bentley Associates L.P., 1155
Avenue of the Americas, New York, New York 10036. The business address of
Monte Engler is c/o Phillips, Nizer, Benjamin, Krim & Ballon LLP, 666 Fifth
Avenue, New York, New York 10103.
(2) Includes (i) 518,553 shares held of record by Mr. Giacchi; (ii) 470,337
shares held of record by Mrs. Giacchi, his wife, and (iii) 23,516 shares
held of record by trusts for the benefit of their minor children. Mr. and
Mrs. Giacchi each disclaims any beneficial ownership of the shares held of
record by the other. Excludes shares held of record by Mr. Giacchi's adult
son, Jeremy Giacchi.
(3) Includes (i) 530,035 shares held of record by Mr. Fink and (ii) 470,337
shares held of record by Mrs. Fink, his wife, Mr. and Mrs. Fink each
disclaims any beneficial ownership of the shares held of record by the
other. Excludes 58,792 shares held of record by the adult children of Mr.
and Mrs. Fink.
(4) 235,168 of the shares attributed to Mr. Davidoff are owned by CMNY Capital I
and CMNY Capital II; Mr. Davidoff is a general partner of CMNY Capital I and
CMNY Capital II and disclaims beneficial ownership of such shares.
(5) Includes 7,895 shares held of record by trusts for the benefit of Ms. King's
grandchildren. Excludes 7,894 shares held of record by Ms. King's adult
children.
(6) 29,396 of such shares are held of record by Mr. Engler's wife and he
disclaims any beneficial ownership thereof.
(7) These are shares which may be acquired pursuant to options exercisable
within sixty (60) days of the date hereof.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company currently leases space from MessageBank, Inc., a corporation
owned by Mr. Fink, for which it pays approximately $1,300 per month. Management
believes that the terms of such lease are no less favorable to the Company than
those which would be available from a third party. MessageBank, Inc., also
provides voicemail and other services to the Company for which it is paid its
standard charges. The amount of revenues paid to MessageBank, Inc., during each
of 1995 and 1996 for services rendered to the Company was less than $5,000. The
Company anticipates that it will continue to lease space and purchase certain
services from MessageBank, Inc. in the future, but the volume of such purchases
is not anticipated to substantially increase.
From time to time Rochelle King renders investment banking services to the
Company for which she or Bentley Associates, L.P., which she serves as a senior
adviser, is compensated. During 1995 and 1996, the Company paid $23,000 and
$105,000 respectively, for investment banking services performed by Ms. King.
Monte Engler, a director of the Company, is a partner at the law firm of
Phillips, Nizer, Benjamin, Krim & Ballon LLP, which performs legal services for
the Company.
31
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant. (1)
3.2 Revised By-Laws of the Registrant. (1)
4.1 Form of Common Stock Certificate. (1)
4.2 Form of Warrant Certificate. (1)
4.3 Form of Unit Purchase Option granted to GKN Securities Corp. (1)
4.4 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Registrant. (1)
10.1 Revised Form of Employment Agreement between the Company and
Richard J. Giacchi. (1)
10.2 Revised Form of Employment Agreement between the Company and
Leonard D. Fink. (1)
10.6 Form of Employment Agreement between the Company and Jeff
Bachrach. (2)
10.8 Lease dated August 11, 1994, between Freehold Office Plaza and
The Company, with respect to the office space at Freehold Office
Plaza. (2)
10.9 1994 Incentive Stock Option Plan. (1)
10.10 Common Stock Purchase Agreement by and among the Company, Allen
& Company, Incorporated and certain other purchases dated May 7,
1996. (3)
10.11 Registration Rights Agreement dated May 7, 1996. (3)
10.12 Common Stock Purchase Agreement by and among the Company,
Dolphin Offshore Partners, L.P., Leonard D. Fink, Richard J.
Giacchi, Monte Engler, and Robert Davidoff dated March 11, 1997.
(4)
10.13 Registration Rights Agreement dated March 11, 1997. (4)
10.14 Second Waiver and Amendment Agreement between the Company and
Motorola, Inc. (4)
10.15 Amended and Restated Promissory Note between the Company and
Motorola, Inc. (4)
10.16 Independent Auditors' Consent (4)
10.27 Financial Data Schedule (4)
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (Registration No. 33-76744).
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1994.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ended March 31, 1996.
(4) Filed herewith.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 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.
Dated: March 25, 1997
PAGING PARTNERS CORPORATION
(Registrant)
By: /s/Richard J. Giacchi
---------------------------------
Richard J. Giacchi, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Leonard D. Fink Chairman of the Board of Directors March 25, 1997
- -------------------------
Leonard D. Fink
/s/Richard J. Giacchi President, Director and Principal March 25, 1997
- ------------------------- Executive Officer
Richard J. Giacchi
/s/Jeffrey M. Bachrach Vice President, Treasurer, March 25, 1997
- ------------------------- Secretary, and Principal
Jeffrey M. Bachrach Financial and Accounting
Officer
/s/Robert Davidoff Director March 25, 1997
- -------------------------
Robert Davidoff
/s/Monte Engler Director March 25, 1997
- -------------------------
Monte Engler
/s/Rochelle B. King Director March 25, 1997
- -------------------------
Rochelle B. King
Exhibit 10.12
COMMON STOCK PURCHASE AGREEMENT
between
PAGING PARTNERS CORPORATION
and
DOLPHIN OFFSHORE PARTNERS, L.P.
and certain other purchasers
dated
March 10, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 Authorization and Sale of the Shares; Closing................ 1
1.1 Authorization of the Shares.................................. 1
1.2 Sale of the Shares........................................... 1
1.3 Closing Date................................................. 1
1.4 Place of Closing............................................. 2
SECTION 2 Representations and Warranties of the Company................ 2
2.1 Organization and Standing; Certificate of Incorporation
and By-Laws .............................................. 2
2.2 Subsidiaries; Joint Ventures, Etc............................ 2
2.3 Capitalization............................................... 2
2.4 Status of Shares............................................. 3
2.5 Corporate Power; Authorization............................... 3
2.6 Enforceability............................................... 3
2.7 No Conflict.................................................. 3
2.8 Consents..................................................... 4
2.9 Compliance with Charter, By-Laws and Other Instruments....... 4
2.10 Compliance with Law.......................................... 4
2.11 Litigation and Bankruptcy.................................... 4
2.12 Tax Matters.................................................. 5
2.13 No Undisclosed Liabilities................................... 5
2.14 Condition of Assets.......................................... 5
2.15 Inventory.................................................... 5
SECTION 3 Representations and Warranties of the Purchasers............. 6
3.1 Experience................................................... 6
3.2 Access to Data............................................... 6
3.3 Shares Not Registered........................................ 6
3.4 Corporate Power; Authorization............................... 6
3.5 Enforceability............................................... 6
SECTION 4 Conditions Precedent to Purchasers' Obligation to Close...... 7
4.1 Representations and Warranties Correct....................... 7
4.2 Performance.................................................. 7
4.3 Registration Rights Agreement................................ 7
4.4 Officers' Certificate(s)..................................... 7
4.5 Opinion of Company's Counsel................................. 7
4.6 Proceedings and Documents.................................... 7
i
<PAGE>
SECTION 5 Conditions Precedent to the Company's Obligation to Close.... 8
5.1 Payment...................................................... 8
5.2 Representations and Warranties Correct at the Closing........ 8
SECTION 6 Covenants.................................................... 8
6.1 S-3 Registration............................................. 8
SECTION 7 Miscellaneous................................................ 8
7.1 Governing Law................................................ 8
7.2 Successors and Assigns....................................... 8
7.3 Entire Agreement; Amendment.................................. 8
7.4 Notices, Etc................................................. 9
7.5 Delays or Omissions.......................................... 9
7.6 Brokers' and Finders' Fees................................... 10
7.7 Titles and Subtitles......................................... 10
7.8 Counterparts................................................. 10
ii
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
AGREEMENT, dated this 10th day of March, 1997, by and between PAGING
PARTNERS CORPORATION, a Delaware corporation (the "Company"), and DOLPHIN
OFFSHORE PARTNERS, L.P., ("Dolphin"), and the other parties which are listed on
the signature page hereto (with Dolphin, collectively, the "Purchasers").
R E C I T A L S:
The Company desires to issue and sell, and the Purchasers desire to
purchase, certain securities of the Company; and the Company and the Purchasers
desire to enter into certain other agreements in connection therewith.
NOW, THEREFORE, in consideration of the premises hereof and the mutual
covenants and conditions herein contained, the parties hereto agree as follows:
SECTION 1
Authorization and Sale of the Shares; Closing
1.1 Authorization of the Shares. The Company has on or before the date
hereof authorized the sale and issuance to Purchasers of 515,000 shares (each a
"Share" and, collectively, the "Shares") of its Common Stock, par value $.01 per
share (the "Common Stock"), for a purchase price per Share of $1.03125 and an
aggregate purchase price of $531,093.75 (the "Aggregate Purchase Price").
1.2 Sale of the Shares. Subject to the terms and conditions hereof and in
reliance upon the representations, warranties and agreements contained herein,
the Company shall issue and sell to each of the Purchasers, and each of the
Purchasers shall purchase from the Company at the Closing (as hereinafter
defined), the Shares set forth opposite such Purchaser's name on the signature
page hereto in consideration of the Aggregate Purchase Price. Each Purchaser
shall pay $1.03125 for each Share purchased pursuant hereto.
1.3 Closing Date. The closing of the purchase and sale of the Shares
hereunder and the consummation of the transactions contemplated hereby (the
"Closing") shall be held on March 10, 1997 (the "Closing Date") or at such other
time mutually acceptable to the parties but in no event no later than March 15,
1997. At the Closing, the Company shall deliver to each Purchaser a certificate
or certificates in such denominations and registered in such name or names as
requested by the Purchaser representing the Shares against payment to the
Company
<PAGE>
by a bank check or wire transfer (or combination thereof) of the portion of the
Aggregate Purchase Price due from such Purchaser.
1.4 Place of Closing. The Closing shall take place at the offices of
Phillips Nizer Benjamin Krim & Ballon LLP, 666 Fifth Avenue, New York, New York
10103, or at a place as shall be mutually agreed upon by the parties hereto.
SECTION 2
Representations and Warranties of the Company
The Company represents and warrants to the Purchasers as follows:
2.1 Organization and Standing; Certificate of Incorporation and By-Laws.
The Company is a corporation duly organized and validly existing and in good
standing under the laws of the State of Delaware and is qualified to do business
and is in good standing in each other jurisdiction in which the character of its
properties or the nature of its business requires such qualification, except
where the failure to so qualify would have no material adverse impact upon the
business, operations or prospects of the Company. The Company has the requisite
corporate power to own the properties owned by it and to conduct business as now
being conducted by it and as proposed to be conducted by it. The Company has not
amended its Certificate of Incorporation or By-Laws since the date of its
initial public offering and there are no corporate proceedings in progress to
effect such an amendment.
2.2 Subsidiaries; Joint Ventures, Etc. The Company has no subsidiaries and
does not control, directly or indirectly, or have an interest in, any
corporation, association, partnership, joint venture or other business entity.
2.3 Capitalization.
(a) The Company's authorized capital stock consists of 21,000,000
shares, of which:
(i) 20,000,000 shares are Common Stock, of which (A) 5,749,870
shares are duly issued and are outstanding, fully-paid and
non-assessable and, (B) 1,800,000 shares were set aside for
issuance upon exercise of the warrants previously sold to the
public, 340,000 shares are reserved for issuance upon exercise of
the Unit Purchase Option granted to the Underwriter of the
Company's public offering and 450,000 shares were reserved for
issuance pursuant to the Company's Stock Option Plan; and
2
<PAGE>
(ii) 1,000,000 shares are Preferred Stock, par value $.01 per
share, none of which are issued and outstanding.
(b) All shares of capital stock and other securities issued prior to the
Closing have been issued in transactions in compliance with the Securities Act
of 1933, as amended (the "Securities Act") and all applicable state securities
or "blue sky" laws. The Company has not violated, and is not in violation of,
the Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any shares of capital stock or other securities.
Except for the options and warrants referred to in Section 2.3(a), there are,
and immediately after the Closing there will be, no agreements, restrictions or
encumbrances (including, without limitation, rights of first refusal, rights of
first offer, proxies or voting agreements) with respect to any shares of capital
stock of the Company (whether outstanding or issuable upon conversion or
exercise of outstanding securities), except as contemplated in this Agreement.
2.4 Status of Shares. The Shares, when sold and issued in compliance with
the provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and will be free of any mortgage, pledge, lien, security
interest, encumbrance or charge of any kind whatsoever (each, a "Lien" and
collectively, "Liens").
2.5 Corporate Power; Authorization. The Company has all requisite
corporate power and authority to enter into this Agreement and the Registration
Rights Agreement (defined in Section 4.3 below), to sell, issue and deliver the
Shares, and to carry out and perform its obligations under this Agreement and
the Registration Rights Agreement. On or prior to the Closing, the Company's
directors and stockholders shall have taken all action necessary for the
authorization, execution, delivery and performance by the Company of this
Agreement and the Registration Rights Agreement and the authorization, sale,
issuance and delivery of the Shares.
2.6 Enforceability. Each of this Agreement and the Registration Rights
Agreement is the valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general application
affecting enforcement of creditors' rights generally and to general equitable
principles.
2.7 No Conflict. The execution, delivery and performance by the Company of
this Agreement and the Registration Rights Agreement and its compliance herewith
and therewith, and the sale, issuance and delivery of the Shares do not result
in any violation of, and do not conflict with, or result in a breach of any of
the terms of, or constitute a default under, the Charter or By-Laws. The
execution, delivery and performance by the Company of this Agreement and the
Registration Rights Agreement, and its compliance herewith and therewith, and
the sale, issuance and delivery of the Shares do not result in any violation of
and do not conflict with, or result in a breach of any of the terms of, or
constitute a default under, any mortgage, indenture, agreement, instrument,
judgment, decree, order, rule or regulation or other
3
<PAGE>
restriction to which the Company is a party or by which it is bound or the
provision of any state or Federal law to which the Company is subject, or result
in the creation of any Lien upon any of the properties or assets of the Company
pursuant to any such term, or result in the suspension, revocation, impairment,
forfeiture or non-renewal of any permit, license, authorization or approval
applicable to the Company's operations or any of its assets or properties.
2.8 Consents. No consent, approval, qualification, order or authorization
of, or filing with, any governmental authority, including, without limitation,
the Secretary of State of Delaware, is required in connection with the Company's
valid execution, delivery or performance of this Agreement and the Registration
Rights Agreement, the offer, sale or issuance of the Shares by the Company, or
the consummation of any other transaction contemplated on the part of the
Company hereby or thereby, except for such filings as have been made on or prior
to the Closing.
2.9 Compliance with Charter, By-Laws and Other Instruments. The Company is
not in violation of any term of its Charter or By-Laws. The Company is not in
violation of any term of any mortgage, indenture, contract, agreement or
instrument to which it is a party or by which the Company is bound or to which
the Company's properties or assets are subject which would have a change in or
effect on, which is, or is reasonably likely to be, materially adverse to the
financial condition, operations, assets, liabilities or business of the Company.
2.10 Compliance with Law. The Company is in compliance in all material
respects with all judgments, decrees, orders, rules and regulations or other
restriction to which the Company is a party or by which it is bound and the
provisions of state and Federal laws to which the Company is subject.
2.11 Litigation and Bankruptcy.
(a) There are no actions, suits, proceedings, investigations or claims
pending or, to the Company's knowledge, threatened against or involving the
Company.
(b) The Company has not admitted in writing its inability to pay its debts
generally as they become due, filed or consented to the filing against it of a
petition in bankruptcy or a petition to take advantage of any insolvency act,
made an assignment for the benefit of creditors, consented to the appointment of
a receiver for itself or for the whole or any substantial part of its property
or assets, or had a petition in bankruptcy filed against it, been adjudicated
bankrupt, or filed a petition or answer seeking reorganization or arrangement
under the federal bankruptcy laws or any other similar law or statute of the
United States of America or any other jurisdiction.
4
<PAGE>
2.12 Tax Matters. The Company has timely filed all federal, state and
local tax returns, estimates and reports with respect to the business of the
Company believed by it to be required to be filed by it as of the date hereof
and has paid in full all taxes shown to be due by such returns, estimates or
reports. The Company knows of no audit, assessment, notice of deficiency, claim
or demand for taxes or proposed deficiency against the Company for any federal,
state or local taxes. The Company has not consented to a waiver or extension of
the statute of limitations for assessments of any tax liability for any year
with any department of any federal, state, local or foreign government
responsible for the administration of tax laws.
2.13 No Undisclosed Liabilities. Except as set forth in the notes to the
financial statements included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995, the liabilities on the Company's
September 30, 1996 balance sheet (the "Company's Balance Sheet") consist solely
of accrued obligations and liabilities incurred by the Company in the ordinary
course of business to persons or entities which are not affiliates of the
Company. The Company has no liabilities other than (i) liabilities disclosed in
the Company's Balance Sheet, (ii) liabilities which have arisen after September
30, 1996 in the ordinary course of business consistent with past practice and
(iii) such liabilities as the Company may undertake in connection with the
renegotiation of its Loan Agreement with Motorola. There are no asserted claims
for indemnification by any person or entity against the Company under any law or
agreement or pursuant to the Charter or By-laws, and the Company is not aware of
any facts or circumstances that might reasonably give rise to the assertion of
such a claim against the Company.
2.14 Condition of Assets. The physical assets and properties of the
Company, including its machinery and equipment, are in sound operating
condition, ordinary wear and tear excepted. Such assets and properties of the
Company have been given regular maintenance in the ordinary course of business.
2.15 Inventory. The inventories shown on the Balance Sheet and any
inventory acquired by the Company during the period from September 30, 1996 up
to but not including the Closing Date, consist of items of a quality and
quantity useable or saleable in the ordinary course of business of the Company.
All items included in the inventories are the property of the Company, except
for sales made in the ordinary course of business since the dates indicated, and
for each of these sales either the purchaser has made full payment or the
purchaser's liability to make payment is reflected in the books of the Company.
5
<PAGE>
SECTION 3
Representations and Warranties of the Purchasers
Each of the Purchasers represents and warrants to the Company as follows:
3.1 Experience. He or it has such knowledge and experience in finance and
business matters that he or it is capable of evaluating the merits and risks of
an investment in the Shares and of making an informed decision with respect
thereto.
3.2 Access to Data. He has received copies of the Company's audited
financial statements as at December 31, 1995 and for each of the two years then
ended; a copy of the Company's unaudited financial statements as at September
30, 1996, and for the nine months then ended; and copies of more recent
projections prepared by management of the Company for internal planning
purposes. In addition he or it has been given the opportunity to discuss the
Company's business, management and financial affairs with the Company's
management.
3.3 Shares Not Registered. He or it acknowledges that the Shares have not
been registered under the Act, it being understood and agreed that the Company
has certain obligations to register the Shares as more fully set forth in
Section 6. He or it acknowledges that the Shares must be held indefinitely
unless they are registered under the Securities Act or an exemption from such
registration is available and that the certificates representing the Shares
shall have endorsed thereon legends to the effect that the Shares have not been
registered under the Act, and such other legends required to be placed thereon
by applicable state laws.
3.4 Corporate Power; Authorization. Such of the Purchasers which are
partnerships or corporations have all requisite partnership or corporate power
and authority to enter into this Agreement and the Registration Rights Agreement
and to carry out and perform its obligations under the terms of this Agreement
and the Registration Rights Agreement. The directors and stockholders of those
Purchasers which are corporations and the shareholders of those Purchasers which
are partnerships have taken all action necessary for the authorization,
execution, delivery and performance by it of this Agreement and the Registration
Rights Agreement.
3.5 Enforceability. Each of this Agreement and the Registration Rights
Agreement is the valid and binding obligation of the Purchasers, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general application
affecting enforcement of creditors' rights generally and to general equitable
principles.
6
<PAGE>
SECTION 4
Conditions Precedent to Purchasers' Obligation to Close
The obligation of the Purchasers to purchase the Shares at the Closing is
subject to the fulfillment to the Purchasers' reasonable satisfaction on or
prior to the Closing Date of each of the following conditions:
4.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 2 hereof, shall be true and correct in
all respects on the Closing Date.
4.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the each such Closing Date shall have been performed or complied with in all
respects.
4.3 Registration Rights Agreement. The Company shall have executed and
delivered the registration rights agreement substantially in the form of Exhibit
4.3 attached hereto (the "Registration Rights Agreement").
4.4 Officers' Certificate(s).
(a) The Company shall have delivered to the Purchasers a certificate of
the chief executive or chief financial officer of the Company dated the Closing
Date, in form and substance reasonably satisfactory to the Purchasers,
certifying to the fulfillment of the conditions specified in this Section 4.
(b) The Company shall have delivered to the Purchasers a certificate of
the Secretary of the Company dated the Closing Date, in form and substance
reasonably satisfactory to the Purchasers, certifying as to the incumbency of
the officers executing this Agreement on behalf of the Company.
4.5 Opinion of Company's Counsel. The Purchasers shall have received from
Phillips Nizer Benjamin Krim & Ballon LLP, counsel to the Company, an opinion
addressed to the Purchasers, dated the Closing Date to the effect that the
Company is duly organized and validly existing; that all corporate action
necessary or appropriate in connection with the transaction contemplated hereby
has been taken and that the Shares, when paid for as contemplated hereby, shall
have been duly authorized, validly issued and are non-assessable.
4.6 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Purchasers.
7
<PAGE>
SECTION 5
Conditions Precedent to the Company's Obligation to Close
The obligation of the Company to sell the Shares at the Closing is subject
to the fulfillment to the Company's reasonable satisfaction on or prior to the
Closing Date of each of the following conditions:
5.1 Payment. The Purchasers shall have paid in full the Aggregate Purchase
Price.
5.2 Representations and Warranties Correct at the Closing. The
representations and warranties made by the Purchasers in Section 3 hereof shall
be true and correct in all respects on the Closing Date.
SECTION 6
Covenants
6.1 S-3 Registration. Promptly following the Closing, the Company shall
use its best efforts to register the Shares on Form S-3 or such other form as
may be deemed appropriate by the Company, pursuant to the Registration Rights
Agreement.
SECTION 7
Miscellaneous
7.1 Governing Law. This Agreement shall be governed in all respects by the
laws of the State of New York.
7.2 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
7.3 Entire Agreement; Amendment. This Agreement (including the Schedules
and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
8
<PAGE>
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated, except by a written instrument signed by the Company and the
Purchasers.
7.4 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, return receipt requested, or delivered either by hand, by
messenger or by nationally recognized overnight courier, addressed:
(a) if to any of the Purchasers to his or her address as set forth in the
records of the Company, or, in the case of Dolphin, to the following address, or
at such other address as the Purchasers shall have furnished to the Company in
writing:
c/o Dolphin Management Inc.
2nd Floor
129 East 17th Street
New York, New York 10003
Attn: Peter Salas
and
(b) if to the Company, to the following address, or at such other address
as the Company shall have furnished to the Purchasers in writing,
Paging Partners Corporation
Freehold Office Plaza
4249 Route 9 North
Building 2
Freehold, New Jersey 07728
Fax: (908) 409-7366
with a copy to:
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103
Attention: Monte Engler, Esq. or
Vincent J. McGill, Esq.
Fax: (212) 262-5152
7.5 Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to any holder of any Shares, upon any breach or default of
the Company under this Agreement, shall impair any such right, power or remedy
of such holder nor shall it be
9
<PAGE>
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
7.6 Brokers' and Finders' Fees. Each party hereto (i) represents and
warrants that, except for GKN Securities Corp., which, if it is due a broker's
commission or finder's fee in connection with this transaction, will be
compensated by the Company, it has not retained a finder or broker in connection
with the transactions contemplated by this Agreement and (ii) hereby agrees to
indemnify and to hold the other party harmless of and from any liability for
commission or compensation in the nature of an agent's fee to any broker or
other person or firm incurred in connection with the transactions contemplated
hereby (and the costs and expenses of defending against such liability or
asserted liability) arising from any act by it or any of its employees or
representatives. The Company represents that the compensation, if any, which
will be paid to GKN shall not exceed 8,000 shares of its Common Stock.
7.7 Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date above written.
PAGING PARTNERS CORPORATION
By:____________________________________
Title: President
PURCHASERS:
Dolphin Offshore Partners, L.P.
By:____________________________________
Title:_________________________________
No. of Shares 400,000
_______________________________________
Name: Robert Davidoff
No. of Shares 45,000
_______________________________________
Name: Leonard Fink
No. of Shares 45,000
_______________________________________
Name: Monte Engler
No. of Shares 15,000
_______________________________________
Name: Richard Giacchi
No. of Shares 10,000
11
Exhibit 10.13
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") made as of this 10th day
of March, 1997, by and between Paging Partners Corporation, a Delaware
corporation (the "Company"), and each of the purchasers which are signatories
hereto (collectively, the "Purchasers").
W I T N E S S E T H:
WHEREAS, the parties hereto are entering into a Common Stock Purchase
Agreement dated the date hereof (the "Stock Purchase Agreement"), pursuant to
which the Purchasers are purchasing 515,000 shares (the "Shares") of the
Company's Common Stock, par value $.01 per share;
WHEREAS, it is a condition to the execution and delivery of the Stock
Purchase Agreement that the parties thereto execute and deliver an agreement
granting the Purchasers certain registration rights with respect to the Shares,
upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Certain Definitions. As used herein, the following terms shall have the
following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
"Holder" or "Holders" shall mean any holder of the Registrable
Securities.
The terms "register," "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean the Shares and any securities
issued in respect of the Shares upon any stock split, stock dividend, merger,
consolidation, recapitalization or similar event.
<PAGE>
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with Sections 2 or 3 hereof, including, without
limitation, any registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
reasonable fees and expenses (not to exceed $5,000) of one counsel for all the
selling Holders and other holders of the Company's securities and the expense of
any special audits incident to or required by any such registration (but
excluding the compensation of regular employees of the Company, which shall be
paid in any event by the Company).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder (other than the fees and disbursements
of counsel included under Registration Expenses).
2. Registration. Promptly after the date hereof, the Company shall use
best efforts to effect, as promptly as practicable, the registration of the
Registrable Securities on Form S-3 (including, without limitation, the execution
of an undertaking to file post-effective amendments, appropriate qualification
under applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act) or, if
for any reason Form S-3 is not available, on such other Form as may be
appropriate for the registration of the Registrable Securities, provided that
such registration statement shall be filed with the Commission within 45 days of
the date hereof. The Company shall keep such Registration Statement effective,
or shall file such post-effective amendments or subsequent Registration
Statements as are necessary to enable the Holders to distribute the Registrable
Securities, until three years from the date hereof. The Company will be entitled
to impose limited blackout periods during which the Holders will not be able to
sell pursuant to Registration Statements, if it determines, in its reasonable
judgment after consultation with Company's counsel, that such sales would
require the premature announcement of any material financing, acquisition,
corporate reorganization or other material corporate transaction or development
involving the Company if, in the Company's reasonable determination, such
announcement would be materially detrimental to the interests of the Company and
its stockholders. The postponement or interruption will be for the minimum
period reasonably required to avoid such premature disclosure.
3. "Piggyback" Registration; Underwriting.
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a securityholder or securityholders
exercising their respective demand registration rights (other than a
registration relating solely to employee benefit plans, a registration relating
solely to a Commission Rule 145 transaction or a registration on any
registration form which does not permit secondary sales), then the Company will:
(i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other
state securities laws); and
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<PAGE>
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in
a written request or requests, made by any Holder within thirty (30) days
after receipt of the written notice from the Company described in clause
(i) above, except as set forth in Section 3(b) below. Such written request
may specify all or a part of a Holder's Registrable Securities.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders by written notice. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company
distributing its securities for its own account through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
this Section 3, if the representative of the underwriters advises the Company in
writing that, in its opinion, inclusion of the Registrable Securities in the
underwriting would materially and adversely affect the underwriting, the
representative may (subject to the allocation priority set forth below), limit
the number of Registrable Securities to be included in the registration and
underwriting. The Company shall so advise all holders of securities requesting
registration, and the number of shares that are entitled to be included in the
registration and underwriting shall be allocated first to the Company for
securities being sold for its account and then in the following manner:
(i) the securities requested to be registered by other persons
(other than the Purchasers as defined in the Registration Rights Agreement
dated May 7, 1996 between the Company and such Purchasers) who by virtue
of agreements with the Company are entitled to include their securities in
any such registration (collectively, "Other Stockholders") shall be
excluded from such registration and underwriting to the extent required by
such limitation in proportion, as nearly as practicable, to the respective
amounts of securities which they had requested to be registered, and
(ii) if a limitation on the number of shares is still
required, the securities being sold for the account of the Holders shall
be excluded from such registration and underwriting to the extent required
by such limitation in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities which
they had requested to be included in such registration, it being
acknowledged that such shares shall be excluded prior to the exclusion of
shares requested to be registered by the parties to the May 7, 1996,
Registration Rights Agreement.
If any Holder of Registrable Securities or Other Stockholder who has requested
inclusion in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the other Holders. The securities so withdrawn
shall also be withdrawn from registration.
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<PAGE>
(c) Notwithstanding the foregoing, in the event that the Company
gives the notice provided for in Section 3(a)(i) above and any Holder elects not
to participate in the offering described in such notice, or fails to provide the
notice of intent to participate within the time prescribed therefor, then such
Holder shall not sell, assign, mortgage, transfer, pledge, create a security
interest in or lien upon, encumber, give, place in trust, hypothecate or
otherwise in any manner dispose of any of the Registrable Securities then held
by such Holder for a period commencing on the date of the aforesaid notice from
the Company until thirty (30) days following the effectiveness of the
registration statement relating to the offering.
4. Expenses and Procedure of Registration.
(a) The Company shall bear all Registration Expenses and the selling
securityholders shall bear all Selling Expenses (in proportion, as nearly as
practicable, to the securities of each securityholder being registered) incurred
in connection with any registration, qualification or compliance pursuant to the
provisions of Section 2 or 3.
(b) In the case of each registration effected by the Company
pursuant to this Agreement (other than those effected pursuant to Section 2),
the Company will keep each Holder advised in writing as to the initiation of
each registration and as to the completion thereof. At its expense, the Company
will:
(i) Keep such registration effective for a period of six
months or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(ii) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of securities covered by such registration statement;
(iii) Furnish such number of prospectuses and other documents
incident thereto, including any term sheet or any amendment of or
supplement to the prospectus, as a Holder from time to time may reasonably
request;
(iv) Cause all such Registrable Securities to be listed on
each, if any, securities exchange on which similar securities issued by
the Company are then listed; and
(v) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission.
5. Indemnification.
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<PAGE>
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder, with respect to
which registration, qualification or compliance has been effected pursuant to
this Section 5, and each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors and partners, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses as they are
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by such Holder
or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by it are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company or such
underwriter within the meaning of the Securities Act and the rules and
regulations thereunder, each other Holder and each of their officers, directors
and partners, and each person controlling such Holder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Holders,
directors, officers, partners, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
and stated to be specifically for use therein.
(c) Each party entitled to indemnification under this Section 5 (the
"Indemnified Party") shall give notice in writing to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably
\ -5-
<PAGE>
be withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 5. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 5 is
unavailable to an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the Company on the one hand and the shareholders offering securities in the
offering (the "Selling Shareholders") on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and the Selling Shareholders on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Selling Shareholders and the parties' relevant intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Selling Shareholders agree that it would not be
just and equitable if contribution pursuant to this Section 5(d) were based
solely upon the number of entities from whom contribution was requested or by
any other method of allocation which does not take account of the equitable
considerations referred to above in this Section 5(d). The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages and
liabilities referred to above in this Section 5(d) shall be deemed to include
any legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of the Securities
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
6. Information by Holder. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may request in writing and
as shall be necessary or desirable in connection with any registration,
qualification or compliance referred to in this Agreement.
7. Transfer or Assignment of Registration Rights. The rights to cause the
Company to register securities granted to the Holders by the Company under
Sections 2 or 3 may be transferred or assigned, provided that the Company is
given written notice at the time of or within a reasonable time after said
transfer or assignment, stating the name and address of said transferee or
assignee and identifying the Registrable Securities with respect to which such
registration rights are being transferred or assigned, and provided further that
the transferee or assignee of such rights assumes the obligations of the Holders
under this Agreement.
-6-
<PAGE>
8. Termination. The Company's obligations under Sections 2 and 3 of this
Agreement shall terminate on the third anniversary of the date hereof.
9. Entire Agreement; Amendment; Waiver. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof. No amendment, alteration or modification of this Agreement shall be
valid unless in each instance such amendment, alteration or modification is
expressed in a written instrument executed by the Company and the Holders of at
least majority of the Registrable Securities. No waiver of any provision of this
Agreement shall be valid unless it is expressed in a written instrument duly
executed by the party or parties making such waiver. The failure of any party to
insist, in any one or more instances, on performance of any of the terms and
conditions of this Agreement shall not be construed as a waiver or
relinquishment of any rights granted hereunder or of the future performance of
any such term, covenant or condition but the obligation of any party with
respect thereto shall continue in full force and effect.
10. Specific Performance. The parties hereby declare that it is impossible
to measure in money the damages which will accrue to a party hereto by reason of
a failure to perform any of the obligations under this Agreement. Therefore, all
parties hereto shall have the right to specific performance of the obligations
of the other parties under this Agreement, and if any party hereto shall
institute an action or proceeding to enforce the provisions hereof, any person
(including the Company) against whom such action or proceeding is brought hereby
waives the claim or defense therein that such party has an adequate remedy at
law, and such person shall not urge in any such action or proceeding the claim
or defense that such remedy at law exists.
11. Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first-class mail, postage
prepaid, return receipt requested, or transmitted by facsimile (receipt
confirmed by telephone) or delivered either by hand, by messenger or by
nationally recognized overnight courier, addressed:
(a) if to the holders of the Registrable Securities, to such other
address as they shall have furnished to the Company in writing or, in the
case of Dolphin Offshore Partners, L.P.,
c/o Dolphin Management Inc.
2nd Floor
129 East 17th Street
New York, New York 10003
Attn: Peter Salas
Fax: (212) 533-1182
and
(b) if to the Company, to the following address, or at such other
address as the Company shall have furnished to the holders of the
Registrable Securities and each such other holder in writing,
-7-
<PAGE>
Paging Partners Corporation
Freehold Office Plaza
4249 Route 9 North
Building 2
Freehold, New Jersey 07728
Attn: President
Fax: (201) 409-7366
with a copy to:
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103
Attention: Vincent J. McGill, Esq. or
Monte Engler, Esq.
Fax: (212) 262-5152
Alternatively, to such other address as a party hereto supplies to each
other party in writing.
12. Successors and Assigns. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective transferees, successors and assigns of the parties hereto, whether so
expressed or not.
13. Governing Law. This Agreement is to be governed by and interpreted
under the laws of the State of New York giving effect to the principles of
conflicts of laws thereof.
14. Titles and Subtitles. The titles of the sections of this Agreement are
for the convenience of reference only and are not to be considered in construing
this Agreement.
15. Severability. The invalidity or unenforceability of any provisions of
this Agreement shall not be deemed to affect the validity or enforceability of
any other provision of this Agreement.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PAGING PARTNERS CORPORATION
By: ___________________________________________
Richard Giacchi; President
PURCHASERS
Dolphin Offshore Partners, L.P.
By: ___________________________________________
Name:
Title: ________________________________________
No. of Shares: 400,000
_______________________________________________
Name: Robert Davidoff
No. of Shares: 45,000
_______________________________________________
Name: Leonard Fink
No. of Shares: 45,000
_______________________________________________
Name: Monte Engler
No. of Shares: 15,000
_______________________________________________
Name: Richard Giacchi
No. of Shares: 10,000
-9-
Exhibit 10.14
SECOND WAIVER AND AMENDMENT AGREEMENT
This SECOND WAIVER AND AMENDMENT AGREEMENT (this "Agreement") is entered
into this _____ day of March, 1997 ("Effective Date"), by and among MOTOROLA,
INC., a Delaware corporation with offices at 1301 East Algonquin Road,
Schaumburg, Illinois 60196, by its Paging Division ("Motorola"), and PAGING
PARTNERS CORPORATION, a Delaware corporation, with offices at 4245 Route 9,
Freehold, New Jersey 07728 ("You" or the "Borrower").
WHEREAS, the parties hereto entered into a Credit Agreement dated as of
June 29, 1995, as amended by a Waiver and Amendment Agreement dated as of
February 27, 1996 (as amended, the "Credit Agreement"), pursuant to which
Motorola provided financing to You for the purchase of certain equipment and
services on the terms and conditions set forth in the Credit Agreement,
including, without limitation, the Standard Terms and Conditions attached as
Exhibit A thereto (the "Standard Terms and Conditions") and each of the other
Exhibits attached thereto; and
WHEREAS, the parties hereto wish to amend certain provisions
of the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Any capitalized terms not defined herein shall have the same meaning as
given those terms in the Credit Agreement or the Standard Terms and Conditions.
2. Pursuant to the Credit Agreement, You agreed to maintain the financial
ratios and covenants provided for in Exhibit D attached thereto (the "Agreed
Financial Ratios"), including, without limitation, EBITDA of not less than (or
in the case of losses, not exceeding) certain specified amounts for certain
quarters. You have indicated that your EBITDA for the fiscal quarter ending
September 30, 1996 and for the fiscal quarter ending December 31, 1996 (the
"Periods") failed to satisfy the Agreed Financial Ratios set forth in Section 3
of Exhibit D to the Credit Agreement for the Period (such failure, the "Existing
Default"). You agree that the Existing Default constitutes a breach of the
provisions of the Credit Agreement. You further agree that, to the extent any
notice of the Existing Default is required by applicable law or the Credit
Agreement, You have either received such notice, this Agreement constitutes such
notice, or to the extent permitted by applicable law, You hereby waive any and
all such notice. You have requested and Motorola hereby agrees to waive the
Existing Default. This waiver (the "Waiver") shall not operate as a waiver of
any other term or provision of the Credit Agreement or the Standard Terms and
Conditions or of the provision with respect to
- 1 -
<PAGE>
which the Waiver is given for any period other than the Periods, nor shall it
prohibit Motorola from declaring any future default with respect to the Agreed
Financial Ratios or any other breach or default under the Credit Agreement.
3. The first two sentences of Section 1 of the Credit Agreement, "Amount
of Credit; Note", are hereby amended in their entirety and shall read as
follows:
The aggregate principal amount of Credit that may be drawn down
under this Credit Agreement shall be $2,270,000.00. You may obtain
advances under this Credit Agreement until June 30, 1997 if, at the
time of requesting an advance, you have complied with all
Requirements for Advances. The last $790,543.00 of funds available
for advances under the Credit may only be used by You for the
purchase by You of equipment and services identified in Schedule A
attached hereto.
4. Section 4 of the Credit Agreement, "Repayment Terms", is hereby amended
in its entirety and shall read as follows:
4. Repayment Terms. You shall make monthly interest payments
in arrears until July 1, 1997. Subject to Sections 13 and 14 below,
on July 15, 1997, all of the outstanding principal of each advance
under this Credit Agreement, together with all accrued and unpaid
interest and any other amounts due hereunder shall become due and
payable, and You shall pay MOTOROLA all of such amounts in full in
immediately available funds on such date; provided that such
principal amount shall not become due on July 15, 1997 if You shall
have delivered the items required by Sections 13(a) and (b) prior to
July 8, 1997 or shall have satisfied the conditions set forth in
Sections 14(a) and (b). Until July 1, 1997, MOTOROLA will send You,
on or before the first day of each month, monthly invoices showing
the total accrued and unpaid interest as of the first day of such
month (but not including such day). Each such invoice shall be due
and payable on the first day of each month. You agree to pay each
invoice on or before its due date. Your failure to pay an invoice
within fifteen days of its due date constitutes an Event of Default
under this Credit Agreement.
5. Section 1 of Exhibit D of the Credit Agreement, "Financial Restrictions
and Covenants", is hereby amended in its entirety and shall read as follows:
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<PAGE>
1) The Company's Debt Service Ratio, as of the last day of each fiscal
quarter set forth below, of not less than the correlative amount
specified below. Debt Service Ratio is defined in the Standard Terms
and Conditions (Exhibit "A").
September 30, 1995 N/A
December 31, 1995 N/A
March 31, 1996 N/A
June 30, 1996 N/A
September 30, 1996 N/A
December 31, 1996 N/A
March 31, 1997 N/A
June 30, 1997 N/A
September 30, 1997 N/A
December 31, 1997 N/A
and thereafter
6. Section 2 of Exhibit D of the Credit Agreement, "Financial Restrictions
and Covenants", is hereby amended in its entirety and shall read as follows:
2) The Company's Tangible Net Worth position for the term of this
Credit Agreement shall never fall below Three Million Dollars
($3,000,000) during 1997, Two Million Five Hundred Thousand Dollars
($2,500,000) during 1998, and Two Million Dollars ($2,000,000)
during 1999 and thereafter. Tangible Net Worth is defined in the
Standard Terms and Conditions (Exhibit "A").
7. Section 3 of Exhibit D of the Credit Agreement, "Financial Restrictions
and Covenants", is hereby amended in its entirety and shall read as follows:
3) EBITDA, as of the last day of each fiscal quarter set forth below,
of not less than (or, in case of a loss, not in excess of) the
correlative amount specified below. The amounts specified below are
specific for the quarter and do not represent a cumulative total.
EBITDA is defined in the Standard Terms and Conditions (Exhibit
"A").
September 30, 1995 ($485,000)
December 31, 1995 ($450,000)
March 31, 1996 ($425,000)
June 30, 1996 ($441,000)
September 30, 1996 ($438,000)
December 31, 1996 ($260,000)
March 31, 1997 ($200,000)
June 30, 1997 ($120,000)
September 30, 1997 ($20,000)
December 31, 1997 $80,000
- 3 -
<PAGE>
March 31, 1998 $140,000
June 30, 1998 $200,000
September 30, 1998 $260,000
December 31, 1998 $320,000
and thereafter
8. Section 1 of Exhibit A of the Credit Agreement "Standard Terms and
Conditions" is hereby amended as follows:
(a) The following definitions are hereby added:
"Cash Equivalents" means (i) securities with maturities of 3 months
or less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof, (ii)
certificates of deposit and eurodollar time deposits with maturities
of three months or less from the date of acquisition and overnight
bank deposits of any commercial bank having capital and surplus in
excess of $500,000,000, (iii) repurchase obligations of any
commercial bank satisfying the requirements of clause (ii) of this
definition, having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United
States Government, (iv) securities with maturities of 3 months or
less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States, by any
political subdivision or taxing authority of any such state,
commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may
be) are rated at least A by S&P or A by Moody's, or (v) shares of
money market mutual or similar funds which invest exclusively in
assets satisfying the requirements of clauses (i) through (iv) of
this definition.
"Equity Securities" means any equity securities of the Borrower, any
securities convertible into or evidencing the right to purchase or
subscribe for any shares of equity securities (other than debt
instruments) of the Borrower, including, without limitation,
options, warrants, calls, subscriptions, rights, commitments or any
other agreements of a similar character obligating the Borrower to
issue any equity securities.
(b) The definition of "Subordinated Debt" is
hereby amended and restated in its entirety as follows:
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<PAGE>
"Subordinated Debt" means any indebtedness of the Borrower which (i)
by its terms does not allow the payment of any principal unless and
until the indebtedness under this Credit Agreement has been paid in
full, (ii) if any security interest or other lien in any property of
the Borrower is granted by the Borrower to secure such indebtedness,
each such security interest or other lien is subordinated and junior
in all respects to security interests and other liens on the same
property securing the indebtedness hereunder, and (iii) each holder
of any such indebtedness has executed and delivered to MOTOROLA a
subordination agreement, substantially in the form of Exhibit I
hereto.
9. Section 5 of Exhibit D of the Credit Agreement, "Financial Restrictions
and Covenants", is hereby amended in its entirety and shall read as follows:
5) The Borrower shall maintain cash and Cash Equivalents that
exceed Four Hundred Thousand Dollars ($400,000) as of December
31, 1996 and Two Hundred Thousand Dollars ($200,000) as of
March 31, 1997 and that at all other times during the term of
this Credit Agreement exceed One Hundred Twenty Thousand
Dollars ($120,000).
10. The Credit Agreement is hereby amended by adding the following new
Sections 13 and 14:
13. Failure to Satisfy Certain Conditions.
In the event that You (i) shall have failed to maintain any of the
financial covenants and ratios required pursuant to this Credit Agreement,
as amended, for any period prior to July 1, 1997, or (ii) between January
1, 1997 and July 1, 1997, shall have failed to raise net proceeds of not
less than (x) $500,000 (excluding any amounts raised and used to cure
EBITDA covenant breaches pursuant to Section 6.9 of the Standard Terms and
Conditions) from the issuance of Equity Securities, (y) $700,000
(excluding any amounts raised and used to cure EBITDA covenant breaches
pursuant to Section 6.9 of the Standard Terms and Conditions) from the
issuance of Subordinated Debt, or (z) $700,000 (excluding any amounts
raised and used to cure EBITDA covenant breaches pursuant to Section 6.9
of the Standard Terms and Conditions) from the issuance of a combination
of Subordinated Debt and Equity Securities, You agree that:
a. On or before July 8, 1997, in exchange for the then
existing promissory note evidencing advances hereunder,
You shall issue a $2,270,000.00 face amount promissory
- 5 -
<PAGE>
note in substantially the form attached hereto as Exhibit J, duly
executed on behalf of the Borrower.
b. You shall issue warrants in substantially the form attached hereto
as Exhibit K exercisable for shares of common stock of the Borrower
in the amounts and on the dates set forth on Schedule K-1, which
amounts are subject to adjustment as provided in Schedule K-1.
c. On or before August 1, 1997, You shall retain a reputable
brokerage company or sales agent (the "Sales Agent")
reasonably acceptable to Motorola on terms and conditions
reasonably acceptable to Motorola. The Borrower shall
use its reasonable best efforts to arrange, and the
Borrower shall authorize and direct the Sales Agent to
assist the Borrower in arranging, for the sale of such
portion or portions of the assets or equity of the
Borrower on or before January 31, 1998, in a transaction
or series of transactions that will result in MOTOROLA
being paid in full all of the outstanding principal of
each advance under this Credit Agreement, together with
all accrued and unpaid interest and any other amounts due
hereunder no later than January 31, 1998. MOTOROLA
acknowledges that to the extent the consummation of any
such transaction requires the approval of the Borrower's
Board of Directors, this Agreement does not purport to
and shall not be deemed to require any member of the
Board of Directors to breach any fiduciary duty owed by
such member to the Borrower or the stockholders of the
Borrower. Failure to retain or maintain a Sales Agent or
failure to diligently pursue the sale contemplated by
this Section 13 shall constitute an Event of Default
under this Credit Agreement. Borrower hereby authorizes
MOTOROLA to discuss the prospects for any sale
contemplated by this Section 13 directly with any Sales
Agent retained by Borrower. Borrower shall provide
MOTOROLA with copies of all contracts, notices,
correspondence or other documents sent to or received
from any Sales Agent (the "Sales Agent Documents"). In
the case of any Sales Agent Documents sent to the Sales
Agent by the Borrower, the Borrower shall send MOTOROLA
a copy thereof at the same time that it sends any such
Sales Agent Document to the Sales Agent. In the case of
any Sales Agent Document received by the Borrower from
the Sales Agent, the Borrower shall send MOTOROLA a copy
thereof no later than the Business Day following the
Borrower's receipt of any such Sales Agent Document.
14. Satisfaction of Certain Conditions.
In the event that You (a) shall have maintained each of the financial
covenants and ratios required pursuant to this
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<PAGE>
Credit Agreement (as amended) for each period prior to July 1, 1997, and
(b) between January 1, 1997 and July 1, 1997, shall have raised net
proceeds of not less than (x) $500,000 (excluding any amounts raised and
used to cure EBITDA covenant breaches pursuant to Section 6.9 of the
Standard Terms and Conditions) from the issuance of Equity Securities, (y)
$700,000 (excluding any amounts raised and used to cure EBITDA covenant
breaches pursuant to Section 6.9 of the Standard Terms and Conditions)
from the issuance of Subordinated Debt, or (z) $700,000 (excluding any
amounts raised and used to cure EBITDA covenant breaches pursuant to
Section 6.9 of the Standard Terms and Conditions) from the issuance of a
combination of Subordinated Debt and Equity Securities, the following
shall occur:
a. the advances under this Credit Agreement shall be
reamortized in accordance with the following
payment schedule:
Payment Date Principal Amount(1)
July 1, 1997 $22,000
August 1, 1997 $22,000
September 1, 1997 $22,000
October 1, 1997 $22,000
November 1, 1997 $22,000
December 1, 1997 $22,000
January 1, 1998 $32,000
February 1, 1998 $32,000
March 1, 1998 $32,000
April 1, 1998 $32,000
May 1, 1998 $32,000
June 1, 1998 $32,000
July 1, 1998 $32,000
- ----------
(1) Or, if less, such amount on any payment date as shall be sufficient to
pay the then aggregate outstanding principal amount in full.
- 7 -
<PAGE>
August 1, 1998 $32,000
September 1, 1998 $32,000
October 1, 1998 $32,000
November 1, 1998 $32,000
December 1, 1998 $32,000
January 1, 1999 $37,000
February 1, 1999 $37,000
March 1, 1999 $37,000
April 1, 1999 $37,000
May 1, 1999 $37,000
June 1, 1999 $37,000
July 1, 1999 $37,000
August 1, 1999 $37,000
September 1, 1999 $37,000
October 1, 1999 $37,000
November 1, 1999 $37,000
December 1, 1999 $37,000
January 1, 2000 $42,000
February 1, 2000 $42,000
March 1, 2000 $42,000
April 1, 2000 $42,000
May 1, 2000 $42,000
June 1, 2000 $42,000
July 1, 2000 $42,000
August 1, 2000 $42,000
September 1, 2000 $42,000
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<PAGE>
October 1, 2000 $42,000
November 1, 2000 $42,000
December 1, 2000 $42,000
January 1, 2001 $42,000
February 1, 2001 $42,000
March 1, 2001 $42,000
April 1, 2001 $42,000
May 1, 2001 $42,000
June 1, 2001 $42,000
July 1, 2001 $42,000
August 1, 2001 $42,000
September 1, 2001 $42,000
October 1, 2001 $42,000
November 1, 2001 $42,000
December 1, 2001 $42,000
January 1, 2002 $42,000
February 1, 2002 $42,000
March 1, 2002 $42,000
April 1, 2002 $42,000
May 1, 2002 $42,000
June 1, 2002 $42,000
July 1, 2002 $30,811
b. On or before July 8, 1997, in exchange for the then existing
promissory note evidencing advances hereunder, You shall issue
a $2,270,000.00 face amount promissory note in substantially
the form attached hereto as Exhibit L, duly executed on behalf
of the Borrower.
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<PAGE>
c. The financial covenants and ratios contained in
Exhibit D of the Credit Agreement shall be amended
as follows:
Section 5 of Exhibit D of the Credit Agreement, "Financial
Restrictions and Covenants", shall be amended, effective as of July
1, 1997, in its entirety and shall read as follows:
5) The Borrower shall maintain cash and Cash
Equivalents that at all times during the term of
this Credit Agreement exceed Four Hundred Thousand
Dollars ($400,000).
11. Exhibit A, Standard Terms and Conditions, of the Credit Agreement is
hereby amended by adding the following new Sections 4.1.6, 6.8 and 6.9:
4.1.6 As soon as available but no later than 20 days after the end
of each month, commencing on March 20, 1997, You will provide MOTOROLA
with unaudited statements of earnings for the preceding month and a
balance sheet as of the last day of the preceding month.
6.8. Additional Remedy. In addition to all other rights
and remedies of MOTOROLA hereunder or under any applicable
law, the Borrower shall:
(a) issue warrants in substantially the form attached hereto as
Exhibit K exercisable for shares of common stock of the Borrower in
the amounts and on the dates set forth on Schedule K-2, which
amounts are subject to adjustment as provided in Schedule K-2;
(b) within 30 days of Motorola sending You a notice of an Event of
Default, You shall retain a reputable brokerage company or sales
agent (the "Sales Agent") reasonably acceptable to Motorola on terms
and conditions reasonably acceptable to Motorola;
(c) the Borrower shall use its reasonable best efforts to arrange,
and the Borrower shall authorize and direct the Sales Agent to
assist the Borrower in arranging, for the sale of such portion or
portions of the assets or equity of the Borrower on or before the
day that is six months after the date on which Motorola sends the
Borrower a notice of an Event of Default, in a transaction or series
of transactions that will result in MOTOROLA being paid in full all
of the outstanding principal of each advance under this Credit
Agreement, together with all accrued and unpaid interest and any
other amounts due hereunder no later than the day that is six months
after the date
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<PAGE>
on which Motorola sends the Borrower a notice of an Event of
Default; provided that MOTOROLA acknowledges that to the extent the
consummation of any such transaction requires the approval of the
Borrower's Board of Directors, this Agreement does not purport to
and shall not be deemed to require any member of the Board of
Directors to breach any fiduciary duty owed by such member to the
Borrower or the stockholders of the Borrower; and
(d) effective as of the date on which Motorola sends the Borrower a
notice of an Event of Default, Borrower hereby authorizes MOTOROLA
to discuss the prospects for any sale contemplated by this Section
directly with any Sales Agent retained by Borrower; and
(e) Borrower shall provide MOTOROLA with copies of all contracts,
notices, correspondence or other documents sent to or received from
any Sales Agent (the "Sales Agent Documents") as follows: (i) in the
case of any Sales Agent Documents sent to the Sales Agent by the
Borrower, the Borrower shall send MOTOROLA a copy thereof at the
same time that it sends any such Sales Agent Document to the Sales
Agent and (ii) in the case of any Sales Agent Document received by
the Borrower from the Sales Agent, the Borrower shall send MOTOROLA
a copy thereof no later than the Business Day following the
Borrower's receipt of any such Sales Agent Document.
6.9. Special Cure Right. Notwithstanding any other provision
of this Credit Agreement, in the event Borrower breaches
any EBITDA covenant, Borrower may cure such breach by
causing a capital contribution to be made to Borrower in
cash or by obtaining cash proceeds of Equity Securities
or Subordinated Debt, in each case, within 10 days after
Borrower receives notice from MOTOROLA of any such
breach, in an amount equal to the amount of the
additional revenue Borrower would have needed to have
generated for the applicable period in order to have
complied with such EBITDA covenant.
12. The Borrower, in exchange for its existing promissory note evidencing
advances hereunder, hereby issues a $2,270,000.00 face amount promissory note in
substantially the form attached hereto as Annex A, duly executed on behalf of
the Borrower.
13. The Credit Agreement is hereby amended by adding Exhibits I, J, K and
L, and Schedule A, Schedule K-1 and Schedule K-2 in the forms attached hereto.
14. The Credit Agreement, the Standard Terms and Conditions, and the other
Exhibits, as amended hereby, are in full force and
- 11 -
<PAGE>
effect, and constitute the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their terms. The Borrower
acknowledges that as of March 1, 1997 (but not including such date), it owes
Motorola $1,466,544.43 in principal under the Credit Agreement and $14,204.84 in
accrued and unpaid interest. No claims or defenses exist with respect to the
Existing Default or otherwise with respect to the amounts owed to Motorola under
the Credit Agreement, or with respect to the rights or remedies of Motorola
under the Credit Agreement, or, to the extent that any such claim or defense may
exist, You hereby irrevocably and unconditionally waive each and every such
claim and defense.
15. You have no claims of liability or rights of action against Motorola
or Motorola's employees, agents and affiliates as of the date hereof and know of
no basis for any such claim or right of action, including, without limitation,
in connection with the sale by Motorola of any goods or services to the
Borrower, the Credit, the Credit Agreement, the drawdown of the Credit,
Motorola's administration of the Credit or otherwise arising out of Motorola's
dealings with respect thereto or in connection therewith, or, to the extent any
such claims or rights of action exist, whether known or unknown, You hereby
irrevocably and unconditionally release Motorola and Motorola's employees,
agents, and affiliates from any and all liability with respect thereto. All
discussions and communications to date have been conducted in good faith and
without undue influence by Motorola, and You hereby release Motorola and its
employees from any and all lender liability and other claims which You may have
against Motorola.
16. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Illinois applicable to contracts made and performed
therein, without reference to the conflicts of law principles thereof.
17. Purchaser agrees to pay or reimburse Motorola $20,004.58 for all its
costs and expenses incurred in connection with the execution and delivery of, or
consummation of any of the transactions contemplated by, this Agreement and any
related documents.
18. This Agreement may be executed in any number of separate counterparts
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument.
- 12 -
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly
executed and delivered by the proper and duly authorized officers of such party
as of the day and year first above written.
PAGING PARTNERS CORPORATION
By: ____________________________
Name:
Title:
MOTOROLA, INC.
By: ____________________________
Name:
Title:
- 13 -
Exhibit 10.15
Amount: $2,270,000.00 Date: March 11, 1997
AMENDED AND RESTATED PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned (the "Borrower" or "you") hereby
promises to pay to the order of Motorola, Inc. ("MOTOROLA") a Delaware
corporation, at its principal offices at 1303 East Algonquin Road, Schaumburg,
Illinois 60196, the principal sum of TWO MILLION TWO HUNDRED SEVENTY THOUSAND
Dollars ($2,270,000.00) or, if less, the aggregate unpaid principal amount of
all advances made by MOTOROLA to the Borrower under the Credit Agreement (the
"Credit Agreement") dated as of June 29, 1995, as amended, between the Borrower
and MOTOROLA, together with interest on the entire principal balance from time
to time outstanding hereunder.
Interest shall accrue as of the date of this Note and shall be
calculated on the entire principal balance outstanding from time to time at a
rate per annum equivalent to six percent (6%) in excess of the Commercial Paper
Rate (for high-grade unsecured notes sold through dealers by major corporations,
90-day average maturities), published each Business Day in the Wall Street
Journal, in effect on the first day of each calendar quarter. Interest shall be
payable monthly in arrears on the first day of each month. The first interest
payment shall be due on the first day of the month first following the date of
the first advance under the Credit Agreement. Interest shall be calculated on a
365/366 day year basis for actual days elapsed. Upon the occurrence of an Event
of Default, the interest rate shall be increased by a further three percent (3%)
per annum above the rate otherwise applicable or (if lesser) the maximum rate
permitted by law. In no event shall the holder of this Note be entitled to claim
any sum or rate of interest in excess of the maximum allowed by law. Any payment
in excess of such maximum sum or amount of interest shall be applied to reduce
outstanding principal or shall be refunded to Borrower, at MOTOROLA's option.
MOTOROLA shall record on its books or records or on the schedule to
this Note, which is a part hereof, the principal amount of each advance made by
MOTOROLA to the Borrower under the Credit Agreement, all payments and
prepayments of principal and interest, the principal balance from time to time
outstanding and the respective dates and maturity dates thereof. The record
thereof, whether shown on such books or records or on the schedule to this Note,
shall be prima facie evidence as to all amounts owing under this Note; provided,
however, that the failure of MOTOROLA to record any of the foregoing or any
error in such notation shall not limit or otherwise affect the obligation of the
Borrower to repay
1
<PAGE>
the entire Credit under the Credit Agreement together with accrued interest
thereon.
Notwithstanding any provision to the contrary set forth in the
Credit Agreement, all outstanding principal, together with all accrued and
unpaid interest and all other amounts due under or in connection with this Note,
shall be due and payable on July 15, 1997.
This Note is the Promissory Note referred to in, and issued under,
the Credit Agreement and MOTOROLA is entitled to all of the benefits provided
for therein; reference is hereby made to the Credit Agreement for a statement of
all such benefits. Capitalized terms not defined in this Note shall have the
meanings assigned to such terms in the Credit Agreement and the exhibits
attached thereto. Without limiting that reference, MOTOROLA shall be entitled to
recover its attorney's fees and costs in connection with any actions or
proceedings taken to collect any amount due under this Note after any Event of
Default as detailed in the Credit Agreement.
This Note shall be subject to, governed and construed according to
the laws of the State of Illinois, without regard to its provisions on the
conflict of laws.
The maker hereby waives notice, protest, presentment, and notice of
dishonor to the full extent permitted by law. This Note evidences an
indebtedness incurred in connection with a commercial transaction rather than a
consumer or household debt.
YOU AND MOTOROLA AGREE THAT ANY CLAIM, COUNTERCLAIM, SETOFF, OR
DEFENSE RELATING IN ANY WAY TO THIS NOTE, OR TO THE MATTERS AND TRANSACTIONS
GIVING RISE TO THE ADVANCES AND INDEBTEDNESS EVIDENCED BY THIS NOTE, SHALL BE
HEARD AND DETERMINED BY A COURT WITHOUT A JURY.
PAGING PARTNERS CORPORATION
By:________________________________
Richard J. Giacchi
President and Chief Executive Officer
2
Exhibit 10.16
[LETTERHEAD OF BERENSON & COMPANY LLP]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement of
Paging Partners Corporation on Form S-8 of our report dated February 6, 1997,
except notes 5 and 10 as to which the date is March 14, 1997, appearing in the
Annual Report on Form 10-KSB of Paging Partners Corporation for the year ended
December 31, 1996.
/s/ Berenson & Company LLP
New York, New York
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 507,000
<SECURITIES> 0
<RECEIVABLES> 555,000
<ALLOWANCES> 0 <F1>
<INVENTORY> 93,000
<CURRENT-ASSETS> 1,212,000
<PP&E> 4,800,000 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,691,000
<CURRENT-LIABILITIES> 784,000
<BONDS> 1,335,000 <F3>
0
0
<COMMON> 57,000
<OTHER-SE> 4,515,000
<TOTAL-LIABILITY-AND-EQUITY> 6,691,000
<SALES> 1,960,000
<TOTAL-REVENUES> 6,910,000
<CGS> 2,136,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,274,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160,000
<INCOME-PRETAX> (2,716,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,716,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,716,000)
<EPS-PRIMARY> (.50)
<EPS-DILUTED> (.50)
<FN>
<F1> Notes and accounts receivable - trade are reported net of
allowances for doubtful accounts in the Balance Sheet.
<F2> Property, plant, and equipment are reported ent of accumulated
depreciation in the Balance Sheet.
<F3> Excludes current portion.
</FN>
</TABLE>
