<PAGE> 1
PROSPECTUS SUPPLEMENT THIS PROSPECTUS SUPPLEMENT IS FILED UNDER
(TO PROSPECTUS DATED JULY 19, 1996) RULE 424(B)(3) AND RELATES TO
REGISTRATION STATEMENT NO. 33-91142
PAGEMART WIRELESS, INC.
15% SENIOR DISCOUNT EXCHANGE NOTES DUE 2005
--------------
RECENT DEVELOPMENTS
Attached hereto and incorporated by reference herein is the Form 10-Q
Quarterly Report of PageMart Wireless, Inc. for the quarterly period ended
September 30, 1996.
--------------
This Prospectus Supplement, together with the Prospectus, is to be used by
Morgan Stanley & Co. Incorporated in connection with offers and sales of the
above-referenced securities in market-making transactions at negotiated prices
related to prevailing market prices at the time of sale. Morgan Stanley & Co.
Incorporated may act as principal or agent in such transactions.
November 15, 1996
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
==================================
Form 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from to
---------- ----------
Commission File No. 0-28196
PAGEMART WIRELESS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2575229
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6688 N. CENTRAL EXPWY., SUITE 800
DALLAS, TEXAS 75206
(Address of principal executive offices) (Zip Code)
(214) 750-5809
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
---------- ----------
As of November 13, 1996, there were 39,736,438 shares of the registrant's
common stock outstanding.
<PAGE> 3
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1995
AND SEPTEMBER 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 . . . . . . . . . . . . . . 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 . . . . . . . . . . . . . . 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
2
<PAGE> 4
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 26,973 $ 29,865
Accounts receivable, net 21,503 32,305
Inventories 11,179 18,152
Prepaid expenses and other current assets 2,880 2,754
------------ ------------
Total current assets 62,535 83,076
Restricted investments 500 --
Property and equipment, net 52,827 81,565
Narrowband licenses 133,065 133,065
Deferred debt issuance costs, net 8,436 6,942
Other assets 6,466 6,912
------------ ------------
Total assets $ 263,829 $ 311,560
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 23,094 $ 22,802
Current maturities of long-term debt 5,479 --
Deferred revenue 21,409 26,322
Other current liabilities 6,526 6,991
------------ ------------
Total current liabilities 56,508 56,115
Long-term debt 219,364 232,576
Commitments and contingencies
Stockholders' equity (deficit):
Common stock $.0001 par value per share, 75,000,000 shares authorized,
33,710,053 and 39,730,838 shares issued at December 31, 1995 and
September 30, 1996,
respectively 3 4
Additional paid-in capital 154,601 225,235
Accumulated deficit (166,090) (201,823)
Stock subscriptions receivable (557) (547)
------------ ------------
Total stockholders' equity (deficit) (12,043) 22,869
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 263,829 $ 311,560
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these financial statements.
3
<PAGE> 5
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Recurring revenue $ 26,994 $ 39,697 $ 70,845 $ 110,404
Equipment sales and activation fees 16,348 16,253 42,483 43,208
------------ ------------ ------------ ------------
Total revenues 43,342 55,950 113,328 153,612
Cost of equipment sold 17,927 19,216 46,599 50,939
Operating expenses:
Technical 6,949 9,756 18,549 26,679
Selling 9,310 10,691 27,091 30,602
General and administrative 11,406 13,707 31,171 39,669
Depreciation and amortization 3,469 5,714 9,362 14,904
------------ ------------ ------------ ------------
Total operating expenses 31,134 39,868 86,173 111,854
------------ ------------ ------------ ------------
Operating loss (5,719) (3,134) (19,444) (9,181)
Other (income) expense:
Interest expense 8,032 8,720 22,460 26,036
Interest income (614) (482) (1,653) (847)
Other 229 614 837 1,363
------------ ------------ ------------ ------------
Total other (income) expense 7,647 8,852 21,644 26,552
------------ ------------ ------------ ------------
Net loss $ (13,366) $ (11,986) $ (41,088) $ (35,733)
============ ============ ============ ============
Net loss per share
(primary and fully diluted) $ (0.39) $ (0.30) $ (1.25) $ (0.97)
Weighted average number
of shares outstanding
(primary and fully diluted) 34,691 39,731 32,926 36,695
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these financial statements.
4
<PAGE> 6
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months Ended September 30,
-------------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (41,088) $ (35,733)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 9,362 14,904
Provision for bad debt 4,627 4,610
Accretion of discount on senior discount notes 19,254 22,760
Changes in certain assets and liabilities:
Increase in accounts receivable (6,677) (15,412)
(Increase) decrease in inventories 2,781 (6,973)
(Increase) decrease in prepaid expenses and other current assets (1,094) 126
Decrease in other assets, net 67 90
Increase (decrease) in accounts payable 2,604 (292)
Increase in deferred revenue 5,510 4,913
Increase in other current liabilities 3,175 465
------------ ------------
Net cash used in operating activities (1,479) (10,542)
------------ ------------
Cash flows from investing activities:
Purchase of narrowband licenses (74,079) --
Purchases of property and equipment, net (24,887) (42,546)
Release of restricted cash -- 500
Other (2,568) (121)
------------ ------------
Net cash used in investing activities (101,534) (42,167)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 29,578 70,500
Proceeds from issuance of common stock under
the stock option/stock issuance plan 6 135
Payment of stock subscriptions receivable -- 10
Proceeds from issuance of senior discount notes, net 95,001 --
Deferred debt issuance costs incurred for Revolving Credit Agreement (1,386) (17)
Borrowings from vendor credit facilities 6,657 --
Payments on vendor credit facilities (3,129) (15,027)
------------ ------------
Net cash provided by financing activities 126,727 55,601
------------ ------------
Net increase in cash and cash equivalents 23,714 2,892
Cash and cash equivalents, beginning of period 14,507 26,973
============ ============
Cash and cash equivalents, end of period $ 38,221 $ 29,865
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,530 $ 1,154
Income taxes $ -- $ --
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these financial statements.
5
<PAGE> 7
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
1. GENERAL
PageMart, Inc. ("PageMart") was incorporated as a Delaware corporation
on May 8, 1989 to provide wireless messaging products and services. In January
1995, PageMart effected a corporate reorganization pursuant to which PageMart
Nationwide, Inc., a Delaware corporation, became the holding company parent of
PageMart. In December 1995, the corporate name was changed from PageMart
Nationwide, Inc. to PageMart Wireless, Inc. ("Wireless"). Wireless and its
subsidiaries are referred to herein as the "Company." The consolidated
financial statements of the Company include the accounts of PageMart and
PageMart PCS, Inc., a wholly owned subsidiary of Wireless ("PageMart PCS").
PageMart PCS holds certain narrowband personal communications services
licenses. The consolidated financial statements of PageMart include the
accounts of PageMart II, Inc., PageMart Operations, Inc., PageMart of
California, Inc., PageMart of Virginia, Inc. and PageMart International, Inc.
Each of these companies is a wholly-owned subsidiary of PageMart. PageMart II,
Inc. and PageMart Operations, Inc. hold certain Federal Communications
Commission licenses. PageMart International, Inc., which has had no
significant operations to date, holds certain investments in an international
venture in Canada. Other than these licenses and international investments,
the subsidiaries of PageMart have no significant assets or liabilities.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company in accordance with generally accepted
accounting principles for interim financial information and are in the form
prescribed by the Securities and Exchange Commission in instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The interim unaudited financial
statements should be read in conjunction with the audited financial statements
of the Company for the year ended December 31, 1995. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
3. NET LOSS PER SHARE
Net loss per share amounts as reflected on the statements of
operations are based upon the weighted average number of common shares
outstanding. As required by the Securities and Exchange Commission rules, all
warrants, options and shares issued during the year immediately preceding the
initial public offering (see note 5) are assumed to be outstanding prior to the
closing of the initial public offering for all periods presented. Shares
issuable upon the exercise of stock options and warrants granted before the
year immediately preceding the initial public offering or after the closing of
the initial public offering were not included in the net loss per share
calculation as the effect from the exercise of those options would be
antidilutive.
4. LITIGATION
On July 8, 1994, an action against the Company was filed in the United
States District Court for the Eastern District of New York by Universal Contact
Communications Inc., a former reseller of the Company's wireless messaging
devices. The Company terminated the reseller relationship due to a monetary
default by the plaintiff. The Company subsequently contacted plaintiff's
customers in an effort to provide continued service directly through the
Company, and discontinued plaintiff's paging services. In the complaint,
plaintiff alleges, among other things, that the Company violated federal law by
making unsolicited advertisements, breached its contract with plaintiff,
slandered plaintiff, converted certain confidential information and trade
secrets, tortiously interfered with plaintiff's business and contractual
relations, and engaged in unfair competition. Plaintiff seeks, among other
things, compensatory damages of $500,000 with respect to each of the nine
causes of action included in the complaint, punitive damages of $5,000,000, and
various forms of injunctive relief. The Company is vigorously defending the
6
<PAGE> 8
action. Trial has been set for March 3, 1997. In management's opinion, the
ultimate outcome of this lawsuit is not expected to have a material adverse
effect on the results of operations or financial condition of the Company.
5. INITIAL PUBLIC OFFERING
On June 19, 1996, the Company issued an aggregate of 6,000,000 shares
of Class A Common Stock in an initial public offering (the "Offering") at a
price of $13.00 per share. The Company received proceeds from the Offering of
approximately $70.5 million, after deducting underwriting discounts,
commissions, fees and expenses associated with the Offering. Upon receipt of
the net proceeds, the Company retired vendor debt of approximately $12.9
million and repaid approximately $11.9 million of loans outstanding under the
Company's revolving credit facility. The remaining proceeds are expected to be
used to fund the initial construction of the Company's narrowband personal
communications service transmission network and for general corporate purposes.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As used herein, references to "Wireless" will be deemed to be
references solely to PageMart Wireless, Inc., references to "PageMart" will be
deemed to be references to Wireless' principal operating subsidiary, PageMart,
Inc., and references to the "Company" will be deemed to be references to
Wireless and its subsidiaries. This discussion should be read in conjunction
with the PageMart Wireless, Inc. and subsidiaries condensed consolidated
financial statements and the notes thereto included elsewhere in this report.
When used in this discussion, the words 'estimate', 'project', 'plan',
'expect' and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties,
including the timely development and acceptance of new products, the impact of
competitive products and pricing, and those discussed below or in the Company's
Form 10-K for the year ended December 31, 1995, that could cause actual results
to differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof.
GENERAL
The Company has constructed and operates a wireless messaging and
communications network and provides paging and other one-way wireless messaging
services to its subscribers. In addition, the Company sells and distributes
wireless messaging equipment to subscribers, retailers and resellers. The
Company earns recurring revenues from each subscriber in the form of fixed
periodic fees and incurs substantial operating expenses in offering its
services, including technical, customer service and general and administrative
expenses. See "Management's Presentation of Results of Operations."
Since commencing operations in 1990, the Company has invested heavily
in its one-way wireless communications network and administrative
infrastructure in order to establish nationwide coverage, sales offices in
major metropolitan areas, customer service call centers and centralized
administrative support functions. The Company incurs substantial fixed
operating costs related to its one-way wireless communications infrastructure,
which is designed to serve a much larger subscriber base than the Company
currently serves in order to accommodate growth. In addition, the Company
incurs substantial costs associated with new subscriber additions. As a
result, the Company has generated significant net operating losses for each
year of its operations. See "Management's Presentation of Results of
Operations."
The Company's strategy is to expand its subscriber base as rapidly as
possible to increase cash flow through greater utilization of its nationwide
wireless communications network. From September 30, 1995 to September 30,
1996, the number of domestic units in service increased from 1,131,464 to
1,684,937. None of the Company's growth is attributable to acquisitions.
Given its growth strategy and the substantial associated selling and marketing
expenses, the Company expects to continue to generate operating losses in 1996
from its one-way wireless communications business. In addition, the Company
has begun development of two-way wireless messaging services in 1996 and plans
to continue the development and implementation in 1997 and 1998, and expects to
incur additional operating losses during the start-up phase for such services.
The Company does not anticipate any significant revenues from two-way services
during 1996 or 1997; however, it expects to generate significant revenues with
respect to two-way services in 1998. The Company's ability to generate
operating income is primarily dependent on its ability to attain a sufficiently
large installed subscriber base that generates recurring revenues which offset
the fixed operating costs of its wireless networks, administration and selling
and marketing expenses. The Company intends to achieve this growth by
promoting its customized paging and other wireless messaging services through
its national sales offices, retail distribution channels, private brand
strategic alliances with GTE Corporation, Southwestern Bell Mobile Systems,
AT&T Wireless Services, Ameritech Mobile Services, Inc. and long distance
reseller EXCEL Telecommunications, Inc., and international expansion.
During the three months ended September 30, 1996, the Company's
affiliate PageMart Canada Limited ("PageMart Canada") added 4,312 subscribers.
As a result of its ownership interest in PageMart Canada, the Company's share
of the units in service of PageMart Canada was 3,569 units at September 30,
1996.
8
<PAGE> 10
Unlike most other paging carriers, the Company sells, rather than
leases, substantially all of the messaging equipment used by its subscribers.
As a result, the Company has much less capital invested in messaging equipment
than other paging carriers since it recoups a substantial portion of messaging
equipment costs upon sale to retailers and subscribers. This results in
significantly lower capital expenditures and depreciation expense than if the
Company leased such equipment to its subscribers. In addition, the Company's
financial results are much different from other paging carriers that lease
messaging equipment to subscribers because the Company recognizes the cost of
messaging equipment sold in connection with adding new subscribers at the time
of sale rather than capitalizing and depreciating the cost of messaging
equipment over periods ranging from three to five years as occurs with paging
carriers that lease messaging equipment to subscribers. In addition, the
Company's retail distribution strategy results in the recognition of expenses
associated with messaging equipment sales and other sales and marketing
expenses in advance of new subscribers being added to the base and generating
revenues (as retailers carry inventory).
The Company sells its messaging equipment through multiple
distribution channels, including direct sales, third-party resellers, private
brand strategic alliances and local and national retail stores. Selling and
marketing expenses are primarily attributable to compensation paid to the
Company's sales force, advertising and marketing costs and to losses resulting
from the fact that, for competitive and marketing reasons, the Company
generally sells each new unit for less than its acquisition cost. The
Company's accounting practices result in selling and marketing expenses,
including loss on sale of equipment, being recorded at the time a unit is sold.
Units sold by the Company during a given month may exceed units activated and
in service due to inventory stocking and distribution strategies of the
retailers. As a result, selling and marketing expenses per net subscriber
addition may fluctuate from period to period.
The Company derives its recurring revenue primarily from fixed
periodic fees for services that are not generally dependent on usage.
Consequently, the Company's ability to recoup its initial selling and marketing
costs, to meet operating expenses and to achieve profitability is dependent on
the average length of each customer's subscription period. As long as a
subscriber continues to utilize the Company's service, operating results
benefit from the recurring payments of the fixed fees without the incurrence of
additional selling expenses by the Company. Conversely, operating results are
adversely affected by customer disconnections. Each month a percentage of the
Company's existing customers have their service terminated for a variety of
reasons, including failure to pay, dissatisfaction with service and switching
to a competing service provider. The Company's average monthly disconnection
rates for the twelve months ended December 31, 1993, 1994, 1995 and September
30, 1996 were 3.7%, 3.4%, 2.5% and 2.3%, respectively.
Approximately 90% of the Company's average monthly revenue per unit
("ARPU") is attributable to fixed fees for airtime, coverage options and
features. A portion of the remainder of additional ARPU is dependent on usage.
RESULTS OF OPERATIONS
The Company's principal operations to date are its domestic one-way
wireless messaging division. The following discussion of results of operations
analyzes the results of the Company's one-way wireless messaging operations,
unless otherwise indicated.
Certain of the following financial information is presented on a per
unit basis. Management of the Company believes that such a presentation is
useful in understanding the Company's results because it is a meaningful
comparison period to period given the Company's growth rate and the significant
differences in the number of subscribers of other paging companies.
9
<PAGE> 11
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
Units in Service
Units in service from domestic operations were 1,131,464 and 1,684,937
as of September 30, 1995 and 1996, respectively, representing an annual growth
rate of 49%. In addition, during the quarter ended September 30, 1996,
PageMart Canada added 4,312 subscribers. As a result of its ownership interest
in PageMart Canada, the Company's share of the units in service of PageMart
Canada was 3,569 units at September 30, 1996. The Company has experienced
strong growth in units in service due primarily to the success of its sales and
marketing strategies in the direct sales, national retail and third-party
reseller channels, as well as from private brand strategic alliance programs.
Revenues
Revenues for the three and nine months ended September 30, 1996 were
$56.0 million and $153.6 million, respectively, compared to $43.3 million and
$113.3 million for the three and nine months ended September 30, 1995.
Recurring revenues for airtime, voicemail, and other services for the three and
nine months ended September 30, 1996 were $39.7 million and $110.4 million,
respectively, compared to $27.0 million and $70.8 million for the comparable
periods ended September 30, 1995. Revenues from equipment sales and activation
fees for the three and nine months ended September 30, 1996 were $16.3 million
and $43.2 million, respectively, compared to $16.3 million and $42.5 million
for the comparable periods ended September 30, 1995. The increases in
recurring revenues and revenues from equipment sales and activation fees were
primarily due to the rapid growth in the number of units in service. The
increase in equipment sales during 1996 was somewhat offset by a decline in the
average price per unit sold. The Company expects equipment prices per unit
generally to remain constant or decline only slightly as sales volumes
increase.
The Company's ARPU was $8.41 and $8.25 in the third quarter of 1995
and 1996, respectively. In general, over the past twelve months the Company's
ARPU has decreased primarily as a result of an increase in subscribers added
through private brand strategic alliance and third party reseller channels.
This decrease in ARPU has been offset somewhat by a higher mix of multi-city,
regional and nationwide services as well as increased sales of other value-
added services such as voicemail and toll free numbers. Management anticipates
that the Company's ARPU will decline in the foreseeable future due to a higher
mix of subscribers added through private brand strategic alliance programs
which yield lower ARPU. ARPU is lower for subscribers added through private
brand strategic alliances and third party resellers because these are generally
high volume customers that are charged reduced airtime rates. However, because
private brand strategic alliance partners and third party resellers are
responsible for selling and marketing costs, billing, collection and other
administrative costs associated with end-users, the Company incurs
substantially lower administrative costs with respect to such subscribers.
Cost of Equipment Sold
The cost of equipment sold for the three and nine months ended
September 30, 1996 was $19.2 million and $50.9 million, respectively, compared
to $17.9 million and $46.6 million for the three and nine months ended
September 30, 1995, respectively. The change in 1996 was a combination of an
increase in the number of units sold combined with slightly lower average pager
prices paid to suppliers. The Company expects pager costs generally to remain
constant, with only modest reductions in cost to the Company as a result of
volume purchases. Management anticipates that loss on equipment sold will
increase on a per unit basis for the foreseeable future due to increased
competition, especially in the national retail channel.
Operating Expenses
Technical expenses were $9.8 million and $26.7 million for the three
and nine months ended September 30, 1996, respectively, compared to $6.9
million and $18.5 million for the comparable 1995 periods. The increase in
1996 resulted primarily from the continued expansion of the Company's
nationwide network infrastructure, which resulted in greater expenses
associated with the addition of new transmitter sites, transmitter and terminal
equipment and telecommunications expenses. On an average monthly cost per unit
in service basis, technical expenses decreased from $2.16 in the third
quarter of 1995 to $2.03 in the third quarter of 1996. In addition, technical
expenses decreased from $2.16 for the nine months ended September 30, 1995 to
$2.03 for the nine months ended September 30, 1996. During the three and nine
months ended September 30, 1996, the Company incurred $31,000
10
<PAGE> 12
and $228,000, respectively, in technical expenses associated with the
development of its two-way wireless messaging services.
Selling expenses were $10.7 million and $30.6 million for the three
and nine months ended September 30, 1996, respectively, compared to $9.3
million and $27.1 million for the three and nine months ended September 30,
1995, respectively. The increase in 1996 resulted from greater marketing and
advertising costs related to the growth in units sold, as well as from
increased sales compensation because of the addition of sales personnel in new
and existing operating markets. During the nine months ended September 30,
1995 and 1996, the Company added 358,734 and 444,913 net new domestic units in
service, respectively. Sales and marketing employees increased from 446 at
September 30, 1995 to 534 at September 30, 1996. Management views the net loss
on equipment sold to be a component of selling and marketing expenses incurred
to add new subscribers. See "Management's Presentation of Results of
Operations." Selling and marketing expenses per net subscriber addition
(including loss on equipment sales) were $87 and $85 for the nine months ended
September 30, 1995 and 1996, respectively. During the three and nine months
ended September 30, 1996, the Company incurred $66,000 and $308,000,
respectively, in selling expenses associated with its international operations.
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) for the
three and nine months ended September 30, 1996 were $13.7 million and $39.7
million, respectively, compared to $11.4 million and $31.2 million for the
comparable 1995 periods. The increase was attributable to the Company's
expansion of its customer service call centers and continued expansion into new
markets to support the growing subscriber base which required additional office
space, administrative personnel and customer service representatives. On an
average cost per month per unit in service basis, general and administrative
expenses were $3.55 and $2.85 in the third quarter of 1995 and 1996,
respectively, and $3.64 and $3.01 for the nine months ended September 30, 1995
and 1996, respectively. The per unit decrease was a result of increased
operating efficiencies and economies of scale achieved through the growth of
the Company's subscriber base. During the three and nine months ended
September 30, 1996, the Company incurred $39,000 and $166,000, respectively, in
general and administrative expenses associated with the development of its two-
way wireless messaging services.
Depreciation and amortization for the three and nine months ended
September 30, 1996 were $5.7 million and $14.9 million, respectively, compared
to $3.5 million and $9.4 million for the comparable periods ended September 30,
1995. The increase in 1996 resulted from the continued expansion of the
Company's network infrastructure including transmitter and terminal equipment,
as well as the purchase and development of a new centralized administrative
system during 1995 and 1996. As an average cost per month per unit in service,
depreciation and amortization was $1.08 and $1.19 in the third quarter of 1995
and 1996, respectively, and was $1.09 and $1.13 for the nine months ended
September 30, 1995 and 1996, respectively.
Interest Expense
Interest expense for the three and nine months ended September 30,
1996 was $8.7 million and $26.0 million, respectively, compared to $8.0 million
and $22.5 million for the comparable periods ended September 30, 1995. The
increase in 1996 was primarily the result of increased interest expense related
to the 12 1/4% Senior Discount Notes due 2003 issued by PageMart (the "12 1/4%
Notes") and the 15% Senior Discount Notes due 2005 issued by Wireless in
January 1995 (the "15% Notes"). Interest expense related to the 12 1/4% Notes
was $3.0 million and $3.4 million for the three months ended September 30, 1995
and 1996, respectively, and was $8.7 million and $9.8 million for the nine
months ended September 30, 1995 and 1996, respectively. Interest expense
related to the 15% Notes was $4.2 million and $4.7 million for the three months
ended September 30, 1995 and 1996, respectively, and was $11.3 million and
$13.6 million for the nine months ended September 30, 1995 and 1996,
respectively.
Net Loss
The Company sustained net losses for the three and nine months ended
September 30, 1996 of $12.0 million and $35.7 million, respectively, compared
to $13.4 million and $41.1 million for the three and nine months ended
September 30, 1995, respectively, principally due to the cost of funding the
growth rate of the Company's subscriber base which resulted in an increase in
units sold, selling and marketing expenses, operating expenses and interest
expense.
11
<PAGE> 13
MANAGEMENT'S PRESENTATION OF RESULTS OF OPERATIONS
Comparison with GAAP Presentation
The Company's unaudited condensed consolidated financial statements
for the three and nine months ended September 30, 1995 and 1996 included
elsewhere in this report, have been prepared in accordance with generally
accepted accounting principles ("GAAP"). For internal management purposes the
Company prepares statements of operations that are derived from the Company's
GAAP financial statements but are reordered in a format that management uses
for its internal review of the Company's performance and that management
believes is useful in understanding the Company's results.
Management believes that operating profit before selling expenses is a
meaningful indicator of the profitability of the Company's installed base of
units in service because it measures the recurring revenues received for
services less the costs (including depreciation and amortization) associated
with servicing that installed base. Operating profit before selling expenses
per subscriber per month for the Company's one-way operations has grown from
$.90 during the fourth quarter of 1994 to $2.20 during the third quarter of
1996 due primarily to the Company's increase in subscribers, operating
efficiency and resulting benefits in economies of scale. During the third
quarter of 1996, the operating profit before selling expense per subscriber per
month decreased to $2.20 from $2.35 during the second quarter of 1996 due to
lower average revenue per unit combined with an increase in absolute technical
expenses associated with network expansion, and increased general and
administrative expenses associated with expansion of customer service
capabilities.
In addition, selling and marketing expenses (including loss on
equipment sold) provide a measure of the costs associated with obtaining new
subscribers that the Company needs to generate the incremental recurring
revenue necessary to achieve profitability. Under the GAAP presentation,
recurring revenues and equipment and activation revenues are aggregated and are
not separately compared to the costs associated with each.
The items included in management's presentation of the results of
operations and their derivation from financial information presented in
accordance with GAAP are described below.
Recurring Revenues. Recurring revenues include periodic fees for
airtime, voicemail, customized coverage options, toll free numbers,
excess usage fees and other recurring revenues and fees associated
with the subscriber base. Recurring revenues do not include equipment
sales revenues or initial activation fees. Recurring revenues are the
same under both the management and GAAP presentations.
Technical Expenses. This item is the same under the management and
GAAP presentations.
General and Administrative Expenses. This item is the same under the
management and GAAP presentations.
Depreciation and Amortization. This item is the same under the
management and GAAP presentations.
Operating Profit Before Selling Expenses. Operating profit before
selling expenses under the management presentation is equal to
recurring revenues less technical expenses, general and administrative
expenses and depreciation and amortization. Operating profit before
selling expenses is not derived pursuant to GAAP.
Selling Expenses. Selling expenses under the management presentation
represent the cost to the Company of selling pagers and other
messaging units to a customer, and are equal to selling costs (sales
compensation, advertising, marketing, etc.) plus costs of units sold
less revenues from equipment sales and activation fees. As described
above, the Company sells rather than leases substantially all of the
one-way messaging equipment used by subscribers. Selling expenses
under the management presentation are not derived pursuant to GAAP.
Net loss on equipment sales is not included in the GAAP presentation
of selling expenses.
Operating Income (Loss). This item is the same under the management
and GAAP presentations.
12
<PAGE> 14
EBITDA. EBITDA represents earnings (loss) before interest, taxes,
depreciation and amortization. EBITDA is a financial measure commonly
used in the paging industry. EBITDA is not derived pursuant to GAAP
and therefore should not be construed as an alternative to operating
income, as an alternative to cash flows from operating activities (as
determined in accordance with GAAP) or as a measure of liquidity. The
calculation of EBITDA does not include the commitments of the Company
for capital expenditures and payment of debt and should not be deemed
to represent funds available to the Company. In the fourth quarter of
1995, the Company's EBITDA from its one-way operations became positive
for the first time.
13
<PAGE> 15
Selected Quarterly Results of Operations
The table below sets forth management's presentation of results of
one-way domestic operations and other data on a quarterly basis for the eight
most recent fiscal quarters. This presentation should be read in conjunction
with the condensed consolidated financial statements of the Company and the
notes thereto included elsewhere in this report and the Company's quarterly
reports on Form 10-Q for the corresponding periods below, and should not be
considered in isolation or as an alternative to results of operations that are
presented in accordance with GAAP (in thousands, except other data).
<TABLE>
<CAPTION>
Three Months Ended
- ----------------------------------------------------------------------------------------------------
Dec. 31, Mar 31, June 30, Sept. 30, Dec. 31,
1994 1995 1995 1995 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Recurring revenues $17,902 $20,464 $23,387 $26,994 $30,658
Technical expenses 4,802 5,459 6,141 6,842 7,015
General and
administrative
expenses 8,886 9,698 10,067 11,350 12,243
Depreciation and
amortization 2,354 2,802 3,091 3,469 3,910
------- ------- ------- ------- -------
Operating profit
before selling
expenses 1,860 2,505 4,088 5,333 7,490
Selling expenses (1) 11,732 9,704 10,614 10,889 11,181
------- ------- ------- ------- -------
Operating income
(loss) $(9,872) $(7,199) $(6,526) $(5,556) $(3,691)
======= ======= ======= ======= =======
EBITDA $(7,518) $(4,397) $(3,435) $(2,087) $ 219
======= ======= ======= ======= =======
OTHER DATA:
Units in service (2) 772,730 874,944 1,008,683 1,131,464 1,240,024
Net subscriber
additions 164,303 102,214 133,739 122,781 108,560
ARPU (3) $8.64 $8.28 $8.28 $8.41 $8.62
Operating profit
before selling
expenses per
subscriber per
month (4) .90 1.01 1.45 1.66 2.11
Selling expenses
per net subscriber
addition (1)(5)
71 95 79 89 103
Capital employed
per unit in
service (6) 42 45 39 39 40
<CAPTION>
Three Months Ended
- ---------------------------------------------------------------------
Mar 31, June 30, Sept. 30,
1996 1996 1996
---- ---- ----
(Unaudited)
<C> <C> <C>
OPERATING DATA:
Recurring revenues $33,743 $36,964 $39,697
Technical expenses 7,943 8,783 9,725
General and
administrative
expenses 12,792 13,043 13,668
Depreciation and
amortization 4,248 4,942 5,714
------- ------- -------
Operating profit
before selling
expenses 8,760 10,196 10,590
Selling expenses (1) 11,601 12,836 13,588
------- ------- -------
Operating income
(loss) $(2,841) $(2,640) $(2,998)
======= ======= =======
EBITDA $ 1,407 $ 2,302 $ 2,716
======= ======= =======
OTHER DATA:
Units in service (2) 1,374,146 1,524,297 1,684,937
Net subscriber
additions 134,122 150,151 160,640
ARPU (3) $8.61 $8.50 $8.25
Operating profit
before selling
expenses per
subscriber per
month (4) 2.23 2.35 2.20
Selling expenses
per net
subscriber
addition (1)(5)
86 85 85
Capital employed
per unit in
service (6) 41 49 49
</TABLE>
(1) Includes loss on sale of equipment.
(2) Stated as of the end of each period.
(3) Calculated by dividing recurring revenues for the quarter by the average
number of units in service during that quarter. Stated as the monthly
average for the quarter.
(4) Calculated by dividing operating profit before selling expenses (selling
expenses include loss on sale of equipment) for the quarter by the average
number of units in service during that quarter. Stated as the monthly
average for the quarter.
(5) Calculated by dividing selling expenses, including loss on sale of
equipment, for the quarter by the net subscriber additions for the
quarter.
(6) Calculated by dividing total assets (excluding cash, narrowband personal
communications services ("NPCS") licenses and international investments)
minus current liabilities (excluding currentmaturities of long-term debt)
at the end ofthe period, by units in service at the end of the period.
14
<PAGE> 16
Supplementary Information
The following table sets forth supplementary financial information
related to the Company's various operations (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------
PAGEMART PAGEMART PAGEMART
ONE-WAY TWO-WAY INTERNATIONAL(1) TOTAL
------- ------- ------------- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 55,950 $ -- $ -- $ 55,950
Technical expense 9,725 31 -- 9,756
Selling expense 10,625 -- 66 10,691
General and administrative expense 13,668 39 -- 13,707
Operating loss ( 2,998) (70) (66) ( 3,134)
EBITDA 2,716 (70) (66) 2,580
Total assets 164,531 144,678 2,351 311,560
Capital expenditures 11,810 3,539 -- 15,349
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------
PAGEMART PAGEMART PAGEMART
ONE-WAY TWO-WAY INTERNATIONAL(1) TOTAL
------- ------- ------------- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $153,612 $ -- $ -- $153,612
Technical expense 26,451 228 -- 26,679
Selling expense 30,294 -- 308 30,602
General and administrative expense 39,503 166 -- 39,669
Operating loss (8,479) (394) (308) (9,181)
EBITDA 6,425 (394) (308) 5,723
Total assets 164,531 144,678 2,351 311,560
Capital expenditures 36,484 6,062 -- 42,546
</TABLE>
(1) Expenses reflected in this table are for the Company's international
headquarters operations. The Company accounts for its investments in
Canada under the equity method; consequently, the Company's share of
expenses from its Canadian operations are not reflected in this table.
SEASONALITY
Pager usage is slightly higher during the spring and summer months,
which is reflected in higher incremental usage fees earned by the Company. The
Company's retail sales are subject to seasonal fluctuations that affect retail
sales generally. Otherwise, the Company's results are generally not
significantly affected by seasonal factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require substantial capital investment for
the development and installation of its wireless communications network, the
procurement of messaging equipment and expansion into new markets. To date,
these investments by the Company have been funded by the proceeds from the
issuance of common stock, preferred stock, the 12 1/4% Notes and the 15% Notes,
as well as borrowings under vendor financing and revolving credit agreements.
15
<PAGE> 17
Capital expenditures for the nine months ended September 30, 1996 were
$42.5 million compared to $24.9 million for the nine months ended September 30,
1995. Capital expenditures for the nine months ended September 30, 1996
include approximately $6.1 million related to the development of two-way
messaging services. During October 1996, the Company committed to purchase
network infrastructure equipment and related services for use in its two-way
network and estimates spending between $5 and $6 million on such equipment over
the next four months. The Company's expansion of its one-way wireless
communications network and related administrative facilities will require
capital expenditures for the remainder of 1996 currently estimated to be an
additional $8 to 13 million. During December 1995, the Company committed to
purchase $40 million in network infrastructure equipment from a significant
vendor from December 1, 1995 to October 31, 1999. Through October 31, 1996 the
Company has purchased $18.3 million of network infrastructure under the purchase
commitment.
The Company's net cash used in operating activities for the nine
months ended September 30, 1996 was $10.5 million compared to $1.5 million for
the nine months ended September 30, 1995. Net cash used in investing
activities was $42.2 million for the nine months ended September 30, 1996
compared with $101.5 million for the comparable 1995 period. Of such $101.5
million used in investing activities, $74.1 million was for the acquisition of
NPCS licenses and the remainder was primarily for capital expenditures. Net
cash provided by financing activities, including borrowings and equity
issuances was $55.6 million for the nine months ended September 30, 1996
compared with $126.7 million for the nine months ended September 30, 1995.
Cash provided in 1995 resulted primarily from the $100.1 million of net
proceeds from the issuance of the 15% Notes and non-voting common stock in
January 1995. Cash provided in 1996 resulted primarily from $70.5 million of
net proceeds received in connection with the initial public offering of the
Company's Class A Common Stock (the "Offering"), offset partially by payments
made on vendor credit facilities. Long-term obligations, less current
maturities, increased by approximately $13.2 million during the nine months
ended September 30, 1996. The increase resulted from the accretion of the 15%
Notes and the 12 1/4% Notes, partially offset by the retirement of vendor debt.
In June 1996, the Company sold an aggregate of 6.0 million shares of
Class A Common Stock in the Offering at a price to the public of $13 per share.
The Company received net proceeds of approximately $70.5 million of which
approximately $12.9 million was used to retire vendor debt and $11.9 million
was used to repay outstanding loans under the Company's revolving credit
facility.
As of September 30, 1996, the Company had no amounts outstanding
under vendor financing or revolving credit agreements and its indebtedness
under the 12 1/4% Notes was $104.5 million and its indebtedness under the 15%
Notes was $128.1 million.
The 12 1/4% Notes, which are unsecured senior obligations of PageMart,
mature in 2003 and were issued at a substantial discount from their principal
amount at maturity. The accretion of original issue discount on the 12 1/4%
Notes will cause an increase in indebtedness from September 30, 1996 to
November 1, 1998 of $32.0 million. From and after November 1, 1998, interest
on the 12 1/4% Notes will be payable semiannually, in cash.
The 15% Notes, which are unsecured senior obligations of Wireless,
mature in 2005 and were issued at a substantial discount from their principal
amount at maturity. The accretion of original issue discount on the 15% Notes
will cause an increase in indebtedness from September 30, 1996 to February 1,
2000 of $79.2 million. From and after February 1, 2000, interest on the 15%
Notes will be payable semiannually, in cash.
In 1992, PageMart entered into an equipment lease with Glenayre
Technologies, Inc. (the "Vendor Lease Financing Agreement"), providing for the
financing of transmitter equipment. On June 28, 1996, the Company retired $8.8
million of debt outstanding under the Vendor Lease Financing Agreement and the
Vendor Lease Financing Agreement was terminated.
In May 1994, PageMart entered into a vendor purchase financing
agreement with Motorola, Inc. (the "Vendor Purchase Financing Agreement"),
providing for the financing of transmitter equipment. On June 28, 1996, the
Company retired $4.1 million of debt outstanding under the Vendor Purchase
Financing Agreement and the Vendor Purchase Financing Agreement was terminated.
16
<PAGE> 18
In May 1995, the Company entered into a four year Revolving Credit
Agreement (the "Revolving Credit Agreement") with BT Commercial Corporation, as
Agent, and Bankers Trust Company, as Issuing Bank, which provides for a $50
million revolving line of credit. As of September 30, 1996 there were no loans
outstanding under the Revolving Credit Agreement. The maximum amount available
under the Revolving Credit Agreement at any time is limited to a borrowing base
amount equal to the lesser of (i) 80% of eligible accounts receivable plus 50%
eligible inventory owned by Wireless, and (ii) an amount equal to the service
contribution (as defined in the Revolving Credit Agreement) of Wireless and its
subsidiaries for the immediately preceding three-month period times 4.0. As of
September 30, 1996, the amount available under the Revolving Credit Agreement
was $38.5 million. Management anticipates borrowings under the Revolving
Credit Agreement during 1997.
The indenture under which the 15% Notes were issued (the "15%
Indenture"), the indenture under which the 12 1/4% Notes were issued (the "12
1/4% Indenture") and the Revolving Credit Agreement contain certain restrictive
covenants that, among other things, limit the ability of the Company to incur
indebtedness, pay dividends, repurchase capital stock, engage in transactions
with stockholders and affiliates, create liens, sell assets, enter into leases
and engage in mergers and consolidations, and the Revolving Credit Agreement
requires the Company to maintain certain financial ratios and limits the
ability of the Company to make capital expenditures. In addition, the 12 1/4%
Indenture prohibits PageMart from paying any dividends or making other
distributions on its capital stock, making loans to Wireless, merging or
consolidating with Wireless or assuming or guaranteeing any obligations of
Wireless unless PageMart is in compliance with certain interest coverage ratios
and certain other requirements. PageMart may, however, sell its assets to
Wireless in transactions that are arm's length in nature. Wireless is
currently a holding company with no business or operations of its own. Because
all of Wireless's operations are conducted through its subsidiaries, Wireless's
cash flow and consequently its ability to service debt, is almost entirely
dependent upon the earnings of its subsidiaries and the distribution of those
earnings or upon loans or other payment of funds by those subsidiaries to
Wireless. Wireless's subsidiaries are separate and distinct legal entities and
have no obligation, contingent or otherwise, to pay any amounts due pursuant to
Wireless's obligations or to make any funds available therefor, whether by
dividends, loans or other payments. Until the maturity of the 12 1/4% Notes,
which mature on November 1, 2003, earlier repayment of such indebtedness or
compliance with the requirements of such debt instruments, Wireless will be
unable to use any amount of cash generated by the operations of PageMart and
its subsidiaries. However, currently Wireless does not have significant cash
requirements until March 1999 when the Revolving Credit Agreement matures.
On November 15, 1995, the Company purchased through PageMart
International, Inc., 200,000 shares of voting common stock of PageMart Canada,
which represents 20% of the ownership of PageMart Canada. PageMart
International, Inc. also owns 33% of the voting common stock of the holding
company parent of PageMart Canada ("Canada Holding"), which owns the remaining
80% of the voting common stock of PageMart Canada. The Company's investment in
Canada Holding and PageMart Canada totals approximately $3.7 million.
As of September 30, 1996, the Company had approximately $29.9 million
in cash and cash equivalents. The Company's cash balances and borrowings
available under the Revolving Credit Agreement are expected to be sufficient to
fund the Company's one-way operations and related capital requirements through
1997.
Significant additional financing will be required to complete the
construction of a transmission network for two-way services and other start-up
costs and selling and marketing expenses associated with the development and
implementation of two-way services. The Company anticipates investing $75 to
$100 million through fiscal 1998 to test and construct a two-way transmission
network. Thereafter, the Company anticipates that the two-way operations may
require up to $100 million of additional investment to substantially complete
the network buildout. The Company expects to lease rather than sell a portion
of its two-way messaging units. The Company expects to require additional
financing to complete the buildout which may include entering into joint
venture arrangements; however, there can be no assurance that sufficient
financing will be available to the Company. The Company's ability to incur
indebtedness is limited by the covenants contained in the 15% Indenture, the 12
1/4% Indenture and the Revolving Credit Agreement, and as a result any
additional financing may need to be equity financing.
Future revenues, costs, product mix and new product acceptance are all
influenced by a number of factors which are inherently uncertain and difficult
to predict. Therefore, no assurance can be given that financing for such
17
<PAGE> 19
investments will be available. No assurance can be given that the Company's
strategy will be implemented as currently planned or that the Company's
operations will generate positive cash flows.
18
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the normal
course of business. In management's opinion, the ultimate outcome of these
lawsuits will not have a material adverse effect on the Company's financial
position or results of operations.
On July 8, 1994, an action against the Company was filed in the United
States District Court for the Eastern District of New York by Universal Contact
Communications Inc., a former reseller of the Company's wireless messaging
devices. The Company terminated the reseller relationship due to a monetary
default by the plaintiff. The Company subsequently contacted plaintiff's
customers in an effort to provide continued service directly through the
Company, and discontinued plaintiff's paging services. In the complaint,
plaintiff alleges, among other things, that the Company violated federal law by
making unsolicited advertisements, breached its contract with plaintiff,
slandered plaintiff, converted certain confidential information and trade
secrets, tortiously interfered with plaintiff's business and contractual
relations, and engaged in unfair competition. Plaintiff seeks, among other
things, compensatory damages of $500,000 with respect to each of the nine causes
of action included in the complaint, punitive damages of $5,000,000, and various
forms of injunctive relief. The Company is vigorously defending the action.
Trial has been set for March 3, 1997. In management's opinion, the ultimate
outcome of this lawsuit is not expected to have a material adverse effect on the
results of operations or financial condition of the Company.
Local 337 of the International Brotherhood of the Teamsters has filed
a petition to organize the employees of the Detroit PageMart office. The union
is attempting to organize all full and part time sales and support personnel.
There are currently thirteen employees in sales and support. The election has
been scheduled by the National Labor Relations Board for December 10, 1996. A
majority of those voting must vote for the union in order for the union to win
the election. In management's opinion, the ultimate outcome of the election is
not expected to have a materially adverse effect on the results of operations
or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
The exhibits listed on the accompanying index to exhibits are
filed as part of this quarterly report.
(b) Reports on Form 8-K
-------------------
None.
19
<PAGE> 21
SIGNATURES
PURSUANT TO THE REQUIREMENTS 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.
PAGEMART WIRELESS, INC.
/s/ JOHN D. BELETIC
------------------------------
JOHN D. BELETIC
NOVEMBER 14, 1996 CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
/s/ G. CLAY MYERS
------------------------------
G. CLAY MYERS
NOVEMBER 14, 1996 VICE PRESIDENT, FINANCE,
CHIEF FINANCIAL OFFICER AND
TREASURER (PRINCIPAL FINANCIAL
AND CHIEF ACCOUNTING OFFICER)
20
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
4.1 * Indenture dated as of October 19, 1993, between PageMart, Inc.
and United States Trust Company of New York, as Trustee, relating
to the 12 1/4% Senior Discount Notes due 2003.
4.2 * Indenture dated as of January 17, 1995 between PageMart
Nationwide,Inc. and United States Trust Company of New York, as
Trustee, relating to the 15% Senior Discount Notes due 2005.
10.1 ** PageMart Wireless, Inc. Fourth Amended and Restated 1991 Stock
Option Plan
11.1 ** Statement regarding computation of per share loss for the three
months ended September 30, 1996
11.2 ** Statement regarding computation of per share loss for the three
months ended September 30, 1995
11.3 ** Statement regarding computation of per share loss for the nine
months ended September 30, 1996
11.4 ** Statement regarding computation of per share loss for the nine
months ended September 30, 1995
27.1 ** Financial Data Schedule.
</TABLE>
* Each of these exhibits is hereby incorporated by reference to the
Registration Statement of the Company on Form S-1, Registration No. 33-
91142.
** Filed herewith
<PAGE> 23
EXHIBIT 10.1
PAGEMART WIRELESS, INC.
FOURTH AMENDED AND RESTATED 1991 STOCK OPTION PLAN
ARTICLE I
GENERAL PROVISIONS
1. PURPOSE
The purpose of the PageMart Wireless, Inc. Fourth Amended and Restated
1991 Stock Option Plan (the "Plan") is to strengthen PageMart Wireless, Inc.,
a Delaware corporation (the "Corporation"), by providing eligible individuals
who are responsible for the management, growth and financial success of the
Corporation or who otherwise render valuable services to the Corporation with
the opportunity to acquire a proprietary interest, or increase their
proprietary interest, in the Corporation and thereby providing a means of
attracting competent personnel and encouraging them to remain in the service of
the Corporation.
2. ADMINISTRATION OF THIS PLAN
This Plan shall be administered by the Stock Option Committee of the
Board (the "Committee") which shall be comprised of two (2) or more directors,
each of whom shall be a "non-employee director," as defined in Rule 16b-3,
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Committee shall have full power and authority (subject to
the provisions of this Plan) to establish such rules and regulations as it may
deem appropriate for the proper Plan administration and to construe the terms
of and make such determinations under, and issue such interpretations of, this
Plan and any outstanding option grants as it may deem necessary or advisable.
Decisions of the Committee shall be final and binding on all parties who have
an interest in this Plan or any outstanding option.
3. PERSONS ELIGIBLE TO RECEIVE OPTION GRANTS
(a) The persons eligible to receive option grants pursuant to
this Plan ("Optionees") are limited to the following:
(i) key employees (including officers and directors) of
the Corporation (or its Parent or Subsidiary (as such terms are
hereinafter defined) corporations) who render services which
contribute to the success and growth of the Corporation (or its
Parent or Subsidiary corporations) or which may reasonably be
anticipated to contribute to the future success and growth of the
Corporation (or its Parent or Subsidiary corporations); and
(ii) the non-employee members of the Board (as such term
is hereinafter defined) or the non-employee members of the board
of directors of any Parent or Subsidiary corporations.
<PAGE> 24
(b) The Committee shall have full authority to determine, with
respect to the option grants made under this Plan, which eligible
individuals are to receive option grants, the number of shares to be
covered by each such grant, the status of the granted option as either
an Incentive Option or a Non-Statutory Option (as such terms are
hereinafter defined), the time or times at which each granted option is
to become exercisable and the maximum term for which the option may
remain outstanding.
4. STOCK SUBJECT TO THIS PLAN
(a) The stock issuable under this Plan shall be shares of the
Corporation's authorized but unissued or reacquired Class A convertible
common stock, par value $.0001 per share ("Common Stock"). The maximum
number of shares which may be issued over the term of this Plan shall
not exceed 4,550,000 shares. However, any shares of Common Stock issued
under the Corporation's Third Amended and Restated 1991 Stock Issuance
Plan will reduce, on a share-for-share basis, the number of shares
issuable under this Plan. The total number of shares issuable in the
aggregate under this Plan and the Third Amended and Restated 1991 Stock
Issuance Plan shall be subject to adjustment from time to time in
accordance with the provisions of Section 4(c) of this Article I.
(b) Shares subject to (i) the portion of one or more
outstanding options which are not exercised prior to expiration or
termination and (ii) outstanding options cancelled in accordance with
the cancellation-regrant provisions of Section 5 of Article II will be
available for subsequent option grants under this Plan. The shares
which shall not be available for subsequent option grants under this
Plan include (A) shares subject to an option surrendered under this
Plan in connection with a Change in Control (as such term is
hereinafter defined) and (B) shares issued pursuant to the exercise of
an option (whether as vested or unvested shares) which are repurchased
by the Corporation.
(c) In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of shares of Common
Stock or other securities), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of securities of the Corporation, or
other similar corporate transaction or event affects the benefits or
potential benefits intended to be made available under this Plan such
that an adjustment is determined by the Committee to be appropriate in
order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under this Plan, then the
Committee may, in such manner as it may deem equitable, adjust any or
all of (i) the number of shares of Common Stock subject to this Plan and
which thereafter may be made the subject of options under this Plan,
(ii) the number of shares of Common Stock subject to outstanding
options, (iii) the nature of the consideration (including, without
limitation, other securities of the Corporation, securities of another
entity and/or other property) to be received upon exercise of an option
and/or (iv) the grant, purchase or exercise price with respect to any
option, or, if deemed appropriate, make provisions for a cash payment to
the holder of an outstanding option; provided, however, in each case,
that with respect to Incentive Options no such adjustment shall be
authorized to the extent that such
-2-
<PAGE> 25
adjustment would cause this Plan to violate Section 422(b)(1) or 424(a)
of the Code (as such term is hereinafter defined) or any successor
provisions thereto; and provided further, however, that the number of
shares of Common Stock subject to any option payable or denominated in
shares of Common Stock shall always be a whole number. Notwithstanding
the foregoing, Non-Statutory Options shall be subject to only such
adjustment as shall be necessary to maintain the proportionate interest
of the Optionee and preserve, without exceeding, the value of such
option.
(d) Common Stock issuable under this Plan may be subject to
such restrictions as may be determined by the Committee, including,
without limitation, restrictions on transfer, repurchase rights and
other restrictions.
5. DEFINITIONS
The following definitional provisions shall be in effect for all
purposes under this Plan:
(a) Board means the board of directors of PageMart
Wireless, Inc.
(b) Change in Control means the acquisition of fifty percent
(50%) or more of the Corporation's outstanding voting stock pursuant to
a tender or exchange offer made by a person or group of related persons
(other than the Corporation or a person that directly or indirectly
controls, is controlled by or is under common control with the
Corporation) which the Board does not recommend to the stockholders.
(c) Code means the Internal Revenue Code of 1986, as amended.
(d) Corporation means PageMart Wireless, Inc., a Delaware
corporation.
(e) Corporate Transaction means one or more of the following
stockholder-approved transactions:
(i) a merger or consolidation in which the Corporation
is not the surviving entity, provided securities possessing fifty
percent (50%) or more of the total combined voting power of the
Corporation's outstanding voting securities are transferred to a
person or persons different from those who held such securities
immediately prior to such transaction,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation other than in
the ordinary course of business, or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which securities possessing fifty percent
(50%) or more of the total combined voting power of the
Corporation's outstanding voting securities are
-3-
<PAGE> 26
transferred to person or persons different from those who held
such securities immediately prior to such merger.
In no event shall any merger, consolidation or other reorganization
involving the Corporation be deemed to constitute a Corporate
Transaction if the primary purpose of such transaction is either to
change the State in which the Corporation is incorporated or to create a
holding-company structure whereby the Corporation's stockholders of
record become the stockholders of the holding company.
(f) Employee means an individual who is in the employ of the
Corporation or one or more Parent or Subsidiary corporations. An
Optionee shall be considered to be an Employee for so long as such
individual remains in the employ of the Corporation or one or more
Parent or Subsidiary corporations, subject to the control and direction
of the employer entity as to both the work to be performed and the
manner and method of performance.
(g) Exercise Date shall be the date on which both (i) written
notice of the exercise of an outstanding option under this Plan and (ii)
payment of the option price are delivered to the Corporation.
(h) Fair Market Value of a share of Common Stock on any
relevant date shall be determined in accordance with the following
provisions:
(i) If the Common Stock is not at the time listed or
admitted to trading on any national securities exchange but is
traded in the over-the-counter market, the Fair Market Value
shall be the mean between the highest bid and the lowest asked
prices (or, if such information is available, the closing sales
price) per share of Common Stock on the date in question in the
over-the-counter market, as such prices are reported by the
National Association of Securities Dealers through its Nasdaq
National Market System or any successor system. If there are no
reported bid and asked prices (or closing sales price) for the
Common Stock on the date in question, then the mean between the
highest bid and lowest asked prices (or closing sales price) on
the last preceding date for which such quotations exist shall be
determinative of Fair Market Value.
(ii) If the Common Stock is at the time listed or
admitted to trading on any national securities exchange, then the
Fair Market Value shall be the closing sales price per share of
Common Stock on the date in question on the national securities
exchange determined by the Committee to be the primary market for
the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
reported sale of Common Stock on such exchange on the date in
question, then the fair market value shall be the closing sales
price on the exchange on the last preceding date for which such
quotation exists.
-4-
<PAGE> 27
(iii) If the Common Stock is at the time neither listed
nor admitted to trading on any national securities exchange nor
traded in the over-the-counter market, or if the Committee
determines that the valuation provisions of subparagraphs (i) and
(ii) above will not result in a true and accurate valuation of
the Common Stock, then the Fair Market Value shall be determined
by the Committee after taking into account such factors as the
Committee shall deem appropriate under the circumstances.
(i) Incentive Option means an incentive stock option which
satisfies the requirements of Section 422 of the Code.
(j) Non-Statutory Option means an option that does not meet
(whether at the time of the grant of such option or subsequently) the
statutory requirements prescribed for an Incentive Option.
(k) Notice of Grant means written notification (in
substantially the form attached hereto as EXHIBIT B) of the grant of an
option pursuant to this Plan.
(l) Parent corporation means any corporation which, directly
or indirectly, owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all
classes of stock of the Corporation .
(m) Permanent Disability shall have the meaning set forth in
Section 22(e)(3) of the Code, or any successor provision thereto.
(n) Plan means this Fourth Amended and Restated 1991 Stock
Option Plan of the Corporation.
(o) Service means the performance of services for the
Corporation or one or more Parent or Subsidiary corporations by an
individual in the capacity of an Employee or a non-employee member of
the Board or the board of directors of such Parent or Subsidiary
corporations, unless a different meaning is specified in the Stock
Option Agreement. An Optionee shall be deemed to remain in Service for
so long as such individual renders services to the Corporation or any
Parent or Subsidiary corporation on a periodic basis in the capacity of
an Employee or a non-employee member of the Board or the board of
directors of such Parent or Subsidiary corporation.
(p) Stock Option Agreement means a stock option agreement, in
substantially the form attached hereto as EXHIBIT A and incorporated
herein by reference (the "Stock Option Agreement"), incorporating any
repurchase rights or first refusal rights retained by the Corporation
with respect to the Common Stock purchased under an option.
(q) Subsidiary corporation means any corporation of which the
Corporation, directly or indirectly, owns, at the time of the
determination, stock possessing fifty percent
-5-
<PAGE> 28
(50%) or more of the total combined voting power of all classes of stock
of the corporation in question.
(r) 10% Stockholder means the owner of stock (as determined
under Section 424(d) of the Code) possessing 10% or more of the total
combined voting power and value of all classes of stock of the
Corporation or any Parent or Subsidiary corporation.
ARTICLE II
OPTION GRANTS
1. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to this Plan shall be authorized by action of
the Committee and may, at the discretion of the Committee, be either Incentive
Options or Non-Statutory Options. Each granted option shall be evidenced by a
Stock Option Agreement and a Notice of Grant; provided, however, that each
Stock Option Agreement shall comply with and incorporate the terms and
conditions specified below. Each Stock Option Agreement evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section 2 of this Article II.
(a) Option Price.
(i) The option price per share shall be fixed by the
Committee; provided, however, that in no event shall the option
price per share be less than eighty-five percent (85%) for
Non-Statutory Options or less than one hundred percent (100%) for
Incentive Options of the Fair Market Value of a share of Common
Stock on the date of the option grant.
(ii) If the individual to whom the option is granted is
at the time a 10% Stockholder and the option granted is an
Incentive Option, then the option price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value
of the Common Stock on the grant date.
(iii) The option price shall be payable in such form and
by such method as shall be determined by the Committee,
including, without limitation, cash (subject to the provisions of
Article III, Section 1), shares of Common Stock, other securities
or other property or any combination thereof, having a fair
market value (as determined in accordance with the terms of this
Plan in the case of Common Stock and in all other cases by such
methods or procedures as shall be authorized by the Committee) on
the Exercise Date equal to the relevant exercise price (including
payment in accordance with a cashless exercise program under
which, if so instructed by the person exercising the option,
shares of Common Stock may be issued directly to such person's
broker or dealer upon receipt of the purchase price in cash from
the broker or dealer).
-6-
<PAGE> 29
(b) Term and Exercise of Options. Each option granted under
this Plan shall be exercisable at such time or times, during such
period, and for such number of shares of Common Stock as shall be
determined by the Committee and set forth in the Stock Option Agreement
evidencing such option. However, no option granted under this Plan
shall have a term in excess of ten (10) years from the grant date, and
no Incentive Option granted to a 10% Stockholder shall have a term in
excess of five (5) years from the grant date.
(c) Nontransferability of Options. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee or by the
Optionee's duly appointed guardian or personal representative and shall
not be assignable or transferable by the Optionee otherwise than by will
or by the laws of descent and distribution following the Optionee's
death.
(d) Termination of Service.
(i) Should an Optionee cease to remain in Service for
any reason other than (i) Permanent Disability, (ii) death or
(iii) for Cause (as such term is hereinafter defined), an option
(to the extent otherwise exercisable on the date of such
termination) shall be exercisable by the Optionee at any time
prior to the expiration date of the option (except as otherwise
provided pursuant to Section 6 of this Article II) or within
three (3) months after the date of such termination, whichever is
the shorter period.
(ii) If an Optionee's Service ceases by reason of the
Optionee's Permanent Disability, an option (to the extent
otherwise exercisable on the date of such termination by reason
of Permanent Disability) shall remain exercisable by the Optionee
at any time prior to the expiration date of the option (except as
otherwise provided pursuant to Section 6 of this Article II) or
within twelve (12) months after the date of such termination,
whichever is the shorter period.
(iii) If an Optionee's Service ceases as a result of
death, an option (to the extent otherwise exercisable on the date
of the death of such Optionee) shall remain exercisable by the
person or persons entitled to do so under the Optionee's will,
or, if the Optionee shall fail to make testamentary disposition
of said option or shall die intestate, by the Optionee's legal
representative or representatives, at any time prior to the
expiration date of the option (except as otherwise provided
pursuant to Section 6 of this Article II) or within twelve (12)
months after the date of such death, whichever is the shorter
period.
(iv) If the Optionee's Service ceases as a result of
termination for Cause (as hereinafter defined), any then
outstanding options of such Optionee shall automatically
terminate as of the termination date. As used herein,
termination for "Cause" shall mean termination upon the
occurrence of one or more of the following events:
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<PAGE> 30
(A) The Optionee's failure to substantially
perform his duties with the Corporation or any Parent or
Subsidiary corporation as determined by the Committee in
its sole discretion following receipt by the Optionee of
written notice of such failure and the Optionee's failure
to remedy such failure within thirty (30) days after
receipt of such notice (other than failure from his
incapacity during physical or mental illness);
(B) The Optionee's willful failure or refusal to
perform specific directives of the Board, which directives
are consistent with the scope and nature of the Optionee's
duties and responsibilities, and which are not remedied by
the Optionee within thirty (30) days after being notified
in writing of his failure by the Board;
(C) The Optionee's conviction of a felony; or
(D) A breach of the Optionee's fiduciary duty to
the Corporation or any Parent or Subsidiary corporation or
willful violation in the course of performing his duties
for the Corporation or any Parent or Subsidiary
corporation of any law, rule or regulation (other than
traffic violations or other minor offenses). No act or
failure to act on the Optionee's part shall be considered
willful unless done or omitted to be done in bad faith and
without reasonable belief that the action or omission was
in the best interest of the Corporation or any Parent or
Subsidiary corporation.
(e) Stockholder Rights. No shares of Common Stock shall be
issued until payment, as provided herein, therefor has been made. An
Optionee shall have none of the rights of a stockholder with respect to
the Common Stock covered by an option until such Optionee shall have
exercised the option and paid the option price.
2. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Plan. Incentive Options may only be
granted to individuals who are Employees. Options which are specifically
designated as Non-Statutory Options when issued under this Plan shall not be
subject to such terms and conditions.
(a) Option Price. The option price per share of the
Common Stock subject to an Incentive Option shall in no event be
less than one hundred percent (100%) of the Fair Market Value of a share
of Common Stock on the grant date.
(b) Dollar Limitation. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the Common
Stock for which one or more options granted to any Employee under this
Plan (or any other plan of the Corporation or any Parent or Subsidiary
corporation) may for the first time become exercisable as incentive
stock options under the Federal tax laws during any one calendar year
shall not exceed
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<PAGE> 31
the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability thereof as Incentive Options under the Federal tax laws
shall be applied on the basis of the order in which such options are
granted. In the event the limits of this Section 2(b) would otherwise
be exceeded, the Optionee may still exercise the options, but such
option, to the extent of such excess, shall be deemed to be a
Non-Statutory Option. Except as modified by the preceding provisions of
this Section 2, all the provisions of this Plan shall be applicable to
the Incentive Options granted hereunder.
3. LIMITED SURRENDER RIGHTS
(a) Should a Change in Control occur at a time when the
Corporation's outstanding capital stock is registered under Section 12
of the Exchange Act, then each Optionee who is at the time an officer or
director of the Corporation subject to the short-swing profit
restrictions of the Federal securities laws shall have the right to
surrender any or all options held by such individual under this Plan, to
the extent such options have been outstanding for at least six (6)
months and are at the time exercisable for vested shares. In return for
each surrendered option, the officer or director shall receive an
appreciation distribution from the Corporation in an amount equal to the
excess of (i) the aggregate Acquisition Price (as such term is
hereinafter defined) of the number of shares in which such individual is
at the time vested under the surrendered option over (ii) the aggregate
option price payable for such vested shares. Such limited surrender
right shall be exercisable for a period not to exceed thirty (30) days
following the completion of the Change in Control. Neither the approval
of the Committee nor the consent of the Board shall be required for such
surrender, and the distribution to which such Optionee shall become
entitled upon the option surrender shall be made entirely in cash.
(b) The "Acquisition Price" per share of the vested Common
Stock subject to the surrendered option shall be deemed to be equal to
the greater of (i) the Fair Market Value per share on the date of
surrender or (ii) the highest reported price per share paid in effecting
the Change in Control of the Corporation's outstanding voting stock.
However, if the surrendered option is an Incentive Option, then the
Acquisition Price of the vested shares subject to the surrendered option
shall not exceed the clause (i) value per share.
4. CORPORATE TRANSACTIONS
(a) In the event of any Corporate Transaction, each option
outstanding under this Plan shall automatically accelerate so that each
such option shall, immediately prior to the specified effective date for
such Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of such shares.
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<PAGE> 32
(b) Upon the consummation of the Corporate Transaction, each
option outstanding under this Plan shall terminate and cease to be
exercisable.
(c) The exercisability as incentive stock options under the
Federal tax laws of any options accelerated in connection with the
Corporate Transaction shall remain subject to the applicable dollar
limitation of subsection 2(b) of this Article II.
(d) The grant of options under this Plan shall in no way
affect the legal right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to
merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
5. CANCELLATION AND NEW GRANT OF OPTIONS
The Committee shall have the authority to effect, at any time and from
time to time, with the consent of the affected Optionees, the cancellation of
any or all outstanding options under this Plan and to grant in substitution
therefor new options under this Plan covering the same or different numbers of
shares of Common Stock but having an option price per share not less than
eighty-five percent (85%) of the Fair Market Value per share of Common Stock on
the new grant date (or one hundred percent (100%) of such Fair Market Value in
the case of an Incentive Option or, in the case of an Incentive Option held by
a 10% Stockholder, not less than one hundred and ten percent (110%) of such
Fair Market Value).
6. EXTENSION OF EXERCISE PERIOD
The Committee shall have full power and authority to extend (either
at the time while the option is granted or at any time while the option
remains outstanding) the period of time for which the option is to remain
exercisable following an Optionee's cessation of Service, from the limited
period set forth in the Stock Option Agreement to such greater period of time
as the Committee may deem appropriate under the circumstances. In no event,
however, shall such option be exercisable after the specified expiration date
of the option term.
ARTICLE III
MISCELLANEOUS
1. LOANS
(a) The Committee may assist any Optionee (including an
Optionee who is an officer or director of the Corporation) in the
exercise of one or more options granted to such Optionee under this
Plan, including the satisfaction of any Federal, State and local income
and employment tax obligations arising therefrom, by
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<PAGE> 33
(i) authorizing the extension of a loan from the
Corporation to such Optionee, or
(ii) permitting the Optionee to pay the option price for
the purchased Common Stock in installments over a period of
years.
(b) The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be
established by the Committee in its sole discretion. Loans or
installment payments may be granted with or without security or
collateral. In all events the maximum credit available to each Optionee
may not exceed the sum of (i) the aggregate option price or purchase
price payable for the purchased shares (less the par value payable for
the purchased shares) plus (ii) any Federal, State or local income and
employment tax liability incurred by the Optionee in connection with
such exercise.
(c) The Committee may, in its absolute discretion, determine
that one or more loans extended under the financial assistance program
shall be subject to forgiveness by the Corporation in whole or in part
upon such terms and conditions as the Committee in its discretion deems
appropriate.
2. AMENDMENT OF THIS PLAN AND AWARDS
(a) The Board shall have complete and exclusive power and
authority to amend, modify, suspend, discontinue or terminate this Plan
in any or all respects whatsoever. However, no such amendment,
modification, suspension, discontinuance or termination shall adversely
affect the rights and obligations of an Optionee with respect to options
at the time outstanding under this Plan, unless the Optionee consents
thereto. No option may be granted during any suspension of this Plan or
after its termination. In addition, the Board shall not, without the
approval of the Corporation's stockholders, amend this Plan to (i)
materially increase the maximum number of shares issuable under this
Plan (except for permissible adjustments under Article I, Section 4(c)),
(ii) change the minimum option price, (iii) increase the maximum terms
for options granted hereunder, (iv) remove the administration of this
Plan from the Committee, (v) materially increase the benefits accruing
to individuals who participate in this Plan or (vi) materially modify
the eligibility requirements for participation in this Plan.
(b) Options to purchase shares of Common Stock may be granted
under this Plan which are in excess of the number of shares then
available for issuance under this Plan, provided there is obtained Board
approval of an amendment sufficiently increasing the number of shares of
Common Stock available for issuance under this Plan prior to the actual
option grant and stockholder approval of such amendment prior to the
exercise of the option. If such stockholder approval is not obtained
within twelve (12) months after the date the amendment to this Plan is
approved by the Board, then all options representing such excess shall
terminate and cease to be exercisable.
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<PAGE> 34
3. EFFECTIVE DATE AND TERM OF PLAN
(a) This Plan shall become effective when adopted by the
Board. All options previously granted under this Plan shall remain in
full force and effect, subject to the terms of the Stock Option
Agreements under which they were issued and this Plan.
(b) This Plan shall terminate upon the earlier of (i) August
19, 2001 or (ii) the date on which all shares available for issuance
under this Plan have been issued or cancelled pursuant to the exercise
or surrender of options granted hereunder. If the date of termination
is determined under clause (i) above, then no options outstanding on
such date shall be affected by the termination of this Plan, and such
securities shall thereafter continue to have force and effect in
accordance with the provisions of the Stock Option Agreements evidencing
such options.
4. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the issuance of
shares of Common Stock under this Plan shall be used for general corporate
purposes.
5. CONTINUATION OF EMPLOYMENT
Nothing contained in this Plan (or in any option granted pursuant to
this Plan) shall confer upon any Optionee any right to continue in the employ
of the Corporation or any Parent or Subsidiary corporation or constitute any
contract or agreement of employment or interfere in any way with the right of
the Corporation or any Parent or Subsidiary corporation to reduce any
Optionee's compensation from the rate in existence at the time of the granting
of an option or to terminate such Optionee's employment. Nothing contained
herein or in any Stock Option Agreement shall affect any other contractual
rights of an Optionee.
6. WITHHOLDING
The Corporation's obligation to deliver shares upon the exercise or
surrender of any options granted under this Plan shall be subject to the
satisfaction of all applicable Federal, State and local income and employment
tax withholding requirements. The Corporation or any Parent or Subsidiary
corporation that employs any Optionee shall have the right to deduct any sums
that the Committee reasonably determines that Federal, State or local tax law
requires to be withheld with respect to the exercise of any option or as
otherwise may be required by those laws. Neither the Corporation nor any
Parent or Subsidiary corporation shall be obligated to advise any Optionee of
the existence of the tax or the amount which the employer corporation will be
so required to withhold. Upon the exercise of a Non-Statutory Option, if tax
withholding is required, an Optionee may, with the consent of the Committee,
have shares of Common Stock withheld ("Share Withholding") by the Corporation
from the shares otherwise to be received; provided, however, that if the
Optionee is subject to the provisions of Section 16 under the Exchange Act, no
Share Withholding shall be permitted unless such transaction complies with the
requirements of Rule 16b-3 promulgated under the Exchange Act. The number of
shares so
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<PAGE> 35
withheld should have an aggregate Fair Market Value on the date of exercise
sufficient to satisfy the applicable withholding taxes.
7. REGULATORY APPROVALS
The implementation of this Plan, the granting of any options hereunder
and the issuance of Common Stock upon the exercise or surrender of the option
grants made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over this Plan, the options granted under it and the Common Stock issued
pursuant to it. Without limiting the generality of the foregoing, no options
granted hereunder may be exercised and no shares of Common Stock issuable upon
exercise of such options may be transferred unless and until the Committee
determines that such exercise/transfer will be made in compliance with all
applicable laws, rules and regulations, including, without limitation,
applicable securities laws, rules and regulations. The Corporation does not
have any obligation to take any action to (i) register or qualify options or
shares of Common Stock pursuant to applicable laws or to perfect an exemption
from such registration/qualification requirements or (ii) list the shares of
Common Stock for trading on any stock exchange or automated transaction
reporting system.
8. GOVERNING LAW
This Plan and the options issued hereunder shall be governed by, and
construed and enforced in accordance with, the laws of the State of Texas
applicable to contracts made and performed within that State.
9. COMPLIANCE WITH RULE 16B-3
At such time and so long as the Corporation shall have a class of equity
securities registered under Section 12 of the Exchange Act, it is intended that
this Plan be applied and administered in compliance with Rule 16b-3. If any
provision of this Plan would be in violation of Rule 16b-3 if applied as
written, such provision shall not have effect as written and shall be given
effect so as to comply with Rule 16b-3, as determined by the Committee. The
Board is authorized to amend this Plan and to make any such modifications to
the Stock Option Agreements to comply with Rule 16b-3, as it may be amended
from time to time, and to make any other such amendments or modifications
deemed necessary or appropriate to better accomplish the purposes of this Plan
in light of any amendments made to Rule 16b-3.
10. NO LIABILITY FOR GOOD FAITH DETERMINATIONS
Neither the members of the Board nor any member of the Committee shall
be liable for any action, failure to act, omission or determination taken or
made in good faith with respect to this Plan or any option granted under it.
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<PAGE> 36
11. OTHER BENEFITS
Participation in this Plan shall not preclude the Optionee from
eligibility in any other stock option plan of the Company or any Parent or
Subsidiary corporation or any old age, benefit, insurance, pension, profit
sharing, retirement, bonus or other extra compensation plans which the
Corporation or any Parent or Subsidiary corporation has adopted, or may, at any
time, adopt for the benefit of its employees.
12. EXECUTION OF RECEIPTS AND RELEASES
Any payment or any issuance or transfer of shares of Common Stock to an
Optionee, or to his legal representative, heir, legatee or distributee, in
accordance with the provisions hereof, shall, to the extent thereof, be in full
satisfaction of all claims of such persons hereunder. The Committee may
require any Optionee, legal representative, heir, legatee or distributee, as a
condition precedent to such payment, to execute a release and receipt therefor
in such form as it shall determine.
13. PAYMENT OF EXPENSES
All expenses incident to the administration, termination or performance
of this Plan, including, without limitation, legal and accounting fees, shall
be paid by the Corporation. All expenses incurred by an Optionee shall be paid
by such Optionee.
14. CORPORATE RECORDS
Records of the Corporation or any Parent or Subsidiary corporation
regarding the Optionee's period of employment, termination of employment and
the reason therefor, leaves of absence, re-employment and other matters shall
be conclusive for all purposes hereunder, unless determined by the Board to be
incorrect.
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<PAGE> 37
EXHIBIT A
STOCK OPTION AGREEMENT
EXHIBIT A
<PAGE> 38
EXHIBIT B
NOTICE OF GRANT OF STOCK OPTION
EXHIBIT B
<PAGE> 39
EXHIBIT 11.1
PAGEMART WIRELESS, INC.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------
NUMBER PERCENT EQUIVALENT
OF SHARES OUTSTANDING SHARES
---------- ----------- -----------
COMMON STOCK
<S> <C> <C> <C>
From Founders' Stock 2,300,000 100.00% 2,300,000
Stock Options Exercised 553,164 99.96% 552,943
Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943
1994 Common Stock Offerings 11,242,857 100.00% 11,242,857
1995 Common Stock Offerings 4,323,874 100.00% 4,323,874
1996 Common Stock Offering 6,000,000 100.00% 6,000,000
---------- ------------
39,730,838 39,730,617
WEIGHTED AVERAGE SHARES OUTSTANDING 39,730,617
NET LOSS ($11,986,000)
NET LOSS PER SHARE ($0.30)
============
</TABLE>
<PAGE> 40
EXHIBIT 11.2
PAGEMART WIRELESS, INC.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
---------------------------------------------
NUMBER PERCENT EQUIVALENT
OF SHARES OUTSTANDING SHARES
---------- ----------- ------
<S> <C> <C> <C>
COMMON STOCK
From Founders' Stock 2,300,000 100.00% 2,300,000
Stock Options Exercised 479,992 100.00% 479,992
Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943
1994 Common Stock Offerings 11,242,857 100.00% 11,242,857
1995 Common Stock Offerings 4,323,874 100.00% 4,323,874
------------- ------------
33,657,666 33,657,666
Total adjustments to outstanding shares: 1,033,577
WEIGHTED AVERAGE SHARES OUTSTANDING 34,691,243
NET LOSS ($13,366,000)
NET LOSS PER SHARE ($0.39)
============
</TABLE>
<PAGE> 41
EXHIBIT 11.3
PAGEMART WIRELESS, INC.
<TABLE>
<CAPTION>
YTD ENDED JUNE 13, 1996
--------------------------------------------
NUMBER PERCENT EQUIVALENT
OF SHARES OUTSTANDING SHARES
--------- ----------- ------
<S> <C> <C> <C>
COMMON STOCK
From Founders' Stock 2,300,000 100.00% 2,300,000
Stock Options Exercised 537,414 99.47% 534,581
Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943
1994 Common Stock Offerings 11,242,857 100.00% 11,242,857
1995 Common Stock Offerings 4,323,874 100.00% 4,323,874
------------ ------------
33,715,088 33,712,255
Adjustments to outstanding shares:
Add Exercises for 6/13/95 - 6/13/96 at 100% 2,833
Add Shares Issuable upon Exchange of Shares in
PageMart Canada Holding 714,286
Add Weighted Average Grants Issued 6/13/95 -
6/13/96 261,869
-------
Total adjustments to outstanding shares: 978,988
------------
Weighted Average Shares Outstanding (as adjusted) at 6/13/96 34,691,243
6/13/96 Shares Weighted at 165 days 20,890,712
<CAPTION>
JUNE 14 THROUGH SEPTEMBER 30, 1996
--------------------------------------------
NUMBER PERCENT EQUIVALENT
OF SHARES OUTSTANDING SHARES
--------- ----------- ------
<S> <C> <C> <C>
COMMON STOCK
From Founders' Stock 2,300,000 100.00% 2,300,000
Stock Options Exercised 553,164 99.63% 551,134
Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943
1994 Common Stock Offerings 11,242,857 100.00% 11,242,857
1995 Common Stock Offerings 4,323,874 100.00% 4,323,874
1996 Common Stock Offering 6,000,000 100.00% 6,000,000
------------ ------------
39,730,838 39,728,808
Weighted Average Shares Outstanding at 9/30/96 39,728,808
9/30/96 Shares Weighted at 109 days 15,804,526
WEIGHTED AVERAGE OF SHARES OUTSTANDING at 6/13/96 and 9/30/96 36,695,238
NET LOSS ($35,733,000)
NET LOSS PER SHARE ($0.97)
============
</TABLE>
<PAGE> 42
EXHIBIT 11.4
PAGEMART WIRELESS, INC.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
--------------------------------------------
NUMBER PERCENT EQUIVALENT
OF SHARES OUTSTANDING SHARES
--------- ----------- ------
<S> <C> <C> <C>
COMMON STOCK
From Founders' Stock 2,300,000 100.00% 2,300,000
Stock Options Exercised 479,992 99.70% 478,545
Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943
1994 Common Stock Offerings 11,242,857 100.00% 11,242,857
1995 Common Stock Offerings 4,323,874 59.20% 2,559,848
------------ ------------
33,657,666 31,892,193
Total adjustments to outstanding shares: 1,033,577
WEIGHTED AVERAGE SHARES OUTSTANDING 32,925,770
NET LOSS ($41,088,000)
NET LOSS PER SHARE ($1.25)
============
</TABLE>
