<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1996
REGISTRATION NO. 333-03012
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PAGEMART WIRELESS, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 4812 75-2575229
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Code Number) Identification No.)
6688 NORTH CENTRAL EXPRESSWAY JOHN D. BELETIC
SUITE 800 PAGEMART WIRELESS, INC.
DALLAS, TX 75206 6688 NORTH CENTRAL EXPRESSWAY
(214) 750-5809 SUITE 800
(Address, including zip code, DALLAS, TX 75206
and telephone (214) 750-5809
number, including area code, of (Name, address, including zip
registrant's code, and telephone number,
principal executive offices) including area code, of agent
for service)
</TABLE>
---------------------
Copies to:
<TABLE>
<S> <C>
SARAH JONES BESHAR JERRY V. ELLIOTT
DAVIS POLK & WARDWELL SHEARMAN & STERLING
450 LEXINGTON AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10022
(212) 450-4000 (212) 848-4000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / -----------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and the list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / -----------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
PAGEMART WIRELESS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 CAPTION PROSPECTUS CAPTION
---------------------------------------------------- -----------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Facing Page, Outside Front Cover
Page; Cross Reference Sheet;
Inside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page; Table of
Contents; Additional Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................... Prospectus Summary; Risk Factors
4. Use of Proceeds..................................... Use of Proceeds
5. Determination of Offering Price..................... Outside Front Cover Page;
Underwriters
6. Dilution............................................ Dilution
7. Selling Security Holders............................ Not Applicable
8. Plan of Distribution................................ Outside Front Cover Page;
Underwriters
9. Description of Securities to be Registered.......... Outside Front Cover Page;
Prospectus Summary; Dividend
Policy; Description of Capital
Stock
10. Interests of Named Experts and Counsel.............. Not Applicable
11. Information with Respect to the Registrant.......... Inside Front Cover Page; Prospectus
Summary; Risk Factors; Use of
Proceeds; Dividend Policy;
Dilution; Capitalization;
Selected Historical Financial and
Operating Data; Management's
Discussion and Analysis of
Financial Condition and Results
of Operations; Business;
Management; Certain Transactions;
Principal Stockholders;
Description of Capital Stock;
Consolidated Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... Not Applicable
</TABLE>
<PAGE> 3
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any state in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************
PROSPECTUS (Subject to Completion)
Issued May 21, 1996
6,000,000 Shares
PageMart
Wireless, Inc.
CLASS A COMMON STOCK
------------------------
ALL OF THE SHARES OF CLASS A COMMON STOCK, PAR VALUE $.0001 PER SHARE, ARE BEING
OFFERED BY THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL
BE BETWEEN $12 AND $14. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
------------------------
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR TRADING ON THE NASDAQ NATIONAL
MARKET SYSTEM UNDER THE TRADING SYMBOL "PMWI," SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
---------------------- ---------------------- ---------------
<S> <C> <C> <C>
Per Share.................. $ $ $
Total(3)................... $ $ $
</TABLE>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at
$1,675,000.
(3) The Company has granted the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of 900,000
additional shares at the price to public shown above less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the Underwriters exercise such option in full, the total
price to public, underwriting discounts and commissions, and proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Shearman &
Sterling, counsel for the Underwriters. It is expected that delivery of the
Shares will be made on or about , 1996 at the offices of Morgan
Stanley & Co. Incorporated, New York, New York, against payment therefor in
immediately available funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
LEHMAN BROTHERS
, 1996
<PAGE> 4
[Image material appears here consisting of a circle divided into three
sections labelled "strategic partners," "national retail" and "direct sales."
The following company logos appear in each section as indicated: (i) in the
section labelled "strategic partners," Southwestern Bell Mobile Systems, AT&T
Wireless Services, GTE Corporation, Ameritech Mobile Services, Inc. and EXCEL
Communications, Inc.; (ii) in the section labelled "national retail," Office
Depot Inc., Montgomery Ward Company Inc., Dillards Department Stores, Best Buy,
Inc., Comp USA, Inc., Target Stores, Inc., Radio Shack, a division of Tandy
Corporation and Venture; and (iii) in the section labelled "direct sales,"
Kodak, Trane, Tandem, Brinks, ADT Corporation and Chevron.]
[Image material appears here consisting of a map of all fifty of the
United States, the provinces of British Columbia, Alberta, Saskatchewan,
Manitoba, Ontario, Quebec, New Brunswick, Prince Edward Island, Nova Scotia and
Newfoundland in Canada, the Bahamas, Puerto Rico and the Virgin Islands
labelled "Paging Coverage," with the logo "PageMart Wireless," that indicates
the cities served by the Company as of April 1, 1996, cities in which service
is scheduled to commence by June 30, 1996 and cities in which an office of the
Company is located.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
---------------------
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE
TAKEN IN ANY JURISDICTION BY THE COMPANY OR ANY UNDERWRITER THAT WOULD PERMIT A
PUBLIC OFFERING OF THE CLASS A COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED,
OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS
COMES ARE REQUIRED BY THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES
ABOUT, AND TO OBSERVE ANY RESTRICTIONS AS TO, THE OFFERING OF THE CLASS A COMMON
STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 10
The Company........................................................................... 16
Use of Proceeds....................................................................... 16
Dividend Policy....................................................................... 17
Dilution.............................................................................. 17
Capitalization........................................................................ 18
Selected Historical Financial and Operating Data...................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 21
Business.............................................................................. 32
Management............................................................................ 50
Certain Transactions.................................................................. 63
Principal Stockholders................................................................ 67
Description of Capital Stock.......................................................... 70
Shares Eligible for Future Sale....................................................... 73
Underwriters.......................................................................... 74
Legal Matters......................................................................... 76
Experts............................................................................... 76
Additional Information................................................................ 76
Index to Consolidated Financial Statements............................................ F-1
</TABLE>
---------------------
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent
accountants and quarterly reports for the first three quarters of each fiscal
year containing unaudited consolidated financial information.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
the term "Company" refers to PageMart, Inc. and its consolidated subsidiaries
prior to the Reorganization (as defined herein) and PageMart Wireless, Inc. and
its consolidated subsidiaries after such Reorganization. The Company has four
classes of common stock outstanding. See "Description of Capital Stock." Unless
otherwise indicated, the information contained in this Prospectus assumes that
the underwriters' over-allotment option will not be exercised. See
"Underwriters." Certain of the information contained in this summary and
elsewhere in this Prospectus, including information with respect to the
Company's plans and strategy for its two-way messaging business and related
financing, are forward-looking statements. For a discussion of important factors
that could cause actual results to differ materially from the forward-looking
statements, see "Risk Factors."
THE COMPANY
The Company is one of the fastest growing providers of wireless messaging
services in the United States. The Company has grown to become the fifth largest
paging carrier in the United States, based on 1,374,146 subscribers at March 31,
1996. The Company's number of subscribers has increased at annual growth rates
of 180%, 136% and 60% in 1993, 1994 and 1995, respectively, as compared to an
average annual growth rate of approximately 31% for 1993 through 1995 for the
paging industry. The Company has made no acquisitions, and all subscriber growth
has been internally generated. The Company has invested heavily in order to
achieve rapid growth in its subscriber base and, as a result, the Company has
sustained net losses of $31.1 million, $45.8 million, $53.1 million and $11.6
million for 1993, 1994, 1995 and the three months ended March 31, 1996,
respectively.
The Company offers local, multi-city, regional and nationwide paging and
other one-way wireless services in all 50 states, covering 90% of the population
of the United States. The Company also provides services in Puerto Rico, the
U.S. Virgin Islands and the Bahamas, and has recently initiated nationwide
services in Canada. The Company employs a digital, state of the art transmission
network that is 100% FLEX(R) enabled, allowing the use of high speed messaging
technology thereby providing increased transmission capacity.
OPERATING STRATEGY
The Company attributes the significant growth of its paging business to the
successful implementation of its six operating principles: (i) diversified
distribution channels, (ii) nationwide common frequency, (iii) efficient network
architecture, (iv) spectrum-rich frequency position, (v) centralized
administration, and (vi) customer service capabilities.
DIVERSIFIED DISTRIBUTION CHANNELS. The Company utilizes a number of
distribution channels to market its products and services, including retail
marketing, private brand strategic alliances and national sales offices.
Retail Marketing. The Company believes that it is a leading
supplier of paging units to consumers through retail distribution
channels. The Company has been selected as the pager supplier for a
number of leading retail chains, including Office Depot Inc., Comp USA,
Inc., Montgomery Ward Company, Inc., Target Stores, Inc. and Best Buy,
Inc.
Private Brand Strategic Alliances. The Company was one of the first
paging companies to broaden its distribution reach by establishing
strategic relationships with large communications providers. The Company
has established strategic relationships with GTE Corporation,
Southwestern Bell Mobile Systems, AT&T Wireless Services, Ameritech
Mobile Services, Inc. and long distance reseller EXCEL
Telecommunications, Inc.
National Sales Offices. The Company's national sales offices sell
equipment and services through three distribution channels: direct
sales, third-party resellers and local retailers. The
4
<PAGE> 7
Company has a direct sales force presence in over 75 Metropolitan
Statistical Areas ("MSAs") through 65 offices.
Management believes that a diversified approach to distribution is
important to sustain growth as paging services more deeply penetrate the
United States population, especially the consumer market. This
diversification is a key element of the Company's strategy of expanding its
subscriber base as rapidly as possible to increase cash flow through
greater utilization of its nationwide wireless communications network. A
diversified distribution strategy also provides a cost effective method for
managing disconnection rates. The Company's average monthly disconnection
rates for the twelve months ended December 31, 1994, December 31, 1995 and
March 31, 1996 were 3.4%, 2.5% and 2.4% per month, respectively.
NATIONWIDE COMMON FREQUENCY. The Company has constructed its
nationwide messaging network on a common frequency. Use of a common
frequency provides the Company with a number of important strategic
advantages not available to many of its competitors, which operate on
multiple frequencies across markets. The use of a common frequency enables
the Company's customers to travel throughout the United States, Canada and
the Bahamas while continuing to use the same messaging device. As a result,
the Company is able to provide multi-city coverage customized to
accommodate the customer's needs ("coverage on demand"). The common
frequency also provides a competitive advantage to the Company when
marketing its services to regional and national retailers and private brand
strategic alliance partners. These distributors are able to buy the paging
unit without being limited by where they can distribute the product or by
the service they sell with the unit. This allows retailers and strategic
partners to offer customers all service options while minimizing the number
of stock keeping units ("SKUs") that the distributor must carry, thus
reducing inventory carrying costs.
EFFICIENT NETWORK ARCHITECTURE. The Company is an industry leader in
the implementation of advanced telecommunications technologies, including
pioneering the use of direct broadcast satellite ("DBS") technology for
paging. The Company's nationwide wireless transmission network is 100%
controlled by DBS technology, which gives the Company a flexible, highly
reliable and efficient network architecture. The use of DBS technology
eliminates the need for expensive terrestrial radio frequency ("Rf")
control links and repeater equipment while enabling the Company to provide
a wide range of coverage options. The Company's network covers the top 300
MSAs across the United States, or approximately 90% of the total population
in the United States, and is designed to serve a significantly larger
subscriber base than the one currently served by the Company. The Company's
wireless transmission network is 100% FLEX enabled, allowing the use of the
high speed FLEX protocol to transmit messages and maximize system capacity.
SPECTRUM-RICH FREQUENCY POSITION. The Company ranks among the top four
paging carriers in the United States in licensed nationwide frequencies.
The Company's exclusive frequency licenses include two nationwide paging
frequencies and 150 kHz of nationwide Narrowband Personal Communications
Service ("NPCS") frequency (the "NPCS Licenses"). The Company believes that
this frequency has important strategic value because it may enable the
Company to grow significantly its one-way subscriber base and to provide
two-way messaging and other value-added services to its subscribers. As a
result, the Company believes its spectrum-rich frequency position enables
it to attract private brand strategic alliance partners.
CENTRALIZED ADMINISTRATION. The Company has centralized customer
service, information systems, inventory control and distribution, credit
and collections, accounting and marketing functions. This centralized
administration has enabled the Company to become one of the lowest cost
providers of paging and other one-way wireless communications services in
the United States. In addition, the administrative infrastructure is
designed to support a significantly larger customer base than that
currently served by the Company, which will allow it to realize additional
operating efficiency as the Company continues to grow.
CUSTOMER SERVICE CAPABILITIES. Management has focused on developing
industry-leading customer service capabilities. The Company employs over
575 highly trained customer service personnel operating in state of the art
call center facilities. Management believes that these services are an
important factor in supporting and retaining its strategic partners,
retailers and subscribers.
5
<PAGE> 8
FINANCIAL STRATEGY
The Company's principal financial objectives are to (i) maximize
profitability with respect to its existing subscriber base, as measured by
operating profit before selling expenses per subscriber and (ii) grow the
subscriber base on a cost efficient basis, as measured by selling expenses
(including loss on equipment sales) per net subscriber addition. See footnotes
(3) and (4) to "-- Summary Financial Information." The Company achieves
operating efficiency through its efficient transmission network, its nationwide
common frequency and its centralized administration. The Company's operating
profit before selling expenses per subscriber per month for the Company's
one-way operations was $1.01, $1.45, $1.66 and $2.11 during each quarter of
1995, and was $2.23 during the quarter ended March 31, 1996, although on an
overall basis the Company has sustained increasing net losses for each year of
its operations. See "Risk Factors -- History of Operating Losses." The Company's
selling expenses per net subscriber addition were $91, $81, and $91 in the years
ended 1993, 1994 and 1995, respectively and were $86 for the quarter ended March
31, 1996.
The Company's operating model is unique in the industry in that it follows
a strategy of selling rather than leasing messaging equipment to subscribers. As
of March 31, 1996, approximately 99% of the Company's units were Customer Owned
and Maintained ("COAM"). This COAM strategy results in the Company having much
less capital invested in messaging equipment than other paging carriers, which
lease messaging equipment to a majority of their subscribers. The Company
believes that its COAM strategy, coupled with its network design, enables it to
incur significantly lower capital expenditures, depreciation and amortization,
and interest expense associated with serving subscribers than other companies.
Management measures capital efficiency by the amount of capital employed per
subscriber and believes capital efficiency is an important indicator of its
financial performance. The Company's capital employed per subscriber was $42 and
$40 at December 31, 1994 and 1995, respectively and was $41 at March 31, 1996.
The Company's strategy is to expand its subscriber base as rapidly as
possible and, through a combination of scale, operating efficiency and capital
efficiency, to provide a significant return on capital employed.
TWO-WAY MESSAGING STRATEGY
One of the Company's principal strategies is to become a leading provider
of two-way messaging services in the United States. Management believes that the
introduction of two-way messaging services may present significant future growth
opportunities to the Company by enabling it to provide a new generation of
advanced messaging services, including data messaging, stored voice messaging
and other services, to new and existing subscribers.
The Company's two-way messaging strategy is founded on four principal
competitive advantages: (i) nationwide spectrum, (ii) incremental introduction
of technology, (iii) established diversified distribution channels, and (iv)
operating efficiency.
NATIONWIDE SPECTRUM. With the acquisition of the NPCS Licenses, the Company
became one of four companies with 150 kHz or more of nationwide NPCS frequency.
As a result, the Company is positioned to create a high capacity nationwide
network capable of delivering local, multi-city, regional, or nationwide data
and stored voice messaging services to a large number of subscribers.
INCREMENTAL INTRODUCTION OF TECHNOLOGY. The Company intends to introduce
two-way messaging technology by initially building upon its one-way transmission
network, enabling the Company to minimize the level of capital expenditures and
investments. The Company plans to introduce two-way stored voice service paced
to the availability of infrastructure equipment, subscriber devices and to meet
the market demand for such services.
ESTABLISHED DIVERSIFIED DISTRIBUTION CHANNELS. The Company plans to
leverage its established diversified distribution channels to achieve efficient
marketing of its two-way services.
OPERATING EFFICIENCY. The Company expects to utilize its existing one-way
network and centralized administration to minimize incremental costs of product
and service expansion. Management believes that the Company's centralized
customer service, information systems, inventory control and distribution,
credit and
6
<PAGE> 9
collections, accounting and marketing organizations will be capable of
supporting the Company's two-way strategy.
As a result of these operating advantages, the Company plans to provide a
complete array of two-way services at affordable prices, including data and
stored voice services, that the Company believes should appeal to a large number
of potential subscribers.
The Company expects to begin testing two-way data and stored voice services
in the second quarter of 1996. Upon completion of testing, two-way data services
are expected to be marketed on a city-by-city basis beginning in late 1996.
Two-way data services may include guaranteed alphanumeric message delivery with
acknowledgment and message with response capabilities. In 1997, the Company
plans to introduce its VoiceMart(TM) service, which should provide subscribers
with the ability to receive stored voice messages directly to their messaging
devices. Introduction of the VoiceMart service will be paced to the availability
of infrastructure equipment, subscriber devices and market demand.
INTERNATIONAL EXPANSION
The Company plans to provide messaging services in selected countries on a
seamless international network. Management believes that its technology,
operational structure and distribution strategies can be replicated in foreign
countries to establish nationwide wireless networks. In each country in which
the Company plans to offer paging and messaging services, the Company will seek
to obtain a nationwide frequency common to at least one of the nationwide
frequencies it holds in the United States in order to allow a single messaging
device to be used in multiple countries. The Company expects to pursue
international opportunities through minority interests in joint venture
arrangements whereby the Company would contribute its expertise in designing and
managing messaging services with minimal incremental capital investments.
The Company's international strategy is initially to pursue opportunities
in North America, Latin America, and South America. One of the Company's
affiliates, PageMart Canada Limited ("PageMart Canada"), has obtained a
nationwide license in Canada based on a frequency common to one of its
frequencies in the United States. PageMart Canada began providing service in the
largest metropolitan areas in Canada to U.S. subscribers in March 1996 and to
Canadian subscribers in April 1996. Through PageMart International, Inc., the
Company owns 20% of the voting common stock of PageMart Canada. Additionally,
PageMart International Inc. owns 33% of the voting common stock of PageMart
Canada Holding ("Canada Holding") which owns the remaining 80% of the voting
common stock of PageMart Canada. The Company also provides paging coverage in
the Bahamas.
As a result of its business strategy, the Company has structured its
business into three operating divisions: PageMart One-Way, PageMart Two-Way and
PageMart International.
The Morgan Stanley Shareholders (as defined herein) currently own
approximately 60.4% of the outstanding Common Stock of the Company and
approximately 48.9% of the outstanding voting Common Stock. After giving effect
to the Offering, the Morgan Stanley Shareholders will own approximately 51.3% of
the outstanding Common Stock and 38.9% of the outstanding voting Common Stock
(approximately 50.1% and 37.7%, respectively of the outstanding Common Stock and
outstanding voting Common Stock if the Underwriters' over-allotment option is
exercised in full). The Morgan Stanley Shareholders have informed the Company
that they intend, upon the consummation of the Offering, to convert such number
of their shares of non-voting Common Stock so that, following such conversion,
the Morgan Stanley Shareholders will own, in the aggregate, 49% of the
outstanding voting Common Stock of the Company. See "Principal Stockholders."
7
<PAGE> 10
THE OFFERING
Class A Common Stock offered
hereby.......................... 6,000,000 shares
Common Stock to be outstanding
after the Offering(1)(2)........ 39,711,675 shares
Use of Proceeds................. The net proceeds of the Offering are expected
to be used as follows: approximately $50
million to fund the initial construction of
the Company's NPCS transmission network;
approximately $13 million for the
retirement of the Company's vendor debt;
with the balance to be used to repay
approximately $8 million of loans expected
to be outstanding under the Company's
revolving credit facility and for other
general corporate purposes. See "Use of
Proceeds."
- ---------------
(1) As used herein "Common Stock" collectively refers to the Company's Class A
Convertible Common Stock (the "Class A Common Stock"), Class B Convertible
Non-Voting Common Stock (the "Class B Common Stock"), Class C Convertible
Non-Voting Common Stock (the "Class C Common Stock") and Class D
Convertible Non-Voting Common Stock (the "Class D Common Stock"), each
class having a par value of $.0001 per share. Class A Common Stock, Class B
Common Stock and Class C Common Stock are convertible by certain existing
institutional stockholders that are subject to voting control and
regulatory restrictions at any time at the option of the holders, in
accordance with the terms of the Stockholders Agreement (as defined
herein). Class D Common Stock is convertible, at the option of the holder,
at any time after this Offering. For a description of each class of Common
Stock, see "Description of Capital Stock."
(2) Based on approximately 33,711,675 shares of Common Stock outstanding on
March 31, 1996. Excludes (i) 2,793,274 shares issuable upon exercise of
outstanding stock options at exercise prices ranging from $.08 to $12.00
per share, (ii) 627,900 shares issuable upon exercise of outstanding
warrants to purchase Class A Common Stock at an exercise price of $3.26 per
share, (iii) 714,286 shares issuable upon conversion of securities held by
unaffiliated, third-party Canadian stockholders of Canada Holding, and (iv)
206,748 shares issuable upon exercise of outstanding warrants to purchase
Class A Common Stock at an exercise price of $10.00 per share. See
"Description of Capital Stock -- Warrants."
8
<PAGE> 11
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary historical financial information and
operating data of the Company for each of the five fiscal years ended December
31, 1995 and for the three months ended March 31, 1995 and 1996. The financial
information and operating data were derived from, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements of the Company
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- ---------- -------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT, ARPU, PER SUBSCRIBER AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Recurring revenues....................... $ 3,298 $ 6,668 $ 24,184 $ 56,648 $ 101,503 $ 20,464 $ 33,743
Equipment sales and activation fees...... 5,380 9,837 26,483 53,185 57,688 12,239 14,802
------- -------- -------- -------- ---------- -------- ----------
Total revenues........................... 8,678 16,505 50,667 109,833 159,191 32,703 48,545
Cost of equipment sold................... 6,436 10,044 28,230 57,835 63,982 13,378 17,082
Operating expenses....................... 10,844 25,584 47,448 85,322 118,557 26,524 34,704
------- -------- -------- -------- ---------- -------- ----------
Operating loss........................... (8,602) (19,123) (25,011) (33,324) (23,348) (7,199) (3,241)
Interest expense......................... (1,486) (2,456) (6,538) (12,933) (30,720) (6,660) (8,401)
Interest income.......................... 97 529 428 858 1,997 498 219
Other.................................... -- -- -- (414) (1,042) (337) (195)
------- -------- -------- -------- ---------- -------- ----------
Net loss................................. $(9,991) $(21,050) $(31,121) $(45,813) $ (53,113) $(13,698) $ (11,6 18)
======= ======== ======== ======== ========== ======== ==========
Net loss per common share................ $ (1.02) $ (1.24) $ (1.51) $ (1.72) $ (1.53) $ (0.40) $ (0.33)
Pro forma net loss per common share(1)... (1.44) (0.31)
Weighted average number of common shares
and share equivalents outstanding...... 9,814 16,962 20,627 26,574 34,653 34,532 34,688
BALANCE SHEET DATA (AT PERIOD END):
Current assets........................... $23,607 $ 13,365 $ 51,279 $ 44,397 $ 62,535 $ 59,011 $ 53,165
Total assets............................. 28,979 30,772 78,773 142,059 263,829 243,336 262,848
Current liabilities...................... 5,112 14,754 20,198 37,966 56,508 39,861 61,288
Long-term debt, less current
maturities............................. 11,956 25,059 78,359 92,632 219,364 200,630 225,210
Stockholders' equity (deficit)........... 11,911 (9,041) (19,784) 11,461 (12,043) 2,845 (23,650)
OTHER DATA:
Units in service (at period end)......... 52,125 117,034 327,303 772,730 1,240,024 874,944 1,374,146
Net subscriber additions................. 37,812 64,909 210,269 445,427 467,294 102,214 134,122
ARPU(2).................................. $ 8.27 $ 8.66 $ 9.81 $ 8.64 $ 8.62 $ 8.28 $ 8.61
Operating profit (loss) before selling
expenses per subscriber per month(3)... (7.78) (12.69) (.98) .90 2.11 1.01 2.23
Selling expenses per net subscriber
addition(4)............................ 146 157 91 81 91 95 86
EBITDA(5)................................ (7,378) (16,499) (19,930) (25,219) (10,076) (4,397) 1,007
Capital expenditures..................... 1,741 13,729 10,810 16,719 33,503 10,376 11,779
NPCS Licenses acquired(6)................ -- -- -- 58,885 74,079 74,079 --
Depreciation and amortization............ 1,224 2,624 5,081 8,105 13,272 2,802 4,248
</TABLE>
- ---------------
(1) Based on the weighted average number of shares and share equivalents
outstanding during the period, plus the issuance of 1,000,000 shares of
Class A Common Stock offered hereby, representing the number of shares the
proceeds of which are to be used to repay the Company's vendor indebtedness.
Also assumes such repayment occurred at the beginning of the applicable
period.
(2) Average monthly revenue per unit ("ARPU") is calculated by dividing (i)
recurring revenues, consisting of fees for airtime, voicemail, customized
coverage options, excess usage fees and other recurring revenues and fees
associated with the subscriber base for the quarter by (ii) the average
number of units in service for the quarter. For the fiscal year periods,
ARPU is stated as the monthly average for the final quarter of the year.
(3) Operating profit (loss) before selling expenses (selling expenses include
loss on sale of equipment) per subscriber for the Company's one-way
operations is calculated by dividing (i) recurring revenues less technical
expenses, general and administrative expenses and depreciation and
amortization for the quarter by (ii) the average number of units in service
for the quarter. Stated as the monthly average for the final quarter of the
year for the fiscal year periods.
(4) Selling expenses per net subscriber addition for the Company's one-way
domestic operations is calculated by dividing (i) selling expenses,
including loss on sale of equipment, for the period by (ii) the net
subscriber additions for the period.
(5) 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 generally accepted accounting
principles ("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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for a discussion of the financial operations and liquidity of the Company as
determined in accordance with GAAP.
(6) Reflects the acquisition of the NPCS Licenses in the Federal Communications
Commission ("FCC") NPCS auctions. See "Business -- Government Regulation."
9
<PAGE> 12
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider, along with the other matters referred to in this Prospectus,
the specific factors set forth below.
HISTORY OF OPERATING LOSSES
The Company has sustained losses from operating activities in each year of
operations since its organization in 1989, including an operating loss of $3.2
million for the three months ended March 31, 1996 and an aggregate of $81.7
million of operating losses for the three-year period ended December 31, 1995.
The Company expects to continue to incur operating losses for the next several
years. In addition, management anticipates that the Company's average monthly
revenue per unit ("ARPU") will decline in the foreseeable future due to
increased competition and a higher mix of subscribers added through private
brand strategic alliance programs and third-party resellers, both of which yield
lower ARPU. Although the Company's one-way operations generated $1.4 million of
positive EBITDA for the first quarter of 1996, the Company has had negative
EBITDA in each year of its operations, and negative EBITDA of $10.1 million for
the year ended December 31, 1995. 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. The
Company's operating losses and negative EBITDA have resulted principally from
expenditures associated with the establishment of the Company's one-way
operations infrastructure and the growth of its subscriber base. Although the
Company expects that its one-way operations will continue to generate positive
EBITDA, as the Company begins development and implementation of two-way
messaging services, the Company will incur substantial additional operating
losses and negative EBITDA during the start-up phase for two-way services. Any
positive cash flow from the Company's one-way operations will be used primarily
to fund the Company's two-way operations for the next several years. There can
be no assurance that the Company's consolidated operations will become
profitable or have positive EBITDA or that its one-way operations will continue
to generate positive EBITDA. If the Company cannot achieve operating
profitability or positive EBITDA, it may not be able to make required debt
service payments, and the Common Stock may have little or no value. See
"Selected Historical Financial and Operating Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
HIGH LEVERAGE; STOCKHOLDERS' DEFICIT; RESTRICTIVE COVENANTS
The Company is highly leveraged, primarily as a result of debt financing
incurred to fund the construction of the Company's nationwide operations
infrastructure, the growth of its subscriber base and to finance the acquisition
of the NPCS Licenses. At March 31, 1996, the Company's long-term debt was $225.2
million and its stockholders' deficit was $23.7 million. In addition, the
accretion of original issue discount on the Company's outstanding indebtedness
will cause an increase in indebtedness of $126.6 million by 2001. The Company's
deficiency of earnings before fixed charges to cover fixed charges for the three
months ended March 31, 1996 was $11.6 million and for each of the three years
ended December 31, 1993, 1994 and 1995, was $31.1 million, $45.8 million and
$53.1 million, respectively. See "Capitalization" and "Selected Historical
Financial and Operating Data."
The indenture pursuant to which the Company's 15% Senior Discount Notes due
2005 (the "15% Notes") were issued (the "15% Indenture") and the indenture
pursuant to which the 12 1/4% Senior Discount Notes due 2003 (the "12 1/4%
Notes") of the Company's operating subsidiary, PageMart, Inc. ("PageMart") were
issued (the "12 1/4% Indenture") contain certain restrictive covenants. Such
restrictions affect, and in many respects significantly limit or prohibit, among
other things, the ability of the Company to incur additional indebtedness, make
prepayments of certain indebtedness, pay dividends, make investments, engage in
transactions with stockholders and affiliates, issue capital stock of restricted
subsidiaries, create liens, sell assets and engage in mergers and
consolidations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
10
<PAGE> 13
NO ASSURANCE THAT GROWTH STRATEGY WILL BE ACHIEVED
The successful implementation of the Company's one-way messaging services
strategy to increase cash flow through the expansion of its subscriber base is
necessary for the Company to meet its capital expenditures, working capital and
debt service requirements. The Company expects to continue to incur operating
losses for the next several years. The Company's strategy assumes that the
paging and one-way wireless messaging industry will continue to grow rapidly,
and that the Company will continue to grow substantially faster than the
industry. The Company does not expect to continue to grow at its historical
rate, and there can be no assurance that the Company will be able to achieve the
growth contemplated by its business strategy. If such growth is not achieved,
the Company may not be able to make required payments on its outstanding
indebtedness and may have to refinance its outstanding indebtedness in order to
repay such obligations. No assurance can be given that the Company will be able
to refinance its outstanding indebtedness. In addition, as the Company begins
development and implementation of two-way services, the Company expects to make
substantial additional capital expenditures and sustain significant operating
losses, which will require additional debt or equity financing from sources
which may include joint venture arrangements. There can be no assurance that
such financing will be available to the Company on reasonable terms, or at all.
The Company will incur significant expenses and make substantial investments
associated with its two-way services prior to the time any significant revenues
from such services are generated. See "-- Risks of Implementation and Financing
of Two-Way Services" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
COMPETITIVE MARKET
The Company faces significant competition in all of its markets. Many of
the Company's competitors, which include regional and national paging companies
and certain regional telephone companies, possess significantly greater
financial, technical and other resources than the Company. If any of such
companies were to devote additional resources to the paging or other wireless
messaging businesses or focus its strategy on the Company's marketing and
product niches, the Company's results of operations could be adversely affected.
Some of these larger competitors may also be able to use their substantial
financial resources to increase the already substantial pricing competition in
the markets in which the Company operates, which may have an adverse effect on
the Company's results of operations. For competitive and marketing reasons, the
Company generally sells each new unit for less than its acquisition cost. In
addition, a number of paging carriers have constructed or are in the process of
constructing nationwide paging networks that offer services similar to the
Company's services, including the provision of two-way messaging. See
"Business -- Competition."
Industry reports indicate, and the Company believes, that the retail
distribution of pagers has become increasingly common in the paging industry.
Retail distribution is a key element of the Company's business strategy. Retail
distributors have typically selected only one paging carrier for their stores,
and the Company faces competition in its efforts to place units through retail
distributors. If the Company is unable to maintain its current sales
relationships with retail distributors or obtain new sales relationships with
other retail distributors, it may not be able to achieve the growth contemplated
by its business strategy. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General."
ADVERSE EFFECT OF SUBSCRIBER DISCONNECTIONS
The results of operations of paging service providers such as the Company
are significantly affected by subscriber disconnections. In order to realize net
growth in units in service, disconnected users must be replaced, and additional
users must be added. However, the sales and marketing costs associated with
attracting new subscribers are substantial relative to the costs of providing
service to existing customers, and expenses associated with each new unit
placement exceed the sales price and service initiation fee received by the
Company. Because the paging business is characterized by high fixed costs,
disconnections directly and adversely affect operating income. In addition,
because the Company plans to sell an increasing number of its units through
retail distribution channels, the Company's overall rate of disconnections may
increase since the Company expects that subscribers who purchase pagers through
retail outlets will tend to cancel their subscriptions at a higher rate than
subscribers obtained through other distribution channels. The Company's
11
<PAGE> 14
average monthly disconnection rates for the twelve months ended December 31,
1994, December 31, 1995 and March 31, 1996 were 3.4%, 2.5% and 2.4% per month,
respectively. An increase in its rate of disconnections would adversely affect
the Company's results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- General."
RISKS OF IMPLEMENTATION AND FINANCING OF TWO-WAY SERVICES
In the FCC NPCS auctions, the Company acquired a total of 100 kHz of
forward frequency and 50 kHz of return frequency nationwide. Specifically, the
Company acquired a 50 kHz unpaired nationwide NPCS license (the "Nationwide
Narrowband License") and five 50/50 kHz paired regional NPCS licenses (the
"Regional Narrowband Licenses" or collectively, with the Nationwide Narrowband
License, the NPCS Licenses). These acquired licenses could be utilized to offer
two-way messaging services or, if two-way messaging services are not fully
implemented, to expand the Company's existing one-way transmission capacity.
The development and implementation of two-way services will require the
application of new technology and the construction of a transmission network, in
addition to the network used in the Company's existing one-way messaging
business. Existing two-way wireless data services have had only limited market
acceptance. There can be no assurance that two-way services will be commercially
viable, and the success of two-way services could be affected by matters beyond
the Company's control such as the future cost of infrastructure and subscriber
equipment, technological changes in wireless messaging services, marketing and
pricing strategies of competitors, regulatory developments and general economic
conditions.
Significant additional financing will be required to fund the construction
of a transmission network for two-way services, other start-up costs and selling
expenses. The Company anticipates investing $75 to $100 million through fiscal
1997 to test and construct a two-way transmission network. Thereafter, the
Company anticipates that its two-way operations may require up to $100 million
of additional investment to substantially complete the network buildout. The
Company expects to require additional financing to complete the buildout, which
may include entering 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, the Vendor Purchase Financing
Agreement (as defined herein) and the Revolving Credit Agreement (as defined
herein) and as a result, any additional financing may need to be equity
financing. The Company does not anticipate any significant revenues from two-way
services during 1996 or 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
DEPENDENCE ON KEY PERSONNEL
The success of the Company will be dependent, to a significant extent, upon
the continued services of the key executive officers of the Company. The Company
does not have employment agreements with any of its current executive officers,
although all current executive officers have entered into non-competition
agreements with the Company. The loss or unavailability of one or more of its
executive officers or the inability to attract or retain key employees in the
future could have an adverse effect upon the Company's operations. See
"Management -- Directors and Executive Officers."
TECHNOLOGICAL CHANGES
The telecommunications industry is characterized by rapid technological
change. Future technology advances in the industry may result in the
availability of new services or products that could compete directly with the
paging and other wireless messaging services that are currently provided or are
being developed by the Company. Changes in technology could also lower the cost
of competitive products and services to a level where the Company's products and
services become less competitive or the Company is required to reduce the prices
of its services. The Company expects to respond to technological changes by
continuing to make investments in new and improved systems and related service
capability.
12
<PAGE> 15
Several wireless two-way communication technologies, including cellular
telephone service, broadband personal communications services, specialized
mobile radio, low-speed data networks and mobile satellite services, are
currently in use or under development. Although these technologies are currently
more expensive than paging services or are not yet broadly available, future
implementation and technological improvements could result in increased capacity
and efficiency for wireless two-way communication and, accordingly, could result
in increased competition for the Company. Some of these service providers are
bundling paging services with two-way voice service in a combined handset. Large
manufacturers dominate technological development in the wireless communications
industry, and changes in their methods of distributing one-way wireless
messaging products could reduce the Company's access to technology and may have
an adverse effect on the Company's operations. There can be no assurance that
the Company will not be adversely affected by such technological change. See
"-- Dependence on Key Suppliers" and "Business -- Competition."
DEPENDENCE ON KEY SUPPLIERS
The Company does not manufacture any of the pagers used in its paging
operations. The Company buys pagers primarily from Motorola, Inc. ("Motorola")
as well as some other manufacturers and therefore is dependent on such
manufacturers to obtain sufficient pager inventory for new subscriber and
replacement needs. In addition, the Company has acquired terminals and
transmitters primarily through vendor financing agreements with Motorola and
Glenayre Technologies, Inc. ("Glenayre") and thus is dependent on such
manufacturers for sufficient terminals and transmitters to meet its expansion
and replacement requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." There can be no assurance that the Company will not experience
significant delays in obtaining pagers, terminals or transmitters in the future.
The Company has never had a pager supply agreement with Motorola or any other
pager manufacturer and there can be no assurance that either Motorola or
Glenayre will enter into any new vendor financing agreements with the Company or
that the terms and conditions of any new agreement will be as favorable to the
Company as under past agreements. Although the Company believes that sufficient
alternative sources of pagers, terminals and transmitters exist, there can be no
assurance that the Company would not be adversely affected if it were unable to
obtain these items from current supply sources or on terms comparable to
existing terms.
POTENTIAL FOR CHANGE IN REGULATORY ENVIRONMENT
The Company and the wireless communications industry are subject to
regulation by the FCC and various state regulatory agencies. Under prior law and
regulations, in situations involving mutually exclusive applications, FCC
licenses were issued through a system of lotteries and comparative hearings. The
Omnibus Budget Reconciliation Act of 1993 (the "Budget Act") amended the
Communications Act of 1934, as amended (the "Communications Act"), to authorize
the FCC to utilize a system of competitive auctions to issue licenses for the
use of frequencies for which there are mutually exclusive applications, where
the principal use of the license will be to offer service in return for
compensation from subscribers. Implementation of the auction procedures has made
expansion of the Company's operations more costly.
The Budget Act also amended the Communications Act by eliminating many of
the regulatory distinctions governing mobile service providers. The FCC
implemented the new law by creating a new regulatory category called "commercial
mobile radio services" ("CMRS"), which includes most paging providers currently
operating as either radio common carriers ("RCCs") or private carrier paging
operators ("PCPs"), including the Company. The FCC has adopted new rules to
govern regulation of this new category, which will become effective in August
1996. As a result of the new rules, PCP licensees (such as the Company) will
have additional obligations beginning in August 1996. For example, these
licensees must provide connection upon reasonable request, must not engage in
any unreasonably discriminatory practices and will be subject to complaints
regarding any unlawful practices. PCP licensees will also be subject to
provisions that authorize the FCC to provide remedial relief to an aggrieved
party upon finding of a violation of the Communications Act and related consumer
protection provisions. In this regard, the FCC is currently considering certain
significant changes with respect to how paging is licensed and the ways in which
rates are determined for interconnection between local exchange carriers and
paging operators. See "Business -- Government Regulation."
13
<PAGE> 16
From time to time, legislation and regulations which could potentially
adversely affect the Company are proposed by federal and state legislators and
regulators. Legislation is currently in effect in Texas requiring paging
companies to contribute a portion of their taxable revenues to a
Telecommunications Infrastructure Fund created by the state legislature. See
"Business -- Government Regulation." Management does not believe that the Texas
law will have a material adverse affect on the Company's operations and is not
aware of any other currently pending legislation or regulations which will have
a material adverse impact on the Company's operations. However, there can be no
assurance that Federal or other state legislation will not be adopted, or that
the FCC or the various state agencies will not adopt regulations or take other
actions, that would adversely affect the business of the Company. See
"Business -- Government Regulation."
RESTRICTIONS ON FOREIGN OWNERSHIP
Under existing law, except in extraordinary circumstances, no more than 25%
of the Company's capital stock may be owned, directly or indirectly, or voted by
non-U.S. citizens or their representatives, a foreign government or its
representatives, or a foreign corporation. See "Business -- Government
Regulation." If the foreign ownership of the Company were to exceed 25%, the FCC
could revoke the Company's FCC licenses if the FCC found the public interest
would be served by such revocation, although the Company could seek approval
from the FCC for the additional foreign ownership or take other actions to
reduce the Company's percentage of foreign ownership in order to avoid the loss
of its licenses. The Company's certificate of incorporation authorizes the Board
of Directors to cause the Company to redeem its equity securities owned by
foreigners at their then current market value (determined as set forth in the
certificate of incorporation) in order to ensure compliance with the rules,
regulations and policies of the FCC (the "FCC Rules"). Based on currently
available information, the Company estimates that its foreign ownership is
approximately 22%. However, this percentage is subject to change at any time
upon any transfer of direct or indirect ownership of the Company's Common Stock.
These restrictions on foreign ownership could also adversely affect the ability
of the Company to attract additional equity financing from entities that are, or
are owned by, non-U.S. persons.
RISKS OF INTERNATIONAL OPERATIONS
The Company intends to continue to expand internationally. Recently, the
Company was successful in obtaining licenses for frequencies with its foreign
partners in Canada and the Bahamas. The Company may seek joint venture partners
in certain other countries, in particular where domestic regulations prohibit
foreign control of telecommunications companies. The Company will need to obtain
licenses for frequencies in any foreign country in which it seeks to expand and,
if the licenses are obtained, to construct or acquire a transmission network and
thereafter to begin sales and marketing efforts. However, there can be no
assurance that the Company will be able to obtain licenses in foreign countries,
that it will be successful in finding joint venture partners or that its foreign
operations, if established, will be profitable. Acquiring licenses, constructing
or acquiring a transmission network and commencing operations could require the
Company to provide funding for such operations and could require the Company to
seek additional debt or equity capital. In countries where the Company is or may
become a minority holder in a joint venture controlled by another party, such as
the Company's existing joint venture in Canada, the success of such joint
venture's operations will depend substantially on the efforts of the Company's
venture partner and may be impeded if disputes arise between the parties.
International operations are subject to various risks not present in domestic
operations such as fluctuations in currency exchange ratios, nationalization or
expropriation of assets, import/export controls, political instability,
variations in the protection of intellectual property rights, limitations on
foreign investment, restrictions on the ability to convert currency and the
additional expenses and risks inherent in conducting operations in
geographically distant locations, with customers speaking different languages
and having different cultural approaches to the conduct of business. To mitigate
the effects of foreign currency fluctuations on the results of its foreign
operations, the Company anticipates utilizing forward exchange contracts and
engaging in other efforts to hedge foreign currency transactions. However, there
can be no assurance as to the effectiveness of such mitigation efforts in
limiting any adverse effects of foreign currency fluctuations on the Company's
foreign operations and on the Company's overall results of operations. See
"Business -- International Expansion."
14
<PAGE> 17
SIGNIFICANT OWNERSHIP
The Morgan Stanley Shareholders currently own approximately 60.4% of the
outstanding Common Stock of the Company and approximately 48.9% of the
outstanding voting Common Stock. After giving effect to the Offering, the Morgan
Stanley Shareholders will own approximately 51.3% of the outstanding Common
Stock and 38.9% of the outstanding voting Common Stock (approximately 50.1% of
the outstanding Common Stock and 37.7% of the outstanding voting Common Stock if
the Underwriters' over-allotment option is exercised in full). The Morgan
Stanley Shareholders have informed the Company that they intend, upon the
consummation of the Offering, to convert such number of their shares of
non-voting Common Stock so that, following such conversion, the Morgan Stanley
Shareholders will own, in the aggregate, 49% of the outstanding voting Common
Stock of the Company. See "Principal Stockholders." The general partner and/or
the managing general partner of each of the general partner of the Morgan
Stanley Shareholders is a wholly-owned subsidiary of Morgan Stanley Group Inc.
("MS Group"). Four of the nine directors of the Company are employees of a
wholly-owned subsidiary of MS Group. As a result of its ownership interest in
the Company and certain rights pursuant to the Amended and Restated Agreement
among certain Stockholders dated as of May 10, 1996 (the "Stockholders
Agreement"), among the Morgan Stanley Shareholders, the Company and certain
other stockholders, the Morgan Stanley Shareholders have a significant influence
over the affairs of the Company. See "Certain Transactions."
POTENTIAL ADVERSE EFFECT ON MARKET PRICE BECAUSE OF SHARES ELIGIBLE FOR FUTURE
SALE
Of the 39,713,226 shares of Class A Common Stock which will be outstanding
after consummation of the Offering, only the 6,000,000 shares being offered
hereby will be eligible for immediate resale in the public market without
restriction, except to the extent that any of such shares are acquired by an
affiliate of the Company. The future sale of a substantial number of shares of
Common Stock in the public market following the Offering, or the perception that
such sales could occur, could adversely affect the market price for Common
Stock. The Company has granted all the investors party to the Stockholders
Agreement certain registration rights with respect to the Common Stock owned by
these investors. If these investors should sell a substantial amount of such
Common Stock, the prevailing market price for the Common Stock could be
adversely affected. The Company, these investors and the officers and directors
of the Company have agreed not to sell any shares of the Common Stock, or any
securities convertible into or exercisable or exchangeable for Common Stock, for
a period of 180 days after the date of this Prospectus without the consent of
Morgan Stanley & Co. Incorporated ("MS & Co."). See "Shares Eligible for Future
Sale."
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF PUBLIC OFFERING PRICE
Prior to the Offering, there has been no public market for the Class A
Common Stock. Although the Class A Common Stock has been approved for trading on
the Nasdaq National Market ("Nasdaq"), subject to official notice of issuance,
there can be no assurance that an active public market for the Class A Common
Stock will develop and continue after the Offering or that the Class A Common
Stock offered hereby will trade at or above the initial public offering price.
MS & Co. will not act as a market-maker of the Class A Common Stock. See
"Underwriters."
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BY-LAWS
AND DELAWARE LAW
Certain provisions of the Company's Certificate of Incorporation, By-laws
and the Stockholders Agreement, as well as provisions of the Delaware General
Corporation Law, may have the effect of delaying or preventing transactions
involving a change of control of the Company, including transactions in which
stockholders might otherwise receive a substantial premium for their shares over
then current market prices, and may limit the ability of stockholders to approve
transactions that they may deem to be in their best interests. In particular,
under the certificate of incorporation, the Board of Directors is authorized to
issue one or more classes of preferred stock having such designations, rights
and preferences as may be determined by the Board. See "Description of Capital
Stock."
POTENTIAL DILUTION OF VOTING POWER UPON CONVERSION INTO CLASS A COMMON STOCK
As of March 31, 1996, there were 8,975,469 shares of Class B Common Stock
outstanding, 731,846 shares of Class C Common Stock outstanding and 725,445
shares of Class D Common Stock outstanding,
15
<PAGE> 18
representing, in the aggregate, approximately 30.9% of the total outstanding
Common Stock (26.3% after giving effect to issuance of the Class A Common Stock
offered hereby). Conversion of shares of Class B Common Stock, Class C Common
Stock or Class D Common Stock into shares of Class A Common Stock would result
in a decrease in the voting power of the investors in the Class A Common Stock
offered hereby, as well as holders of the previously outstanding Class A Common
Stock. After giving effect to the Offering, if all such shares of Class B Common
Stock, Class C Common Stock and Class D Common Stock were so converted, the
holders of such newly converted Class A Common Stock would own approximately
26.3% of the outstanding Class A Common Stock. Although shares of Class D Common
Stock are freely convertible into Class A Common Stock following the Offering,
shares of Class B Common Stock and Class C Common Stock are by their terms
convertible into Class A Common Stock only so long as the aggregate percentage
of shares of Class A Common Stock owned by certain holders remains below a
certain level. See "Description of Capital Stock -- Common Stock." The Morgan
Stanley Shareholders have informed the Company that any conversion of their
shares of Class B Common Stock into Class A Common Stock will be solely to
maintain their current level of ownership of voting Common Stock. See "Principal
Stockholders."
DILUTION
Investors in the Class A Common Stock offered hereby will experience an
immediate dilution of $15.38 per share (assuming an initial public offering
price of $13.00 per share) in the net tangible book value of their shares of
Class A Common Stock. See "Dilution."
THE COMPANY
PageMart Wireless, Inc. ("Wireless") was incorporated in Delaware on
November 29, 1994 as a wholly-owned subsidiary of PageMart. Effective January
19, 1995, PageMart merged with a wholly-owned subsidiary of Wireless, pursuant
to which PageMart was the surviving corporation (the "Reorganization"). As part
of the Reorganization, each share of outstanding common stock of PageMart was
converted into the right to receive one share of Common Stock of Wireless. Upon
consummation of the Reorganization, the stockholders of PageMart had the same
ownership interest in Wireless as they had in PageMart, and Wireless owned all
of the capital stock of PageMart. On December 28, 1995, the name of the Company
was changed from PageMart Nationwide, Inc. to PageMart Wireless, Inc.
The Company's executive offices are located at 6688 North Central
Expressway, Suite 800, Dallas, Texas 75206, its telephone number is (214)
750-5809 and its fax number is (214) 987-2029.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Class A Common Stock
offered hereby are estimated to be approximately $70.9 million ($81.7 million if
the Underwriters' over-allotment option is exercised in full) based on an
assumed initial public offering price of $13.00 per share and after deducting
estimated underwriting discounts and commissions and estimated fees and expenses
of the Offering. The Company expects to use the proceeds of the Offering as
follows: approximately $50 million to fund the initial construction of the
Company's NPCS transmission network and approximately $13 million for the
retirement of the Company's vendor debt, with the balance to be used to repay
approximately $8 million of loans expected to be outstanding under the Company's
revolving credit facility and for other general corporate purposes. At March 31,
1996, there were no amounts outstanding under the revolving credit facility. The
Company expects to borrow up to $8 million under the revolving credit facility
subsequent to March 31, 1996 in order to fund working capital requirements and
capital expenditures associated with the Company's one-way messaging operations.
The weighted average cost of vendor debt at March 31, 1996 was 13.2%, and such
debt matures on various dates through 2000. The weighted average cost of
borrowings under the Company's revolving credit facility at March 31, 1996 was
9.5%, and amounts outstanding under the Revolving Credit Agreement mature on
March 31, 1999. The Company anticipates investing $75 to $100 million through
fiscal 1997 to test and construct a two-way transmission network. Thereafter,
the Company anticipates that its two-way operations may require up to $100
million of additional investment to substantially complete the network
16
<PAGE> 19
buildout. See "Risk Factors -- Risk of Implementation and Financing of Two-Way
Services" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has not paid dividends on the Common Stock since its
organization in 1989. The Company currently intends to retain future earnings
for the development of its business and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. The Company's future
dividend policy will be determined by its Board of Directors on the basis of
various factors, including the Company's results of operations, financial
condition, capital requirements and investment opportunities. In addition, the
Company's debt instruments substantially restrict (and currently prohibit) the
payment of cash dividends.
DILUTION
The deficit in net tangible book value of the Company as of March 31, 1996
was $165.5 million or $4.91 per share of outstanding Common Stock. After giving
effect to the sale of 6,000,000 shares of Class A Common Stock offered hereby at
an assumed initial public offering price of $13.00 per share, the pro forma
deficit in net tangible book value of the Company as of March 31, 1996 would
have been approximately $94.6 million or $2.38 per share, representing an
immediate dilution of $15.38 per share to investors purchasing shares in the
Offering. The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per common share..................... $13.00
Net tangible book value (deficit) per common share at March 31,
1996(1)............................................................... $(4.91)
Increase in net tangible book value per common share attributable to sale
of common shares in the Offering(2)................................... $ 2.53
------
Pro forma net tangible book value per common share after the Offering...... $(2.38)
------
Dilution per share to persons who purchase common shares in the
Offering(3).............................................................. $15.38
======
</TABLE>
- ---------------
(1) Net tangible book value (deficit) per common share prior to the Offering has
been determined by dividing the net tangible book value (total assets less
net intangibles and less total liabilities) by the sum of the number of
shares of Common Stock outstanding as of March 31, 1996. No effect is given
to the exercise of warrants, stock options or shares issuable upon the
conversion of securities held by unaffiliated, third-party Canadian
stockholders of Canada Holding.
(2) After deducting estimated underwriting discounts and fees and expenses of
the Offering.
(3) Dilution means the difference between the initial public offering price per
share and the pro forma net tangible book value per share after giving
effect to the Offering.
The following table sets forth on a pro forma basis as of March 31, 1996,
the number and percentage of total outstanding Common Stock purchased, the total
consideration and percentage of total consideration paid and the weighted
average price paid per share by existing stockholders and by purchasers of the
Class A Common Stock offered hereby. The calculations in this table with respect
to Class A Common Stock to be purchased by new investors in the Offering reflect
an assumed initial public offering price of $13.00 per share.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
----------------------- ------------------------ PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ------- ------------ ------- --------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 33,711,675 85% $153,911,393 66% $ 4.57
New investors....................... 6,000,000 15% 78,000,000 34% 13.00
---------- ---- ------------ ----
Total..................... 39,711,675 100% $231,911,393 100% 5.84
========== ==== ============ ====
</TABLE>
17
<PAGE> 20
CAPITALIZATION
The following table sets forth the current maturities of long-term debt and
capitalization of the Company as of March 31, 1996 and as adjusted to give
effect to the sale by the Company of 6,000,000 shares of Class A Common Stock
pursuant to the Offering at an assumed initial public offering price of $13.00
per share (less estimated underwriting discounts and fees and expenses). The
following table does not reflect the conversion of certain shares of Common
Stock into Class A Common Stock. See "Principal Stockholders." This information
should be read in conjunction with the Consolidated Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
ACTUAL ADJUSTED
-------- --------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS, EXCEPT
SHARE INFORMATION)
Current maturities of long-term debt................................... $ 5,660 $ --
======== ========
Long-term debt, excluding current maturities:
12 1/4% Senior Discount Exchange Notes, at accreted value............ $ 98,029 $ 98,029
15% Senior Discount Exchange Notes, at accreted value................ 119,121 119,121
Vendor notes payable................................................. 8,060 --
-------- --------
Total long-term debt(1)................................................ 225,210 217,150
Stockholders' equity (deficit)(2):
Preferred Stock, $.0001 par value per share,
10,000,000 shares authorized, none issued and outstanding......... -- --
Class A Convertible Common Stock, $.0001 par value per share,
60,000,000 shares authorized, 23,278,915 shares issued
and outstanding; 29,278,915 shares issued and outstanding
as adjusted....................................................... 2 3
Class B Convertible Non-Voting Common Stock, $.0001 par
value per share, 12,000,000 shares authorized,
8,975,469 shares issued and outstanding........................... 1 1
Class C Convertible Non-Voting Common Stock, $.0001 par
value per share, 2,000,000 shares authorized,
731,846 shares issued and outstanding............................. -- --
Class D Convertible Non-Voting Common Stock, $.0001 par
value per share, 1,000,000 shares authorized,
725,445 shares issued and outstanding............................. -- --
Additional paid-in capital........................................... 154,612 225,476
Stock subscriptions receivable....................................... (557) (557)
Accumulated deficit.................................................. (177,708) (177,708)
-------- --------
Total stockholders' equity (deficit)................................... (23,650) 47,215
-------- --------
Total capitalization................................................... $201,560 $264,365
======== ========
</TABLE>
- ---------------
(1) Subsequent to March 31, 1996, the Company expects to borrow up to
approximately $8 million under the Company's revolving credit facility to
fund working capital requirements and capital expenditures associated with
the Company's one-way messaging operations. See "Use of Proceeds."
(2) Excludes (i) 2,793,274 shares issuable upon exercise of outstanding stock
options at exercise prices ranging from $0.08 to $12.00 per share, (ii)
627,900 shares issuable upon exercise of outstanding warrants to purchase
Class A Common Stock at an exercise price of $3.26 per share, (iii) 714,286
shares issuable upon conversion of securities held by unaffiliated
third-party Canadian stockholders of Canada Holding, and (iv) 206,748 shares
issuable upon exercise of outstanding warrants to purchase Class A Common
Stock at an exercise price of $10.00 per share. See "Description of Capital
Stock -- Warrants."
18
<PAGE> 21
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following table sets forth summary historical financial information and
operating data for each of the five fiscal years ended December 31, 1995 and for
the three months ended March 31, 1995 and 1996. The financial information and
operating data were derived from, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements of the Company and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT, ARPU, PER SUBSCRIBER AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Recurring revenues........................ $ 3,298 $ 6,668 $ 24,184 $ 56,648 $101,503 $ 20,464 $ 33,743
Equipment sales and activation fees....... 5,380 9,837 26,483 53,185 57,688 12,239 14,802
------- -------- -------- -------- -------- -------- ----------
Total revenues............................ 8,678 16,505 50,667 109,833 159,191 32,703 48,545
Cost of equipment sold.................... 6,436 10,044 28,230 57,835 63,982 13,378 17,082
Operating expenses........................ 10,844 25,584 47,448 85,322 118,557 26,524 34,704
------- -------- -------- -------- -------- -------- ----------
Operating loss............................ (8,602) (19,123) (25,011) (33,324) (23,348) (7,199) (3,241)
Interest expense.......................... (1,486) (2,456) (6,538) (12,933) (30,720) (6,660) (8,401)
Interest income........................... 97 529 428 858 1,997 498 219
Other..................................... -- -- -- (414) (1,042) (337) (195)
------- -------- -------- -------- -------- -------- ----------
Net loss.................................. $(9,991) $(21,050) $(31,121) $(45,813) $(53,113) $(13,698) $ (11,618)
======= ======== ======== ======== ======== ======== ==========
Net loss per common share................. $ (1.02) $ (1.24) $ (1.51) $ (1.72) $ (1.53) $ (0.40) $ (0.33)
Pro forma net loss per common share(1).... (1.44) (0.31)
Weighted average number of common shares
and share equivalents outstanding....... 9,814 16,962 20,627 26,574 34,653 34,532 34,688
BALANCE SHEET DATA (AT PERIOD END):
Current assets............................ $23,607 $ 13,365 $ 51,279 $ 44,397 $ 62,535 $ 59,011 $ 53,165
Total assets.............................. 28,979 30,772 78,773 142,059 263,829 243,336 262,848
Current liabilities....................... 5,112 14,754 20,198 37,966 56,508 39,861 61,288
Long-term debt, less current maturities... 11,956 25,059 78,359 92,632 219,364 200,630 225,210
Stockholders' equity (deficit)............ 11,911 (9,041) (19,784) 11,461 (12,043) 2,845 (23,650)
OTHER DATA:
Units in service (at period end).......... 52,125 117,034 327,303 772,730 1,240,024 874,944 1,374,146
Net subscriber additions.................. 37,812 64,909 210,269 445,427 467,294 102,214 134,122
ARPU(2)................................... $ 8.27 $ 8.66 $ 9.81 $ 8.64 $ 8.62 $ 8.28 $ 8.61
Operating profit (loss) before selling
expenses per subscriber per month(3).... (7.78) (12.69) (.98) .90 2.11 1.01 2.23
Selling expenses per net subscriber
addition(4)............................. 146 157 91 81 91 95 86
EBITDA(5)................................. (7,378) (16,499) (19,930) (25,219) (10,076) (4,397) 1,007
Capital expenditures...................... 1,741 13,729 10,810 16,719 33,503 10,376 11,779
NPCS Licenses acquired(6)................. -- -- -- 58,885 74,079 74,079 --
Depreciation and amortization............. 1,224 2,624 5,081 8,105 13,272 2,802 4,248
</TABLE>
(Footnotes appear on the following page)
19
<PAGE> 22
- ---------------
(1) Based on the weighted average number of shares and share equivalents
outstanding during the period, plus the issuance of 1,000,000 shares of
Class A Common Stock offered hereby, representing the number of shares the
proceeds of which are to be used to repay the Company's vendor
indebtedness. Also assumes such repayment occurred at the beginning of the
applicable period.
(2) ARPU is calculated by dividing (i) recurring revenues, consisting of fees
for airtime, voicemail, customized coverage options, excess usage fees and
other recurring revenues and fees associated with the subscriber base for
the quarter by (ii) the average number of units in service for the quarter.
For the fiscal year periods, ARPU is stated as the monthly average for the
final quarter of the year.
(3) Operating profit (loss) before selling expenses (selling expenses include
loss on sale of equipment) per subscriber for the Company's one-way
operations is calculated by dividing (i) recurring revenues less technical
expenses, general and administrative expenses and depreciation and
amortization for the quarter by (ii) the average number of units in service
for the quarter. Stated as the monthly average for the final quarter of the
year for the fiscal year periods.
(4) Selling expenses per net subscriber addition for the Company's one-way
domestic operations is calculated by dividing (i) selling expenses,
including loss on sale of equipment, for the period by (ii) the net
subscriber additions for the period.
(5) 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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a discussion of the financial operations and
liquidity of the Company as determined in accordance with GAAP.
(6) Reflects the acquisition of the NPCS Licenses in the FCC NPCS auctions. See
"Business -- Government Regulation."
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included elsewhere in
this Prospectus.
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 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 January 1, 1992 to March 31, 1996, the
number of units in service increased from 52,125 to 1,374,146. 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 plans to begin development and
implementation of two-way wireless messaging services during 1996, 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. See "Risk Factors -- Risks of
Implementation and Financing of Two-Way Services." 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 ("GTE"), Southwestern Bell Mobile
Systems ("SBMS"), AT&T Wireless Services ("AT&T Wireless"), Ameritech Mobile
Services, Inc. ("Ameritech") and long distance reseller EXCEL
Telecommunications, Inc. ("Excel"), and international expansion.
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, depreciation and amortization than if
the Company leased such equipment to its subscribers. In addition, the Company's
financial results are much different than 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. However, the Company
expects to lease rather than sell a portion of its two-way messaging units. In
addition, the Company's retail distribution strategy results in the recognition
of expenses associated with
21
<PAGE> 24
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. In
general, the Company anticipates that, based on its recent experience, 90% of
its units sold through retail distribution channels will be activated and in
service within 75 days of shipment.
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 March 31, 1996 were 3.7%, 3.4%, 2.5% and 2.4%,
respectively.
More than 90% of the Company's 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.
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
Units in Service
Units in service were 874,944 and 1,374,146 as of March 31, 1995 and 1996,
respectively, representing an annual growth rate of 57%. 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 months ended March 31, 1995 and 1996 were $32.7
million and $48.5 million, respectively. Recurring revenues for airtime,
voicemail and other services for the same periods were $20.5 million and $33.7
million, respectively. Revenues from equipment sales and activation fees for the
three months ended March 31, 1995 and 1996 were $12.2 million and $14.8 million,
respectively. 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 the first quarter of
1996 was
22
<PAGE> 25
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 $8.28 and $8.61 in the first quarter of 1995 and
1996, respectively. In general, over the past twelve months the Company's ARPU
has increased primarily as a result of an increase in subscribers added through
retail and direct sales channels. In addition, a portion of the increase in ARPU
from the first quarter of 1995 to the first quarter of 1996 was due to 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 increased competition and a higher mix of subscribers added
through private brand strategic alliance programs and third-party resellers,
both of which yield lower ARPU. ARPU is lower for subscribers added through
third-party resellers and private brand strategic alliances because these are
generally high volume customers that are charged reduced airtime rates. However,
because third-party resellers and private brand strategic alliance partners are
responsible for selling and marketing costs, billing, collection and other
administrative costs associated with end-users, the Company does not incur these
costs with respect to such subscribers.
Cost of Equipment Sold
The cost of equipment sold for the three months ended March 31, 1995 and
1996 was $13.4 million and $17.1 million, respectively. The increase was
directly related to the increase in the number of units sold partially offset by
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.
Operating Expenses
Technical expenses were $5.5 million and $8.1 million for the three months
ended March 31, 1995 and 1996, respectively. The increase resulted primarily
from the 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 were $2.21
and $2.06 in the first quarter of 1995 and 1996, respectively. The per unit
decrease was the result of increased operating efficiencies and economies of
scale experienced with the growth of the Company's subscriber base. During the
three months ended March 31, 1996, the Company incurred $147,000 in technical
expenses associated with the development of its two-way wireless messaging
services.
Selling expenses for the three months ended March 31, 1995 and 1996 were
$8.6 million and $9.4 million, respectively. This increase resulted from greater
marketing and advertising costs related to the significant 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 first quarter of
1995 and 1996, the Company added 102,214 and 134,122 net new units in service,
respectively. Sales and marketing employees increased from 338 at March 31, 1995
to 486 at March 31, 1996. Management believes the net loss on equipment sold to
be a component of selling and marketing expenses incurred to add new subscribers
because the Company sells, rather than leases units to new subscribers. See
"-- Management's Presentation of Results of Operations." Selling and marketing
expenses per net subscriber addition (including loss on equipment sales) were
$95 and $86 for the three months ended March 31, 1995 and 1996, respectively.
During the three months ended March 31, 1996 the Company incurred $126,000 in
selling expenses associated with its international operations.
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) in the first
quarter of 1995 and 1996 were $9.7 million and $12.9 million, respectively. This
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. The Company increased the
23
<PAGE> 26
number of representatives in its customer service call centers from 389 on March
31, 1995 to over 575 on March 31, 1996, and believes it operates one of the most
extensive of such facilities in the paging industry. On an average cost per
month per unit in service basis, general and administrative expenses were $3.92
and $3.29 in the first quarter of 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
months ended March 31, 1996, the Company incurred $127,000 in general and
administrative expenses associated with the development of its two-way wireless
messaging services.
Depreciation and amortization for the three months ended March 31, 1995 and
1996 was $2.8 million and $4.2 million, respectively. The increase resulted from
the 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 the first three months of 1996. As an
average cost per month per unit in service, depreciation and amortization was
$1.13 and $1.08 for the three months ended March 31, 1995 and 1996,
respectively.
Interest Expense
Interest expense increased from $6.7 million in the first quarter of 1995
to $8.4 million in the first quarter of 1996. The increase in 1996 was primarily
the result of increased interest expense related to the 15% Notes and the
12 1/4% Notes. Interest expense related to the 12 1/4% Notes was $2.8 million
and $3.2 million in the first quarter of 1995 and 1996, respectively. Interest
expense related to the 15% Notes was $3.2 million and $4.4 million in the first
quarter of 1995 and 1996, respectively.
Net Loss
The Company sustained net losses in the first quarter of 1995 and 1996 of
$13.7 million and $11.6 million, 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.
FISCAL YEARS 1993, 1994 AND 1995
Units in Service
Units in service were 327,303, 772,730 and 1,240,024 as of December 31,
1993, 1994 and 1995, respectively. This represents a growth rate of 136% and 60%
in 1994 and 1995, respectively. 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. According
to industry sources, the paging industry in general has experienced growth rates
of 29%, 38% and 25% for 1993, 1994 and 1995, respectively.
Revenues
Revenues for the fiscal years 1993, 1994 and 1995 were $50.7 million,
$109.8 million and $159.2 million, respectively. Recurring revenues for airtime,
voicemail and other services for the same periods were $24.2 million, $56.6
million and $101.5 million, respectively. Revenues from equipment sales and
activation fees for 1993, 1994 and 1995 were $26.5 million, $53.2 million and
$57.7 million, respectively. The increases in recurring revenues and revenues
from equipment sales and activation fees were primarily due to rapid growth in
the number of units in service. The increase in equipment sales during 1995 was
somewhat offset by a decline in the average price per unit sold.
The Company's ARPU was $9.81, $8.64 and $8.62 in the final quarter of 1993,
1994 and 1995, respectively. The Company's ARPU declined in 1994 and 1995
primarily as a result of an increase in subscribers added through third-party
resellers and distribution through private brand strategic alliance programs.
The decrease in 1995 was slightly offset 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.
24
<PAGE> 27
Cost of Equipment Sold
The cost of equipment sold in 1993, 1994 and 1995 was $28.2 million, $57.8
million and $64.0 million, respectively. The increase was directly related to
the increase in the number of units sold partially offset by lower average pager
prices paid to suppliers.
Operating Expenses
Technical expenses were $9.5 million, $16.2 million and $25.7 million in
1993, 1994 and 1995, respectively. The increase resulted primarily from the
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 were $3.55,
$2.45 and $2.13 in 1993, 1994 and 1995, respectively. The per unit decreases
were the result of increased operating efficiencies and economies of scale
experienced with the growth of the Company's subscriber base. During 1995, the
Company incurred $222,000 in technical expenses associated with the development
of its two-way wireless messaging services.
Selling expenses in 1993, 1994 and 1995 were $17.3 million, $31.3 million
and $36.1 million, respectively. This increase resulted from greater marketing
and advertising costs related to the significant 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 years ended December 31, 1993,
1994 and 1995, the Company added 210,269, 445,427 and 467,294 net new units in
service, respectively. Sales and marketing employees increased from 305 at
December 31, 1993 to 450 at December 31, 1994 and then decreased to 445 at
December 31, 1995. Management believes 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
$91, $81 and $91 for the years ended December 31, 1993, 1994 and 1995,
respectively. The increase in 1995 was due to the addition of new sales offices,
expansion of existing sales offices and an increase in the number of retail
stores supported by the Company's marketing organization.
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) in 1993, 1994
and 1995 were $15.6 million, $29.8 million and $43.5 million, respectively. This
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. The Company increased the number of
representatives in its customer service call centers from 69 on December 31,
1993 to 389 on December 31, 1994 and to 600 on December 31, 1995, and believes
it operates one of the most extensive of such facilities in the paging industry.
On an average cost per month per unit in service basis, general and
administrative expenses were $5.84, $4.52 and $3.60 in 1993, 1994 and 1995,
respectively. The per unit decreases were a result of increased operating
efficiencies and economies of scale achieved through the growth of the Company's
subscriber base. During 1995, the Company incurred $154,000 in general and
administrative expenses associated with the development of its two-way wireless
messaging services.
Depreciation and amortization in 1993, 1994 and 1995 was $5.1 million, $8.1
million and $13.3 million, respectively. The increases resulted from the
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 in 1995. As an average cost per month per unit in service,
depreciation and amortization was $1.91, $1.23 and $1.10 for the years ended
December 31, 1993, 1994 and 1995, respectively.
Interest Expense
Interest expense increased from $6.5 million in 1993 to $12.9 million in
1994 and $30.7 million in 1995. The increase in 1994 was due to interest related
to the 12 1/4% Notes, partially offset by decreased borrowings under vendor
financing agreements. The increase in 1995 was primarily the result of the
issuance of the 15% Notes in January 1995, increased interest related to the
12 1/4% Notes, as well as increased borrowings under vendor financing
agreements. Interest expense related to the 12 1/4% Notes was $2.0 million,
$10.8 mil-
25
<PAGE> 28
lion and $11.8 million in 1993, 1994 and 1995, respectively. Interest expense
related to the 15% Notes was $15.3 million in 1995.
Net Loss
The Company sustained net losses in 1993, 1994 and 1995 of $31.1 million,
$45.8 million and $53.1 million, 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.
MANAGEMENT'S PRESENTATION OF RESULTS OF OPERATIONS
COMPARISON WITH GAAP PRESENTATION
The Company's audited Consolidated Financial Statements for the years ended
December 31, 1993, 1994 and 1995, included elsewhere in this Prospectus, have
been prepared in accordance with 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
are 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 $.33
during the second quarter of 1994 to $2.23 during the first quarter of 1996 due
primarily to the Company's increase in subscribers, operating efficiency and
resulting benefits in economies of scale.
Separately, 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.
Service Expenses. Service expenses under the management presentation
include technical, customer service, general and administrative and
headquarters expenses, but do not include selling and marketing expenses,
depreciation or amortization.
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 service 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.
26
<PAGE> 29
Operating Income (Loss). This item is the same under the management
and GAAP presentations.
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.
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
Consolidated Financial Statements of the Company and the notes thereto included
elsewhere in this Prospectus, and should not be considered in isolation or as an
alternative to results of operations that are presented in accordance with GAAP.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------------
JUNE MARCH JUNE
30, SEPTEMBER 30, DECEMBER 31, 31, 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1994 1994 1994 1995 1995 1995 1995 1996
------- ------------- ------------ ------- ------- ------------- ------------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Recurring revenues...... $12,946 $15,161 $ 17,902 $20,464 $23,387 $26,994 $30,658 $33,743
Service expenses........ 10,632 12,160 13,688 15,157 16,208 18,192 19,258 20,735
Depreciation and
amortization.......... 1,876 2,217 2,354 2,802 3,091 3,469 3,910 4,248
------- ------- -------- ------- ------- ------- ------- -------
Operating profit before
selling expenses...... 438 784 1,860 2,505 4,088 5,333 7,490 8,760
Selling expenses(1)..... 7,543 9,580 11,732 9,704 10,614 10,889 11,181 11,601
------- ------- -------- ------- ------- ------- ------- -------
Operating income
(loss)................ $(7,105) $(8,796) $ (9,872) $(7,199) $(6,526) $(5,556) $(3,691) $(2,841)
======= ======= ======== ======= ======= ======= ======= =======
EBITDA.................. $(5,229) $(6,579) $ (7,518) $(4,397) $(3,435) $(2,087) $ 219 $ 1,407
======= ======= ======== ======= ======= ======= ======= =======
OTHER DATA:
Units in service(2)..... 495,605 608,427 772,730 874,944 1,008,683 1,131,464 1,240,024 1,374,146
Net subscriber
additions............. 93,588 112,822 164,303 102,214 133,739 122,781 108,560 134,122
ARPU(3)................. $ 9.62 $ 9.15 $ 8.64 $ 8.28 $ 8.28 $ 8.41 $ 8.62 $ 8.61
Operating profit before
selling expenses per
subscriber per
month(4).............. .33 .47 .90 1.01 1.45 1.66 2.11 2.23
Selling expenses per net
subscriber
addition(1)(5)........ 81 85 71 95 79 89 103 86
Capital employed per
unit in service(6).... 69 53 42 45 39 39 40 41
</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, NPCS Licenses and
international investments) minus current liabilities (excluding current
maturities of long-term debt) at the end of the period, by units in service
at the end of the period.
27
<PAGE> 30
SUPPLEMENTARY INFORMATION
The following table sets forth supplementary financial information related
to the Company's various operations:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1994
-------------------------------------------------------
PAGEMART PAGEMART PAGEMART THE COMPANY
ONE-WAY TWO-WAY INTERNATIONAL CONSOLIDATED
-------- -------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.................................... $109,833 $ -- $ -- $ 109,833
Operating loss.............................. (33,324) -- -- (33,324)
EBITDA...................................... (25,219) -- -- (25,219)
Total assets................................ 81,470 58,885 1,704 142,059
Capital expenditures........................ 16,719 -- -- 16,719
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------
PAGEMART PAGEMART PAGEMART THE COMPANY
ONE-WAY TWO-WAY INTERNATIONAL CONSOLIDATED
-------- -------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.................................... $159,191 $ -- $ -- $ 159,191
Operating loss.............................. (22,972) (376) -- (23,348)
EBITDA...................................... (9,700) (376) -- (10,076)
Total assets................................ 120,004 140,235 3,590 263,829
Capital expenditures........................ 32,486 1,017 -- 33,503
</TABLE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED MARCH 31, 1996
-------------------------------------------------------
PAGEMART PAGEMART PAGEMART THE COMPANY
ONE-WAY TWO-WAY INTERNATIONAL CONSOLIDATED
-------- -------- ------------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.................................... $ 48,545 $ -- $ -- $ 48,545
Operating loss.............................. (2,841) (274) (126) (3,241)
EBITDA...................................... 1,407 (274) (126) 1,007
Total assets................................ 119,186 140,251 3,411 262,848
Capital expenditures........................ 11,556 223 -- 11,779
</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 agreements.
Capital expenditures were $10.8 million, $16.7 million and $33.5 million
for the years ended December 31, 1993, 1994 and 1995, respectively and $11.8
million for the three months ended March 31, 1996. Capital expenditures for 1995
include approximately $8.7 million for the development of the Company's new
administrative system and approximately $1.0 million related to the development
of two-way messaging services. Capital expenditures for the first quarter of
1996 include approximately $223,000 related to the development of two-way
messaging services. The Company's expansion of its one-way wireless
communications network and related administrative facilities will require
capital expenditures currently estimated to be an
28
<PAGE> 31
additional $18 million during 1996. 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 (the "Vendor Commitment").
The Company's net cash used in operating activities was $23.2 million,
$25.5 million and $2.9 million for the years ended December 31, 1993, 1994 and
1995, respectively, and the Company's operating activities provided net cash of
$366,000 for the three months ended March 31, 1996. The decrease in 1995 and the
improvement for the first quarter of 1996 was a result of improved operating
results from a larger subscriber base and higher efficiencies in working capital
achieved through improved collections procedures and improved inventory
management. Net cash used in investing activities was $18.6 million, $69.1
million and $110.2 million for the years ended December 31, 1993, 1994 and 1995
respectively, and $11.8 million for the three months ended March 31, 1996. The
increase in 1994 over 1993 was primarily due to the $58.9 million used for the
acquisition of the NPCS Licenses. Of the $110.2 million used in investing
activities in 1995, $74.1 million was for the acquisition of the NPCS Licenses
and the remainder was primarily for capital expenditures. Net cash provided by
financing activities, including proceeds from borrowings and issuances of common
and preferred stock was $61.8 million, $83.5 million and $125.5 million for the
years ended December 31, 1993, 1994 and 1995, respectively, and net cash used by
financing activities was $1.3 million for the three months ended March 31, 1996.
The increase in 1994 resulted from the $76.9 million of net proceeds from the
sale of stock (the "1994 Stock Offerings"). The increase in 1995 resulted
primarily from the $100.1 million of net proceeds from the sale of units,
consisting in the aggregate of $207.3 million principal amount at maturity of
the 15% Notes and 725,445 shares of Common Stock, and $24.5 million of net
proceeds from the sale of Common Stock (the "1995 Private Stock Offering").
Long-term obligations, less current maturities, increased by approximately $5.8
million during the three months ended March 31, 1996, $126.7 million during 1995
and $14.3 million during 1994. Net increases in borrowings were $47.3 million,
$16.5 million and $128.7 million for the years ended 1993, 1994 and 1995,
respectively. The net increase in 1994 resulted primarily from the accretion of
the 12 1/4% Notes and borrowings under vendor financing agreements. The
increases in 1995 and the first quarter of 1996 resulted from the issuance of
the 15% Notes, the accretion of the 12 1/4% Notes and borrowings under vendor
financing agreements.
As of March 31, 1996, the Company's indebtedness under vendor financing
agreements was $13.7 million, its indebtedness under the 12 1/4% Notes was $98.0
million and its indebtedness under the 15% Notes was $119.1 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 March 31, 1996 to November 1,
1998 of $38.5 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 March 31, 1996 to February 1, 2000 of $88.1
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 agreement with Glenayre
(the "Vendor Lease Financing Agreement"), providing for the financing of
transmitter equipment up to a maximum aggregate amount of $15 million, pursuant
to lease term schedules mutually agreed upon for lease terms not exceeding 60
months. The Vendor Lease Financing Agreement is not a revolving line of credit
and the vendor's commitment expired on December 31, 1995. PageMart has an
option, at the expiration of any schedule to purchase all of the equipment
leased under that schedule at a nominal purchase price. The weighted average
interest rate in effect on March 31, 1996 with respect to the Vendor Lease
Financing Agreement was 13.49%. All outstanding indebtedness under the Vendor
Lease Financing Agreement will be repaid with a portion of the net proceeds from
the Offering.
29
<PAGE> 32
In May 1994, PageMart entered into a vendor purchase financing agreement
with Motorola (the "Vendor Purchase Financing Agreement"), providing for the
financing of transmitter equipment over a period of up to 36 months after the
acquisition of such equipment up to a maximum aggregate amount of $8 million.
The Vendor Purchase Financing Agreement is not a revolving line of credit. The
interest rate applicable to such financing is 4% above the prime rate quoted in
The Wall Street Journal from time to time. The weighted average interest rate in
effect on March 31, 1996 with respect to the Vendor Purchase Financing Agreement
was 12.5%.
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. Currently there are 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 March 31, 1996,
the amount available under the Revolving Credit Agreement was $22.7 million.
The Vendor Purchase Financing Agreement, the 12 1/4% Indenture, the 15%
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 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, and
the indebtedness under the Vendor Purchase Financing Agreement, 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 August 2000 when interest on the
15% Notes must be paid in cash. See "Risk Factors -- High Leverage;
Stockholders' Deficit; Restrictive Covenants."
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 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 March 31, 1996, the Company had approximately $14.2 million in cash
and cash equivalents. The Company's cash balances, existing vendor financing
arrangements and borrowings under the Revolving Credit Agreement are expected to
be sufficient to fund the Company's one-way operations and related capital and
debt service requirements through 1997. See "Risk Factors -- No Assurance that
Growth Strategy will be Achieved."
Significant additional financing will be required to fund 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
30
<PAGE> 33
fiscal 1997 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 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, the Revolving Credit Agreement and the
Vendor Purchase Financing Agreement, and as a result any additional financing
may need to be equity financing. See "Risk Factors -- Risks of Implementation
and Financing of Two-Way Services."
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
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.
31
<PAGE> 34
BUSINESS
GENERAL
The Company is one of the fastest growing providers of wireless messaging
services in the United States. Since commencing operations in 1990, the Company
has grown to become the fifth largest paging carrier in the United States, based
on 1,374,146 subscribers at March 31, 1996. The Company's number of subscribers
has increased at annual growth rates of 180%, 136% and 60% in 1993, 1994 and
1995, respectively, as compared to an average annual growth rate of
approximately 31% for 1993 through 1995 for the paging industry. The Company has
made no acquisitions, and all subscriber growth has been internally generated.
The Company has invested heavily in order to achieve rapid growth in its
subscriber base and, as a result, the Company has sustained net losses of $31.1
million, $45.8 million, $53.1 million and $11.6 million for 1993, 1994, 1995 and
the three months ended March 31, 1996, respectively.
The Company offers local, multi-city, regional and nationwide paging and
other one-way wireless services in all 50 states, covering 90% of the population
of the United States. The Company also provides services in Puerto Rico, the
U.S. Virgin Islands and the Bahamas, and has recently initiated nationwide
services in Canada. The Company employs a digital, state of the art transmission
network that is 100% FLEX enabled, allowing the use of high speed messaging
technology, thereby providing increased transmission capacity.
PAGING AND MESSAGING INDUSTRY
Industry sources indicate that, as of December 31, 1995, there were over 34
million pagers in service in the United States, which represents a penetration
rate in excess of 13% of the population. The number of pagers in service in the
United States has grown at an annual rate of approximately 28% since 1989.
Factors that have driven subscriber growth include: (i) a continuing shift
toward a service-based economy; (ii) increasing awareness of the benefits of
mobile communication among the population at large, (iii) decreasing equipment
and service prices contrasting with higher priced wireless communication
services such as cellular telephone; (iv) significant productivity, reliability
and coverage area improvements in paging services; (v) improved paging product
functionality; and (vi) expansion of distribution into the mass consumer markets
(e.g. national retail chains and direct sales).
INDUSTRY BACKGROUND/TRADITIONAL SERVICES. Historically, the industry has
been highly fragmented, characterized by a large number of small, local
operators. During the 1990s, however, consolidation increased significantly as
some paging companies grew rapidly, either internally or by acquisition. As a
result, industry sources have reported that over 45% of the estimated number of
pagers in service in the United States are now provided by the five largest
companies by subscriber level.
Over the past decade, traditional paging services have evolved rapidly from
tone-only, digital pagers to sophisticated alphanumeric devices that store
messages with up to 240 characters. Paralleling this product evolution and
concurrent with the reduction in related service and product costs, the market
for paging services has grown from a base of largely specialized users, such as
doctors and business people having time sensitive communication needs, to the
mass consumer market.
Although the paging and messaging industry continues to be characterized by
technological advances, certain basic characteristics are common to most one-way
wireless messaging services. Paging is a one-way wireless messaging technology
that uses an assigned frequency to contact a paging customer within a geographic
service area. Each customer who subscribes to a paging service is assigned a
specific telephone number (or a personal information number). The subscriber is
contacted through this telephone number (or a personal information number) when
the caller is connected, through the public-switched telephone network, with the
paging service.
INDUSTRY EVOLUTION/NEW SERVICES. While paging has been historically a
one-way communications service, technology advances are now providing a two-way
capability for wireless messaging. In 1994, the FCC enhanced the potential for
two-way messaging by allocating and auctioning new frequencies for two-way
paging services. By the end of 1994, the FCC had successfully auctioned
frequencies for both nationwide and
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regional two-way services. With the advent of two-way NPCS technology, the
opportunity exists for the development of two-way messaging products and
services that will include inexpensive stored voice and data acknowledgment
paging services that complement the cellular and broadband PCS service
offerings.
The newly-auctioned NPCS spectrum is expected to allow greater
functionality than traditional paging spectrum because it has broader bandwidth
and offers "inbound" and "outbound" spectrum, allowing efficient two-way
communication. With two-way transmission capability, a subscriber unit will be
able to indicate its location to the network. As a result, the message can be
broadcast from the closest transmission site, rather than from all transmission
sites in the entire national, regional or local network, as is the case with
existing paging systems. This should enable more efficient use of the spectrum
in a given geographic area and should greatly increase overall system capacity.
Advanced messaging services may be delivered through several kinds of
subscriber equipment and technology such as Motorola's stored voice messaging
product (which will allow delivery and storage of voice messages to a
pocket-sized pager-like device), enhanced alphanumeric subscriber units, PC
plug-in cards for laptop computers, palmtop computers and Personal Digital
Assistants ("PDAs"), allowing these devices to receive and acknowledge data
messages. Eventually these capabilities may be "built in" obviating the need to
purchase add-on devices such as PC cards. In addition, it is expected that the
enhanced functionality of two-way messaging will attract new subscribers through
value-added services such as voice messaging, wireless origination and delivery
of e-mail, integration of wireless devices into corporate wide area and local
area networks, database access and transaction services.
INDUSTRY OUTLOOK. Future technology developments in the wireless messaging
industry are expected to evolve and drive subscriber growth as users demand more
sophisticated services and devices. The penetration into the mass markets will
continue as retail distribution expands and as non-paging telecommunication
service providers seek to private-label pagers and bundle these services with
their own product offerings. Major telecommunication providers such as AT&T
Wireless, Sprint Corporation and MCI Communications Corporation have all
recently entered into paging service agreements with major messaging service
providers, and this trend is expected to continue.
The wireless industry in general and wireless messaging in particular are
expected to experience robust subscriber growth into the next decade. The
Company believes that its distinct business model positions it well to benefit
from the growth opportunities prevailing in the wireless messaging market today.
Specifically, the Company believes that the combination of its common frequency
nationwide network, centralized administration, diversified distribution
channels and strong spectrum position represents a competitive advantage that
will enable the Company to benefit from the ongoing industry developments.
OPERATING STRATEGY
The Company attributes the significant growth of its paging business to the
successful implementation of its six operating principles: (i) diversified
distribution channels, (ii) nationwide common frequency, (iii) efficient network
architecture, (iv) spectrum-rich frequency position, (v) centralized
administration, and (vi) customer service capabilities.
DIVERSIFIED DISTRIBUTION CHANNELS. The Company utilizes a number of
distribution channels to market its products and services, including retail
marketing, private brand strategic alliances and national sales offices.
Retail Marketing. The Company believes that it is a leading
supplier of paging units to consumers through retail distribution
channels. The Company has been selected as the pager supplier for a
number of leading retail chains, including Office Depot Inc., Comp USA,
Inc., Montgomery Ward Company, Inc., Target Stores, Inc. and Best Buy,
Inc.
Private Brand Strategic Alliances. The Company was one of the first
paging companies to broaden its distribution reach by establishing
strategic relationships with large communications providers. The Company
has established strategic relationships with GTE Corporation, Southwest-
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ern Bell Mobile Systems, AT&T Wireless Services, Ameritech Mobile
Services, Inc. and long distance reseller EXCEL Telecommunications, Inc.
National Sales Offices. The Company's national sales offices sell
equipment and services through three distribution channels: direct
sales, third-party resellers and local retailers. The Company has a
direct sales force presence in over 75 MSAs through 65 offices.
Management believes that a diversified approach to distribution is
important to sustain growth as paging services more deeply penetrate the
United States population, especially the consumer market. This
diversification is a key element of the Company's strategy of expanding its
subscriber base as rapidly as possible to increase cash flow through
greater utilization of its nationwide wireless communication network. A
diversified distribution strategy also provides a cost effective method for
managing disconnection rates. The Company's average monthly disconnection
rates for the twelve months ended December 31, 1994, December 31, 1995 and
March 31, 1996 were 3.4%, 2.5% and 2.4% per month, respectively.
NATIONWIDE COMMON FREQUENCY. The Company has constructed its
nationwide messaging network on a common frequency. Use of a common
frequency provides the Company with a number of important strategic
advantages not available to many of its competitors which operate on
multiple frequencies across markets. The use of a common frequency enables
the Company's customers to travel throughout the United States, Canada and
the Bahamas while continuing to use the same messaging device. As a result,
the Company is able to provide multi-city coverage customized to
accommodate the customer's needs ("coverage on demand"). The common
frequency also provides a competitive advantage to the Company when
marketing its services to regional and national retailers and private brand
strategic alliance partners. These distributors are able to buy the paging
unit without being limited by where they can distribute the product or by
the service they sell with the unit. This allows retailers and strategic
partners to offer customers all service options while minimizing the number
of SKUs that the distributor must carry, thus reducing inventory carrying
costs.
EFFICIENT NETWORK ARCHITECTURE. The Company is an industry leader in
the implementation of advanced telecommunications technologies, including
pioneering the use of direct broadcast satellite technology for paging. The
Company's nationwide wireless transmission network is 100% controlled by
DBS technology, which gives the Company a flexible, highly reliable and
efficient network architecture. The use of DBS technology eliminates the
need for expensive terrestrial Rf control links and repeater equipment
while enabling the Company to provide a wide range of coverage options. The
Company's network covers the top 300 MSAs across the United States, or
approximately 90% of the total population in the United States and is
designed to serve a significantly larger subscriber base than the one
currently served by the Company. The Company's wireless transmission
network is 100% FLEX enabled, allowing the use of the high speed FLEX
protocol to transmit messages and maximize system capacity.
SPECTRUM-RICH FREQUENCY POSITION. The Company ranks among the top four
paging carriers in the United States in licensed nationwide frequencies.
The Company's exclusive frequency licenses include two nationwide paging
frequencies and 150 kHz of nationwide NPCS frequency. The Company believes
that this frequency has important strategic value because it may enable the
Company to grow significantly its one-way subscriber base and to provide
two-way messaging and other value-added services to its subscribers. As a
result, the Company believes its spectrum-rich frequency position enables
it to attract private brand strategic alliance partners.
CENTRALIZED ADMINISTRATION. The Company has centralized customer
service, information systems, inventory control and distribution, credit
and collections, accounting and marketing functions. This centralized
administration has enabled the Company to become one of the lowest cost
providers of paging and other one-way wireless communications services in
the United States. In addition, the administrative infrastructure is
designed to support a significantly larger customer base than that
currently served by the Company, which will allow it to realize additional
operating efficiency as the Company continues to grow.
CUSTOMER SERVICE CAPABILITIES. Management has focused on developing
industry-leading customer service capabilities. The Company employs over
575 highly trained customer service personnel operating
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in state of the art call center facilities. Management believes that these
services are an important factor in supporting and retaining its strategic
partners, retailers and subscribers.
TWO-WAY MESSAGING STRATEGY
One of the Company's principal strategies is to become a leading provider
of two-way messaging services in the United States. Management believes that the
introduction of two-way messaging services may present significant future growth
opportunities to the Company by enabling it to provide a new generation of
advanced messaging services, including data messaging, stored voice messaging
and other services, to new and existing subscribers.
The Company's two-way messaging strategy is founded on four principal
competitive advantages: (i) nationwide spectrum, (ii) incremental introduction
of technology, (iii) established diversified distribution channels, and (iv)
operating efficiency.
NATIONWIDE SPECTRUM. With the acquisition of the NPCS Licenses, the Company
became one of four companies with 150 kHz or more of nationwide NPCS frequency.
As a result, the Company is positioned to create a high capacity nationwide
network capable of delivering local, multi-city, regional, or nationwide data
and stored voice messaging services to a large number of subscribers.
INCREMENTAL INTRODUCTION OF TECHNOLOGY. The Company intends to introduce
two-way messaging technology by initially building upon its one-way transmission
network, enabling the Company to minimize the level of capital expenditures and
investments. The Company plans to introduce two-way stored voice service paced
to the availability of infrastructure equipment, subscriber devices and to meet
the market demand for such services.
ESTABLISHED DIVERSIFIED DISTRIBUTION CHANNELS. The Company plans to
leverage its established diversified distribution channels to achieve efficient,
rapid market penetration of its two-way services.
OPERATING EFFICIENCY. The Company expects to utilize its existing one-way
network and centralized administration to minimize incremental costs of product
and service expansion. Management believes that the Company's centralized
customer service, information systems, inventory control and distribution,
credit and collections, accounting and marketing organizations will be capable
of supporting the Company's two-way strategy.
As a result of these operating advantages, the Company plans to provide a
complete array of two-way services at affordable prices, including stored voice
and data services, that the Company believes should appeal to a large number of
potential subscribers.
The Company expects to begin testing two-way data and stored voice services
in the second quarter of 1996. Upon completion of testing, two-way data services
are expected to be marketed on a city-by-city basis beginning in late 1996.
Two-way data services may include guaranteed alphanumeric message delivery with
acknowledgment and message with response capabilities. In 1997, the Company
plans to introduce its VoiceMart service which should provide subscribers with
the ability to receive stored voice messages directly to their messaging
devices. Introduction of the VoiceMart service will be paced to the availability
of infrastructure equipment, subscriber devices and market demand.
COAM STRATEGY
The Company's operating model is unique in the industry in that it follows
a strategy of selling rather than leasing messaging equipment to subscribers.
The selling expenses of the Company, which include advertising, compensation
paid to its sales force and the loss on pagers sold, associated with the
Company's COAM strategy, are substantial for each messaging unit. As of March
31, 1996, approximately 99% of the Company's messaging units were COAM, which
compares to an industry average of approximately 56%. The Company believes that
by following a COAM strategy it can achieve significantly better capital
efficiency than if it were to follow a lease strategy, which is reflected in its
relatively low capital employed per subscriber of $41 at March 31, 1996. Capital
employed per subscriber represents total assets, less NPCS Licenses, cash,
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non-debt current liabilities and international investments divided by units in
service. The Company believes that its COAM strategy provides additional
benefits, including reduced risk of technological obsolescence and avoidance of
the credit risk associated with leasing pagers to end-users. In addition,
management believes that this strategy minimizes its disconnection rates in the
retail channel. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
SALES AND MARKETING
The Company's customers include individuals, corporations and other
organizations that desire affordable communication services offering substantial
mobility, accessibility and the ability to receive timely information. The
Company utilizes a number of distribution channels to market its products and
services, including retail marketing, private brand strategic alliances and
national sales offices. Management believes that a diversified approach to
distribution is important to sustain growth as demand for paging services more
deeply penetrates the United States population, especially the consumer market.
This diversification is a key element of the Company's strategy of expanding its
subscriber base as rapidly as possible to increase cash flow through greater
utilization of its nationwide wireless communication network. The Company is not
dependent on any single customer or a few customers, the loss of one or more of
whom would have a material adverse effect on the Company.
RETAIL MARKETING
Since early 1993, the Company has been an industry pioneer in developing
the retail distribution channel through sales arrangements with regional and
national retail chains that sell electronic and business equipment or consumer
goods. The Company provides equipment to a retailer who then sells the equipment
to potential users. Once the unit is purchased, the customer can activate it and
subscribe for local, regional or nationwide paging coverage with the Company by
simply calling the toll-free number identified on the unit. Because the
Company's pagers operate on a common nationwide frequency, they can be sold in
any retail store located in the Company's nationwide coverage area. By contrast,
competitors that use multiple frequencies across markets require retailers to
maintain many more SKUs to serve each local market that utilizes a different
frequency.
The Company has entered into sales arrangements with a number of large
retail chains such as Office Depot, Inc., Comp USA, Inc., Montgomery Ward
Company, Inc., Target Stores, Inc. and Best Buy, Inc. Retail distribution also
allows the Company to sell pagers in markets that would not support a direct
sales office but in which it has installed the necessary equipment required for
providing paging services. The Company can thus enter new markets by
capitalizing on its existing infrastructure of transmitters with the only
incremental expense being the procurement of local access phone lines. The
Company expects retail sales to become an increasingly important channel of
distribution for pagers. The number of national retail store locations has
increased to 3,690 stores at March 31, 1996, from 3,411 stores, 2,200 stores and
840 stores at December 31, 1995, 1994 and 1993, respectively. Approximately 25%
of the Company's sales are made through the retail channel.
PRIVATE BRAND STRATEGIC ALLIANCES
The Company has established numerous strategic relationships with large
communications providers. These companies utilize their brand awareness and
billing efficiencies to market private brand pagers and services using the
Company's transmission network. Approximately 10% of the Company's sales are
made through private brand strategic alliances, and the Company expects this
proportion to increase over the next several years.
GTE CORPORATION. During 1993 and 1994, the Company and GTE signed a series
of agreements providing for the sale and marketing through GTE of GTE-labeled
services throughout the United States. In addition, several of these agreements
provide for joint cooperation in the deployment of paging network facilities for
the provision of wireless messaging and data transmission in the United States.
Pursuant to the terms of one of the agreements, GTE will purchase up to 250 new
transmitters to be deployed throughout the Company's
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nationwide network. The Company will lease, operate and maintain the
transmitters and will provide wireless services to GTE customers, as well as
customers of the Company via the Company's nationwide network. The Company's
services are sold across the United States through GTE Telephone Operations, GTE
Phone Mart Stores and GTE Mobilnet.
SOUTHWESTERN BELL MOBILE SYSTEMS. In May 1995, the Company and SBMS signed
an agreement for the sale and marketing through SBMS of SBMS-labeled services.
After a successful test in several Texas markets in the third quarter of 1995,
SBMS has expanded marketing of the service into its other major markets
including Chicago, Kansas City, St. Louis, Boston and Washington, D.C.
AT&T WIRELESS SERVICES. In November 1995, the Company and AT&T Wireless
entered into a three-year agreement for the sale and marketing through AT&T
Wireless of AT&T Wireless-labeled services. In March 1996, AT&T Business
Communications commenced controlled introduction of its Personal Reach Service,
which utilizes the Company's network.
AMERITECH MOBILE SERVICES, INC. In February 1996, the Company and Ameritech
signed an agreement for the sale and marketing through Ameritech of
Ameritech-labeled services.
EXCEL TELECOMMUNICATIONS, INC. In March 1996, the Company and Excel, a long
distance reseller, signed an agreement for the sale and marketing through Excel
of Excel-labeled services.
NATIONAL SALES OFFICES
The Company's national sales offices sell equipment and services through
three distribution channels: direct sales, third-party resellers and local
retailers. The Company has a direct sales force of 445 personnel located in over
75 MSAs through 65 offices.
DIRECT SALES. The Company markets its equipment through its direct sales
force and related marketing activities such as telemarketing and advertisements
in radio, print media and telephone company yellow pages. Direct sales
representatives are paid by commission (which varies depending on the type of
service subscribed for and other factors) for each unit sold or placed in
service. Approximately 30% of the Company's sales are generated through its
direct sales force.
THIRD-PARTY RESELLERS. In addition to offering paging and messaging
services directly to end-users, the Company also provides services under
marketing agreements with third-party resellers. Typically, the Company offers
third-party resellers paging services in bulk quantities at a wholesale monthly
rate that is lower than the Company's regular retail rates. Approximately 35% of
the Company's sales are made through third-party resellers.
LOCAL RETAILERS. The Company markets its services under sales arrangements
with local retailers located in the MSAs where national sales offices are
present.
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MESSAGING SERVICES
Paging Services
The Company charges subscribers a monthly fee which covers the paging and
messaging services subscribed for and any additional services purchased by the
subscriber. The amount of the monthly fee varies primarily based on the type of
service provided and the geographic area covered. The Company charges higher
rates for multi-city and nationwide service options.
The Company currently offers the following three basic types of one-way
paging and messaging services.
<TABLE>
<CAPTION>
SERVICE FUNCTIONS
- ------------------------------ -------------------------------------------------------------
<S> <C>
Numeric paging................ Provides the subscriber with the telephone number of the
person who is seeking to contact the subscriber. Numeric
pagers can store and retrieve up to 40 numeric messages,
which are displayed on a liquid crystal display.
Alphanumeric paging........... Offers the subscriber the ability to receive a text message
rather than simply a numeric message. Alphanumeric pagers can
store and retrieve up to 40 messages of up to 80 characters
each, which are displayed on a liquid crystal display.
Wireless messaging............ Offers subscribers the ability to receive detailed text
messages and information services through "message ready"
electronic organizers and PCMCIA cards. Wireless messaging
devices are capable of receiving messages of several thousand
characters in length.
</TABLE>
NUMERIC PAGING. Among the Company's subscribers who use a numeric display
pager, a high percentage select local coverage, although the percentage of
subscribers who select multi-city coverage has been increasing. Monthly fees for
regional and national paging coverage are substantially higher than the fees
charged for single local area coverage. The Company's revenues from multi-city
coverage increased to approximately 29% of airtime revenues for the month ended
March 31, 1996 from approximately 28% during the month ended December 31, 1995.
ALPHANUMERIC PAGING. The Company launched its alphanumeric paging services
in July 1993 under the tradenames InfoPage(R) and InfoNow(SM), and the number of
subscribers utilizing this service represented approximately 1.6% of the
Company's total subscribers as of March 31, 1996. The percentage of paging
industry subscribers utilizing alphanumeric pagers at the end of 1995 was
reported to be approximately 9%. The Company has not focused a significant
portion of its selling and marketing efforts on alphanumeric paging service,
primarily because technology has inhibited the Company's ability to deliver the
service in a cost effective manner. With the Company's introduction of high
speed FLEX protocols, the Company anticipates alphanumeric paging service
becoming a larger portion of its selling and marketing efforts. The ability of
alphanumeric pagers to deliver longer text messages, including the ability to
store messages received for playback when desired by the subscriber, allows the
Company to charge significantly higher monthly fees for its InfoPage and InfoNow
services than for numeric display paging services.
WIRELESS MESSAGING. The Company began offering one-way wireless messaging
services to subscribers with electronic organizers at the end of the first
quarter of 1994. The Company has developed strategic relationships with computer
manufacturers that are integrating advanced wireless messaging capabilities into
their applications software and a new generation of personal digital assistants
and portable computers. Handheld computers featuring PCMCIA slots can
accommodate PCMCIA pager cards to provide office professionals with "message
ready" devices that allow them to be in touch while away from their offices. The
Company's wireless services to PCMCIA pager cards is being marketed under the
service mark InfoAdvantage(SM).
The Company has established the following strategic relationships for the
marketing and provision of wireless data transmission. The market for the
one-way delivery of extended length messages is small in comparison to
traditional numeric and alphanumeric services, and the Company has not realized
significant
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revenues from these relationships to date. However, management believes these
relationships will be valuable for distribution of its two-way messaging
services.
International Business Machines, Inc. ("IBM"). In December 1993, IBM
selected PageMart to be a ThinkPad Proven Vendor to provide one-way
wireless messaging services to IBM portable computer customers. PageMart
markets its wireless services to existing owners of ThinkPads through a
direct mail program and to new owners through a pre-installed computer
slide show that IBM includes on selected new ThinkPad models.
Mitsui Comtek Corporation ("Mitsui"). The Company has worked with
Mitsui in the design of the industry's first electronic organizer with a
built in wireless messaging receiver and now provides one-way messaging
services for electronic organizers manufactured by Casio Computer Company
Limited.
CompuServe, Inc. ("CompuServe"). In May 1995, the Company was one of
several paging carriers selected by CompuServe for the wireless delivery of
electronic mail (or notice thereof) to CompuServe subscribers.
ADDITIONAL VALUE-ADDED SERVICES
In addition to paging services, the Company offers subscribers a number of
additional value-added services, including voicemail services that allow
subscribers to retrieve voice messages from persons attempting to contact the
subscriber. In addition, the Company offers a numeric message retrieval service
which allows a subscriber to retrieve messages that were sent at a time when the
subscriber was outside of his or her service area. Other optional services
include a nationwide toll-free 800 access number for paging subscribers, a
customized voice prompt that allows subscribers to record a personal greeting,
maintenance agreements and loss protection programs. Approximately 22% of the
Company's recurring revenues during the fiscal quarter ended March 31, 1996 were
derived from these additional services.
The Company also plans to offer wireless connectivity to the Internet for
message transfer and information requests through the "PageMart Wireless Web"
service utilizing the Company's wireless communications network. These services
will include electronic mail, news and other information delivered to messaging
devices, as well as guaranteed message delivery with acknowledgment using the
Company's wireless network for transmission and response.
TWO-WAY SERVICES
One of the Company's principal strategies is to become a leading provider
of two-way messaging services in the United States. Management believes that the
introduction of two-way messaging services may present significant future growth
opportunities to the Company by enabling it to provide a new generation of
advanced messaging services, including data messaging, stored voice messaging
and other services, to new and existing subscribers.
The Company expects to begin testing two-way data and stored voice services
in the second quarter of 1996. Upon completion of testing, two-way data services
are expected to be marketed on a city-by-city basis beginning in late 1996.
Two-way data services may include guaranteed alphanumeric message delivery with
acknowledgment and message with response capabilities. In 1997, the Company
plans to introduce its VoiceMart service, which should provide subscribers with
the ability to receive stored voice messages directly to their messaging
devices. Introduction of the VoiceMart service will be paced to the availability
of, infrastructure equipment subscriber devices and market demand.
The Company's planned service offerings are expected to be delivered to a
pocket-sized subscriber unit containing a transmitter, enabling it to send a
signal identifying its location to the Company's network. Management estimates
that the Company's enhanced alphanumeric services and stored voice messaging
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services will be offered to customers at monthly prices competitive with current
one-way alphanumeric paging services in similar service areas. The Company's
service offerings are expected to include:
Enhanced Alphanumeric Messaging. The Company's enhanced alphanumeric
messaging service will enable the subscriber to receive alphanumeric
messages up to several thousand characters in length (compared to the
approximately 80 characters in traditional one-way alphanumeric messaging)
which will be input by either (i) a computer or other software-enabled
device with the proper software and a modem that can access the Company's
network or (ii) a dispatch operator. The service is expected to be based on
Motorola's state of the art ReFLEX25(TM) technology. This technology will
permit the network to locate the subscriber before sending the message and
verify that the subscriber unit has obtained the message ("guaranteed
delivery").
The Company believes that penetration of alphanumeric service on a
regional and nationwide basis has been limited to date due to the
reluctance of many one-way paging operators to promote the service because
of its relatively high use of system capacity during transmission. The NPCS
Licenses and the ReFLEX25 and InFLEXion(TM) technologies should offer
significant increases in capacity and delivery speed over the spectrum and
technology currently delivering alphanumeric messaging services. The
Company expects that its enhanced alphanumeric service will improve upon
traditional service by permitting longer messages, by guaranteeing and
acknowledging delivery and, eventually, by permitting the subscriber to
initiate limited data responses. Management believes that these service
enhancements, along with its competitive pricing, will appeal to
subscribers of traditional alphanumeric messaging services and to cost
conscious customers who have not previously subscribed to such services.
VoiceMart Service. The Company's VoiceMart service will be an entirely
new generation of messaging service. The service may utilize Motorola's
state of the art InFLEXion compressed stored voice technology to deliver a
high quality transmission of the sender's voice to the wireless stored
voice messaging product. The unit will store up to four minutes of voice
messages, which the subscriber will be able to play, fast-forward, rewind
and delete, much like an answering machine or voice mailbox. If the
subscriber unit is full, the sender's message will be stored in a network
server. The network will then transmit a "message waiting" notification to
the subscriber unit. The subscriber can delete old messages to enable the
unit to immediately receive messages stored by the network. While the
subscriber will not be able to respond directly to the caller by speaking
into the unit, the subscriber unit will acknowledge receipt of the voice
message to the network. The subscriber unit will have a volume control to
allow the subscriber to listen to messages privately, or to play them aloud
for others to hear.
Other Services. Over time, the Company intends to participate in the
growth of wireless data messaging services through new and existing
strategic alliances, wireless data alliances with software companies and
electronic equipment manufacturers to develop additional data messaging
services. In addition to pocket-sized pagers, the Company expects that
wireless data transmissions will be received by computers, organizers or
PDAs equipped with two-way Rf modems or built-in Rf capability. It is
anticipated that a limited response by the device will be possible.
PACT(TM) SERVICES. The Company anticipates that its two-way messaging
network will also be capable of broadcasting the pACT protocol, a high speed
NPCS protocol developed by AT&T. However, the Company has not yet received a
commitment from its suppliers to provide such capability and there can be no
assurance that such capability will be made available to the Company. Messaging
services provided on the pACT protocol are expected to be very similar to
enhanced alphanumeric messaging, voice messaging services and other services
described above.
ONE-WAY TRANSMISSION NETWORK
The Company utilizes DBS technology exclusively in its one-way transmission
network. Although the Company's one-way transmission network is substantially
built out, the Company continues to make expenditures to improve and expand its
coverage into new areas. The Company's use of the DBS system has certain cost
and performance advantages over traditional paging systems and traditional
satellite paging systems.
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Traditional Paging Systems. The traditional method of controlling paging
transmitters in local and regional simulcasting systems is to use terrestrial Rf
control links that originate from one broadcast transmitter that is controlled
by a local paging terminal. At the paging terminal, the messages are received
and assembled for transmission via Rf or wireline control link to each
transmitter. Once a message is received by each transmitter in a simulcast
market, it in turn broadcasts the paging information using the paging broadcast
frequency. The Rf control link frequency is different from the paging broadcast
frequency.
In order to simulcast the paging signal, a traditional system must be
fine-tuned (optimized) so that each transmitter broadcasts the paging signal at
the same time. Optimization becomes more complex and expensive as the service
area expands. In addition, since a traditional system requires line-of-site
transmission of the Rf control link signal, repeater stations must be used to
re-broadcast this Rf signal in a large system such as the New York or Los
Angeles metropolitan areas. The more distant the transmitter sites are from the
central Rf control link transmitter, the more repeaters are necessary. Repeater
stations make optimization more difficult and increase equipment and recurring
tower rental costs. For non-contiguous regional coverage either telephone lines
or microwave communication links are typically used in lieu of Rf control links.
Traditional Satellite Paging Systems. Some paging system operators have
adopted an alternative approach using satellites, rather than telephone lines,
to communicate between the paging terminal and the traditional Rf control link
systems. Numeric and alphanumeric messages are processed by a central paging
terminal that uplinks the messages to a satellite, which then broadcasts the
messages to the destination cities. The satellite signal is received by one
central Rf radio control transmitter paging dish in each city and broadcast via
traditional Rf control link transmitters to the paging transmitters in that
city.
With this infrastructure, the satellite is used only in place of other long
distance communication options. Both an Rf control link frequency and a paging
signal frequency must be employed as with a traditional system. The current
broadcast configuration employed by many other leading nationwide carriers has
the added inefficiency of satellite transmissions that address their entire
nationwide system or entire regions whenever a page transmission is sent, thus
limiting the total number of subscribers on the system.
The Company's Direct Broadcast Satellite Paging System. The Company has
developed an innovative satellite-based transmission network that gives the
Company a flexible, highly reliable network architecture and an efficient
operating structure. The Company's network is comprised of three primary
components: network access, a nationwide network linking the Company's paging
terminals and a satellite network which controls the Company's transmitters.
The Company's numeric and alphanumeric paging services can be accessed via
local telephone numbers or 800 numbers using a touch-tone key pad or personal
computer messaging software. Local numbers are provided by regional telephone
companies and 800 number service is provided by long distance telecommunications
services providers. The Company uses a nationwide data network to carry all
paging traffic from local telephone markets to its satellite uplink facilities
in Illinois. This network configuration allows the Company to add new lines
quickly and efficiently and provides the Company with back-up power, fire
protection and diverse routing capabilities.
The Company began using DBS technology in 1990 and was the first one-way
wireless communications carrier to use DBS technology to control all of its
transmitters. Currently, the Company is one of only three carriers that employ
DBS technology in a nationwide paging system. With a DBS paging system, the
satellite can broadcast messages directly to each transmitter in the Company's
paging system, which then broadcasts the message to pagers on the Company's
nationwide broadcast frequency. DBS eliminates the expensive terrestrial radio
link and repeater equipment that many paging companies have employed to control
simulcast transmissions in large metropolitan markets. In addition, the
Company's satellite system can selectively address one or any combination of its
transmitters, thereby providing a wide range of coverage options and permitting
efficient use of paging frequencies in each market. The Company leases its
satellite services pursuant to the Satellite Service and Space Segment Lease
Agreement, dated January 2, 1995, with SpaceCom Systems, Inc. ("SpaceCom"). The
agreement subjects the Company to monthly service charges based on the amount
and types of services used and expires on January 31, 2002. The agreement may be
terminated by SpaceCom upon certain failures of the Company to pay monthly
service fees. The agreement
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does not include any renewal provisions. Although the Company is currently party
to only one satellite service agreement, management believes that the services
provided by SpaceCom are sufficient to meet the Company's foreseeable needs and
that there are numerous alternate satellite sources available to the Company on
comparable terms and conditions. As a result, the Company does not believe the
loss of its relationship with its current satellite supplier would have a
material adverse effect on its business and operations.
The Company does not manufacture any of the pagers used in its paging
operations. Currently, the Company buys approximately 60% of its pagers from
Motorola with the remainder purchased from other manufacturers. The Company is
dependent on such manufacturers to obtain sufficient pager inventory for new
subscriber units and replacement needs. See "Risk Factors -- Dependence on Key
Suppliers."
BENEFITS OF THE DIRECT BROADCAST SATELLITE. The use of a DBS broadcast
system provides a number of benefits to the Company including:
- Selectively addresses one or all markets to provide a wide range of
local, multi-city, regional or nationwide coverage options. The Company's
system configuration employs a high degree of spectrum efficiency with
regard to the paging frequency because only the coverage area the
customer has elected will be activated with each page.
- Replaces terrestrial Rf control link equipment with satellite based
equipment and signaling. This eliminates capital expenditures associated
with terrestrial RF control link equipment and the associated
telecommunications expenses, utilities and ongoing site rent and requires
much lower expenditures for satellite receivers and satellite service.
- Suffers significantly less degradation in performance due to building
reflection and simulcasting problems, such as the overlapping of two
independently controlled markets.
- Allows for rapid deployment of the network system because the
transmitters are operational immediately upon installation, while
terrestrial Rf control links need to be optimized, which can take up to
three months in some large urban markets.
- Supports the high data rates that will be required in order to
effectively provide enhanced services such as two-way messaging services.
Management believes that this will allow the Company to implement higher
speed signal technologies quickly and in a cost effective manner.
TWO-WAY MESSAGING
NARROWBAND PCS PROTOCOLS
Paging networks use various "protocols" to provide seamless communications
between the various components which make up a paging network. Protocols
regulate the format and flow of messages which are transmitted over the network.
As such, protocols facilitate the orderly and efficient flow of message traffic
over the network. Motorola has developed, and licensed to Glenayre, several
protocols, including FLEX, ReFLEX25, ReFLEX50(TM) and InFLEXion. Of these four
protocols, the Company believes that ReFLEX25, ReFLEX50 and InFLEXion permit
two-way alphanumeric messaging, but only InFLEXion currently has the capability
to offer cost-efficient stored voice messaging, very high-speed data delivery
and the transmission of data to the subscriber unit. The Company also believes
that AT&T has also developed a proprietary protocol "Personal Air Communications
Technology," or pACT, for two-way wireless transmission of data and alphanumeric
messages.
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These various protocols have different transmission speeds and capacity
characteristics. Consequently, the ability to deliver various types of wireless
messaging services, including stored voice messaging, on a cost-efficient basis
is dependent upon the protocol used. The following table illustrates certain
characteristics of various protocols based on current publicly available
information.
<TABLE>
<CAPTION>
INFLEXION REFLEX50 REFLEX25 PACT
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Outbound Transmission Speed
per Channel................................ 16,000 bits 6,400 bits 6,400 bits 8,000 bits
per second per second per second per second
Number of Channels(1)........................ 7 4 3 3
Outbound Throughput(1)....................... 112,000 bps 25,600 bps 19,200 bps 24,000 bps
per cluster per area per area per cluster
Frequency Reuse.............................. Some No (2) Yes
Message Acknowledgement...................... Yes Yes Yes Yes
Limited Alphanumeric Message Response........ Yes Yes Yes Yes
Stored Voice Messaging(3).................... Yes No No (4)
</TABLE>
- ---------------
(1) Bits per second (bps) gross rate including message overhead. Based on NPCS
networks with 50 kHz outbound frequency.
(2) ReFLEX25 protocol will support cellular-like frequency reuse if the Company
requires it for additional capacity.
(3) Although the ReFLEX50 and ReFLEX25 protocols technically have the ability
to support these service offerings, management believes that neither of
these protocols can cost-effectively support these service offerings.
(4) Not currently available.
TWO-WAY NETWORK BUILDOUT
The Company expects to design and construct its nationwide NPCS network to
provide stored voice and data services and currently expects to complete
substantially its network buildout by the end of 1998. The key elements of the
network buildout are as follows:
Design. The design of the Company's nationwide NPCS network is
expected to be based upon Motorola's ReFLEX25 and InFLEXion technologies in
order to achieve efficient use of the Company's spectrum and to accommodate
a greater number of subscribers. The Company may also incorporate AT&T's
proprietory messaging protocol pACT into its network. The design process
requires extensive Rf planning, which involves the selection of specific
sites for the placement of transmitters and receivers as well as
functioning infrastructure equipment from manufacturers. As part of the
design process, the Company's engineers are identifying sites using the
Company's proprietary database (as well as other sources), which contains
specific information about available sites throughout the nation. Sites are
chosen on the basis of their coverage and on frequency propagation
characteristics, such as terrain, topography, building penetration and
population density. The Company's engineers currently project that the
Company's nationwide NPCS network will consist of approximately 2,300
transmitter/receiver sites and approximately 1,700 stand-alone receivers
when the network is substantially completed.
Equipment. The infrastructure of the Company's network will consist of
radio transmitters and receivers, switches, Rf controllers and ancillary
equipment, such as coaxial cable and antennas. The Company plans to
purchase this infrastructure equipment (other than the ancillary equipment)
from industry leading equipment suppliers, Motorola and Glenayre. The
Company believes that currently there is only a limited number of suppliers
of terminals and transmitters and as a result the Company is dependent on
such suppliers for its infrastructure equipment needs. The Company
currently has no
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agreements that require it to purchase infrastructure equipment or
messaging units for its two-way services. See "Risk Factors -- Dependence
on Key Suppliers."
Development of Technology. While the terminals and transmitters will
be similar to the equipment used in the Company's one-way messaging
network, the Company believes that Motorola is conducting over-the-air
testing of its InFLEXion technology, infrastructure equipment and
subscriber units in its factory in Fort Worth, Texas. While the tests do
not take into account certain factors prevalent in the design of the
Company's two-way network buildout such as terrain topography, building
penetration and population density, the Company believes that Motorola
expects to establish that the technology and equipment can deliver a
wireless voice message to subscriber unit under controlled circumstances.
The Company also believes that Motorola's ReFlex technology has recently
been introduced and has been used commercially by another paging company.
However, there can be no assurance that two-way services will be
commercially viable, and the success of two-way services could be affected
by matters beyond the Company's control. See "Risk Factors -- Risks of
Implementation and Financing of Two-Way Services."
The Company expects to purchase a significant portion of its subscriber
messaging units from Motorola, with the remainder expected to be purchased from
other manufacturers. The Company understands that Motorola has licensed to other
wireless equipment manufacturers the relevant signaling system technology, as
Motorola has done with signaling system technology for its other FLEX protocols.
Although the Company believes that sufficient alternative sources of two-way
messaging units will exist, the Company would be adversely affected if it were
unable to obtain the units on satisfactory terms. See "Risk
Factors -- Dependence on Key Suppliers." The Company currently has no agreements
that require it to purchase infrastructure equipment or messaging units for its
two-way services.
As the Company begins development and implementation of two-way services,
the Company expects to incur significant additional operating losses during the
start-up phase for such services, and it will be necessary for the Company to
make substantial investments. The Company anticipates requiring additional
sources of capital to fund the construction of a two-way messaging network,
including expenditures relating to the build-out requirements of the FCC. See
"-- Government Regulation." The Company anticipates investing $75 to $100
million through fiscal 1997 to test and construct a two-way transmission
network. Thereafter, the Company anticipates that its two-way operations may
require up to $100 million of additional investment to substantially complete
the network buildout. The Company expects to require additional financing to
complete the buildout, which may include joint venture arrangements, however
there can be no assurance that sufficient financing will be available to the
Company. See "Risk Factors -- Risks Related to Implementation and Financing of
Two-Way Services" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
INTERNATIONAL EXPANSION
The Company plans to provide messaging services in selected countries on a
seamless international network. Management believes that its technology,
operational structure and distribution strategies can be replicated in foreign
countries to establish nationwide wireless networks. In each country in which
the Company plans to offer paging and messaging services, the Company will seek
to obtain a nationwide frequency common to at least one of the nationwide
frequencies it holds in the United States in order to allow a single messaging
device to be used in multiple countries. The Company expects to pursue
international opportunities through minority interests in joint venture
arrangements whereby the Company would contribute its expertise in designing and
managing messaging services with minimal incremental capital investments.
The Company's international strategy is initially to pursue opportunities
in North America, Latin America, and South America. One of the Company's
affiliates, PageMart Canada, has obtained a nationwide license in Canada based
on a frequency common to one of its frequencies in the United States. PageMart
Canada began providing service in the largest metropolitan areas in Canada to
U.S. subscribers in March 1996 and to Canadian subscribers in April 1996. The
Company also provides paging coverage in the Bahamas.
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In 1994, PageMart Canada purchased the Canadian network facilities of
Motorola EMBARC Canada for approximately $1.7 million and entered into an
agreement with Motorola to sell transmission time to Motorola for five years. In
1995, Toronto Dominion Capital Group Ltd. ("TD Capital") and Working Ventures
Canadian Fund, Inc. ("Working Ventures") purchased a majority interest of Canada
Holding for $5 million. In January 1996, PageMart Canada was awarded one of the
same nationwide frequencies the Company uses in the United States. The Company's
cash investment in Canada Holding and PageMart Canada totals approximately $3.7
million. Through PageMart International, Inc. the Company owns 20% of the voting
common stock of PageMart Canada. Additionally, PageMart International Inc. owns
33% of the voting common stock of Canada Holding which owns the remaining 80% of
the voting common stock of PageMart Canada.
The common frequency allows the Company's affiliates in each country to
provide customized coverage that extends beyond the borders of the serving
country, using the same pager. For example, a subscriber in New York could
choose New York and Toronto coverage.
COMPETITION
The Company competes primarily on the basis of the price of its equipment
and wireless services as well as its coverage capability. Its competitors
include both companies which provide paging or other mobile communications
services in local markets in which the Company operates and regional and
nationwide paging service providers. These include both large and small paging
service providers and regional telephone companies, such as Paging Network, Inc.
MobileMedia Corporation Inc., AirTouch Communications, Inc. and Arch
Communications Group, Inc. Certain of these companies have substantially greater
financial, technical and other resources than the Company. In addition, a number
of paging carriers have constructed or are in the process of constructing
nationwide wireless networks that will compete with the Company's services,
including the provision of two-way messaging. Management believes that its low
cost base and service offerings will enable it to continue to compete
effectively in all markets.
A number of competing technologies, including cellular telephone service,
broadband and narrowband personal communications services, specialized mobile
radio, low speed data networks and mobile satellite services, are used in, or
projected to be used for, two-way wireless messaging services. Cellular
telephone technology provides an alternative communications system for customers
who are frequently away from fixed-wire communications systems (i.e., ordinary
telephones). Compared to cellular telephone service, paging service is generally
less expensive, offers longer battery life, provides better in-building
penetration, extends over wider coverage areas, and is more transportable. For
those cellular customers for whom convenience and price are considerations,
paging can compete successfully by complementing their cellular usage.
Management believes that paging will remain one of the lowest-cost forms of
wireless messaging due to the low-cost infrastructure associated with paging
systems, as well as advances in technology that will reduce paging costs.
Broadband personal communications services technologies are currently under
development and will be similar to cellular technology. When offered
commercially, this technology will offer greater capacity for two-way wireless
messaging services and, accordingly, is expected to result in greater
competition.
Technological advances in the telecommunications industry have created, and
are expected to continue to create, new services and products competitive with
the wireless services currently provided by the Company. In addition, certain
companies are developing one-way and two-way wireless messaging services which
may compete with the one-way and two-way wireless messaging services which the
Company expects to provide. There can be no assurance that the Company will not
be adversely affected as new competitive technologies become available and are
implemented in the future. In addition, the Company may be adversely affected if
cellular telephone companies or broadband personal communications service
providers begin to provide other wireless services or enter into partnerships
with other companies to provide wireless services that complement cellular or
broadband PCS services.
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<PAGE> 48
GOVERNMENT REGULATION
Wireless messaging operations are subject to regulation by the FCC under
the Communications Act, including recent amendments contained in the
Telecommunications Act of 1996. At the present time, wireless messaging services
are primarily offered over radio frequencies that the FCC has allocated for
either common carriage (the licensees for which are known as RCCs), or private
carriage (the licensees for which are known as PCPs). RCCs are granted an
exclusive license to a particular radio frequency in a particular locality or
region. Certain qualified PCPs have been granted such exclusive use of their
frequencies as well. In addition, the FCC has recently granted, by auction,
regional and nationwide NPCS licenses that can be used for advanced paging
services, such as two-way paging.
The Company provides one-way paging services directly to subscribers over
its own transmission facilities and is currently regulated as a PCP for most of
its services. The Company (through subsidiaries) holds certain RCC licenses (the
"RCC Licenses") and two exclusive nationwide PCP licenses, as well as exclusive
licenses on various PCP frequencies in certain metropolitan areas, including New
York, Los Angeles and Chicago (the "PCP Licenses"). Additionally, the Company
holds a Nationwide Narrowband License and five Regional Narrowband Licenses; the
latter five licenses authorize the Company to operate regional narrowband
systems on the same frequencies throughout the continental United States. The
Nationwide Narrowband License was granted on September 29, 1994, and the
Regional Narrowband Licenses were granted on January 27, 1995. The Nationwide
Narrowband License and the Regional Narrowband Licenses may be utilized in
connection with various two-way NPCS services or to expand the Company's
existing one-way transmission network.
The Budget Act amended the Communications Act by creating a new
consolidated category of communications services called Commercial Mobile Radio
Services ("CMRS") in order to more uniformly regulate mobile wireless service
providers. RCCs, PCPs, and NPCS providers are included in the new CMRS category.
The FCC has promulgated regulations to implement these new statutory
requirements. In general, regulatory changes caused by the creation of the CMRS
category are scheduled to become effective in August 1996. Under the amended
Communications Act, differential regulation of providers of CMRS is permitted
only under limited circumstances. If there is no change in the recently adopted
rules, PCPs, RCCs, NPCS licensees and other CMRS providers will have
substantially similar obligations under the Communications Act beginning in
August 1996. All of these licensees will be prohibited from engaging in any
unreasonable discriminatory practices, will be subject to complaints regarding
any unlawful practices and will be subject to provisions that authorize the FCC
to provide remedial relief to an aggrieved party upon a finding of a violation
of the Communications Act and related consumer protection provisions. It is
expected that further rulemaking proceedings may be commenced by the FCC in its
efforts to reconcile its regulation of RCCs, PCPs, and NPCS licensees.
The Company's PCP, RCC and NPCS Licenses (collectively, the "Licenses")
authorize the Company to use the radio frequencies necessary to conduct its
paging operations. The Licenses prescribe the technical parameters, such as
power output and tower height, under which the Company is authorized to use
those frequencies. The Licenses are for varying terms of up to 10 years, at the
end of which time renewal applications must be submitted to the FCC for
approval. Most of the Company's PCP and RCC Licenses expire between 1996 and
1999. In order to be granted the exclusive use of a frequency, the Company is
required to construct and maintain a specified minimum number of transmission
sites, depending upon the breadth of the exclusivity, each of which is licensed
by the FCC (the "Operating Licenses"). Of the Company's over 1,400 Operating
Licenses, 90 require renewal in 1996 and 318 require renewal in 1997. The
Nationwide Narrowband License will expire on September 29, 2004 unless renewed
by the Company. The Regional Narrowband Licenses will expire on January 27, 2005
unless otherwise renewed. FCC renewals are routinely granted in most cases upon
a demonstration of compliance with FCC regulations and adequate service to the
public. Although the Company is unaware of the existence of any circumstances
which would prevent the grant of any pending or future renewal applications, no
assurance can be given that the Licenses will be renewed by the FCC in the
future. Furthermore, although revocation and involuntary modification of
licenses are extraordinary regulatory measures, the FCC has the authority to
restrict the operation of licensed facilities or to revoke or modify licenses.
No License of the Company has ever been revoked or modified involuntarily.
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The Company has complied with FCC requirements with respect to the buildout
of its existing one-way paging network. There are separate FCC buildout
requirements with respect to the Company's NPCS Licenses. As a nationwide NPCS
licensee, the Company must construct base stations that provide coverage to a
composite area of 750,000 square kilometers or serve 37.5% of the U.S.
population within five years of the initial license grant date and must
construct base stations that provide coverage to a composite area of 1,500,000
square kilometers or serve 75% of the U.S. population within ten years of the
initial license grant date. Additionally, as a regional NPCS licensee, the
Company must construct base stations that provide coverage to a composite area
of 150,000 square kilometers or serve 37.5% of the population of the service
area within five years of its initial license grant date and must construct base
stations that provide coverage to a composite area of 300,000 square kilometers
or serve 75% of its service area population within ten years of the initial
license grant date. Failure to meet the construction requirements will result in
forfeiture of the license and ineligibility to regain it.
The Communications Act requires licensees such as the Company to obtain
prior approval from the FCC for the assignment of any station license or the
transfer of control of any entity holding such licenses. The FCC has approved
each transfer of control for which the Company has sought approval. The
Communications Act also requires prior approval by the FCC of acquisitions of
paging companies. The Company also regularly applies for FCC authority to use
frequencies, modify the technical parameters of existing licenses, expand its
service territory and provide new services. Although there can be no assurance
that any requests for approval or applications filed by the Company will be
approved or acted upon in a timely manner by the FCC, or that the FCC will grant
the relief requested, the Company has no reason to believe any such requests,
applications or relief will not be approved or granted.
The Communications Act limits foreign ownership of entities that hold
certain licenses from the FCC, including licenses of the type held by the
Company. Because of this limitation, except pursuant to FCC discretion, no more
than 25% of the Company's stock may be owned, directly or indirectly, or voted
by non-U.S. citizens or their representatives, a foreign government or its
representatives, or a foreign corporation. Based on currently available
information, the Company estimates that its foreign ownership is approximately
22%. However, this percentage is subject to change at any time upon any transfer
of direct or indirect ownership of the Company's Common Stock. If the Company
obtains knowledge that the foreign ownership of its stock exceeds 25%, it would
be forced to either seek approval from the FCC for the additional foreign
ownership or redeem common stock at their current market value (determined as
set forth in the Company's certificate of incorporation) from foreign
shareholders in an amount sufficient to reduce such ownership to below 25% (as
permitted by the Company's certificate of incorporation).
The Budget Act imposed a structure of regulatory fees which the Company is
required to pay with respect to its Licenses. The FCC increased these fees for
fiscal year 1995. The FCC did not impose any increase in these fees for fiscal
year 1996. The Company believes that these regulatory fees will not have any
material adverse effect on the Company's business.
On February 9, 1996, the FCC released a Notice of Proposed Rule Making
("NPRM"), which proposed a system of competitive bidding ("auctions") to issue
licenses for frequencies for which there are mutually exclusive applications.
Under the FCC proposal, licenses for individual paging channels for which there
are mutually exclusive applications would be auctioned on a geographic basis. In
defining the area within which existing users would be protected from
interference from the auction winners or neighboring licensees (an area known as
an "interference contour"), the FCC proposed a new methodology that in many
instances would reduce the size of the area within existing licensees'
interference contours. This change, however, would not have any impact on
licensees with nationwide exclusivity (such as the Company), because no other
operator has the right to apply for such licensees' exclusive frequencies.
While the rulemaking proceeding is pending, the FCC proposed only to
process applications for which the relevant period for filing competing
applications had expired as of the date of the NPRM and which were not mutually
exclusive with other applications. Under the FCC's proposal, licensees with
nationwide exclusivity on a particular frequency (such as the Company), however,
would be permitted to expand their systems. In April 1996, the FCC issued a
Report and Order modifying the NPRM to, among other things, allow
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<PAGE> 50
incumbent licensees to file applications for additional transmission sites that
are within 40 miles of an authorized transmission site that was licensed to the
same applicant on the same channel on or before February 8, 1996 and which is
operational as of the date the application for the additional transmission site
is filed. It is not clear when the rulemaking proceeding will be completed or
what, if any, new rules the FCC will issue as a result of the rulemaking
proceeding.
In another ongoing rulemaking pertaining to interconnection between local
exchange carriers ("LECs") and CMRS providers, the FCC has proposed that
interconnection rates should be based on a "bill and keep" model (i.e., the LEC
and the CMRS provider charge each other a rate of zero for the termination of
the other's traffic). Under the current arrangement, LECs are required to
compensate CMRS providers for the reasonable costs incurred by such providers in
terminating traffic that originates at LEC facilities, and vice versa. The
Company believes that the FCC's "bill and keep" proposal, if applied to paging
services, would not have any material adverse effect on the Company's business.
Some paging services are subject to state regulation as well as regulation
by the FCC. Prior to the amendment of the Communications Act by the Budget Act,
states were permitted to regulate entry into the RCC paging business. States
were not, however, permitted to regulate the provision of paging services by
PCPs. While the Communications Act prohibits states generally from regulating
the entry of or the rates charged by any CMRS provider, whether RCC or PCP, the
new law will not prohibit a state from regulating the other terms and conditions
of CMRS. Several states petitioned the FCC for authority to continue pre-
existing rate regulation over all CMRS providers. In August 1995, the FCC denied
all of the petitions filed by the states.
From time to time, legislation and regulations which could potentially
affect the Company, either beneficially or adversely, are proposed by federal
and state legislators and regulators. In May 1995, the Texas Legislature created
the Telecommunications InfraStructure Fund (the "TIF") as part of the
Telecommunications Act of 1995 (the "Act"). The TIF was established to collect
$150 million annually from the telecommunications providers in Texas. The TIF is
composed of two separate accounts, a "telecommunications utilities account"
which includes telephone companies and long distance providers, and a
"commercial mobile service providers" ("CMSP") account which includes cellular
providers and paging companies. The accounts are financed by annual assessments
totaling $75 million each on the telecommunications utilities and the CMSPs
doing business in Texas. The fraction that is to be paid by each CMSP is
determined by such provider's portion of the total telecommunications receipts
reported by all CMSPs for the purpose of payment of state sales taxes. The TIF
is to be used for grants and loans for equipment, infrastructure, curricula and
training in education and medicine. The Act was signed into law effective
September 1, 1995.
The Company is not required to contribute to the CMSP account until August
1996, when the Company becomes a commercial mobile radio service provider under
federal communications law. However, the Company joined an ad hoc coalition made
up of the largest paging companies to fight the TIF assessment based on its
unfair and disparate treatment of the CMSPs. The coalition filed a lawsuit in
federal court on November 22, 1995, challenging the TIF on constitutional
grounds. The lawsuit, among other things, requested an injunction prohibiting
the state from collecting the assessment until the Texas Legislature has had an
opportunity to rectify the disparity in treatment of the telecommunications
utilities and the CMSPs. The Texas Legislature does not reconvene until January
1997.
On February 5, 1996, the District Court for the 261st Judicial District,
Travis County, Texas, entered a final judgment declaring that the assessment on
CMSP providers as proposed violated the "equal and uniform taxation" clause of
the Texas Constitution. The court further concluded that CMSPs could be taxed
only on a percentage of taxable telecommunications receipts that does not exceed
the percentage assessed against the telephone utilities. After August 10, 1996,
the Company will be assessed based on the lower rate applicable to
telecommunications utilities. Management is not aware of any other proposed or
pending state legislation imposing a similar assessment or creating a similar
fund.
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TRADEMARKS
The Company owns certain intellectual property, including without
limitation, trademark and service mark rights associated with certain federal
and foreign trademark registrations and applications, common law trademark,
trade name and service mark rights, and other legal and equitable rights
connected with the Company's voice and data communication products and services
and, in particular, one-way and two-way paging systems and technologies and
related services. The Company markets its multiple city wireless service under
the name Pick-Your-Cities(R) and its nationwide service under the name
Page-Me-USA(R), both of which are federally registered service marks. The
Company has filed applications with the United States Patent and Trademark
Office as well as certain foreign trademark offices to register approximately 85
additional service and trademarks. The Company also has full use of the name
PageMart, as a mark.
EMPLOYEES
At March 31, 1996, the Company had 1,610 full-time employees, approximately
1,314 of whom were engaged in sales and customer service.
No employees of the Company are covered by a collective bargaining
agreement, and management believes the Company's relationship with its employees
is good.
PROPERTIES
The principal tangible assets of the Company are its paging network
equipment. Paging network equipment utilized by the Company includes paging
switching terminals, paging transmitters and a host of related equipment such as
satellite and digital link controllers, satellite dishes, antennas, cable, etc.
The Company continues to add equipment as it expands to new service areas. To
date, it has not experienced any difficulty or delay in obtaining equipment as
needed.
The Company acquired the NPCS Licenses in auctions held by the FCC. The
NPCS Licenses permit the nationwide operation of NPCS networks with 100 kHz of
outbound capacity and 50 kHz of response capacity.
The Company generally leases the locations used for its transmission
facilities under operating leases. These leases, which are generally for five
years or less, currently provide for aggregate annual rental charges of
approximately $4.7 million. The Company does not anticipate difficulty in
renewing these leases or finding equally suitable alternate facilities on
acceptable terms. The Company also leases approximately 130,238 square feet of
office space for its corporate headquarters in Dallas, Texas, at an annual cost
of approximately $1.1 million and varying lesser amounts for local offices at
other locations. Aggregate annual rental charges under the Company's local
office leases are approximately $1.8 million.
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 results of operations or financial
condition of the Company.
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 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. 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.
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<PAGE> 52
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors currently consists of nine members, which
number may be increased or decreased from time to time so long as there are no
fewer than three nor more than twelve members. The directors (substantially all
of whom were elected pursuant to the arrangements described under the caption
"Certain Transactions -- Election of Directors") and executive officers of the
Company, their ages as of May 1, 1996 and positions with the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
John D. Beletic....................... 44 Chairman, President and Chief Executive Officer
Kenneth L. Hilton..................... 43 Executive V.P., Strategic Business Units
Homer L. Huddleston................... 59 Executive V.P., Technical Operations
Sandra D. Neal........................ 48 Executive V.P., Administration
G. Clay Myers......................... 36 V.P., Finance, Chief Financial Officer and Treasurer
Richard S. Nelson..................... 48 V.P., International
Frances W. Hopkins.................... 55 V.P., Customer Advocacy
Douglas S. Glen....................... 38 V.P., Strategic Alliances Business Unit
Douglas H. Kramp...................... 34 V.P., National Retail Business Unit
Paul L. Turner........................ 37 V.P., Customer Service
Jack D. Hanson........................ 52 V.P., Network Operations
Daniel W. Hay......................... 54 V.P., Information Systems
Thomas C. Keys........................ 37 V.P., Sales, Market Business Unit
N. Ross Buckenham..................... 39 V.P., PCS Strategy
Vick T. Cox........................... 46 V.P., PCS Development
Lawrence H. Wecsler................... 48 V.P., Field Marketing
Todd A. Bergwall...................... 33 Corporate Counsel and Secretary
Roger D. Linquist(2).................. 57 Director
Frank V. Sica(1)...................... 45 Director
Guy L. de Chazal(1)................... 48 Director
Arthur Patterson(1)................... 52 Director
Andrew C. Cooper(2)................... 34 Director
Alejandro Perez Elizondo(2)........... 47 Director
Leigh J. Abramson(2).................. 27 Director
Pamela D.A. Reeve..................... 47 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
John D. Beletic, Chairman, President and Chief Executive Officer. Mr.
Beletic was named Chairman of the Company's Board of Directors in August 1994.
Mr. Beletic has been Chief Executive Officer of the Company since February 1994.
Mr. Beletic joined the Company as President and director in March 1992 after
spending a year in venture capital. Prior to that, Mr. Beletic served for five
years as President and Chief Executive Officer of The Tigon Corporation
("Tigon"), a leading voicemail service provider. Tigon was acquired by Ameritech
Development Corporation, a wholly-owned subsidiary of American Information
Technologies Corporation in 1988. Before joining Tigon, Mr. Beletic was Senior
Vice President of Operations and Chief Financial Officer for five years with
VMX, Inc. ("VMX"), a manufacturer of voicemail systems. Mr. Beletic earned his
bachelor's degree in finance from Cincinnati's Xavier University and his
master's degree in business administration from the Harvard Business School. Mr.
Beletic currently serves as a director of Digital Sound Corporation and
Teloquent Communications Corporation. Within the paging industry, Mr. Beletic
currently serves as a director of PCIA, the industry trade association and
President of the Paging Leadership Association.
50
<PAGE> 53
Kenneth L. Hilton, Executive Vice President, Strategic Business Units. Mr.
Hilton joined the Company in October 1994. Previously, Mr. Hilton spent five
years as Vice President, Sales and Marketing for Visual Information
Technologies, a manufacturer and distributor of high-end graphics cards for the
UNIX marketplace. Before joining Visual Information Technologies, Mr. Hilton
spent fourteen years with IBM in various sales and marketing positions, the last
being Branch Manager. Mr. Hilton also serves as a Director of PageMart Canada.
Homer L. Huddleston, Executive Vice President, Technical Operations. Mr.
Huddleston has been a Vice President since joining the Company in February 1994.
Before joining the Company, he served as Vice President of Communications
Operations for American Airlines from 1987 to 1993. Previously, Mr. Huddleston
served as President and General Manager of Action Communication Systems,
Honeywell's Network Communications Division and a provider of nationwide network
systems, from 1979 to 1986. Prior to 1979, he held various engineering
management, sales management and general management positions with Motorola for
eighteen years.
Sandra D. Neal, Executive Vice President, Administration. Ms. Neal has been
a Vice President since joining the Company in July 1992. Prior to joining the
Company, Ms. Neal was Vice President of Customer Service for Tigon from 1989 to
1992. Previously, Ms. Neal held the positions of Vice President of Finance and
Controller at Tigon from 1986 to 1989. Before joining Tigon, Ms. Neal was a
practicing certified public accountant from 1979 to 1986.
G. Clay Myers, Vice President, Finance, Chief Financial Officer and
Treasurer. Mr. Myers joined the Company in April 1993 as Vice President of
Finance and Chief Financial Officer. Prior to joining the Company, Mr. Myers was
Senior Operations Manager for Dell Computer Corporation from 1991 to 1993. Prior
to joining Dell Computer Corporation, Mr. Myers was with Ernst & Young from 1982
to 1991. Mr. Myers is a certified public accountant.
Richard S. Nelson, Vice President, International. Mr. Nelson was named Vice
President, International on March 1, 1996. Formerly, Mr. Nelson was Vice
President, Marketing of the Company since June 1992. Mr. Nelson also serves as
President of PageMart International. Before joining the Company, Mr. Nelson was
Vice President of Marketing for American Eagle, at American Airlines, where he
held various staff positions from 1972 to May 1992.
Frances W. Hopkins, Co-founder, Vice President, Customer Advocacy. Ms.
Hopkins co-founded the Company in 1989 and was Vice President of Operations
until she left the Company in September 1990 to pursue other business interests.
Upon returning in July 1991, she was named Vice President, Operations. In 1995,
Ms. Hopkins became Vice President, Customer Advocacy. Before co-founding the
Company, Ms. Hopkins was President of Multicom, Inc., a subsidiary of PacTel
Personal Communications for six years; President of Gencell, the cellular
subsidiary of Communications Industries; and founded TelPage, a regional paging
company.
Douglas S. Glen, Vice President, Strategic Alliances Business Unit. Mr.
Glen has been a Vice President since July 1989. Formerly, Mr. Glen was Regional
Manager and Director of Finance and Administration for Multicom, Inc., a
subsidiary of PacTel Personal Communications for three years. Additionally, Mr.
Glen was manager of financial control with PepsiCola Bottling Group and a
consultant with Arthur Andersen & Co. Mr. Glen serves as a director of PCIA, the
industry trade association and chairman of the Paging and Narrowband PCS
Alliance.
Douglas H. Kramp, Vice President, National Retail Business Unit. Mr. Kramp
joined the Company as a Vice President in August 1993. Before joining PageMart,
Mr. Kramp was President and co-founder of Artificial Linguistics Inc. ("ALI"), a
text management software company from 1988 to 1993. Before co-founding ALI, Mr.
Kramp was responsible for starting up and managing high technology companies for
the Hart Group from 1984 to 1988.
Paul L. Turner, Vice President, Customer Service. Mr. Turner has been Vice
President, Customer Service of the Company since March 1994. Before joining the
Company, Mr. Turner was with MCI from
51
<PAGE> 54
1984 to 1994 in positions of increasing responsibility. From 1990 to 1994 he
held various management positions, the most recent being Senior Manager, MCI
Consumer Markets.
Jack D. Hanson, Vice President, Network Operations. Mr. Hanson joined the
Company in October 1993. Prior to joining the Company in October 1993, Mr.
Hanson was Director of Engineering for Spectradyne, Inc. from June 1992 to
October 1993. Previously, he held senior engineering positions with VMX from
December 1984 to June 1992, the most recent being Vice President of National
Account Support.
Daniel W. Hay, Vice President, Information Systems. Mr. Hay joined the
Company in March 1995. Prior to joining the Company, Mr. Hay was a Vice
President and Business Unit Manager for Affiliated Computer Services from August
1994 to March 1995. Previously, Mr. Hay operated a management consulting
practice from November 1992 to August 1994. Additionally, Mr. Hay was Vice
President of Systems for Southwest Airlines from February 1988 to November 1992.
Thomas C. Keys, Vice President, Sales, Market Business Unit. Mr. Keys was
named Vice President in September 1994. Previously, Mr. Keys was Sales Director
and General Manager from April 1994 to August 1994. Previously, Mr. Keys was the
Area Manager for the Company's largest West Coast market for over one year.
Before joining the Company, Mr. Keys held the position of Vice President of
Sales at S.I.P., Inc., a welding equipment manufacturer, from December 1991 to
December 1992. Previously, Mr. Keys held several key management positions at
Metromedia Corporation from August 1990 to December 1991. Additionally, Mr. Keys
was Regional Sales Manager at Savin, Inc. from April 1988 to August 1990.
N. Ross Buckenham, Vice President, PCS Strategy. Mr. Buckenham assumed this
role on January 15, 1996. Prior to joining the Company, Mr. Buckenham was
President of Touchtone Solutions, Inc., a telecommunications and interactive
voice response software and services company from 1992 to 1996. From 1984 to
1991, Mr. Buckenham was with Aquanautics Corporation, initially as Vice
President of Development then as its President. From 1981 to 1984, Mr. Buckenham
was with Bain & Co. as a senior consultant to companies in the voice processing,
technology, finance and health care industries. Mr. Buckenham holds an MBA
degree from Harvard Graduate School of Business Administration and a BS degree
in Chemical Engineering from Canterbury University, New Zealand.
Vick T. Cox, Vice President, PCS Development. Mr. Cox has been a Vice
President since April 1993. Previously, he had been Director of Network
Operations since January 1993. Before joining the Company he held engineering
management positions with VMX from 1979 to 1991, where he helped develop the
world's first voicemail system, and with Interphase, a manufacturer of
intelligent network controllers from 1991 to January 1993.
Lawrence H. Wecsler, Vice President, Field Marketing. Mr. Wecsler was named
Vice President of Field Marketing in April 1994. Previously, he was Vice
President of Human Resources and Sales Training for two years. Mr. Wecsler was
Vice President, Western Region of the Company, from March 1990 to March 1992.
Before joining the Company, Mr. Wecsler held positions in operations, sales,
marketing and human resources with PacTel Paging for nine years. Previously, he
held management positions with Texas Instruments and Braniff International.
Todd A. Bergwall, Corporate Counsel. Mr. Bergwall has been Corporate
Counsel since joining the Company in June 1994. Mr. Bergwall has also been
Secretary of the Company since April of 1995. From August 1989 until joining the
Company, Mr. Bergwall was engaged in private practice with the Dallas, Texas law
firm Winstead Sechrest & Minick specializing in corporate and securities law.
Roger D. Linquist, Director. Mr. Linquist has been a Director of the
Company since co-founding it in 1989. He served as Chairman of the Company's
Board of Directors from 1989 until April 1994. Prior to launching the Company,
Mr. Linquist served for three years as President and Chief Executive Officer of
PacTel Personal Communications, the cellular and paging division of Pacific
Telesis Group ("PacTel"), the Regional Bell Operating Company that provides
service to California and Nevada. Mr. Linquist served as Chief Executive Officer
of Communications Industries before joining PacTel.
52
<PAGE> 55
Frank V. Sica, Director. Mr. Sica has been a Director of the Company since
December 1991. He is currently a Managing Director of MS & Co., and has been
with MS & Co. since 1981, originally in the Mergers and Acquisitions Department
and, since 1988, with the Merchant Banking Division. He serves as a director of
numerous companies including ARM Financial Group, Inc., Consolidated Hydro,
Inc., Fort Howard Corporation, Kohl's Corporation, Southern Pacific Rail
Corporation and Sullivan Communications Inc. He is a director of the general
partner of The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") and of
the respective managing general partners of the general partner of Morgan
Stanley Venture Capital Fund, L.P. ("MSVCF"), Morgan Stanley Venture Capital
Fund II, L.P. ("MSVCF II") and Morgan Stanley Capital Partners III, L.P. ("MSCP
III"). Mr. Sica was designated by MSLEF II pursuant to the Stockholders
Agreement. See "Certain Transactions -- Election of Directors."
Guy L. de Chazal, Director. Mr. de Chazal has been a Director of the
Company since June 1989. Mr. de Chazal is President and a Director of the
managing general partner of the general partner of MSVCF and MSVCF II and is a
Managing Director of MS & Co. Mr. de Chazal is also a director of SPSS, Inc. and
several private companies. From 1986 to 1990, Mr. de Chazal was a Vice
President, and from 1991 to 1994 a Principal of MS & Co. Mr. de Chazal was
designated by MSVCF pursuant to the Stockholders Agreement. See "Certain
Transactions -- Election of Directors."
Arthur Patterson, Director. Mr. Patterson has been a Director of the
Company since June 1989 and a Managing Partner of Accel Partners, a venture
capital company since 1984. Mr. Patterson is also a director of UUNET, VIASOFT,
Axent, Unify Corporation and the G.T. Global Group of Investment Companies as
well as several private software and telecommunications companies. Mr. Patterson
was designated by Accel Partners pursuant to the Stockholders Agreement. See
"Certain Transactions -- Election of Directors."
Andrew C. Cooper, Director. Mr. Cooper has been a Director of the Company
since October 1990. Mr. Cooper is a Principal of MS & Co., an officer of the
managing general partner of the general partner of MSVCF and MSVCF II, and has
been with MS & Co. since 1984. Mr. Cooper was designated by MSVCF II pursuant to
the Stockholders Agreement. See "Certain Transactions -- Election of Directors."
Alejandro Perez Elizondo, Director. Mr. Perez has been a Director of the
Company since August 1994. Since 1987, Mr. Perez has been associated with
Pulsar, a diversified Mexican company with interests in the tobacco, insurance,
agriculture, telecommunications, finance and other industries, and is currently
Vice President of Diversification of Pulsar Internacional, S.A. de C.V. Mr.
Perez is also a director of Ionica L3 Ltd. (a public telephone services company
located in U.K.), Novalink Technologies, Inc. (a California modem manufacturing
company), Fomento Empresarial Regiomontano, S.A. de C.V. (a Mexico-based holding
company with investments in telecommunications companies), and Kb/Tel
Telecommunications S.A. de C.V. (a Mexico-based communications engineering
company). Mr. Perez was designated by Pulsar pursuant to the Stockholders
Agreement. See "Certain Transactions -- Election of Directors."
Leigh J. Abramson, Director. Mr. Abramson has been a Director of the
Company since August 1994. He is currently an Associate of MS & Co. and an
officer of the general partner of MSLEF II and of the general partner of the
general partner of MSCP III. Mr. Abramson has been with MS & Co. since 1990,
first in the Corporate Finance Division and, since 1992, in the Merchant Banking
Division. Mr. Abramson was designated by MSCP III pursuant to the Stockholders
Agreement. See "Certain Transactions -- Election of Directors."
Pamela D. A. Reeve, Director. Ms. Reeve was elected Director of the Company
in April 1996. Ms. Reeve is currently President, Chief Executive Officer and
Director of Lightbridge, Inc. ("Lightbridge") and has been with Lightbridge
since 1989. Lightbridge develops and manages software used by wireless
telecommunications companies across the United States to support sales and
marketing applications. Prior to joining Lightbridge, Ms. Reeve spent eleven
years at The Boston Consulting Group, with senior operating responsibility for
the firm's Boston office. Prior to joining The Boston Consulting Group, Ms.
Reeve worked with the National Endowment for the Humanities managing educational
projects and with real estate development and manufacturing firms, primarily in
operations and marketing.
53
<PAGE> 56
EXECUTIVE COMPENSATION
The following table sets forth compensation information for the Chief
Executive Officer of the Company and its four most highly compensated executive
officers, other than the Chief Executive Officer (collectively, the "Named
Executive Officers"), for services rendered in the fiscal years ending December
31, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION(1) SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(2) COMPENSATION(3)
- -------------------------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John D. Beletic(4).................... 1995 $200,000 $150,000 100,000 $10,755
Chairman, President and 1994 200,000 187,500 100,000 11,220
Chief Executive Officer 1993 200,000 73,640 200,000 17,141
Kenneth L. Hilton..................... 1995 150,000 46,500 40,000 7,998
Executive Vice President, 1994 27,885 12,250 125,000 711
Strategic Business Units 1993 -- -- -- --
Homer L. Huddleston................... 1995 116,667 32,845 45,000 5,808
Executive Vice President, 1994 89,808 31,650 55,000 4,619
Technical Operations 1993 -- -- -- --
Sandra D. Neal........................ 1995 115,000 39,675 50,000 7,569
Executive Vice President, 1994 104,269 33,538 25,000 8,121
Administration 1993 99,000 28,063 25,000 13,238
Carol W. Dickson(5)................... 1995 120,000 29,760 -- 2,922
Vice President, 1994 60,923 23,010 50,000 1,406
International Operations 1993 -- -- -- --
</TABLE>
- ---------------
(1) The amount of cash compensation does not include the value of personal
benefits or securities, property or other non-cash compensation paid or
distributed other than pursuant to a plan, which, with respect to any named
executive officer, was less than the lesser of $50,000 and 10% of the cash
compensation received by such officer.
(2) Each of these options is exercisable for shares of the Company's Class A
Common Stock.
(3) The amounts shown represent one below-market loan made by the Company to
Mr. Beletic in 1994, the compensatory value of which was $2,200 in 1994 and
$2,400 in 1995, and insurance payments made by the Company on behalf of
each named executive. In 1995, the Company made payments on behalf of
Messrs. Beletic, Hilton and Huddleston, Ms. Neal and Ms. Dickson,
respectively, of $648, $486, $356, $373 and $389 for life and accident
insurance, of $780, $585, $429, $449 and $468 for long-term disability
insurance and of $6,927, $6,927, $5,023, $6,747 and $2,065 for health
insurance.
(4) As of December 31, 1995, Mr. Beletic owned 12,500 shares of restricted
Class A Common Stock subject to a vesting period ending March 17, 1996. At
December 31, 1995, the stock had an aggregate market value of $125,000
based upon an estimated market value of $10.00 per share. No dividends on
such shares have been paid or are expected to be paid in the future.
(5) Ms. Dickson resigned from the Company effective February 29, 1996.
54
<PAGE> 57
OPTION EXERCISES AND VALUATION
The following table sets forth grants of stock options, during fiscal year
1995, to each Named Executive Officer.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZATION
VALUE
AT ASSUMED ANNUAL
NUMBER OF PERCENTAGE OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
GRANTED(1) FISCAL 1995 PER SHARE DATE 5% 10%
---------- -------------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
John D. Beletic........... 100,000 8.3% $ 10.00 11/17/2005 $628,890 $1,593,739
Kenneth L. Hilton......... 40,000 3.3% 10.00 11/17/2005 251,555 637,495
Homer L. Huddleston....... 10,000 .8% 7.00 05/23/2005 44,022 111,561
35,000 2.9% 10.00 11/17/2005 220,110 557,808
Sandra D. Neal............ 10,000 .8% 7.00 01/01/2005 44,022 111,561
40,000 3.3% 10.00 11/17/2005 251,555 637,495
Carol W. Dickson.......... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Each of these options is exercisable for shares of Class A Common Stock.
Each of these options is immediately exercisable; however, the underlying
option shares are unvested and remain subject to repurchase by the Company
at the option price paid per share. The optionee acquires a vested interest
in, and the Company's repurchase right accordingly lapses with respect to,
(i) 20% of the option shares one year after the date of grant and (ii) the
balance of the option shares in equal successive monthly installments over
each of the next forty-eight (48) months of service thereafter.
The following table sets forth stock options exercised during fiscal year
1995 and the fiscal year-end value of unexercised options for each Named
Executive Officer.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1995(1) AT DECEMBER 31, 1995(2)
ACQUIRED VALUE ------------------------------ ------------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISED(3) EXERCISABLE UNEXERCISABLE(3)
----------- -------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John D. Beletic........... -- $ -- 103,334 266,666 $ 596,739 $849,059
Kenneth L. Hilton......... 14,285 42,855 14,881 135,834 44,643 287,502
Homer L. Huddleston....... -- -- 18,666 81,334 85,330 189,670
Sandra D. Neal............ -- -- 32,499 97,501 223,687 317,312
Carol W. Dickson.......... -- -- 13,333 36,667 39,999 110,001
</TABLE>
- ---------------
(1) Each of these options is exercisable for shares of Class A Common Stock.
(2) The fair market value at December 31, 1995 was estimated to be $10.00 per
share. The fair market value was determined by the compensation committee of
the Company's Board of Directors based on relative market values per share
of other paging companies of comparable size and characteristics.
(3) Each of these options is immediately exercisable; however, the underlying
option shares are unvested and remain subject to repurchase by the Company
at the option price paid per share. The optionee acquires a vested interest
in, and the Company's repurchase right accordingly lapses with respect to,
(i) 20% of the option shares one year after the date of grant and (ii) the
balance of the option shares in equal successive monthly installments over
each of the next forty-eight (48) months of service thereafter.
DIRECTORS' COMPENSATION
Directors of the Company currently receive no compensation for their
services in such capacity.
55
<PAGE> 58
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the Company consists of Frank V. Sica, Guy L.
de Chazal, and Arthur Patterson. No executive officer of the Company serves as a
member of the compensation committee of the Company, or on the compensation
committee of another corporation, an executive officer of which serves as a
director of the Company or on the Company's compensation committee, and no
executive officer of the Company serves as a director of another corporation, an
executive officer of which serves as a member of the Company's compensation
committee.
STOCK OPTION PLAN
The Company's Third Amended and Restated 1991 Stock Option Plan (the "Stock
Option Plan") authorizes the grant of non-qualified options ("NSOs") to purchase
shares of Class A Common Stock to key employees, directors and others deemed to
provide valuable services to the Company as additional compensation and to
encourage them to continue to provide service to the Company. In addition,
options qualifying as incentive stock options ("ISOs") under Section 422 of the
Internal Revenue Code of 1986, as amended, (the "Code") may be granted to
employees of the Company.
The stock issuable under the Stock Option Plan includes shares of the
authorized but unissued or reacquired Class A Common Stock. The number of shares
for which options may be granted under the Stock Option Plan (together with the
number of shares issued under the Stock Issuance Plan described below) may not
exceed 4,550,000 shares. Shares underlying any options that are not exercised
prior to expiration or termination or are canceled are available for subsequent
option grants under the Stock Option Plan.
The option exercise price per share will be fixed by the committee of the
Board responsible for administration of the Stock Option Plan (the "Stock Option
Plan Committee"), but in no event may the option price per share be less than
85%, with respect to options other than ISOs, or 100%, with respect to ISOs, of
the fair market value of a share of Class A Common Stock on the grant date. If
the individual to whom the ISO is granted is at the time the holder of at least
10% of the capital stock of the Company (a "Significant Stockholder"), then the
option price per share may not be less than 110% of the fair market value of the
Class A Common Stock on the grant date. Options are exercisable over such period
as may be determined by the Stock Option Plan Committee, but no option may
remain exercisable more than ten years from the grant date, and no ISO granted
to a Significant Stockholder may remain exercisable more than five years from
the grant date.
If a participant ceases to perform services for the Company due to death or
permanent disability while holding one or more outstanding options under the
Stock Option Plan, then each such option will remain exercisable for the limited
period of time (not to exceed twelve months after the date of such cessation of
service) specified by the Stock Option Plan Committee in the option agreement.
In the event a participant is terminated for cause, all outstanding options of
such participant automatically terminate on the participant's termination date.
If a participant ceases to perform services for the Company for any reason other
than death, permanent disability or termination for cause, any outstanding
option will remain exercisable for the limited period of time (not to exceed
three months after the date of such cessation of service) specified by the Stock
Option Plan Committee in the option agreement.
Shares of Class A Common Stock that are issued upon exercise of options
granted under the Stock Option Plan are subject to certain repurchase rights of
the Company. If a participant ceases to perform services for the Company while
holding unvested shares, the Company has the right to repurchase, at the option
price paid per share, all or (at the discretion of the Company and with the
written consent of the participant) less than all of those unvested shares.
Until such time as the Company's outstanding shares of Class A Common Stock are
first registered under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (which will occur in connection with this
Offering), the Company retains a right of first refusal with respect to any
proposed sale or other disposition by a participant (or any successor in
interest by reason of purchase, gift or other mode of transfer) of any shares of
Class A Common Stock issued under the Stock Option Plan.
56
<PAGE> 59
In the event of (i) a merger or consolidation in which the Company is not
the surviving entity and in which securities possessing fifty percent (50%) or
more of the total combined voting power of the Company'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 Company's assets other
than in the ordinary course of business, or (iii) any reverse merger in which
the Company is the surviving entity but in which securities possessing fifty
percent (50%) or more of the total combined voting power of the Company's
outstanding voting securities are transferred to a person or persons different
from those who held such securities immediately prior to such transaction, the
vesting of each option outstanding under the Stock Option Plan will
automatically accelerate so that each such option will become fully exercisable
immediately prior to the effective date of such corporate reorganization.
As of March 31, 1996, 2,793,274 options were outstanding at exercise prices
ranging from $0.08 to $12.00 per share.
OPTIONS GRANTED IN FISCAL 1995
<TABLE>
<CAPTION>
NUMBER OF
GROUP OPTIONS
---------------------------------------------------------- ---------
<S> <C>
John D. Beletic, Chairman, President and
Chief Executive Officer................................. 100,000
Kenneth L. Hilton, Executive Vice President,
Strategic Business Units................................ 40,000
Homer L. Huddleston, Executive Vice President,
Technical Operations.................................... 45,000
Sandra D. Neal, Executive Vice President,
Administration.......................................... 50,000
Carol W. Dickson, Vice President,
International Operations................................ 0
All Executive Officers as a Group......................... 545,000
All Current Directors Who are not
Executive Officers as a Group........................... 0
All Employees Other than Executive Officers as a Group.... 659,950
---------
Total Options Granted in Fiscal 1995............ 1,204,950
=========
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE STOCK OPTION PLAN
There will be no federal income tax consequences to the employee or the
Company upon the grant of either an ISO or an NSO under the Stock Option Plan.
Upon exercise of an NSO, an employee will recognize ordinary income in an amount
equal to (i) the fair market value, on the date of exercise, of the acquired
shares of Class A Common Stock; less (ii) the exercise price of the NSO. Subject
to Section 162(m) of the Code and the employee including such compensation in
income or the Company satisfying applicable reporting requirements, the Company
will be entitled to a tax deduction in the same amount.
If any profits associated with a sale of Class A Common Stock acquired
pursuant to the exercise of an NSO under the Stock Option Plan could subject the
optionee to liability under Section 16(b) of the Exchange Act, there will be no
concurrent federal income tax consequences to either the optionee or the Company
as a result of the exercise of such NSO. The inclusion of such profits as income
to the optionee is generally deferred until the date on which the Section 16(b)
restrictions terminate. However, if the optionee makes a timely and proper 83(b)
election to be taxed at the time such Class A Common Stock is transferred to
him, then the excess of the fair market value of the shares of Class A Common
Stock on the exercise date over the exercise price will be taxed as ordinary
income. An 83(b) election must be made within thirty days of the date of
exercise of the NSO. In the absence of such an election, the excess of the fair
market value of the shares of Class A Common Stock on the date the Section 16(b)
restrictions expire over the exercise price will be considered compensation
taxable as ordinary income to the optionee. The Company will be entitled to a
tax
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deduction in an amount equal to the amount required to be recognized as ordinary
income by the optionee at the time the optionee is subject to tax.
Upon the exercise of an ISO, an employee recognizes no immediate taxable
income. Income recognition is deferred until the employee sells the shares of
Class A Common Stock. If the ISO is exercised no later than three months after
the termination of the employee's employment, and the employee does not dispose
of the shares acquired pursuant to the exercise of the ISO within two years from
the date the ISO was granted and within one year after the exercise of the ISO,
the gain on the sale will be treated as long-term capital gain. Certain of these
holding periods and employment requirements are liberalized in the event of an
employee's death or disability while employed by the Company. The Company is not
entitled to any tax deduction with respect to the grant or exercise of ISOs,
except that if the Class A Common Stock is not held for the full term of the
holding period outlined above, the gain on the sale of such Class A Common
Stock, being the lesser of: (i) the fair market value of the Class A Common
Stock on the date of exercise minus the option price; or (ii) the amount
realized on disposition minus the exercise price, will be taxed to the employee
as ordinary income and, subject to Section 162(m) of the Code and the employee
including such compensation in income or the Company satisfying applicable
reporting requirements, the Company will be entitled to a deduction in the same
amount. The excess of the fair market value of the Class A Common Stock acquired
upon exercise of an ISO over the exercise price therefor constitutes a tax
preference item for purposes of computing the "alternative minimum tax" under
the Code.
STOCK ISSUANCE PLAN
The Company's Third Amended and Restated 1991 Stock Issuance Plan (the
"Stock Issuance Plan") authorizes the issuance of Class A Common Stock to key
employees and directors and others deemed to provide valuable services to the
Company as additional compensation and to encourage them to continue to provide
service to the Company.
The number of shares that may be issued over the term of the Stock Issuance
Plan (together with any shares for which options have been granted under the
Stock Option Plan) may not exceed 4,550,000 shares.
Shares may, in the absolute discretion of the committee of the Board
responsible for administration of the Stock Issuance Plan (the "Stock Issuance
Plan Committee"), be issued for consideration with a value less than 100% of the
fair market value of the issued shares. Under no circumstances, however, may any
shares be issued for consideration valued by the Stock Issuance Plan Committee
at less than 85% of the fair market value of such shares at the time of
issuance.
The interest of a participant in the shares of Class A Common Stock issued
under the Stock Issuance Plan may, in the absolute discretion of the Stock
Issuance Plan Committee, be fully vested upon issuance or may vest in one or
more installments. The participant, however, has all the rights of a shareholder
with respect to the shares of Class A Common Stock issued thereunder, whether or
not such participant's interest in such shares is vested. Accordingly, the
participant has the right to vote the shares and to receive any cash dividends
or other distributions paid or made with respect to the shares.
If the participant ceases to perform services for the Company for any
reason while such participant's interest in the shares of Class A Common Stock
issued under the Stock Issuance Plan remains unvested, then the Company has the
right to repurchase, at the original purchase price paid by the participant, all
or (at the discretion of the Company and with the written consent of the
participant) less than all shares in which the participant is not at the time
vested. In the event of (i) a merger or consolidation in which the Company is
not the surviving entity and in which securities possessing fifty percent (50%)
or more of the total combined voting power of the Company'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 Company's assets other
than in the ordinary course of business, or (iii) any reverse merger in which
the Company is the surviving entity but in which securities possessing fifty
percent (50%) or more of the total combined voting power of the Company's
outstanding voting securities are transferred to a person or persons different
from those who held such securities immediately prior to such
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transaction, all of the Company's repurchase rights will automatically terminate
and all shares subject to such repurchase rights will become immediately vested
in full.
The Stock Issuance Plan Committee may also require as a condition of the
issuance of one or more shares of Class A Common Stock under the Stock Issuance
Plan that the Company shall have a right of first refusal with respect to any
proposed disposition by the participant (or any successor in interest by reason
of purchase, gift or other mode of transfer) of one or more shares of such Class
A Common Stock.
As of March 31, 1996, 300,000 shares of Class A Common Stock had been
issued pursuant to the Stock Issuance Plan, all of which were vested.
STOCK PURCHASE PLAN
On March 28, 1996, the Board of Directors adopted, and the Company's
stockholders approved, the Company's Employee Stock Purchase Plan (the "Stock
Purchase Plan"). Under the Stock Purchase Plan, the Company will grant to each
eligible employee of the Company and affiliated companies options to purchase
shares of Class A Common Stock at not less than 90% of the fair market value of
such stock on the purchase date.
PURPOSE
The purpose of the Stock Purchase Plan is to provide an opportunity by
which all eligible employees may purchase shares of Class A Common Stock through
voluntary, systematic payroll deductions. By this means such employees are
provided with an opportunity to acquire an interest in the economic progress of
the Company and a further incentive to promote its best interests. The Stock
Purchase Plan, which is intended to qualify under Section 423 of the Code, is
not subject to any provisions of ERISA.
AVAILABLE SHARES AND ELIGIBILITY
The maximum aggregate number of shares of Class A Common Stock that may be
issued under the Stock Purchase Plan is 500,000. All individuals who have 6
months of continuous service with the Company or an affiliate with a regularly
scheduled work week of 20 hours or more, including officers and employee
directors (except for any employee owning more than 5% of the combined voting
power or value of all classes of the stock of the Company), are eligible to
participate in the Stock Purchase Plan.
GRANT OF OPTIONS
On the first day of a plan year, or July 1 for those employees not eligible
on the first day of a plan year, each eligible employee will be granted an
option to purchase any whole number of shares of Class A Common Stock with an
aggregate fair market value that does not exceed $25,000. Each option may be
exercised, in whole or in part, on the 15th and last day of a month (or
immediately preceding business day if such day is not a business day) and only
while the holder is an employee of the Company or an affiliate. Options must be
exercised prior to the end of the year in which granted (the "Purchase Period"),
at which time the option will expire. The initial Purchase Period will commence
on July 1, 1996 and end on December 31, 1996. Thereafter, Purchase Periods will
commence on January 1 and end on December 31 of any year. For employees who
become eligible after January 1 of any plan year but prior to July 1 of such
year, the Purchase Period will begin on July 1 of such plan year. For employees
who become eligible after July 1 of a plan year, the Purchase Period will begin
January 1 of the subsequent plan year. Options are not transferable except by
will or by the laws of descent and distribution and may be exercised during the
employee option-holder's lifetime only by him or her.
PAYMENT AND PAYROLL DEDUCTIONS
Payment for shares is made through elective payroll deductions. The minimum
payroll deduction is $10 per pay period. Amounts deducted are accumulated in a
payroll deduction account, without interest. No purchases may be made until an
eligible employee has accumulated at least $100 in his or her payroll
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deduction account. A participant may revoke or decrease at any time his or her
contribution to the payroll deduction account. However, increases in a
participant's contribution to his or her payroll deduction account may not be
made more than twice during any plan year and only in January and July of such
plan year.
HOLDING PERIOD
Participants in the Stock Purchase Plan will not sell, transfer or
otherwise dispose of any shares of Class A Common Stock purchased pursuant to an
exercise of an option to purchase granted under the Stock Purchase Plan for a
period of 180 days from the date such shares are purchased.
NEW STOCK PURCHASE PLAN BENEFITS
Since participation in the Stock Purchase Plan is voluntary, it is not
possible to estimate the actual dollar value and number of shares of Class A
Common Stock that will be purchased under the Stock Purchase Plan by the
executive officers named in the Summary Compensation Table, all executive
officers as a group and all employees as a group.
FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE STOCK PURCHASE PLAN
The following briefly summarizes the federal income tax consequences under
the Code of participation in the Stock Purchase Plan.
An employee will not realize taxable income upon the grant of a right to
purchase shares or upon the purchase of shares pursuant to the terms of the
Stock Purchase Plan even though the price paid for the shares is less than their
fair market value. If an employee disposes of shares acquired under the Stock
Purchase Plan, the amount of ordinary income, capital gain or capital loss
realized will depend on the holding period of the shares.
If the employee disposes of shares more than one year after the shares have
been transferred and more than two years after the date of grant, the employee
will realize ordinary income in the year of disposition equal to the lesser of
(i) 10% of the fair market value of the shares on the date of grant or (ii) the
amount by which the fair market value of the shares on the date of disposition
exceeds the purchase price. Any additional gain from the sale will be long-term
capital gain.
If the shares are disposed of within either of the holding periods
described above (a disqualifying disposition), the employee will realize
ordinary income equal to the excess of the fair market value of the shares on
the date of purchase pursuant to the Stock Purchase Plan over the purchase
price. This excess is taxed as ordinary income even if the shares are sold at a
loss. In addition, the employee will have capital gain or loss measured by the
difference between (i) the sale price and (ii) the purchase price plus the
amount of ordinary income recognized.
The Company generally is not entitled to an income tax deduction when an
employee exercises an option to purchase a share under the Stock Purchase Plan
or upon the subsequent disposition of any such share. If the disposition is a
disqualifying disposition, the Company will be entitled to an income tax
deduction in the year of such disposition in an amount equal to the amount of
ordinary income recognized by the employee as a result of such disposition.
DIRECTORS PLAN
On March 28, 1996, the Board of Directors adopted, and the Company's
stockholders approved, the Non-Employee Directors Stock Option Plan (the
"Directors Plan"). The following is a summary of the material terms of the
Directors Plan, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summary does not
purport to be complete and is qualified in its entirety by the terms of the
Directors Plan.
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PURPOSE
The purpose of the Directors Plan is to attract and retain competent
non-employee personnel to serve on the Company's Board of Directors and to
increase their identification with the interests of the Company's stockholders.
ADMINISTRATION
The Directors Plan is administered by the Compensation Committee. Subject
to the provisions of the Directors Plan, the Compensation Committee has powers
and authorities which are exclusively ministerial in nature, including the
authority to construe and interpret the Directors Plan, to define the terms used
therein, to prescribe, amend and rescind rules and regulations relating to the
administration of the Directors Plan, and to make all other determinations
deemed necessary or advisable for the administration of the Directors Plan.
AVAILABLE SHARES AND ELIGIBILITY
The aggregate number of shares of Class A Common Stock of the Company that
may be issued upon the exercise of all options granted under the Directors Plan
may not exceed 100,000, subject to adjustment pursuant to certain corporate
transactions, such as recapitalizations, mergers or changes in control. Shares
of Class A Common Stock subject to options which terminate without having been
exercised in full may again be made available for purposes of the Directors
Plan. Each member of the Board of Directors who is not an employee of the
Company or any of its affiliates and does not own more than 1% of the Common
Stock of the Company (a "Non-Employee Director") is entitled to receive options
under the Directors Plan.
TERMS AND CONDITIONS OF OPTIONS
Each option granted under the Directors Plan will be a NSO. On the day a
Non-Employee Director is first elected and duly qualified as a member of the
Board (a "New Director") such New Director will receive an option to purchase
25,000 shares of Class A Common Stock. On each subsequent third anniversary of
the date of grant, each Non-Employee Director who was previously elected to the
Board and who continues to serve in such capacity, shall be granted an option to
purchase an additional 25,000 shares of Class A Common Stock.
The exercise price of the Class A Common Stock covered by each option is
the fair market value of such shares on the date of grant of the option, subject
to any adjustments as described in the Directors Plan. Options are exercisable
as to 1/12 of the shares subject thereto on the last day of each calendar
quarter following the date of the grant, with an additional 1/12 of such grant
exercisable as of the last day of each calendar quarter subsequent thereto. An
option is exercisable for a period of ten years from the date of grant of the
option, subject to earlier termination as described in the Directors Plan.
An optionee may exercise an option by giving written notice to the
Compensation Committee together with payment in full of the exercise price. Such
payment may be made in certified or bank check or cash or in the form of such
other compensation as approved by the Compensation Committee. Options may be
exercised, during the lifetime of the optionee, only by the optionee or by his
guardian or legal representative.
Except as otherwise provided below, an option may not be exercised unless
the optionee is then a director of the Company and unless he has remained
continuously in the Company's service as a director since the date of the grant
of the option. Notwithstanding the foregoing, upon termination of a director's
service for any reason other than death, disability or cause (as described in
the Directors Plan), options will be exercisable, to the extent otherwise
exercisable on such date, for 60 days after such termination, unless earlier
terminated in accordance with their terms. Upon termination of service for
cause, unexercised options terminate immediately. Upon termination of service by
reason of death or disability, options will be exercisable, to the extent
otherwise exercisable on such date, at any time within one year after the date
of death or disability, unless earlier terminated in accordance with their
terms. In the event of death or disability of the optionee, options may be
exercised by the optionee's estate or by a person who acquired the right to
exercise such option by bequest or inheritance or otherwise by reason of the
death or disability of the optionee.
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AMENDMENT AND TERMINATION
The Board of Directors may at any time and from time to time, suspend,
terminate, modify or amend the Directors Plan; provided, however, that the
Directors Plan shall not be amended more than once during any six-month period
other than to comply with applicable law. Further, certain amendments shall be
subject to approval by the stockholders of the Company. Except as otherwise
provided in the Directors Plan, no suspension, termination, modification or
amendment of the Directors Plan may adversely affect any option previously
granted, unless the written consent of the optionee is obtained. The Directors
Plan is not subject to any provision of ERISA and is not qualified under Section
401(a) of the Code.
NEW DIRECTORS PLAN BENEFITS
Grants of options under the Directors Plan are determined by formula as set
forth therein. Currently, no director of the Company is eligible to participate
in the Directors Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Under present law, an optionee who is granted an NSO under the Directors
Plan will not be subject to federal income tax upon the grant, and the Company
will not be entitled to a tax deduction by reason of such grant. When the
optionee exercises the NSO, the excess of the fair market value of the shares
acquired on the exercise date over the exercise price will be considered
compensation taxable as ordinary income to the optionee, and the Company may
claim a tax deduction at that time equal to the amount of taxable income
realized by the optionee.
If any profits associated with a sale of Class A Common Stock acquired
pursuant to the exercise of an NSO under the Directors Plan could subject the
optionee to liability under Section 16(b) of the Exchange Act, there will be no
concurrent federal income tax consequences to either the optionee or the Company
as a result of the exercise of such NSO. The inclusion of such profits as income
to the optionee is generally deferred until the date on which the Section 16(b)
restrictions terminate. However, if the optionee makes a timely and proper 83(b)
election to be taxed at the time such Class A Common Stock is transferred to
him, then the excess of the fair market value of the shares of Common Stock on
the exercise date over the exercise price will be taxed as ordinary income. An
83(b) election must be made within thirty days of the date of exercise of the
NSO. In the absence of such an election, the excess of the fair market value of
the shares of Common Stock on the date the Section 16(b) restrictions expire
over the exercise price will be considered compensation taxable as ordinary
income to the optionee. The Company will be entitled to a tax deduction in an
amount equal to the amount required to be recognized as ordinary income by the
optionee at the time the optionee is subject to tax.
Upon the sale of any shares acquired pursuant to the exercise of an NSO
granted under the Directors Plan, an optionee will recognize gain in an amount
equal to the difference between the sales price and the optionee's tax basis in
such shares, which tax basis will include the exercise price paid plus the
amount required to be recognized as income by the optionee as a result of the
exercise of the NSO. Such gain will be short-term capital gain if the shares
have been held for twelve months or less and long-term capital gain if the
shares have been held for more than twelve months.
The above tax information is only a brief summary of the federal income tax
consequences resulting from the receipt and/or exercise of NSOs. It is based on
present federal tax laws and regulations and does not purport to be a complete
description of such federal income tax consequences. The foregoing summary of
federal income tax consequences may change if the Code or regulations
promulgated thereunder are changed.
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CERTAIN TRANSACTIONS
RELATED PARTY TRANSACTIONS
The Company was organized in 1989 by Roger D. Linquist, MSVCF, Accel
Telecom L.P., Accel Partners L.P. and Frances W. Hopkins. Through the
acquisition of preferred stock in 1991 and 1993, MSLEF II became the owner of
capital stock representing a majority of the voting power in the Company. The
general partner of MSLEF II and the managing general partner of the general
partner of MSVCF are both wholly owned subsidiaries of MS Group. Four of the
eight directors of the Company are employees of MS & Co. MS & Co. acted as
placement agent for the offering of the 12 1/4% Notes and the offering of the
15% Notes and received compensation from the Company in the amount of $2.6
million and $3.8 million, respectively, for acting in such capacity. MS & Co. is
acting as an underwriter in the Offering.
In two transactions consummated in March and May of 1993, the Company
issued a total of 5,277,611 shares of the Company's Series C Preferred Stock,
having an aggregate liquidation preference of $17,205,011, for an aggregate
purchase price of $17,205,011, of which 5,214,724 shares were issued to MSLEF
II. During the fiscal quarter ended September 30, 1994, the Company issued an
aggregate of 11,242,857 shares of Common Stock in the 1994 Stock Offerings at a
purchase price of $7.00 per share. The aggregate net proceeds (after expenses)
of the 1994 Stock Offerings were approximately $76.9 million. Of the shares
issued in the 1994 Stock Offerings, 5,000,000 shares of Common Stock were issued
to MSCP III, Morgan Stanley Capital Investors, L.P. ("MSCI"), MSVCF II, Morgan
Stanley Venture Capital Fund II, C.V. ("MSVC II"), and Morgan Stanley Venture
Investors, L.P. ("MSVI"), 2,857,143 shares were issued to First Plaza Group
Trust and 1,242,857 shares to certain other institutional investors. The
remaining 2,142,857 shares of the Common Stock issued in the 1994 Stock
Offerings were acquired by an affiliate of Pulsar pursuant to a private
placement.
On May 11, 1995, the Company completed the issuance of 3,598,429 shares of
Common Stock in the 1995 Private Stock Offering at a purchase price of $7.00 per
share. The net proceeds (after expenses) of the 1995 Private Stock Offering were
approximately $24.5 million. Of the shares issued in the 1995 Private Stock
Offering, 2,277,286 were purchased by the MS Merchant Banking Funds (as defined
herein), other than MSLEF II, and 357,143 shares were purchased by First Plaza
Group Trust. The remaining 964,000 shares of Common Stock were purchased by
other institutional investors and the following officers of the Company: John D.
Beletic (3,000 shares), Daniel W. Hay (1,000 shares), G. Clay Myers (5,000
shares), Todd A. Bergwall (1,000 shares), Lawrence H. Wecsler (1,000 shares),
Paul L. Turner (1,000 shares), Kenneth L. Hilton (18,000 shares) and Douglas H.
Kramp (15,000 shares).
In October 1995, MSLEF II, MSCP III, MSCI, MSVCF, MSVCF II, MSVC II, MSCP
892 Investors, L.P. ("MSCP 892"), and MSVI (collectively, the "Morgan Stanley
Shareholders") exchanged a portion of their Class A Common Stock of the Company
for Class B Common Stock in a share-for-share exchange without payment of any
additional consideration. See "Risk Factors -- Significant Ownership."
As of March 31, 1996, John D. Beletic, President of the Company, was
indebted to the Company in the amount of $118,800 under three promissory notes.
The first promissory note (the "First Note") was issued in January 1994 for
$97,800 in connection with a stock option exercise by Mr. Beletic and bears
interest at the rate of 3.55% per annum. Interest on the outstanding balance is
due and payable annually beginning on January 28, 1995. The outstanding
principal balance on the First Note is due and payable on January 28, 1999. The
second promissory note (the "Second Note") was issued in November 1994 and bears
interest at the rate of 7% per annum. Under the terms of the Second Note, Mr.
Beletic may receive loans in various amounts, the total of which may not exceed
$200,000. There were no amounts outstanding under the Second Note at March 31,
1996. The third promissory note (the "Third Note") was issued in May 1995 for
$21,000 in connection with the purchase of Class A Common Stock by Mr. Beletic
and bears interest at the rate of 6.9% per annum. Interest on the outstanding
principal is due and payable annually beginning on May 11, 1996. The outstanding
principal balance on the Third Note is due and payable on May 11, 1999. The
First Note, the Second Note and the Third Note are all secured by the Class A
Common Stock owned by Mr. Beletic.
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ELECTION OF DIRECTORS
Pursuant to the Stockholders Agreement, the Morgan Stanley Shareholders
have the right to designate and have elected one-half of the members of the
Board of Directors of the Company for so long as the total number of shares of
Common Stock of the Company owned by the Morgan Stanley Shareholders constitutes
at least 50% of the outstanding Common Stock of the Company. If such ownership
falls below 50%, the number of directors that the Morgan Stanley Shareholders
will have the right to designate and have elected will be reduced to the number
of directors which constitutes a percentage representation on the Board equal to
the Morgan Stanley Shareholders' aggregate percentage ownership of the
outstanding Common Stock of the Company. The rights of each of MSLEF II, MSCP
III, MSVCF and MSVCF II to designate and have elected one member of the Board of
Directors terminates once the total number of shares of Common Stock of the
Company owned by such investor falls below 7.5%. However, each such stockholder
will continue to have such rights if its ownership of Common Stock exceeds 2%
and such stockholder has determined that the continued possession of such rights
is necessary or desirable in order for such stockholder to qualify as a "venture
capital operating company" within the meaning of Department of Labor Regulation
Section 2510.3-101. MSVCF has made such a determination and continues,
therefore, to have the right to designate and have elected one director. After
giving effect to the Offering, the Morgan Stanley Shareholders will own 51.3% of
the Common Stock of the Company (50.1% if the Underwriters' over-allotment
option is exercised in full) and 38.9% of the voting Common Stock (37.7% if the
Underwriters' over-allotment is exercised in full). The Morgan Stanley
Shareholders have informed the Company that they intend, upon the consummation
of the Offering, to convert such number of their shares of non-voting Common
Stock so that, following such conversion, the Morgan Stanley Shareholders will
own, in the aggregate, 49% of the outstanding voting Common Stock of the
Company.
Accel Telecom L.P., Accel III, L.P. and Accel Investors 89, L.P.
(collectively, "Accel") also has the right to designate one director for
election to the Board of Directors so long as Accel owns at least 7.5% of the
outstanding Common Stock of the Company. So long as Pulsar owns at least 5% of
the outstanding capital stock of the Company (or until the expiration of the
Pulsar Exclusivity Period, as defined in the Stockholders' Agreement), it will
have the right to designate one member of the Board of Directors.
So long as J.P. Morgan Capital Corporation ("Morgan Capital") owns no less
than 4% of the Common Stock of the Company, the Company will permit a
representative of such holder to attend as an observer all meetings of the Board
of Directors of the Company and all committees thereof. Such representative is
entitled to receive all written materials and other information given to
directors in connection with such meetings.
So long as the Morgan Stanley Shareholders hold securities representing at
least 10% of the outstanding Common Stock, the Company is required to maintain
compensation and audit committees of its Board of Directors, each consisting of
up to four directors. Accel and those members of the Board of Directors who are
not designated by the Morgan Stanley Shareholders are each entitled to designate
one director on each such committee and the Morgan Stanley Shareholders are
entitled to designate up to two directors on each such committee.
The Company will not amend the Company's Restated Certificate of
Incorporation or By-laws to eliminate the right of stockholders of the Company
to take action upon written consent without a meeting, without prior notice and
without a vote as provided in the Company's By-laws, so long as the MS Merchant
Banking Funds hold at least 7.5% of the Company's Common Stock.
REGISTRATION RIGHTS
The Stockholders Agreement provides that the parties thereto, which include
substantially all of the current stockholders of the Company (collectively, the
"Holders"), collectively have the right to "demand" an unlimited number of
registrations at any time at least six months after this Offering. The Company
will bear the costs and expenses of such "demand" registrations. Pursuant to
these "demand" rights, Holders of Common Stock (the "Registrable Securities")
may request in writing that the Company file a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), covering the
registration of a number of shares equal to at least three million shares of
Common Stock or a lesser number if such number
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represents a majority of the Registrable Securities then outstanding. The
Company is obligated within ten days of the receipt thereof to give written
notice of such request to all Holders and to use its best efforts to effect as
soon as practicable the registration under the Securities Act of all Registrable
Securities that the Holders request to be registered within 20 days of such
notice by the Company. Unless the Holders of a majority of the Registrable
Securities to be registered shall consent in writing, no other party (including
the Company) will be permitted to offer securities under such demand
registration. Under certain circumstances, Pulsar may also request that the
Company file a registration under the Securities Act covering the registration
of all of the Registrable Securities Pulsar owns. Pulsar may make no more than
two such requests. The Company is not obligated to effect more than one demand
registration in any six-month period.
In the event the managing underwriter advises the Holders that the size of
the offering is such that the success of the offering would be materially and
adversely affected by inclusion of all Registrable Securities requested to be
included, then the number of shares of Registrable Securities to be included in
the underwriting will be reduced on a pro rata basis, provided that the Company
will first reduce entirely all securities other than Registrable Securities to
be included in such underwriting.
The Stockholders Agreement also provides that, if the Company proposes to
register any of its stock or other securities under the Securities Act in
connection with the public offering of such securities solely for cash (other
than this Offering), the Company shall, at such time, promptly (but in no event
less than 30 days before the filing date) give each Holder written notice of
such registration, and such notice shall offer the Holders the opportunity to
register such number of shares of Registrable Securities as such Holder may
request. Subject to certain restrictions, upon the written request of each
Holder given within 20 days after delivery of such notice by the Company, the
Company shall cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered.
If the underwriters determine that the total amount of securities requested
to be included in any such offering would materially and adversely affect the
success of such offering, the Company will be required to include in the
offering, in addition to any shares to be registered by the Company, only that
number of such Registrable Securities that the underwriters determine in their
sole discretion would not affect the success of such offering.
RESTRICTIONS ON TRANSFER
Under the Stockholders Agreement, if MSLEF II, MSCI, MSCP 892 and MSCP III
(collectively, the "MS Merchant Banking Funds") propose to transfer (other than
in a sale to the public) shares which, taken together with any prior transfers
by the MS Merchant Banking Funds, represent more than 10% of the shares owned by
them on the date of the Stockholders Agreement, the Holders have a right to
require the transferee to purchase their shares on a pro rata basis. The Holders
(other than Morgan Capital) who own at least 67% of the voting Common Stock (the
"Compelling Holders") also have the right to require all Holders (other than
Morgan Capital) to sell their shares to any third party that buys all of the
shares owned by the Compelling Holders.
The Stockholders Agreement further provides for certain restrictions on the
amount of Common Stock which may be transferred by the parties to the
Stockholders Agreement for a period of one year following any public offering of
the Company's Common Stock (including this Offering), based on, with certain
exceptions, the percentage of shares of Common Stock sold in any such offering
by certain institutional investors party to the Stockholders Agreement (the
"Transfer Restrictions"). These restrictions on transfer, and the right of the
Compelling Holders described above, will terminate, subject to certain
extensions, approximately one year following the consummation of the Offering.
The Stockholders Agreement also provides for certain restrictions on the
transfer of shares of Common Stock by holders thereof subject to Regulation Y of
the Board of Governors of the Federal Reserve System (the "Regulation Y
Restriction"). None of the foregoing provisions of the Stockholders' Agreement
apply to Morgan Capital. Morgan Capital has, however, entered into a separate
agreement with the Company pursuant to which Morgan Capital is subject to
restrictions which are nearly identical to the Transfer Restrictions and the
Regulation Y Restriction.
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<PAGE> 68
RESTRICTIONS ON AMENDMENT OF CERTIFICATE OF INCORPORATION
The Company will not amend the Company's Amended and Restated Certificate
of Incorporation or By-laws to eliminate the right of stockholders of the
Company to take action upon written consent of the holders of a majority of the
outstanding shares of Class A Common Stock without a meeting, without prior
notice and without a vote as provided in the Company's By-laws, so long as the
MS Merchant Banking Funds hold at least 7.5% of the Company's Common Stock. See
"Description of Capital Stock."
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<PAGE> 69
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Class A Common Stock and Class B, C and D Common Stock as of May 1,
1996 (i) by each person known by the Company to own beneficially more than 5% of
the outstanding Class A Common Stock, (ii) by each director of the Company,
(iii) by each of the most highly compensated executive officers of the Company,
and (iv) by all executive officers and directors of the Company as a group.
Except as otherwise indicated, each named person has voting and investment power
over the listed shares, and such voting and investment power is exercised solely
by the named person or shared with a spouse.
<TABLE>
<CAPTION>
TOTAL
CLASS B, C AND D COMMON
CLASS A COMMON STOCK(1) COMMON STOCK(2) STOCK
---------------------------------------- -------------------------------------------- ------
TO BE OWNED TO BE OWNED AFTER
OWNED PRIOR TO AFTER THE OWNED PRIOR TO AFTER THE THE
THE OFFERING OFFERING THE OFFERING OFFERING OFFERING
------------------- ------------------- --------------------- --------------------- ---------
NUMBER % NUMBER % NUMBER % NUMBER % %
---------- ------ ---------- ------ --------- ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Morgan Stanley Leveraged
Equity Fund II, L.P.(3)
1221 Avenue of the Americas
New York, NY 10020.......... 5,829,919 25.0% 8,467,970 25.1% 4,598,137(4) 44.1% 1,960,086(4) 32.8% 26.3%
Morgan Stanley Capital
Partners III, L.P.(3)
1221 Avenue of the Americas
New York, NY 10020.......... 3,488,846 15.0% 5,067,556 15.0% 2,751,701(5) 26.4% 1,172,991(5) 19.6% 15.7%
Morgan Stanley Venture
Capital Fund, L.P.(6)
1221 Avenue of the Americas
New York, NY 10020.......... 1,481,511 6.4% 2,151,898 6.4% 1,168,489(7) 11.2% 498,102(7) 8.3% 6.7%
Other Morgan Stanley-sponsored
limited partnerships(8)... 579,598 2.5% 841,870 2.5% 457,142(9) 4.4% 194,870(10) 3.3% 2.6%
Mellon Bank, N.A., as Trustee
for
First Plaza Group Trust(11)
One Mellon Plaza
Pittsburgh, PA 15258........ 3,214,286 13.8% 3,214,286 9.5% -- -- -- -- 8.1%
Accel Telecom L.P.(12)
One Embarcadero Center,
Ste. 3820
San Francisco, CA 94111..... 1,542,300 6.6% 1,542,300 4.6% -- -- -- -- 3.9%
Accel III L.P.(12)
One Embarcadero Center,
Ste. 3820
San Francisco, CA 94111..... 1,416,200 6.1% 1,416,200 4.2% -- -- -- -- 3.6%
Accel Investors '89 L.P.(12)
One Embarcadero Center,
Ste. 3820
San Francisco, CA 94111..... 91,500 * 91,500 * -- -- -- -- *
Pulsar
Av. Roble, No. 300.
Mezzanine
Edificio Torre Alta
Garza Garcia, N.L.
Mexico C.P. 66265........... 2,142,857 9.2% 2,142,857 6.4% -- -- -- -- 5.4%
</TABLE>
67
<PAGE> 70
<TABLE>
<CAPTION>
TOTAL
CLASS B, C AND D COMMON
CLASS A COMMON STOCK(1) COMMON STOCK(2) STOCK
---------------------------------------- -------------------------------------------- ---------
TO BE OWNED TO BE OWNED AFTER
OWNED PRIOR TO AFTER THE OWNED PRIOR TO AFTER THE THE
THE OFFERING OFFERING THE OFFERING OFFERING OFFERING
------------------- ------------------- --------------------- --------------------- ---------
NUMBER % NUMBER % NUMBER % NUMBER % %
---------- ------ ---------- ------ --------- ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NamedExecutive Officers:
John D. Beletic(13)....... 470,004 2.0% 470,004 1.4% -- -- -- -- 1.2%
Roger D. Linquist(14)..... 1,525,000 6.6% 1,525,000 4.5% -- -- -- -- 3.8%
Kenneth L. Hilton(15)..... 59,667 * 59,667 * -- -- -- -- *
Homer L. Huddleston(16)... 26,332 * 26,332 * -- -- -- -- *
Sandra D. Neal(17)........ 68,400 * 68,400 * -- -- -- -- *
Carol W. Dickson(18)...... 15,000 * 15,000 * -- -- -- -- *
Frank V. Sica(3)(6)(8).... 11,379,874 48.9% 16,529,294 49.0% 8,975,469 86.0% 3,826,049 64.0% 51.3%
Guy L. de Chazal(6)(8).... 1,880,839 8.1% 2,731,924 8.1% 1,483,447 14.2% 632,362 10.6% 8.5%
Arthur Patterson(19)...... 3,050,000 13.1% 3,050,000 9.0% -- -- -- -- 7.7%
Andrew C. Cooper(6)(8).... 1,880,839 8.1% 2,731,924 8.1% 1,483,447 14.2% 632,362 10.6% 8.5%
Alejandro Perez
Elizondo................ -- * -- * -- -- -- -- *
Leigh J. Abramson(3)(8)... 9,499,035 40.8% 13,797,370 40.9% 7,492,022 71.8% 3,193,687 53.4% 42.8%
Pamela D.A. Reeve......... -- * -- * -- -- -- -- *
All directors and executive
officers as a group(20)..... 17,085,752 71.7% 22,235,172 64.8% 8,975,469 86.0% 3,826,049 64.0% 64.7%
</TABLE>
- ---------------
* Denotes less than 1%.
(1) Each share of Class B and C Common Stock is convertible by certain
institutional investors subject to certain voting control and regulatory
restrictions at the option of the holder into one share of Class A Common
Stock. Each share of Class D Common Stock is convertible, at the option of
the holder, at any time following the completion of this Offering, into one
share of Class A Common Stock. See "Description of Capital Stock -- Common
Stock." The number of shares of Class A Common Stock and percentages under
this heading do not account for such conversion rights, although the
intended conversion of certain shares of Class B Common Stock and Class C
Common Stock into Class A Common Stock is reflected under the heading Class
A Common Stock to be Owned After the Offering. See footnote (2) below.
(2) Holders of Class B, C and D Common Stock have no voting power except under
certain limited exceptions. See "Description of Capital Stock." The Morgan
Stanley Shareholders have informed the Company that they intend, upon the
consummation of the Offering, to convert their shares of non-voting Common
Stock so that, following such conversion, the Morgan Stanley Shareholders
will own, in the aggregate, 49% of the outstanding voting Common Stock of
the Company. In addition, Morgan Capital has informed the Company that it
intends to convert all but 100 shares of Class A Common Stock held directly
or indirectly by it into Class C Common Stock immediately prior to the
effectiveness of the Registration Statement of which this Prospectus forms
a part. Amounts under the heading Class B, C and D Common Stock to be Owned
After the Offering reflect such intended conversions.
(3) Each of these entities is an investment partnership for which Frank V.
Sica, a director of the Company, is a director of the entity controlling
such partnership. Each of these entities is also an investment partnership
for which Leigh J. Abramson, a director of the Company, is an officer of
the entity controlling such partnership. The general partner of MSLEF II
and the managing general partners of the respective general partners of
MSCP III and each of the investment partnerships referred to in footnote
(8) below are each wholly owned subsidiaries of MS Group. Frank V. Sica and
Leigh J. Abramson each disclaim beneficial ownership of such shares.
(4) All of such shares represent shares of Class B Common Stock owned by MSLEF
II.
(5) All of such shares represent shares of Class B Common Stock owned by MSCP
III.
(6) This entity is an investment partnership for which Frank V. Sica and Guy L.
de Chazal, directors of the Company, are directors of the entity
controlling such partnership and, in the case of Mr. de Chazal, a general
partner of the general partner of such partnership and for which Andrew C.
Cooper, a director of the Company, is an officer of the entity controlling
such partnership. Frank V. Sica, Guy L. de Chazal and Andrew C. Cooper each
disclaim beneficial ownership of such shares.
68
<PAGE> 71
(7) All of such shares represent shares of Class B Common Stock owned by MSVCF.
(8) Includes 256,307 shares owned by MSVCF II, 118,688 shares owned by MSCI,
73,676 shares owned by MSVI, 69,345 shares owned by MSVC II and 61,582
shares owned by MSCP 892. Each of MSCI and MSCP 892 is an investment
partnership for which the relationships described in footnote (3) above are
applicable and Frank V. Sica and Leigh J. Abramson each disclaim beneficial
ownership of shares held by such entities. Each of MSVCF II, MSVI and MSVC
II is an investment partnership for which the relationships described in
footnote (6) above are applicable and Frank V. Sica, Guy L. de Chazal and
Andrew C. Cooper each disclaim beneficial ownership of shares held by such
entities.
(9) Includes 202,153 shares of Class B Common Stock owned by MSVCF II, 93,612
shares of Class B Common Stock owned by MSCI, 58,110 shares of Class B
Common Stock owned by MSVI, 54,695 shares of Class B Common Stock owned by
MSVC II and 48,572 shares of Class B Common Stock owned by MSCP 892.
(10) Includes 86,174 shares of Class B Common Stock owned by MSVCF II, 39,905
shares of Class B Common Stock owned by MSCI, 24,771 shares of Class B
Common Stock owned by MSVI, 23,315 shares of Class B Common Stock owned by
MSVC II and 20,705 shares of Class B Common Stock owned by MSCP 892.
(11) Mellon Bank, N.A., acts as the trustee ("Mellon") for First Plaza Group
Trust ("First Plaza"), a trust under and for the benefit of certain
employee benefit plans of General Motors Corporation ("GM") and its
subsidiaries. These shares may be deemed to be owned beneficially by
General Motors Investment Management Corporation ("GMIMCo"), a wholly-owned
subsidiary of GM. GMIMCo's principal business is providing investment
advice and investment management services with respect to the assets of
certain employee benefit plans of GM and its subsidiaries and with respect
to the assets of certain direct and indirect subsidiaries of GM and
associated entities. GMIMCo's business address is 767 Fifth Avenue, New
York, New York. GMIMCo is serving as First Plaza's investment manager with
respect to these shares and in that capacity it has the sole power to
direct the trustee as to the voting and disposition of these shares.
Because of Mellon's limited role, beneficial ownership of the shares by
Mellon is disclaimed.
(12) Each of these entities is an investment partnership for which Arthur
Patterson, a director of the Company, is a general partner or a general
partner of the general partner of such entity.
(13) Includes 328,000 shares of common stock issued pursuant to the Stock Option
Plan and Stock Issuance Plan. Includes 133,335 stock options which are
exercisable within the 60-day period commencing May 1, 1996 pursuant to the
Stock Option Plan.
(14) Includes 125,000 shares of common stock issued pursuant to the Stock Option
Plan and Stock Issuance Plan.
(15) Includes 27,382 stock options which are exercisable within the 60-day
period commencing May 1, 1996 pursuant to the Stock Option Plan.
(16) Includes 26,332 stock options which are exercisable within the 60-day
period commencing May 1, 1996 pursuant to the Stock Option Plan.
(17) Includes 45,332 stock options which are exercisable within the 60-day
period commencing May 1, 1996 pursuant to the Stock Option Plan.
(18) Includes 15,000 stock options which are exercisable within the 60-day
period commencing May 1, 1996 pursuant to the Stock Option Plan. Ms.
Dickson resigned from the Company effective February 29, 1996. Pursuant to
the terms of the Stock Option Plan, Ms. Dickson's options may be exercised
on or before May 29, 1996.
(19) Includes shares of common stock held by the entities described in note 11
in which Arthur Patterson, a director of the Company, may be deemed to have
beneficial ownership. Mr. Patterson disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(20) Includes 561,385 stock options which are exercisable within the 60-day
period commencing May 1, 1996.
69
<PAGE> 72
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary of the Company's capital stock does not purport to be
complete and is subject to and qualified in its entirety by the Company's
Amended and Restated Certificate of Incorporation, as amended (the
"Certificate"), and the laws of the State of Delaware.
The Certificate authorizes the issuance of 85,000,000 shares of Capital
Stock, consisting of 60,000,000 shares of Class A Common Stock, 12,000,000
shares of Class B Common Stock, 2,000,000 shares of Class C Common Stock,
1,000,000 shares of Class D Common Stock and 10,000,000 shares of preferred
stock. As of March 31, 1996, 23,278,915 of the authorized shares of Class A
Common Stock were outstanding, 8,975,469 of the authorized shares of Class B
Common Stock were outstanding, 731,846 of the authorized shares of Class C
Common Stock were outstanding, 725,445 of the authorized shares of Class D
Common Stock were outstanding and none of the authorized shares of Preferred
Stock were outstanding. As of March 31, 1996, there were 97 holders of Class A
Common Stock, eight holders of Class B Common Stock, one holder of Class C
Common Stock and one holder of Class D Common Stock. As of March 31, 1996,
2,793,274 shares of Class A Common Stock were reserved for issuance upon
exercise of outstanding stock options, 627,900 shares of such stock were
reserved for issuance upon exercise of the warrants issued by the Company in
1993 in connection with the placement of the 12 1/4% Notes (the "1993
Warrants"), 714,286 shares of such stock were reserved for issuance upon
conversion of securities by unaffiliated third-party Canadian stockholders of
Canada Holding and 206,748 shares of such stock were reserved for issuance on
exercise of the warrants issued to Mitsui Co., Ltd. in 1995 (the "Mitsui
Warrants"). See "Management -- Stock Option Plan," "Management -- Stock Issuance
Plan" and " -- Warrants."
COMMON STOCK
Class A Common Stock. Holders of Class A Common Stock are entitled to one
vote for each share of Class A Common Stock held on each matter submitted to a
vote of stockholders, including the election of directors. Holders of Class A
Common Stock are not entitled to cumulative voting. Shares of Class A Common
Stock have no preemptive or other subscription rights and are convertible
(except as provided in the Stockholders Agreement) (i) by the Morgan Stanley
Shareholders into an equal number of shares of Class B Common Stock and (ii) by
Morgan Capital and BT Investment Partners, Inc. (together, the "Regulated
Shareholders") into an equal number of shares of Class C Common Stock.
Class B Common Stock. Holders of the Class B Common Stock have no right to
vote on matters submitted to a vote of stockholders, except (i) as otherwise
required by law and (ii) that the holders of Class B Common Stock shall have the
right to vote as a class on any amendment, repeal or modification to the
Certificate that adversely affects the powers, preferences or special rights of
the holders of such class. Shares of Class B Common Stock have no preemptive or
other subscription rights and are convertible into an equal number of shares of
Class A Common Stock (x) at the option of the holder thereof to the extent the
Morgan Stanley Shareholders do not, in the aggregate, own more than 49% of the
outstanding shares of Class A Common Stock and (y) automatically upon the
transfer by any Morgan Stanley Shareholder of such shares to a person that is
not a Morgan Stanley Shareholder or an affiliate of a Morgan Stanley
Shareholder.
Class C Common Stock. Holders of the Class C Common Stock have no right to
vote on matters submitted to a vote of stockholders, except (i) as otherwise
required by law and (ii) that the holders of Class C Common Stock shall have the
right to vote as a class on any amendment, repeal or modification to the
Certificate that adversely affects the powers, preferences or special rights of
the holders of such class. Shares of Class C Common Stock have no preemptive or
other subscription rights and are convertible, at the option of the holder
thereof, into an equal number of shares of Class A Common Stock but only to the
extent such holder and its affiliates would not, as a result of such conversion,
own, control or have the power to vote a greater number of shares of Class A
Common Stock than such holder and its affiliates are permitted to own, control
or have the power to vote under Regulation Y of the Board of Governors of the
Federal Reserve System (12 C.F.R. part 225) ("Regulation Y").
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<PAGE> 73
Class D Common Stock. Holders of the Class D Common Stock have no right to
vote on matters submitted to a vote of stockholders, except (i) as otherwise
required by law and (ii) that the holders of Class D Common Stock shall have the
right to vote on any merger, consolidation or disposition of assets that
requires stockholder approval under Delaware law, in which case holders of Class
D Common Stock shall vote (at a rate of one vote per share of Class D Common
Stock held) with holders of Common Stock as a single class on such matter unless
otherwise required by law. Shares of Class D Common Stock have no preemptive or
other subscription rights and are convertible, at the option of the holder
thereof, into an equal number of shares of Class A Common Stock at any time
after the consummation of the Offering.
Conversion of the Class B Common Stock, the Class C Common Stock and the
Class D Common Stock into shares of Class A Common Stock would result in a
decrease in the voting power of the holders of the previously outstanding Class
A Common Stock and the holders of the Class A Common Stock offered hereby.
Dividends. All holders of Common Stock are entitled to receive such
dividends or other distributions, if any, as may be declared from time to time
by the Board of Directors in its discretion out of funds legally available
therefor, subject to the prior rights of any preferred stock then outstanding,
and to share equally, share for share, in such dividends or other distributions
as if all shares of Common Stock were of a single class. Dividends or other
distributions declared or paid in shares of Common Stock, or options, warrants
or rights to acquire such stock or securities convertible into or exchangeable
for shares of such stock, are payable to all of the holders of Common Stock
ratably according to the number of shares held by them, in shares of Class A
Common Stock to holders of that class of stock, Class B Common Stock to holders
of that class of stock, Class C Common Stock to holders of that class of stock,
and Class D Common Stock to holders of that class of stock.
Liquidation. Subject to the prior rights of holders of all classes of stock
outstanding having prior rights with respect to the assets of the Company, upon
the liquidation or dissolution of the Company, the holders of Common Stock are
entitled to share ratably according to the number of shares held by them in all
assets remaining available for distribution to stockholders.
Full Payment and Nonassessability. All outstanding shares of Common Stock
are, and the shares to be issued by the Company pursuant to the Offering will
be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors, without further stockholder authorization, is
authorized to issue additional shares of preferred stock in one or more class or
series and to fix the rights, preferences and privileges of each additional
class or series, including dividend rights and preferences over dividends on the
Common Stock, conversion rights, voting rights (in addition to those provided by
law), redemption rights and the terms of any sinking fund therefor, and rights
upon liquidation, including preferences over the Common Stock. The issuance of
any such preferred stock may have the effect of delaying or preventing
transactions involving a change of control of the Company, including
transactions in which stockholders might otherwise receive a substantial premium
for their shares over then current market prices, and may limit the ability of
the stockholders to approve transactions that they deem to be in their best
interests.
CERTAIN REDEMPTION RIGHTS
Under the Certificate, the Company has the right to redeem outstanding
shares of its capital stock if the Board of Directors determines that such
redemption is necessary to prevent the loss or secure the reinstatement of any
governmental license or franchise held by the Company at a price equal to the
current market value of such shares (as determined in accordance with the
Certificate). For example, if at any time the percentage of the Company's
outstanding capital stock owned by persons or entities that are not U.S. persons
under the FCC rules ("Non-U.S. Persons") were to exceed 25%, the Company could
redeem shares of the Company's capital stock held by Non-U.S. Persons. If the
Company were to redeem shares of its stock in order to comply with regulatory
restrictions, the shares to be redeemed would be selected in a manner determined
by the Board of Directors, which may include selection first of the most
recently purchased shares,
71
<PAGE> 74
selection by lot or selection in any other manner determined by the Board of
Directors. Based on currently available information, the Company estimates that
its percentage of foreign ownership is approximately 22%.
WARRANTS
In 1993, the Company issued the 1993 Warrants to purchase Common Stock at
an exercise price of $3.26 per share as part of the placement of the 12 1/4%
Notes. The 1993 Warrants may be exercised in whole or in part at any time until
December 31, 2003. The 1993 Warrants are currently exercisable for 627,900
shares of Class A Common Stock. In 1995, the Company issued to Mitsui Co., Ltd.
the Mitsui Warrants to purchase Common Stock at an exercise price of $10.00 per
share. The Mitsui Warrants may be exercised in whole or in part starting on
March 20, 1997 and until March 20, 2005. The Mitsui Warrants will be exercisable
for 206,748 shares of Class A Common Stock. The number of shares covered by the
1993 Warrants and the Mitsui Warrants may be adjusted on the occurrence of
certain events, specifically including, in the case of the 1993 Warrants, the
issuance of securities of the Company at less than fair market value (as defined
therein), or certain dividends, distributions or recapitalizations with respect
to the Class A Common Stock. See "Shares Eligible for Future Sale."
LIMITATION ON DIRECTORS' LIABILITY
The Certificate provides that the Company's directors are not liable to the
Company or its stockholders for monetary damages for breach of their fiduciary
duties to the fullest extent permitted by Delaware law. Under existing Delaware
law, directors would not be liable except under certain circumstances, including
breach of the director's duty of loyalty, acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law or any
transaction from which the director derived improper personal benefit. The
inclusion of this provision in the Certificate may have the effect of reducing
the likelihood of derivative litigation against directors and may discourage or
deter stockholders or the Company from bringing a lawsuit against directors of
the Company for breach of their duty of care. However, the provision does not
affect the availability of equitable remedies such as an injunction or
rescission.
DELAWARE TAKEOVER STATUTE
Section 203 of the Delaware Corporation Law, as amended ("Section 203"),
provides that, subject to certain exceptions specified therein, an "interested
stockholder" of a Delaware corporation shall not engage in any business
combination, including mergers or consolidations or acquisitions of additional
shares of the corporation with the corporation for a three-year period following
the date that such stockholder becomes an "interested stockholder" unless (i)
prior to such date, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an "interested stockholder", (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder", the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares) or
(iii) on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder."
Except as otherwise specified in Section 203, an "interested stockholder" is
defined to include (x) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the
relevant date and (y) the affiliates and associates of any such person.
These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company. The Company's stockholders, by adopting an
amendment to its Certificate or bylaws, may elect not to be governed by Section
203, effective twelve months after adoption. Neither the Certificate nor the
By-laws presently exclude the Company from the restrictions imposed by Section
203.
REGISTRAR AND TRANSFER AGENT
Keycorp Shareholder Services, Inc., is the Registrar and Transfer Agent for
the Company's Class A Common Stock.
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<PAGE> 75
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
39,713,226 shares of Common Stock (40,613,226 shares if the Underwriters'
over-allotment option is exercised in full). Upon completion of the Offering and
after giving effect to the intended conversion of shares of Class B Common Stock
and Class C Common Stock by certain holders thereof, the Company will have
outstanding 33,733,260 (34,633,260 if the Underwriters' over-allotment option is
exercised in full) shares of Class A Common Stock, 3,826,049 shares of Class B
Common Stock, 1,428,472 shares of Class C Common Stock, and 725,445 shares of
Class D Common Stock. See "Principal Stockholders." Shares of Class B, C and D
Common Stock are convertible, subject to certain ownership and regulatory
restrictions, at the option of the holder into an equal number of shares of
Class A Common Stock. Shares of Class A Common Stock held by the Morgan Stanley
Shareholders are convertible into an equal number of shares of Class B Common
Stock and shares of Class A Common Stock held by the Regulated Shareholders are
convertible into an equal number of shares of Class C Common Stock. The Company
has outstanding 2,793,274 options to purchase shares of Class A Common Stock
pursuant to the Stock Option Plan. In 1995, 36,654 shares of Class A Common
Stock were issued upon the exercise of options granted pursuant to the Stock
Option Plan. Approximately 32,387 of such shares were registered pursuant to a
Form S-8 registration statement. However, the shares registered under the Form
S-8 are subject to certain transfer restrictions contained in the stock purchase
agreement executed by each optionee upon exercise of each option. In addition,
834,648 shares of Common Stock are issuable upon the exercise of outstanding
warrants. See "Description of Capital Stock." Only the 6,000,000 shares sold in
the Offering will be freely transferable in the United States without
restriction under the Securities Act unless such shares of Common Stock are held
by an "affiliate" of the Company (as that term is defined under the rules and
regulations of the Securities Act). Any such affiliate will be subject to the
resale limitations of Rule 144 adopted under the Securities Act in the event
such affiliate desires to publicly dispose of such shares. Restricted securities
may not be resold except in compliance with the registration requirements of the
Securities Act or pursuant to an exemption therefrom, such as the exemptions
provided by Rule 144 and Rule 144A.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
"restricted securities" for at least two years will be entitled to sell within
any three-month period a number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock (approximately 397,117
shares immediately after the Offering) and (ii) the average weekly trading
volume in the Common Stock on all national securities exchanges and/or reported
through the automated quotation system of registered securities associations
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission (the
"Commission"). Sales pursuant to Rule 144 are also subject to certain other
requirements regarding the manner of sale, notice and availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the three months immediately preceding the sale is entitled to sell
restricted securities pursuant to Rule 144(k) without regard to the limitations
described above, provided that three years have expired since the later of the
date on which such restricted securities were acquired from the Company or the
date they were acquired from an affiliate of the Company. As defined in Rule
144, an "affiliate" of an issuer is a person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, such issuer. The Commission has proposed reducing the
periods of beneficial ownership of "restricted securities" required by Rule 144.
Under the proposal, persons who have beneficially owned restricted securities
for at least one year instead of two years as currently required, would be able
to resell such securities by complying with the volume limitations described
above. In the case of a person who is not deemed to be an affiliate of the
Company during the preceding three months, the proposal would permit sales
without regard to the limitations described above as long as such person had
held the securities for at least two years, instead of three years as currently
required. There can be no assurance that the proposed revisions to Rule 144 will
be adopted by the Commission.
73
<PAGE> 76
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters") have severally agreed to purchase, and the
Company has agreed to sell to them, severally, the respective number of shares
of Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated....................................
Goldman, Sachs & Co..................................................
J.P. Morgan Securities Inc...........................................
Lehman Brothers Inc..................................................
---------
Total...................................................... 6,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the Underwriters' over-allotment option described below) if any such
shares are taken.
The Underwriters propose to offer part of the Common Stock directly to the
public at the Price to Public set forth on the cover page hereof and part to
certain dealers at a price that represents a concession not in excess of
$ per share under the public offering price. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to other Underwriters or to certain other dealers. After the initial
offering of the Common Stock, the offering price and other selling terms may
from time to time be varied by the Underwriters.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
Each Underwriter has represented and agreed that (i) it has not offered or
sold and during the period of six months from the date hereof will not offer or
sell any shares to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their business or
otherwise in circumstances which have not resulted and will not result in an
offer in the United Kingdom within the meaning of Public Offers of Securities
Regulations 1995 (the "Regulation"); (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act of 1986 and the
Regulation with respect to anything done by it in relation to the shares in,
from or otherwise involving the United Kingdom; and (iii) it has only issued or
passed on and will only issue or pass on to any person in the United Kingdom any
document received by it in connection with the offer of the shares if that
person is of a kind described in Article 11(3) of the Financial Services Act of
1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to whom
such document may otherwise lawfully be issued or passed on.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 900,000 additional shares of Common Stock at the
Price to Public set forth on the cover page hereof, less underwriting discounts
and commissions. The Underwriters may exercise such option to purchase solely
for the purpose of covering over-allotments, if any, made in connection with the
offering of the shares of Common Stock hereby. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such
74
<PAGE> 77
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock offered by the Underwriters hereby.
The Company, all of the Company's executive officers and directors, and
certain other shareholders of the Company who own in the aggregate approximately
32.6 million shares of Common Stock, have agreed that, without the prior written
consent of MS & Co. they will not (a) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock (whether such
shares or any such securities are then owned by such person or are thereafter
acquired directly from the Company), or (b) enter into any swap or similar
agreement that transfers, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (a) or (b) of this paragraph is settled by delivery of such Common Stock
or such other securities, in cash or otherwise, for a period of 180 days after
the date of this Prospectus, other than (i) the sale to the Underwriters of the
shares of Common Stock under the Underwriting Agreement, (ii) the issuance by
the Company of shares of Common Stock upon the exercise of an option or warrant
or the conversion of a security outstanding on the date of this Prospectus, or
(iii) any options granted or shares of Common Stock issued pursuant to existing
benefit plans of the Company.
Prior to the Offering, the Morgan Stanley Shareholders, affiliates of MS &
Co., beneficially own in the aggregate 60.4% of the shares of Common Stock
outstanding. Immediately after the consummation of the Offering, the Morgan
Stanley Shareholders will own approximately 51.3% of the shares of Common Stock
outstanding and 38.9% of the outstanding voting Common Stock (approximately
50.1% and 37.7%, respectively of the outstanding Common Stock and outstanding
voting Common Stock if the Underwriters' over-allotment option is exercised in
full). The Morgan Stanley Shareholders have informed the Company that they
intend, upon the consummation of the Offering, to convert such number of their
shares of non-voting Common Stock so that, following such conversion, the Morgan
Stanley Shareholders will own, in the aggregate, 49% of the outstanding voting
Common Stock of the Company. In addition, affiliates of J.P. Morgan Securities
Inc., one of the Underwriters, own 696,726 shares of Class A Common Stock and
731,846 shares of Class C Common Stock. The Company has been informed that such
affiliates intend to convert all but 100 shares of Class A Common Stock into
Class C Common Stock immediately prior to the effectiveness of the Registration
Statement of which this Prospectus forms a part. Four of the Company's nine
directors are employees of MS & Co. MS & Co. acted as the placement agent for
the offering of the 12 1/4% Notes and 15% Notes and received compensation for
acting in such capacity. See "Certain Transactions."
By virtue of such relationships described above, the provisions of Schedule
E ("Schedule E") to the Bylaws of the NASD apply to the Offering. Accordingly,
the public offering price can be no higher than that recommended by a "qualified
independent underwriter." In accordance with the requirements of Schedule E,
Lehman Brothers Inc. is assuming the responsibilities of acting as qualified
independent underwriter, and the initial public offering price of the shares of
Class A Common Stock offered hereby will not be higher than the initial public
offering price recommended by Lehman Brothers Inc. Lehman Brothers Inc. also has
participated in the preparation of the Registration Statement of which this
Prospectus is a part and has performed due diligence with respect thereto.
Pursuant to the requirements of Schedule E, the Underwriters will not
confirm sales of shares of Common Stock offered hereby to any accounts over
which they exercise discretionary authority without the prior written approval
of the transaction by the customer.
At the request of the Company, the Underwriters have reserved 100,000
shares of the Class A Common Stock for sale at the initial public offering price
to employees of the Company. The number of shares available for sale to the
public will be reduced to the extent such individuals purchase such reserved
shares. Reserved shares purchased by such individuals will, except as restricted
by applicable securities laws, be available for resale following the Offering.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock has been
determined by negotiations between the Company and the Underwriters in
accordance with the recommendations of Lehman Brothers Inc., the "qualified
independent under-
75
<PAGE> 78
writer," as required by Schedule E. Among the factors to be considered in
determining the initial public offering price will be the sales, earnings and
certain other financial and operating information of the Company in recent
periods, the future prospects of the Company and its industry in general, and
certain ratios, market prices of securities and certain financial and operating
information of companies engaged in activities similar to those of the Company
and such other factors as may be deemed relevant. The initial public offering
price does not necessarily bear any relationship to the Company's assets, book
value, revenues or other established criteria of value, and should not be
considered indicative of the actual value of the Common Stock.
LEGAL MATTERS
Certain matters with respect to the legality of the issuance of the
securities offered hereby are being passed upon for the Company by Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York 10017. Davis Polk & Wardwell
has performed, and will continue to perform, legal services for MSVCF, MSLEF II
and MSCP III, companies controlled by MSLEF II, MSCP III and MS & Co. and acted
as counsel to MSLEF II and MSCP III in connection with its investments in the
Company. Certain legal matters in connection with the securities offered hereby
will be passed upon for the Underwriters by Shearman & Sterling, 599 Lexington
Avenue, New York, New York 10022. Shearman & Sterling has performed, and will
continue to perform, legal services for MSLEF II, MSCP III, companies controlled
by MSLEF II, MSCP III and MS & Co.
EXPERTS
The Consolidated Financial Statements of the Company at December 31, 1994
and 1995, and for each of the three years in the period ended December 31, 1995,
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement
(together with all amendments, exhibits and schedules thereto, the "Registration
Statement") under the Securities Act with respect to the Class A Common Stock
being offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, to which reference is made hereby. Statements made in
this Prospectus concerning the contents of any contract, agreement or other
document referred to herein are not necessarily complete. With respect to each
such contract, agreement or other document filed with the Commission as an
exhibit to the Registration Statement, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
The Company files reports and other information with the Commission under
the Exchange Act. Such reports and other information may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained from the public reference section
of the Commission at 450 Fifth Street, N.W. Washington, D.C. 20549, at
prescribed rates. Such material may also be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov.
76
<PAGE> 79
PAGEMART WIRELESS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996....... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995 and for the three months ended March 31, 1995 and March 31, 1996............... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December
31, 1993, 1994 and 1995 and for the three months ended March 31, 1996............... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 and for the three months ended March 31, 1995 and March 31, 1996............... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 80
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF PAGEMART WIRELESS, INC.:
We have audited the accompanying consolidated balance sheets of PageMart
Wireless, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1995, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PageMart Wireless, Inc. and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 12, 1996
F-2
<PAGE> 81
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1994 1995 1996
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 14,507 $ 26,973 $ 14,201
Accounts receivable (net of allowance for doubtful accounts of $1,388 and
$4,534 in 1994 and 1995, respectively)................................... 15,584 21,503 22,685
Inventories................................................................ 12,809 11,179 12,775
Prepaid expenses and other current assets.................................. 1,497 2,880 3,504
--------- --------- ---------
Total current assets....................................................... 44,397 62,535 53,165
RESTRICTED INVESTMENTS....................................................... 500 500 500
PROPERTY AND EQUIPMENT (net of accumulated depreciation of $16,491 and
$29,163 in 1994 and 1995, respectively..................................... 31,697 52,827 60,674
NARROWBAND LICENSES.......................................................... 58,885 133,065 133,065
DEFERRED DEBT ISSUANCE COSTS (net of accumulated amortization of $959 and
$2,011 in 1994 and 1995, respectively)..................................... 3,041 8,436 8,141
OTHER ASSETS................................................................. 3,539 6,466 7,303
--------- --------- ---------
Total assets......................................................... $ 142,059 $ 263,829 $ 262,848
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable........................................................... $ 16,451 $ 23,094 $ 26,497
Deferred revenue........................................................... 13,962 21,409 22,949
Current maturities of long-term debt....................................... 3,513 5,479 5,660
Other current liabilities.................................................. 4,040 6,526 6,182
--------- --------- ---------
Total current liabilities............................................ 37,966 56,508 61,288
LONG-TERM DEBT............................................................... 92,632 219,364 225,210
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.0001 par value per share; 10,000,000 shares authorized
and none issued and outstanding at December 31, 1994, December 31, 1995
and March 31, 1996....................................................... -- -- --
Common stock, $.0001 par value per share, 92,000,000 shares authorized and
29,529,525 shares issued at December 31, 1994; no shares authorized and
none issued at December 31, 1995 and March 31, 1996...................... 3 -- --
Common stock, $.0001 par value per share, 75,000,000 shares authorized as
of March 31, 1996:
Class A Convertible Common Stock, 23,277,293 shares issued at December
31, 1995 and 23,278,915 shares issued at March 31, 1996................ -- 2 2
Class B Convertible Non-Voting Common Stock, 8,975,469 shares issued at
December 31, 1995 and March 31, 1996................................... -- 1 1
Class C Convertible Non-Voting Common Stock, 731,846 shares issued at
December 31, 1995 and March 31, 1996................................... -- -- --
Class D Convertible Non-Voting Common Stock, 725,445 shares issued at
December 31, 1995 and March 31, 1996................................... -- -- --
Additional paid-in capital................................................. 124,694 154,601 154,612
Accumulated deficit........................................................ (112,977) (166,090) (177,708)
Stock subscriptions receivable............................................. (243) (557) (557)
Treasury stock, 200,000 shares of common stock at December 31, 1994, and
none at December 31, 1995 and March 31, 1996, at cost.................... (16) -- --
--------- --------- ---------
Total stockholders' equity (deficit)................................. 11,461 (12,043) (23,650)
--------- --------- ---------
Total liabilities and stockholders' equity (deficit)................. $ 142,059 $ 263,829 $ 262,848
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
F-3
<PAGE> 82
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- ---------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Recurring revenue................. $ 24,184 $ 56,648 $101,503 $ 20,464 $ 33,743
Equipment sales and activation
fees........................... 26,483 53,185 57,688 12,239 14,802
-------- -------- -------- -------- --------
Total revenues............ 50,667 109,833 159,191 32,703 48,545
COST OF EQUIPMENT SOLD.............. 28,230 57,835 63,982 13,378 17,082
OPERATING EXPENSES:
Technical......................... 9,470 16,155 25,679 5,459 8,090
Selling........................... 17,319 31,252 36,094 8,565 9,447
General and administrative........ 15,578 29,810 43,512 9,698 12,919
Depreciation and amortization..... 5,081 8,105 13,272 2,802 4,248
-------- -------- -------- -------- --------
Total operating expenses.......... 47,448 85,322 118,557 26,524 34,704
-------- -------- -------- -------- --------
Operating loss.................... (25,011) (33,324) (23,348) (7,199) (3,241)
OTHER (INCOME) EXPENSE:
Interest expense.................. 6,538 12,933 30,720 6,660 8,401
Interest income................... (428) (858) (1,997) (498) (219)
Other............................. -- 414 1,042 337 195
-------- -------- -------- -------- --------
Total other (income) expense...... 6,110 12,489 29,765 6,499 8,377
-------- -------- -------- -------- --------
NET LOSS............................ $(31,121) $(45,813) $(53,113) $(13,698) $(11,618)
======== ======== ======== ======== ========
NET LOSS PER SHARE
(Primary and Fully Diluted)....... $ (1.51) $ (1.72) $ (1.53) $ (0.40) $ (0.33)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (Primary and Fully
Diluted).......................... 20,627 26,574 34,653 34,532 34,688
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
F-4
<PAGE> 83
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
-------------------- ------------------- ADDITIONAL STOCK
NUMBER OF NUMBER OF PAID-IN ACCUMULATED SUBSCRIPTIONS TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE STOCK TOTAL
----------- ------ ---------- ------ ---------- ----------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December
31, 1992.......... 10,033,332 $ 1 2,500,000 $ -- $ 27,017 $ (36,043) $ -- $(16) $ (9,041)
Issuance of
5,277,611 shares
of Series C
Preferred Stock
at $3.26 per
share........... 5,277,611 1 -- -- 17,034 -- (125) -- 16,910
Issuance of
627,900 common
stock warrants
at $5.50 per
warrant......... -- -- -- -- 3,453 -- -- -- 3,453
171,074 shares of
common stock
issued under the
stock
option/stock
issuance plan... -- -- 171,074 -- 19 -- (4) -- 15
Net loss.......... -- -- -- -- -- (31,121) -- -- (31,121)
----------- ---- ---------- ---- -------- --------- ----- ---- --------
BALANCE, December
31, 1993.......... 15,310,943 2 2,671,074 -- 47,523 (67,164) (129) (16) (19,784)
11,242,857 shares
of common stock
issued in the
1994 Stock
Offerings....... -- -- 11,242,857 1 76,902 -- -- -- 76,903
Conversion of
convertible
preferred stock
to common
stock........... (15,310,943) (2) 15,310,943 2 -- -- -- -- --
304,651 shares of
common stock
issued under the
Stock
option/Stock
issuance plan... -- -- 304,651 -- 269 -- (216) -- 53
Repayment of stock
subscriptions
receivable...... -- -- -- -- -- -- 102 -- 102
Net loss.......... -- -- -- -- -- (45,813) -- -- (45,813)
----------- ---- ---------- ---- -------- --------- ----- ---- --------
BALANCE, December
31, 1994.......... -- -- 29,529,525 3 124,694 (112,977) (243) (16) 11,461
Retirement of
treasury
stock........... -- -- (200,000 ) -- (16) -- -- 16 --
725,445 shares of
non-voting
common stock
issued in the
Unit Offering... -- -- 725,445 -- 5,078 -- -- -- 5,078
56,654 shares of
common stock
issued under the
Stock
option/Stock
issuance plan... -- -- 56,654 -- 156 -- (125) -- 31
3,598,429 shares
of common stock
issued in the
1995 Stock
Offering........ -- -- 3,598,429 -- 24,689 -- (189) -- 24,500
Net loss.......... -- -- -- -- -- (53,113) -- -- (53,113)
----------- ---- ---------- ---- -------- --------- ----- ---- --------
BALANCE, December
31, 1995.......... -- -- 33,710,053 3 154,601 (166,090) (557) -- (12,043)
1,622 shares of
common stock
issued under the
Stock
option/Stock
issuance plan... -- -- 1,622 -- 11 -- -- -- 11
Net loss.......... -- -- -- -- -- (11,618) -- -- (11,618)
----------- ---- ---------- ---- -------- --------- ----- ---- --------
BALANCE, March 31,
1996
(unaudited)....... -- $ -- 33,711,675 $ 3 $154,612 $(177,708) $(557) $ -- $(23,650)
=========== ==== ========== ==== ======== ========= ===== ==== ========
</TABLE>
The accompanying notes to consolidated statements are an integral part of these
consolidated financial statements.
F-5
<PAGE> 84
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss.................................................... $(31,121) $(45,813) $(53,113) $(13,698) $(11,618)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 5,081 8,105 13,272 2,802 4,248
Provision for bad debt.................................... 1,273 6,590 6,135 1,744 1,453
Accretion of discount on Senior Discount Exchange Notes... 1,885 10,034 26,322 5,782 7,333
Changes in certain assets and liabilities:
(Increase) decrease in accounts receivable.............. (6,541) (14,629) (12,054) 796 (2,635)
(Increase) decrease in inventories...................... (5,024) (4,497) 1,630 2,114 (1,596)
(Increase) decrease in prepaid expenses and other
current assets....................................... (58) (1,091) (1,383) 129 (624)
(Increase) decrease in other assets, net................ (134) 254 (298) 132 (794)
Increase (decrease) in accounts payable................. 6,860 8,491 6,643 (1,953) 3,403
Increase in deferred revenue............................ 2,602 6,780 7,447 3,079 1,540
Increase (decrease) in other current liabilities........ 1,992 248 2,486 (95) (344)
-------- -------- -------- -------- --------
Net cash provided by (used) in operating
activities......................................... (23,185) (25,528) (2,913) 832 366
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments......................... (8,616) (2,480) -- -- --
Proceeds from sales of short-term investments............... 1,044 11,096 -- -- --
Purchases of Narrowband Licenses............................ -- (58,885) (74,079) (74,079) --
Purchases of property and equipment......................... (10,810) (16,719) (33,503) (10,376) (11,779)
Investment in international ventures........................ -- (1,902) (2,174) -- (3)
Purchases of intangible assets.............................. (224) (195) (403) (142) (53)
-------- -------- -------- -------- --------
Net cash used in investing activities................ (18,606) (69,085) (110,159) (84,597) (11,835)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock................... 16,910 -- -- -- --
Proceeds from issuance of common stock...................... -- 76,903 29,578 5,078 --
Proceeds from issuance of common stock under the stock
option/stock issuance plan................................ 15 53 31 4 11
Proceeds from issuance of Senior Discount Notes, net........ 67,575 -- 95,001 95,001 --
Payment of stock subscriptions receivable................... -- 102 -- -- --
Proceeds from issuance of common stock warrants............. 3,453 -- -- -- --
Deferred debt issuance costs incurred for Revolving Credit
Agreement -- -- (1,447) -- (8)
Borrowings from vendor credit facilities.................... 20,111 8,540 6,777 3,924 --
Payments on vendor credit facilities........................ (46,281) (2,052) (4,402) (845) (1,306)
-------- -------- -------- -------- --------
Net cash provided by (used) in financing
activities......................................... 61,783 83,546 125,538 103,162 (1,303)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... 19,992 (11,067) 12,466 19,397 (12,772)
CASH AND CASH EQUIVALENTS, beginning of period................ 5,582 25,574 14,507 14,507 26,973
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of period...................... $ 25,574 $ 14,507 $ 26,973 $ 33,904 $ 14,201
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................... $ 3,886 $ 998 $ 2,146 $ 405 $ 556
Income taxes................................................ $ -- $ -- $ -- $ -- $ --
NONCASH TRANSACTIONS:
Series C Preferred Stock issued in exchange for stock
subscriptions receivable.................................. $ 125 $ -- $ -- $ -- $ --
Common stock issued in exchange for stock subscriptions
receivable................................................ $ 4 $ 216 $ 314 $ -- $ --
In August 1994, 15,310,943 shares of preferred stock were
converted into 15,310,943 shares of common stock.......... $ -- $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated financial statements.
F-6
<PAGE> 85
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. ("PageMart PCS"). PageMart PCS holds one of the NPCS Licenses (defined
herein) and certain other assets to be used in two-way wireless messaging. 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 ("FCC") 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.
The Company has incurred substantial losses from operations and negative
cash flows from operations since inception and is highly leveraged. Management
expects to continue to incur operating losses in 1996. These losses are driven
by the Company's investment in the growth of its subscriber base and continued
expansion into additional markets. The Company's business plan calls for
substantial growth in its subscriber base in order for the Company to achieve
operating profitability and positive cash flows from operations. There can be no
assurance that the Company will meet its business plan, achieve operating
profitability, or achieve positive cash flows from operations. If the Company
cannot achieve operating profitability, it may not be able to make the required
payments on existing or future obligations.
The Company has made significant investments in Narrowband Personal
Communications Services ("NPCS") licenses through participation in auctions
conducted by the FCC. The Company plans to utilize these assets in connection
with two-way wireless messaging services. The Company's success in implementing
two-way services is dependent primarily upon market acceptance of proposed
two-way services and the ability of the Company to successfully develop and
construct a transmission network and market its two-way services. There can be
no assurance that two-way services offered will be accepted by the market or
that the Company will be successful in developing and constructing a
transmission network or marketing its two-way services.
During 1993, the Company received net proceeds of approximately $17 million
from the issuance of Series C Preferred Stock and net proceeds of approximately
$71 million from the issuance of 12 1/4% Senior Discount Notes due 2003 and
common stock warrants (see Note 5). During 1994, the Company received net
proceeds of approximately $76.9 million from the issuance of common stock (the
"1994 Stock Offerings"). In conjunction with the 1994 Stock Offerings, each
outstanding share of preferred stock was converted into one share of common
stock (see Note 8).
During 1995, the Company received net proceeds of approximately $100
million in connection with the issuance of 15% Senior Discount Notes due 2005
and non-voting common stock (see Note 5 and Note 8) and net proceeds of
approximately $24.5 million from the issuance of common stock (see Note 8).
Additionally, the Company entered into a 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 (the "Revolving Credit
Agreement") (see Note 5).
In management's opinion, the Company's current working capital combined
with borrowings expected to be available from the Revolving Credit Agreement
will be sufficient to support the planned growth for its one-way wireless
communications operations through 1996. As the Company begins implementation and
F-7
<PAGE> 86
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
development of two-way services, the Company anticipates requiring additional
sources of capital to fund the construction and operation of a two-way messaging
network.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying financial statements include the accounts of Wireless and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company includes as cash and cash equivalents cash on hand, cash in
banks and highly liquid investments with original maturities of three months or
less.
SHORT-TERM INVESTMENTS
Short-term investments consist of investments in high-grade commercial
paper with original maturities of more than three months for which market value
approximates cost. The Company's short-term investments are made in reputable,
creditworthy companies and government issues and do not generate significant
credit risk to the Company.
INVENTORIES
Inventories consist of pagers held for resale and are stated at the lower
of cost or market. Cost is determined by using the specific identification
method, which approximates the first-in, first-out method. The Company purchases
a majority of its pagers from Motorola, Inc.
RESTRICTED INVESTMENTS
Restricted investments represent certificates of deposit in the amount of
$500,000 pledged as collateral on the Company's notes payable to a vendor.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method for financial reporting purposes and accelerated methods
for tax reporting purposes over estimated useful lives ranging from three to
seven years. Depreciation expense totaled approximately $4,860,000, $7,824,000
and $12,683,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. The Company purchases a majority of its network equipment from
Motorola, Inc. and Glenayre Technologies, Inc. Maintenance and repair costs are
charged to expense as incurred.
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
-------- --------
<S> <C> <C>
Network equipment............................................... $ 40,224 $ 58,404
Computer equipment.............................................. 5,067 16,829
Furniture and equipment......................................... 2,897 6,757
-------- --------
48,188 81,990
Less: Accumulated depreciation.................................. (16,491) (29,163)
-------- --------
$ 31,697 $ 52,827
======== ========
</TABLE>
F-8
<PAGE> 87
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company recognizes equipment revenue immediately upon the shipment of
pagers adjusted by allowances for normal returns. Recurring revenue, including
revenue from airtime charges and fees for other services such as voicemail,
customized coverage options and toll-free numbers are recognized in the month in
which the service is provided. All expenses related to the sale of equipment are
recognized at the time of sale. Deferred revenue represents advance billings for
services not yet performed. Such revenue is deferred and recognized in the month
in which the service is provided. Patent licensing revenues are recognized on a
straight-line basis over the term of the related agreement (see Note 6). Patent
licensing revenues of $383,000 are included in recurring revenues in fiscal
1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ADVERTISING EXPENSES
Advertising expenses are expensed as incurred.
EARNINGS 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. The
weighted average number of common shares outstanding assumes that the preferred
shares were converted into common shares at January 1, 1993 (see Note 8). As
required by the Securities and Exchange Commission rules, all warrants, options
and shares issued during the year immediately preceding the initial public
offering are assumed to be outstanding for all periods presented. Shares
issuable upon the exercise of stock options and warrants granted before the year
immediately preceding 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.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the current year presentation.
ACCOUNTING FOR LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). The Company will adopt SFAS
121 for the fiscal year ending December 31, 1996. SFAS 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. SFAS 121 requires that those assets to be held and used be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable through future cash flows.
SFAS 121 requires that those assets to be disposed of be reported at the lower
of the carrying amount or the fair value less cost to sell. Adoption of SFAS 121
is not expected to have a material effect on the financial statements of the
Company.
F-9
<PAGE> 88
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERIM FINANCIAL PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and substantially 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. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the three
month period ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
3. NARROWBAND PERSONAL COMMUNICATIONS SERVICES LICENSES
During July and December 1994, the Company participated in auctions of NPCS
frequencies conducted by the FCC. As a result of the auctions, the Company was
awarded two nationwide NPCS licenses for a total purchase price of approximately
$133 million. Amortization of the NPCS licenses will commence when placed in
service. The NPCS licenses will be amortized over a period not to exceed 40
years. The Company intends to follow the provisions of Statement of Financial
Accounting Standards No. 34 "Capitalization of Interest Cost" with respect to
its NPCS licenses and the related construction of its two-way messaging network.
4. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Effective November 15, 1995, PageMart International, Inc. owns 200,000
shares of common stock of PageMart Canada Limited ("PageMart Canada") which
represents 20% of the ownership of PageMart Canada. The remaining 800,000 shares
(representing 80% of the ownership) is held by PageMart Canada Holding
Corporation ("Canada Holding"). Canada Holding is owned 50% (1,000,000 shares of
Class A Common Stock) by third-party Canadian investors unrelated to PageMart
and 50% (1,000,000 shares of Class B Common Stock) by PageMart International,
Inc. The common shares have identical economic rights. However, voting control
of Canada Holding is held by the Class A Common Stockholders as the Class A
shares have two votes per share. The Company accounts for its investments in
PageMart Canada and Canada Holding under the equity method. Such investments are
included in Other Assets in the Consolidated Balance Sheet.
The agreement among stockholders contains provisions which restrict the
transfer of Canada Holding shares and PageMart Canada shares for periods ranging
from three to five years. During the two years following the third anniversary
of the transactions, the third-party Canadian investors may exchange the
1,000,000 Class A common shares they hold in Canada Holding for 714,286 shares
of voting common stock of Wireless, subject to certain U.S. and Canadian
ownership requirements. Wireless is ultimately responsible for effectuating the
exchange within the U.S. and Canadian ownership regulations. Such exchange may
be accelerated in the event Wireless enters into an agreement to be acquired.
After the third anniversary of the transactions, Wireless will have the right to
purchase the shares held by the third-party Canadian investors at their fair
market value provided regulatory ownership requirements permit such purchase.
F-10
<PAGE> 89
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
Long-term debt, including capital lease obligations, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- --------
<S> <C> <C>
12 1/4% Senior Discount Notes due November 1, 2003, at accreted value.... $83,494 $ 94,952
15% Senior Discount Exchange Notes due February 1, 2005, at accreted
value.................................................................. -- 114,865
Vendor Purchase Financing Facility of $8 million, bearing interest at
prime plus 4% based upon the rate quoted by The Wall Street Journal
from time to time (rates on existing indebtedness were 12.5% at
December 31, 1994, and 12.75% at December 31, 1995), secured by
equipment purchased. Principal and interest is payable over 36 months
from date of purchase.................................................. 4,756 5,138
Capital lease obligations to a vendor up to $15 million, bearing interest
at 7 1/2% plus the weekly average U.S. Treasury Constant Maturities for
3-year Treasury Notes for the calendar week immediately preceding
funding of the equipment financing (rates on existing indebtedness
ranged from 11.84% -- 15.13% at December 31, 1994 and 1995), secured by
equipment and cash with principal and interest payable over 60 months
from date of financing................................................. 7,895 9,888
------- --------
Total debt..................................................... 96,145 224,843
Less: Current maturities.................................. (3,513) (5,479)
------- --------
Long-term debt................................................. $92,632 $219,364
======= ========
</TABLE>
During the fourth quarter of 1993, the Company completed an offering in
which it issued $136.5 million principal amount (at maturity) of 12 1/4% Senior
Discount Notes due 2003 (the "12 1/4% Notes") with an initial accreted value of
$71.6 million together with warrants to purchase 627,900 shares of its common
stock for $3.26 per share. From and after May 1, 1999, interest on the 12 1/4%
Notes will be payable semiannually in cash at the rate of 12 1/4% per annum. The
12 1/4% Notes represent senior indebtedness of the Company and are redeemable at
the option of the Company, in whole or in part, at any time after November 1,
1998, at $136.5 million plus accrued interest. In addition, at any time prior to
November 1, 1996, up to 35% of the accreted value of the 12 1/4% Notes are
redeemable at the option of the Company with the proceeds of a Public Equity
Offering (as defined) at 111% of accreted value plus accrued and unpaid
interest, if any.
In July 1994, the Company commenced an exchange offer pursuant to an
effective registration statement whereby all outstanding 12 1/4% Notes were
exchanged for the Company's 12 1/4% Senior Discount Exchange Notes due 2003.
In January 1995, the Company completed an offering of 15% Senior Discount
Notes due 2005 and 725,445 shares of non-voting common stock, par value $.0001
per share (the "Unit Offering"). Net proceeds from the Unit Offering were
approximately $100 million, of which approximately $5.1 million was allocated to
the non-voting common stock. The 15% Senior Discount Notes due 2005 (the "15%
Notes") have a principal amount at maturity of $207.3 million with an initial
accreted value of $100 million. The 15% Notes mature on February 1, 2005. From
and after August 1, 2000, interest on the 15% Notes will be payable semiannually
in cash at the rate of 15% per annum. The 15% Notes are redeemable at any time
on or after February 1, 2000, at the option of the Company in whole or in part,
at 105% of their principal amount at maturity, plus accrued and unpaid interest,
declining to 100% of their principal amount at maturity plus accrued interest on
and after February 1, 2002. In addition, at any time prior to February 1, 1998,
up to 35% of the accreted value of the 15% Notes may be redeemed at a redemption
price of 112.5% of their accreted value on the redemption date at the option of
the Company in connection with a public offering of its common stock.
F-11
<PAGE> 90
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1995, the Company commenced an exchange offer pursuant to an
effective registration statement whereby all outstanding 15% Notes were
exchanged for the Company's 15% Senior Discount Exchange Notes due 2005.
The 12 1/4% Notes and the 15% Notes carry certain restrictive covenants
that, among other things, limit the ability of the Company to incur
indebtedness, pay dividends, prepay subordinated indebtedness, repurchase
capital stock, create liens, sell assets, engage in mergers and consolidations,
and enter into transactions with any holder of 5% or more of any capital stock
of the Company or any of its affiliates. The Company is in compliance with all
such restrictive covenants.
On May 11, 1995, the Company entered into the Revolving Credit Agreement
which provides for a $50 million revolving line of credit. As of December 31,
1995, 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) a specified
percentage of eligible accounts receivable and inventory owned by Wireless, and
(ii) an amount equal to the service contribution of the Company as defined in
the Revolving Credit Agreement for the immediately preceding three-month period
times 4.0 (or 4.5, at all times prior to December 31, 1995). The interest rate
applicable to loans under the Revolving Credit Agreement is, at the option of
Wireless, either at a prime rate plus 1 1/4% or a Eurodollar rate plus 2 1/2%.
Commitments under the Revolving Credit Agreement expire and all loans thereunder
will be due and payable on March 31, 1999.
The Revolving Credit Agreement contains certain covenants that, among other
things, limit the ability of the Company to incur indebtedness, make capital
expenditures and investments, pay dividends, repurchase capital stock, engage in
transactions with affiliates, create liens, sell assets, or engage in mergers
and consolidations, and also requires the Company to maintain certain financial
ratios.
The Revolving Credit Agreement is secured by all trade receivables and
inventory owned by Wireless from time to time and by all of the capital stock of
PageMart owned by Wireless. As of December 31, 1995, the maximum amount
available under the Revolving Credit Agreement was $28.2 million.
Maturities of long-term debt and capital lease obligations are as follows
(in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR
ENDING DECEMBER 31,
- -------------------
<S> <C> <C>
1996............................................. $ 5,479
1997............................................. 5,047
1998............................................. 2,359
1999............................................. 1,719
2000............................................. 422
Thereafter....................................... 209,817
--------
$224,843
========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company has entered into various operating lease agreements for office
space, office equipment and transmission equipment sites. Total rent expense for
1993, 1994 and 1995 was $4,246,000, $6,084,000 and $8,471,000, respectively.
Included in network equipment is equipment held under capital leases with
capitalized costs of $10,357,000 and $14,617,000 less accumulated depreciation
of $2,632,000 and $5,054,000 at December 31, 1994 and 1995, respectively.
F-12
<PAGE> 91
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments related to the Company's capital and
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR CAPITAL OPERATING
ENDING DECEMBER 31, LEASES LEASES
- ------------------- ------- ---------
<S> <C> <C> <C>
1996............................................................... $ 3,989 $ 7,093
1997............................................................... 3,626 6,169
1998............................................................... 2,533 4,175
1999............................................................... 1,902 2,936
2000............................................................... 438 1,911
Thereafter......................................................... -- 1,726
------- -------
Total minimum lease payments....................................... 12,488 $24,010
=======
Less: Amounts representing interest................................ 2,600
-------
Present value of future minimum lease payments..................... $ 9,888
=======
</TABLE>
The Company is party to various legal proceedings arising out of the
ordinary course of business. The Company believes, based on the advice of legal
counsel, that there is no proceeding, either threatening or pending, against the
Company that could result in a material adverse effect on the results of
operations or financial condition of the Company.
In December 1995, the Company transferred certain intellectual property to
a significant vendor in exchange for certain benefits which will be recognized
over a forty-seven month period. The Company also committed to purchase $40
million in network infrastructure equipment over a forty-seven month period as
part of this transaction.
7. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating the fair value disclosures for its financial instruments. For cash
and cash equivalents, the carrying amounts reported in the Consolidated Balance
Sheets are equal to fair value. For debt, management estimated the fair value
based upon quoted market prices for publicly traded debt and based on the
appropriate interest rate at year-end for all other debt.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1994 and 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents............................ $ 14,507 $14,507 $ 26,973 $ 26,973
Long-term debt....................................... $ 96,145 $95,548 $224,843 $241,621
</TABLE>
8. STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK
On August 5, 1994, in conjunction with the 1994 Stock Offerings and the
related stockholders' agreement, each outstanding share of preferred stock
converted into one share of common stock. In September 1994, the Company's
Certificate of Incorporation was amended to reduce the number of authorized
shares of preferred stock to 10,000,000. At December 31, 1994 and 1995, none of
the authorized shares of preferred stock were issued and outstanding.
F-13
<PAGE> 92
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the Company's Certificate of Incorporation, the board of directors
has the power to authorize the issuance of one or more classes or series of
preferred stock and to fix the designations, powers, preferences and relative,
participating, optional or other rights, if any, and the qualifications,
limitations or restrictions thereof, if any, with respect to each such class or
series of preferred stock.
COMMON STOCK
During the fourth quarter 1993 in connection with issuance of the 12 1/4%
Notes (see Note 5), the Company issued warrants to purchase 627,900 shares of
its common stock for $3.26 per share. The warrants were valued at $5.50 per
share at the date issued. The warrants may be exercised at any time prior to
December 31, 2003. Warrants that are not exercised by such date will expire.
During the third quarter of 1994, the Company issued an aggregate of
11,242,857 shares of common stock in the 1994 Stock Offerings at a purchase
price of $7.00 per share. The aggregate net proceeds (after expenses) of the
1994 Stock Offerings were approximately $76.9 million. Of the total shares
issued, 714,287 shares were convertible non-voting common stock and the
remaining 10,528,570 shares were common stock. At the request of the holder, the
non-voting common stock was converted to common stock in January 1995.
During the first quarter of 1995 in connection with the Unit Offering (see
Note 5), the Company issued 725,445 shares of non-voting common stock at a
purchase price of $7.00 per share. During the second quarter of 1995, the
Company completed a private offering of common stock to a group of institutional
investors and certain officers of the Company (the "1995 Stock Offering"). In
the 1995 Stock Offering, the Company sold 3,598,429 shares of common stock for
net proceeds (after expenses) of approximately $24.5 million.
In October 1995, the Company's Certificate of Incorporation was amended
(the "Amended Certificate") and at that time the Amended and Restated Agreement
Among Certain Stockholders of PageMart Nationwide, Inc. dated September 19, 1995
(the "Stockholders' Agreement"), became effective. The Amended Certificate
provides that the Company will have four classes of outstanding common stock,
summarized as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND
OUTSTANDING
------------------------
DECEMBER 31,
SHARES ------------------------
AUTHORIZED 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Class A Convertible Common Stock, $.0001
par value per share (the "Class A Common Stock")....... 45,000,000 -- 23,277,293
Class B Convertible Non-Voting Common Stock, $.0001
par value per share (the "Class B Common Stock")....... 12,000,000 -- 8,975,469
Class C Convertible Non-Voting Common Stock, $.0001
par value per share (the "Class C Common Stock")....... 2,000,000 -- 731,846
Class D Convertible Non-Voting Common Stock, $.0001
par value per share (the "Class D Common Stock")....... 1,000,000 -- 725,445
---------- ---------- ----------
60,000,000 -- 33,710,053
========== ========== ==========
</TABLE>
Upon filing of the Amended Certificate, all shares of previously
outstanding common stock were automatically converted into shares of Class A
Common Stock, and all shares of previously outstanding non-voting common stock
issued in the Unit Offering were converted into shares of Class D Common Stock.
Additionally, pursuant to the Stockholders' Agreement, a number of shares of
Class A Common Stock owned by certain institutional investors were automatically
converted into shares of Class B Common Stock and Class C Common Stock, such
that voting control of the Company lies with the stockholders generally.
F-14
<PAGE> 93
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Class A Common Stock, Class B Common Stock and Class C Common Stock are
convertible by certain institutional investors subject to voting control and
regulatory restrictions at any time at the option of the holder, in accordance
with the terms of the Stockholders' Agreement. Class D Common Stock is
convertible, at the option of the holder, at any time after the occurrence of an
initial public offering following which the common stock of the Company is
publicly traded.
The Stockholders' Agreement provides that the parties thereto ("Holders")
shall collectively have the right to "demand" registrations at any time at least
six months after an initial public offering following which the common stock of
the Company is publicly traded. Pursuant to these "demand" rights, Holders of
common stock (the "Registrable Securities") may request in writing that the
Company file a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), covering the registration of a number of shares
equal to at least three million shares or a lesser number if such number
represents a majority of the Registrable Securities then outstanding.
On March 20, 1995, the Company granted to a strategic partner warrants to
purchase a total of 206,748 shares of the Company's common stock at an exercise
price of $10.00. Management determined that the issuance of the warrants did not
have a significant impact on the financial position or results of operations of
the Company.
Following is a schedule of common stock reserved at December 31, 1995:
<TABLE>
<CAPTION>
SHARES
---------
<S> <C>
Exercise of common stock warrants................................. 834,648
Stock option/stock issuance plan.................................. 3,737,621
---------
4,572,269
=========
</TABLE>
9. STOCK OPTION/STOCK ISSUANCE PLAN
The Company has a stock option/stock issuance plan (the "Plan") under which
it grants common stock or options to purchase common stock. As of December 31,
1995, the number of shares of common stock issuable under the Plan may not
exceed 4,550,000 shares. The Plan is administered by the board of directors.
F-15
<PAGE> 94
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The stock options vest over 60 months and are exercisable for periods not
to exceed 10 years from the date of grant. Vested options outstanding at
December 31, 1993, 1994 and 1995, were approximately 268,000, 237,000 and
583,289, respectively, with exercise prices ranging from $.08 to $1.50 at
December 31, 1993, $.08 to $3.26 at December 31, 1994 and $.08 to $9.00 at
December 31, 1995. As of December 31, 1995, 3,737,621 shares of common stock are
reserved for the Plan (see Note 8). The stock option activity was as follows:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Options outstanding at December 31, 1992................... 886,500 $ .08- 1.50
Options granted.......................................... 646,250 1.50- 3.26
Options exercised........................................ (171,074) .08- 1.00
Options canceled......................................... (214,458) .08- 3.26
---------
Options outstanding at December 31, 1993................... 1,147,218 .08- 3.26
Options granted.......................................... 866,300 5.00- 9.00
Options exercised........................................ (304,651) .08- 3.26
Options canceled......................................... (112,158) .08- 9.00
---------
Options outstanding at December 31, 1994................... 1,596,709 .08- 9.00
Options granted.......................................... 1,204,950 7.00-10.00
Options exercised........................................ (36,654) .08- 7.00
Options canceled......................................... (95,872) 1.50-10.00
---------
Options outstanding at December 31, 1995................... 2,669,133 $ .08-10.00
=========
</TABLE>
Under the provisions of the Plan, the Company may also issue stock to
employees. The stock vests over a period not to exceed forty-eight months.
Additional vesting occurs upon death or disability. Upon the termination of an
officer, the Company can repurchase the unvested stock at cost. Under the Plan,
the Company issued 300,000 shares to an officer during 1992, at $.326 per share.
All awards under the Plan have been made at a price at or above the estimated
fair value of the Company's common stock at the date of grant.
In the second quarter of 1992, a non-employee consultant was granted
options to purchase 20,000 shares of stock at an exercise price of $.33 per
share. The options were exercised during 1995.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). The Company will adopt SFAS 123 for the
fiscal year ending December 31, 1996. SFAS 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans and for
transactions in which an entity issues its equity instruments to acquire goods
or services from nonemployees. SFAS 123 recommends, but does not require, that
companies account for all stock-based transactions as compensatory at the fair
value of the equity instrument. However, since SFAS 123 does not require that
the accounting be adopted, it allows companies to continue to account for such
stock-based transactions under the provision of Accounting Principles Board
Opinion No. 25 (the Company's current method), and disclose what the pro forma
impact of adopting SFAS 123 would have been to net income and earnings per share
had the Company elected to adopt the recommended accounting. The Company
anticipates that it will not adopt the recommended accounting of SFAS 123, but
will disclose the pro forma impact in the footnotes to the financial statements.
10. FEDERAL INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." SFAS
109 requires an asset and liability approach which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events which have been recognized in the Company's financial statements. The
Company had approximately $104.7 million and $126.8 million of net operating
loss carryforwards for federal income tax purposes at
F-16
<PAGE> 95
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 and 1995, respectively. The net operating loss carryforwards
will expire in the years 2004 through 2010 if not previously utilized. The
utilization of these carryforwards is subject to certain limitations. Of the net
operating loss carryforwards at December 31, 1995, management has estimated that
approximately $34.1 million is subject to an annual utilization limit of $4.8
million.
In connection with the adoption of SFAS 109, the Company has recorded a
valuation reserve equal to its net deferred tax asset at each reporting period,
due to historical and anticipated future operating losses. Accordingly, the
adoption of SFAS 109 did not have an effect on the Company's financial position
or results of operations. Management will evaluate the appropriateness of the
reserve in the future based upon historical and operating results of the
Company.
Deferred income taxes reflect the tax consequences on future years of
temporary differences between the tax basis of assets and liabilities and their
financial reporting basis and the potential benefits of certain tax
carryforwards. The significant deferred tax assets and liabilities, as
determined under the provisions of SFAS 109, and the change in those assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 CHANGE 1995
------------ -------- ------------
<S> <C> <C> <C>
Gross deferred tax asset:
Net operating loss carryforwards................ $ 35,593 $ 7,535 $ 43,128
Bad debt reserve................................ 472 1,626 2,098
Inventory reserve............................... 542 286 828
Accretion of Senior Discount Notes.............. 4,052 8,950 13,002
Other........................................... 341 602 943
-------- -------- --------
41,000 18,999 59,999
Gross deferred tax liability:
Depreciation.................................... (2,647) (1,047) (3,694)
-------- -------- --------
38,353 17,952 56,305
Valuation allowance.......................... (38,353) (17,952) (56,305)
-------- -------- --------
Net deferred tax asset....................... $ 0 $ 0 $ 0
======== ======== ========
</TABLE>
11. RELATED PARTY TRANSACTIONS
In connection with the offering of the 12 1/4% Notes completed in 1993 (see
Note 5), the Company incurred $2,626,000 in fees to an affiliate of a
shareholder. In connection with the Unit Offering completed in 1995 (see Note
5), the Company incurred $3,805,000 in fees to an affiliate of a shareholder.
As of December 31, 1995, the president and certain other officers of the
Company are indebted to the Company in the aggregate amount of $557,000 under
promissory notes issued in connection with the purchase of the Company's common
stock (the "Notes"). The Notes have terms ranging from three to four years and
are secured by common stock owned by the officers. The Notes bear interest at
the Applicable Federal Rate in effect on the date of issuance as published by
the Internal Revenue Service. Interest rates on the Notes range from 3.55% to
7.00%. Interest is due and payable annually beginning on the first anniversary
of the date of each Note. All Notes are included in Stock Subscriptions
Receivable in the Consolidated Balance Sheet.
Wireless has entered into a receivables purchase agreement with PageMart
pursuant to which PageMart may sell receivables to Wireless from time to time at
book value less a reserve for normal bad debt. As of December 31, 1995, Wireless
owned $11.4 million in receivables purchased from PageMart.
PageMart is obligated to provide certain managerial and administrative
services to PageMart Canada at PageMart Canada's request at agreed-upon rates.
F-17
<PAGE> 96
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under a technology license agreement, PageMart licenses PageMart Canada to
use, in Canada, the intellectual property used by PageMart in its business in
the U.S. The license is perpetual, irrevocable, and royalty-free. The agreement
also permits PageMart Canada to purchase the license of new technology developed
by PageMart for a royalty. The royalty is a portion of the cost of developing
the technology, with the amount to be paid by PageMart Canada to be the portion
of these costs equal to the ratio of PageMart Canada's revenue stream to that of
PageMart.
Under an intercompany rate agreement, the rates which the U.S. and Canadian
companies will charge each other when customers of one travel into the other's
jurisdiction are specified. Such rates approximate fair market value.
12. SUPPLEMENTARY INFORMATION
The following table sets forth supplementary financial information related
to the Company's various operations (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------------
PAGEMART PAGEMART PAGEMART
ONE-WAY TWO-WAY INTERNATIONAL CONSOLIDATED
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues....................................... $ 50,667 $ -- $ -- $ 50,667
Operating loss................................. (25,011) -- -- (25,011)
Total assets................................... 78,773 -- -- 78,773
Capital expenditures........................... 10,810 -- -- 10,810
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------------
PAGEMART PAGEMART PAGEMART
ONE-WAY TWO-WAY INTERNATIONAL CONSOLIDATED
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues....................................... $109,833 $ -- $ -- $109,833
Operating loss................................. (33,324) -- -- (33,324)
Total assets................................... 81,470 58,885 1,704 142,059
Capital expenditures........................... 16,719 -- -- 16,719
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
PAGEMART PAGEMART PAGEMART
ONE-WAY TWO-WAY INTERNATIONAL CONSOLIDATED
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues....................................... $159,191 $ -- $ -- $159,191
Operating loss................................. (22,972) (376) -- (23,348)
Total assets................................... 120,004 140,235 3,590 263,829
Capital expenditures........................... 32,486 1,017 -- 33,503
</TABLE>
13. SUBSEQUENT EVENT (UNAUDITED)
The Company's Certificate of Incorporation was amended on March 28, 1996,
increasing the total authorized shares of common stock to 75,000,000.
F-18
<PAGE> 97
[Image material appears here consisting of a circle containing a satellite
dish connected by arrow to pictures of computer terminals and people labelled
"Sender," "PageMart Message Center," "Desktop Message Marker/Telephone,"
"Personal Computer with Modem Connection," "Internet," "Business Professional,"
" Corporate LAN," "Corporate MIS," "Mobile Professional" and "Mobile
Individual. The word "Connectivity" is superimposed on the image and the image
is labelled "Connecting to the PageMart Wireless Network."]
<PAGE> 98
PageMart
Wireless, Inc.
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth costs and expenses, other than underwriting
discounts and commissions payable by the Company in connection with the Class A
Common Stock being registered. All amounts are estimates except the registration
fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
Registration fee......................................................... $ 33,311
National Association of Securities Dealers Fee........................... 10,160
Nasdaq Listing Fee....................................................... 50,000
Printing................................................................. 300,000
Legal fees and expenses.................................................. 750,000
Accounting fees and expenses............................................. 150,000
Transfer Agent fees and expenses......................................... 50,000
Blue Sky fees and expenses and legal fees................................ 50,000
Miscellaneous............................................................ 281,529
----------
Total.................................................................. $1,675,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware permits
Wireless, subject to the standards set forth therein, to indemnify any person in
connection with any action, suit or proceeding brought or threatened by reason
of the fact that such person is or was a director, officer, employee or agent of
Wireless or is or was serving as such with respect to another corporation or
entity at the request of Wireless. Article IX, Section B of Wireless' Restated
Certificate of Incorporation provides for full indemnification of its officers,
directors, employees and agents to the extent permitted by Section 145.
Wireless provides insurance from commercial carriers against certain
liabilities incurred by the directors and officers of Wireless.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished as to securities of Wireless sold
since its date of incorporation (November 29, 1994) which were not registered
under the Securities Act of 1933, as amended (the "Securities Act"). Exemption
from registration under the Securities Act is claimed for these transactions
under Section 4(2) of the Securities Act for transactions by an issuer not
involving any public offering. Except for the commissions paid to Morgan Stanley
& Co. Incorporated in connection with the sales of Wireless' 15% Senior Discount
Notes due 2005 (the "15% Notes") and the shares of Wireless' non-voting Common
Stock, par value $.0001 per share (the "Non-Voting Common Stock"), in January
1995, no underwriting discounts or commissions were paid in connection with the
sales.
On January 17, 1995, Wireless sold 20,727 units (the "Units"), each unit
consisting of $10,000 principal amount at maturity of Notes and 35 shares of
Non-Voting Common Stock. The total offering price of the Units was
$105,079,671.90. The total commission paid to Morgan Stanley & Co. Incorporated,
as placement agent, was $3,805,000. Net proceeds to Wireless equaled
$101,274,671.90.
On January 19, 1995, Wireless effected a corporate reorganization (the
"Reorganization"), pursuant to which Wireless became the holding company parent
of PageMart, Inc. ("PageMart"). In connection with the Reorganization, Wireless
issued 28,615,238 shares of its Common Stock, par value $.0001 per share, to
holders of PageMart common stock, in a share-for-share exchange, and 714,287
shares of its Convertible Non-
II-1
<PAGE> 100
Voting Common Stock, par value $.0001 per share, to holders of PageMart
convertible non-voting common stock, in a share-for-share exchange.
On May 11, 1995, Wireless completed a private offering of 3,598,429 shares
of its voting common stock at $7.00 per share to the MS Merchant Banking Funds
(other than MSLEF II), to First Plaza Group Trust, to certain institutional
investors and certain executive officers of the Company. The net proceeds to
Wireless (after expenses) from the offering were approximately $24.5 million.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBITS
<S> <C>
1.1**** -- Underwriting Agreement
3(i)**** -- Restated Certificate of Incorporation of PageMart Wireless, Inc.
3(ii)* -- By-laws of PageMart Wireless, Inc.
3(iii)**** -- Certificate of Amendment to Restated Certificate of Incorporation of
PageMart Wireless, Inc. dated December 28, 1995
3(iv)*** -- Certificate of Amendment to Restated Certificate of Incorporation of
PageMart Wireless, Inc. dated May 9, 1996
4.1*** -- Specimen certificate for Class A Common Stock
4.2** -- 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
4.3** -- 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
5.1*** -- Opinion of Davis Polk & Wardwell as to the legality of the Common
Stock
10.1** -- Warrant Agreement, dated as of October 19, 1993, between PageMart,
Inc. and United States Trust Company of New York, as Warrant Agent,
relating to the Warrants to purchase Common Stock of the Company
10.2** -- Telecommunications Service Agreement, dated May 29, 1992, between
PageMart, Inc. and WilTel, Inc.
10.3** -- Equipment Lease Agreement, dated May 20, 1992, between PageMart, Inc.
and Glenayre Electronics, Inc.
10.4** -- First Addendum to Equipment Lease Agreement, dated May 20, 1992,
between PageMart, Inc. and Glenayre Electronics, Inc.
10.5** -- Amendment No. 2 to Equipment Lease Agreement, dated October 18, 1993,
between PageMart, Inc. and Glenayre Electronics, Inc.
10.6** -- Lease Agreement and Addendum, dated January 10, 1990, between Kingston
Houston Partners I, Ltd. and PageMart, Inc.
10.7** -- Expansion and Extension of Lease Agreement, dated April 7, 1993,
between Kingston Houston Partners I, Ltd. and PageMart, Inc.
10.8** -- Office Lease Agreement, dated January 29, 1992, between Dallas Central
Development Corp. and PageMart, Inc.
10.9** -- First Amendment to Office Lease Agreement, dated July 29, 1992,
between Fulcrum Central Ltd., as successor in interest to Dallas
Central Development Corp., and PageMart, Inc.
</TABLE>
II-2
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBITS
<S> <C>
10.10** -- Second Amendment to Office Lease Agreement, dated December 1, 1992,
between Fulcrum Central Ltd., as successor in interest to Dallas
Central Development Corp., and PageMart, Inc.
10.11** -- Third Amendment to Office Lease Agreement, dated December 29, 1992,
between Fulcrum Central Ltd., as successor in interest to Dallas
Central Development Corp., and PageMart, Inc.
10.12** -- Fourth Amendment to Office Lease Agreement, dated July 21, 1993,
between Fulcrum Central Ltd., as successor in interest to Dallas
Central Development Corp., and PageMart, Inc.
10.13** -- License Agreement, dated May 12, 1994, between PageMart, Inc.,
licensee, and International Business Machines Corporation, licensor
10.14** -- Sales Contract, dated January 21, 1994, between PageMart, Inc., buyer,
and Mitsui Comtek Corporation, seller
10.15** -- Resale Agreement, dated November 1, 1993, between PageMart, Inc.,
licensor, and GTE Service Corporation, licensee
10.16** -- Financing and Security Agreement between Motorola and Pagemart, Inc.
dated May 18, 1994
10.17** -- Subscription Agreement, dated June 9, 1994, between PageMart, Inc. and
Fomento Empresarial Regiomontano, S.A. de C.V.
10.18** -- Letter of Intent, dated June 9, 1994, between PageMart, Inc. and
Fomento Empresarial Regiomontano, S.A. de C.V.
10.19* -- Strategic Alliance Agreement No. 1, dated September 15, 1994, between
GTE Service Corporation and PageMart, Inc.
10.20* -- Strategic Alliance Agreement No. 2, dated October 13, 1994, between
GTE Service Corporation and PageMart, Inc.
10.21* -- Secured promissory note of John D. Beletic, as Maker, in favor of
PageMart, Inc. dated January 28, 1994, in the amount of $97,800
10.22* -- Secured promissory note of John D. Beletic, as Maker, in favor of
PageMart, Inc. dated November 29, 1994, in the amount of $200,000
10.23* -- Agreement of Reorganization and Plan of Merger, dated as of December
5, 1994, between PageMart, Inc., PageMart Nationwide, Inc. and PM
Merger Corp.
10.24* -- Registration Rights Agreement dated as of January 17, 1995 between
PageMart Nationwide, Inc. and Morgan Stanley & Co. Incorporated
10.25++ -- PageMart Nationwide, Inc. Third Amended and Restated 1991 Stock Option
Plan and Third Amended and Restated 1991 Stock Issuance Plan
10.26** -- Satellite Services and Space Segment Lease Agreement, dated January 2,
1995, between PageMart, Inc. and SpaceCom Systems, Inc.
10.27** -- Credit Agreement, dated as of May 11, 1995, by and among PageMart
Nationwide, Inc., the Lenders named therein, BT Commercial
Corporation, as Agent, and Bankers Trust Company, as Issuing Bank
10.28** -- Subscription Agreement, dated as of May 11, 1995, by and among
PageMart Nationwide, Inc. and the investors named therein
10.29+ -- Amended and Restated Agreement Among Certain Stockholders of PageMart
Nationwide, Inc. dated as of September 19, 1995
</TABLE>
II-3
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBITS
<S> <C>
10.30**** -- Secured promissory note of John D. Beletic, as Maker, in favor of
PageMart Nationwide, Inc. dated May 11, 1995, in the amount of
$21,000.
10.31**** -- Subscription Agreement dated as of July 7, 1995 among PageMart
Nationwide, Inc., PageMart Canada Holding Corporation and TD Capital
Group Ltd.
10.32**** -- Agreement Among Stockholders among PageMart Nationwide, Inc., PageMart
International, Inc., TD Capital Group Ltd., PageMart Canada Holding
Corporation and PageMart Canada Limited
10.33*** -- Equipment Purchase Agreement between Motorola, Inc. and PageMart
Wireless, Inc.(1)
10.34*** -- Technology Asset Agreement dated as of December 1, 1995 between
Motorola, Inc. and PageMart Wireless, Inc.(1)
10.35**** -- Form of PageMart Wireless, Inc. Employee Stock Purchase Plan
10.36**** -- PageMart Wireless, Inc. Nonqualified Formula Stock Option Plan for
Non-Employee Directors
10.37*** -- Agreement among PageMart Wireless, Inc., J.P. Morgan Capital
Corporation and Sixty Wall Street Fund 1995, L.P. dated as of May 10,
1996
10.38*** -- Amended and Restated Agreement Among Certain Stockholders of PageMart
Wireless, Inc. dated as of May 10, 1996
11.1**** -- Computation of earnings (loss) per share
21.1**** -- PageMart Wireless, Inc. Subsidiaries
23.1*** -- Consent of Arthur Andersen LLP
23.2 -- Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
24.1**** -- Power of Attorney.
27.1**** -- Financial Data Schedule for the year ended December 31, 1995 and the
three months ended March 31, 1996.
</TABLE>
- ---------------
* Each of these exhibits is hereby incorporated by reference to the Form 10-K
of the Company for the fiscal year ended December 31, 1994.
** Each of these exhibits is hereby incorporated by reference to the
Registration Statement on Form S-1 of the Company (Reg. No. 33-91142).
*** Filed herewith.
**** Previously Filed.
+ Each of these exhibits is hereby incorporated by reference to the Form 8-K
of the Company dated October 6, 1995.
++ Each of these exhibits is hereby incorporated by reference to the
Registration Statement on Form S-8 of the Company (Reg. No. 33-98116).
(1) The Company has requested confidential treatment for certain portions of
this agreement.
(B) FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Financial Statement
Schedules
Schedule I -- Condensed Financial Information of Registrant
Schedule II -- Valuation and Qualifying Accounts for the Years Ended
December 31, 1993, 1994 and 1995
II-4
<PAGE> 103
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlled
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
II-5
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dallas, State of Texas, on this 21st
day of May, 1996.
PAGEMART WIRELESS, INC.
(Registrant)
By: /s/ JOHN D. BELETIC
-----------------------------
John D. Beletic
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------
<C> <S> <C>
/s/ JOHN D. BELETIC Chairman, President and Chief May 21, 1996
- --------------------------------------------- Executive Officer (Principal
John D. Beletic Executive Officer)
* Vice President, Finance, Chief May 21, 1996
- --------------------------------------------- Financial Officer and
G. Clay Myers Treasurer (Principal Financial
and Accounting Officer)
* Director May 21, 1996
- ---------------------------------------------
Frank V. Sica
* Director May 21, 1996
- ---------------------------------------------
Guy L. de Chazal
* Director May 21, 1996
- ---------------------------------------------
Arthur Patterson
Director
- ---------------------------------------------
Andrew C. Cooper
* Director May 21, 1996
- ---------------------------------------------
Roger D. Linquist
* Director May 21, 1996
- ---------------------------------------------
Leigh J. Abramson
* Director May 21, 1996
- ---------------------------------------------
Alejandro Perez Elizondo
- --------------------------------------------- Director
Pamela D. A. Reeve
*By: /s/ JOHN D. BELETIC
--------------------------------
John D. Beletic
Attorney-in-fact
</TABLE>
II-6
<PAGE> 105
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders of
PageMart Wireless, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of PageMart Wireless, Inc. and
subsidiaries included in this Registration Statement on Form S-1 and have issued
our report thereon dated February 12, 1996. Our audit was made for the purpose
of forming an opinion on those financial statements taken as a whole. Schedules
I and II are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 12, 1996
S-1
<PAGE> 106
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PAGEMART WIRELESS, INC.
(PARENT COMPANY)
CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Current assets:
Cash and cash equivalents..................................................... $ 17,075
Accounts receivable, net...................................................... 11,424
Prepaid expenses and other current assets..................................... 52
----------
Total current assets....................................................... 28,551
Investment in PageMart PCS, Inc................................................. 95,912
Investment in PageMart, Inc..................................................... (27,022)
Deferred debt issuance costs, net............................................... 5,741
----------
Total assets.......................................................... $ 103,182
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Other current liabilities....................................................... $ 360
Long-term debt.................................................................. 114,865
Stockholders' deficit:
Common stock $.0001 par value per share, 60,000,000 shares authorized,
33,710,053 shares issued at December 31, 1995.............................. 3
Additional paid-in capital.................................................... 154,601
Accumulated deficit........................................................... (166,090)
Stock subscription receivable................................................. (557)
----------
Total stockholders' deficit................................................ (12,043)
----------
Total liabilities and stockholders' deficit........................... $ 103,182
==========
</TABLE>
See accompanying notes
S-2
<PAGE> 107
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
PAGEMART WIRELESS, INC.
(PARENT COMPANY)
CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Operating loss.................................................................. $ 0
Other (income) expense:
Equity in net loss of subsidiaries............................................ 38,858
Interest expense.............................................................. 15,521
Interest income............................................................... (1,266)
--------
Total other (income) expense.......................................... 53,113
--------
Net loss........................................................................ $(53,113)
========
</TABLE>
See accompanying notes
S-3
<PAGE> 108
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
PAGEMART WIRELESS, INC.
(PARENT COMPANY)
CONDENSED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net cash provided by operating activities....................................... $ 1,623
--------
Cash flows from investing activities:
Investment in PageMart PCS, Inc............................................... (96,287)
--------
Net cash used in investing activities...................................... (96,287)
--------
Cash flows from financing activities:
Proceeds from issuance of senior discount notes, net.......................... 95,001
Proceeds from issuance of common stock........................................ 29,578
Proceeds from issuance of common stock under the stock option/stock issuance
plan....................................................................... 31
Purchase of accounts receivable from subsidiary............................... (11,424)
Deferred debt issuance costs incurred for Revolving Credit Agreement.......... (1,447)
------------
Net cash provided by financing activities.................................. 111,739
--------
Net increase in cash and cash equivalents....................................... 17,075
Cash and cash equivalents, beginning of period.................................. --
--------
Cash and cash equivalents, end of period........................................ $ 17,075
========
</TABLE>
See accompanying notes
S-4
<PAGE> 109
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
PAGEMART WIRELESS, INC.
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
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. (the "Company").
In the parent-company-only financial statements, the Company's investment
in subsidiaries is stated at cost less equity in losses of subsidiaries since
date of inception. The Company's share of net losses of its unconsolidated
subsidiaries is included in consolidated net loss using the equity method.
Parent-company-only financial statements should read in conjunction with the
Company's consolidated financial statements.
2. LONG-TERM DEBT
In January 1995, the Company completed an offering of 15% Senior Discount
Notes due 2005 and 725,445 shares of non-voting common stock, par value $.0001
per share (the "Unit Offering"). Net proceeds from the Unit Offering were
approximately $100 million, of which approximately $5.1 million was allocated to
the non-voting common stock. The amount of 15% Senior Discount Notes outstanding
at December 31, 1995, was $114,865. The 15% Senior Discount Notes due 2005 (the
"15% Notes") have a principal amount at maturity of $207.3 million with an
initial accreted value of $100 million. The 15% Notes mature on February 1,
2005. From and after August 1, 2000, interest on the 15% Notes will be payable
semiannually in cash at the rate of 15% per annum. The 15% Notes are redeemable
at any time on or after February 1, 2000, at the option of the Company in whole
or in part, at 105% of their principal amount at maturity, plus accrued and
unpaid interest, declining to 100% of their principal amount at maturity plus
accrued interest on and after February 1, 2002. In addition, at any time prior
to February 1, 1998, up to 35% of the accreted value of the 15% Notes may be
redeemed at a redemption price of 112.5% of their accreted value on the
redemption date at the option of the Company in connection with a public
offering of its common stock.
In June 1995, the Company commenced an exchange offer pursuant to an
effective registration statement whereby all outstanding 15% Notes were
exchanged for the Company's 15% Senior Discount Exchange Notes.
On May 11, 1995, the Company entered into the Revolving Credit Agreement
which provides for a $50 million revolving line of credit. As of December 31,
1995, 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) a specified
percentage of eligible accounts receivable and inventory owned by the Company,
and (ii) an amount equal to the service contribution (as defined in the
Revolving Credit Agreement) of the Company for the immediately preceding
three-month period times 4.0 (or 4.5, at times prior to December 31, 1995). The
interest rate applicable to loans under the Revolving Credit Agreements is, at
the option of the Company, either at a prime rate plus 1 1/4% or a Eurodollar
rate plus 2 1/2%. Commitments under the Revolving Credit Agreement expire and
all loans will be due and payable on March 31, 1999.
The Revolving Credit Agreement contains certain covenants that, among other
things, limit the ability of the Company to incur indebtedness, make capital
expenditures and investments, pay dividends, repurchase capital stock, engage in
transactions with affiliates, create liens, sell assets, or engage in mergers or
consolidations, and also requires the Company to maintain certain financial
ratios.
The Revolving Credit Agreement is secured by all trade receivables and
inventory owned by the Company from time to time and by all of the capital stock
of PageMart owned by the Company. As of December 31, 1995, the maximum amount
available under the Revolving Credit Agreement was $28.2 million.
S-5
<PAGE> 110
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ----------------------------------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year Ended December 31, 1995....... $1,388 $6,135 $0 $2,989(a) $ 4,534
Year Ended December 31, 1994....... $1,172 $6,590 $0 $6,374(a) $ 1,388
Year Ended December 31, 1993....... $ 708 $1,273 $0 $ 809(a) $ 1,172
</TABLE>
- ---------------
(a) Accounts written off as uncollectible, net of recoveries.
S-6
<PAGE> 111
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGES
- ------------ ---------------------- ------------
<S> <C> <C>
1.1**** -- Underwriting Agreement.
3(i)**** -- Restated Certificate of Incorporation of PageMart Wireless, Inc.
3(ii)* -- By-laws of PageMart Nationwide, Inc.
3(iii)**** -- Certificate of Amendment to Restated Certificate of Incorporation of
PageMart Wireless, Inc. dated December 28, 1995
3(iv)*** -- Certificate of Amendment to Restated Certificate of Incorporation of
PageMart Wireless, Inc. dated May 9, 1996
4.1*** -- Specimen certificate for Class A Common Stock
4.2** -- 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
4.3** -- 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
5.1*** -- Opinion of Davis Polk & Wardwell as to the legality of the Common
Stock
10.1** -- Warrant Agreement, dated as of October 19, 1993, between PageMart,
Inc. and United States Trust Company of New York, as Warrant Agent,
relating to the Warrants to purchase Common Stock of the Company.
10.2** -- Telecommunications Service Agreement, dated May 29, 1992, between
PageMart, Inc. and WilTel, Inc.
10.3** -- Equipment Lease Agreement, dated May 20, 1992, between PageMart,
Inc. and Glenayre Electronics, Inc.
10.4** -- First Addendum to Equipment Lease Agreement, dated May 20, 1992,
between PageMart, Inc. and Glenayre Electronics, Inc.
10.5** -- Amendment No. 2 to Equipment Lease Agreement, dated October 18,
1993, between PageMart, Inc. and Glenayre Electronics, Inc.
10.6** -- Lease Agreement and Addendum, dated January 10, 1990, between
Kingston Houston Partners I, Ltd. and PageMart, Inc.
10.7** -- Expansion and Extension of Lease Agreement, dated April 7, 1993,
between Kingston Houston Partners I, Ltd. and PageMart, Inc.
10.8** -- Office Lease Agreement, dated January 29, 1992, between Dallas
Central Development Corp. and PageMart, Inc.
10.9** -- First Amendment to Office Lease Agreement, dated July 29, 1992,
between Fulcrum Central Ltd., as successor in interest to Dallas
Central Development Corp., and PageMart, Inc.
10.10** -- Second Amendment to Office Lease Agreement, dated December 1, 1992,
between Fulcrum Central Ltd., as successor in interest to Dallas
Central Development Corp., and PageMart, Inc.
10.11** -- Third Amendment to Office Lease Agreement, dated December 29, 1992,
between Fulcrum Central Ltd., as successor in interest to Dallas
Central Development Corp., and PageMart, Inc.
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGES
- ------------ ---------------------- ------------
<S> <C> <C>
10.12** -- Fourth Amendment to Office Lease Agreement, dated July 21, 1993,
between Fulcrum Central Ltd., as successor in interest to Dallas
Central Development Corp., and PageMart, Inc.
10.13** -- License Agreement, dated May 12, 1994, between PageMart, Inc.,
licensee, and International Business Machines Corporation, licensor.
10.14** -- Sales Contract, dated January 21, 1994, between PageMart, Inc.,
buyer, and Mitsui Comtek Corporation, seller.
10.15** -- Resale Agreement, dated November 1, 1993, between PageMart, Inc.,
licensor, and GTE Service Corporation, licensee.
10.16** -- Financing and Security Agreement between Motorola and Pagemart, Inc.
dated May 18, 1994.
10.17** -- Subscription Agreement, dated June 9, 1994, between PageMart, Inc.
and Fomento Empresarial Regiomontano, S.A. de C.V.
10.18** -- Letter of Intent, dated June 9, 1994, between PageMart, Inc. and
Fomento Empresarial Regiomontano, S.A. de C.V.
10.19* -- Strategic Alliance Agreement No. 1, dated September 15, 1994,
between GTE Service Corporation and PageMart, Inc.
10.20* -- Strategic Alliance Agreement No. 2, dated October 13, 1994, between
GTE Service Corporation and PageMart, Inc.
10.21* -- Secured promissory note of John D. Beletic, as Maker, in favor of
PageMart, Inc. dated January 28, 1994, in the amount of $97,800.
10.22* -- Secured promissory note of John D. Beletic, as Maker, in favor of
PageMart, Inc. dated November 29, 1994, in the amount of $200,000.
10.23* -- Agreement of Reorganization and Plan of Merger, dated as of December
5, 1994, between PageMart, Inc., PageMart Nationwide, Inc. and PM
Merger Corp.
10.24* -- Registration Rights Agreement dated as of January 17, 1995 between
PageMart Nationwide, Inc. and Morgan Stanley & Co. Incorporated.
10.25++ -- PageMart Nationwide, Inc. Third Amended and Restated 1991 Stock
Option Plan and Third Amended and Restated 1991 Stock Issuance Plan.
10.26** -- Satellite Services and Space Segment Lease Agreement, dated January
2, 1995, between PageMart, Inc. and SpaceCom Systems, Inc.
10.27** -- Credit Agreement, dated as of May 11, 1995, by and among PageMart
Nationwide, Inc., the Lenders named therein, BT Commercial
Corporation, as Agent, and Bankers Trust Company, as Issuing Bank
10.28** -- Subscription Agreement, dated as of May 11, 1995, by and among
PageMart Nationwide, Inc. and the investors named therein
10.29+ -- Amended and Restated Agreement Among Certain Stockholders of
PageMart Nationwide, Inc. dated as of September 19, 1995
10.30**** -- Secured promissory note of John D. Beletic, as Maker, in favor of
PageMart Nationwide, Inc. dated May 11, 1995, in the amount of
$21,000.
10.31**** -- Subscription Agreement dated as of July 7, 1995 among PageMart
Nationwide, Inc., PageMart Canada Holding Corporation and TD Capital
Group Ltd.
10.32**** -- Agreement Among Stockholders among PageMart Nationwide, Inc.,
PageMart International, Inc., TD Capital Group Ltd., PageMart Canada
Holding Corporation and PageMart Canada Limited.
</TABLE>
<PAGE> 113
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGES
- ------------ ---------------------- ------------
<S> <C> <C>
10.33*** -- Equipment Purchase Agreement between Motorola, Inc. and PageMart
Wireless, Inc.(1)
10.34*** -- Technology Asset Agreement dated as of December 1, 1995 between
Motorola, Inc. and PageMart Wireless, Inc.(1)
10.35**** -- Form of PageMart Wireless, Inc. Employee Stock Purchase Plan
10.36**** -- Nonqualified Formula Stock Option Plan for Non-Employee Directors
10.37*** -- Agreement among PageMart Wireless, Inc., J.P. Morgan Capital
Corporation and Sixty Wall Street Fund 1995, L.P. dated May 10, 1996
10.38*** -- Amended and Restated Agreement Among Certain Stockholders of
PageMart Wireless, Inc. dated as of May 10, 1996
11.1**** -- Computation of earnings (loss) per share.
21.1**** -- PageMart Wireless, Inc. Subsidiaries.
23.1*** -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
24.1**** -- Power of Attorney (included on signature page).
27.1**** -- Financial Data Schedule for the year ended December 31, 1995 and the
three months ended March 31, 1996.
</TABLE>
- ---------------
* Each of these exhibits is hereby incorporated by reference to the Form 10-K
of the Company for the fiscal year ended December 31, 1994.
** Each of these exhibits is hereby incorporated by reference to the
Registration Statement on Form S-1 of the Company (Reg. No. 33-91142).
*** Filed herewith.
**** Previously filed.
+ Each of these exhibits is hereby incorporated by reference to the Form
8-K of the Company dated October 6, 1995.
++ Each of these exhibits is hereby incorporated by reference to the
Registration Statement on Form S-8 of the Company (Reg. No. 33-98116).
(1) The Company has requested confidential treatment for certain portions of
this agreement.
<PAGE> 1
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PAGEMART WIRELESS, INC.
Pursuant to Section 242 of the General Corporation Law of the State of
Delaware, PAGEMART NATIONWIDE, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware, does hereby certify:
FIRST: That at the regular meeting of the Board of Directors
on March 28, 1996 the Board of Directors unanimously adopted resolutions
setting forth a proposed amendment to the Amended and Restated Certificate of
Incorporation of the Corporation, declaring such amendment to be advisable, and
directing that said amendment be considered by the stockholders of the
Corporation. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the proposed amendment (the "Proposed
Amendment") to the Company's Certificate of Incorporation to increase
the total number of shares of stock which the Company shall have the
authority to issue from 70,000,000 to 85,000,000 shares of common
stock, par value of $0.001 each, of which 60,000,000 shares shall be
Class A Common Stock and 12,000,000 shares shall be Class B Common
Stock, 2,000,000 shares shall be Class C Common Stock, 1,000,000
shares shall be Class D Common Stock and 10,000,000 shares shall be
Preferred Stock, be and hereby is, approved and declared advisable.
SECOND: That in lieu of a meeting and vote of stockholders, a
majority of the stockholders of the Corporation has given written consent to
said amendment on or about May 1, 1996 and written notice to those stockholders
who have not consented in writing to said amendment has been given in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That said amendments were duly adopted in accordance
with the provisions of Sections 228 and 242 of the General Corporation Law of
the State of Delaware.
FOURTH: That pursuant to the requisite approval of the Board
of Directors and the consent of the stockholders, the Amended and Restated
Certificate of Incorporation of the Corporation is amended by revising Article
IV(A) thereof so that, as amended said Article shall read in its entirety as
follows:
<PAGE> 2
"ARTICLE IV
(A) Classes of Stock.(1) The Corporation is
authorized to issue five classes of stock to be
designated, respectively, "Class B Convertible
Non-Voting Common Stock", "Class C Convertible
Non-Voting Common Stock", "Class D Convertible
Non-Voting Common Stock" (referred to herein
collectively as "Convertible Non-Voting Common
Stock"), "Class A Convertible Common Stock" (referred
to herein collectively together with the Non-Voting
Common Stock as the "Common Stock") and "Preferred
Stock". The total number of shares that the
Corporation is authorized to issue is Eighty-Five
Million (85,000,000) shares. Sixty-Five Million
(65,000,000) shares shall be Class A Convertible
Common Stock, par value $.0.0001 per share, Twelve
Million (12,000,000) shares shall be Class B
Convertible Non-Voting Common Stock, par value
$0.0001 per share, Two Million (2,000,000) shares
shall be Class C Convertible Non-Voting Common Stock,
par value $0.0001 per share, one Million (1,000,000)
shares shall be Class D Convertible Non-Voting Common
Stock, par value $0.0001 per share, and Ten Million
(10,000,000) shares shall be Preferred Stock, par
value $0.0001 per share.
IN WITNESS WHEREOF, said PageMart Wireless, Inc. has caused this
Certificate to be signed by Richard S. Nelson, its Vice President and attested
and acknowledged by Todd A. Bergwall, its Secretary, this 9th day of May, 1996.
PAGEMART WIRELESS, INC.
By: /s/ R. S. Nelson
----------------------------------
Richard S. Nelson, Vice President
ATTESTED AND ACKNOWLEDGED
By: /s/ Todd A. Bergwall
------------------------------
Todd A. Bergwall, Secretary
<PAGE> 1
SEE LEGENDS ON REVERSE SIDE
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
[PAGEMART LOGO]
NUMBER SHARES
PAGEMART WIRELESS, INC.
THIS CERTIFICATE IS TRANSFERABLE CLASS A CONVERTIBLE COMMON STOCK
IN DALLAS, TEXAS; CLEVELAND, OHIO CUSIP 69553J 10 4
OR NEW YORK, NEW YORK SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A CONVERTIBLE COMMON STOCK,
$.0001 PAR VALUE PER SHARE, OF
PageMart Wireless, Inc.
transferable on the books of the Corporation by the holder hereof, in person or
by duly authorized attorney, upon surrender of this Certificate properly
endorsed or accompanied by a proper assignment. This Certificate and the shares
represented hereby are issued and shall be held subject to all of the
provisions of the Restated Certificate of Incorporation and Bylaws of the
Corporation and all amendments thereof, copies of which are on file with the
Transfer Agent, to all of which the holder by the acceptance hereof consents.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its authorized officers.
[PAGEMART WIRELESS CORPORATE SEAL]
DATED:
/s/ JOHN D. BELETIC COUNTERSIGNED AND REGISTERED:
KeyCorp Shareholder Services, Inc.
President and Chief Executive Officer
TRANSFER AGENT
/s/ TODD A. BERGWALL BY AND REGISTRAR
Secretary AUTHORIZED SIGNATURE
AMERICAN BANK NOTE COMPANY.
<PAGE> 2
PAGEMART WIRELESS, INC.
The shares represented by this Certificate may be subject to redemption at
any time by the Corporation in order to reduce the Corporation's percentage of
foreign ownership, as described more fully in Article X of the Amended and
Restated Certificate of Incorporation of the Corporation. The Corporation's
Amended and Restated Certificate of Incorporation authorizes the Board of
Directors, upon written notice to the holder, to cause the Corporation to redeem
shares owned by foreigners (non-U.S. citizens or their representatives, a
foreign government or its representatives, or a foreign corporation), at their
then current market value, as determined pursuant to Article X.
The Corporation will furnish upon request and without charge to each
stockholder the powers, designations, preferences and relative, participating,
optional and other special rights of each class of stock and series within a
class of stock of the Corporation, as well as the qualifications, limitations
and restrictions relating to those preferences and/or rights, including the
restrictions described above. A Stockholder may make the request to the
Corporation or to its Transfer Agent and Registrar.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - Custodian
-------------------- ------------------------
(Cust) (Minor)
under Uniform Gifts to Minors Act
---------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
---------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, X
-------------------------- ----------------------------------------
(SIGNATURE)
NOTICE:
THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER. --) X
----------------------------------------
(SIGNATURE)
------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN "ELIGIBLE GUARANTOR INSTITUTION" AS
DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
------------------------------------------
SIGNATURE(S) GUARANTEED BY:
------------------------------------------
<PAGE> 1
EXHIBIT 5.1
May , 1996
PageMart Wireless, Inc.
6688 North Central Expressway
Suite 800
Dallas, TX 75206
Ladies and Gentlemen:
We have acted as special counsel to PageMart Wireless, Inc. (the
"Company") in connection with the Company's Registration Statement on Form S-1,
Registration No. 333-03012 (the "Registration Statement") filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, for the registration of 6,900,000 shares of the Company's Class A
Common Stock (the "Shares"), $.0001 par value per share, including 900,000
shares subject to the underwriters' over-allotment option, as described in the
Registration Statement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary for the purposes of rendering this opinion, including the Company's
Amended and Restated Certificate of Incorporation.
On the basis of the foregoing and assuming the due execution and
delivery of certificates representing the Shares, we are of the opinion that
the Shares have been duly authorized and, when issued and delivered against
payment therefor in accordance with the terms of the Underwriting Agreement
referred to in the prospectus that is part of the Registration Statement, will
be validly issued, fully paid and non-assessable.
<PAGE> 2
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of
the United States of America and the General Corporation Law of the State of
Delaware.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our name under the caption
"Legal Matters" in the related Prospectus.
Very truly yours,
Davis Polk & Wardwell
2
<PAGE> 1
CONFIDENTIAL INFORMATION ON 27, 32 AND 35
HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION
[LOGO] MOTOROLA
ADVANCED MESSAGING SYSTEMS DIVISION
EQUIPMENT PURCHASE AGREEMENT
<TABLE>
<S> <C>
Between MOTOROLA, INC.
Advanced Messaging Systems Division
5401 North Beach Street
Fort Worth, Texas 76137
and PAGEMART WIRELESS, INC.
668 North Central Expressway
Suite 800
Dallas, Texas 75206
</TABLE>
MOTOROLA PROPRIETARY CONFIDENTIAL 1
<PAGE> 2
CONFIDENTIAL INFORMATION ON PAGES 27, 32 AND 35 HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION
[MOTOROLA LOGO]
ADVANCED MESSAGING SYSTEMS DIVISION
EQUIPMENT PURCHASE AGREEMENT
<TABLE>
<S> <C>
between MOTOROLA, INC.
Advanced Messaging Systems Division
5401 North Beach Street
Fort Worth, Texas 76137
and PAGEMART WIRELESS, INC.
6688 North Central Expressway
Suite 800
Dallas, Texas 75206
</TABLE>
Motorola, Inc. ("Motorola") and PageMart Wireless, Inc. ("PageMart") agree
that the following terms and conditions will govern the sale by Motorola to
PageMart of the conventional one-way paging infrastructure equipment, the
advanced two-way messaging radio paging communications equipment and subscriber
units, and the services covered by this Agreement. Any attachments or schedules
referenced herein, including any to be negotiated (TBN), which are or shall be
appended to this Agreement, are also incorporated into the terms of this
Agreement.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C> <C>
PROJECT OVERVIEW 5
ARTICLE I: GENERAL PROVISIONS 6
Section 1. Scope of the Agreement 6
1.1 Definitions
1.2 General Scope of the Agreement
1.3 Contract Documents
Section 2. Term 7
Section 3. Purchase and Sale of the System, Products and Services 7
3.1 Purchase of the Equipment
3.2 Licensing the Software
3.3 Purchase Orders
Section 4. Statements of Work 8
4.1 Delivery of Statements of Work
4.2 Approval of Statements of Work
Section 5. Delivery, Title and Risk of Loss 8
5.1 Delivery
5.2 Delivery Dates
</TABLE>
MOTOROLA PROPRIETARY CONFIDENTIAL 2
<PAGE> 3
<TABLE>
<C> <S> <C> <C>
5.3 Title and Risk of Loss
Section 6. Acceptance and Training 8
6.1 System Acceptance Date
6.2 Immaterial Defects Will Not Bar Acceptance
6.3 Training
Section 7. Payment of the Purchase Price 9
7.1 Payment Term
7.2 Delinquencies
Section 8. Taxes and Other Additional Charges 10
Section 9. Equipment 10
9.1 Equipment Acceptance
9.2 Product Life
9.3 Equipment Modifications
9.4 Refurbished Parts
Section 10. Software, Firmware and Documentation 10
10.1 Firmware
10.2 Software License
10.3 Software Maintenance
10.4 Protection of Source Code
10.5 Republication of Service Materials
Section 11. Project Coordination and Changes 11
11.1 Appointment of Project Coordinators
11.2 Requests for Changes
11.3 Unforeseen Delays
Section 12. Warranties and Disclaimers 12
12.1 Title to the Equipment
12.2 Limited Equipment Warranty
12.3 Disclaimer of Other Equipment Warranties
12.4 Software Warranty
Section 13. Patent and Copyright Indemnity 12
Section 14. Limitation of Liability and Remedies 13
14.1 Remedies are Exclusive
14.2 Limitation on Damages
14.3 Maximum Liability
Section 15. Default and Termination 13
15.1 Force Majeure
15.2 Elements of Default
15.3 Additional Rights Upon Default
Section 16. Proprietary Information 14
16.1 General
16.2 Prohibition Against Unauthorized Use or Disclosure
16.3 Exclusions
16.4 No Manufacturing Rights
Section 17. Compliance with Export Controls 14
Section 18. Dispute Resolution 14
18.1 Choice of Law
18.2 Mediation
18.3 Litigation
Section 19. Relationship of the Parties 15
Section 20. Prohibition Against Improper Gifts or Payments 15
Section 21. Assignment and Subcontracting 15
Section 22. General 15
22.1 Amendments to Agreement
22.2 Notices
22.3 Public Announcements
</TABLE>
MOTOROLA PROPRIETARY CONFIDENTIAL 3
<PAGE> 4
<TABLE>
<C> <S> <C> <C>
22.4 Beta System Demonstration
22.5 Headings
22.6 Entire Agreement
22.7 Invalidity of Provisions
22.8 Acknowledgment
ARTICLE II: SOFTWARE 17
Section 1. Paging Infrastructure Software License Agreement 17
Section 2. Software Maintenance Policy 21
ARTICLE III: ADVANCED MESSAGING SUBSCRIBER EQUIPMENT 26
Section 1. Seller Free Equipment Commitment 27
Section 2. Equipment Warranty 28
Section 3. Equipment Pricing 30
ARTICLE IV: INFRASTRUCTURE EQUIPMENT 31
Section 1. Commitments for Purchase, Equipment Credits, and Additional 32
Infrastructure Credit
1.1 Buyer Purchase Commitment
1.2 Credit for Infrastructure Equipment
1.3 Credit for Advanced Messaging Subscriber Units
1.4 Additional Infrastructure Credit
Section 2. Equipment Warranty 33
Section 3. Equipment Pricing 35
ARTICLE V: GENERAL SYSTEMS ENGINEERING, INSTALLATION, SERVICES & MAINTENANCE 36
</TABLE>
MOTOROLA PROPRIETARY CONFIDENTIAL 4
<PAGE> 5
PROJECT OVERVIEW
The purpose of this document is to define the systems, products, services,
and agreements between Motorola and PageMart pursuant to continued support of
PageMart's one-way paging network and a successful implementation of an advanced
two-way messaging radio paging system. Toward this end, the following Articles
will provide these definitions, as applicable to system and product development
and to the design and implementation of the network(s).
MOTOROLA PROPRIETARY CONFIDENTIAL 5
<PAGE> 6
ARTICLE I: GENERAL PROVISIONS
SECTION 1. SCOPE OF THE AGREEMENT
1.1 Definitions. In this Agreement:
(a) The word "PageMart" means the Customer, PageMart Wireless, Inc.,
its successors and subsidiaries, collectively.
(b) The word "Motorola" means the Seller, Motorola, Inc., acting
through its Advanced Messaging Systems Division. The terms "the parties" and
"both parties" may also be used on occasion to refer to Motorola and PageMart
collectively when it is clear from the context that the term means the two
parties together.
(c) "Affiliate" means, with respect to a party, any corporation or
other entity (i) which is directly or indirectly controlled by such party; (ii)
which controls such party (the "Controlling Party"); and (iii) which the
Controlling Party controls. For the purpose of this definition, "control" means
the right to vote more than 50% of the shares or other securities of a
corporation or other entity, or to contractually control the operations of a
corporation or other entity.
(d) "Contract Documents" means the documents which are specified in
paragraph 1.3.
(e) "Delivery Points" means the PageMart addresses to which the
Products are to be delivered.
(f) "Documentation" means the operating manuals, specifications and
other documentation which are to be provided by Motorola to PageMart under the
terms of this Agreement, as well as any other documentation which Motorola may
provide to PageMart under this Agreement. At a minimum, the term "Documentation"
will include all operating manuals, specifications and other documentation which
Motorola customarily provides to customers who purchase the Products and
Services contemplated by this Agreement.
(g) "Effective Date" of this Agreement means 1 December 1995.
(h) "Equipment" means the one-way and two-way paging infrastructure
equipment and advanced messaging (two-way) paging subscriber equipment which is
to be purchased by PageMart from Motorola, or provided to PageMart by Motorola,
under the terms of this Agreement. Subscriber equipment includes but is not
limited to the Tenor(TM) and "Pegasus" advanced messaging units. Infrastructure
Equipment includes but is not limited to the Nucleus(R) transmitter, the
Nucleus(R)-Orchestra! linear transmitter, the WMG(TM) Wireless Messaging
Gateway(TM) terminal, the RF-Audience!(TM) inbound base receiver, the
RF-Baton!(TM) controller, the RF-Conductor!(TM) controller, the RF-Arranger!(TM)
controller, and associated parts and accessories. Equipment also will be deemed
to mean any equipment commercially released by Motorola during the term of this
Agreement which performs functions similar to the functions performed by the
foregoing named equipment items.
(i) "Functional Specifications" means the functional specifications
for the Equipment and the Software which are set out in applicable Motorola
Marketing Product Description (MPD) documents. Motorola shall provide these MPDs
to PageMart as soon as reasonably practical. MPDs shall be generally applicable
to customers of Motorola.
(j) "Products" means the Equipment, the Software and the
Documentation.
(k) "Purchase Price" means the purchase price which PageMart is to
pay for the System, Products, and/or Services, as specified in the individual
Articles.
(l) "Services" means any program management, engineering,
installation, or other technical services which PageMart may order from
Motorola under this Agreement.
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(m) "Software" means the computer-based programs which are to be
licensed by PageMart from Motorola under the terms of the Software License
Agreement. The term includes any updates, modifications, enhancements and
extensions of such programs which are received by PageMart from Motorola from
time to time under the Software License Agreement or any System Support
Agreement. Software will also be deemed to include all computer-based programs
Motorola customarily provides to customers who purchase the Equipment
contemplated by this Agreement.
(n) "Software License Agreement" means the form of software license
agreement, located at Section 1 of Article II, which is to be entered into by
both parties in connection with the licensing to PageMart of the Software and
the Documentation. (See the definition of "Functional Specifications in Section
1.1(i) above.)
(o) "System" means the advanced messaging paging communications
system which is comprised of the Products and which will have the qualities and
be capable of performing the functions set forth in Motorola Marketing Product
Description (MPD) documents.
(p) "Acceptance Date" means the date on which PageMart accepts or is
deemed to have accepted the System, Products, or Services, as described in the
individual Articles.
(q) "System Support Agreement" means any agreement between the
parties by which Motorola agrees to provide support and maintenance Services to
PageMart for Equipment and/or Software.
1.2 General Scope of the Agreement. Under the terms of this Agreement,
Motorola will sell and PageMart will buy the Equipment and may purchase
Services, and Motorola will license to PageMart the Software, for PageMart's
advanced two-way messaging project and conventional one-way paging network.
1.3 Contract Documents. The following documents collectively and
exclusively constitute the entire agreement between us with respect to the sale
and purchase of paging infrastructure Equipment, advanced messaging subscriber
Equipment, the Dallas-Fort Worth (DFW) Beta System, Software and Services;
Articles I-V, covering the general provisions; software; advanced messaging
subscriber Equipment; infrastructure Equipment; and general systems engineering,
installation, Services & maintenance, respectively.
This Agreement will include any amendments and schedules to it. Motorola
will not, pursuant to this Agreement, be responsible for providing any Services
or delivering any Equipment, Software, Documentation or any other item which is
not specifically required by the Contract Documents. These General Provisions
control over any conflicting or ambiguous term in another Article or Contract
Document.
SECTION 2. TERM
2.1 This Agreement will begin on December 1, 1995, and will continue for
a period of forty-seven (47) months thereafter ("the Term"), unless either
party terminates the Agreement earlier under its provisions. At the end of the
Term, this Agreement shall automatically renew on a year-to-year basis until
either party, ninety (90) days prior to the expiration of the Term or of any
subsequent one-year renewal term, provides written notice to the other party
that it elects not to renew the Agreement. However, any such renewal of the
Agreement shall not have the effect of extending any deadline or increasing any
purchase commitment under the Agreement.
SECTION 3. PURCHASE AND SALE OF THE SYSTEM, PRODUCTS AND SERVICES
3.1 Purchase of the Equipment. Motorola will sell to PageMart and
PageMart will purchase from Motorola the Equipment which is to be purchased by
PageMart from Motorola under the terms of this Agreement.
3.2 Licensing the Software. Motorola will grant PageMart a non-exclusive
license to use the object code version of the Software and a non-exclusive
license to use the Documentation which accompanies that Software. The licenses
to the Software and the Documentation will be governed by the terms and
conditions of
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the Software License Agreement located at Section 1 of Article II, which will
specify the royalty rates (if any) for such Software code or Documentation.
3.3 Purchase Orders. Motorola and PageMart agree that, except as noted in
the last sentence of this paragraph, the Contract Documents (and any other
documents incorporated into this Agreement by its terms) are to be the sole
legal documents governing PageMart's purchase of the System, Products and
Services. PageMart will issue one or more purchase orders in connection with
this Agreement, and each purchase order (P.O.) will incorporate the terms of
this Agreement, whether or not this Agreement is specifically mentioned. Such
P.O.s shall specify delivery times, dates, quantities, and locations consistent
with the terms of this Agreement. Motorola shall invoice PageMart with reference
to each P.O. generated.
As stated in paragraph 22.6, this Agreement supersedes any conflicting
terms or conditions contained on printed forms submitted as, or with, purchase
orders, sales acknowledgments or invoices. If PageMart's purchase order
introduces either a term or condition which is inconsistent with the terms of
this Agreement or one which is not covered by this Agreement, then Motorola will
not be bound by any such term or condition unless Motorola expressly consents in
writing to such term or condition.
SECTION 4. STATEMENTS OF WORK
4.1 Delivery of Statements of Work. Motorola will develop and deliver to
PageMart Statements of Work (SOWs) which will set out in detail those matters
which are associated with and required for the implementation of the System.
Motorola will prepare the final acceptance test procedures for SOW deliverables.
4.2 Approval of Statements of Work. Following the receipt of a SOW,
PageMart will have thirty (30) days to notify Motorola in writing of PageMart's
approval or disapproval of such document or the acceptance test procedures
therein, or to request in writing any specific clarifications, additions or
modifications to the duties or specifications set out in the SOW. PageMart
agrees, however, not to unreasonably withhold its approval of a SOW. In
addition, if PageMart does not notify Motorola within such thirty-day period
that PageMart disapproves of the SOW, PageMart will be deemed to have approved
it.
SECTION 5. DELIVERY, TITLE AND RISK OF LOSS
5.1 Delivery. Motorola will pack the Products for shipment and storage to
meet commercial standards. Terms of delivery will be F.O.B. Motorola's facility
in Fort Worth, Texas. PageMart will be responsible for all transportation
charges, insurance expenses, and other charges relating to the Products, unless
otherwise specified in an individual Article.
5.2 Delivery Dates. Motorola will use best efforts to meet the agreed-to
delivery dates in the P.O.s. Motorola will promptly notify PageMart when any
delivery will be delayed. Motorola will not be liable to PageMart for any
expenses or damages because of any delay in delivery, unless Motorola fails to
use best efforts to meet scheduled delivery dates.
5.3 Title and Risk of Loss. Unless otherwise specified in an individual
Article, with the exception of Software and Documentation, title and risk of
loss or damage to Products will pass to PageMart upon delivery of Products
ordered hereunder to PageMart's designated carrier at Motorola's Fort Worth,
Texas facility. PageMart must arrange for transportation of the Products, which
transportation will be at PageMart's risk. Therefore, any loss or damage not
caused by Motorola, after Motorola's delivery to the carrier, will be PageMart's
responsibility and will not relieve PageMart of its payment obligations to
Motorola. Title to the intellectual property rights related to the Software and
Documentation will at all times remain with Motorola.
SECTION 6. ACCEPTANCE AND TRAINING
6.1 Acceptance Date. PageMart will be deemed to have accepted the
Products or Services on the earliest of the following dates (the "Acceptance
Date"):
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(a) forty-five (45) days after delivery; or
(b) the date that PageMart signs and delivers to Motorola a
certificate of acceptance prepared by Motorola for this purpose; or
(c) the date when the Products have been installed and PageMart is
using the Products for the purpose of generating revenues.
6.2 Immaterial Defects Will Not Bar Acceptance. PageMart agrees that it
will not refuse to accept the DFW Beta System, Equipment, or Services unless
they fail to conform with one or more material specifications, requirements or
functions set out in the Agreement, applicable MPDs or Documentation.
6.3 Training. Motorola will make available training classes and materials
on the Equipment and Software to PageMart technicians specified by PageMart.
Classes will be conducted in Fort Worth at Motorola's standard training rates.
SECTION 7. PAYMENT OF THE PURCHASE PRICE
7.1 Payment for Beta System Products.
(a) Down Payment. Within 30 days of submitting to Motorola each
purchase order for the DFW Beta System pursuant to this Agreement. PageMart
shall make a down payment to Motorola in the amount of twenty-five percent (25%)
of the purchase price therein.
(b) Payment of Balance. Upon delivery of Products, Motorola shall
invoice PageMart for seventy-five percent (75%) of the purchase price of such
Products, which PageMart shall pay within 30 days of its receipt of Motorola's
invoices.
7.2 Payment for Services and non-Beta-System Products. Motorola shall
invoice PageMart monthly for delivered infrastructure and two-way subscriber
Equipment and for Services completed by Motorola. Within 30 days of the date of
receipt of the invoice, PageMart shall pay all amounts due Motorola under this
Agreement for such Equipment and Services, without deduction or offset. Payment
shall be delivered at the address stated on the invoice.
7.3 Delinquencies. Any undisputed amount invoiced, or any amount which is
later determined to be owed to Motorola, which is not paid within the terms and
conditions of this Agreement will be considered delinquent. Based on accepted
credit and collection practices, Motorola is entitled to a late-payment charge
on the delinquent balance outstanding, in the amount of 1.5% per month. Any past
due interest or late-payment charge will become due and payable immediately at
Motorola's discretion. PageMart shall reimburse Motorola for legal fees and
expenses reasonably incurred in collecting any amounts due hereunder.
SECTION 8. TAXES AND OTHER ADDITIONAL CHARGES
8.1 PageMart will pay all sales, use, excise, value-added, and other
taxes on the Products (except those on Motorola's net income or net worth)
unless PageMart furnishes Motorola with a valid resale or exemption
certificate. PageMart will also be responsible for reporting the Products for
personal property tax purposes and for paying all transportation costs,
insurance charges, customs duties, and loss or damage settlements from and
after the date title to such Products passes to PageMart. The Purchase Price
(and Motorola's prices for any add-on Products) do not include such taxes or
charges; where applicable, they will be added to PageMart's total invoice
amount.
SECTION 9. EQUIPMENT
9.1 Equipment Acceptance. Before shipping any unit of Equipment
(including an add-on unit) to PageMart, Motorola will perform its standard
factory inspection and acceptance tests on the unit. PageMart will
MOTOROLA PROPRIETARY CONFIDENTIAL 9
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have the right to conduct its own incoming inspection and testing of the
Equipment, but if Motorola has furnished PageMart with written specifications
for an item of Equipment, PageMart may reject such item only if it fails to
conform to its written specifications and PageMart gives Motorola written notice
of the rejection. PageMart will be deemed to have accepted the unit unless,
within 45 days after its receipt of its shipment, PageMart notifies Motorola in
writing that PageMart is rejecting it for failure to conform to such
specifications or criteria. PageMart's notice must advise Motorola of PageMart's
specific reason for rejection. The act of payment for a unit will not be
construed as acceptance, and PageMart's acceptance of the Equipment will not
waive any of its warranty rights. Any Equipment which PageMart rejects must be
returned to Motorola in the same condition as when PageMart received it, and
only after Motorola has reviewed PageMart's notice and authorized the return.
Any Equipment which PageMart returns must be shipped freight prepaid, but
Motorola will then credit those charges to PageMart's account and pay the return
freight charges to ship the repaired or replacement Equipment to PageMart.
9.2 Product Life.
(a) Motorola does not represent that it will continue to manufacture
any particular Equipment indefinitely or for any specific period. Motorola
specifically reserves the right to remove any Equipment from the market and/or
to cease manufacturing or supporting it. Notwithstanding the foregoing, Motorola
warrants that it will make available the Products or their equivalent to
PageMart for a minimum period of three years from the Effective Date, and will
provide PageMart with at least 180 days written notice before dropping any
Equipment from Motorola's product line. This notice is intended to allow
PageMart to make an end-of-life purchase of the item before Motorola stops
manufacturing it.
(b) Notwithstanding Sections 9.2(a) and/or 9.3, but subject to the
availability of parts from Motorola's suppliers, Motorola will sell PageMart
parts and provide repair services for, or will replace, each Product at
reasonable prices and lead times for at least seven years after the shipment of
the last Product items purchased under this Agreement. Motorola's commitment to
do so does not obligate PageMart to purchase such parts or services from
Motorola during that period.
9.3 Equipment Modifications. Motorola also reserves the right to modify
any of the specifications or characteristics of its Products, but no such
modification will apply to Products for which a PageMart order has been
accepted by Motorola prior to the modification of such specifications, without
PageMart's written consent. As soon as is reasonably possible, Motorola will
notify PageMart in advance of modifications.
9.4 Refurbished Parts. Some of the Equipment may contain re-manufactured
parts, but those parts will be subject to the same specifications and quality
control standards Motorola applies to new materials and will be warranted as if
they were new.
SECTION 10. SOFTWARE, FIRMWARE AND DOCUMENTATION
10.1 Firmware. Some of the Equipment to be sold to PageMart under this
Agreement may contain computer programs built into their circuitry. PageMart's
purchase of the Equipment includes a non-exclusive, paid-up license to use such
firmware as part of the Equipment. The terms and conditions of the license for
firmware related to infrastructure Equipment are set out in the Software License
Agreement at Article II, Section 1.
10.2 Software License. Any Software program or Documentation related to
infrastructure Equipment that Motorola furnishes to PageMart under this
Agreement will be governed by the terms of the Software License Agreement
located at Section 1 of Article II, to be executed by the parties before the
Software is supplied to PageMart. Motorola reserves the right to modify any of
the specifications, functions or features of any Software program (but no such
modification will apply to a Software program for which a PageMart order has
been accepted by Motorola prior to the modification of such Software, without
PageMart's written consent), issue new release levels, or cease supporting a
particular program or release level at any time.
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10.3 Software Maintenance. Installation, support and maintenance of
Software related to infrastructure Equipment shall be performed by Motorola in
accordance with the terms and conditions of the Software Maintenance Policy
(SMP) located at Section 2 of Article II, to be executed by the parties before
the Software is supplied to PageMart.
10.4 Protection of Source Code. PageMart acknowledges its obligation to
protect the confidentiality and security of any Software source code disclosed
to PageMart by Motorola, in accordance with Section 5, "Protection and
Security," of the Software License Agreement.
10.5 Republication of Service Materials. PageMart may republish material
from Motorola's standard service manual into PageMart's own manuals or other
materials. But if PageMart does so, ita agrees to protect Motorola's underlying
copyright in any of the materials which originate with Motorola. If PageMart
reproduces any portion of materials for which Motorola or its supplier may hold
a copyright, PageMart will annotate the material with an appropriate legend
(which Motorola must approve) denoting the copyright. For materials copyrighted
by Motorola, PageMart will either retain the existing Motorola notice or else
substitute the following legend in its place:
(C) COPYRIGHT [Name of appropriate PageMart entity], All Rights
Reserved, 19 . Portions reprinted with permission of Motorola, Inc. [or
Motorola's licensor, as the case may be].
Materials supplied by Motorola's licensors may require a different
annotation. PageMart also agrees that it will not remove any proprietary
notices, including those on the media or log-on presentations, from any
products, user manuals or other material originating from Motorola or from any
of its software licensors or suppliers, unless Motorola has given PageMart prior
written authorization.
SECTION 11. PROJECT COORDINATION AND CHANGES.
11.1 Appointment of Program Manager. Each party will appoint a Program
Manager for this Agreement. The Program Manager will be responsible for
maintaining technical liaison between the parties and for representing his or
her company in such matters as periodic performance reviews, the formulation of
specifications and acceptance criteria under the Agreement, and the processing
of engineering change requests in accordance with Section 11.2. The Program
Manager will also be responsible for maintaining any administrative liaison
between the parties on such issues as proposed changes to this Agreement.
Initially, the following individuals will serve as Program Managers for this
Agreement:
<TABLE>
<CAPTION>
PAGEMART PROGRAM MANAGER MOTOROLA PROGRAM MANAGER
<S> <C>
John Talbot, Manager, PCS Implementation Phillip Garret
PageMart Wireless, Inc. Motorola Advanced Messaging Systems
6688 North Central Expressway, Suite 800 Division
Dallas, Texas 75206 5401 North Beach Street
Fort Worth, Texas 76137
</TABLE>
11.2 Requests for Changes. PageMart will deliver to Motorola in writing
any requests for additions, modifications or changes to this Agreement or to
subsequent purchase orders hereunder. Provided the request is within the
general scope of the Contract Documents, Motorola will, within a reasonable
period of time from receipt of the request, issue to PageMart a written
quotation detailing the effect, if any, on the implementation schedule and the
purchase price. If PageMart does not accept the quotation within five business
days of its receipt by providing Motorola with written notice of such
acceptance, the quotation will be deemed to have been withdrawn. If PageMart
accepts the quotation, this Agreement will be amended by way of a written
amendment signed by both parties which incorporates the agreed upon additions,
modifications and changes. Any requests for changes to this Agreement (or any
of its Articles) will be sent to the other party's Program Manager.
11.2 Unforeseen Delays. PageMart and Motorola each recognize that
unforeseen technical problems may preclude Motorola from being able to meet
precisely the milestone dates specified in the quotations
MOTOROLA PROPRIETARY CONFIDENTIAL 11
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referenced in Section 11.2. In the event of such a delay, subsequent milestone
dates will be postponed accordingly.
SECTION 12. WARRANTIES AND DISCLAIMERS
12.1 Title to the Equipment. Motorola warrants that it is the owner of
the Equipment and has the right to transfer title to the Equipment to PageMart.
12.2 Limited Equipment Warranty. Motorola warrants the Equipment under
the terms of the Limited Product Warranty attached at Section 2 of Article III
for advanced messaging subscriber Equipment, and at Section 2 of Article IV for
paging infrastructure Equipment.
12.3 Non-Infringement of Patents and Copyrights. Motorola warrants that
Products will not infringe a United States patent, copyright or other
intellectual property right of a third party, subject to the remedies in Section
13 below.
12.4 Conformance with MPDs. Motorola warrants that the capabilities of
the Products will be consistent with the Functional Specifications contained in
the Motorola Marketing Product Descriptions.
12.5 Disclaimer of Other Equipment Warranties. THE WARRANTIES REFERENCED
IN THIS SECTION ARE THE ONLY WARRANTIES FOR THE EQUIPMENT. MOTOROLA EXPRESSLY
DISCLAIMS ALL OTHER WARRANTIES, GUARANTEES OR REPRESENTATIONS, WHETHER EXPRESS,
IMPLIED, OR STATUTORY, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. MOTOROLA ALSO DISCLAIMS ANY IMPLIED WARRANTY
ARISING OUT OF TRADE USAGE OR OUT OF A COURSE OF DEALING OR COURSE OF
PERFORMANCE.
12.6 Software Warranty. Motorola's warranties for any of the Software
programs are set out in the Software License Agreement at Section 1 of Article
II.
SECTION 13. PATENT AND COPYRIGHT INDEMNITY
Motorola will defend and indemnify PageMart in the event of any allegation
of infringement directed at PageMart with respect to its use of any Products
purchased or provided hereunder as follows:
13.1 Motorola shall, at its expense, defend, indemnify and hold PageMart
harmless against any claim alleging that the Products supplied hereunder
infringe a United States patent or copyright, provided that PageMart promptly
notifies Motorola in writing of the claim, that PageMart does not retain counsel
without the prior written consent of Motorola, that Motorola has sole control of
the instructing of such counsel and sole control of the defense and all related
settlement negotiations, and that PageMart gives Motorola, at Motorola's
request, information and assistance for the defense. Subject to the limitation
of liability for incidental and consequential damages of this Agreement,
Motorola will pay all resulting costs and damages finally awarded by a court of
competent jurisdiction or settled by Motorola. Motorola will not be responsible
for any settlement made without its written consent, or for any costs, expenses
or fees incurred by PageMart without Motorola's prior written consent.
13.2 If PageMart becomes enjoined from using or selling the Products
supplied hereunder by Motorola, Motorola, at its option and expense, will either
procure the right for continued use of such Products, or replace or modify the
same so that they become non-infringing. If neither of the foregoing
alternatives is available on terms which are reasonable in Motorola's judgment,
PageMart can return such Products to Motorola for credit or refund, at
PageMart's option, of such Product's full depreciated value.
13.3 Motorola has no liability for any claim of parent or copyright
infringement based upon adherence to specifications, designs or instructions
furnished by PageMart or its customers, nor for any claim based upon the
combination, operation or use of any Motorola products or components thereof
with equipment of others, nor for any claim based upon Products which have been
altered by PageMart or PageMart's customers.
MOTOROLA PROPRIETARY CONFIDENTIAL 12
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13.4 If Motorola becomes enjoined from manufacturing, using or selling
Products supplied pursuant to PageMart's specifications or requirements,
PageMart, at its option and expense, will either procure the right for continued
use of such Products, or change or modify their specifications or requirements
so that non-infringing Products can be made, used and sold by Motorola.
13.5 Motorola's total liability under this Section for patent and
copyright infringement claims shall not exceed the lesser of (a) the actual
funds paid to Motorola by PageMart for the Products purchased hereunder, or (b)
$1 million U.S.
SECTION 14. LIMITATION OF LIABILITY AND REMEDIES
14.1 Remedies are Exclusive. PageMart's exclusive remedies concerning
Motorola's performance or nonperformance are those expressly stated in this
Agreement.
14.2 Limitation on Damages. Except with respect to breaches of Section
16 and Motorola's obligations pursuant to Section 13, UNDER NO CIRCUMSTANCES
WILL MOTOROLA OR PAGEMART BE LIABLE TO THE OTHER FOR LOSS OF USE, DAMAGE TO OR
LOSS OF PRODUCTS OR SERVICES, LOSS OF DATA, FAILURE TO REALIZE EXPECTED
SAVINGS, FRUSTRATION OF ECONOMIC OR BUSINESS EXPECTATIONS, LOST REVENUE OR
PROFITS, OR FOR ANY OTHER SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, EVEN IF THEY WERE FORESEEABLE OR MOTOROLA OR PAGEMART WAS INFORMED OF
THEIR POTENTIAL. And neither party will be liable to the other for claims by
third parties, with the exception of claims regarding a party's intellectual
property rights, as described in Section 13 hereof.
14.3 Maximum Liability. Each party's total liability to the other party
for damages under this Agreement will not exceed (a) the price paid for the
Products at issue in a claim regarding defective Products, or (b) the value of
the Products at issue in the claim in all other instances. This limitation will
apply regardless of the form of action (i.e., whether the lawsuit is in
contract or in tort, including negligence).
SECTION 15. DEFAULT AND TERMINATION
15.1 Force Majeure. Neither Motorola nor PageMart will be liable to the
other for any delay or failure to perform if that delay or failure results from
a cause beyond its reasonable control. Such causes include but are not limited
to strikes or other labor disturbances, acts of God, acts of the other party,
interruptions of transportation or inability to obtain necessary labor,
materials, or facilities, default of any supplier, or delays in relevant
telecommunications authorities in frequency authorization or license grant. The
delivery and installation schedule shall be considered extended by a period of
time equal to the time lost because of any excusable delay. In the event
Motorola is unable to wholly or partially perform for a period greater than one
hundred and eighty (180) days because of any cause beyond its control, either
party may terminate any delayed order without any liability.
15.2 Elements of Default. Either party will be considered to be in
default of this Agreement if any of the following occurs: (a) it assigns this
Agreement or any of its rights under this Agreement in violation of Section 21;
(b) it fails to perform any material obligation under this Agreement or the
Technology Asset Agreement, including the obligation to pay amounts when due;
(c) it makes an assignment for the benefit of its creditors, or a receiver,
trustee in bankruptcy or similar officer is appointed to take charge of its
assets; or (d) it files for relief under state or federal bankruptcy laws. In
that event, the non-defaulting party may terminate this Agreement if the other
has failed to take corrective action within 30 days after its receipt of a
notice of default and intent to terminate.
15.3 Additional Rights upon Default. If PageMart fails to comply with
any of the material terms of this Agreement, Motorola may, prior to terminating
this Agreement, upon notification and provision of a 10-day cure period to
PageMart, withhold its performance until PageMart's default is cured and pursue
its other remedies. Motorola may also seek injunctive relief if PageMart's
actions threaten Motorola's (or its supplier's) proprietary rights. These
remedies are in addition to any other legal remedies Motorola may have.
MOTOROLA PROPRIETARY CONFIDENTIAL
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SECTION 16. PROPRIETARY INFORMATION
16.1 General. During the course of the parties' relationship under this
Agreement, each party may be given access to certain confidential or proprietary
information of the other. Motorola and PageMart will each exercise due diligence
to maintain in confidence any such information disclosed by one to the other, if
the information is furnished on a confidential basis and marked or identified as
confidential or proprietary when first disclosed ("Proprietary Information").
Proprietary Information may include information furnished during oral
presentations or discussions, if it is conspicuously identified as proprietary
at the time and then confirmed in writing within 30 days, specifically
describing what is considered to be proprietary. As used here, the term "due
diligence" means the same precaution and standard of care which the receiving
party uses to safeguard its own proprietary information, but in no event less
than reasonable care.
16.2 Prohibition Against Unauthorized Use or Disclosure. The party
receiving Proprietary Information from the other will use due diligence to
prevent any unauthorized use, disclosure, publication or dissemination by it or
its Affiliates. The receiving party may not reproduce, distribute or disclose
any of the other's Proprietary Information to a third party, or use it for any
commercial purpose outside this Agreement, without first obtaining written
permission from the party which furnished it. In particular, Motorola and
PageMart will each ensure that any of its employees who are given access to the
Proprietary Information of the other will have a need to know and will be
required to hold that Information in confidence and to use it only in the course
of their employer's business.
16.3 Exclusions. This section does not impose any obligation on either
party if the information is: (1) publicly known at the time of disclosure
without breach of this Agreement; (2) already known to the receiving party at
the time of disclosure; (3) independently developed by the receiving party
without use of the Proprietary Information; or (4) disclosed pursuant to court
or administrative order. Unless the parties agree otherwise, the obligations
under this Section will expire five years after the date of Motorola's last
shipment to PageMart under this Agreement.
16.4 No Manufacturing Rights. This Agreement does not grant PageMart any
license under any patents or other industrial property rights that Motorola may
own, control, or be licensed to use, except the right to buy, sell, and deal in
the Products furnished by Motorola. In particular, PageMart acknowledges that
this Agreement does not grant it any right to manufacture the Products under any
circumstances.
SECTION 17. COMPLIANCE WITH EXPORT CONTROLS
17.1 PageMart will not export from the U.S. any Equipment, Software,
Documentation or other products or technical data furnished under this Agreement
without first obtaining the necessary export licenses from the United States
Government. PageMart further warrants that it will not resell, transfer or
export any of the Equipment, Software, Documentation or other products or
technical data in violation of any laws, regulations, transaction or export
controls or economic sanctions imposed by the United States Government regarding
any other country, government or political entity. PageMart's obligations under
this Section will continue even after this Agreement ends.
SECTION 18. DISPUTE RESOLUTION
18.1 Choice of Law. This Agreement is governed by the laws of the State
of Illinois.
18.2 Mediation. Motorola and PageMart will attempt to settle any claim
or dispute arising out of this Agreement through consultation and negotiation
in good faith and a spirit of mutual cooperation. If those attempts fail, then
the dispute will be mediated by a mutually-acceptable mediator to be chosen by
Motorola and PageMart within 45 days after written notice by one of both
parties demanding mediation. Neither party may unreasonably withhold consent to
the selection of a mediator, and Motorola and PageMart will share the costs of
the mediation equally. By mutual agreement, however, Motorola and PageMart may
postpone mediation until each has completed some specified but limited
discovery about the dispute. The parties may also agree to MOTOROLA PROPRIETARY
CONFIDENTIAL
14
<PAGE> 15
replace mediation with some other form of non-binding alternative dispute
resolution (ADR), such as neutral fact-finding or a minitrial. The use of any
ADR procedure will not be construed under the doctrines of laches, waiver or
estoppel to affect adversely the rights of either party and shall toll the
statute of limitations period while the ADR procedure is ongoing.
18.3 Litigation. Any dispute which the parties cannot resolve between
them through negotiation or mediation within six months of the date of the
initial demand for it by a party may then be submitted to the courts within the
State of Illinois for resolution. Each party agrees to submit to the
jurisdiction of those courts. Nothing in this paragraph will prevent either
party from resorting to judicial proceedings if (a) good faith efforts to
resolve the dispute under these procedures have been unsuccessful, or (b)
interim relief from a court is necessary to prevent serious and irreparable
injury to one party or to others. The parties knowingly, voluntarily and
intentionally waive the right each may have to a jury for any such judicial
proceedings.
SECTION 19. RELATIONSHIP OF THE PARTIES
19.1 Each party will be deemed to be an independent contractor, and not
an agent, joint venturer, or representative of the other. Neither party may
create any obligations or responsibilities on behalf of or in the name of the
other.
19.2 The personnel performing installation and other services on behalf
of Motorola under this Agreement shall at all times be under Motorola's
exclusive direction and control and shall be employees of (or subcontractors
to) Motorola and not employees of PageMart. Motorola shall pay all wages,
salaries and other amounts due its employees in connection with this Agreement,
and shall be responsible, in compliance with applicable laws relating to
worker's compensation and employer's liability insurance, for insuring all of
its employees who perform services under this Agreement.
SECTION 20. PROHIBITION AGAINST IMPROPER GIFTS OR PAYMENTS
20.1 No official, employee or agent of any government, governmental
agency or political party shall be given any benefit, share in any proceeds
from this Agreement, or receive any item of value related to this Agreement.
The parties each warrant that they have not and will not, in connection with
this Agreement, pay, donate, give or promise anything of value to any such
person or entity on behalf of Motorola or PageMart.
SECTION 21. ASSIGNMENT AND SUBCONTRACTING
21.1 Except as follows, neither party may assign this Agreement or
delegate its performance under it without the prior written consent of the
other, but such consent will not be unreasonably withheld. PageMart agrees,
however, that Motorola may appoint subcontractors to perform certain of its
obligations under this Agreement, including (but not limited to) those relating
to the Software. In addition, Motorola may assign this entire Agreement to one
of its affiliates, or sell, transfer or assign to a financing institution its
right to receive payment from PageMart. Motorola will remain primarily liable
for its performance under this Agreement notwithstanding any assignment or
appointment.
21.2 This Agreement will be binding upon any successor or permitted
assignee of either party.
SECTION 22. GENERAL
22.1 Amendments to Agreement. Amendments to this Agreement may only be
made in writing and signed by an officer or other authorized representative of
each party.
22.2 Notices. Notices under this Agreement must be in writing and sent by
facsimile, courier, or registered or certified mail to the appropriate party at
its address stated on the first page of this Agreement (or to a new address if
the other party has been properly notified of the change). A notice will not be
effective until the person to whom it is addressed actually receives it.
MOTOROLA PROPRIETARY CONFIDENTIAL 15
<PAGE> 16
22.3 Public Announcements. PageMart and Motorola agree that the terms of
this Agreement are confidential and cannot be disclosed by either party outside
its respective organization without the other's written consent, with the
following exceptions: 1) as may be required by law or regulatory agency; 2) for
the purposes of a securities offering or financing; 3) to accountants, financial
advisors, and their counsel, under the terms of a confidentiality agreement; or
4) to establish their rights under this Agreement. However, prior to PageMart's
disclosure of such terms under the above exceptions, Motorola shall be given an
opportunity to review the material to be disclosed. The parties agree to work
together to produce such press releases and other public announcements as are
acceptable to both parties, including a joint press release announcing only (1)
the dismissal of PageMart's lawsuit against MobileMedia, and (2) the transfer of
PageMart's parent portfolio to Motorola.
22.4 Beta System Demonstration. PageMart agrees to the reasonable use of
the DFW Beta System for Motorola's product demonstration purposes.
22.5 Headings. The section headings in this Agreement are for convenience
only and will not be considered part of, nor affect the construction or
interpretation of, any provision of this Agreement.
22.6 Entire Agreement. The Technology Asset Agreement and Contract
Documents of this Agreement represent the entire agreement between the parties
regarding the transfer of PageMart patents and the sale and purchase of the
System, Products and any Services. Their terms and conditions supersede any
terms or conditions contained on printed forms submitted with purchase orders,
sales acknowledgments or invoices, and all previous oral or written
communications between the parties regarding the subject, except for the factual
information on the front of that form regarding such matters as model numbers
and quantities of equipment, prices, requested delivery date and time, and
delivery instructions.
22.7 Invalidity of Provisions. If any provision of this Agreement is held
illegal, invalid or unenforceable, such invalidity will not affect the
enforceability of any other provision not held to be invalid.
22.8 Acknowledgment. Both parties acknowledge that they have read this
Agreement, have had the opportunity to review it with an attorney if desired,
understand it, and agree to be bound by its terms.
All of which is signed on behalf of Motorola and PageMart by their
authorized representatives.
MOTOROLA, INC. PAGEMART WIRELESS, INC.
By: /s/ LARRY CONLEE By: /s/ G. CLAY MYERS
---------------------------- ----------------------------
Print Name: Larry Conlee Print Name: G. Clay Myers
-------------------- ---------------------
Title: Corporate VP Title: V.P. Finance & CFO
------------------------- -------------------------
Date: 1/26/96 Date: 1/26/96
-------------------------- --------------------------
MOTOROLA PROPRIETARY CONFIDENTIAL 16
<PAGE> 17
ARTICLE II: SOFTWARE
SECTION 1. PAGING INFRASTRUCTURE SOFTWARE LICENSE AGREEMENT
MOTOROLA PAGING INFRASTRUCTURE
SOFTWARE LICENSE AGREEMENT
(C) Motorola, Inc. 1995
This Paging Infrastructure Software License Agreement ("License Agreement")
is made and entered into by and between MOTOROLA, INC. ("Motorola") and PAGEMART
WIRELESS, INC., and its Affiliates ("Licensee"). In accordance with the
following terms and conditions, Motorola agrees to grant to Licensee and
Licensee agrees to accept from Motorola, a limited license for Motorola's Paging
Infrastructure object code Software and related Documentation used in connection
with items of Equipment purchased under this Agreement, including any
supplements or updates to any such Software or Documentation item delivered to
the Licensee from Motorola under the terms of either the initial purchase of the
Software or according to the terms of a Software Maintenance Policy (SMP).
In that regard, Motorola and Licensee specifically agree that, for as long
as the Equipment Purchase Agreement ("the Agreement") is in effect, the Licensee
may obtain from Motorola such items of Software offered by Motorola's Advanced
Messaging Systems Division. Unless Motorola and Licensee execute a separate
agreement specifically licensing a particular item of software, the Licensee's
use of all Software purchased under this Agreement shall be subject to the terms
and conditions of this License Agreement, and Motorola may supply such items of
Software to Licensee subject to the terms and conditions of this License
Agreement.
1. EFFECTIVE DATE OF LICENSE. This License Agreement is an offer to license by
Licensee, and will become effective:
(A) after the Licensee, or an authorized agent of the Licensee, has signed
this Agreement and returned it to Motorola at the address below; and
(B) either (i) an authorized agent of Motorola has acknowledged receipt of
this Agreement in writing; or (ii) Motorola ships to the Licensee at its
address below, an item or items of Software requested by the Licensee.
2. LICENSE. Motorola hereby grants to Licensee a personal, nonexclusive,
nontransferable, limited license to use the Software, subject to the conditions
and limitations contained in this License Agreement, solely for the purpose of
operating or testing Motorola paging infrastructure Equipment in which the
Software is initially installed.
Licensee understands and agrees to each of the following:
A. Each item of Software obtained by Licensee from Motorola pursuant to
this License Agreement shall only be used by the Licensee upon Motorola
hardware, or upon third-party hardware purchased through Motorola.
B. Use of an item of Software at one location shall not include the right
to access use of that Software through remote access from any other
location.
C. Licensee acknowledges and agrees that any material breach of this
License Agreement or any unauthorized use, dissemination, distribution, or
modification of software and programming information contained within
Motorola infrastructure Equipment will likely cause Motorola substantial
and irreparable harm.
MOTOROLA PROPRIETARY CONFIDENTIAL 17
<PAGE> 18
3. CHARGES AND PAYMENTS. For each item of Software licensed, Licensee agrees
to pay a nonrefundable, lump-sum, per-Equipment-item charge. Each such charge
shall be due and payable within thirty (30) days of receipt of invoice. Service
charges at the maximum rate permitted by applicable law may be invoiced on
accounts more than ten (10) days past due and shall be due and payable upon
receipt of invoice.
4. TAXES. Licensee shall pay all sales, use and excise taxes, and any other
assessments in the nature of taxes however designated, on the Software or its
license or use, on any amount payable or any Services furnished under the
License Agreement, or otherwise related to or resulting from the License
Agreement.
5. PROTECTION AND SECURITY. Title to and ownership of any item of Software
delivered hereunder and to any copies made by Licensee is, and shall at all
times remain, in Motorola. Licensee acknowledges Motorola's claim that the
Software contains valuable proprietary information and trade secrets and that
unauthorized dissemination, distribution, modification, reverse engineering,
disassembly, or unauthorized use of the Software could cause irreparable harm to
Motorola. Therefore, Licensee agrees not to disclose, transfer, provide, or
otherwise make available in any form whatsoever the Software, the information
therein, or any portion thereof, to any person or organization other than
Licensee's employees, without the prior written consent of Motorola. Licensee
will take appropriate action, by instruction, agreement or otherwise, with any
persons permitted access to the Software so as to enable Licensee to hold the
Software in confidence and otherwise to satisfy its obligations under this
License Agreement.
Since unauthorized use of such Motorola software can greatly diminish the
value of such trade secrets and cause irreparable harm to Motorola, Licensee
also agrees that Motorola, in addition to any other remedies it may have, shall
be entitled to equitable relief to protect such trade secrets, including without
limitation, temporary and permanent injunctive relief, without the proving of
amount of damage by Motorola.
Licensee shall make no copies of the Software except those working or
back-up copies necessary to enable Licensee's operation and testing in the
specified licensed Equipment. A backup copy may be made for the Equipment
licensed herein.
Licensee will provide to Motorola, upon Motorola's request, the actual
location of all copies of the Software.
Licensee will reproduce and include all copyright and trademark notices and
other proprietary legends, on all copies in accordance with Motorola's
instructions.
Licensee acknowledges and agrees that the existence of any copyright notice
on any item of Software shall not be construed as an admission or presumption
that publication of such item of Software has occurred.
Licensee agrees that any breach of the terms of this Section 5 shall be
considered by the parties hereto to be a substantial and material breach of this
Agreement, which breach shall be grounds for Motorola to terminate Licensee's
license hereunder pursuant to the terms of Section 9(a).
The terms of this Section shall survive the termination of this License
Agreement and any license hereunder.
6. MAINTENANCE. Motorola shall not be responsible for field support or field
service of Software under this License Agreement. Any maintenance by Motorola,
if available, shall be by separate agreement on Motorola's then current terms
and conditions and at Motorola's then current prevailing rates for such
maintenance.
7. SOFTWARE WARRANTY DISCLAIMER. LICENSEE ACCEPTS THE SOFTWARE LICENSED UNDER
THE LICENSE AGREEMENT "AS IS." OTHER THAN AS WARRANTED IN SECTION 12 OF ARTICLE
I, MOTOROLA EXTENDS NO WARRANTIES ON THE SOFTWARE, EITHER EXPRESS OR IMPLIED,
AND SPECIFICALLY EXCLUDES WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
MOTOROLA PROPRIETARY CONFIDENTIAL 18
<PAGE> 19
8.1 TERMINATION OF LICENSE. Any license granted under this License Agreement
is effective until terminated as set forth below. Licensee may terminate a
license for an item of Software at any time by returning to Motorola all
originals and all copies of the Software (including documentation and
materials). Licensee agrees that the termination of a license by Licensee or
Motorola does not entitle Licensee to the refund of any license charge.
Motorola may terminate a license for an item of Software, or terminate this
entire License Agreement, if Licensee fails to comply with any material term or
condition of this License Agreement. (See Section 9. Default.) Upon
termination, Licensee agrees to return all copies of the Software to Motorola
and delete all copies of the Software from any mass storage device.
8.2 TERMINATION FOR CAUSE. This Agreement may be terminated by Motorola
immediately, and without notice to the Licensee, upon the occurrence of any of
the following events:
(a) Any material default by the Licensee as set forth in Section 9 below.
(b) Licensee ceases to function as a going concern, declares bankruptcy, or
otherwise becomes insolvent.
9. DEFAULT. Default includes, but is not limited to, any of the following acts
or omissions:
(a) Licensee fails to perform any of its obligations under Section 5,
"Protection and Security," and such failure remains uncured for a period of ten
(10) days after Licensee's receipt of written notice thereof from Motorola.
(b) Licensee fails to perform any of its material obligations under this
License Agreement, and such failure remains uncured for a period of thirty (30)
days after Licensee's receipt of written notice thereof from Motorola.
10. REMEDIES. In the event of any material default by Licensee under this
License Agreement, Licensee acknowledges that in addition to any other rights
and remedies available to Motorola under law or in equity, Motorola may:
- withhold performance hereunder; or,
- terminate the license for any item of Software at any time; or,
- terminate this entire License Agreement; or,
- demand and be entitled to the immediate return of all copies of any or
all items of Software.
In any such event, Motorola's remedies shall be cumulative. There shall be no
obligation upon Motorola to exercise a particular remedy.
11. LIMITATION OF LIABILITY. Motorola's entire liability to Licensee for
Motorola's performance or nonperformance under this License Agreement shall be
limited to a refund by Motorola of an amount not to exceed the total license
charge paid by Licensee for the item of Software and the Equipment item in which
it is contained that are directly related to such claim.
UNDER NO CIRCUMSTANCES WILL MOTOROLA OR PAGEMART BE LIABLE TO THE OTHER FOR LOSS
OF USE, DAMAGE TO OR LOSS OF PRODUCTS OR SERVICES, LOSS OF DATA, FAILURE TO
REALIZE EXPECTED SAVINGS, FRUSTRATION OF ECONOMIC OR BUSINESS EXPECTATIONS, LOST
REVENUE OR PROFITS, OR FOR ANY OTHER SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, EVEN IF THEY WERE FORESEEABLE OR MOTOROLA OR PAGEMART WAS
INFORMED OF THEIR POTENTIAL.
12. ASSIGNMENT. Licensee is prohibited from assigning, transferring or
sublicensing the Software without the prior written consent of Motorola.
However, Licensee may sublicense a joint venturer with Motorola's written
approval, such approval not to be unreasonably withheld. Any prohibited
assignment, transfer or sub-license shall be null and void. Motorola reserves
the right to assign the License Agreement, encumber or sell the Software, or
subcontract any of its obligations hereunder, either in whole or in part,
without notice to or the consent of
MOTOROLA PROPRIETARY CONFIDENTIAL 19
<PAGE> 20
Licensee, although Motorola shall be ultimately responsible for the performance
of its obligations hereunder.
13. NOTICES. All formal notices and other communications required or permitted
under the License Agreement shall be in writing to the addresses indicated in
this License Agreement.
14. ENTIRE AGREEMENT. THIS LICENSE AGREEMENT CONSTITUTES THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN MOTOROLA AND LICENSEE, AND
SUPERSEDES ALL ORAL OR WRITTEN PROPOSALS, PRIOR AGREEMENTS, AND OTHER PRIOR
COMMUNICATIONS BETWEEN THE PARTIES, CONCERNING THE SUBJECT MATTER OF THE LICENSE
AGREEMENT.
15. GENERAL TERMS AND CONDITIONS. This License Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois. No amendment
of this License Agreement or representation or promise relating thereto shall be
binding unless it is in writing and signed by both parties. Notwithstanding any
variance with the terms and conditions of any order submitted by Licensee, the
terms and conditions of this License Agreement shall prevail. No waiver by a
party of any breach of any provision of this License Agreement shall constitute
a waiver of any other breach of that or any other provision of this License
Agreement. Licensee recognizes that applicable Federal Communications Act and
other statutes, laws, ordinances, rules and regulations may change from time to
time. Accordingly, without liability and in its sole discretion, Motorola has
the right to modify this License Agreement to comply with such changes. In the
event that any of the provisions contained in this License Agreement are held to
be unenforceable, this License Agreement shall be construed without such
provisions. No action, regardless of form, arising out of this License Agreement
may be brought by Licensee more than one (1) year after the cause of action has
arisen.
ACCEPTED AND APPROVED BY MOTOROLA AS OF 26 JANUARY, 1996.
<TABLE>
<S> <C>
LICENSOR LICENSEE
MOTOROLA, INC. PAGEMART WIRELESS, INC.
BY: /s/ LARRY CONLEE BY: /s/ CLAY MYERS
----------------------------- ---------------------------
(Authorized Signature) (Authorized Signature)
Please type the following: Please type the following:
NAME: LARRY CONLEE NAME: G. CLAY MYERS
--------------------------- -------------------------
TITLE: CORP VP TITLE: V.P. FINANCE & CFO
-------------------------- ------------------------
DATE: 1/26/96 DATE: 1/26/96
-------------------------- ------------------------
Address for Formal Notices: Address for Formal Notices:
MOTOROLA, INC. PAGEMART WIRELESS, INC.
Attn: SMP Dept. 6688 North Central Expressway
Advanced Messaging Systems Division Suite 800
5401 North Beach Street Dallas, Texas 75206
Fort Worth, Texas 76137 Attn: /s/ TODD BERGWALL
-------------------------
</TABLE>
MOTOROLA PROPRIETARY CONFIDENTIAL 20
<PAGE> 21
ARTICLE II: SOFTWARE
SECTION 2. SOFTWARE MAINTENANCE POLICY
[MOTOROLA LOGO]
ADVANCED MESSAGING SYSTEMS DIVISION
SOFTWARE MAINTENANCE POLICY
TERMS AND CONDITIONS
This is a Software Maintenance Policy (SMP) # , by and
between PAGEMART WIRELESS, INC. ("PAGEMART"), located at 6688 North Central
Expressway, Suite 800, Dallas, Texas 75206; and MOTOROLA, INC. ("MOTOROLA"), by
and through its Advanced Messaging Systems Division (AMSD), located at 5401
North Beach Street, Fort Worth, Texas 76137.
WHEREAS, MOTOROLA and PAGEMART have entered into a MOTOROLA PAGING
INFRASTRUCTURE SOFTWARE LICENSE AGREEMENT having an effective date of
, 1996, which grants PAGEMART certain rights relating to licensed
Software operating on a Paging System installed or to be installed at PAGEMART
locations as per the list in Attachment A, as the parties may amend from time to
time.
MOTOROLA and PAGEMART agree that software installation and maintenance services
("Services") provided by MOTOROLA to PAGEMART on the Software ("Software") and
Documentation shall be performed exclusively pursuant to the fees, terms and
conditions set forth in this SMP. This Software Maintenance Policy shall cover
software residing in MOTOROLA-supplied paging infrastructure hardware purchased
or provided pursuant to Articles I, III and IV of the Agreement.
MOTOROLA will support only the current system software release and the
immediately preceding system release for PAGEMART's market. Support for earlier
releases will be available only on a time and materials basis.
SUPPORT FEATURES:
a. Telephone Technical Support: MOTOROLA will provide hotline
support during the hours of 7 am - 7 pm, Central U.S. time,
Monday through Friday, except MOTOROLA holidays. PAGEMART shall
use the hotline for assistance in problem identification,
problem solving, and configuration questions.
b. 24 Hour, Emergency Telephone Technical Support: In addition
to its regular phone support, MOTOROLA will provide 24-hour
emergency telephone technical support, 365 days-a-year.
(Non-emergency calls, as determined by MOTOROLA, other than
between 7am - 7pm, will be billed at the standard MOTOROLA
rates.)
c. Updates: PAGEMART will receive new system Software and
Documentation updates at no additional charge. Updates include
fixes and debugs, and may include software enhancements at
MOTOROLA's discretion.
d. Existing Coverage Extended to Same-Year Purchases: Once a
system is covered by this SMP, all qualifying equipment
purchased and placed in service during the annual SMP term shall
automatically receive coverage under the SMP. See Attachment A
for a representative list of equipment covered by this SMP.
e. Access To MOTOROLA's Customer Service Bulletin Board: As an
SMP subscriber, PAGEMART can receive technical information from
the AMSD Customer Service Bulletin Board, including updates on
software-related issues, operation tips, trouble shooting
advice, insight on using new software-based products to fullest
advantage, and key features and enhancements of new software
releases.
MOTOROLA PROPRIETARY CONFIDENTIAL 21
<PAGE> 22
1. Maintenance Response and Support: In the event MOTOROLA is unable to
resolve a software failure through telephone support, then MOTOROLA
shall use prompt and reasonable efforts to respond to PAGEMART's request
for service.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
FEATURE WITHOUT SMP WITH SMP
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Telephone Support (During Business Hours) Standard Rates Apply Included
- --------------------------------------------------------------------------------------------------
Emergency Telephone Technical Support Standard Rates Apply Included
- --------------------------------------------------------------------------------------------------
Software Updates Standard Software Pricing Applies Included
- --------------------------------------------------------------------------------------------------
Access To Bulletin Board None Included
- --------------------------------------------------------------------------------------------------
Maintenance Response and Support Standard Rates Apply Included
- --------------------------------------------------------------------------------------------------
</TABLE>
SMP ADVANTAGES: Cost savings, software updates provided, better support, quicker
response time, reduced labor expense, downtime limited to a minimum in order to
protect revenue.
DURATION AND RENEWAL
This SMP has a one-year term that is renewed annually. Since the SMP is based on
equipment in service, PAGEMART shall report to MOTOROLA any change in location
of MOTOROLA hardware in service in PAGEMART's system, in order to determine the
SMP fee for the following SMP term, PAGEMART will receive an invoice for the
renewed SMP at least thirty (30) days before the start of the next SMP term.
At least ninety (90) days before any renewal period, and upon prior written
notice to PAGEMART, MOTOROLA reserves the right to increase or decrease
maintenance prices for the immediately following annual period.
PAGEMART OBLIGATIONS UNDER THE SMP
PAGEMART agrees to:
[X] PROVIDE CURRENT EQUIPMENT LIST. Supply complete listing of system components
indicating equipment serial numbers, software versions and equipment
locations.
[X] PERFORM FIRST-LEVEL DIAGNOSTICS. Carefully monitor its system and equipment
for any indication of problems. If PAGEMART needs assistance with these
first-level diagnostics, the hotline is available for help.
[X] REPORT ANY PROBLEMS. PAGEMART shall report problems immediately to the
One-Call-Support(TM) Center in order to set the correction process in
motion.
[X] MAINTAIN CURRENT SOFTWARE. Under this SMP, MOTOROLA supports only the
current system software release and the immediately preceding system
software release. MOTOROLA strongly recommends that all products operate on
the latest releases. Support for releases other than the current system
software release and the immediately preceding software release will be
provided on a time and materials basis only.
[X] PURCHASE HARDWARE IF NECESSARY. From time to time, PAGEMART may need to add
or upgrade hardware to accommodate a new software release. MOTOROLA will
notify PAGEMART of such hardware enhancements thirty (30) days prior to
making a new software release available. This SMP does not include the costs
of any required hardware upgrades.
[X] SUPPLY REMOTE DIAL-IN PHONE LINE(S). In order to ensure the best possible
support, PAGEMART must supply a direct dial-in phone line, to all supported
equipment modems. If no phone line is available, it is PAGEMART'S
responsibility to relay the appropriate information to MOTOROLA.
[X] PRICES: Subject to the foregoing terms of this Agreement. PAGEMART shall pay
MOTOROLA for the services to be rendered under this SMP at the prices and
rates set forth in the Price Book. All sales tax, use taxes, or value-added
taxes payable in connection with the Service to be provided by Motorola
pursuant to this SMP shall be paid by PAGEMART.
EXCLUSION
MOTOROLA PROPRIETARY CONFIDENTIAL 22
<PAGE> 23
MOVEMENT OF EQUIPMENT/SOFTWARE - Movement of equipment/software to new sites by
organizations or persons not authorized by MOTOROLA, and reinstallation of
equipment by anyone not authorized by MOTOROLA, shall void any obligation of
MOTOROLA under this SMP with regard to equipment/software so moved or
reinstalled. Provided PAGEMART notifies MOTOROLA in advance of its intention to
move equipment/software and seeks authorization to do so, such authorization by
MOTOROLA will not be unreasonably withheld.
MOTOROLA shall have no obligation under this SMP to repair or replace items when
such repair or replacement is necessitated by the following:
(a) Forte Majeure. Neither party shall be liable for delay or failure in
performance when such delay or failure is caused by any of the following that
are beyond the actual control of the delayed party: acts of God, acts of the
public enemy, acts or failures to act by the other party, acts of civil or
military authority, governmental priorities, strikes or other labor
disturbances, hurricanes, earthquakes, lightning, fires or floods, epidemics,
embargoes, wars or riots, delays in transportation, loss or damage to goods in
transit (subject to such goods being packed within the suppliers' specifications
for such transit, and to the availability of necessary materials, components,
services or facilities), or any other cause which the delayed party could not
have prevented or for which the delayed party is not responsible.
However, MOTOROLA agrees, upon PAGEMART's request, to participate with
PAGEMART and make an assessment with respect to the damage as a result of any
Force Majeure, and then to provide PAGEMART a quotation with respect to the
repair and/or replacement of the items damaged as a result of the Force Majeure.
(b) Acts of vandalism or any deliberate act or attempt to modify, remove,
or obliterate a part's bar-coded serial number or other identifying marks.
(c) Attempts to repair or modify the software by personnel not authorized
or approved by MOTOROLA.
(d) Misuse of the software.
(e) Failure to maintain prescribed environmental conditions or external
electrical parameters.
(f) Damage which occurs during shipment from PAGEMART to MOTOROLA.
(g) Failure to take any action required by MOTOROLA through its published
Customer Service Report (CSR) or Bulletin Board, which shall be made available
to PAGEMART.
DEFAULT AND TERMINATION
MOTOROLA AMSD shall have the right to immediately terminate this SMP, and to
suspend its performance hereunder, upon notification and provision of a 10-day
cure period to PAGEMART if PAGEMART:
(a) makes any unauthorized modifications to the Software;
(b) assigns or transfers PAGEMART's rights or obligations under this SMP
without the prior written consent of MOTOROLA;
(c) becomes bankrupt or insolvent, or is put into receivership; or
(d) fails to pay any charge for services supplied under this SMP or any
additional charges when due.
MOTOROLA may also terminate this SMP if PAGEMART, on written notice from
MOTOROLA, does not pay MOTOROLA all amounts then due within thirty (30) days of
such notice.
Notwithstanding such termination of the SMP to PAGEMART, PAGEMART shall remain
responsible for all amounts then due.
LIMITATION OF DAMAGES
UNDER NO CIRCUMSTANCES WILL MOTOROLA OR PAGEMART BE LIABLE TO THE OTHER FOR LOSS
OF USE, DAMAGE TO OR LOSS OF PRODUCTS OR SERVICES, LOSS OF DATA, FAILURE TO
REALIZE EXPECTED SAVINGS, FRUSTRATION OF ECONOMIC OR BUSINESS EXPECTATIONS, LOST
REVENUE OR PROFITS, OR FOR ANY OTHER SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, EVEN IF THEY WERE FORESEEABLE OR MOTOROLA OR PAGEMART WAS
INFORMED OF THEIR POTENTIAL.
Each party's total liability under or in connection with this SMP shall not
exceed the total sums paid by PAGEMART to MOTOROLA with respect to such
Software, Supplies, or Services provided hereunder.
MOTOROLA PROPRIETARY CONFIDENTIAL 23
<PAGE> 24
SEVERABILITY
If any provision of this SMP is held to be illegal, invalid, or unenforceable,
such invalidity will not affect the enforceability of any other provisions not
held to be invalid.
ENTIRE POLICY
Article I and this SMP constitutes the entire understanding between the parties
concerning the subject matter hereof and supersedes all prior discussions,
policies and representations, whether oral or written and whether or not
executed by MOTOROLA and PAGEMART. No modification, amendment, or other change
may be made to this SMP or any part hereof unless made in writing and executed
by authorized signing officers of MOTOROLA and PAGEMART. The terms and
conditions of this SMP supersedes the terms and conditions contained on any
purchase order or sales acknowledgments between the parties.
The obligations of the parties hereto are obligations of the corporate entities
executing this SMP alone. These obligations are neither the obligations of, nor
are they implied or otherwise guaranteed by, any individual who signs this SMP
or who is otherwise associated with the parties.
I have read this SMP and agree to be bound by its terms.
PAGEMART Signature
Name (please print) __________________________________________________
Title ________________________________________________________________
Date _________________________________________________________________
MOTOROLA Signature ___________________________________________________
Name (please print) __________________________________________________
Title ________________________________________________________________
Date _________________________________________________________________
* See Attachment "A" for a representative list of Equipment covered by this SMP.
11/95
MOTOROLA PROPRIETARY CONFIDENTIAL 24
<PAGE> 25
ATTACHMENT A
MOTOROLA'S ADVANCED MESSAGING SYSTEMS DIVISION
SOFTWARE MAINTENANCE POLICY (SMP) # ____________________
EQUIPMENT LISTING AND MAINTENANCE FEES
This is Attachment A to the MOTOROLA System Equipment Software and Maintenance
Policy dated ________________ by and between PAGEMART WIRELESS, INC. and
MOTOROLA, INC.
Maintenance for the period:________________, 199_ thru ____________, 199_.
<TABLE>
<CAPTION>
SITE NO. SITE NAME ST DESCRIPTION MODEL/SERIAL # MFG./RELEASE DATE SMP FEE
- --------- ---------- ---- ------------ --------------- ------------------ --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
MOTOROLA PROPRIETARY CONFIDENTIAL 25
<PAGE> 26
ARTICLE III: ADVANCED MESSAGING SUBSCRIBER EQUIPMENT -TABLE OF CONTENTS
SECTION 1. CREDIT FOR EQUIPMENT
SECTION 2. EQUIPMENT WARRANTY
SECTION 3. EQUIPMENT PRICING
MOTOROLA PROPRIETARY CONFIDENTIAL 26
<PAGE> 27
CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM SECTION 1 BELOW
ARTICLE III: ADVANCED MESSAGING SUBSCRIBER EQUIPMENT
SECTION 1. CREDIT FOR EQUIPMENT
As described here and in Article IV, Section 1.3, as additional consideration
for the transfer of the PageMart Patents to Motorola in accordance with the
Technology Asset Agreement between the parties. Motorola agrees to furnish
MOTOROLA PROPRIETARY CONFIDENTIAL 27
<PAGE> 28
ARTICLE III: ADVANCED MESSAGING SUBSCRIBER EQUIPMENT
SECTION 2. EQUIPMENT WARRANTY
LIMITED WARRANTY FOR MOTOROLA ONE-WAY & TWO-WAY PAGERS
I. WARRANTY STATEMENT
Motorola warrants the pager against defects in material and workmanship under
normal use and service for the period of time specified below. This express
warranty is extended by Motorola, Inc., 1301 E. Algonquin Road, Schaumburg, IL
60195, to the original and end user purchasers only and is not assignable or
transferable to any other party. An optional extended warranty is available as
specified below.
II. GENERAL PROVISIONS
This warranty sets forth the full extent of Motorola's responsibilities
regarding the pager. Repair, replacement, or refund of the purchase price, at
Motorola's option, is the exclusive remedy. This warranty is given in lieu of
all other express warranties. Implied warranties, including without limitation
implied warranties of merchantability and fitness for a particular purpose, are
limited to the duration of this limited warranty. In no event shall Motorola be
liable for damages in excess of the purchase price of the Motorola pager, for
any loss of use, loss of time, inconvenience, commercial loss, lost profits or
savings or other incidental, special or consequential damages arising out of the
use or inability to use such product to the full extent such may be disclaimed
by law.
III. WHAT THIS WARRANTY COVERS
In the event of a defect, malfunction, or failure to conform to specifications
contained in MPDs during the warranty period, Motorola will, at its option,
either repair, replace or refund the purchase price of the pager. Repair may, at
Motorola's option, include the replacement of parts or boards with functionally
equivalent reconditioned or new parts or boards. Replaced parts and boards are
warranted for the greater of (i) 90 days or (ii) the balance of the original
warranty period. All parts and boards removed in the replacement process shall
become the property of Motorola. This warranty does not cover defects,
malfunctions, performance failures or damages to the unit resulting from use in
other than its normal and customary manner; misuse, accident or neglect, the use
of nonconforming parts; or improper alterations or repairs. This warranty does
not cover batteries, internal physical or water damage, wear and tear on covers
or housings, and coverage or range over which the pager will receive signals.
IV. LENGTH AND TYPE OF WARRANTY
Motorola ________ pagers are shipped from the factory with a standard warranty
or an optional extended warranty. The standard warranty period is for one year
on parts and 120 days on labor from the date of purchase based on proof of
purchase. The optional extended warranty is provided in lieu of the standard
warranty for a consideration over and above the price of the pager. This
extended warranty covers parts and labor for the number of years chosen starting
at the date of purchase of the pager by the end user. The type and length of
warranty of the pager may be determined by the first and third characters of the
pagers 10-character serial number as follows:
- A number in the first position of the serial number denotes a standard
warranty of 120 days for labor and one year for parts.
- A letter in the first position of the serial number denotes extended
warranty coverage.
- If an extended warranty, then the number in the third position denotes the
number of years of the warranty.
Example: The number __ in the third position denotes warranty coverage
of ____ years.
The number __ in the third position denotes warranty coverage
of ____ years.
V. HOW TO RECEIVE SERVICE
All pagers covered by standard warranty and extended warranty that require
service must be sent or taken to one of the following Motorola Pager Care
facilities only. All inbound shipping or transportation charges to Motorola must
be paid by the purchaser. Motorola will pay for outbound shipping to the
purchaser.
Motorola
AMDS
5401 North Beach Street
Fort Worth, Texas 76137
(800) 520-7243
VI. STATE LAW RIGHTS
Some states do not allow the exclusion or limitation of incidental or
consequential damages, or a limitation on how long an implied warranty lasts, so
the above limitations or exclusions may not apply. This warrant gives you
specific legal rights and you may also have other rights which vary from state
to state.
VII. OUT-OF-WARRANTY REPAIR
Replacement housings and out-of-warranty repairs are available at the above
listed Motorola Pager Care facilities. Complete replacement housings cost $____
each. Out-of-warranty electrical repair costs $____. These prices include return
shipping.
VIII. HOW TO PURCHASE ADDITIONAL YEARS OF PAGER WARRANTY
If this pager was purchased with only the standard warranty coverage, then at
your option, additional years of extended warranty are available for an
additional charge during the first ____ days following purchase of the pager.
This extended warranty is in lieu of the standard warranty, and is available for
one, three, or five full years from the date of purchase of the pager, subject
to the above-stated terms and conditions. This extended warranty covers parts
and labor for the number of years chosen.
To purchase this optional extended warranty, please copy and fill out the
section below, and along with your check made payable to Motorola, mail (within
____ days of pager purchase) to: Motorola, Boynton Beach Pager Care, 3020 High
Ridge Road, Suite 600, Boyman Beach, FL 32426.
MOTOROLA PROPRIETARY CONFIDENTIAL 28
<PAGE> 29
FILL OUT AND MAIL ONLY IF YOU ARE PURCHASING ADDITIONAL YEARS OF WARRANTY.
<TABLE>
<S> <C>
Customer Information (Please Print) Prices for extended warranty
1 full year 3 full years 5 full years
Name ___________________________________________________ ----------- ------------ ------------
Address_________________________________________________
City, State, Zip________________________________________
Serial Number___________________________________________ Purchase __ additional years of extended warranty for a total of $________
(__ characters - starting with __ letters or a number.)
Example:__________________________ Applicable sales taxes (state, city, country) $________
Daytime Phone # (Not pager #) __________ Total Amount Enclosed: $________
</TABLE>
NOTE: All purchases of extended warranty are final. There are no refunds.
Extended warranty is not transferable from one pager to another.
MOTOROLA PROPRIETARY CONFIDENTIAL 29
<PAGE> 30
ARTICLE III: ADVANCED MESSAGING SUBSCRIBER EQUIPMENT
SECTION 3. EQUIPMENT PRICING
MOTOROLA PROPRIETARY CONFIDENTIAL 30
<PAGE> 31
ARTICLE IV: INFRASTRUCTURE EQUIPMENT - TABLE OF CONTENTS
SECTION 1. COMMITMENTS FOR PURCHASE, EQUIPMENT CREDITS, AND ADDITIONAL
INFRASTRUCTURE CREDIT
SECTION 2. EQUIPMENT WARRANTY
SECTION 3. EQUIPMENT PRICING
MOTOROLA PROPRIETARY CONFIDENTIAL 31
<PAGE> 32
CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM SECTION 1 BELOW
ARTICLE IV: INFRASTRUCTURE EQUIPMENT
SECTION 1. COMMITMENTS FOR PURCHASE, EQUIPMENT CREDITS, AND ADDITIONAL
INFRASTRUCTURE CREDIT
1.1 Buyer Purchase Commitment. PageMart agrees to purchase from Motorola,
of conventional one-way and two-way infrastructure Equipment over
the forty-seven (47) month period beginning December 1, 1995 and ending October
31, 1999. In the event PageMart fails to order and take delivery from Motorola
of of infrastructure Equipment prior to September 1, 1999,
provided any failure to take delivery is not due to Force Majeure as described
in Section 15.1 of Article I, or to Motorola's failure to meet reasonable
scheduled delivery dates, then on September 1, 1999, Motorola may prepare an
invoice for, and ship, infrastructure Products chosen at Motorola's sole
discretion, with a total price (priced at the purchase prices of this Agreement)
equivalent to the difference between and the amount of
infrastructure Equipment previously ordered by PageMart and delivered under this
Agreement. PageMart agrees to accept such Products and to pay such invoice
within thirty (30) days of its receipt.
1.2 Credit for Infrastructure Equipment. As additional consideration for
the transfer of the PageMart Patents to Motorola in accordance with the
Technology Asset Agreement between the parties, Motorola agrees to furnish
.
1.3 Credit for Advanced Messaging Subscriber Units. As described here and
in Article III, Section 1, as additional consideration for the transfer of the
PageMart Patents to Motorola in accordance with the Technology Asset Agreement
between the parties, Motorola agrees to furnish
.
1.4 Additional Infrastructure Credit. As additional consideration for the
transfer of the PageMart Patents to Motorola in accordance with the Technology
Asset Agreement between the parties, Motorola agrees to furnish
.
MOTOROLA PROPRIETARY CONFIDENTIAL
<PAGE> 33
ARTICLE IV: INFRASTRUCTURE EQUIPMENT
SECTION 2. EQUIPMENT WARRANTY
[MOTOROLA LOGO]
ADVANCED MESSAGING SYSTEMS DIVISION
INFRASTRUCTURE LIMITED PRODUCT WARRANTY
GENERAL TERMS
1.1 Motorola Advanced Messaging Systems Division (AMSD)-manufactured
infrastructure Equipment is warranted to be free from defects in material and
workmanship to the original purchaser only as set forth herein.
1.2 This Warranty covers Equipment that is used in the manner and for the
purpose intended.
1.3 This Warranty specifically excludes any and all software products from any
source. Motorola AMSD software products are the subject of the AMSD Software
Maintenance Policy (SMP), addressed separately.
1.4 This Warranty shall commence on the date of shipment of the AMSD
Equipment.
1.5 The term of Warranty for all AMSD infrastructure Equipment, except for
base stations and Alphamate 250 paging entry terminal products, is one (1) year
parts and labor. The Warranty term for Nucleus base stations is three (3) years
parts and one (1) year labor. The Warranty term for Alphamate 250 paging entry
terminals is one (1) year parts and 120 days labor in AMSD-authorized service
centers. In-field labor, which is only available for base station warranty
claims, is to be provided by AMSD-authorized service centers during the hours
of 8:00 AM - 5:00 PM, Monday - Friday, excluding Motorola holidays.
LIMITATIONS AND QUALIFICATIONS OF WARRANTY
2.1 LIMITATION - THE WARRANTIES SET OUT IN THIS SECTION ARE THE ONLY
WARRANTIES FOR THE EQUIPMENT. MOTOROLA EXPRESSLY DISCLAIMS ALL OTHER
WARRANTIES, GUARANTEES OR REPRESENTATIONS, WHETHER EXPRESS, IMPLIED, OR
STATUTORY, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. MOTOROLA ALSO DISCLAIMS ANY IMPLIED WARRANTY ARISING OUT OF
TRADE USAGE OR OUT OF A COURSE OF DEALING OR COURSE OF PERFORMANCE.
2.2 This Warrant does not cover, nor include a remedy for, damages, defects or
failure caused by:
(a) the equipment of any part of it NOT having been installed, modified,
adapted, repaired, maintained, transported or relocated in accordance with
Motorola technical specifications and instructions;
(b) storage not conforming to the applicable Motorola Equipment Manual's
Shipping, Receiving and Installation section.
(c) environmental characteristics not conforming to the applicable
Motorola Equipment Manual.
(d) nonconformance with the Equipment Operating Instructions in the
applicable Motorola Equipment Manual.
(e) external causes including, without limitation, used in conjunction
with incompatible equipment, unless such use was with or under Motorola's prior
written consent;
(f) cosmetic damages;
(g) damages caused by external electrical stress;
(h) lightning;
(i) accidental damage;
(j) negligence, neglect, mishandling, abuse or misuse by any party other
than Motorola;
(k) Force Majeure; and
(l) damage caused by Shipper(s)
RETURN OF EQUIPMENT
3 If an item of AMSD equipment malfunctions or fails in normal use within
the Warranty Period:
(a) PageMart shall promptly notify its nearest Motorola Paging
One-Call-Support(TM) Center of the problem and provide the serial number of the
defective item. Motorola shall, at its option, either resolve the problem over
the telephone or issue a Return Authorization Number to PageMart. PageMart
shall, at its cost, ship the item to the Motorola Paging One-Call-Support(TM)
Center location designated at the time the Return Authorization Number is
issued;
MOTOROLA PROPRIETARY CONFIDENTIAL 33
<PAGE> 34
(b) the Return Authorization Number must be shown on the label attached to
each returned item. A description of the fault must accompany each returned
item. The returned item must be properly packed, and the insurance and shipping
charges prepaid;
(c) Motorola shall either repair or replace the returned item. When a
returned item is replaced by Motorola, the returned item shall become the
property of Motorola;
(d) Subject to all the terms of this Warranty, Motorola shall complete the
repair or exchange of Motorola-manufactured equipment returned under Warranty
within ten (10) working days of receipt of the equipment;
(e) Motorola shall, at its cost, ship the repaired or replaced item to
PageMart. If PageMart requests Express Shipping, PageMart shall pay Motorola an
expedite fee; and
(f) Equipment which is repaired or replaced by Motorola shall be free of
defects in material and workmanship for the remainder of the original Warranty,
or for 90 days from the date of repair or replacement, whichever is longer. All
other terms of this Warranty shall apply to such repairs or replacements.
ADVANCE REPLACEMENT
4.1 During the Warranty Period:
(a) At the request and for the convenience of PageMart, Motorola may supply
PageMart with Advance Replacement Parts (parts furnished in advance of
Motorola's receipt of defective items). Motorola's provision of such parts will
be contingent on part availability and on PageMart maintaining a satisfactory
credit standing with Motorola's Paging Products Group.
(b) Motorola shall ship the Advance Replacement Parts requested by
PageMart within 48 hours of Motorola's determination that such service is
justified under the circumstances, if stock is available at the Motorola
service location. If stock is not available, Motorola will make every
reasonable effort to locate and provide it to PageMart within ten (10) working
days.
(c) PageMart shall return defective items to Motorola within thirty (30)
days of shipment of the Advance Replacement Parts; failing which, Motorola shall
bill and PageMart shall pay the full current list price of the Advance
Replacement Parts.
4.2 To secure payment of the list price of Advance Replacement Parts if the
defective items are not returned to Motorola, PageMart hereby grants to Motorola
a purchase money security interest in any Advance Replacement Parts.
TELEPHONE TECHNICAL ASSISTANCE
5 During the Warranty Period, Motorola will provide PageMart with
over-the-telephone technical fault analysis free of labor charges. For warranty
calls exceeding 15 per location per month, or for non-warranty calls, Motorola
shall charge PageMart per Motorola's then-current labor rates.
EXCLUDED EQUIPMENT
6 The following equipment is excluded from this Warranty, covered instead by
the original manufacturer's warranty:
(a) equipment which is not an integral part of a basic system configuration
and is not manufactured by Motorola:
(b) peripheral equipment such as printers, modems, data loggers and video
display terminals; and
(c) equipment which is not listed in Motorola's Price Book.
FORCE MAJEURE
7 Motorola shall not be responsible for failure to discharge its obligations
under this Warranty due to causes beyond its reasonable control such as delays
by suppliers, material shortages; strikes, lockouts or other labor disputes;
disturbances; government regulations, floods, lightning, fires, wars, accidents,
and acts of God.
DEFAULT AND TERMINATION
8.1 Motorola shall have the right to immediately terminate this Warranty, and
to suspend its performance under this Warranty, upon notification to PageMart if
PageMart:
(a) assigns or transfers PageMart's rights or obligations under this
Warranty without Motorola's prior written consent; or
(b) within thirty (30) days of written demand by Motorola, fails to pay any
charge for Advance Replacement Parts supplied under this Warranty, if PageMart
has not timely returned the defective item(s).
8.2 Notwithstanding termination of the Warranty to PageMart, PageMart shall
remain responsible for all amounts then due.
LIMITATION OF LIABILITY
9 UNDER NO CIRCUMSTANCES WILL MOTOROLA OR PAGEMART BE LIABLE TO THE OTHER FOR
LOSS OF USE, DAMAGE TO OR LOSS OF PRODUCTS OR SERVICES, LOSS OF DATA, FAILURE TO
REALIZE EXPECTED SAVINGS, FRUSTRATION OF ECONOMIC OR BUSINESS EXPECTATIONS, LOST
REVENUE OR PROFITS, REPROCUREMENT COSTS, OR FOR ANY OTHER SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF THEY WERE FORESEEABLE OR MOTOROLA
OR PAGEMART WAS INFORMED OF THEIR POTENTIAL.
MOTOROLA PROPRIETARY CONFIDENTIAL 34
<PAGE> 35
CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM SECTIONS BELOW
ARTICLE IV: INFRASTRUCTURE EQUIPMENT
SECTION 3. EQUIPMENT PRICING
(a) Motorola's prices to PageMart for infrastructure Equipment,
including related Software, shall
(b)
(c)
MOTOROLA PROPRIETARY CONFIDENTIAL 35
<PAGE> 36
ARTICLE V: GENERAL SYSTEMS ENGINEERING, INSTALLATION, SERVICES &
MAINTENANCE
Motorola may provide the following services to PageMart for the implementation
of the advanced messaging System(s):
ENGINEERING SERVICES
Site or System Propagation Studies
RF Coverage Verification
Site Survey
System Designs
System Test Plans
System Documentation
Block Diagrams / Installation Drawings
As-Built Information
System Manuals
System Staging and Testing
INSTALLATION SERVICES
Supervised Subcontracts
Inventory Control Plans
Warehousing Options
Optimization Plans
Regional or Nationwide Installation Plans
Statements of Work
PROGRAM MANAGEMENT SERVICES
Project Task List
Contract Management Plan
Project Schedule
Subcontract Plan with Statement of Work
Site Survey Report
Documentation Package
Periodic Progress Reports
System Test Plan
Commissioning and Acceptance Plan
MAINTENANCE
Tailored Service Agreement
Maintenance and Service Pricing
Single Source Service Dispatch/Contact
Centralized Repair Depot
Centralized Region or Nationwide Billing
Mixed Product Contracts
MOTOROLA PROPRIETARY CONFIDENTIAL 36
<PAGE> 1
CONFIDENTIAL INFORMATION ON PAGE 4, APPENDICES A AND C HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION
MOTOROLA CONFIDENTIAL PROPRIETARY
TECHNOLOGY ASSET AGREEMENT
THIS AGREEMENT is effective as of the 1st day of December, 1995, by and between
Motorola, Inc., a Delaware corporation having an office at 1303 East Algonquin
Road, Schaumburg, IL 60196 U.S.A., (hereinafter called "MOTOROLA"), and PageMart
Wireless, Inc., its successors, subsidiaries, and affiliates, including, but not
limited to PageMart, Inc. and PageMart PCS, Inc. (hereinafter collectively
called "PAGEMART").
WHEREAS, PAGEMART owns and has or may have intellectual property assets (set
forth below in Section 1.2 through Section 1.3) relating to advanced messaging
and paging technology in various countries of the world; and
WHEREAS, MOTOROLA has an interest in acquiring all PAGEMART's rights and
ownership in certain of PAGEMART's intellectual property assets owned or
controlled by PAGEMART;
NOW, THEREFORE, in consideration of the mutual covenants and undertakings set
out herein and other good and valuable consideration, the, receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Section 1 - DEFINITIONS
1.1 The PURCHASE AGREEMENT means that certain agreement by and between PAGEMART
and MOTOROLA being concurrently executed with this Agreement detailing the
purchasing commitments by PAGEMART with respect to one-way and two-way
infrastructure equipment and two-way wireless subscriber equipment.
1.2 The PAGEMART PATENTS means any PAGEMART owned or controlled patents or
pending patent applications including all world-wide: divisions, continuations,
continuations-in-part, reissues, renewals, and extensions thereof, any
counterparts claiming priority therefrom or the benefit of the filing date
thereto, a list of which is attached hereto and marked Appendix A. Additionally,
PAGEMART PATENTS shall further mean and include inventions conceived before
January 1, 1997 by employees (of PAGEMART) or others under an obligation to
assign to PAGEMART. Additionally, PAGEMART PATENTS means or includes the
PAGEMART INVENTION INFORMATION (defined below).
1.3 PAGEMART INVENTION INFORMATION means all notes, reports, analysis, designs,
schematics, processes, data, and like information owned, controlled, or created
by PAGEMART relating to the PAGEMART PATENTS.
1
<PAGE> 2
MOTOROLA CONFIDENTIAL PROPRIETARY
Such PAGEMART INVENTION INFORMATION may be attached herein as Appendix B.
1.4 AFFILIATE of a party means any legal entity whose majority or controlling
ownership interest representing the right to vote for or manage the affairs of
the entity is, during the term of this Agreement, owned or controlled (but only
so long as such ownership or control exists), directly or indirectly, by that
party. For the purpose of this definition, "control" means the right to vote 50%
or more of the shares or other securities of a U.S. corporation or other U.S.
entity or the right to vote 20% or more of the shares or other securities of a
foreign corporation or other foreign entity.
1.4.1 In the event that PAGEMART chooses to reduce their "control" in a foreign
corporation or other foreign entity below the 20% voting rights described in
sec.1.4, MOTOROLA agrees to negotiate a license agreement in good faith with the
new controlling party with respect to its loss of any rights due to PAGEMART's
loss of "control".
1.5 EFFECTIVE DATE is December 1, 1995.
Section 2 - RELEASES
2.1 PAGEMART hereby releases, acquits and forever discharges MOTOROLA (and
MOTOROLA's AFFILIATEs as of the EFFECTIVE DATE of this Agreement) from any and
all claims or liability for infringement or alleged infringement of THE PAGEMART
PATENTS by the fielding of any products or services, or acts in preparation of
providing products or services, prior to the EFFECTIVE DATE of this Agreement.
2.2 PAGEMART hereby agrees to dismiss with prejudice the pending lawsuit against
MobileMedia (Case No. 3-95CV1048-P, In the US District Court for the
Northeastern District of Texas, Dallas Division) relating to infringement of
U.S. Patent No. 5,239,671. PAGEMART further releases all rights to bring further
suit against MOTOROLA or any third party based on infringement of the PAGEMART
PATENTS.
Section 3 - GRANTS AND OBLIGATIONS
3.1 PAGEMART, for itself and on behalf of its AFFILIATEs, heirs, successors, or
assigns, hereby assigns to MOTOROLA all right, title, and interest to the
PAGEMART PATENTS as evidenced by the assignment documents of Appendix C and
other assignment documents that are
2
<PAGE> 3
MOTOROLA CONFIDENTIAL PROPRIETARY
reasonably required or requested by MOTOROLA from time to time that may be
further recorded by MOTOROLA.
3.2 MOTOROLA, for itself and on behalf of its AFFILIATEs, heirs, successors, or
assigns, hereby grants to PAGEMART and its AFFILIATES, a perpetual, fully paid,
non-exclusive, non-transferable, non-sublicensable right-to-use and sell
services license under the PAGEMART PATENTS (assigned to MOTOROLA under Section
3). AFFILIATEs of PAGEMART are licensed under this section so long as they meet
the requirements of Section 1.4.
3.3 PAGEMART, for itself and on behalf of its AFFILIATEs, heirs, successors, or
assigns, hereby assigns to MOTOROLA all right and title in all other patentable
subject matter now known or later discovered as being conceived before January
1, 1997 and agrees to execute such documents to transfer such rights in the
PAGEMART PATENTS to MOTOROLA and/or to aid in MOTOROLA's registration,
maintenance, or perfection of such rights. PAGEMART shall pay for all reasonable
expenses incurred in obtaining for MOTOROLA the appropriate assignment
signatures from Roger D. Linquist, Malcolm M. Lorang, any PAGEMART employees, or
any others who are under obligation to assign to PAGEMART the PAGEMART PATENTS.
Expenses that may be incurred beyond obtaining assignment signatures described
above (such as consulting fees to Mr. Lorang and Mr. Lindquist, if required)
will be paid by MOTOROLA.
3.4 PAGEMART shall have a continuing obligation to notify or report to MOTOROLA
regarding all information concerning all patents issued, pending patent
applications filed, or inventions conceived by employees (of PAGEMART) or others
under an obligation to assign to PAGEMART before January 1, 1997.
3.5 For the term of five (5) years from the EFFECTIVE DATE of this AGREEMENT,
PAGEMART grants to MOTOROLA the right to inspect at MOTOROLA's expense all of
PAGEMART's INVENTION INFORMATION relating to the conception of inventions
(conceived before January 1, 1997) to determine whether such inventions shall be
included as one of the PAGEMART PATENTS, provided that MOTOROLA gives PAGEMART
30 days prior written notice of their intent to inspect.
3.5.1 MOTOROLA's right to inspect PAGEMART's INVENTION INFORMATION is limited to
three (3) inspections every twelve-month period.
3.5.2 MOTOROLA shall treat PAGEMART's INVENTION INFORMATION and other PAGEMART
information received pursuant to Section 3.5.1 which is identified by PAGEMART
as proprietary ("IDENTIFIED PROPRIETARY INFORMATION") as proprietary information
and agrees for a period of five
3
<PAGE> 4
CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM SECTION 4.3 BELOW
MOTOROLA CONFIDENTIAL PROPRIETARY
years from receipt of the INVENTION INFORMATION or the IDENTIFIED PROPRIETARY
INFORMATION not to divulge any PAGEMART INVENTION INFORMATION or the IDENTIFIED
PROPRIETARY INFORMATION it receives from PAGEMART to any other person, firm, or
corporation without prior written consent from PAGEMART and shall use the same
degree of care to avoid disclosure of such information as MOTOROLA employs with
respect to its own proprietary information of like importance. This provision
does not apply to PAGEMART's INVENTION INFORMATION that becomes the subject
matter of a U.S. patent application filed by MOTOROLA.
3.6 PAGEMART has the right to file patent application(s) conceived by PAGEMART
before January 1, 1997, which would otherwise be considered a PAGEMART PATENT
assigned to MOTOROLA under this Agreement, provided that MOTOROLA is given a
right of first refusal to file such patent application(s) on its own behalf and
further provided that MOTOROLA receives a perpetual, fully paid, royalty-free
license with the right to sublicense such patent application(s) in the event
PAGEMART files patent application(s) under this paragraph. PAGEMART shall give
written notice of its intent to file application(s) under this paragraph to
allow MOTOROLA to determine whether to exercise its right of first refusal and
MOTOROLA shall provide PAGEMART with its decision within 30 days. The
requirements of paragraph 4.3 apply to any royalty revenues received by MOTOROLA
under this paragraph. Patent applications filed by PAGEMART under this provision
are PAGEMART property subject to MOTOROLA's rights herein.
Section 4 - PAYMENT
4.1 A portion of the consideration for the transfer of the PAGEMART PATENTS to
MOTOROLA is outlined in Articles 3 and 4 of the PURCHASE AGREEMENT.
4.2 This TECHNOLOGY ASSET AGREEMENT shall survive any breach by PAGEMART of the
PURCHASE AGREEMENT and shall further survive termination by MOTOROLA of the
PURCHASE AGREEMENT for such breach by PAGEMART.
4.3 In the event that MOTOROLA expressly licenses the PAGEMART PATENTS to third
parties, such gross royalty revenues will be shared with
PAGEMART Royalty revenue shall only include actual licensing revenue
and shall exclude implied licenses.
4
<PAGE> 5
MOTOROLA CONFIDENTIAL PROPRIETARY
4.4 PAGEMART shall bear all costs including, but not limited to filing
fees, attorney fees, and maintenance fees incurred for all issued and pending
PAGEMART PATENTS (including foreign counterparts) as of the EFFECTIVE DATE.
MOTOROLA shall bear costs associated with the PAGEMART PATENTS that are due (if
no already incurred and paid for by PAGEMART) after the EFFECTIVE DATE.
SECTION 5 - TERM
The term of this Agreement shall be from the EFFECTIVE DATE until the expiration
of the last of the PAGEMART PATENTS.
SECTION 6 - WARRANTIES, REPRESENTATIONS, & INDEMNITIES
6.1 Each party warrants that it has the requisite authority to convey
the rights granted herein and that no commitments exist or shall be entertained
for the duration of this Agreement which would restrict its right to grant the
releases contemplated herein.
6.2 PAGEMART, warrants that:
6.2.1 PAGEMART is the owner of the full right and title to the PAGEMART
PATENTS and the PAGEMART INVENTION INFORMATION, and that to PAGEMART's
knowledge and belief, each of the foregoing are free and clear of all pledges,
liens, or encumbrances, and that the grants herein shall be binding on its
heirs, successors, and assigns.
6.2.2 There are no licensees or options to acquire licenses under the
PAGEMART PATENTS as of the EFFECTIVE DATE of this Agreement except for those
granted to PageMart Canada, Ltd., PageMart Latino America, S.A. de C.V., and
PageMart Asia, which have been previously granted licenses or options to
license the currently issued PAGEMART PATENTS. The present existence of these
licenses will not be deemed to be a breach of this Agreement.
6.3 PAGEMART warrants that it will provide MOTOROLA all originals
(ribbon copies) of the PAGEMART PATENTS that are issued as of the EFFECTIVE
DATE or that subsequently issue.
SECTION 7 - PUBLICITY AND CONFIDENTIALITY
7.1 MOTOROLA and PAGEMART agree to issue a mutually approved press
release announcing only (1) the dismissal of the MobileMedia lawsuit,
5
<PAGE> 6
MOTOROLA CONFIDENTIAL PROPRIETARY
and (2) the transfer of PAGEMART PATENTS to MOTOROLA. Except as expressly
granted herein, nothing in this Agreement shall be construed as conferring upon
either party the right to include in advertising, packaging or other commercial
activity any reference to the other party, its trademarks, trade names, service
marks, or other trade identity in a manner likely to cause confusion, except
that the parties shall have the right to acknowledge the existence of this
Agreement.
7.2 Except as otherwise herein provided, the parties hereto shall keep the
terms of this Agreement and the PURCHASE AGREEMENT confidential and shall not
now or hereafter divulge any part thereof to any third party except:
7.2.1 with the prior written consent of the other party; or
7.2.2 to any governmental body having jurisdiction to request and to read the
same; or
7.2.3 as otherwise may be required by law or legal processes; or
7.2.4 to legal counsel representing either party; or
7.2.5 to accountants for the preparation of required tax documents; or
7.2.5.1 to accountants for the preparation of required financial statements
provided such parties agree to use best efforts to treat the content of this
Agreement as confidential; or
7.2.6 to accountants, financial advisors, and their counsel provided such
parties agree to treat the content of this Agreement as confidential; or
7.2.7 to regulatory agencies provided the parties hereto use their best
efforts to obtain confidential treatment and further provided that the
non-disclosing party is given an opportunity to review the material to be
disclosed before disclosure to such regulatory agency.
7.3 PageMart and Motorola agree that the terms of this Agreement, and the
terms of the PURCHASE AGREEMENT are confidential and cannot be disclosed by
either party outside its respective organization without the other's written
consent, except as may be required by law or for the purposes of securities
offerings or financings or to establish their rights under such agreements. The
parties agree, however, to work together to produce such press releases and
other public announcements as are acceptable to both parties.
6
<PAGE> 7
MOTOROLA CONFIDENTIAL PROPRIETARY
SECTION 8 - MISCELLANEOUS PROVISIONS
8.1 Nothing contained in this Agreement shall be construed as:
8.1.1 imposing on either party any obligation to institute any suit or
action for infringement of any patent or know-how, or to defend any suit or
action brought by a third party which challenges or concerns the validity or
enforceability or infringement of any patent; or
8.1.2 an obligation by either party to defend, indemnify or hold harmless
the other party or its AFFILIATEs from any suits, actions or claims alleging
infringement of any third party's patent or know-how, and neither party nor its
AFFILIATEs shall have any liability therefor; or
8.1.3 imposing on either party any obligation to file any patent
application or to secure any patent or maintain any patent in force or to seek
reissue, reexamination, or an extension of any patent or trademark; or
8.1.4 an obligation on either party to enforce its patents against third
parties; or
8.1.5 making either party the partner, joint venturer, agent, or
employer/employee of the other. Neither party shall have the authority to make
any statements, representations or commitments of any kind, or to take any
action, which shall be binding on the other, except as provided for herein or
authorized in writing by the party to be bound.
8.1.6 granting any party a sub-license under technology or intellectual
property licenses currently held by either party except for those identified
for the PAGEMART PATENTS.
8.2 No express or implied waiver by either of the parties to this
Agreement of any breach of any term, condition or obligation of this Agreement
by the other party shall be construed as a waiver of any subsequent breach of
that term, condition or obligation or of any other term, condition or
obligation of this Agreement of the same or of a different nature.
8.3 Anything contained in this Agreement to the contrary
notwithstanding, the obligations of the parties hereto shall be subject to all
laws, both present and future, of any Government having jurisdiction over
either party hereto, and to orders or regulations of any such Government, or
any department, agency, or court thereof, and to any contingencies resulting
from acts of war, acts of public enemies, strikes, or other labor disturbances,
fires, floods, acts of God, or any causes of like or different kind beyond the
control of the parties, and the parties hereto shall be excused from any
failure to perform any obligation hereunder to the extent such failure is
caused by
7
<PAGE> 8
MOTOROLA CONFIDENTIAL PROPRIETARY
any such law, order, regulation, or contingency, but only so long as said law,
order, regulation or contingency continues.
8.4 The captions used in this Agreement are for convenience only, and are
not to be used in interpreting the obligations of the parties under this
Agreement.
8.5 With respect to matters of contract construction and interpretation,
the substantive law of the state of Illinois, United States of America shall
apply. However, with respect to matters of infringement and validity of
intellectual property rights, the substantive law of the nation having
jurisdiction over such property or over matters affecting such intellectual
property rights shall be applied.
8.6 In no event shall either party be liable to the other party by reason
of breach or termination of this Agreement for any loss of prospective profits
or incidental or consequential damages.
8.7 The provisions of Sections 2, 3, 4, 6, and 7 shall survive the
expiration or termination of this Agreement for any cause.
8.8 If any term, clause, or provision of this Agreement shall be judged to
be invalid, the validity of any other term, clause, or provision shall not be
affected; and such invalid term, clause, or provision shall be deemed deleted
from this Agreement.
8.9 This Agreement and the PURCHASE AGREEMENT set forth the entire
Agreement and understanding between the parties as to the subject matter hereof
and merges all prior discussions between them, and neither of the parties shall
be bound by any conditions, definitions, warranties, understandings or
representations with respect to such subject matter other than as expressly
provided herein or as duly set forth on or subsequent to the date hereof in
writing and signed by a proper and duly authorized officer or representative of
the party to be bound thereby.
8.10 MOTOROLA and PAGEMART will attempt to settle any claim or dispute
arising out of this Agreement through consultation and negotiation in good
faith and a spirit of mutual cooperation. If those attempts fail, then the
dispute will be mediated by a mutually-acceptable mediator to be chosen by
Motorola and PageMart within 45 days after written notice by one of both
parties demanding mediation. Neither party may unreasonably withhold consent to
the selection of a mediator, and Motorola and PageMart will share the costs of
the mediation equally. By mutual agreement, however, Motorola and PageMart may
postpone mediation until each has completed some specified but limited
discovery about the dispute.
8
<PAGE> 9
MOTOROLA CONFIDENTIAL PROPRIETARY
8.10.1 The parties may also agree to replace mediation with some other form
of non-binding alternative dispute resolution (ADR), such as neutral
fact-finding or a minitrial.
8.10.2 Any dispute which the parties cannot resolve between them through
negotiation or mediation within six months of the date of the initial demand for
it by a party may then be submitted to the courts within the State of Texas for
resolution. Each party agrees to submit to the jurisdiction of those courts. The
use of any alternative dispute resolution procedure will not be construed under
the doctrines of laches, waiver or estoppel to affect adversely the rights of
either party and shall toll the statute of limitations period while the
alternative dispute resolution procedure(s) are ongoing. And nothing in this
paragraph will prevent either party from resorting to judicial proceedings if
(a) good faith efforts to resolve the dispute under these procedures have been
unsuccessful, or (b) interim relief from a court is necessary to prevent serious
and irreparable injury to one party or to others. Motorola and Pagemart
knowingly, voluntarily and intentionally waive the right each may have to a jury
for any such judicial proceedings including any claim, counterclaim, setoff or
defense relating in any way to this Agreement.
8.11 All notices, requests, demands, and other communications required or
permitted to be given hereunder shall be in writing and shall be valid and
sufficient if dispatched by registered or certified mail, postage prepaid and
addressed as set forth below, in any post office in the United States, or sent
via facsimile to the party identified below (provided that a confirmation cost
is mailed within ten (10) days thereafter by registered mail or certified
airmail). Either party may change its address and/or person to receive notice
under this Agreement by giving written notice of the change(s) to the other
party.
8.11.1 If to MOTOROLA:
Motorola Inc.
1303 East Algonquin Road
Schaumburg, Illinois 60196
Fax: (708) 576-3750
Attention: Vice President for Patents, Trademarks & Licensing
with a copy to:
Senior Credit Manager
Motorola Inc.
Pan American Paging Subscriber Group
1500 Gateway Boulevard
Boynton Beach, Florida 33426-8292
Phone: (407) 739-2991, Fax: (407) 739-8790
9
<PAGE> 10
MOTOROLA CONFIDENTIAL PROPRIETARY
8.11.2 If to PAGEMART:
PageMart Wireless, Inc.
6688 N. Central Expressway
Dallas, Tx 75206
Fax: (214) 373-6676
Attention: Legal Department
8.11.3 The date of actual receipt of such a notice shall be the date for
the commencement of the running of the period provided for in such notice, or
the date at which such notice takes effect, as the case may be. Any such
notice, request, demand, or other communication shall be deemed to have been
duly received fifteen (15) days after being mailed by registered or certified
airmail in a postage-paid properly addressed envelope, or the date when sent
via facsimile to the party intended (provided that a confirmation copy is
mailed within ten (10) days thereafter by registered mail or certified
airmail).
IN WITNESS WHEREOF, each party hereto has caused this Agreement to
be executed in duplicate originals by its duly authorized representative:
MOTOROLA, INC. PAGEMART WIRELESS, INC.
By; /s/ LARRY CARTER By: /s/ G. CLAY MYERS
---------------------------- ---------------------------
Title: Corporate V. P. Title: V.P. Finance & CFO
------------------------- ------------------------
Date: 1/26/96 Date: 1/26/96
------------------------- ------------------------
10
<PAGE> 11
CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM APPENDIX A BELOW
MOTOROLA CONFIDENTIAL PROPRIETARY
APPENDIX A
"PAGEMART PATENTS"
ISSUED PATENTS
U.S. PATENT NO. 5,239,671
U.S. PATENT NO. 5,355,529
U.S. PATENT NO. 5,361,399
U.S. PATENT NO. 5,423,056
As of the EFFECTIVE DATE, counterparts of U.S. Patent Nos. 5,239,671, 5,361,399,
and 5,423,056 were known to be filed in other countries and are also included
herein.
ALLOWED PENDING PATENT APPLICATIONS
1. U.S. PATENT APPLICATION NO.
Attorney Docket No.
2. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
3. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
PENDING PATENT APPLICATIONS
1. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
2. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
11
<PAGE> 12
CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM APPENDIX A BELOW
MOTOROLA CONFIDENTIAL PROPRIETARY
3. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
4. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
5. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
6. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
7. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
8. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
9. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
10. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
11. U.S. PATENT APPLICATION NO.
Attorney Docket NO.
(continuation of U.S. PATENT APPLICATION NO.
Attorney Docket No.
INVENTIONS CONCEIVED BEFORE JANUARY 1, 1997
TBD
12
<PAGE> 13
MOTOROLA CONFIDENTIAL PROPRIETARY
APPENDIX B
THE PAGEMART INVENTION INFORMATION LISTING
13
<PAGE> 14
MOTOROLA CONFIDENTIAL PROPRIETARY
APPENDIX C
PATENT ASSIGNMENT AND AGREEMENT
FOLLOWS ON NEXT PAGE
14
<PAGE> 15
CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM APPENDIX C BELOW
PATENT ASSIGNMENT AND AGREEMENT
For and in consideration of good and valuable consideration, the receipt of
which is hereby acknowledged, PageMart, Inc., PageMart Wireless, Inc., and
PageMart PCS, Inc., (hereinafter collectively called "PAGEMART") have sold,
assigned and transferred, and do hereby sell, assign and transfer effective
December 1st, 1995, unto MOTOROLA, INC., a corporation of the State of Delaware,
having its principal office in Schaumburg, State of Illinois, United States of
America, and its successors, assigns, and legal representatives, the entire
right, title and interest for the United States of America in and to certain
inventions described, illustrated and claimed in numerous U.S. Patent
Applications and Letters Patent of the United State of America, in particular:
U.S. PATENT NO. 5,239,671, U.S. PATENT NO. 5,355,529, U.S. PATENT NO. 5,361,399,
and U.S. PATENT NO. 5,423,056; U.S. PATENT APPLICATION NO. U.S. PATENT
APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT
APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT
APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT
APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT
APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT
APPLICATION NO. U.S. PATENT APPLICATION NO. and Attorney Docket
No. and upon any division, extension, continuation, reexamination, or
reissue thereof.
PAGEMART hereby also sells, assigns and transfers unto MOTOROLA, INC. the
entire right, title and interest in and to said inventions and Letters Patent
therefor in all countries foreign to the United States of America, including all
rights under any and all international conventions and treaties in respect of
said inventions and said applications for Letters Patent in foreign countries
that claim priority of the filing date of said Letters Patent under provisions
of any and all international conventions and treaties.
PAGEMART hereby authorizes and requests the Commissioner of Patents of the
United States of America to issue Letters Patent upon any division, extension,
continuation, reexamination, or reissue, to MOTOROLA, INC., for the sole use and
behalf of MOTOROLA, INC., its successors, assigns and legal representatives, to
the full end of the term for which said Letters Patent may be granted, the same
as they would have been held and enjoyed by PAGEMART had this assignment not
been made, and PAGEMART hereby authorizes and requests the equivalent
authorities in foreign countries to similarly issue the patents of their
respective countries to MOTOROLA, INC.
1
<PAGE> 16
PAGEMART agrees that, when requested, will, without charge to MOTOROLA,
INC., but at its expense, sign all papers, take all rightful oaths, and do all
acts which may be reasonably necessary, desirable or convenient for securing and
maintaining patents for said inventions in any and all countries and for vesting
title thereto in MOTOROLA, Inc., its successors, assigns and legal
representatives or nominees.
PAGEMART covenants with MOTOROLA, INC., its successors, assigns and legal
representatives, that the interest and property hereby conveyed is free from all
prior assignment, grant, mortgage, license or other encumbrance and is binding
upon my its heirs, successors, and assigns.
/s/ G. CLAY MYERS
Date: 1/26/96 ----------------------------------
---------- Print Name: G. CLAY MYERS
Title: V.P. FINANCE & CFO, PAGEMART
STATE OF TEXAS
COUNTY OF TARRANT
Before me, the undersigned, a Notary Public, on this day personally appeared G.
Clay Myers, known to me to be the person and officer whose name is subscribed to
the foregoing instrument, and acknowledged to me that the same was the act of
PAGEMART, and that he/she has executed the same as the act of PAGEMART for the
purposes and consideration therein expressed, and in the capacity therein
stated.
Given under my hand and notarial seal this 26th day of January, 1996.
STEPHANIE L. MORAN
Notary Public
Commission Number ____________
My commission expires: STEPHANIE L. MORAN
Notary Public, State of Texas
My Commission Expires 11-01-99
(SEAL)
2
<PAGE> 1
AGREEMENT dated as of May 10, 1996, among PageMart Wireless, Inc.
(the "Company"), J.P. Morgan Capital Corporation, a Delaware corporation, and
Sixty Wall Street Fund 1995, L.P., a Delaware limited partnership
(collectively, "JPM").
1.1 Definitions. Capitalized terms used but not
separately defined herein shall have the meanings ascribed to such terms in the
Amended and Restated Agreement Among Certain Stockholders of PageMart Wireless
Inc. dated as of the date hereof, as the same may be amended from time to time
(the "Stockholders' Agreement").
1.2 Restriction on Transfer. During the Restricted
Period, JPM shall not Transfer any shares of Common Stock except in a sale
pursuant to the provisions of Article II of the Stockholders' Agreement or as
otherwise permitted under Section 1.3 or 1.4 hereof.
1.3 Investors' Lock-Up Period. (a) If any
Institutional Investor shall sell any shares of Common Stock in the Initial
Public Offering or in any other Public Offering consummated during the
Restricted Period, during the Investor's Lock-Up Period relating to such Public
Offering JPM shall be permitted to Transfer a number of shares of Common Stock
equal to JPM's Maximum Percentage Number less the number of shares of Common
Stock sold by JPM in such Public Offering.
(b) Any Transfer of shares of Common Stock under Section
1.3(a) shall be either (x) a sale made in compliance with Rule 144 under the
Securities Act or (y) a dividend or other distribution in kind of such shares
to the partners, shareholders or other holders of the equity interests in JPM.
1.4 Termination of Certain Provisions. (a) The
provisions of Sections 1.2 and 1.3 shall terminate on the earlier to occur of
(i) the end of the Restricted Period or (ii) the date on which the Morgan
Stanley Shareholders shall own, in the aggregate, less than 20% of the
outstanding Common Stock; provided, however, that if the Morgan Stanley
Shareholders' ownership shall be reduced to less than, in the aggregate, 20% of
the outstanding Common Stock immediately following the consummation of a Public
Offering, then the provisions of Section 1.3 shall continue to apply until the
expiration of the Investors' Lock-Up Period in respect of such Public Offering.
1.5 Restrictions on Transfers by Regulated Stockholders.
(a) Notwithstanding the termination of any
<PAGE> 2
provision of this Agreement or anything to the contrary which may be contained
within this Agreement, JPM, as long as it is a Regulated Stockholder, may not
Transfer any shares of Class C Common Stock, except (i) to the Company, the
Morgan Stanley Shareholders or any stockholder or group of stockholders of the
Company that, immediately prior to such Transfer, control a majority of the
Company's Voting Capital Stock; (ii) to the ultimate parent corporation (a
"Parent") of JPM or any wholly-owned direct or indirect subsidiary of such
Parent (a "Controlled Subsidiary"); (iii) in connection with any merger,
consolidation or reorganization of the Company; (iv) in any Public Offering or
an open market sale pursuant to Rule 144 under the Securities Act (or any
successor rule or regulation); (v) in a private sale (otherwise than to the
Company, the Morgan Stanley Shareholders, any stockholder or group of
stockholders of the Company that, immediately prior to such Transfer, control a
majority of the Company's Voting Stock, a Parent or a Controlled Subsidiary of
such Parent), provided that JPM (a) shall have first offered to the Company the
right to purchase all of such shares of Class C Common Stock being sold
pursuant to a written offer which shall have been open to acceptance for a
period of at least ten days, for cash at a price which did not exceed the price
obtained in the private sale, and (b) shall not knowingly sell or otherwise
Transfer to any single person or group of persons acting in concert a number of
shares of Class C Common Stock which, if converted into Voting Capital Stock,
would represent more than 2 percent of the Voting Capital Stock then
outstanding; or (vi) upon the advice of counsel to JPM that such Transfer is
permitted under the laws and regulations applicable to JPM as a Regulated
Stockholder.
(b) Notwithstanding anything in this Agreement to the
contrary, in the event it becomes unlawful for JPM as a Regulated Stockholder
to continue to hold some or all of the shares of Common Stock held by it such
stockholder may Transfer its shares of Common Stock, and the Company shall use
commercially reasonable efforts to assist JPM in disposing of its shares in a
prompt and orderly manner.
(c) Any Transfers of shares of Common Stock by JPM,
including Transfers made pursuant to this Section 1.5, shall be made only in
compliance with all other provisions of this Agreement.
1.6 Effective Date. This Agreement shall become
effective on the Effective Date.
1.7 Successors and Assigns. (a) Nothing in this
Agreement, express or implied, is intended to confer upon
2
<PAGE> 3
any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties, except as otherwise
provided below or elsewhere in this Agreement.
(b) Any assignee or transferee of JPM (other than in any
transfer or sale in a Public Offering, pursuant to Rule 144 under the
Securities Act, or on a national securities exchange or automated quotation
system) shall be required, prior to the effective date of such transfer, to
execute an agreement in form and substance satisfactory to the Company by which
such transferee shall agree to assume the obligations under this Agreement of
the transferor to the extent applicable and specifying the rights under this
Agreement to which such transferee shall be entitled.
(c) Any transferee or assignee of JPM that, after giving
effect to such transfer or assignment, shall own at least 1,000,000 shares of
Common Stock, shall be subject to the provisions of Sections 1.2, 1.3 and 1.4
hereof.
(d) The Company shall not permit the transfer of any
shares of voting capital stock on its books or issue a new certificate
representing any such shares, otherwise than in compliance with the terms of
this Agreement.
1.8 Withdrawal. Following the Restricted Period JPM may
terminate this Agreement at any time if JPM, at such time, shall own less than
3% of the shares of Common Stock then outstanding (calculated on the same basis
as the Maximum Management Percentage).
1.9 Amendments. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the
written consent of the Company and JPM.
1.10 References to Shares of Common Stock. Each
reference to a number of shares of Common Stock (or a percentage) of the
Company owned by JPM made for the purpose of determining the rights and
obligations of JPM with respect to such shares shall be adjusted to reflect
stock splits, stock dividends, recapitalizations and similar events.
3
<PAGE> 4
1.11 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of New York without reference to the
principles of conflicts of law thereunder.
1.12 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
1.13 Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
1.14 Notices. Any notice required or permitted under
this Agreement shall be given in the manner set forth in the Stockholders'
Agreement.
1.15 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of this Agreement shall
be interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
1.16 Aggregation of Stock. For purposes of determining
the rights and obligations of JPM under this Agreement, all the shares of
Common Stock held by JPM and a transferee or assignee of JPM that is an
Affiliate of JPM shall be aggregated.
1.17 Entire Agreement. This Agreement constitutes the
entire agreement among the parties pertaining to the subject matter contained
herein and therein and supersedes and terminates all prior and contemporaneous
agreements and understandings of the parties or among certain of the parties.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
PAGEMART WIRELESS, INC.
By
---------------------------
John D. Beletic
President
J.P. MORGAN CAPITAL CORPORATION
By
---------------------------
Name:
Title:
SIXTY WALL STREET FUND 1995, L.P.
By: Sixty Wall Street Corporation
By
---------------------------
Name:
Title:
5
<PAGE> 1
EXECUTION COPY
AMENDED AND RESTATED
AGREEMENT AMONG
CERTAIN STOCKHOLDERS
OF PAGEMART WIRELESS, INC.
DATED AS OF
MAY 10, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
I. DEFINITIONS
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. REGISTRATION RIGHTS
2.1 Request for Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Request for Registration by FERSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3 Company Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.5 Furnish Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.6 Expenses of Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.7 Expenses of Company Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.8 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.9 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.10 Reports Under the Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.11 Limitations on Subsequent Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.12 Lock-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.13 Termination of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
III. VOTING AGREEMENT
3.1 Agreement to Vote for Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.2 Agreement of Voting Parties to Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.3 Specification of Designees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.4 Covenant of Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.5 Shares Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.6 Board Observers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.7 Stock Splits, Stock Dividends, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.8 Citizenship of FERSA Designee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.9 Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
IV. SPECIAL PROVISIONS APPLICABLE TO FERSA
4.1 Restrictions on Transfer of the FERSA Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.2 Special FERSA Transfer Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.3 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.4 Pledging of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
V. RIGHTS AND OBLIGATIONS WITH RESPECT TO TRANSFERS
5.1 [Intentionally left blank.] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2 Tag-Along Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5.3 Rights to Compel Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.4 [Intentionally left blank.] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.5 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.6 Investors' Lock-Up Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.7 Termination of Certain Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.8 Certain Other Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.9 Restrictions on Transfers by Regulated Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE IV
[Intentionally Left Blank]
VII. MISCELLANEOUS
7.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.2 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.4 Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.5 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.6 Special Provision with Respect to JPM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.7 References to Shares of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.10 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.11 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.13 Aggregation of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.14 Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.15 Other Agreements; Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.16 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED
AGREEMENT AMONG CERTAIN STOCKHOLDERS
AGREEMENT dated as of May 10, 1996, among PageMart Wireless, Inc.
(f/k/a PageMart Nationwide, Inc.) (the "Company") and certain of the holders of
common stock of the Company listed on the signature pages hereof.
WHEREAS, the Company expects to consummate its Initial Public
Offering (as defined below) in the near future;
WHEREAS, the Company and the parties to this Agreement wish to
effect certain changes to the Agreement upon the consummation of the Initial
Public Offering;
NOW, THEREFORE, the parties hereto agree as follows:
I. DEFINITIONS
1.1 Definitions. (a) The following terms, as used herein, have
the following meanings:
"Accel" means Accel Telecom L.P., Accel Investors '89 L.P., Accel
III L.P., Ellmore C. Patterson, Anne H. Patterson, Brandywine Trust Company, et.
al, Trustees U/A 5/4/56 FBO Jane C. Beck, Brandywine Trust Company, Trustee U/A
2/10/56 FBO Michael E. Patterson, Brandywine Trust Company, Trustee U/A 2/10/56
FBO Robert E. Patterson, Brandywine Trust Company, Trustee U/A 2/10/56 FBO
David C. Patterson, Brandywine Trust Company, Trustee U/A 2/10/56 FBO Thomas
H.C. Patterson, Maria W. Patterson, C/F Eloise C. Patterson U/NYUGMA, Maria W.
Patterson, C/F David G. Patterson U/NYUGMA, Maria W. Patterson, C/F Daphne D.
Patterson U/NYUGMA, Michael E. Patterson & Elena C. Patterson, Trustees U/A
9/6/90 FBO Anne H. Patterson, Michael E. Patterson & Elena C. Patterson,
Trustees U/A 9/6/90 FBO Elena A. Patterson, Michael E. Patterson & Elena C.
Patterson, Trustees U/A 3/12/92 FBO Michael E. Patterson, Jr., collectively.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person, whether through the ownership of voting securities, by contract or
otherwise and includes, in the case of any Person that is a
<PAGE> 5
trust or is acting through a nominee, any successor trustee or nominee.
"BTIP" means BT Investment Partners, Inc.
"Class A Common Stock" means Class A Convertible Common Stock, par
value $.0001 per share, of the Company, having the terms set forth in the
Amended and Restated Certificate of Incorporation of the Company.
"Class B Common Stock" means Class B Convertible Non-Voting Common
Stock, par value $.0001 per share, of the Company having the terms set forth in
the Amended and Restated Certificate of Incorporation of the Company.
"Class C Common Stock" means Class C Convertible Non-Voting Common
Stock, par value $.0001 per share, of the Company having the terms set forth in
the Amended and Restated Certificate of Incorporation of the Company.
"Class D Common Stock" means Class D Convertible Non-Voting Common
Stock, par value $.0001 per share, of the Company, having the terms set forth
in the Amended and Restated Certificate of Incorporation.
"Common Stock" means the Voting Capital Stock and the Non-Voting
Capital Stock.
"Communications Act" means the Communications Act of 1934, as
amended.
"Duly Endorsed" means, with respect to any stock certificate, duly
endorsed in blank by the Person or Persons in whose name a stock certificate is
registered or accompanied by duly executed stock powers.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 2510.3(3) of ERISA subject to part 4 of Subtitle B of Title
I of ERISA or to section 4975 of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exclusivity Period" means the period commencing on June 9, 1994
and expiring on February 1, 1996, provided, however, that FERSA may, at its
option, extend the Exclusivity Period for 270 days following February 1, 1996.
Notwithstanding the immediately preceding sentence, if PageMart de Mexico, S.A.
de C.V. obtains the License, and FERSA and the Company shall enter into
definitive agreements
2
<PAGE> 6
as contemplated by the Letter of Intent between the Company and FERSA, dated as
of June 9, 1994 prior to the date on which the Exclusivity Period would
otherwise expire, the Exclusivity Period shall continue through June 30, 1998.
"FERSA" means Fomento Empresarial Regiomontano, S.A. de C.V. and
its transferees Leadership Investments Ltd., Empresas La Moderna, S.A. de C.V.
and Seguros Comercial America, S.A. de C.V.
"FERSA Closing Date" means August 4, 1994.
"FERSA Shares" means the shares of Common Stock of the Company
sold to FERSA pursuant to the terms of the FERSA Subscription Agreement.
"FERSA Subscription Agreement" means the FERSA Subscription
Agreement dated as of June 9, 1994 between the Company and FERSA.
"First Plaza Group" means First Plaza Group Trust.
"Holder" means each holder of Common Stock which is a party to
this Agreement and any transferee or assignee thereof that shall become a party
to this Agreement in accordance with Section 7.3(a) and giving effect to the
provisions of Section 7.13.
"Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and includes
adoptive relationships.
"Initial Public Offering" means the first Public Offering
following the date hereof following which the Common Stock is Publicly Traded.
"Institutional Investors" means the Morgan Stanley Shareholders,
Accel, First Plaza Group, JPM, TDCGL and BTIP.
"JPM" means J.P. Morgan Capital Corporation and Sixty Wall Street
Fund 1995, L.P.
"License" means a license and all other licenses, approvals,
permits and consents necessary or desirable in the reasonable judgment of the
Company in connection with the business of providing one-way and two-way paging
and related nation-wide services and utilizing the 929.6625 Mhz and 929.7125
Mhz frequencies on an exclusive basis throughout Mexico.
3
<PAGE> 7
"Major Holder" means each Holder that beneficially owns an
aggregate of at least 1,000,000 shares of Common Stock.
"Management Holders" means John D. Beletic, G. Clay Myers, Daniel
Hay, Todd A. Bergwall, Kenneth L. Hilton, Sandra D. Neal, Homer L. Huddleston,
Douglas S. Glen, Carol W. Dickson, Richard S. Nelson, Frances W. Hopkins,
Lawrence H. Wecsler, Vick T. Cox, Douglas H. Kramp, Paul L. Turner, Jack D.
Hanson, Roger C. Linquist and Thomas C. Keys and such other members of
management of the Company as may become parties hereto from time to time.
"Material Adverse Change" means a material adverse change in the
condition (financial or otherwise), business, assets, or results or operations
of the Company.
"Morgan Stanley Shareholders" means the MS Merchant Banking Funds
and the MS Venture Capital Funds.
"MSCI" means Morgan Stanley Capital Investors, L.P., a Delaware
limited partnership.
"MSCP" means Morgan Stanley Capital Partners III, L.P., a Delaware
limited partnership.
"MSCP 892" means MSCP 892 Investors, L.P.
"MS Merchant Banking Funds" means MSLEF, MSCI, MSCP 892 and MSCP,
collectively.
"MSLEF" means The Morgan Stanley Leveraged Equity Fund II, L.P., a
Delaware limited partnership.
"MSVCF" means Morgan Stanley Venture Capital Fund, L.P., a
Delaware limited partnership.
"MSVCF CV" means Morgan Stanley Venture Capital Fund II, C.V., a
Netherlands Antilles limited liability partnership.
"MSVCF II" means Morgan Stanley Venture Capital Fund II, L.P., a
Delaware limited partnership.
"MSVI" means Morgan Stanley Venture Investors, L.P., a Delaware
limited partnership.
"MS Venture Capital Funds" means MSVCF, MSVCF II, MSVCF CV and
MSVI, collectively.
4
<PAGE> 8
"Non-Voting Capital Stock" means the Class B Common Stock, Class C
Common Stock and Class D Common Stock.
"Operating Company" means an "operating company" within the
meaning of Department of Labor Regulation Section 2510.3-101(c) or successor
rule or regulation, as from time to time amended and in effect.
"Person" means an individual, corporation, partnership,
association, trust or other entity or organization, including a government or
political subdivision or any agency or instrumentality thereof.
"Plan Assets" means "plan assets" within the meaning of Department
of Labor Regulation Section 2510.3-101(c) or successor rule or regulation, as
from time to time amended and in effect.
"Public Offering" means any primary or secondary public offering
of equity securities of the Company pursuant to an effective registration
statement under the Securities Act other than pursuant to a registration
statement filed in connection with a transaction described in Rule 145 of the
Securities Act or for the purpose of issuing securities pursuant to an employee
benefit plan.
"Publicly Traded" means, with respect to the Common Stock at any
time, that at such time the Common Stock shall be listed on a national
securities exchange or quotation system and at least 10% of the then
outstanding Common Stock shall have been distributed to the public in one or
more Public Offerings and shall be beneficially owned by Persons other than the
Holders or any of their respective Affiliates.
"Pulsar Control Shareholders" means the controlling shareholder of
Multicorp, S.A. de C.V., as set forth in its registry of shareholders on June
9, 1994, and his spouse, and their respective ancestors, siblings and lineal
descendants, and any trust created for the benefit of any such persons or any
of their respective Affiliates.
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
"Registrable Securities" means any shares of Common Stock now or
hereafter owned by any Holder and any shares of Common Stock Transferred in a
transaction in which
5
<PAGE> 9
the rights of the transferor under Article II of this Agreement with respect to
such shares are assigned in accordance with Section 7.3(a) or 7.3(b); provided
that "Registrable Securities" shall not include any shares of Common Stock that
may be sold without restriction pursuant to Rule 144(k) (or any successor rule)
under the Securities Act or are otherwise freely transferable in the United
States or to a United States person without registration and without
restriction under the Securities Act (as supported, if requested by any Holder,
by an opinion of counsel to the Company in form and substance reasonably
satisfactory to the Holder).
"Regulated Stockholder" shall have the meaning ascribed to that
term in the Amended and Restated Certificate of Incorporation of the Company.
"Restricted Period" means the period commencing on the closing
date of the Company's Initial Public Offering and ending on the first
anniversary of such date, provided that
(i) if such first anniversary date shall occur during an
Investors' Lock-Up Period, the Restricted Period shall terminate
concurrently with the expiration of such Investors' Lock-Up
Period;
(ii) if such first anniversary date shall occur during an
Underwriter's Lock-Up Period, the Restricted Period shall
terminate concurrently with the expiration of (A) such
Underwriter's Lock-Up Period, if no Investors' Lock-Up Period
shall follow immediately thereafter or (B) the Investors' Lock-Up
Period, if any, immediately following such Underwriter's Lock-Up
Period; and
(iii) if the Restricted Period would otherwise terminate during a
period in which the Company has elected to defer the filing of a
registration statement in accordance with the provisions of
Section 2.1(d)(i) or 2.2(d)(i), the Restricted Period shall be
extended and shall terminate concurrently (A) with Underwriter's
Lock-Up Period following such offering, if no Investors' Lock-Up
shall follow immediately thereafter, or (B) the Investor's Lock-Up
Period, if any, following such Underwriters' Lock-Up Period.
"SEC" means the Securities and Exchange Commission.
6
<PAGE> 10
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Issuance Plan" means the Amended and Restated 1991 Stock
Issuance Plan of the Company.
"Stock Option Plan" means the Amended and Restated 1991 Stock
Option Plan of the Company.
"TDCGL" means Toronto Dominion Capital Group Ltd.
"Third Party" means any Person (other than an Affiliate of the MS
Merchant Banking Funds) that proposes to purchase shares of Common Stock from
the MS Merchant Banking Funds in an arm's length transaction.
"Transfer" means transfer, sell, assign, pledge or otherwise
dispose of.
"Voting Capital Stock" means the Class A Common Stock.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Accel Designee Section 3.1(a)
Beletic Section 3.1(a)
Board Representative Section 3.6(a)
Compelling Holders Section 5.3(a)
Compelled Sale Offer Section 5.3(a)
Compelled Sale Purchaser Section 5.3(a)
Compelled Sale Offer Price Section 5.3(a)
Compelled Sale Notice Section 5.3(b)
Compelled Sale Notice Date Section 5.3(b)
Controlled Subsidiary Section 5.9(a)
Designating Party Section 3.1(b)
Effective Date Section 7.1
Family Transferee Section 5.8
FERSA Designee Section 3.1(a)
Initiating Holders Section 2.1(b)
Inspectors Section 2.4(i)
Investors' Lock-Up Period Section 5.6(e)
Linquist Section 3.1(a)
Maximum Percentage Number Section 5.6(e)
MS Designees Section 3.1(a)
MSCP Designee Section 3.1(a)
MSLEF Designee Section 3.1(a)
MSVCF Designee Section 3.1(a)
MSVCF II Designee Section 3.1(a)
</TABLE>
7
<PAGE> 11
<TABLE>
<S> <C>
Parent Section 5.9(a)
Participating Holder Section 5.2(a)(ii)
Tag-Along Notice Section 5.2(a)(ii)
Tag-Along Notice Date Section 5.2(a)(i)
Tag-Along Notice Period Section 5.2(a)(ii)
Tag-Along Offer Section 5.2(a)(i)
Tag-Along Offer Price Section 5.2(a)(i)
Tag-Along Offer Notice Section 5.2(a)(i)
Tag-Along Purchaser Section 5.2(a)(i)
Tag-Along Ratio Section 5.2(b)(i)
Tag-Along Shares Section 5.2(a)(i)
Transfer Date Section 5.2(a)(iii)
Underwriter's Lock-Up Period Section 2.12
Voting Parties Section 3.1(a)
Voting Shares Section 3.1(a)
</TABLE>
II. REGISTRATION RIGHTS
2.1 Request for Registration.
(a) If the Company shall, at any time more than six (6) months
after an Initial Public Offering, receive a written request from Holders, that
the Company file a registration statement under the Securities Act covering the
registration of a number of shares equal to at least 3 million shares of Common
Stock (or a lesser number if such number represents a majority of the
Registrable Securities then outstanding), then the Company shall, within ten
(10) days of the receipt thereof, give written notice of such request to all
Holders of Registrable Securities. Each such Holder shall have twenty (20)
days to notify the Company in accordance with the provisions of Section 7.11 of
the number of Registrable Securities such Holder proposes to sell. The Company
shall, subject to the limitations of subsections 2.1(b), (c) and (d), use its
best efforts to effect as soon as practicable the registration under the
Securities Act of all Registrable Securities that the Holders request to be
registered. Unless the Holders of a majority of the Registrable Securities to
be registered shall consent in writing, no other party (including the Company)
shall be permitted to offer securities under such demand registration.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as part of their request made pursuant to this Section 2.1
and the Company shall include such information in the written notice referred
to in subsection 2.1(a). The book-running managing underwriter and any
additional
8
<PAGE> 12
investment bankers and managers to be used in connection with the offering will
be selected by the Company; provided, that such managing underwriter and
additional investment bankers and managers shall be reasonably acceptable to a
majority in interest of the Initiating Holders. In such event, the right of
any Holder to include Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. Notwithstanding any other
provision of this Section 2.1, if the managing underwriter or underwriters
advise the Initiating Holders in writing that the size of the offering that the
Holders, the Company and such other persons (if any) intend to make is such
that the success of the offering would be materially and adversely affected by
inclusion of all of the Registrable Securities requested to be included, then
the number of shares of Registrable Securities to be included in the
underwriting shall be reduced pro rata (according to the Registrable Securities
proposed for the registration) to the extent necessary; provided, however, that
the Company shall first reduce entirely all securities other than Registrable
Securities prior to reducing the number of shares of Registrable Securities to
be included in such underwriting.
(c) The Company shall not be obligated to effect more than one
demand registration pursuant to this Section 2.1 in any six-month period.
Except as set forth in Section 2.6, a registration will not be counted as a
registration pursuant to Section 2.1 until it has become effective.
(d) Notwithstanding the foregoing:
(i) if the Company shall furnish to Holders requesting
a registration statement pursuant to this Section 2.1, a certificate signed by
the Chief Executive Officer of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 90 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve-month period and
provided further that if the expiration of the Restricted Period would otherwise
occur during the period of such deferral, such deferral shall be permitted only
with the
9
<PAGE> 13
prior written consent of the Holders of at least two-thirds of the then
outstanding Registrable Securities, it being understood and agreed that any
Holder that has requested that Registrable Securities held by such Holder be
included in such offering shall be deemed to have given such consent with
respect to all Registrable Securities held by such Holder; and
(ii) if the Company informs the Initiating Holders that
the Company has filed, or is in the process of preparing to file, a
Registration Statement for an underwritten offering that includes shares to be
sold for the benefit of the Company or FERSA, the filing requested by the
Initiating Holders shall be delayed until a date no sooner than 120 days after
consummation of such underwritten offering provided that the Company diligently
pursues such registration at all times.
2.2 Request for Registration by FERSA. If, (x) upon expiration
of the Exclusivity Period, PageMart de Mexico, S.A. de C.V. (or any other
entity controlled directly or indirectly by FERSA and the Company) shall not
have obtained the License and (y) the Company shall have completed its Initial
Public Offering, then the following provisions shall apply:
(a) If the Company shall receive a written request from FERSA
that the Company file a registration statement under the Securities Act
covering the registration of all of the Registrable Securities FERSA shall
own at the time such request is made, then the Company shall, within ten
(10) days of receipt thereof, give written notice of such request to all
Holders of Registrable Securities. Each such Holder shall have twenty (20)
days to notify the Company in accordance with the provisions of Section
7.11 of the number of Registrable Securities such Holder proposes to sell.
The Company shall, subject to the limitations of subsections 2.2(b), (c)
and (d) hereof, use its best efforts to effect as soon as practicable the
registration under the Securities Act of all Registrable Securities that
the Holders request to be registered. FERSA shall make no more than two
such requests for registration, but FERSA may include in any of its
requests Registrable Securities held by an Affiliate or Affiliates of the
Pulsar Control Shareholders.
(b) If FERSA intends to distribute the Registrable Securities
covered by its request by means of an underwriting, FERSA shall so advise
the Company
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as a part of its request made pursuant to this Section 2.2 and the Company
shall include such information in the written notice referred to in
subsection 2.2(a). The book-running managing underwriter and any
additional investment bankers and managers to be used in connection with
the offering will be selected by the Company; provided, however, that such
underwriter, additional investment bankers and managers shall be reasonably
acceptable to the persons (including the Company) owning a majority of the
shares of Common Stock to be registered in such offering. In such event,
the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by FERSA and such
Holder) to the extent provided herein. Notwithstanding any other provision
of this Section 2.2, if the managing underwriter or underwriters advise
FERSA and other Holders participating in such registration in writing that
the size of the offering that FERSA, the Holders, the Company and such
other persons (if any) intend to make is such that the success of the
offering would be materially and adversely affected by inclusion of the
Registrable Securities requested to be included, then the number of shares
of Registrable Securities to be included in the underwriting shall be
reduced pro rata (according to the number of Registrable Securities
proposed for the registration) to the extent necessary; provided, however,
that the Company shall first reduce entirely all securities other than
Registrable Securities prior to reducing the number of shares of
Registrable Securities to be included in such underwriting.
(c) The Company is obligated to effect only one (1) such
demand registration pursuant to this Section 2.2 in any six-month period.
Except as set forth in Section 2.6, a registration will not be counted as a
registration pursuant to this Section 2.2 until it has become effective.
(d) Notwithstanding the foregoing:
(i) if the Company shall furnish to FERSA a certificate
signed by the Chief Executive Officer of the Company stating that
in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its
stockholders for such registration
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<PAGE> 15
statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the
right to defer taking action with respect to such filing for a
period of not more than 120 days after receipt of the request of
FERSA; provided, however, that the Company may not utilize this
right more than once in any twelve-month period; and provided
further that if the expiration of the Restricted Period would
otherwise occur during the period of such deferral, such deferral
shall be permitted only with the prior written consent of the
Holders of at least two-thirds of the then outstanding Registrable
Securities, it being understood and agreed that any Holder that
has requested that Registrable Securities held by such Holder be
included in such offering shall be deemed to have given such
consent with respect to all Registrable Securities held by such
Holder; and
(ii) if the Company informs FERSA that the Company has
filed, or is in the process of preparing to file, a Registration
Statement for an underwritten offering that includes shares to be
sold for the benefit of the Company or other Holders, the filing
requested by FERSA shall be delayed until a date no sooner than
120 days after consummation of such underwritten offering provided
that the Company diligently pursues such registration at all
times.
2.3 Company Registration. (a) If (but without any obligation
to do so) the Company proposes to register any of its equity securities under
the Securities Act, in connection with the Public Offering by the Company
(following the Initial Public Offering) of such securities solely for cash the
Company shall, at such time, promptly (but in no event less than 30 days before
the filing date) give each Holder of Registrable Securities written notice of
such registration and such notice shall offer such Holders the opportunity to
register such number of shares of Registrable Securities as such Holder may
request. Upon the written request of each Holder given within twenty (20) days
after delivery of such notice by the Company in accordance with Section 7.11,
the Company shall, subject to the provisions of Section 2.3(b), cause to be
registered under the Securities Act all of the Registrable Securities that each
such Holder has requested to be registered.
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(b) If the underwriters determine in their sole discretion that
the total amount of securities, including Registrable Securities, requested by
Holders to be included in any Public Offering pursuant to Section 2.3 would
materially and adversely affect the success of such offering, then the Company
shall be required to include in the offering, in addition to any shares to be
registered by the Company, only that number of such Registrable Securities that
the underwriters determine in their sole discretion would not materially and
adversely affect the success of such offering (the Registrable Securities so
included to be apportioned pro rata among the selling Holders according to the
total amount of securities proposed to be included therein owned by each
selling Holder or in such other proportions as shall mutually be agreed to by
such selling Holders).
2.4 Obligations of the Company. Whenever required under this
Article II to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for not less than one hundred
twenty (120) days (or such shorter period as may be necessary to complete
the distribution of such Registrable Securities).
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement.
(c) Make available to the Holders prior to filing a
registration statement or prospectus or any amendment or supplement
thereto, copies of such registration statement, prospectus or any amendment
or supplement thereto as proposed to be filed, and thereafter, furnish to
such Holders such number of copies of such registration statement (in each
case including all exhibits thereto and documents incorporated by reference
therein) the prospectus, (including a preliminary prospectus, in conformity
with the requirements of the Securities Act), and such other
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<PAGE> 17
documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) Use its best efforts to (i) register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions in North America as shall
be reasonably requested by the Holders and (ii) cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Company and do any and all other acts and things that may
be reasonably necessary or advisable to enable such Holders to consummate
the disposition of the Registrable Securities owned by them; provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service
of process in any such states or jurisdictions.
(e) In the event of any underwritten Public Offering, enter
into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notify each Holder participating in such registration at
any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of an event requiring the
preparation of a supplement or amendment to such prospectus, so that as
thereafter delivered to the purchasers of Registrable Securities the
prospectus included in such registration statement will not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading, and promptly make available to each such Holder any such
supplement or amendment.
(g) Use its best efforts to furnish, at the request of any
Holder participating in a registration pursuant to this Article II, on the
date that the Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Article II, if such
securities are
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<PAGE> 18
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with
respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering, addressed to the underwriters, if any,
and to the Holders participating in such registration and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any.
(h) After the filing of the registration statement, notify
each selling Holder of Registrable Securities covered by such registration
statement of any stop order issued or threatened by the SEC and take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered.
(i) Make available at reasonable times for inspection by any
selling Holder of such Registrable Securities, any underwriter
participating in any disposition pursuant to such registration statement,
and any attorney, accountant or other professional retained by any such
Holder or underwriter in connection with such registration (collectively,
the "Inspectors"), (provided, that any Inspector shall first have executed
a confidentiality agreement in form and substance reasonably satisfactory
to the Company,) all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records") as
shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any Inspectors
in connection with such registration statement.
(j) Use its best efforts to comply with all applicable rules
and regulations of the SEC, and make available to its securityholders, as
soon as reasonably practicable, an earnings statement covering a period of
12 months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act.
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(k) Use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed and, if not so listed, to
be listed on the NASD automated quotation system and, if listed on the NASD
automated quotation system, use its best efforts to secure designation of
all such Registrable Securities covered by such registration statement as a
NASDAQ "national market system security" within the meaning of Rule 11Aa2-1
of the Securities Act or, failing that, to secure NASDAQ authorization for
such Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register as such
with respect to such Registrable Securities with the NASD. In the event
the Company lists Registrable Securities pursuant to the foregoing
sentence, the Company shall also, if so requested by any Holder, list, in
the same manner, any shares of Common Stock then owned by the Holders
which, at the time of such listing, are able to be sold without restriction
pursuant to Rule 144(k) (or any successor rule) of the Securities Act or
are otherwise freely transferable.
2.5 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Article II
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such
securities.
2.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications for (x) the first three registrations
pursuant to Section 2.1 and (y) for each registration pursuant to Section 2.2,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of one counsel for the
selling Holders, shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration begun
pursuant to Section 2.1 or 2.2 if the registration request is subsequently
withdrawn at the request, in the case of a registration pursuant to Section
2.1, of the Holders of a majority of the Registrable Securities to be
registered or at the request, in the case of a registration pursuant to
16
<PAGE> 20
Section 2.2, of FERSA (in which case all participating Holders shall bear such
expenses), unless such Holders, or FERSA, as the case may be, agree to forfeit
their right to one demand registration pursuant to Section 2.1 or 2.2, as
applicable, (for which the Holders' expenses otherwise would have been borne by
the Company pursuant to this Section 2.6); provided, further, however, that if
a Material Adverse Change has occurred since the date of the request by the
Initiating Holders or FERSA and the Initiating Holders or FERSA, as applicable,
have withdrawn their request with reasonable promptness following disclosure by
the Company of such Material Adverse Change, then the Holders or FERSA shall
not be required to pay any of such expenses but the Company shall pay all such
expenses and such payment shall not reduce the number of registrations pursuant
to Sections 2.1 or 2.2 for which the Company is obligated to pay registration
expenses hereunder. All such expenses in respect of each other registration
pursuant to Section 2.1 shall be borne by the Holders, and, if other Persons
participate, such other Persons pro rata in proportion to the number of shares
being sold by each Holder and other Persons in such registration, or, in case
of a registration pursuant to Section 2.2, by FERSA and if the Holders and
other Persons participate, such Holders and other Persons participating in such
registration pro rata in proportion to the number of shares being sold by each
Holder and each other Person in such registration.
2.7 Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 2.3 for each Holder (which right may be assigned as
provided in Section 7.3), including (without limitation) all registration,
filing and qualification fees, printer's and accounting fees relating or
apportionable thereto and the reasonable fees and disbursements of one counsel
for the selling Holders selected by them, but excluding underwriting discounts
and commissions relating to such Registrable Securities.
2.8 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Article II:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the
Securities Act) of Registrable Securities for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act,
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against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, or the Exchange Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus (unless cured in the final prospectus) or final
prospectus contained therein or any amendments or supplements thereto, (ii)
the omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or any rule
or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law; and the Company will pay to each such Holder,
underwriter or controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided, however, that
the indemnity agreement contained in this subsection 2.8(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company
be liable in any such case for any such loss, claim, damage, liability, or
action to the extent that such untrue statement or omission or alleged
untrue statement or omission is based upon written information furnished to
the Company expressly for use in connection with such registration by any
such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
severally but not jointly indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the registration
statement, each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any
such underwriter or other Holder against any losses, claims, damages, or
liabilities to which any of the foregoing persons may become subject, under
the Securities Act, or the Exchange Act or other federal or state law, but
only with reference to losses, claims,
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<PAGE> 22
damages, or liabilities (or actions in respect thereto) caused by written
information furnished by such Holder expressly for use in any registration
statement or prospectus relating to the Registrable Securities; and each
such Holder will severally but not jointly pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 2.8(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided;
however, that the indemnity agreement contained in this subsection 2.8(b)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided that, in no event shall any indemnity under this subsection 2.8(b)
exceed the net proceeds from the offering received, or which would have
been received, by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
2.8, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any
other indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however, that
an indemnified party (together with all other indemnified parties that may
be represented without conflict by one counsel) shall have the right to
retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding.
(d) Each indemnified party and its officers, employees and
agents shall cooperate with each indemnifying party in the defense of any
claims, losses, damages or liabilities or actions in respect thereof. No
indemnifying party shall, without the prior written consent of the
indemnified party, which shall not be unreasonably withheld, effect any
settlement of any pending or threatened proceeding in
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<PAGE> 23
respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such
indemnified party from all liability arising out of such proceeding.
(e) The obligations of the Company and the Holders under this
Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Article II, and
otherwise.
2.9 Contribution. (a) If the indemnification provided for in
this Article II is unavailable to the indemnified parties in respect of any
losses, claims, damages or liabilities referred to herein, then each such
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) as between the Company and
the selling Holders on the one hand and the underwriters on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the selling Holders on the one hand and the underwriters on the
other from the offering of the securities, or if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits but also the relative fault of the Company and
the selling Holders on the one hand and of the underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations and (ii) as between the Company on the one hand and each selling
Holder on the other, in such proportion as is appropriate to reflect the
relative fault of the Company and of each selling Holder in connection with
such statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the selling
Holders on the one hand and the underwriters on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and the selling Holders bear to the total underwriting discounts
and commissions received by the underwriters, in each case as set forth in the
table on the cover page of the prospectus. The relative fault of the Company
and the selling Holders on the one hand and of the underwriters on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission
20
<PAGE> 24
or alleged omission to state a material fact relates to information supplied by
the Company and the selling Holders or by the underwriters. The relative fault
of the Company on the one hand and of each selling Holder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by such
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the selling Holders agree that it would not be
just and equitable if contribution pursuant to this Section 2.9 were determined
by pro rata allocation (even if the underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 2.9, no underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages that such
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no selling Holder
shall be required to contribute any amount in excess of the amount by which the
net proceeds received by such selling Holder exceeds the amount of any damages
that such selling Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The selling Holders'
obligations to contribute pursuant to this Section 2.9 are several in
proportion to the proceeds of the offering received by such selling Holder
bears to the total proceeds of the offering received by all the selling Holders
and not joint.
(b) The obligations of the Company and the Holders under this
Section 2.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Article II, and otherwise.
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2.10 Reports Under the Exchange Act. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other successor or similar rule or regulation of the SEC
the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all
times more than ninety (90) days after the effective date of the first
registration statement filed by the Company for the offering of its
securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to any Holder so long as such Holder owns any
Registrable Securities forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC
Rule 144 (at any time after ninety (90) days after the effective date of
the first registration statement filed by the Company), the Securities Act
and the Exchange Act (at any time after it has become subject to such
reporting requirements), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration.
2.11 Limitations on Subsequent Registration Rights. The Company
shall not, without the prior written consent of the Holders of a majority of
the Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company that would allow such
holder or prospective holder (a) to include such securities in any registration
filed under Section 2.1 or 2.2 hereof, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of the Holders that is
included or (b) to make a demand registration that could result in such
registration statement being declared effective prior to the date set forth in
subsection 2.1(a) or within one hundred twenty (120) days of the effective date
of any registration effected pursuant to Section 2.1 or
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2.2 and for which a demand was made on the Company prior to the demand of such
other securityholder.
2.12 Lock-Up. During the period (the "Underwriter's Lock-Up
Period") specified by the Company and an underwriter of Common Stock or other
equity securities of the Company, which period shall not exceed 180 days,
following the effective date of a registration statement of the Company with
respect to such securities filed under the Securities Act each Holder shall
not, to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any equity
securities of the Company at any time during such period except the securities
included in such registration. The Company agrees, to the extent requested by
an underwriter of Registrable Securities being registered pursuant to Section
2.1 or 2.2, (i) not to effect any public sale or public distribution of any
equity securities similar to such Registrable Securities, or any securities
convertible into or exchangeable or exercisable for such Registrable
Securities, during the 14 days prior to, and during the 90-day period beginning
on, the effective date of any registration statement (except to the extent
permitted in accordance with the terms hereof) or the commencement of a public
distribution of Registrable Securities; and (ii) that any agreement entered
into after the date thereof pursuant to which the Company issues or agrees to
issue any privately placed equity securities shall contain a provision under
which holders of such securities agree not to effect any public sale or
distribution of any such securities during the periods described in (i) above,
in each case including a sale pursuant to Rule 144 under the Securities Act
(except as part of any such registration, if permitted); provided, however,
that the provisions of this Section 2.12 shall not prevent the conversion or
exchange of any securities pursuant to their terms into or for other
securities.
2.13 Termination of Registration Rights. The provisions of this
Article II (except for the provisions of Sections 2.8 and 2.9) shall terminate
and be of no further effect on the date that is four (4) years following the
consummation of the Initial Public Offering.
III. VOTING AGREEMENT
3.1 Agreement to Vote for Directors. (a) Each of the Morgan
Stanley Shareholders, Accel, Roger Linquist
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<PAGE> 27
("Linquist"), FERSA, BTIP, TDCGL and John D. Beletic ("Beletic") (collectively
referred to herein as the "Voting Parties") agree to vote all of their shares
of the Company's Voting Capital Stock now or hereafter owned by them, or that
they have the right to vote (the "Voting Shares"), at any regular or special
meeting of stockholders of the Company, or in lieu of any such meeting, to give
their written consent, in the election or removal of directors of the Company
so as to elect, one person designated by MSLEF ("the MSLEF Designee"), one
person designated by MSCP (the "MSCP Designee"), one person designated by MSVCF
("MSVCF Designee"), one person designated by MSVCF II ("MSVCF II Designee"),
one person designated by FERSA ("FERSA Designee"), one person designated by
Accel ("Accel Designee"), and at the direction of the Morgan Stanley
Shareholders, up to that number of designees of the Morgan Stanley Shareholders
("MS Designees") that will result in the MS Designees constituting such
percentage of the members of the Board of Directors of the Company as the
Morgan Stanley Shareholders shall be entitled to designate in accordance with
subsection 3.1(c) hereof. The Voting Parties agree to vote their Voting Shares
for the removal (including removal for no cause) of any director upon
instructions to that effect from the party who designated such director,
provided a replacement is concurrently designated by such party and elected.
(b) (i) If requested by any of the Holders entitled to
designate a director pursuant to Section 3.1(a) (each, "Designating Party") the
Voting Parties hereby agree to call, or cause the appropriate officers and
directors of the Company to call, a special meeting of stockholders of the
Company and to vote all of the Voting Shares owned or held of record by such
Voting Parties for, or to take all actions by written consent in lieu of any
such meeting necessary, to increase the number of directors of the Board of
Directors to enable the Voting Parties to elect the designee of such
Designating Party or to cause the removal (with or without cause) of any such
designee if (but only if) such Designating Party requests such director's
removal for any reason. Any Designating Party shall have the right to
designate a new nominee in the event any designee of such Designating Party
shall be so removed or shall vacate his directorship for any reason.
(ii) In the event of the resignation or removal of any director
elected to the Board of Directors who is not a designee of any Designating
Party, the vacancy created by such removal or resignation shall be filled by
action of the remaining members of the Board of Directors, provided that only
such number of MS Designees as shall not constitute a
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majority of such remaining members of the Board of Directors shall be permitted
to participate in any such action.
(c) (i) The Morgan Stanley Shareholders shall have the right
to designate and have elected pursuant hereto one-half of the members of the
Board of Directors only for so long as the total number of shares of Common
Stock of the Company held by the Morgan Stanley Shareholders constitutes at
least fifty percent (50%) of the outstanding Common Stock of the Company.
If such percentage ownership shall fall below 50%, the number of
directors that the Morgan Stanley Shareholders shall have the right to
designate and have elected pursuant hereto shall be reduced, subject to the
provisions of Section 3.1(c)(ii), to the number of directors which constitutes
a percentage representation on the Board of Directors equal to the Morgan
Stanley Shareholders' aggregate percentage ownership of the outstanding Common
Stock of the Company, rounded down to the next lowest whole number. If
necessary in order to give effect to the requirements of the preceding sentence
in a manner consistent with the requirements of Section 3.1(c)(ii), the parties
agree to take all action necessary to cause the number of members of the Board
of Directors to be increased, and the vacancies created thereby shall be filled
by action of the remaining members of the Board of Directors; provided, that
only such number of MS Designees as shall represent the Morgan Stanley
Shareholders' aggregate percentage ownership of the outstanding Common Stock of
the Company shall be permitted to participate in such action.
The parties agree to take all necessary action so that,
notwithstanding any other provision of this Agreement, at no time shall Persons
who are officers, directors, Affiliates or employees of any Morgan Stanley
Shareholder or of any Affiliate of any Morgan Stanley Shareholder constitute
more than one-half of the members of the Board of Directors of the Company.
(ii) MSLEF, MSCP, MSVCF, MSVCF II and Accel shall each maintain
its right to designate and have elected pursuant hereto one member of the Board
of Directors as set forth in paragraph (a) above for so long as the total number
of shares of Common Stock of the Company held by each of them constitutes at
least 7.5% of the outstanding Common Stock of the Company provided that any of
such Persons shall continue to have such right so long as its ownership exceeds
2% of the Company's outstanding Common Stock if such Person shall reasonably
determine that the continued possession of such right is necessary or desirable
in order for such
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<PAGE> 29
Person to qualify as a "venture capital operating company" within the meaning
of Department of Labor Regulation Section 2510.3-101, as amended.
(iii) FERSA shall maintain its right to designate one member of
the Board of Directors as set forth in paragraph 3.1(a) until the earlier of (x)
the date as of which FERSA ceases to beneficially own a number of shares of the
capital stock of the Company equal to the lesser of (A) all the FERSA Shares
purchased by FERSA under the FERSA Subscription Agreement and (B) 5% of the
outstanding capital stock of the Company and (y) the expiration of the
Exclusivity Period.
(d) For so long as the MS Merchant Banking Funds hold at least
7.5% of the Company's Common Stock, the Company will not amend the Restated
Certificate or the Company's Bylaws to eliminate the right of stockholders of
the Company to take action upon written consent without a meeting, without
prior notice and without a vote as provided in Section 11 of the Company's
Bylaws, and each of the Voting Parties agrees to take all action necessary to
prevent any such amendment.
(e) The Holders (other than JPM) shall take all actions
necessary to ensure that the Board of Directors of the Company shall consist of
at least eight members, and, in the event the number of members of the Board of
Directors is increased, the total number of members of the Board of Directors
shall, if requested by the Morgan Stanley Shareholders, be an even number.
3.2 Agreement of Voting Parties to Vote. The Voting Parties
agree to vote their Voting Shares for the election of directors in accordance
with Section 3.1 and as directed by the Secretary of the Company, in the manner
set forth below at any regular or special meeting of stockholders of the
Company, or in lieu of any such meeting, to give their written consent. The
Secretary of the Company shall notify the Voting Parties as to any such meeting
or written consent. The Secretary shall then give uniform instructions to each
Voting Party to vote its Voting Shares so as to accomplish the purposes of
Section 3.1 and copies of all such instructions shall be sent to each Voting
Party. To the extent any Voting Party fails to cast a vote with respect to any
of its Voting Shares, such Voting Party hereby irrevocably appoints the
Secretary of the Company the proxy of such Voting Party, with full power of
substitution, to vote in accordance with this Agreement all of the Voting
Shares that the undersigned is entitled to vote. Each such proxy shall be
considered coupled with an interest and is
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<PAGE> 30
given by each Voting Party in consideration of the proxy of the other Voting
Parties hereto and of the other covenants set forth herein.
3.3 Specification of Designees. In the event of an action for
the purpose of electing directors, the Company shall provide written notice
thereof to be delivered to the Voting Parties not later than thirty (30) days
before the date on which the Board's nominations are to be made (the
"Nomination Date"). Within twenty-five (25) days of receipt of such notice
from the Company, the Voting Parties shall notify the Company of the identity
of their respective Designees. Such time periods may be shortened upon receipt
of a written waiver from all Voting Parties, provided the Company has been
notified of the identity of their respective Designees. Promptly upon receipt
of notification of the Designees, the Company shall deliver written notice of
such designees to each of the Voting Parties (whether by means of notice of
meeting or otherwise).
3.4 Covenant of Company. Other than as required by law, the
Company hereby agrees and covenants to each party hereto (other than JPM) that
it will not give effect to any votes cast for the purpose of electing directors
in contravention of this Agreement.
3.5 Shares Legends. The certificates representing the shares
of Common Stock of the Holders shall bear a legend in substantially the
following form until the termination of all of the restrictions on transfer
under this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH IN THE AMENDED AND RESTATED AGREEMENT
AMONG STOCKHOLDERS OF PAGEMART NATIONWIDE, INC. DATED AS OF SEPTEMBER 19,
1995, AS AMENDED FROM TIME TO TIME, A COPY OF WHICH IS AVAILABLE FROM THE
ISSUER UPON REQUEST.
3.6 Board Observers. (a) So long as First Plaza Group, or
JPM, as the case may be, holds not less than 4% of the Common Stock the Company,
the Company will give such holder written notice of each meeting of its Board of
Directors and each committee thereof at the same time and in the same manner as
notice is given to the directors (which notice shall be confirmed in writing to
each such Person), and the Company will permit a representative of each such
holder (each, a "Board Representative") to attend as an observer all meetings of
its Board of Directors and all committees thereof; provided that in the case of
telephonic meetings conducted in accordance with the Company's bylaws
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<PAGE> 31
and applicable law, such Board Representatives shall be given the opportunity
to listen to such telephonic meeting. Such Board Representatives shall also be
provided with all written materials and other information (including, without
limitation, copies of minutes of meetings) given to directors in connection
with such meetings at the same time such materials and information are given to
the directors. If the Company proposes to take any action by written consent
in lieu of a meeting of its Board of Directors or any committee thereof, the
Company shall give written notice thereof to each such Board Representative
promptly following the effective date of such consent describing in reasonable
detail the nature and substance of such action. The Company shall pay the
reasonable out-of-pocket expenses of such Board Representatives incurred in
connection with attending such board and committee meetings.
(b) Prior to receiving any written information or materials
referred to in Section 3.6(a) or attending any meetings of the Board of
Directors or any of its committees, each of First Plaza Group and JPM shall be
required to execute a confidentiality agreement in form and substance
satisfactory to the Company and First Plaza Group or JPM, as applicable, and
shall agree to use any such materials or information only for the purpose of
evaluating and monitoring the investment of First Plaza Group or JPM, as the
case may be, in the Company and otherwise in compliance with applicable law.
(c) Each of First Plaza Group and JPM agrees to cause its
respective Board Representative to abstain from participation in the
proceedings of the Board of Directors of the Company in circumstances where,
were such Board Representative a member of such Board of Directors, such member
would abstain from participation due to an actual or potential conflict of
interest.
3.7 Stock Splits, Stock Dividends, Etc. In the event of any
stock split, stock dividend, recapitalization, reorganization, or the like, any
securities issued with respect to the Voting Shares shall become subject to
this Agreement, for purposes of this Agreement and shall be endorsed with the
applicable legends as set forth in Section 3.5 and 4.3 hereof.
3.8 Citizenship of FERSA Designee. So long as the size of the
board of directors of the Company is such that -- consistent with the
proportion of directors of the Company who, pursuant to Section 310(b)(4) of
the Communications Act, may (without special permission) be aliens -- the
Company may have at least one director who is
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not a U.S. citizen, FERSA shall be entitled to name a non-U.S. citizen as the
FERSA Designee. In no event shall any FERSA Designee be elected as a director
if such election would violate applicable provisions of the Communications Act,
or any rules, regulations or policy statements promulgated thereunder or issued
with respect thereto. Notwithstanding the foregoing, subject to the provisions
of Section 3.1 and to the extent permitted by law, FERSA shall be entitled to
designate a U.S. citizen, if it so elects.
3.9 Committees. So long as the Morgan Stanley Shareholders
hold securities representing at least 10% of the outstanding Common Stock of the
Company, the Company shall establish and maintain compensation and audit
committees of its Board of Directors, each consisting of up to four directors.
Accel, and those members of the Board of Directors who are not MS Designees,
shall each be entitled to designate one director on each such committee and the
Morgan Stanley Shareholders shall be entitled to designate up to two directors
on each such committee. All action taken by such committees shall require the
affirmative vote of a majority of the directors of such committee. The Company
hereby covenants and agrees that all compensation matters shall be presented to
and approved by such compensation committee.
IV. SPECIAL PROVISIONS APPLICABLE TO FERSA
4.1 Restrictions on Transfer of the FERSA Shares. Except as
otherwise provided in Section 4.2 below, until the earliest of (i) the third
anniversary of the FERSA Closing Date, (ii) the date as of which the Morgan
Stanley Shareholders shall cease to own at least 50% of the number of shares of
Common Stock of the Company beneficially owned by the Morgan Stanley
Shareholders as of the FERSA Closing Date (as such number may be adjusted from
time to time to reflect stock splits, stock dividends, and other similar
events), and (iii) the date as of which any person other than the Morgan
Stanley Shareholders shall acquire beneficial ownership of capital stock having
a majority of the voting power in the Company, FERSA agrees not to sell,
transfer, pledge, assign, or otherwise dispose of the FERSA Shares, except to
Affiliates of the Pulsar Control Shareholders.
4.2 Special FERSA Transfer Rights. In addition to the rights
of FERSA under Article II hereof, if (a) upon the expiration of the Exclusivity
Period PageMart de Mexico, S.A. (or any other entity controlled directly or
indirectly by FERSA and the Company) shall not have obtained a License,
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<PAGE> 33
and (b) as of such date, the Company is not Publicly Traded, then the
provisions of Section 4.1 shall cease to apply and FERSA shall have the right
to transfer all or any portion of the FERSA Shares to one or more third
parties, subject to the approval of the Company, which approval shall not be
unreasonably withheld, provided that (i) FERSA shall deliver to the Company,
upon the Company's request, an opinion of counsel to the effect that such
transfer is exempt from registration under the Securities Act and (ii) any such
transferee shall agree to be bound by the terms of this Agreement.
4.3 Legend. Each certificate for any FERSA Share shall
include a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED OR SOLD EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH
IN THE AMENDED AND RESTATED AGREEMENT AMONG SHAREHOLDERS OF
PAGEMART NATIONWIDE, INC. DATED AS OF SEPTEMBER 19, 1995, AS
AMENDED FROM TIME TO TIME, A COPY OF WHICH MAY BE OBTAINED FROM
PAGEMART NATIONWIDE, INC."
4.4 Pledging of Shares. Any Holder other than FERSA may
pledge, hypothecate or otherwise encumber its shares of Common Stock. Any
Holder which shall pledge, hypothecate or otherwise encumber its shares of
Common Stock shall give written notice to any pledgee of the terms of this
Agreement.
V. RIGHTS AND OBLIGATIONS WITH RESPECT TO TRANSFERS
5.1 [Intentionally left blank.]
5.2 Tag-Along Rights. (a)(i) If the MS Merchant Banking Funds
propose to transfer in a transaction or series of related transactions (other
than pursuant to Rule 144 under the Securities Act) a number of shares of
Common Stock which, together with all other Common Stock previously transferred
by the MS Merchant Banking Funds, is greater than 10% of the number of shares
of Common Stock owned by the MS Merchant Banking Funds as of the date hereof
(collectively, the "Tag-Along Shares") to one or more Third Parties (a
"Tag-Along Purchaser") pursuant to a bona fide offer to purchase (a "Tag-Along
Offer"), the MS Merchant
30
<PAGE> 34
Banking Funds shall provide written notice (the "Tag-Along Offer Notice") of
such Tag-Along Offer to the Company and each Holder, in the manner set forth in
this Section 5.2 (the date of receipt of such notice by each such party being
the "Tag-Along Notice Date"). The Tag-Along Offer Notice shall identify the
Tag-Along Purchaser, the number of shares of Common Stock proposed to be
purchased by the Tag-Along Purchaser, the Tag-Along Ratio (as defined in
Section 5.2(b)(i)), the consideration offered per share of Common Stock (the
"Tag-Along Offer Price") and any other material terms and conditions of the
Tag-Along Offer and, in the case of a Tag-Along Offer in which the Tag-Along
Offer Price consists in part or in whole of consideration other than cash, such
information relating to such consideration as the Company may reasonably
request in order to evaluate such non-cash consideration.
(ii) The Tag-Along Offer Price paid to any Holder shall be not
less than the highest price paid per share of Common Stock to the MS Merchant
Banking Funds pursuant to the Tag-Along Offer and the remaining terms shall be
no less favorable than those granted to the MS Merchant Banking Funds. Each of
the Holders that wishes to accept the Tag-Along Offer ("Participating Holder"),
shall, within 15 Business Days after the Tag-Along Notice Date (the "Tag-Along
Notice Period"), provide the MS Merchant Banking Funds with an irrevocable
written notice (a "Tag-Along Notice") specifying the number of shares of Common
Stock that such Holder wishes to transfer, and shall simultaneously provide a
copy of such Tag-Along Notice to the Company.
(iii) Not less than five Business Days prior to the proposed
date of any sale pursuant to a Tag-Along Offer (the "Transfer Date"), which date
may not be earlier than 10 Business Days after the termination of the Tag-Along
Notice Period, the MS Merchant Banking Funds shall notify the Company and each
Participating Holder of the Transfer Date. Not less than two Business Days
prior to the Transfer Date, each Participating Holder shall deliver to the MS
Merchant Banking Funds the Duly Endorsed certificate or certificates
representing the shares of Common Stock to be transferred pursuant to such offer
by the Holders, together with a limited power-of-attorney authorizing the MS
Merchant Banking Funds to transfer such shares of Common Stock pursuant to the
terms of the Tag-Along Offer and the provisions hereof and all other documents
required to be executed in connection with such Tag-Along Offer.
(b) (i) Each Participating Holder shall have the right to
transfer (and the MS Merchant Banking Funds shall reduce the number of their
shares of Common Stock to be sold
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<PAGE> 35
by a corresponding amount), pursuant to the Tag-Along Offer, a number of shares
of Common Stock equal to the product of the total number of shares of Common
Stock offered to be purchased by the Tag-Along Purchaser as set forth in such
Tag-Along Offer multiplied by a fraction (the "Tag-Along Ratio"), the
numerator of which shall be the aggregate number of shares of Common Stock
owned by such Holder and the denominator of which shall be the number of shares
of Common Stock owned by the Participating Holders and the MS Merchant Banking
Funds.
(ii) If at the termination of the Tag-Along Notice Period any
Holder shall not have accepted the Tag-Along Offer, such Holder will be deemed
to have waived any and all of its rights under this Section 5.2 with respect to
the transfer of any of its shares of Common Stock pursuant to such Tag-Along
Offer (as set forth in the relevant Tag-Along Offer Notice).
(c) The MS Merchant Banking Funds shall have 90 days from the
conclusion of the Tag-Along Notice Period in which to consummate the transfer
contemplated by the Tag-Along Offer to the Tag-Along Purchaser at the price and
on the terms contained in the Tag-Along Offer Notice. If, prior to the
expiration of such 90-day period any Compelled Sale Notice shall be delivered
pursuant to Section 5.3, the right of the MS Merchant Banking Funds to effect
such transfer shall terminate and the provisions of Section 5.3 shall apply.
Any material change in the terms of the Tag-Along Offer (it being understood
that any reduction in price is material) will require the submission of a new
Tag-Along Offer Notice and the recommencement of compliance with all of the
other applicable provisions of this Section 5.2. If, at the end of such 90-day
period, the MS Merchant Banking Funds have not completed the transfer
contemplated by the Tag-Along Offer Notice, the right of the MS Merchant
Banking Funds to effect such transfer shall terminate, and the Tag-Along Shares
subject to such proposed transfer shall again be subject to all the
restrictions on sale or other disposition and other provisions contained in
this Agreement.
(d) Substantially concurrently with the consummation of the
transfer of shares of Common Stock pursuant to the Tag-Along Offer, the MS
Merchant Banking Funds shall notify the Holders, shall remit to each of the
Holders the total sales price specified in the Tag-Along Offer Notice of the
shares of Common Stock of such Holder transferred pursuant thereto, and shall
furnish such other evidence of such transfer (including the time of completion)
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<PAGE> 36
and the terms thereof as may be reasonably requested by such Holders.
(e) No Holder shall be required to make any representation or
warranty in connection with the Tag-Along Offer other than as to such Holder's
ownership and authority to transfer, free of liens, claims and encumbrances,
the shares of Common Stock proposed to be transferred by it.
(f) JPM shall (i) have no rights under this Section 5.2. and
(ii) not be a "Holder" for purposes of this Section 5.2.
5.3 Rights to Compel Sale. (a) The Holders of a number of
shares of Voting Capital Stock equal to or in excess of 67% of the Voting
Capital Stock ("Compelling Holders") shall have the right, in connection with a
bona fide offer (a "Compelled Sale Offer") by a Third Party (a "Compelled Sale
Purchaser") to purchase for either cash, securities of a class registered under
Section 12 of the Exchange Act (or immediately convertible into such a class of
securities) or any combination thereof all of the shares of Common Stock and
any other equity securities of the Company held by the Compelling Holders,
exercisable as set forth below, to require, to the extent permitted by law,
each and every one (but not less than every one) of the Holders to sell all,
but not less than all, of the shares of Common Stock then held by such Holders,
to the Compelled Sale Purchaser, for the same consideration per share of Common
Stock (the "Compelled Sale Offer Price") and otherwise on the same terms and
conditions upon which the Compelling Holders sell their shares of Common Stock.
In the event any securities are issued by a Third Party to Holders in
connection with a Compelled Sale, such securities shall not be subject to any
contractual restrictions on resale for a period longer than three months
following their issuance, and such Third Party shall agree to register the
transaction in which any such securities are issued to Holders under the
Securities Act.
(b) If the Compelling Holders elect to exercise their right to
compel sale pursuant to this Section 5.3, the Compelling Holders shall deliver
written notice (a "Compelled Sale Notice") of the Compelled Sale Offer to each
Holder and the Company, setting forth the Compelled Sale Offer Price, the
identity of the Compelled Sale Purchaser and the other terms and conditions
thereof. Each Holder shall deliver to a representative of the Compelling
Holders designated in the Compelled Sale Notice in escrow, not less than five
Business Days before the proposed date of consummation of the Compelled Sale
Offer, the Duly Endorsed
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<PAGE> 37
certificate or certificates representing all of the shares of Common Stock
owned by such Holder, together with a limited power-of-attorney authorizing the
Compelling Holders to transfer such shares of Common Stock to the Compelled
Sale Purchaser pursuant to the terms of the Compelled Sale Offer at the
Compelled Sale Offer Price, and in accordance with the provisions hereof.
The Compelling Holders shall have 90 days from the date the
Compelled Sale Notice is received by the Holders (the "Compelled Sale Notice
Date") to sell to the Compelled Sale Purchaser at the Compelled Sale Offer
Price all of the shares of Common Stock subject to the Compelled Sale Offer.
Immediately after completion of any such sale pursuant to this Section 5.3, the
Compelling Holders shall notify the Company and each Holder of such completion
and shall furnish such evidence of such sale (including time of completion) and
of the terms thereof as the Company or any Holder may request. The Compelling
Holders shall substantially concurrently with such closing also remit to each
Holder the proceeds of such sale attributable to the sale of such Holder's
shares of Common Stock immediately upon receipt thereof; provided that if any
Holder fails to deliver the certificates for its shares of Common Stock to the
designated representative of the Compelling Holders in accordance with this
Section 5.3(b), the Compelling Holders shall hold such proceeds in escrow until
such defaulting Holder so delivers such certificates. If any sale to a
Compelled Sale Purchaser is not completed by the expiration of the 90-day
period referred to in this Section 5.3(b), then, without prejudice to the
Compelling Holders' right to seek to compel a sale under this Section 5.3 in
the future, the Compelling Holders shall return to each Holder all certificates
representing the shares of Common Stock of such Holder.
(c) No Holder required to sell shares of Common Stock pursuant
to a Compelled Sale Offer shall be required to make any representation or
warranty in connection with such Compelled Sale Offer other than as to such
Holder's ownership and authority to transfer, free of liens, claims and
encumbrances, the shares of Common Stock proposed to be sold by it.
(d) JPM shall (i) have no rights or obligations under this
Section 5.3 and (ii) not be a "Holder" for the purposes of this Section 5.3.
5.4 [Intentionally left blank.]
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5.5 Restrictions on Transfer. During the Restricted Period,
Holders other than FERSA and JPM shall not Transfer any shares of Common Stock
except in a sale pursuant to the provisions of Article II or as otherwise
required or permitted under Sections 5.2, 5.3, or 5.6 hereof.
5.6 Investors' Lock-Up Period. (a) If any Institutional
Investor shall sell any shares of Common Stock in the Initial Public Offering
or in any other Public Offering consummated during the Restricted Period,
during the Investor's Lock-Up Period relating to such Public Offering each
Holder shall be permitted to Transfer a number of shares of Common Stock equal
to such Holder's Maximum Percentage Number less (i) in the case of each Holder
(including Management Holders) the number of shares of Common Stock sold by
such Holder in such Public Offering and (ii) in the case of any Management
Holder, the number of shares of Common Stock sold pursuant to Section 5.6(b)
hereof.
(b) In addition to the rights set forth in Section 5.6(a),
during the Restricted Period (except during any Underwriter's Lock-Up Period)
each Management Holder shall be permitted to Transfer up to 10% of the number of
shares of Common Stock owned by such Management Holder as of the closing date of
the Initial Public Offering less the number of shares of Common Stock sold by
such Management Holder in any Public Offering or otherwise pursuant to Section
5.6(a).
(c) For purposes of any determination under Section 5.6(a) or
Section 5.6(b), each Management Holder shall be deemed to own as of any date
(i) any outstanding shares owned by such Holder as of such date, minus (ii) any
shares acquired upon exercise of options held by such Holder as of May 11,
1995, plus (iii) the shares of Common Stock underlying any options to purchase
Common Stock held by such Management Holder as of May 11, 1995, (iv) plus the
shares of Common Stock underlying any other options to purchase Common Stock
that are fully vested as of the date of the expiration of the Underwriter's
Lock-Up Period in respect of the Initial Public Offering.
(d) Any Transfer of shares of Common Stock under Section 5.6(a)
shall be either (x) a sale made in compliance with Rule 144 under the
Securities Act or (y) in the case of an Institutional Investor, a dividend or
other distribution in kind of such shares to the partners, shareholders or
other holders of the equity interests in such Institutional Investor.
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<PAGE> 39
(e) For purposes of this Section 5.6, the following terms shall
have the meanings set forth below:
"Investors' Lock-Up Period" means the period commencing on the
date of the expiration of the Underwriter's Lock-Up Period in respect of
the Initial Public Offering and any other Public Offering consummated
during the Restricted Period in which any Institutional Investor shall have
sold any shares of Common Stock and ending 90 days thereafter.
"Maximum Percentage Number" means with respect to any Public
Offering and any Holder, the number of shares of Common Stock held by such
Holder immediately prior to such Public Offering multiplied by the highest
ratio of shares of Common Stock sold by any Institutional Investor in such
Public Offering, measured as against the number of Common Shares owned by
such Institutional Investor immediately prior to such Public Offering.
(f) JPM shall have no rights under this Section 5.6.
5.7 Termination of Certain Provisions. (a) The provisions of
Sections 5.3, 5.5 and 5.6 shall terminate on the earlier to occur of (i) the
end of the Restricted Period or (ii) the date on which the Morgan Stanley
Shareholders shall own, in the aggregate, less than 20% of the outstanding
Common Stock; provided, however, that if the Morgan Stanley Shareholders'
ownership shall be reduced to less than, in the aggregate, 20% of the
outstanding Common Stock immediately following the consummation of a Public
Offering, then the provisions of Section 5.6 shall continue to apply until the
expiration of the Investors' Lock-Up Period in respect of such Public Offering.
5.8 Certain Other Transfers. Notwithstanding any other
provision of this Agreement, each Management Holder shall be permitted to
Transfer by means of gift or bequest shares of Common Stock to members of the
Immediate Family of such Management Holder ("Family Transferee"), provided that
(i) any such Family Transferee shall agree to be bound by the terms of this
Agreement applicable to the shares of Common Stock so transferred and (ii) the
terms of any such transfer shall provide that any actions required or permitted
to be taken hereunder (including the delivery of notices) with respect to the
shares so transferred shall be permitted to be taken only by the transferor, as
agent for the transferee, and (iii) no such Transfer shall relieve any
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such Management Holder of any obligations under this Agreement with respect to
any shares so transferred.
5.9 Restrictions on Transfers by Regulated Stockholders. (a)
Notwithstanding the termination of any provision of this Agreement or anything
to the contrary which may be contained within this Agreement, no Regulated
Stockholder may Transfer any shares of Class C Common Stock, except (i) to the
Company, the Morgan Stanley Shareholders or any stockholder or group of
stockholders of the Company that, immediately prior to such Transfer, control a
majority of the Company's Voting Capital Stock; (ii) to the ultimate parent
corporation (a "Parent") of such Regulated Stockholder or any wholly-owned
direct or indirect subsidiary of such Parent ("a Controlled Subsidiary"); (iii)
pursuant to Section 5.2 or 5.3 of this Agreement, in a transaction in which
such Regulated Stockholder was not the stockholder proposing such transaction;
(iv) in connection with any merger, consolidation or reorganization of the
Company; (v) in any Public Offering or an open market sale pursuant to Rule 144
under the Securities Act (or any successor rule or regulation); (vi) in a
private sale (otherwise than to the Company, the Morgan Stanley Shareholders,
any stockholder or group of stockholders of the Company that, immediately prior
to such Transfer, control a majority of the Company's Voting Stock, a Parent, a
Controlled Subsidiary of such Parent, or pursuant to Sections 5.2, 5.3 or
5.9(iv) of this Agreement), provided that the Regulated Stockholder (a) shall
have first offered to the Company the right to purchase all of such shares of
Class C Common Stock being sold pursuant to a written offer which shall have
been open to acceptance for a period of at least ten days, for cash at a price
which did not exceed the price obtained in the private sale, and (b) shall not
knowingly sell or otherwise Transfer to any single person or group of persons
acting in concert a number of shares of Class C Common Stock which, if
converted into Voting Capital Stock, would represent more than 2 percent of the
Voting Capital Stock then outstanding; or (vii) upon the advice of counsel to
such Regulated Stockholder that such Transfer is permitted under the laws and
regulations applicable to such Regulated Stockholder.
(b) Notwithstanding anything in this Agreement to the contrary,
in the event it becomes unlawful for any Regulated Stockholder to continue to
hold some or all of the shares of Common Stock held by it such stockholder may
Transfer its shares of Common Stock, and the Company shall use commercially
reasonable efforts to assist such stockholder in disposing of its shares in a
prompt and orderly manner.
37
<PAGE> 41
(c) Any Transfers of shares of Common Stock by any Regulated
Stockholder, including Transfers made pursuant to Section 5.9, shall be made
only in compliance with all other provisions of this Agreement.
(d) The provisions of this Section 5.9 shall not apply to JPM.
5.10 Further Assurances. To the extent that the exercise of any
right or the performance of any obligation by any Holder under Sections 5.2,
5.3, 5.5 and 5.6 shall be prohibited by law, such Holder and the other parties
hereto agree to cooperate in good faith in any reasonable and lawful
alternative arrangements designed to provide such Holder or such other parties,
as the case may be, the economic benefit from the exercise of such right or the
performance of such obligation, provided that no party shall enter into any
such arrangement that would, in the reasonable judgment of the Company, be
materially adverse to the business of the Company.
ARTICLE VI
[Intentionally left blank.]
VII. MISCELLANEOUS
7.1 Effective Date. This Agreement, as amended and restated as
of May 10, 1996, shall become effective (the "Effective Date") on the later to
occur of the date (i) as of which the Company, the Holders of a majority of the
outstanding shares of Voting Capital Stock and the Holders of at least 75% of
the outstanding shares of Voting Capital Stock held by Major Holders shall have
delivered duly executed counterparts hereof, or (ii) the Company shall have
consummated its Initial Public Offering, provided that such date shall occur on
or before December 31, 1996. Until the occurrence of the Effective Date the
Amended and Restated Agreement among Certain Stockholders of PageMart
Nationwide, Inc. dated as of September 19, 1995 shall continue in full force
and effect.
7.2 Information. The Company hereby agrees to provide each
Holder with a copy of any report filed by the Company at the SEC pursuant to
any reporting obligations to which the Company may be subject under Sections 13
and 15 of the Exchange Act, or if the Company is not subject to Sections 13 or
15 of the Exchange Act, such quarterly or annual financial information as would
have been required if subject to such provisions.
38
<PAGE> 42
7.3 Successors and Assigns. Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties, except as otherwise provided below or elsewhere in this
Agreement:
(a) Rights of Holders of Registrable Securities under Article
II may be assigned or transferred by a Holder (with all related obligations) to
a transferee or assignee of such securities, provided, however, that after
giving effect to such assignment or transfer, such transferee (if not already a
Holder prior to such transfer or assignment) holds at least 1,000,000 shares of
Registrable Securities, provided, further, any Management Holder may assign or
transfer his or her respective rights under Article II to any assignee or
transferee of securities owned by such Management Holder to a member of the
Immediate Family of such Management Holder or any trust for the benefit of any
such person.
(b) (i) The rights of FERSA to cause the Company to register
Registrable Securities pursuant to Section 2.2 may be assigned by FERSA to any
transferee of at least 50% of the FERSA Shares, provided that the total number
of demand registrations FERSA and any such transferee may make under Section
2.2 shall not exceed two; and (ii) all other rights and obligations of FERSA
under this Agreement shall, upon a transfer of FERSA Shares by FERSA to an
Affiliate of the Pulsar Control Shareholders, become the rights and obligations
of such transferee (without regard to Sections 7.3(d) and 7.3(e) hereof).
(c) The right to designate directors to the Board of Directors
of the Company granted under Article III shall not be transferable. However,
each Voting Party agrees not to transfer any voting capital stock, unless and
until the person to whom such shares are to be transferred agrees in writing to
vote the shares to elect the other Voting Parties' designees in accordance
herewith and acknowledges it shall not be entitled to designate any directors
under Article III; provided that the foregoing shall not apply to any transfer
of shares (i) in or following the consummation of the Initial Public Offering
or (ii) in a transfer in compliance with Rule 144 under the Securities Act,
unless such transfer is a transfer of all of the shares of voting capital stock
of such Voting Party to one third party.
39
<PAGE> 43
(d) Any transferee or assignee (including any transferees or
assignees of the MS Merchant Banking Funds and FERSA) that, after giving effect
to such transfer or assignment, shall own (i) at least 100,000 shares of Common
Stock, shall be subject to the provisions of Section 2.12 hereof, solely in
connection with an Initial Public Offering and (ii) at least 1,000,000 shares
of Common Stock, shall be subject to the provisions of Sections 2.12, 5.2, 5.3,
5.5, 5.6, 5.7 and 7.5 hereof.
(e) Any assignee or transferee of any Holder (other than in
any transfer or sale in a Public Offering, pursuant to Rule 144 under the
Securities Act, or on a national securities exchange or automated quotation
system) shall be required, prior to the effective date of such transfer, to
execute an agreement in form and substance satisfactory to the Company by which
such transferee shall agree to assume the obligations under this Agreement of
the transferor to the extent applicable and specifying the rights under this
Agreement to which such transferee shall be entitled, and thereupon such
transferee shall be deemed to be a "Holder" for purposes of this Agreement,
except that, a transferee or assignee that, after giving effect to such
transfer, shall subject to Section 7.13 own less than 1,000,000 shares of
Common Stock shall not be deemed a "Holder" for purposes of this Agreement.
(f) The Company shall not permit the transfer of any shares of
voting capital stock on its books or issue a new certificate representing any
such shares, otherwise than in compliance with the terms of this Agreement.
7.4 Withdrawal. Following the Restricted Period any Holder
which, on such date, (i) shall own less than 3% of the shares of Common Stock
then outstanding (calculated on the same basis as the Maximum Management
Percentage), and (ii) is not a Management Holder, may elect to cease to be a
Holder for any and all purposes of this Agreement by giving notice to the
Company of such Holder's intention to withdraw in accordance with the provision
of Section 7.11 hereof.
7.5 Amendments. Any provision of this Agreement may be amended
and the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent
of the Company and the Holders of a majority of the shares of Voting Common
Stock then owned by the Holders; provided, however, that (i) any amendment or
waiver of Article II hereof (including definitions incorporated therein) that
treats any Holder in a manner less favorable than other
40
<PAGE> 44
Holders shall only be effective as to the Holder so treated with its or their
prior written consent and, without limiting the foregoing, Section 2.2 may not
be amended without FERSA's consent; (ii) the provisions of Section 3.6
(including definitions incorporated therein) may only be amended or waived with
the prior written consent of First Plaza Group and JPM; (iii) the provisions of
Sections 5.2 and 5.3 (including definitions incorporated therein) may not be
amended or waived in any manner that is adverse to the interests of Holders
entitled to rights thereunder without the prior written consent of the holders
(other than JPM) of 75% of the shares of Voting Common Stock held by Major
Holders; (iv) any amendment pursuant to clauses (i) through (iii) above that
treats any Holder in a manner less favorable than other Holders shall only be
effective as to the Holder so treated with its or their prior written consent;
(v) Section 3.1 (including definitions incorporated therein) may only be
amended to reduce or eliminate a Person's representation on the Company's Board
of Directors with the consent of the Person adversely affected; (vi) any
amendment to Section 7.13(a), (b), (c), (d), (e) and (f) shall require the
consent of Accel, FERSA, JPM, BTIP, the Morgan Stanley Shareholders and First
Plaza Group, respectively; (vii) any amendment or waiver of Section 5.6(b)
hereof which shall adversely affect the Management Holders may only be effected
with the consent of one-third of the Management Holders; and (viii) if under
any provisions of this Section 7.5 the amendment or waiver of any provision of
this Agreement requires the consent of a Holder or of the Holders of a
specified number of shares of Voting Common Stock, such provision may only be
amended or waived with the consent of such Holder or Holders, as the case may
be.
7.6 Special Provision with Respect to JPM. JPM shall have no
rights or obligations under Sections 3.1, 4.1 and 4.2 and shall not be
permitted to seek enforcement of the terms of such Sections. Each of Sections
3.1, 4.1 and 4.2 may be amended without the consent of JPM.
7.7 References to Shares of Common Stock. Each reference to a
number of shares of Common Stock (or a percentage) of the Company owned by a
Holder made for the purpose of determining the rights and obligations of such
Holder with respect to such shares shall be adjusted to reflect stock splits,
stock dividends, recapitalizations and similar events.
7.8 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of New
41
<PAGE> 45
York without reference to the principles of conflicts of law thereunder.
7.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.10 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.11 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or 5 days
after deposit with the United States Post Office, by registered or certified
mail, postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties; provided, however, that notice to parties residing outside the
United States shall be deemed given only upon personal delivery via telex,
telegram or telefax and after confirmation of receipt thereof.
7.12 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
7.13 Aggregation of Stock. (a) All shares of the Common Stock
held or acquired by the Accel entities or persons shall be aggregated together
for the purpose of determining the availability of any rights of Accel under
this Agreement.
(b) All shares of Common Stock held or acquired by FERSA and
any Affiliate of the Pulsar Control Shareholders to which FERSA transfers any
FERSA Shares shall be aggregated together for the purpose of determining the
availability of any rights of FERSA under this Agreement.
(c) For purposes of determining whether such Person is a
"Holder" or a "Major Holder" under the Agreement, all the shares of Common Stock
held by JPM and a
42
<PAGE> 46
transferee or assignee of JPM that is an Affiliate of JPM shall be aggregated.
(d) For purposes of determining whether such Person is a
"Holder" or a "Major Holder" under this Agreement, all shares of Common Stock
held by BTIP and a transferee or assignee of BTIP that is an Affiliate of BTIP
shall be aggregated.
(e) For purposes of determining whether such Holders are a
"Major Holder" under this Agreement, all the shares of Common Stock held or
acquired by the MS Merchant Banking Funds shall be aggregated and the shares
held or acquired by the MS Venture Capital Funds shall be aggregated.
(f) For purposes of determining whether such Person is a
"Holder" or a "Major Holder" under this Agreement, all shares of Common Stock
held by First Plaza Group and a transferee or assignee of First Plaza Group
that is an Affiliate of the First Plaza Group shall be aggregated.
7.14 Plan Assets. The Company is and will be an Operating
Company and none of the underlying assets of any of the Company or its
subsidiaries are or will be deemed to be Plan Assets with respect to First Plaza
Group or any Employee Benefit Plan which owns stock of the Company or which is
affiliated with First Plaza Group and/or any other owner of the stock of the
Company.
7.15 Other Agreements; Transactions with Affiliates. (a) There
are no agreements relating to the Company or to the investment of any Major
Holder in the Company between the Company or any of the Morgan Stanley
Shareholders, on the one hand, and the Company or any other Major Holder, on
the other hand, other than this Agreement, the FERSA Subscription Agreement and
the letter agreement dated August 4, 1994 between MSLEF and FERSA.
(b) The Company will not enter into any transaction with any
Major Holder or with any Affiliate of any Major Holder, except upon fair and
reasonable terms no less favorable to the Company than could be obtained at the
time of such transaction in a comparable arm's-length transaction with a Person
that is not such a holder or an Affiliate. The foregoing shall not apply to
transactions (i) approved by a majority of the disinterested members of the
Board of Directors or for which the Company has obtained a fairness opinion of
a nationally recognized investment banking firm, (ii) the payment of amounts to
Morgan Stanley
43
<PAGE> 47
& Co. Incorporated or its Affiliates pursuant to underwriting, advisory or
placement agreements or (iii) loans and advances to officers or employees made
in the ordinary course of business.
7.16 Entire Agreement. This Agreement constitutes the entire
agreement among the parties pertaining to the subject matter contained herein
and therein and supersedes and terminates all prior and contemporaneous
agreements and understandings of the parties or among certain of the parties.
44
<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
PAGEMART WIRELESS, INC.
By
----------------------------
John D. Beletic
President
Address: 6688 North Central Expressway
Suite 800
Dallas, Texas 75206
THE MORGAN STANLEY LEVERAGED EQUITY
FUND II, L.P.
By MORGAN STANLEY LEVERAGED EQUITY
FUND II, INC., its General Partner
By
----------------------------
Name:
Title:
Address: 1221 Avenue of the Americas
New York, New York 10020
MORGAN STANLEY CAPITAL PARTNERS
III, L.P.
By: MSCP III, L.P.,
its General Partner
By: Morgan Stanley Capital
Partners III, Inc.,
its General Partner
By
----------------------------
Name:
Title:
Address: 1221 Avenue of the Americas
New York, New York 10020
45
<PAGE> 49
MORGAN STANLEY CAPITAL INVESTORS,
L.P.
By: MSCP III, L.P.
its General Partner
By: Morgan Stanley Capital
Partners III, Inc.,
its General Partner
By
----------------------------
Name:
Title:
Address: 1221 Avenue of the Americas
New York, New York 10020
MSCP III 892 INVESTORS, L.P.
By: MSCP III, L.P., its general
partner
By: Morgan Stanley Capital
Partners III, Inc., its
general partner
By
----------------------------
Name:
Title:
Address: 1221 Avenue of the Americas
New York, New York 10020
MORGAN STANLEY VENTURE CAPITAL
FUND II, L.P.
By: Morgan Stanley Venture
Partners II, L.P.,
its General Partner
By: Morgan Stanley Venture Capital
II, Inc., its Managing
General Partner
By
----------------------------
Name:
Title:
Address: 1221 Avenue of the Americas
New York, New York 10020
46
<PAGE> 50
MORGAN STANLEY VENTURE CAPITAL
FUND, L.P.
By: Morgan Stanley Venture
Partners L.P.,
its General Partner
By: Morgan Stanley Venture
Capital Inc.,
its Managing General Partner
By
----------------------------
Name:
Title:
Address: 1221 Avenue of the Americas
New York, New York 10020
MORGAN STANLEY VENTURE CAPITAL FUND
II, C.V.
By: Morgan Stanley Venture
Partners II, L.P.,
its General Partner
By: Morgan Stanley Venture
Capital II, Inc.,
its Managing General Partner
By
----------------------------
Name:
Title:
Address: 1221 Avenue of the Americas
New York, New York 10020
47
<PAGE> 51
MORGAN STANLEY VENTURE INVESTORS,
L.P.
By: Morgan Stanley Venture
Partners II, L.P.,
its General Partner
By: Morgan Stanley Venture
Capital II, Inc.,
its Managing General Partner
By
----------------------------
Name:
Title:
Address: 1221 Avenue of the Americas
New York, New York 10020
FIRST PLAZA GROUP TRUST
By: MELLON BANK, N.A., TRUSTEE
(as directed by General Motors
Investment Management Corporation)
By
----------------------------
Name:
Title:
Address: c/o Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258-0001
Attention: Bernadette Rist
General Motors Investment
Management Corporation
767 5th Avenue
New York, NY 10153
Attention: Kathryn T. Stokel
Robert D. Cromwell
48
<PAGE> 52
J.P. MORGAN CAPITAL CORPORATION
By
----------------------------
Name:
Title:
SIXTY WALL STREET FUND 1995, L.P.
By: Sixty Wall Street Corporation
By
----------------------------
Name:
Title:
Address: 60 Wall Street
New York, New York 10260
ACCEL TELECOM L.P.
By Accel Telecom Associates, L.P.,
its General Partner
By
----------------------------
Name:
Title:
Address: One Palmer Square
Princeton, NJ 08542
ACCEL INVESTORS '89 L.P.
By
----------------------------
Name:
Title
Address: One Palmer Square
Princeton, NJ 08542
49
<PAGE> 53
ACCEL III L.P.
By: Accel III Associates L.P.
its General Partner
By
----------------------------
Name:
Title
Address: One Palmer Square
Princeton, NJ 08542
BT INVESTMENT PARTNERS, INC.
By
----------------------------
Name:
Title:
Address: 130 Liberty Street
25th Floor
New York, New York 10006
Attention: Mr. Brian Talbot
Vice President
LEADERSHIP INVESTMENTS LTD.
By
----------------------------
Name:
Title:
Address: c/o FOMENTO EMPRESARIAL
REGIOMONTANO, S.A. DE C.V.,
Venecia 835-5
Col. Mitras Sur
Monterrey, N.L. 64020
Mexico
50
<PAGE> 54
EMPRESAS LA MODERNA, S.A. DE C.V.
By
----------------------------
Name:
Title:
Address: c/o FOMENTO EMPRESARIAL
REGIOMONTANO, S.A. DE C.V.,
Venecia 835-5
Col. Mitras Sur
Monterrey, N.L. 64020
Mexico
SEGUROS COMERCIAL AMERICA,
S.A. DE C.V.
By
----------------------------
Name:
Title:
Address: c/o FOMENTO EMPRESARIAL
REGIOMONTANO, S.A. DE C.V.,
Venecia 835-5
Col. Mitras Sur
Monterrey, N.L. 64020
Mexico
TD CAPITAL GROUP, LTD.
By
----------------------------
Name:
Title:
Address: Ernst & Young Tower, 20th floor
P.O. Box 1, Toronto Dominion Centre
Toronto, Ontario
M5K 1A2
Canada
51
<PAGE> 55
ELLMORE C. PATTERSON
ANNE H. PATTERSON
BRANDYWINE TRUST COMPANY, ET. AL,
TRUSTEES U/A 5/4/56 FBO JANE
C. BECK
BRANDYWINE TRUST COMPANY, TRUSTEE
U/A 2/10/56 FBO MICHAEL E.
PATTERSON
BRANDYWINE TRUST COMPANY, TRUSTEE
U/A 2/10/56 FBO ROBERT E.
PATTERSON
BRANDYWINE TRUST COMPANY, TRUSTEE
U/A 2/10/56 FBO DAVID C.
PATTERSON
BRANDYWINE TRUST COMPANY, TRUSTEE
U/A 2/10/56 FBO THOMAS H.C.
PATTERSON
MARIA W. PATTERSON, C/F ELOISE C.
PATTERSON U/NYUGMA
MARIA W. PATTERSON, C/F DAVID
G. PATTERSON U/NYUGMA
MARIA W. PATTERSON, C/F DAPHNE
D. PATTERSON U/NYUGMA
MICHAEL E. PATTERSON & ELENA C.
PATTERSON, TRUSTEES U/A
9/6/90 FBO ANNE H. PATTERSON
MICHAEL E. PATTERSON & ELENA C.
PATTERSON, TRUSTEES U/A 9/6/90
FBO ELENA A. PATTERSON
MICHAEL E. PATTERSON & ELENA C.
PATTERSON, TRUSTEES U/A
3/12/92 FBO MICHAEL E.
PATTERSON, JR.
By: Kaplan, Choate Management
Inc.
as Investment Manager
By
----------------------------
Name:
Title:
Address: c/o Kaplan Choate & Co.
880 Third Avenue
New York, NY 10022
52
<PAGE> 56
UNITED MISSOURI BANK OF KANSAS
CITY, N.A. FOR THE BENEFIT OF
GARI L. CHEEVER
By
----------------------------
Address: 1010 Grand
P.O. Box 419226
Kansas City, MO 64141-6226
UNITED MISSOURI BANK OF KANSAS
CITY, N.A. FOR THE BENEFIT OF
EDWARD M. LEONARD
By
----------------------------
Address: 1010 Grand
P.O. Box 419226
Kansas City, MO 64141-6226
By
----------------------------
ROGER LINQUIST
Address: 6688 N. Central Expy., Suite 1170
Dallas, Texas 75206
By
----------------------------
JOHN A. BELETIC
Address: P.O. Box 18662
Cleveland Heights, OH 44118-0662
53
<PAGE> 57
By
------------------------------
JOHN D. BELETIC
Address: 6688 N. Central Expy., Suite 800
Dallas, Texas 75206
By
------------------------------
JOHN D. BELETIC AS CUSTODIAN
FOR ALLISON C. BELETIC
Address: 6688 N. Central Expy., Suite 800
Dallas, Texas 75206
By
------------------------------
WALTER F. LOEB
Address: P.O. Box 1155
New York, NY 10580
By
------------------------------
VICK T. COX
Address: 6688 N. Central Expy., Suite 800
Dallas, Texas 75206
By
------------------------------
FRANCES W. HOPKINS
Address: 6688 N. Central Expy., Suite 800
Dallas, Texas 75206
By
------------------------------
SANDRA D. NEAL
Address: 6688 N. Central Expressway
Suite 800
Dallas, Texas 75206
54
<PAGE> 58
By
------------------------------
RICHARD S. NELSON
Address: 6688 N. Central Expy., Suite 800
Dallas, Texas 75206
By
------------------------------
MARY JO HERNANDEZ SABETI
Address: 6688 N. Central Expy., Suite 800
Dallas, Texas 750206
By
------------------------------
GARI L. CHEEVER
Address: 520 Lowell Avenue
Palo Alto, CA 94301
By
------------------------------
G. CLAY MYERS
Address: 6688 N. Central Expy.
Suite 800
Dallas, Texas 75206
By
------------------------------
KENNETH L. HILTON
Address: 6688 N. Central Expy.
Suite 800
Dallas, Texas 75206
By
------------------------------
HOMER HUDDLESTON
Address: 6688 N. Central Expy.
Suite 800
Dallas, Texas 75206
55
<PAGE> 59
By
------------------------------
DOUGLAS S. GLEN
Address: 6688 N. Central Expy.
Suite 800
Dallas, Texas 75206
By
------------------------------
CAROL W. DICKSON
Address: 6688 N. Central Expy.
Suite 800
Dallas, Texas 75206
By
------------------------------
LAWRENCE H. WECSLER
Address: 6688 N. Central Expy.
Suite 800
Dallas, Texas 75206
By
------------------------------
DOUGLAS H. KRAMP
Address: 6688 N. Central Expy.
Suite 800
Dallas, Texas 75206
By
------------------------------
PAUL L. TURNER
Address: 6688 N. Central Expy.
Suite 800
Dallas, Texas 75206
By
------------------------------
JACK D. HANSON
Address: 6688 N. Central Expy.
Suite 800
Dallas, Texas 75206
56
<PAGE> 60
By
------------------------------
THOMAS C. KEYS
Address: 6688 N. Central Expy.
Suite 800
Dallas, Texas 75206
By
------------------------------
TODD A. BERGWALL
Address: 6688 N. Central Expy.
Suite 800
Dallas, Texas 75206
By
------------------------------
CESARY PASIUK
Address: c/o Kaplan Choate & Co.
880 Third Avenue
New York, NY 10022
57
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Amendment No. 2 to Registration Statement No. 333-03012.
ARTHUR ANDERSEN LLP
Dallas, Texas
May 20, 1996
