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Filed Pursuant to Rule 424(b)(1)
Registration Number 33-91142
PROSPECTUS
PageMart Wireless, Inc.
15% Senior Discount Exchange Notes Due 2005
There will not be any payment of interest on the Notes prior to August 1, 2000.
From and after February 1, 2000, the Notes will bear interest, which will be
payable in cash at a rate of 15% per annum on each February 1 and August 1,
commencing August 1, 2000. At any time prior to February 1, 1998, up to 35% of
the accreted value of the Notes may be redeemed at the option of PageMart
Wireless, Inc. ("Wireless") in connection with a public offering of its or
PageMart, Inc.'s common stock at a redemption price of 112.5% of the accreted
value of the Notes. In addition, at any time on or after February 1, 2000, the
Notes may be redeemed at the option of Wireless, in whole or in part, at 105% of
their principal amount at maturity, plus accrued interest, declining to 100% of
their principal amount at maturity plus accrued interest on or after February 1,
2002. See "Description of Notes."
The Notes are unsecured senior indebtedness of Wireless, ranking pari passu with
Wireless' unsubordinated indebtedness and senior in right of payment to all of
its future subordinated indebtedness. At March 31, 1997, Wireless had no
indebtedness outstanding other than the Notes and Wireless' subsidiaries had
$111.4 million of indebtedness (none of which was secured) all of which would
have effectively ranked senior to the Notes. Wireless currently has no
arrangements to issue indebtedness subordinate to the Notes.
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SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE OFFERING AND AN INVESTMENT IN THE
NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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This Prospectus is to be used by Morgan Stanley & Co. Incorporated
("MS&Co."), in connection with offers and sales of the Notes in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale. MS&Co. may act as principal or as agent in such transactions.
Wireless will receive no portion of the proceeds of the sales of such Notes and
will bear the expenses incident to the registration thereof. If MS&Co. conducts
any market-making activities, it may be required to deliver a "market-making
prospectus" when effecting offers and sales in the Notes because of the equity
ownership of Wireless by The Morgan Stanley Leveraged Equity Fund II, L.P.
("MSLEF II"), Morgan Stanley Capital Partners, III, L.P. ("MSCP III"), Morgan
Stanley Venture Capital Fund, L.P. ("MSVCF") and certain other investment
partnerships, all of which are affiliates of MS&Co. These investment
partnerships own in the aggregate approximately 49% of the outstanding voting
common stock of Wireless. For as long as a market-making prospectus is required
to be delivered, the ability of MS&Co. to make a market in the Notes may, in
part, be dependent on the ability of Wireless to maintain a current
market-making prospectus.
July 22, 1997
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information....................................... 2
Incorporation of Certain Documents.......................... 2
The Company................................................. 4
Risk Factors................................................ 4
Selected Historical Financial and Operating Data............ 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 14
Description of Certain Indebtedness......................... 26
Description of the Notes.................................... 27
ERISA Considerations........................................ 49
Plan of Distribution........................................ 50
Legal Matters............................................... 51
Experts..................................................... 51
</TABLE>
AVAILABLE INFORMATION
Wireless has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with any amendments
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the securities offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all the information contained in the Registration Statement and the
exhibits and the schedule thereto, certain items of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is 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. For further information with respect to Wireless and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits and the financial statements, notes and the schedules filed as a
part thereof, which may be inspected at the public reference facilities of the
Commission, at the addresses set forth below.
Wireless is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports and other information with the Commission. The
indenture under which the 15% Senior Discount Exchange Notes due 2005 (the
"Notes") are issued (the "Indenture") requires Wireless to provide to holders of
the Notes annual reports that include audited annual consolidated financial
statements and an opinion thereon expressed by independent public accountants
and quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year. The Registration Statement, as well as
such reports and other information filed with the Commission can be examined
without charge at, or copies obtained upon payment of prescribed fees from, the
Commission's Public Reference Section at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS
The following documents or portions of documents filed by the Company (File
No. 0-28196) with the Commission are incorporated herein by reference: (a)
Annual Report on Form 10-K for the fiscal year ended December 31, 1996; and (b)
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, including
any amendments or reports filed for the purpose of updating such description.
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All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act since December 31, 1996, prior to
the termination of the offering of the securities offered hereby, shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such reports and documents. Any statement contained in a
document incorporated by reference herein shall be deemed modified or superseded
for purposes of this Prospectus to the extent that a statement contained or
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered a copy of any or all of such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the documents that
this Prospectus incorporates). Written or oral requests for copies should be
directed to Kelly Prentiss, PageMart Wireless, Inc., at the Company's executive
offices located at 6688 North Central Expressway, Suite 800, Dallas, TX 75206,
(214) 750-5809.
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As used in this Prospectus, unless the context otherwise requires, (i) 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, (ii) the term "Wireless"
refers to the holding company parent PageMart Wireless, Inc, and (iii) the term
"PageMart" refers to the operating company PageMart, Inc. The Company has four
classes of common stock outstanding. 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. 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" below.
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 sixth largest
paging carrier in the United States, based on 2,013,142 subscribers at March 31,
1997. The Company's number of subscribers has increased at annual growth rates
of 136%, 60% and 50% in 1994, 1995 and 1996, respectively. 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 $45.8 million,
$53.1 million, $48.6 million and $12.1 million for 1994, 1995, 1996 and the
three months ended March 31, 1997.
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, the Bahamas and Canada. On February 25, 1997, the Company
announced an expansion of services into Mexico and most of Central America
through its affiliation with Buscatel, a subsidiary of Telefonos de Mexico,
Mexico's largest telecommunications company, as well as other firms in Central
America. 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.
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 $2.5
million for the three months ended March 31, 1997 and an aggregate of $69.2
million of operating losses for the three-year period ended December 31, 1996.
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 principally due
to 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 had positive earnings before interest, taxes, depreciation and
amortization ("EBITDA") of $8.6 million for the year ended December 31, 1996,
prior to 1996 the Company had negative EBITDA in each year of its operations.
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
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 implementa-
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tion 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 continue to have positive EBITDA or that
its one-way operations will continue to generate positive EBITDA. If the Company
cannot achieve operating profitability or continue to generate 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."
HOLDING COMPANY STRUCTURE
In 1995, PageMart merged with a wholly-owned subsidiary of the Company
pursuant to which PageMart was the surviving corporation (the "Reorganization").
As a result of the Reorganization, Wireless is a holding company with no
business or operations of its own (other than all the outstanding shares of
capital stock of its operating subsidiaries). The Notes are obligations
exclusively of Wireless. Because all of Wireless' operations are conducted
through its subsidiaries (which consist primarily of PageMart and its
subsidiaries), Wireless' cash flow and consequently its ability to service debt,
including its ability to pay cash interest on the Notes beginning in 2000 and to
pay the principal of the Notes, 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' subsidiaries
are separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Notes or to make any funds
available therefor, whether by dividends, loans or other payments. See
"-- Inability of PageMart to Provide Financial Support to Wireless."
Because Wireless' subsidiaries have not guaranteed the payment of principal
of or interest on the Notes, any right of Wireless to receive assets of any of
its subsidiaries upon its liquidation or reorganization (and the consequent
right of the holders of the Notes to participate in the distribution of or
realize proceeds from those assets) will be effectively subordinated to the
claims of such subsidiary's creditors (including trade creditors and holders of
debt issued by such subsidiary), except to the extent that Wireless is itself a
creditor of such subsidiary, in which case the claims of Wireless would still be
subordinated to any security interest in the assets of such subsidiary and
indebtedness of such subsidiary senior to that held by Wireless. At March 31,
1997, the subsidiaries of Wireless had approximately $186.0 million of
indebtedness and other liabilities effectively senior to the Notes (including
the 12 1/4% Senior Discount Exchange Notes due 2003 of PageMart (the "12 1/4%
Notes")), none of which is secured. Although the Indenture and the indenture
relating to the 12 1/4% Notes (the "12 1/4% Indenture") impose certain
limitations on the ability of PageMart and its subsidiaries to incur additional
indebtedness, neither the Indenture nor the 12 1/4% Indenture limits the amount
of indebtedness of PageMart owed to vendors that is related to financing
purchases of inventory or equipment, nor the extent of liens that may be granted
to such vendors to secure such indebtedness.
INABILITY OF PAGEMART TO PROVIDE FINANCIAL SUPPORT TO WIRELESS
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. The 12 1/4% Indenture currently
does not permit dividends or distributions to be paid on PageMart's capital
stock owned by Wireless. See "Description of Certain Indebtedness." Accordingly,
until the maturity of the indebtedness under the 12 1/4% Notes (the last payment
of which is scheduled to occur on November 1, 2003), earlier repayment of such
indebtedness or compliance with the requirements of such debt instruments,
Wireless will be unable to use any amount of cash generated by the operations of
PageMart and its subsidiaries. Cash interest on the Notes will not be payable
until August 1, 2000. The ability of Wireless to pay principal of, or interest
on, the Notes may depend upon the ability of PageMart to pay dividends, or
otherwise loan, advance or transfer funds, to Wireless or, if PageMart is then
unable to provide sufficient funds to Wireless, the ability of Wireless to
refinance the 12 1/4% Notes or the Notes, obtain additional debt or equity
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financing or obtain amendments to such debt instruments. Wireless' ability to
refinance the 12 1/4% Notes or the Notes will depend, in part, on its financial
condition at the time and the covenants and other provisions in its debt
agreements. See "-- High Leverage; Deficiency of Earnings to Cover Fixed
Charges; Restrictive Covenants." No assurance can be given that Wireless will be
able to refinance the 12 1/4% Notes or the Notes on terms acceptable to it or at
all. Further, the terms of any indebtedness incurred in connection with any such
refinancing may be less favorable to Wireless than those of the 12 1/4% Notes or
the Notes and may also limit Wireless' operating flexibility or liquidity.
HIGH LEVERAGE; DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES; 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 Narrowband Personal Communications Service Licenses ("NPCS Licenses"). At
March 31, 1997, the Company's long-term debt was $248.9 million and its
stockholders' deficit was $1.5 million. In addition, the accretion of original
issue discount on the Company's outstanding indebtedness will cause an increase
in indebtedness of $94.9 million by 2000. The Company's deficiency of earnings
before fixed charges to cover fixed charges for the three months ended March 31,
1997 was $12.1 million and for each of the three years ended December 31, 1994,
1995 and 1996, was $45.8 million, $53.1 million and $48.6 million, respectively.
See "Selected Historical Financial and Operating Data."
The Indenture and 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," "Description of the Certain Indebtedness -- 12 1/4% Notes" and
"Description of the Notes -- Covenants."
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."
ASSETS PLEDGED TO SECURE OTHER DEBT
Neither the Indenture nor the 12 1/4% Indenture limits the amount of
indebtedness of PageMart owed to vendors that is related to financing purchases
of inventory or equipment nor the extent of liens that may be granted to such
vendors to secure such indebtedness. The Indenture also permits Wireless to
grant liens to secure up to $50 million of indebtedness under working capital or
revolving credit facilities. In the event of a
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default on the Notes, or a bankruptcy, liquidation or reorganization of the
Company, such assets will be available to satisfy obligations of the secured
debt before any payment could be made on the Notes. Accordingly, there may only
be a limited amount of assets available to satisfy any claims of the holders of
the Notes upon an acceleration of the Notes. In addition, to the extent that the
value of such collateral is insufficient to satisfy such secured indebtedness,
amounts remaining outstanding on such secured indebtedness would be entitled to
share pari passu with the Notes with respect to any other assets of Wireless.
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.
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 average
monthly disconnection rates for the twelve months ended December 31, 1995,
December 31, 1996 and the three months ended March 31, 1997 were 2.5%, 2.4% and
2.3% 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 Federal Communications Commission ("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.
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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.
As the Company begins development and implementation of NPCS 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 buildout requirements of the FCC. The
Company anticipates investing $75 to $100 million 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
fund operations, marketing and to add capacity to the network as the Company's
two-way customer base grows. 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 Indenture, the 12 1/4% Indenture and the Revolving
Credit Agreement (as defined herein) and as a result, any additional financing
may need to be in the form of new equity capital. The Company does not
anticipate any significant revenues from two-way services during 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.
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.
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."
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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. 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 previously
operating as either radio common carriers ("RCCs") or private carrier paging
operators ("PCPs"), including the Company. The FCC adopted new rules to govern
regulation of this new category, which became effective in August 1996. As a
result of the new rules, PCP licensees such as the Company have additional
obligations. 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.
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.
Management does not believe that the Texas law will have a material adverse
affect on the Company's operations. The FCC recently released regulations
implementing the universal service fund provisions of the Communications Act.
Beginning January 1, 1998, paging companies will be required to contribute to
this fund on the basis of interstate and intrastate telecommunications revenues
from end-users; additional obligations, based on interstate revenues, will
commence on January 1, 1999. The size of the fund and the percentage assessments
that will be levied on telecommunications carriers are being determined in an
ongoing FCC proceeding. Petitions for review of the FCC's universal service
order have been filed with federal appellate courts. In addition, FCC
regulations requiring long-distance carriers to compensate pay telephone
providers for 800 number and access code calls are currently being reviewed by
the U.S. Court of Appeals for the District of Columbia Circuit; the Company is
among those that have petitioned for review by the court. If the court allows
these FCC regulations to stand, it is likely that long-distance companies will
pass along a portion of their costs for these calls to paging company
subscribers. Management does not believe
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<PAGE> 10
that either of these FCC actions, if and when they take effect, will have an
adverse effect on the Company's operations. In connection with an ongoing
dispute with various local exchange carriers ("LECs") over the interpretation of
FCC regulations governing compensation for interconnection, the Company has made
certain payments to the LECs under protest or withheld payment entirely pending
resolution by the FCC. One LEC has asked the FCC to "clarify" the disputed
regulations, and the Company has filed comments in support of its position that
no compensation is due to the LECs for such interconnection. The Company has
maintained reserves for payments that the LECs claim are due, but that the
Company is presently withholding. 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.
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. 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. 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 has also signed network
affiliation agreements with leading paging providers in Mexico, El Salvador,
Guatemala, Honduras, Costa Rica and Panama. The Company may seek joint venture
partners in certain 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
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<PAGE> 11
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.
SIGNIFICANT OWNERSHIP
The MSLEF II, MSCP III, Morgan Stanley Capital Investors, L.P., MSVCF,
Morgan Stanley Venture Capital Fund II, L.P., Morgan Stanley Venture Capital
Fund II, C.V., MSCP 892 Investors, L.P. and Morgan Stanley Venture Investors,
L.P. (collectively, the "Morgan Stanley Shareholders") currently own
approximately 51.0% of the outstanding Common Stock and 48.7% of the outstanding
voting Common Stock. 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, Dean Witter, Discover & Co. ("MSDWD"). Three of
the eight directors of the Company are employees of a wholly-owned subsidiary of
MSDWD. 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, 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.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
A holder of a Note will be required to include in such holder's income, for
Federal income tax purposes, the original issue discount with respect to the
Note as it accrues, although no cash payments of interest on the Notes are
expected to be made until August 1, 2000. Nevertheless, the Company's deductions
with respect to part of such original issue discount will be deferred until the
related payments are made by the Company and the remainder of such original
issue discount will not be deductible. If a bankruptcy case is commenced by or
against the Company under the United States Bankruptcy Code after the issuance
of the Notes, the claim of a holder of Notes may be limited to an amount equal
to the sum of the issue price as determined by the bankruptcy court and that
portion of the original issue discount which is deemed to accrue from the issue
date to the date of any such bankruptcy filing.
LACK OF PUBLIC MARKET FOR THE NOTES
Wireless does not intend to list the Notes on any securities exchange.
MS&Co. has indicated to Wireless that it intends to make a market in the Notes,
but it is under no obligation to do so and such market-making could be
discontinued at any time. No assurance can be given that an active trading
market for the Notes will develop. If MS&Co. conducts any market-making
activities, it may be required to deliver a "market-making prospectus" when
effecting offers and sales in the Notes because of the beneficial ownership of
the capital stock of Wireless by affiliates of MS&Co. For so long as a
market-making prospectus is required to be delivered, the ability of MS&Co. to
make a market in the Notes may, in part, be dependent on the ability of Wireless
to maintain a current market-making prospectus.
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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, 1996 and for
the three months ended March 31, 1996 and 1997. The financial information and
operating data for each of the five fiscal years ended December 31, 1996 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 incorporated herein by
reference. The financial information and operating data for the three months
ended March 31, 1996 and 1997 were derived from the unaudited consolidated
financial statements of the Company and, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such data. Interim results are not necessarily indicative
of results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- ---------- ---------- ---------- ----------
(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................. $ 6,668 $ 24,184 $ 56,648 $ 101,503 $ 153,041 $ 33,743 $ 46,475
Equipment sales and activation
fees............................. 9,837 26,483 53,185 57,688 68,551 14,802 15,248
-------- -------- -------- ---------- ---------- ---------- ----------
Total revenues..................... 16,505 50,667 109,833 159,191 221,592 48,545 61,723
Cost of equipment sold............. 10,044 28,230 57,835 63,982 78,896 17,082 18,119
Operating expenses................. 25,584 47,448 85,322 118,557 155,265 34,704 46,060
-------- -------- -------- ---------- ---------- ---------- ----------
Operating loss..................... (19,123) (25,011) (33,324) (23,348) (12,569) (3,241) (2,456)
Interest expense................... (2,456) (6,538) (12,933) (30,720) (35,041) (8,401) (9,038)
Interest income.................... 529 428 858 1,997 1,140 219 176
Other.............................. -- -- (414) (1,042) (2,128) (195) (737)
-------- -------- -------- ---------- ---------- ---------- ----------
Net loss........................... $(21,050) $(31,121) $(45,813) $ (53,113) $ (48,598) $ (11,618) $ (12,055)
======== ======== ======== ========== ========== ========== ==========
Net loss per common share.......... $ (1.24) $ (1.51) $ (1.72) $ (1.53) $ (1.30) $ (0.33) $ (0.30)
Weighted average number of common
shares and share equivalents
outstanding...................... 16,962 20,627 26,574 34,653 37,462 34,688 39,847
BALANCE SHEET DATA (AT PERIOD END):
Current assets..................... $ 13,365 $ 51,279 $ 44,397 $ 62,535 $ 70,572 $ 53,165 $ 62,927
Total assets....................... 30,772 78,773 142,059 263,829 313,620 262,848 308,903
Current liabilities................ 14,754 20,198 37,966 56,508 62,503 61,288 61,525
Long-term debt, less current
maturities....................... 25,059 78,359 92,632 219,364 240,687 225,210 248,877
Stockholders' equity (deficit)..... (9,041) (19,784) 11,461 (12,043) 10,430 (23,650) (1,499)
OTHER DATA:
Units in service (at period end)... 117,034 327,303 772,730 1,240,024 1,859,407 1,374,146 2,013,142
Net subscriber additions........... 64,909 210,269 445,427 467,294 619,383 134,122 153,735
ARPU(1)............................ $ 8.66 $ 9.81 $ 8.64 $ 8.62 $ 8.04 $ 8.61 $ 8.04
Operating profit (loss) before
selling expenses per subscriber
per month(2)..................... (12.69) (.98) .90 2.11 2.25 2.23 2.27
Selling expenses per net subscriber
addition(3)...................... 157 91 81 91 87 86 103
EBITDA(4).......................... (16,499) (19,930) (25,219) (10,076) 8,623 1,007 4,393
Capital expenditures............... 13,729 10,810 16,719 33,503 63,804 11,779 10,020
NPCS Licenses acquired(5).......... -- -- 58,885 74,079 -- -- --
Depreciation and amortization...... 2,624 5,081 8,105 13,272 21,192 4,248 6,849
Deficiency of earnings to fixed
charges(6)....................... (21,050) (31,121) (45,813) (53,113) (48,598) (11,618) (12,055)
</TABLE>
(Footnotes appear on the following page)
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- ---------------
(1) ARPU is calculated by dividing (i) recurring revenues, consisting of fees
for airtime, voice mail, 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 domestic 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.
(2) 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 domestic units
in service for the quarter. Stated as the monthly average for the final
quarter of the year for the fiscal year periods.
(3) Selling expenses per net subscriber addition for the Company's domestic
one-way operations is calculated by dividing (i) selling expenses,
including loss on sale of equipment for the period by (ii) the net domestic
subscriber additions for the period.
(4) 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.
(5) Reflects the acquisition of the NPCS Licenses in the FCC NPCS auctions.
(6) For purposes of calculating the deficiency of earnings to fixed charges, (i)
earnings is defined as net loss plus fixed charges and (ii) fixed charges
is defined as interest expense plus amortization of debt expense plus the
interest portion of rental and lease expense.
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<PAGE> 14
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 incorporated herein by
reference.
When used in this discussion, the words "estimate," "project," "plan,"
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof.
GENERAL
The Company has constructed and operates a wireless messaging and
communications network and provides paging and other one-way wireless messaging
services to its subscribers. In addition, the Company sells and distributes
wireless messaging equipment to subscribers, retailers and resellers. The
Company earns recurring revenues from each subscriber in the form of fixed
periodic fees and incurs substantial operating expenses in offering its
services, including technical, customer service and general and administrative
expenses. See "-- Management's Presentation of Results of Operations."
Since commencing operations in 1990, the Company has invested heavily in
its one-way wireless communications network and administrative infrastructure in
order to establish nationwide coverage, sales offices in major metropolitan
areas, customer service call centers and centralized administrative support
functions. The Company incurs substantial fixed operating costs related to its
one-way wireless communications infrastructure, which is designed to serve a
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 to increase
profitability and cash flow through greater utilization of its nationwide
wireless communications network. From January 1, 1992 to March 31, 1997, the
number of units in service increased from 52,125 to 2,013,142. 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 1997 from its one-way wireless
communications business. In addition, the Company began testing and development
of two-way wireless messaging services in 1996 and plans to continue the
development and implementation in 1997 and 1998, and expects to incur additional
operating losses during the start-up phase for such services. The Company does
not anticipate any significant revenues from two-way services during 1997,
however, it expects to generate 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,
Southwestern Bell Mobile Systems, AT&T Wireless Services, Ameritech Mobile
Services, Inc. and long distance reseller EXCEL Communications, Inc., 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 and depreciation expense 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
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<PAGE> 15
subscribers. In addition, the Company's retail distribution strategy results in
the recognition of expenses associated with messaging equipment sales and other
sales and marketing expenses in advance of new subscribers being added to the
base and generating revenues (as retailers carry inventory).
The Company sells its messaging equipment through multiple distribution
channels, including direct sales, third-party resellers, private brand strategic
alliances and local and national retail stores. Selling and marketing expenses
are primarily attributable to compensation paid to the Company's sales force,
advertising and marketing costs and to losses resulting from the fact that, for
competitive and marketing reasons, the Company generally sells each new unit for
less than its acquisition cost. The Company's accounting practices result in
selling and marketing expenses, including loss on sale of equipment, being
recorded at the time a unit is sold. Units sold by the Company during a given
month may exceed units activated and in service due to inventory stocking and
distribution strategies of the retailers. As a result, selling and marketing
expenses per net subscriber addition may fluctuate from period to period.
The Company derives its recurring revenue primarily from fixed periodic
fees for services that are not generally dependent on usage. Consequently, the
Company's ability to recoup its initial selling and marketing costs, to meet
operating expenses and to achieve profitability is dependent on the average
length of each customer's subscription period. As long as a subscriber continues
to utilize the Company's service, operating results benefit from the recurring
payments of the fixed fees without the incurrence of additional selling expenses
by the Company. Conversely, operating results are adversely affected by customer
disconnections. Each month a percentage of the Company's existing customers have
their service terminated for a variety of reasons, including failure to pay,
dissatisfaction with service and switching to a competing service provider. The
Company's average monthly disconnection rates for the years ended December 31,
1994, 1995, and 1996 and the three months ended March 31, 1997 were 3.4%, 2.5%,
2.4% and 2.3%, respectively.
Approximately 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, 1996 AND 1997
Units in Service
Units in service from domestic operations were 1,374,146 and 2,001,525 as
of March 31, 1996 and 1997, respectively, representing an annual growth rate of
46%. In addition, for the three months ended March 31, 1997, PageMart Canada
Limited ("PageMart Canada") added 6,092 subscribers. As a result of its
ownership interest in PageMart Canada, the Company's proportional share of net
subscriber additions from PageMart Canada was 3,655 units for the three months
ended March 31, 1997. 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 private brand strategic alliance programs.
Revenues
Revenues for the three months ended March 31, 1996 and 1997 were $48.5
million and $61.7 million, respectively. Recurring revenues for airtime, voice
mail, and other services for same periods were $33.7 million and $46.5 million,
respectively. Revenues from equipment sales and activation fees for the three
months ended March 31, 1996 and 1997 were $14.8 million and $15.2 million,
respectively. The increases in recurring
15
<PAGE> 16
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 1997 was somewhat offset by a decline in the average
price per unit sold. The Company expects equipment prices per unit generally to
remain constant or decline only slightly as sales volumes increase.
The Company's ARPU was $8.61 and $8.04 in the first quarter of 1996 and
1997, respectively. Over the past year, the Company's ARPU has decreased
primarily as a result of an increase in subscribers added through private brand
strategic alliance and third-party reseller channels. This decrease in ARPU has
been offset somewhat by a higher mix of multi-city, regional and nationwide
services as well as increased sales of other value-added services such as voice
mail and toll-free numbers. Management anticipates that the Company's ARPU will
decline in the foreseeable future due to a continued higher mix of subscribers
added through private brand strategic alliance programs which yield lower ARPU.
ARPU is lower for subscribers added through private brand strategic alliances
and third-party resellers because these are generally high volume customers that
are charged wholesale airtime rates. However, because private brand strategic
alliance partners and third-party resellers are responsible for selling and
marketing costs, billing, collection and other administrative costs associated
with end-users, the Company incurs substantially lower marketing and
administrative costs with respect to such subscribers.
Cost of Equipment Sold
The cost of equipment sold for the three months ended March 31, 1996 and
1997 was $17.1 million and $18.1 million, respectively. The change in 1997 was
primarily due to an increase in the number of units sold. The Company expects
pager costs generally to remain constant, with modest reductions in cost to the
Company as a result of volume purchases. Management anticipates that loss on
equipment sold will generally remain constant on a per unit basis for the
foreseeable future.
Operating Expenses
Technical expenses were $8.1 million and $10.8 million for the three months
ended March 31, 1996, and 1997, respectively. The increase was primarily due to
increased telecommunications and site expenses associated with servicing the
Company's expanded network and larger subscriber base. On an average monthly
cost per unit in service basis, technical expenses were $2.06 and $1.86 in the
first quarter of 1996 and 1997, 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, 1997, the Company incurred $4,000 in technical expenses associated
with the development of its two-way wireless messaging services.
Selling expenses for the three months ended March 31, 1996 and 1997 were
$9.4 million and $12.7 million, respectively. This increase resulted from
greater marketing and advertising costs related to the growth in units sold, as
well as from increased sales compensation because of the addition of sales
personnel in new and existing operating markets. During the first quarter of
1996 and 1997, the Company added 134,122 and 150,080 net new domestic units in
service, respectively. Sales and marketing employees increased from 486 at March
31, 1996 to 530 at March 31, 1997. Management views the net loss on equipment
sold to be a component of selling and marketing expenses incurred to add new
subscribers. See "-- Management's Presentation of Results of Operations."
Selling and marketing expenses per net subscriber addition (including loss on
equipment sales) were $86 and $103 for the three months ended March 31, 1996 and
1997, respectively. This increase was due to losses recognized on the sale of
pagers due to stocking a large number of new retail outlets in first quarter
1997 including 1,858 new outlets for RadioShack(R). The losses are recognized
when pagers are shipped to the retailers, usually before the units are placed
into service; thus, increasing selling expenses per net subscriber addition.
Selling expenses are also expected to be higher than average during the second
quarter of 1997 due to stocking the remainder of the RadioShack(R) outlets.
During the three months ended March 31, 1997, the Company incurred $94,000 in
selling expenses associated with its international operations (including loss on
sale of equipment).
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<PAGE> 17
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) in the first
quarter of 1996 and 1997 were $12.9 million and $15.8 million, respectively.
This increase was attributable to the Company's expansion of its customer
service call centers and continued expansion in new and existing markets to
support the growing subscriber base which required additional office space,
administrative personnel and customer service representatives. On an average
cost per month per unit in service basis, general and administrative expenses
were $3.29 and $2.73 in the first quarter of 1996 and 1997, 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, 1997, the Company incurred $13,000 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, 1996 and
1997 were $4.2 million and $6.8 million, respectively. The increase resulted
from the expansion to date 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 1996 and the first three months of
1997. As an average cost per month per unit in service, depreciation and
amortization was $1.08 and $1.19 for the three months ended March 31, 1996 and
1997, respectively. During the three months ended March 31, 1997, the Company
incurred $41,000 in depreciation expenses associated with the development of its
two-way wireless messaging services.
Interest Expense
Consolidated interest expense increased from $8.4 million in the first
quarter of 1996 to $9.0 million in the first quarter of 1997. The increase in
1997 was primarily the result of increased interest expense related to the
12 1/4% Notes and the Notes. Interest expense related to the 12 1/4% Notes was
$3.2 million and $3.6 million in the first quarter of 1996 and 1997,
respectively. Interest expense related to the Notes was $4.4 million and $4.8
million in the first quarter of 1996 and 1997, respectively.
Net Loss
The Company sustained consolidated net losses in the first quarter of 1996
and 1997 of $11.6 million and $12.1 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.
FISCAL YEARS 1994, 1995 AND 1996
Units in Service
Units in service were 772,730, 1,240,024 and 1,851,445 as of December 31,
1994, 1995 and 1996, respectively. This represents an annual growth rate of 60%
and 49% in 1995 and 1996, respectively. In addition, for the year ended December
31, 1996, PageMart Canada added 13,270 subscribers. As a result of its ownership
interest in PageMart Canada, the Company's proportional share of the units in
service of PageMart Canada was 7,962 units at December 31, 1996. The Company has
experienced strong growth in units in service due primarily to the success of
its sales and marketing strategies in the direct sales, national retail and
third-party reseller channels, as well as from private brand strategic alliance
programs.
Revenues
Revenues for the fiscal years 1994, 1995 and 1996 were $109.8 million,
$159.2 million and $221.6 million, respectively. Recurring revenues for airtime,
voice mail and other services for the same periods were $56.6 million, $101.5
million and $153.0 million, respectively. Revenues from equipment sales and
activation fees for 1994, 1995 and 1996 were $53.2 million, $57.7 million and
$68.6 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 1996 was
somewhat offset by a
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<PAGE> 18
decline in the average price per unit sold. The Company expects equipment prices
per unit generally to remain constant or decline slightly as sales volumes
increase.
The Company's ARPU was $8.64, $8.62 and $8.04 in the final quarter of 1994,
1995 and 1996, respectively. Over the past twelve months, the Company's ARPU has
decreased primarily as a result of an increase in subscribers added through
private brand strategic alliance and third-party reseller channels. This
decrease in ARPU has been offset somewhat by a higher mix of multi-city,
regional and nationwide services as well as increased sales of other value-added
services such as voice mail and toll-free numbers. Management anticipates that
the Company's ARPU will decline in the foreseeable future due to a continued
higher mix of subscribers added through private brand strategic alliance
programs which yield lower ARPU. ARPU is lower for subscribers added through
private brand strategic alliances and third-party resellers because these are
generally high volume customers that are charged wholesale 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 incurs
substantially lower marketing and administrative costs with respect to such
subscribers.
Cost of Equipment Sold
The cost of equipment sold in 1994, 1995 and 1996 was $57.8 million, $64.0
million and $78.9 million, respectively. The change in 1996 was a combination of
an increase in the number of units sold and slightly lower average pager prices
paid to suppliers. The Company expects pager costs generally to remain constant,
with modest reductions in cost to the Company as a result of volume purchases.
Management anticipates that loss on equipment sold will increase on a per unit
basis for the foreseeable future due to increased competition, especially in the
national retail channel.
Operating Expenses
Technical expenses were $16.2 million, $25.5 million and $36.7 million in
1994, 1995 and 1996, respectively. The increase resulted primarily from the
continued expansion of the Company's nationwide network infrastructure, which
resulted in greater expenses associated with the addition of new transmitter
sites, transmitter and terminal equipment and telecommunications expenses. On an
average monthly cost per unit in service basis, technical expenses were $2.45,
$2.11 and $1.98 in 1994, 1995 and 1996, 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 1996, the
Company incurred $297,000 in technical expenses associated with the development
of its two-way wireless messaging services.
Selling expenses in 1994, 1995 and 1996 were $31.3 million, $36.1 million
and $42.6 million, respectively. This increase resulted from greater marketing
and advertising costs related to the growth in units sold as well as from
increased sales compensation because of the addition of sales personnel in new
and existing operating markets. During the years ended December 31, 1994, 1995
and 1996, the Company added 445,427, 467,294 and 611,421 net new domestic units
in service, respectively. Sales and marketing employees decreased from 450 at
December 31, 1994 to 445 at December 31, 1995 and then increased to 552 at
December 31, 1996. Management views the net loss on equipment sold to be a
component of selling and marketing expenses incurred to add new subscribers. See
"-- Management's Presentation of Results of Operations." Selling and marketing
expenses per net subscriber addition (including loss on equipment sales) were
$81, $91 and $87 for the years ended December 31, 1994, 1995 and 1996,
respectively. During the twelve months ended December 31, 1996, the Company
incurred $447,000 in selling expenses associated with international operations
(including loss on equipment sales).
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) in 1994, 1995
and 1996 were, $29.8 million, $43.4 million and $53.7 million, respectively.
This increase was attributable to the Company's expansion of its customer
service call centers and continued expansion in new and existing markets to
support the growing subscriber base which required additional office space,
administrative personnel and customer service representatives. On an average
cost per month per unit in service basis, general and administrative expenses
were $4.52, $3.59 and $2.89 for fiscal
18
<PAGE> 19
years 1994, 1995, and 1996, 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 1996, the Company incurred
$341,000 in general and administrative expenses associated with the development
of its two-way wireless messaging services.
Depreciation and amortization in 1994, 1995 and 1996 was $8.1 million,
$13.3 million and $21.2 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 and 1996. As an average cost per month per unit in
service, depreciation and amortization was $1.23, $1.10 and $1.14 for the years
ended December 31, 1994, 1995 and 1996, respectively.
Interest Expense
Consolidated interest expense increased from $12.9 million in 1994 to $30.7
million in 1995 and $35.0 million in 1996. The increase in 1995 was primarily
the result of the issuance of the 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 $10.8
million, $11.8 million and $13.3 million in 1994, 1995 and 1996, respectively.
Interest expense related to the Notes was $15.3 million and $18.4 million in
1995 and 1996 respectively.
Net Loss
The Company sustained consolidated net losses in 1994, 1995 and 1996 of
$45.8 million, $53.1 million and $48.6 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.
MANAGEMENT'S PRESENTATION OF RESULTS OF OPERATIONS
COMPARISON WITH GAAP PRESENTATION
The Company's audited Consolidated Financial Statements for the years ended
December 31, 1994, 1995 and 1996, 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 $1.45
during the second quarter of 1995 to $2.27 during the first quarter of 1997 due
primarily to the Company's increase in subscribers and resulting benefits in
economies of scale.
In addition, selling and marketing expenses (including loss on equipment
sold) provide a measure of the costs associated with obtaining new subscribers
that the Company needs to generate the incremental recurring revenue necessary
to achieve profitability. Under the GAAP presentation, recurring revenues and
equipment and activation revenues are aggregated and are not separately compared
to the costs associated with each.
The items included in Management's Presentation of the Results of
Operations and their derivation from financial information presented in
accordance with GAAP are described below.
Recurring Revenues. Recurring revenues include periodic fees for
airtime, voice mail, customized coverage options, toll-free numbers, excess
usage fees and other recurring revenues and fees associated with the
subscriber base. Recurring revenues do not include equipment sales revenues
or initial activation fees. Recurring revenues are the same under both the
management and GAAP presentations.
Technical Expenses. This item is the same under the management and
GAAP presentations.
19
<PAGE> 20
General and Administrative Expenses. This item is the same under the
management and GAAP presentations.
Depreciation and Amortization. This item is the same under the
management and GAAP presentations.
Operating Profit Before Selling Expenses. Operating profit before
selling expenses under the management presentation is equal to recurring
revenues less technical expenses, general and administrative expenses and
depreciation and amortization. Operating profit before selling expenses is
not derived pursuant to GAAP.
Selling Expenses. Selling expenses under the management presentation
represent the cost to the Company of selling pagers and other messaging
units to a customer, and are equal to selling costs (sales compensation,
advertising, marketing, etc.) plus costs of units sold less revenues from
equipment sales and activation fees. As described above, the Company sells
rather than leases substantially all of the one-way messaging equipment
used by subscribers. Selling expenses under the management presentation are
not derived pursuant to GAAP. Net loss on equipment sales is not included
in the GAAP presentation of selling expenses.
Operating Income (Loss). This item is the same under the management
and GAAP presentations.
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.
20
<PAGE> 21
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 incorporated
herein by reference, and should not be considered in isolation or as an
alternative to results of operations that are presented in accordance with GAAP
(in thousands, except other data).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1995 1995 1995 1996 1996 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Recurring revenues....... $ 23,387 $ 26,994 $ 30,658 $ 33,743 $ 36,964 $ 39,697 $ 42,637 $ 46,475
Technical expenses....... 6,141 6,842 7,015 7,943 8,783 9,725 10,273 10,765
General and
administrative
expenses............... 10,067 11,350 12,243 12,792 13,043 13,668 14,162 15,763
Depreciation and
amortization........... 3,091 3,469 3,910 4,248 4,942 5,714 6,288 6,808
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating profit before
selling expenses....... 4,088 5,333 7,490 8,760 10,196 10,590 11,914 13,139
Selling expenses(1)...... 10,614 10,889 11,181 11,601 12,836 13,588 14,900 15,443
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. $ (6,526) $ (5,556) $ (3,691) $ (2,841) $ (2,640) $ (2,998) $ (2,986) $ (2,304)
========== ========== ========== ========== ========== ========== ========== ==========
EBITDA................... $ (3,435) $ (2,087) $ 219 $ 1,407 $ 2,302 $ 2,716 $ 3,302 $ 4,504
========== ========== ========== ========== ========== ========== ========== ==========
OTHER DATA:
Units in service(2)...... 1,008,683 1,131,464 1,240,024 1,374,146 1,524,297 1,684,937 1,851,445 2,001,525
Net subscriber
additions.............. 133,739 122,781 108,560 134,122 150,151 160,640 166,508 150,080
ARPU(3).................. $ 8.28 $ 8.41 $ 8.62 $ 8.61 $ 8.50 $ 8.25 $ 8.04 $ 8.04
National retail
outlets................ 2,900 3,408 3,411 3,690 4,286 5,025 5,530 7,388
Operating profit before
selling expenses per
subscriber per
month(4)............... $ 1.45 $ 1.66 $ 2.11 $ 2.23 $ 2.35 $ 2.20 $ 2.25 $ 2.27
Selling expenses per net
subscriber
addition(1)(5)......... $ 79 $ 89 $ 103 $ 86 $ 85 $ 85 $ 89 $ 103
Capital employed per unit
in service(6).......... $ 39 $ 39 $ 40 $ 41 $ 49 $ 49 $ 43 $ 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, narrowband personal
communications services assets 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.
21
<PAGE> 22
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, 1995
-----------------------------------------------------
PAGEMART PAGEMART PAGEMART THE COMPANY
ONE-WAY TWO-WAY INTERNATIONAL CONSOLIDATED
-------- -------- ------------- ------------
<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 YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------
PAGEMART PAGEMART PAGEMART THE COMPANY
ONE-WAY TWO-WAY INTERNATIONAL(1) CONSOLIDATED
-------- -------- ---------------- ------------
<S> <C> <C> <C> <C>
Revenues..................................... $221,592 $ -- $ -- $221,592
Operating loss............................... (11,465) (657) (447) (12,569)
EBITDA....................................... 9,727 (657) (447) 8,623
Total assets................................. 160,858 151,108 1,654 313,620
Capital expenditures......................... 50,838 12,966 -- 63,804
</TABLE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED MARCH 31, 1997
-----------------------------------------------------
PAGEMART PAGEMART PAGEMART THE COMPANY
ONE-WAY TWO-WAY INTERNATIONAL(1) CONSOLIDATED
-------- -------- ---------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues..................................... $ 61,723 $ -- $ -- $ 61,723
Operating loss............................... (2,304) (58) (94) (2,456)
EBITDA....................................... 4,504 (17) (94) 4,393
Total assets................................. 151,078 156,852 973 308,903
Capital expenditures......................... 4,434 5,586 -- 10,020
</TABLE>
- ---------------
(1) Expenses reflected in this table are for the Company's international
headquarters operations. The Company accounts for its investments in Canada
under the equity method. Consequently, the Company's share of expenses from
its Canadian operations are not reflected in this table.
SEASONALITY
Pager usage is slightly higher during the spring and summer months, which
is reflected in higher incremental usage fees earned by the Company. The
Company's retail sales are subject to seasonal fluctuations that affect retail
sales generally. Otherwise, the Company's results are generally not
significantly affected by seasonal factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have historically required 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 Notes,
as well as borrowings under vendor financing and revolving credit agreements.
Capital expenditures were $16.7 million, $33.5 million and $63.8 million
for the years ended December 31, 1994, 1995 and 1996, respectively and $10.0
million for the three months ended March 31, 1997. Capital expenditures for 1996
include $34.4 million for the expansion and enhancement of the Company's one-way
network, $13.0 million related to the development of two-way messaging services,
and $6.4 million for the development of the Company's new administrative system.
Capital expenditures for the first quarter of 1997 include approximately $5.6
million related to the development of two-way messaging services,
22
<PAGE> 23
$2.5 million for the Company's one-way messaging network and $1.9 million for
the development of the Company's new administrative system. During October 1996,
the Company committed to purchase network infrastructure equipment and related
services for use in its two-way network. During December 1995, the Company
committed to purchase $40 million in network infrastructure equipment from a
significant vendor from December 1, 1995 to October 31, 1999. Through March 31,
1997, the Company had purchased $20.8 million of network infrastructure under
this purchase commitment.
The Company's net cash used in operating activities for the years ended
December 31, 1994 and 1995 and provided by operating activities for the year
ended December 31, 1996 was $25.5 million, $2.9 million and $3.6 million,
respectively, and the Company's net cash used in operating activities for the
three months ended March 31, 1997 was $647,000. The increased operating cash
flow in 1996 was a result of improved operating results from a larger subscriber
base offset by a net investment in working capital. Net cash used in investing
activities was $69.1 million, $110.2 million and $64.0 million for the years
ended December 31, 1994, 1995 and 1996, respectively and $10.8 million for the
three months ended March 31, 1997. Of the $64.0 million used in investing
activities in 1996, $63.8 million was for capital expenditures. Of the $10.8
million used in investing activities in the first quarter of 1997, $10.0 million
was for capital expenditures. Net cash provided by financing activities,
including proceeds from borrowings and issuances of common and preferred stock
was $83.5 million, $125.5 million and $56 million for the years ended December
31, 1994, 1995 and 1996, respectively, and $128,000 for the three months ended
March 31, 1997. Cash provided in 1995 resulted primarily from the $100.1 million
of net proceeds from the issuance of the Notes and non-voting common stock in
January 1995. Cash provided in 1996 resulted primarily from $70.5 million in net
proceeds received in connection with the initial public offering of the
Company's Class A Common Stock (the "Offering"). Long-term obligations, less
current maturities, increased by approximately $8.2 million during the three
months ended March 31, 1997, $21.3 million during 1996 and $126.7 million during
1995. Net increases in borrowings were $16.5 million, $128.7 million, and $15.8
million for the years ended 1994, 1995 and 1996, respectively. The net increase
in borrowings was $8.2 million for the three months ended March 31, 1997. The
net increase in 1995 resulted from the issuance of the Notes, the accretion of
the 12 1/4% Notes and borrowings under vendor financing agreements. The net
increases in borrowings for 1996 and the first quarter of 1997 resulted from the
accretion of the 12 1/4% Notes and the Notes.
In June 1996, the Company sold an aggregate of 6.0 million shares of Class
A Common Stock in the Offering at a price to the public of $13 per share. The
Company received net proceeds of approximately $70.5 million of which
approximately $12.9 million was used to retire vendor debt and $11.9 million was
used to repay outstanding loans under the Company's Revolving Credit Agreement
(as defined herein).
As of March 31, 1997, the Company had no amounts outstanding under vendor
financing or revolving credit agreements and its indebtedness under the 12 1/4%
Notes was $111.4 million and its indebtedness under the 15% Notes was $137.4
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, 1997 to November 1,
1998 of $25.1 million. From and after November 1, 1998, interest on the 12 1/4%
Notes will be payable semiannually, in cash.
The 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 Notes will cause an
increase in indebtedness from March 31, 1997 to February 1, 2000 of $69.8
million. From and after February 1, 2000, interest on the 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. On June 28, 1996, the Company retired $8.8 million of
debt outstanding under the Vendor Lease Financing Agreement and the Vendor Lease
Financing Agreement was terminated.
23
<PAGE> 24
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. On June 28, 1996, the Company retired $4.1
million of debt outstanding under the Vendor Purchase Financing Agreement and
the Vendor Purchase Financing Agreement was terminated.
In May 1995, the Company entered into a four year 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"). As of March 31, 1997 there were no loans
outstanding under the Revolving Credit Agreement. The maximum amount available
under the Revolving Credit Agreement at any time is limited to a borrowing base
amount equal to the lesser of (i) 80% of eligible accounts receivable plus 50%
eligible inventory owned by Wireless, and (ii) an amount equal to the service
contribution as defined in the Revolving Credit Agreement of Wireless and its
subsidiaries for the immediately preceding three-month period times 4.0. As of
March 31, 1997, the amount available under the Revolving Credit Agreement was
$29.1 million. In the event Wireless exercised its option to increase its
borrowing base by purchasing inventory and accounts receivable from PageMart,
the maximum amount available under the Revolving Credit agreement would have
been $35.6 million at March 31, 1997. Management anticipates borrowings under
the Revolving Credit Agreement during the second quarter of 1997.
The Indenture, the 12 1/4% Indenture and the Revolving Credit Agreement
contain certain restrictive covenants that, among other things, limit the
ability of the Company to incur indebtedness, pay dividends, repurchase capital
stock, engage in transactions with stockholders and affiliates, create liens,
sell assets, enter into leases and engage in mergers and consolidations, and the
Revolving Credit Agreement requires the Company to maintain certain financial
ratios and limits the ability of the Company to make capital expenditures. In
addition, the 12 1/4% Indenture prohibits PageMart from paying any dividends or
making other distributions on its capital stock, making loans to Wireless,
merging or consolidating with Wireless or assuming or guaranteeing any
obligations of Wireless unless PageMart is in compliance with certain interest
coverage ratios and certain other requirements. PageMart may, however, sell its
assets to Wireless in transactions that are arm's length in nature. Wireless is
currently a holding company with no business or operations of its own. Because
all of Wireless's operations are conducted through its subsidiaries, Wireless's
cash flow and consequently its ability to service debt, is almost entirely
dependent upon the earnings of its subsidiaries and the distribution of those
earnings or upon loans or other payment of funds by those subsidiaries to
Wireless. Wireless's subsidiaries are separate and distinct legal entities and
have no obligation, contingent or otherwise, to pay any amounts due pursuant to
Wireless's obligations or to make any funds available therefor, whether by
dividends, loans or other payments. Until the maturity of the 12 1/4% Notes,
which mature on November 1, 2003, earlier repayment of such indebtedness or
compliance with the requirements of such debt instruments, Wireless will be
unable to use any amount of cash generated by the operations of PageMart and its
subsidiaries. However, currently Wireless does not have significant cash
requirements until March 1999 when the Revolving Credit Agreement matures. See
"Risk Factors -- High Leverage; Deficiency of Earnings to Cover Fixed Charges;
Restrictive Covenants."
On November 15, 1995, the Company purchased through PageMart International,
Inc., 200,000 voting shares of common stock of PageMart Canada, which represents
20% of the ownership of PageMart Canada. PageMart International, Inc. also owns
33% of the voting common stock of the holding company parent of PageMart Canada
("Canada Holding"), which owns the remaining 80% of the voting common stock of
PageMart Canada. The Company's investment in Canada Holding and PageMart Canada
totals approximately $3.7 million.
As of March 31, 1997, the Company had approximately $11.3 million in cash
and cash equivalents. The Company's cash balances and borrowings under the
Revolving Credit Agreement are expected to be sufficient to fund the Company's
one-way operations and related capital requirements through 1997. The Company
anticipates its one-way messaging operations will generate sufficient cash flows
to fund one-way capital expenditures for 1998. The Company's two-way messaging
operations are expected to require additional capital in 1998. The Company
anticipates funding a portion of its two-way messaging operations with available
borrowings under the Revolving Credit Agreement and from any excess cash
generated from the Company's one-way messaging operations. See "Risk
Factors -- No Assurance that Growth Strategy Will be Achieved."
24
<PAGE> 25
As the Company begins development and implementation of NPCS 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 buildout requirements of the FCC. The
Company anticipates investing $75 to $100 million through fiscal 1998 to test
and construct a two-way transmission network. Thereafter, the Company
anticipates that the two-way operations may require up to $100 million of
additional investment to fund operations, marketing, and to add capacity to the
network as the Company's two-way customer base grows. The Company expects to
lease rather than sell a portion of its two-way messaging units. The Company
expects to require additional financing to complete the buildout, which may
include new vendor financing or 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 Indenture, the 12 1/4% Indenture and the Revolving
Credit Agreement (as defined herein); 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 1997. 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.
This Prospectus contains statements that constitute forward-looking
statements. Readers are cautioned that such forward looking statements involve
risk and uncertainties, and are subject to change based on various important
factors. The following factors, among others, in some cases have affected and in
the future could affect the Company's financial performance and actual results
and could cause actual results for 1997 and beyond to differ materially from
those expressed in any such forward-looking statements -- economic conditions
generally in the United States and consumer confidence; the ability of the
Company to manage its high debt levels; the impact of technological change in
the telecommunications industry; the future cost of network infrastructure and
subscriber equipment; the impact of competition and pricing of paging and
wireless services; the timely development and acceptance of new products;
changes in regulation by the FCC and various state regulatory agencies and the
ability of the Company to obtain financing to construct, operate and market the
transmission network for two-way services.
25
<PAGE> 26
DESCRIPTION OF CERTAIN INDEBTEDNESS
12 1/4% NOTES
The 12 1/4% Notes were issued under the 12 1/4% Indenture between PageMart
and United States Trust Company of New York, as Trustee. The 12 1/4% Notes are
unsecured senior obligations of PageMart, limited to $136.5 million aggregate
principal amount at maturity, and will mature on November 1, 2003. From and
after November 1, 1998, interest on the 12 1/4% Notes will be payable in cash at
the rate of 12 1/4% per annum.
The 12 1/4% Indenture contains certain covenants that, among other things,
limit the ability of PageMart to incur indebtedness, pay dividends, prepay
subordinated indebtedness, repurchase capital stock, engage in transactions with
stockholders and affiliates, create liens, sell assets and engage in mergers and
consolidations.
The 12 1/4% Notes are redeemable, at PageMart's option, in whole or in
part, at any time on or after November 1, 1998 and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice, at a redemption price of 100%
of principal amount at maturity, plus accrued and unpaid interest, if any, to
the redemption date.
In addition, at any time prior to November 1, 1996, PageMart may redeem up
to 35% of the accreted value of the 12 1/4% Notes with the proceeds of one or
more public equity offerings, at any time as a whole or from time to time in
part, at a redemption price (expressed as a percentage of accreted value) of
111%, plus accrued and unpaid interest, if any, to the redemption date.
REVOLVING CREDIT AGREEMENT
The Revolving Credit Agreement among Wireless, the lenders named therein,
Bankers Trust Company, as issuing bank, and BT Commercial Corporation, as agent,
provides for a revolving line of credit of up to $50 million, of which $5
million may be used for the issuance of letters of credit. 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% of 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. 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%. The 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, including a current ratio, a ratio of consolidated total debt divided by
paging units in service, a minimum service contribution and a maximum placement
cost with respect to the placement of additional units.
The Revolving Credit Agreement is secured by all receivables and inventory
owned by Wireless from time to time and by all of the capital stock of PageMart
owned by Wireless. The following are events of default under the Revolving
Credit Agreement: (i) failure to pay any principal when due or any interest on
other amounts within three business days after the due date thereof; (ii) any
material misrepresentation by Wireless; (iii) default in the performance of any
obligation under the Revolving Credit Agreement or related documents; (iv) the
occurrence of any event of default with respect to other indebtedness in excess
of $5 million which permits the acceleration of such indebtedness; (v)
bankruptcy, insolvency or other similar events with respect to Wireless or
PageMart; (vi) the occurrence of any change of control (as defined in the
Revolving Credit Agreement) of Wireless; (vii) failure to comply with the
Communications Act or to maintain material licenses or authorizations related to
the business of Wireless and its subsidiaries; or (viii) the failure of the
liens on the collateral to be valid, enforceable, first-priority liens. Upon the
occurrence of an event of default, the lenders are entitled to terminate the
commitments under the Revolving Credit
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<PAGE> 27
Agreement, accelerate any loans made thereunder and enforce the security
interests granted with respect to the assets of Wireless, including the right to
foreclose on the capital stock of PageMart.
As noted above, the amount that Wireless is permitted to borrow under the
Revolving Credit Agreement is limited to a borrowing base calculated by
reference to the accounts receivable and inventory owned by Wireless. Wireless
has entered into a receivables purchase agreement with PageMart pursuant to
which PageMart may sell receivables to Wireless from time to time. In addition,
Wireless expects in the future to purchase messaging equipment inventory from
third-party suppliers which would then be included in the borrowing base under
the Revolving Credit Agreement. Wireless expects that it would sell such
inventory from time to time to PageMart for resale by PageMart to its customers.
DESCRIPTION OF THE NOTES
The Notes were issued under the Indenture dated as of January 17, 1995,
between Wireless and United States Trust Company of New York, as Trustee (the
"Trustee"), a copy of the form of which has been filed as an exhibit to the
registration statement of which this Prospectus forms a part (the "Registration
Statement"). The following summary of certain provisions of the Notes and the
Indenture is subject to, and is qualified in its entirety by reference to, all
the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended. Whenever particular sections or defined terms of the Indenture not
otherwise defined herein are referred to, such sections or defined terms are
incorporated herein by reference.
GENERAL
The Notes are unsecured senior obligations of Wireless, limited to
$207,270,000 aggregate principal amount at maturity, and will mature on February
1, 2005. Although for Federal income tax purposes a significant amount of
original issue discount, taxable as ordinary income, will be recognized by a
Holder as such discount accrues from the issue date of the Notes, no interest
will be payable on the Notes prior to August 1, 2000. From and after February 1,
2000, interest on the Notes will accrue at the rate of 15% per annum from
February 1, 2000 or from the most recent Interest Payment Date to which interest
has been paid or provided for, payable semiannually (to Holders of record at the
close of business on January 15 or July 15 immediately preceding the Interest
Payment Date) on February 1 and August 1 of each year, commencing August 1,
2000.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of
Wireless in the Borough of Manhattan, The City of New York (which initially will
be the corporate trust office of the Trustee at 114 W. 47th Street, New York,
N.Y. 10036); provided that, at the option of Wireless, payment of interest may
be made by check mailed to the address of the Holders as such address appears in
the Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount at maturity and any integral
multiple thereof. No service charge will be made for any registration of
transfer or exchange of Notes, but Wireless may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
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<PAGE> 28
OPTIONAL REDEMPTION
The Notes will be redeemable, at Wireless' option, in whole or in part, at
any time on or after February 1, 2000 and prior to maturity, upon not less than
30 nor more than 60 days' prior notice mailed by first-class mail to each
Holders' last address as it appears in the Security Register, at the following
Redemption Prices (expressed in percentages of principal amount at maturity),
plus accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date) if redeemed during the 12-month period commencing on February 1 of the
applicable year set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ------------------------------------------------------------ ----------
<S> <C>
2000........................................................ 105.0%
2001........................................................ 102.5
2002 and thereafter......................................... 100.0
</TABLE>
In addition, at any time prior to February 1, 1998, Wireless may redeem up
to 35% of the Accreted Value of the Notes with the proceeds of one or more
Public Equity Offerings at any time as a whole or from time to time in part, at
a Redemption Price (expressed as a percentage of Accreted Value) of 112.5%, plus
accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date).
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, on a
pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Note of
$1,000 in principal amount at maturity or less shall be redeemed in part. If any
Note is to be redeemed in part only, the notice of redemption relating to such
Note shall state the portion of the principal amount at maturity thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Note.
RANKING
The Indebtedness evidenced by the Notes will rank pari passu in right of
payment with all other unsubordinated indebtedness of Wireless. However, since
all of the operations of Wireless are conducted through its subsidiaries, the
liabilities of its subsidiaries, including trade payables, will be effectively
senior to the Notes. See "Risk Factors -- Holding Company Structure." At March
31, 1997, Wireless had no indebtedness outstanding other than the Notes, and
Wireless' subsidiaries had $186.0 million of liabilities, including $111.4
million of indebtedness (none of which was secured), all of which would have
effectively ranked senior to the Notes. See "Selected Historical Financial and
Operating Data."
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the definition of any other capitalized term used herein for which
no definition is provided.
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<PAGE> 29
"Accreted Value" is defined to mean, for any Specified Date, the amount
provided below for each $1,000 principal amount at maturity of Notes:
(i) if the Specified Date occurs on one of the following dates (each a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
- ------------------------ --------------
<S> <C> <C>
February 1, 1995.................................................... $ 485.19
August 1, 1995...................................................... $ 521.58
February 1, 1996.................................................... $ 560.70
August 1, 1996...................................................... $ 602.75
February 1, 1997.................................................... $ 647.96
August 1, 1997...................................................... $ 696.55
February 1, 1998.................................................... $ 748.80
August 1, 1998...................................................... $ 804.96
February 1, 1999.................................................... $ 865.33
August 1, 1999...................................................... $ 930.23
February 1, 2000.................................................... $1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) the original issue price
and (b) an amount equal to the product of (1) the Accreted Value for the
first Semi-Annual Accrual Date less the original issue price multiplied by
(2) a fraction, the numerator of which is the number of days from the issue
date of the Notes to the Specified Date, using a 360-day year of twelve
30-day months, and the denominator of which is the number of days elapsed
from the issue date of the Notes to the first Semi-Annual Accrual Date,
using a 360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semi-Annual Accrual Date immediately preceding such Specified Date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" is defined to mean Indebtedness of a Person
existing at the time such Person became a Restricted Subsidiary and not Incurred
in connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary.
"Adjusted Consolidated Net Income" is defined to mean, for any period, the
aggregate net income (or loss) of Wireless and its consolidated Restricted
Subsidiaries for such period determined in conformity with GAAP; provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income (or loss) of any Person (other
than net income (or loss) attributable to a Restricted Subsidiary) in which any
Person (other than Wireless or any of its Restricted Subsidiaries) has a joint
interest, except to the extent of the amount of dividends or other distributions
actually paid to Wireless or any of its Restricted Subsidiaries by such other
Person during such period, (ii) solely for the purposes of calculating the
amount of Restricted Payments that may be made pursuant to clause (C) of the
first paragraph of the "Limitation on Restricted Payments" covenant described
below (and in such case, except to the extent includible pursuant to clause (i)
above), the net income (or loss) of any Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with Wireless
or any of its Restricted Subsidiaries or all or substantially all of the
property and assets of such Person are acquired by Wireless or any of its
Restricted Subsidiaries, (iii) the net income (or loss) of any
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<PAGE> 30
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of such net income is not
at the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary; (iv) any gains or losses
(on an after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the "Limitation on Restricted Payments"
covenant described below, any amount paid as dividends on Preferred Stock of
Wireless or Preferred Stock of any Restricted Subsidiary owned by Persons other
than Wireless and any of its Restricted Subsidiaries; and (vi) all extraordinary
gains and extraordinary losses; provided that, solely for the purposes of
calculating the Interest Coverage Ratio (and in such case, except to the extent
it is already included pursuant to clause (i) above), "Adjusted Consolidated Net
Income" shall include the amount of all cash dividends received by Wireless or
any Restricted Subsidiary from an Unrestricted Subsidiary.
"Adjusted Consolidated Net Tangible Assets" is defined to mean the total
amount of assets of Wireless and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of Wireless and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recently available quarterly or annual
consolidated balance sheet of Wireless and its Restricted Subsidiaries, prepared
in conformity with GAAP.
"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" is defined to mean (i) an investment by Wireless or any
of its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of Wireless or shall be merged into or
consolidated with Wireless or any of its Restricted Subsidiaries or (ii) an
acquisition by Wireless or any of its Restricted Subsidiaries of the property
and assets of any Person other than Wireless or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person.
"Asset Disposition" is defined to mean the sale or other disposition by
Wireless or any of its Restricted Subsidiaries (other than to Wireless or
another Restricted Subsidiary of Wireless) of (i) all or substantially all of
the Capital Stock of any Restricted Subsidiary of Wireless or (ii) all or
substantially all of the assets that constitute a division or line of business
of Wireless or any of its Restricted Subsidiaries.
"Asset Sale" is defined to mean any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transactions) in
one transaction or a series of related transactions by Wireless or any of its
Restricted Subsidiaries to any Person other than Wireless or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of Wireless or any of its Restricted Subsidiaries or
(iii) any other property and assets of Wireless or any of its Restricted
Subsidiaries outside the ordinary course of business of Wireless or such
Restricted Subsidiary and, in each case, that is not governed by the provisions
of the Indenture applicable to Mergers, Consolidations and Sales of Assets;
provided that sales or other dispositions of inventory, receivables and other
current assets shall not be included within the meaning of "Asset Sale."
"Average Life" is defined to mean, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(b) the amount of such principal payment by (ii) the sum of all such principal
payments.
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<PAGE> 31
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's capital stock, whether now
outstanding or issued after the date of the Indenture, including, without
limitation, all Common Stock and Preferred Stock.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and "Capitalized Lease Obligation" is defined to mean the rental obligations, as
aforesaid, under such lease.
"Change of Control" is defined to mean such time as (i) (a) prior to the
occurrence of a Public Market, a "person" or "group" (within the meaning of
Section 13(d) or 14(d)(2) of the Exchange Act) becomes the "beneficial owner"
(as defined in Rule 13d-3 of the Exchange Act) of a greater percentage of the
total Voting Stock, on a fully diluted basis, of Wireless than is held by the
Existing Stockholders and their Affiliates on such date and (b) after the
occurrence of a Public Market, a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of more than 30% of the total
Voting Stock of Wireless on a fully diluted basis and such ownership is greater
than the amount of Voting Stock, on a fully diluted basis, held by the Existing
Stockholders and their Affiliates on such date; or (ii) individuals who at the
beginning of any period of two consecutive calendar years constituted the Board
of Directors (together with any new directors whose election by the Board of
Directors or whose nomination for election by Wireless' stockholders was
approved by a vote of at least two-thirds of the members of the Board of
Directors then still in office who either were members of the Board of Directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of such board of directors then in office.
"Closing Date" is defined to mean the date on which the Notes were
originally issued under the Indenture.
"Consolidated EBITDA" is defined to mean, for any period, the sum of the
amounts for such period of (i) Adjusted Consolidated Net Income, (ii)
Consolidated Interest Expense, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income, (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items
reducing Adjusted Consolidated Net Income, less all non-cash items increasing
Adjusted Consolidated Net Income, all as determined on a consolidated basis for
Wireless and its Restricted Subsidiaries in conformity with GAAP; provided that,
if any Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated
EBITDA shall be reduced (to the extent not otherwise reduced in accordance with
GAAP) by an amount equal to (A) the amount of the Adjusted Consolidated Net
Income attributable to such Restricted Subsidiary multiplied by (B) the quotient
of (1) the number of shares of outstanding Common Stock of such Restricted
Subsidiary not owned on the last day of such period by Wireless or any of its
Restricted Subsidiaries divided by (2) the total number of shares of outstanding
Common Stock of such Restricted Subsidiary on the last day of such period.
"Consolidated Interest Expense" is defined to mean, for any period, the
aggregate amount of interest in respect of Indebtedness (including amortization
of original issue discount on any Indebtedness and the interest portion of any
deferred payment obligation, calculated in accordance with the effective
interest method of accounting; all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed by Wireless or any of its Restricted
Subsidiaries) and all but the principal component of rentals in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by Wireless and its Restricted Subsidiaries during such period;
excluding, however, (i) any amount of such interest of any Restricted Subsidiary
if the net income (or loss) of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition
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<PAGE> 32
thereof (but only in the same proportion as the net income (or loss) of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Notes, all as determined on a consolidated basis in
conformity with GAAP.
"Consolidated Net Worth" is defined to mean, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of Wireless and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation), less any amounts attributable to Redeemable Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of treasury
stock and the principal amount of any promissory notes receivable from the sale
of the Capital Stock of Wireless or any of its Restricted Subsidiaries, each
item to be determined in conformity with GAAP (excluding the effects of foreign
currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52).
"Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Existing Stockholders" is defined to mean The Morgan Stanley Leveraged
Equity Fund II, L.P., Morgan Stanley Capital Partners III, L.P., Morgan Stanley
Capital Investors, L.P., Morgan Stanley Venture Capital Fund, L.P., Morgan
Stanley Venture Capital Fund II, L.P., Morgan Stanley Venture Capital Fund II,
C.V., Morgan Stanley Venture Investors, L.P., Accel Telecom L.P., Accel III L.P.
and Accel Investors '89 L.P.
"GAAP" is defined to mean generally accepted accounting principles in the
United States of America as in effect as of the date of the Indenture,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the Indenture shall be computed in
conformity with GAAP applied on a consistent basis, except that calculations
made for purposes of determining compliance with the terms of the covenants and
with other provisions of the Indenture shall be made without giving effect to
(i) the amortization of any expenses incurred in connection with the offering of
the Units, (ii) except as otherwise provided, the amortization of any amounts
required or permitted by Accounting Principles Board Opinion Nos. 16 and 17 and
(iii) any non-recurring charges associated with the adoption, after the Closing
Date, of Financial Accounting Standard Nos. 106 and 109.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Acquired Indebtedness by reason of the
acquisition of more than 50% of the Capital Stock of any Person; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any date
of determination (without duplication), (i) all Indebtedness of such Person for
borrowed money, (ii) all obligations of such Person
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<PAGE> 33
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise
included in this definition, obligations under Currency Agreements and Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
provided (i) that the amount outstanding at any time of any Indebtedness issued
with original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP and (ii) that
Indebtedness shall not include any liability for federal, state, local or other
taxes.
"Interest Coverage Ratio" is defined to mean, on any Transaction Date, the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four fiscal
quarters for which financial information in respect thereof is available
immediately prior to such Transaction Date (the "Reference Period") to (ii) the
aggregate Consolidated Interest Expense during such Reference Period. In making
the foregoing calculation, (A) pro forma effect shall be given to (1) any
Indebtedness Incurred subsequent to the end of the Reference Period and prior to
the Transaction Date (other than Indebtedness Incurred under a revolving credit
or similar arrangement to the extent of the commitment thereunder (or under any
predecessor revolving credit or similar arrangement) in effect on the last day
of such Reference Period), (2) any Indebtedness Incurred during such period to
the extent such Indebtedness is outstanding at the Transaction Date and (3) any
Indebtedness to be Incurred on the Transaction Date, in each case as if such
Indebtedness had been Incurred on the first day of such Reference Period and
after giving pro forma effect to the application of the proceeds thereof as if
such application had occurred on such first day; (B) Consolidated Interest
Expense attributable to interest on any Indebtedness (whether existing or being
Incurred) computed on a pro forma basis and bearing a floating interest rate
shall be computed as if the rate in effect on the Transaction Date (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months) had been
the applicable rate for the entire period; (C) there shall be excluded from
Consolidated Interest Expense any Consolidated Interest Expense related to any
amount of Indebtedness that was outstanding during such Reference Period or
thereafter but that is not outstanding or is to be repaid on the Transaction
Date, except for Consolidated Interest Expense accrued (as adjusted pursuant to
clause (B)) during such Reference Period under a revolving credit or similar
arrangement to the extent of the commitment thereunder (or under any successor
revolving credit or similar arrangement) in effect on the Transaction Date; (D)
pro forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during such Reference Period or thereafter and prior to
the Transaction Date as if they had occurred and such proceeds had been applied
on the first day of such Reference Period; (E) with respect to any such
Reference Period commencing prior to the Closing Date, the issuance of the Notes
shall be deemed to have taken place on the first day of such period; and (F) pro
forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that have been made by any Person that has become a Restricted
Subsidiary of Wireless or has been merged with or into Wireless or any
Restricted Subsidiary of Wireless during such Reference Period or subsequent to
such period and prior to the Transaction Date and that would have constituted
Asset Dispositions or Asset Acquisitions had such transactions occurred when
such Person was a Restricted Subsidiary of Wireless as if such Asset
Dispositions or Asset Acquisitions were Asset Dispositions or Asset Acquisitions
that occurred on the first day of such Reference Period; provided that to the
extent that clause (D) or (F) of this sentence requires that pro
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forma effect be given to an Asset Acquisition or Asset Disposition, such pro
forma calculation shall be based upon the four full fiscal quarters immediately
preceding the Transaction Date of the Person, or division or line of business of
the Person, that is acquired or disposed for which financial information is
available.
"Investment" is defined to mean any direct or indirect advance, loan or
other extension of credit (other than advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of Wireless or its Restricted Subsidiaries) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by any other Person. For purposes
of the definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described below, (i) "Investment" shall include the fair
market value of the assets (net of liabilities) of any Restricted Subsidiary of
Wireless at the time that such Restricted Subsidiary of Wireless is designated
an Unrestricted Subsidiary and shall exclude the fair market value of the assets
(net of liabilities) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary of Wireless and
(ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case as
determined by the Board of Directors in good faith.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
"Net Cash Proceeds" is defined to mean, with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to Wireless or any Restricted Subsidiary of Wireless) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes
will actually be paid or are payable) as a result of such Asset Sale without
regard to the consolidated results of operations of Wireless and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by Wireless
or any Restricted Subsidiary of Wireless as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP.
"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; (ii) statutory Liens of landlords
and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or
other similar Liens arising in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; (iii) Liens incurred or deposits made
in the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (iv) Liens incurred
or deposits made to secure the performance of tenders, bids, leases, statutory
or regulatory obligations, bankers' acceptances, surety and appeal bonds,
government contracts, performance and return-of-money bonds and other
obligations of a similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (v) rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of Wireless or any of its Restricted Subsidiaries; (vi) Liens
(including extensions and renewals thereof) upon real or personal property
acquired
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after the Closing Date; provided that (a) such Lien is created solely for the
purpose of securing Indebtedness Incurred (1) to finance the cost (including the
cost of improvement or construction) of the item of property or assets subject
thereto and such Lien is created prior to, at the time of or within six months
after the later of the acquisition, the completion of construction or the
commencement of full operation of such property or (2) to refinance any
Indebtedness previously so secured, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such cost and (c) any such Lien
shall not extend to or cover any property or assets other than such item of
property or assets and any improvements on such item; (vii) leases or subleases
granted to others that do not materially interfere with the ordinary course of
business of Wireless and its Restricted Subsidiaries, taken as a whole; (viii)
Liens encumbering property or assets under construction arising from progress or
partial payments by a customer of Wireless or its Restricted Subsidiaries
relating to such property or assets; (ix) any interest or title of a lessor in
the property subject to any Capitalized Lease or operating lease; (x) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (xi) Liens on property of, or on shares of stock or Indebtedness of, any
corporation existing at the time such corporation becomes, or becomes a part of,
any Restricted Subsidiary; (xii) Liens in favor of Wireless or any Restricted
Subsidiary; (xiii) Liens arising from the rendering of a final judgment or order
against Wireless or any Restricted Subsidiary of Wireless that does not give
rise to an Event of Default; (xiv) Liens securing reimbursement obligations with
respect to letters of credit that encumber documents and other property relating
to such letters of credit and the products and proceeds thereof; (xv) Liens in
favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods; (xvi)
Liens encumbering customary initial deposits and margin deposits, and other
Liens that are within the general parameters customary in the industry and
incurred in the ordinary course of business and in each case, secure
Indebtedness under Interest Rate Agreements and Currency Agreements and forward
contracts, options, future contracts, futures options or similar agreements or
arrangements designed to protect Wireless or any of its Restricted Subsidiaries
from fluctuations in the price of commodities; (xvii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by Wireless or any of its Restricted Subsidiaries in
the ordinary course of business in accordance with the past practices of
Wireless and its Restricted Subsidiaries prior to the Closing Date; and (xviii)
Liens on or sales of receivables.
"Public Equity Offering" is defined to mean an underwritten primary public
offering of Common Stock of Wireless or PageMart pursuant to an effective
registration statement under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of Wireless or PageMart has been distributed by means of an
effective registration statement under the Securities Act or sales pursuant to
Rule 144 under the Securities Act.
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Notes, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes Upon a Change of Control" covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to Wireless' repurchase
of such Notes as are required to be repurchased pursuant to the "Limitation on
Asset Sales" and "Repurchase of Notes Upon a Change of Control" covenants
described below.
"Reorganization" means the merger of PageMart with PM Merger Corp., a
wholly owned subsidiary of Wireless, pursuant to an Agreement of Reorganization
and Plan of Merger dated as of December 5, 1994,
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among Wireless, PageMart and PM Merger Corp., pursuant to which PageMart became
a Wholly Owned Subsidiary of Wireless.
"Restricted Subsidiary" is defined to mean any Subsidiary of Wireless other
than an Unrestricted Subsidiary.
"Significant Subsidiary" is defined to mean, at any date of determination,
any Restricted Subsidiary of Wireless that, together with its Subsidiaries, (i)
for the most recent fiscal year of Wireless, accounted for more than 10% of the
consolidated revenues of Wireless and its Restricted Subsidiaries or (ii) as of
the end of such fiscal year, was the owner of more than 10% of the consolidated
assets of Wireless and its Restricted Subsidiaries, all as set forth on the most
recently available consolidated financial statements of Wireless for such fiscal
year.
"Specified Date" is defined to mean any Redemption Date, any date of
purchase for any purchase of Notes pursuant to the "Limitation on Asset Sales"
or "Repurchase of Notes upon a Change of Control" covenants described below or
any date on which the Notes first become due and payable after an event of
default.
"Stated Maturity" is defined to mean, (i) with respect to any debt
security, the date specified in such debt security as the fixed date on which
the final installment of principal of such debt security is due and payable and
(ii) with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by such Person and
one or more other Subsidiaries of such Person.
"Transaction Date" is defined to mean, with respect to the Incurrence of
any Indebtedness by Wireless or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of Wireless
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary of Wireless (including any newly acquired or newly formed
Subsidiary of Wireless) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of,
Wireless or any Restricted Subsidiary; provided that either (A) the Subsidiary
to be so designated has total assets of $1,000 or less or (B) if such Subsidiary
has assets greater than $1,000, that such designation would be permitted under
the "Limitation on Restricted Payments" covenant described below. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of Wireless; provided that immediately after giving effect to such
designation (x) Wireless could Incur $1.00 of additional Indebtedness under the
first paragraph of the "Limitation on Indebtedness" covenant described below and
(y) no Default or Event of Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" is defined to mean, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" is defined to mean, with respect to any Subsidiary of any
Person, such Subsidiary if all of the outstanding Common Stock or other similar
equity ownership interests (but not including Preferred Stock) in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned directly or indirectly by
such Person.
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COVENANTS
Limitation on Indebtedness
(a) Under the terms of the Indenture, Wireless will not, and will not
permit any of its Restricted Subsidiaries to, Incur any Indebtedness (other than
the Notes and Indebtedness existing on the Closing Date); provided that Wireless
or PageMart may Incur Indebtedness if, after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds therefrom, the
Interest Coverage Ratio would be for the period beginning on the Closing Date
through October 19, 1995 greater than 1.50:1 and thereafter greater than 1.75:1.
All of Wireless' subsidiaries are Restricted Subsidiaries.
Notwithstanding the foregoing, Wireless and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness of Wireless or PageMart outstanding at any time in an aggregate
principal amount not to exceed $85 million, less any amount of Indebtedness
permanently repaid as provided under the "Limitation on Asset Sale" covenant
described below; provided that (A) such Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
issued, provides that no payments of principal of such Indebtedness by way of
sinking fund, mandatory redemption or otherwise (including defeasance) may be
made by Wireless or PageMart, as the case may be, at any time prior to the
Stated Maturity of the Notes and (B) the scheduled maturity of all principal of
such Indebtedness is beyond the Stated Maturity of the Notes; (ii) Indebtedness
to Wireless or any of its Wholly Owned Restricted Subsidiaries as long as such
Indebtedness continues to be owed to Wireless or any of its Wholly Owned
Restricted Subsidiaries; (iii) Indebtedness issued in exchange for, or the net
proceeds of which are used to refinance or refund, then outstanding
Indebtedness, other than Indebtedness Incurred under clause (i), (vii) or (ix)
of this paragraph, and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest, fees and
expenses); provided that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is pari passu with, or
subordinated in right of payment to, the Notes shall only be permitted under
this clause (iii) if (A) in case the Notes are refinanced in part or the
Indebtedness to be refinanced is pari passu with the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made pari
passu with, or subordinate in right of payment to, the remaining Notes, (B) in
case the Indebtedness to be refinanced is subordinated in right of payment to
the Notes, such new Indebtedness, by its terms or by the terms of any agreement
or instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the Notes at
least to the extent that the Indebtedness to be refinanced is subordinated to
the Notes and (C) such new Indebtedness, determined as of the date of Incurrence
of such new Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the Indebtedness
to be refinanced or refunded; and provided further that in no event may
Indebtedness of Wireless be refinanced by means of any Indebtedness of any
Restricted Subsidiary of Wireless pursuant to this clause (iii) unless the new
Indebtedness could, at the time of the refinancing, have been Incurred by such
Restricted Subsidiary; (iv) Indebtedness (A) in respect of performance, surety
or appeal bonds provided in the ordinary course of business; (B) under Currency
Agreements and Interest Rate Agreements; provided that, in the case of Currency
Agreements that relate to other Indebtedness, such Currency Agreements do not
increase the Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder; and (C) arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of Wireless or any of its Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in connection
with the disposition of any business, assets or Restricted Subsidiary of
Wireless (other than Guarantees of Indebtedness Incurred by any Person acquiring
all or any portion of such business, assets or Restricted Subsidiary of Wireless
for the purpose of financing such acquisition), in a principal amount not to
exceed the gross proceeds actually received by Wireless or any Restricted
Subsidiary in connection with such disposition; (v) Indebtedness under letters
of credit and bankers' acceptances issued in the ordinary course of business;
(vi) Acquired Indebtedness; provided that, with respect to this clause (vi),
after giving effect to the
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Incurrence thereof, Wireless' Interest Coverage Ratio is not less than it was
immediately prior to the Incurrence of such Acquired Indebtedness; (vii)
Indebtedness, in an amount not to exceed $2 million at any one time outstanding,
Incurred by Wireless in connection with the purchase, redemption, acquisition,
cancellation or other retirement for value of shares of Capital Stock of
Wireless, PageMart or any other Restricted Subsidiary options on any such shares
or related stock appreciation rights or similar securities held by officers or
employees or former officers or employees (or their estates or beneficiaries
under their estates), upon death, disability, retirement, termination of
employment or pursuant to any agreement under which such shares of stock or
related rights were issued; provided that (A) such Indebtedness, by its terms or
by the terms of any agreement or instrument pursuant to which such Indebtedness
is issued, is expressly made subordinate in right of payment to the Notes, (B)
such Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, provides that no payments of
principal of such Indebtedness by way of sinking fund, mandatory redemption or
otherwise (including defeasance) may be made by Wireless at any time prior to
the Stated Maturity of the Notes and (C) the scheduled maturity of all principal
of such Indebtedness is beyond the Stated Maturity of the Notes; (viii)
Indebtedness to the extent such Indebtedness is secured by Liens permitted under
clause (i) of the second paragraph of the "Limitation on Liens" covenant
described below; and (ix) Indebtedness of Wireless under revolving credit or
working capital facilities in an aggregate principal amount outstanding at any
time not to exceed $50 million, less any amount of Indebtedness permanently
repaid as provided under the "Limitation on Asset Sales" covenant described
below; provided that such Indebtedness need not be Incurred under revolving
credit or working capital facilities to the extent the proceeds of such
Indebtedness are necessary to pay, and are used to pay, interest due to the
Holders of the Notes.
(b) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included. For purposes
of determining compliance with this "Limitation on Indebtedness" covenant, (A)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in the above clauses, Wireless, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses and (B)
the amount of Indebtedness issued at a price that is less than the principal
amount thereof shall be equal to the amount of the liability in respect thereof
determined in conformity with GAAP and (C) any Liens granted pursuant to the
equal and ratable provisions referred to in the first paragraph of the
"Limitation on Liens" covenant shall not be treated as Indebtedness.
Limitation on Restricted Payments
So long as any of the Notes are outstanding, Wireless will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or
pay any dividend or make any distribution on its Capital Stock (other than
dividends or distributions payable solely in shares of its or such Restricted
Subsidiary's Capital Stock (other than Redeemable Stock) of the same class held
by such holders or in options, warrants or other rights to acquire such shares
of Capital Stock) held by Persons other than Wireless or any of its Wholly Owned
Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of Wireless or any Restricted Subsidiary
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by Persons other than Wireless or any of its Wholly Owned Restricted
Subsidiaries, (iii) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance, or other acquisition
or retirement for value, of Indebtedness of Wireless that is subordinated in
right of payment to the Notes, or (iv) make any Investment in any Affiliate of
Wireless (other than Wireless or a Restricted Subsidiary of Wireless) or any
Unrestricted Subsidiary (such payments or any other actions described in clauses
(i) through (iv) being collectively "Restricted Payments") if, at the time of,
and after giving effect to, the proposed Restricted Payment: (A) a Default or
Event of Default shall have occurred and be continuing, (B) Wireless could not
Incur at least $1.00 of Indebtedness under the first paragraph of the
"Limitation on Indebtedness" covenant or (C) the aggregate amount expended for
all Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution) after the
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date of the Indenture shall exceed the sum of (1) 50% of the aggregate amount of
the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net
Income is a loss, minus 100% of such amount) (determined by excluding income
resulting from transfers of assets received by Wireless or a Restricted
Subsidiary from an Unrestricted Subsidiary) accrued on a cumulative basis during
the period (taken as one accounting period) beginning on the first day of the
month immediately following the Closing Date and ending on the last day of the
last fiscal quarter preceding the Transaction Date plus (2) the aggregate net
proceeds (including the fair market value of non-cash proceeds as determined in
good faith by the Board of Directors) received by Wireless from the issuance and
sale permitted by the Indenture of its Capital Stock (other than Redeemable
Stock) to a Person who is not a Subsidiary of Wireless, including an issuance or
sale permitted by the Indenture for cash or other property upon the conversion
of any Indebtedness of Wireless subsequent to the Closing Date, or from the
issuance of any options, warrants or other rights to acquire Capital Stock of
Wireless (in each case, exclusive of any Redeemable Stock or any options,
warrants or other rights that are redeemable at the option of the holder, or are
required to be redeemed, prior to the Stated Maturity of the Notes) plus (3) an
amount equal to the net reduction in Investments in Unrestricted Subsidiaries
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to Wireless or any
Restricted Subsidiary from Unrestricted Subsidiaries, or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investments"), not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by Wireless
and any Restricted Subsidiary in such Unrestricted Subsidiary.
The foregoing provision shall not take into account, and shall not be
violated by reason of: (i) the payment of any dividend within 60 days after the
date of declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance
or other acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Notes including premium, if any, and
accrued and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iii) of the second paragraph of part (a) of
the "Limitation on Indebtedness" covenant; (iii) the declaration or payment of
dividends on the Common Stock of Wireless or PageMart, as the case may be,
following a Public Equity Offering of such Common Stock, of up to 6% per annum
of the net proceeds received by Wireless or PageMart, as the case may be, in
such Public Equity Offering; (iv) the repurchase, redemption or other
acquisition of Capital Stock of Wireless in exchange for, or out of the proceeds
of a substantially concurrent offering of, shares of Capital Stock (other than
Redeemable Stock) of Wireless; (v) the acquisition of Indebtedness of Wireless
which is subordinated in right of payment to the Notes in exchange for, or out
of the proceeds of, a substantially concurrent offering of, shares of the
Capital Stock of Wireless (other than Redeemable Stock); (vi) the repurchase of
Warrants pursuant to a Repurchase Offer (as defined in the Warrant Agreement);
(vii) the making of up to an aggregate amount of $5 million of Investments in
Unrestricted Subsidiaries; (viii) the purchase, redemption, acquisition,
cancellation or other retirement for value of shares of Capital Stock of
Wireless, PageMart or any other Restricted Subsidiary, options on any such
shares or related stock appreciation rights or similar securities held by
officers or employees or former officers or employees (or their estates or
beneficiaries under their estates), upon death, disability, retirement,
termination of employment or pursuant to any agreement under which such shares
of stock or related rights were issued; provided that the aggregate cash
consideration paid for such purchase, redemption, acquisition, cancellation or
other retirement of such shares of Capital Stock or related rights after the
Closing Date does not exceed an aggregate amount of $2 million and that any
consideration in excess of such $2 million is in the form of Indebtedness that
would be permitted to be Incurred under clause (vii) of the second paragraph of
the "Limitation on Indebtedness" covenant; (ix) payments or distributions
pursuant to or in connection with a consolidation, merger or transfer of assets
that complies with the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of Wireless; (x) the purchase, redemption, acquisition, cancellation or
other retirement for value of shares of Capital Stock of Wireless, PageMart or
any other Restricted Subsidiary to the extent necessary, in the judgment of the
Board of Directors, to prevent the loss or secure the renewal or reinstatement
of any license or franchise held by Wireless or any of its Subsidiaries from any
governmental agency; and (xi) the repurchase of Non-Voting Common Stock pursuant
to a special redemption of the Units; provided that,
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except in the case of clauses (i) and (iv), no Default or Event of Default shall
have occurred and be continuing or occur as a consequence of the actions or
payments set forth therein.
Notwithstanding the foregoing, in the event of an issuance of Capital Stock
of Wireless and (1) the repurchase, redemption or other acquisition of Capital
Stock out of the proceeds of such issuance or (2) the acquisition of Notes or
Indebtedness that is subordinated in right of payment to the Notes out of the
proceeds of such issuance, as permitted by clauses (iv) and (v) above, then, in
calculating whether the conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with respect to any
subsequent Restricted Payments, both the proceeds of such issuance and the
application of such proceeds shall be included under such clause (C).
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the Notes are outstanding, Wireless will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by Wireless or any other Restricted Subsidiary, (ii)
pay any Indebtedness owed to Wireless or any other Restricted Subsidiary, (iii)
make loans or advances to Wireless or any other Restricted Subsidiary or (iv)
transfer any of its property or assets to Wireless or any other Restricted
Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture, the 12 1/4%
Indenture, the Vendor Purchase Financing Agreement or any other agreements in
effect on the Closing Date, and any extensions, refinancings, renewals or
replacements of such agreements; provided that the encumbrances and restrictions
in any such extensions, refinancings, renewals or replacements are no less
favorable in any material respect to the Holders than those encumbrances or
restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by Wireless or any Restricted Subsidiary and existing at the time of
such acquisition, which encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than such Person or the
property or assets of such Person so acquired; (iv) in the case of clause (iv)
of the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of Wireless or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of Wireless or any Restricted Subsidiary in any
manner material to Wireless or any Restricted Subsidiary; or (v) with respect to
a Restricted Subsidiary and imposed pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary. Nothing
contained in this "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant shall prevent Wireless or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of Wireless or
any of its Restricted Subsidiaries that secure Indebtedness of Wireless or any
of its Restricted Subsidiaries.
Limitation on the Issuance of Capital Stock of Restricted Subsidiaries
Under the terms of the Indenture, Wireless will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell any shares of its Capital
Stock (including options, warrants or other rights to purchase shares of such
Capital Stock) except (i) to Wireless or another Restricted Subsidiary that is a
Wholly Owned Subsidiary of Wireless, (ii) issuances or sales to foreign
nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to the
extent required by applicable law, (iii) if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary
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or (iv) if the Net Cash Proceeds from such issuance or sale are applied, to the
extent required to be applied, pursuant to the "Limitation on Asset Sales"
covenant described below.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
Wireless will not permit any Restricted Subsidiary, directly or indirectly,
to Guarantee any Indebtedness of Wireless which is pari passu with or
subordinate in right of payment to the Notes ("Guaranteed Indebtedness"), unless
(i) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee (a "Subsidiary
Guarantee") of payment of the Notes by such Restricted Subsidiary and (ii) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or take
the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against Wireless or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee; provided that this paragraph shall not be applicable to
any Guarantee of any Restricted Subsidiary that (x) existed at the time such
Person became a Restricted Subsidiary and (y) was not Incurred in connection
with, or in contemplation of, such Person becoming a Restricted Subsidiary. If
the Guaranteed Indebtedness is (A) pari passu with the Notes, then the Guarantee
of such Guaranteed Indebtedness shall be pari passu with, or subordinated to,
the Subsidiary Guarantee or (B) subordinated to the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee
at least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of Wireless, of all of Wireless' and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
Under the terms of the Indenture, Wireless will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, enter into, renew or
extend any transaction (including, without limitation, the purchase, sale, lease
or exchange of property or assets, or the rendering of any service) with any
holder (or any Affiliate of such holder) of 5% or more of any class of Capital
Stock of Wireless or with any Affiliate of Wireless or any Restricted
Subsidiary, except upon fair and reasonable terms no less favorable to Wireless
or such Restricted Subsidiary than could be obtained, at the time of such
transaction or at the time of the execution of the agreement providing therefor,
in a comparable arm's-length transaction with a Person that is not such a holder
or an Affiliate.
The foregoing limitation does not limit, and shall not apply to: (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which Wireless or a Restricted Subsidiary delivers
to the Trustee a written opinion of a nationally recognized investment banking
firm stating that the transaction is fair to Wireless or such Restricted
Subsidiary from a financial point of view; (ii) any transaction between Wireless
and any of its Wholly Owned Restricted Subsidiaries or between Wholly Owned
Restricted Subsidiaries of Wireless; (iii) the payment of reasonable and
customary regular fees to directors of Wireless who are not employees of
Wireless; (iv) any payments or other transactions pursuant to any tax-sharing
agreement between Wireless and any other Person with which Wireless is required
or permitted to file a consolidated tax return or with which Wireless is or
could be part of a consolidated group for tax purposes; (v) the payment of
amounts to MS&Co. or its Affiliates pursuant to underwriting or placement
agreements; (vi) any loans or advances to officers or employees of Wireless or
any Restricted Subsidiary in the ordinary course of business; (vii) any
Restricted Payments not prohibited by the "Limitation on Restricted Payments"
covenant; or (viii) the sale, lease, transfer or other disposition by Wireless
or any Restricted Subsidiary of Capital Stock or assets of any Unrestricted
Subsidiary having a fair market value of less than $5 million as determined by
the Board of Directors.
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Limitation on Liens
Under the terms of the Indenture, Wireless will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien
on any of its assets or properties of any character (including, without
limitation, licenses), or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, without making effective provision for all of the Notes
and all other amounts due under the Indenture to be directly secured equally and
ratably with (or prior to) the obligation or liability secured by such Lien
unless, after giving effect thereto, the aggregate amount of any Indebtedness so
secured does not exceed 10% of Adjusted Consolidated Net Tangible Assets.
The foregoing limitation does not apply to (i) purchase money Liens upon or
in inventory or equipment acquired or held by Wireless or any of its Restricted
Subsidiaries taken or retained by the seller of such inventory or equipment to
secure all or a part of the purchase price therefor; provided that such Liens do
not extend to or cover any property or assets of Wireless or any Restricted
Subsidiary other than the inventory or equipment acquired; (ii) other Liens
existing on the Closing Date; (iii) Liens granted after the Closing Date on any
assets or Capital Stock of Wireless or its Restricted Subsidiaries created in
favor of the Holders; (iv) Liens with respect to Acquired Indebtedness permitted
under the "Limitation on Indebtedness" covenant and permitted refinancings
thereof; provided that such Liens do not extend to or cover any property or
assets of Wireless or any Restricted Subsidiary other than the property or
assets acquired; (v) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to Wireless or a Wholly Owned Restricted
Subsidiary to secure Indebtedness owing to Wireless or such other Restricted
Subsidiary; (vi) Liens securing Indebtedness which is Incurred to refinance
secured Indebtedness and which is permitted to be Incurred under clause (i) or
(iii) of the second paragraph of the "Limitation on Indebtedness" covenant;
provided that such Liens do not extend to or cover any property or assets of
Wireless or any Restricted Subsidiary other than the property or assets securing
the Indebtedness being refinanced; (vii) Permitted Liens; (viii) Liens not
otherwise permitted pursuant to clauses (i) through (vii) above to secure
Indebtedness of Wireless Incurred under clause (ix) of the second paragraph of
the "Limitation on Indebtedness" covenant; provided that the aggregate amount of
Indebtedness secured by Liens permitted under this clause (viii) shall not at
any time exceed $50 million; or (ix) Liens securing Indebtedness which is
Incurred to refinance the 12 1/4% Notes and which is permitted to be Incurred
under clause (iii) of the second paragraph of the "Limitation on Indebtedness"
covenant; provided that such Liens do not extend to or cover the Nationwide
Narrowband License or any of the Regional Narrowband Licenses.
Limitation on Asset Sales
Under the terms of the Indenture, in the event and to the extent that the
Net Cash Proceeds received by the Company or any of its Restricted Subsidiaries
from one or more Asset Sales occurring on or after the Closing Date in any
period of 12 consecutive months exceed 10% of Adjusted Consolidated Net Tangible
Assets in any one fiscal year (determined as of the date closest to the
commencement of such 12-month period for which a consolidated balance sheet of
Wireless and its Subsidiaries has been prepared), then Wireless shall or shall
cause the relevant Restricted Subsidiary to (i) within 12 months after the date
Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets in any one fiscal year (determined as of the date closest to the
commencement of such 12-month period for which a balance sheet of Wireless and
its Subsidiaries has been prepared) (A) apply an amount equal to such excess Net
Cash Proceeds to permanently repay unsubordinated Indebtedness of Wireless or of
any Restricted Subsidiary providing a Subsidiary Guarantee pursuant to the
"Limitation on Issuances of Guarantees by Restricted Subsidiaries" covenant
described above or Indebtedness of any other Restricted Subsidiary, in each case
owing to a Person other than Wireless or any of its Restricted Subsidiaries or
(B) invest an equal amount, or the amount not so applied pursuant to clause (A)
(or enter into a definitive agreement committing to so invest within 12 months
after the date of such agreement), in property or assets of a nature or type or
that are used in a business (or in a company having property and assets of a
nature or type, or engaged in a business) similar or related to the nature or
type of the property and assets of, or the business of, Wireless and its
Restricted Subsidiaries existing on the date of such investment (as determined
in good faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) and (ii) apply (no later than
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the end of the 12-month period referred to in clause (i)) such excess Net Cash
Proceeds (to the extent not applied pursuant to clause (i)) as provided in the
following paragraphs of this "Limitation on Asset Sales" covenant. The amount of
such excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $5 million, Wireless must, not later than the fifteenth
Business Day of such month, make an offer (an "Excess Proceeds Offer") to
purchase from the Holders on a pro rata basis an aggregate Accreted Value of
Notes equal to the Excess Proceeds on such date, at a purchase price equal to
101% of the Accreted Value of the Notes, plus, in each case, accrued interest
(if any) to the date of purchase (the "Excess Proceeds Payment").
Wireless shall commence an Excess Proceeds Offer by mailing a notice to the
Trustee and each Holder stating: (i) that the Excess Proceeds Offer is being
made pursuant to this "Limitation on Asset Sales" covenant and that all Notes
validly tendered will be accepted for payment on a pro rata basis; (ii) the
purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Excess Proceeds Payment Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless Wireless
defaults in the payment of the Excess Proceeds Payment, any Note accepted for
payment pursuant to the Excess Proceeds Offer shall cease to accrue interest on
and after the Excess Proceeds Payment Date; (v) that Holders electing to have a
Note purchased pursuant to the Excess Proceeds Offer will be required to
surrender the Note, together with the form entitled "Option of the Holder to
Elect Purchase" on the reverse side of the Note completed, to the Paying Agent
at the address specified in the notice prior to the close of business on the
Business Day immediately preceding the Excess Proceeds Payment Date; (vi) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Excess Proceeds Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount at maturity to the unpurchased portion of the Notes
surrendered; provided that each Note purchased and each new Note issued shall be
in a principal amount at maturity of $1,000 or integral multiples thereof.
On the Excess Proceeds Payment Date, Wireless shall (i) accept for payment
on a pro rata basis Notes or portions thereof tendered pursuant to the Excess
Proceeds Offer; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and (iii) deliver,
or cause to be delivered, to the Trustee all Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Notes or portions
thereof accepted for payment by Wireless. The Paying Agent shall promptly mail
to the Holders of Notes so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and mail to such Holders a
new Note equal in principal amount at maturity to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount at maturity of $1,000 or integral multiples
thereof. Wireless will publicly announce the results of the Excess Proceeds
Offer as soon as practicable after the Excess Proceeds Payment Date. For
purposes of this "Limitation on Asset Sales" covenant, the Trustee shall act as
the Paying Agent.
Wireless will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are received
by Wireless under this "Limitation on Asset Sales" covenant and Wireless is
required to repurchase Notes as described above and Wireless may modify any of
the foregoing provisions of this "Limitation on Asset Sales" covenant to the
extent it is advised by independent counsel that such modification is necessary
or appropriate in order to ensure such compliance.
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REPORTS
At all times from and after the earlier of (i) the date of the commencement
of the Exchange Offer and (ii) the date that is six months after the Closing
Date, in either case, whether or not Wireless is then required to file reports
with the Commission, Wireless shall file with the Commission all such reports
and other information as would be required to be filed with the Commission by
the Exchange Act. Wireless shall supply the Trustee and each holder of Notes, or
shall supply to the Trustee for forwarding to each Holder of Notes, without cost
to such Holder, copies of such reports or other information. In addition, at all
times prior to the earlier of the date of the Exchange Offer or the date that is
six months after the Closing Date, as applicable, Wireless shall, at its cost,
deliver to each Holder of the Notes quarterly and annual reports substantially
equivalent to those which would be required by the Exchange Act.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the
right to require the repurchase of its Notes by Wireless in cash pursuant to the
offer described below (the "Change of Control Offer") at a purchase price equal
to 101% of the Accreted Value thereof, plus accrued interest (if any) to the
date of purchase (the "Change of Control Payment"). Prior to the mailing of the
notice to Holders provided for in the succeeding paragraph, but in any event
within 30 days following any Change of Control, Wireless covenants to (i) repay
in full all indebtedness of Wireless that would prohibit the repurchase of the
Notes as provided for in the succeeding paragraph or (ii) obtain any requisite
consents under instruments governing any such indebtedness of Wireless to permit
the repurchase of the Notes as provided for in the succeeding paragraph.
Wireless shall first comply with the covenant in the preceding sentence before
it shall be required to repurchase Notes pursuant to the "Repurchase of Notes
upon a Change of Control" covenant.
Within 30 days of the Change of Control, Wireless shall mail a notice to
the Trustee and each Holder stating: (i) that a Change of Control has occurred,
that the Change of Control Offer is being made pursuant to this "Repurchase of
Notes Upon a Change of Control" covenant and that all Notes validly tendered
will be accepted for payment; (ii) the purchase price and the date of purchase
(which shall be a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed) (the "Change of Control Payment Date");
(iii) that any Note not tendered will continue to accrue interest pursuant to
its terms; (iv) that, unless Wireless defaults in the payment of the Change of
Control Payment, any Note accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest on and after the Change of Control Payment
Date; (v) that Holders electing to have any Note or portion thereof purchased
pursuant to the Change of Control Offer will be required to surrender such Note,
together with the form entitled "Option of the Holder to Elect Purchase" on the
reverse side of such Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the Change of Control Payment Date; (vi) that Holders will
be entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the third Business Day immediately preceding the
Change of Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and (vii) that Holders whose Notes are
being purchased only in part will be issued new Notes equal in principal amount
at maturity to the unpurchased portion of the Notes surrendered; provided that
each Note purchased and each new Note issued shall be in a principal amount at
maturity of $1,000 or integral multiples thereof.
On the Change of Control Payment Date, Wireless shall: (i) accept for
payment Notes or portions thereof tendered pursuant to the Change of Control
Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted; and (iii) deliver, or cause
to be delivered, to the Trustee, all Notes or portions thereof so accepted
together with an Officers' Certificate specifying the Notes or portions thereof
accepted for payment by Wireless. The Paying Agent shall promptly mail, to the
Holders of Notes so accepted, payment in an amount equal to the purchase price,
and the Trustee shall promptly authenticate and mail to such Holders a new Note
equal in principal amount at maturity to any unpurchased portion of the Notes
surrendered; provided that each Note purchased and each new Note issued shall be
in a principal amount at maturity of $1,000 or integral multiples thereof.
Wireless will publicly
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announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date. For purposes of the "Repurchase of
Notes Upon a Change of Control" covenant, the Trustee shall act as Paying Agent.
Wireless will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs under
the "Repurchase of Notes Upon a Change of Control" covenant and Wireless is
required to repurchase the Notes as described above and Wireless may modify any
of the foregoing provisions of this "Repurchase of Notes upon a Change of
Control" covenant to the extent it is advised by independent counsel that such
modification is necessary or appropriate in order to ensure such compliance.
Certain of the covenants under the Indenture impose restrictions on the
Company that reduce the likelihood of the occurrence of a highly leveraged
transaction. These covenants include a limitation on the incurrence of
indebtedness by Wireless and its Restricted Subsidiaries; a limitation on
Restricted Payments, which restricts the ability of Wireless and its Restricted
Subsidiaries to pay dividends and make other payments in respect of capital
stock; and a limitation on Asset Sales, which requires the proceeds of certain
asset sales to be applied towards the payment of debt or the making of permitted
investments, and requires Wireless to make an offer to repurchase the Notes to
the extent of any excess proceeds. See "-- Covenants." The Indenture does not
contain any provisions that afford protection to the Holders in the event of a
highly leveraged transaction. A highly leveraged transaction may not result in a
Change of Control as defined in the Indenture.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the Indenture:
(a) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable at maturity, upon acceleration, redemption
or otherwise; (b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days; (c)
Wireless defaults in the performance of or breaches any other covenant or
agreement of Wireless in the Indenture or under the Notes and such default or
breach continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
Notes; (d) there occurs with respect to any issue or issues of Indebtedness of
Wireless or any of its Significant Subsidiaries having an outstanding principal
amount of $5 million or more in the aggregate for all such issues of all such
Persons, whether such Indebtedness now exists or shall hereafter be created, an
event of default that has caused the holder thereof to declare such Indebtedness
to be due and payable prior to its Stated Maturity and such Indebtedness has not
been discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration; (e) any final judgment or order (not
covered by insurance) for the payment of money in excess of $5 million in the
aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered) shall
be rendered against Wireless or any of its Significant Subsidiaries and shall
not be paid or discharged, and there shall be any period of 60 consecutive days
following entry of the final judgment or order that causes the aggregate amount
for all such final judgments or orders outstanding and not paid or discharged
against all such Persons to exceed $5 million during which a stay of enforcement
of such final judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; (f) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of Wireless or any of its Significant
Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
Wireless or any of its Significant Subsidiaries or for all or substantially all
of the property and assets of Wireless or any of its Significant Subsidiaries or
(C) the winding up or liquidation of the affairs of Wireless or any of its
Significant Subsidiaries and, in each case, such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; (g) Wireless or any
of its Significant Subsidiaries (A) commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
under any such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of Wireless or
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any of its Significant Subsidiaries or for all or substantially all of the
property and assets of Wireless or any of its Significant Subsidiaries or (C)
effects any general assignment for the benefit of creditors; (h) Wireless and/or
one or more of its Significant Subsidiaries fails to make at the final (but not
any interim) fixed maturity of any Indebtedness principal payments aggregating
$5 million or more and all such defaulted payments shall not have been made,
waived or extended within 30 days of the payment default that causes the amount
to exceed $5 million; or (i) the nonpayment or acceleration upon default of any
three or more items of Indebtedness that would constitute at the time of such
nonpayments, but for the individual amounts of such Indebtedness, an Event of
Default under clause (d) or clause (h) above, or both, and which items of
Indebtedness aggregate $5 million or more.
If an Event of Default (other than an Event of Default specified in clause
(f) or (g) above that occurs with respect to Wireless) occurs and is continuing
under the Indenture, the Trustee or the Holders of at least 25% in aggregate
principal amount at maturity of the Notes, then outstanding, by written notice
to Wireless (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the Accreted Value
of, premium, if any, and accrued interest on the Notes to be immediately due and
payable. Upon a declaration of acceleration, such Accreted Value of, premium, if
any, and accrued interest shall be immediately due and payable. In the event of
a declaration of acceleration because an Event of Default set forth in clause
(d), (h) or (i) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (d), (h) or (i)
shall be remedied or cured by Wireless and/or the relevant Significant
Subsidiaries or waived by the holders of the relevant Indebtedness within 60
days after the declaration of acceleration with respect thereto. If an Event of
Default specified in clause (f) or (g) above occurs with respect to Wireless,
the Accreted Value of, premium, if any, and accrued interest on the Notes then
outstanding shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder. The
Holders of at least a majority in principal amount of the outstanding Notes by
written notice to Wireless and to the Trustee, may waive all past defaults and
rescind and annul a declaration of acceleration and its consequences if (i)
Wireless has paid or deposited (a) all sums paid or advanced by the Trustee
under the Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, (b) all overdue interest on all
Notes, (c) the principal of and premium, if any, on any Notes that have become
due otherwise than by such declaration or occurrence of acceleration and
interest thereon at the rate prescribed therefor by such Notes, and (d) to the
extent that payment of such interest is lawful, interest upon overdue interest
at the rate prescribed therefor by such Notes, (ii) all existing Events of
Default, other than the nonpayment of the Accreted Value of, premium, if any,
and interest on the Notes that have become due solely by such declaration of
acceleration, have been cured or waived and (iii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. For
information as to the waiver of defaults, see "-- Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.
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The Indenture requires certain officers of Wireless to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of Wireless and its Restricted
Subsidiaries and Wireless' and its Restricted Subsidiaries' performance under
the Indenture and that Wireless has fulfilled all obligations thereunder, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default and the nature and status thereof. Wireless will also be
obligated to notify the Trustee of any default or defaults in the performance of
any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Wireless shall not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person (other than PageMart or a Wholly
Owned Restricted Subsidiary of Wireless with a positive net worth; provided
that, in connection with any such merger of Wireless with PageMart or a Wholly
Owned Restricted Subsidiary of Wireless, no consideration (other than Common
Stock in the surviving Person or Wireless) shall be issued or distributed to the
stockholders of Wireless) or permit any Person to merge with or into Wireless
unless: (i) Wireless shall be the continuing Person, or the Person (if other
than Wireless) formed by such consolidation or into which Wireless is merged or
that acquired or leased such property and assets of Wireless shall be a
corporation organized and validly existing under the laws of the United States
of America or any jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, all of the
obligations of Wireless on all of the Notes and under the Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis, (A) Wireless or any Person
becoming the successor obligor of the Notes, as the case may be, shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
Wireless immediately prior to such transaction or (B) the Interest Coverage
Ratio of Wireless or any Person becoming the successor obligor of the Notes, as
the case may be, is at least equal to the lesser of (I) 3.00:1 and (II) the
Interest Coverage Ratio of Wireless immediately prior to such transaction; and
(iv) Wireless delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clause (iii)) and Opinion
of Counsel, in each case stating that such consolidation, merger or transfer and
such supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with; provided, however, that clause (iii) above does not apply if, in the good
faith determination of the Board of Directors of Wireless, whose determination
shall be evidenced by a Board Resolution, the principal purpose of such
transaction is to change the state of incorporation of Wireless; and provided
further that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture provides that Wireless will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) Wireless has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, (B) Wireless has delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
Wireless' exercise of its option under this "Defeasance" provision and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal income tax
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law after the date of the Indenture such that a ruling is no longer required or
(y) a ruling directed to the Trustee received from the Internal Revenue Service
to the same effect as the aforementioned Opinion of Counsel and (ii) an Opinion
of Counsel to the effect that the creation of the defeasance trust does not
violate the Investment Company Act of 1940 and after the passage of 123 days
following the deposit, the trust fund will not be subject to the effect of
Section 547 of the United States Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law, (C) immediately after giving effect to such deposit on
a pro forma basis, no Event of Default, or event that after the giving of notice
or lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending on the
123rd day after the date of such deposit, and such deposit shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which Wireless is a party or by which Wireless is bound, and (D)
if at such time the Notes are listed on a national securities exchange, Wireless
has delivered to the Trustee an Opinion of Counsel to the effect that the Notes
will not be delisted as a result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clauses (iii) and (iv) under "Consolidation, Merger
and Sale of Assets" and all the covenants described herein under "Covenants,"
clause (iii) under "Events of Default" with respect to such covenants and
clauses (iii) and (iv) under "Consolidation, Merger and Sale of Assets," and
clauses (d), (e), (h) and (i) under "Events of Default" shall be deemed not to
be Events of Default, upon, among other things, the deposit with the Trustee, in
trust, of money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Notes, the satisfaction of
the provisions described in clauses (B)(ii), (C) and (D) of the preceding
paragraph and the delivery by Wireless to the Trustee of an Opinion of Counsel
to the effect that, among other things, the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
Defeasance and Certain Other Events of Default. In the event Wireless
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, Wireless will remain
liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by Wireless and
the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the principal amount of, or premium, if
any, or interest on, any Note, (iii) change the place or currency of payment of
principal of, or premium, if any, or interest on, any Note, (iv) impair the
right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the Redemption
Date) of any Note, (v) reduce the above-stated percentage of outstanding Notes
the consent of whose Holders is necessary to modify or amend the Indenture, (vi)
waive a default in the payment of principal of, premium, if any, or interest on
the Notes or (vii) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
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NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of Wireless in the Indenture, or in any of the
Notes or because of the creation of any Indebtedness represented thereby, shall
be had against any incorporator, shareholder, officer, director, employee or
controlling person of Wireless or of any successor Person thereof. Each Holder,
by acceptance of the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of Wireless, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if its acquires any
conflicting interest, it must eliminate such conflict or resign.
The Trustee is the trustee under the 12 1/4% Notes.
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing, retirement, or other employee
benefit plan ("Plan") subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") should consider the fiduciary
standards under ERISA in the context of the Plan's particular circumstances
before authorizing an investment of a portion of such Plan's assets in the
Notes. Accordingly, such fiduciary should consider (i) whether the investment
satisfies the diversification requirements of Section 404(a)(1)(C) of ERISA,
(ii) whether the investment is in accordance with the documents and instruments
governing the Plan as required by Section 404(a)(1)(D) of ERISA, and (iii)
whether the investment is prudent under ERISA.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
Code prohibit a wide range of transactions involving the assets of a Plan or a
plan subject to Section 4975 of the Code (hereinafter a Plan and such Plans are
collectively referred to as an "ERISA Plan") and persons who have certain
specified relationships to the ERISA Plan ("parties in interest" within the
meaning of ERISA, "disqualified persons" within the meaning of the Code). A
prohibited transaction described in Section 406 of ERISA or Section 4975 of the
Code could arise if Wireless were, or were to become, a party in interest or a
disqualified person with respect to an ERISA Plan purchasing the Notes. Certain
exemptions from the prohibited transaction rules could be applicable to the
purchase of the Notes by an ERISA Plan depending on the type and circumstances
of the fiduciary of the ERISA Plan making the decision to acquire the Notes.
Included among these exemptions are: Prohibited Transaction Class Exemption
("PTCE") 90-1, regarding investments by insurance company pooled separate
accounts; PTCE 91-38, regarding investments by bank collective investment funds;
or PTCE 84-14, regarding transactions effected by a qualified professional asset
manager. Thus, a fiduciary of an ERISA Plan considering an investment in the
Notes also should consider whether the acquisition or the continued holding of
the Notes might constitute or give rise to a non-exempt prohibited transaction.
No ERISA Plan with respect to which Wireless is a party in interest or a
disqualified person may purchase the Notes, unless a statutory or administrative
exemption is available.
Certain employee benefit plans, such as governmental plans and church plans
(if no election has been made under Section 410(d) of the Code), are not subject
to the restrictions of ERISA, and assets of such Plans may be invested in the
Notes without regard to the ERISA considerations described above. The investment
in the Notes by such employee benefit plans may, however, be subject to other
applicable federal
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and state laws, which should be carefully considered by such employee benefit
plans before investing in the Notes.
The Department of Labor (the "DOL") has issued final regulations (the
"Regulations") as to what constitutes assets of an employee benefit plan under
ERISA. Under the Regulations, if an ERISA Plan acquires an equity interest in an
entity, which interest is neither a "publicly offered security" nor a security
issued by an investment company registered under the Investment Company Act of
1940, as amended, the ERISA Plan's assets would include, for purposes of the
fiduciary responsibility provisions of ERISA, both the equity interest and an
undivided interest in each of the entity's underlying assets unless one of
certain specified exceptions applies. One such exception is the "operating
company" exception. An entity will qualify as an "operating company" if it is
primarily engaged, directly or through a majority owned subsidiary or
subsidiaries, in the production or sale of a product or service other than the
investment of capital. Wireless has determined that it qualifies as an
"operating company" within the meaning of the Regulations. Accordingly, Wireless
believes that an investment by an ERISA Plan in the Notes should not cause any
of the underlying assets of Wireless to be "plan assets" within the meaning of
the Regulations.
The Regulations define an "equity interest" as "any interest in an entity
other than an instrument that is treated as indebtedness under applicable local
law and which has no substantial equity features." Wireless believes that the
Notes should be treated as indebtedness under New York law, which Wireless
believes is the "applicable local law" for purposes of the Regulations. In the
preamble to the Regulations, the DOL has stated that "whether any particular
investment has substantial equity features is an inherently factual question
that must be resolved on a case by case basis" and that in making such
determination "it would be appropriate . . . to take into account whether the
equity features of an instrument are such that a plan's investment in the
instrument would be a practical vehicle for the indirect provision of investment
management services". Wireless does not believe that the Notes constitute an
"equity interest" in Wireless for purposes of the Regulations. Even if the Notes
were so characterized, however, Wireless believes, based upon its determination
that Wireless qualifies as an "operating company" within the meaning of the
Regulations, that an investment by an ERISA Plan in the Notes should not cause
any of the underlying assets of Wireless to be "plan assets" within the meaning
of the Regulations.
Every investor considering the acquisition of the Notes should consult with
its counsel with respect to the potential applicability of ERISA and Section
4975 of the Code to such investment.
PLAN OF DISTRIBUTION
This Prospectus is to be used by MS&Co. in connection with offers and sales
of the Notes in market-making transactions at negotiated prices relating to
prevailing market prices at the time of sale. MS&Co. may act as principal or
agent in such transactions. MS&Co. has no obligation to make a market in the
Notes, and may discontinue its market-making activities at any time without
notice, at its sole discretion.
There is currently no established public market for the Notes. Wireless
does not currently intend to apply for listing of the Notes on any securities
exchange. Therefore, any trading that does develop will occur on the
over-the-counter market. Wireless has been advised by MS&Co. that it intends to
make a market in the Notes but it has no obligation to do so and any
market-making may be discontinued at any time. No assurance can be given that an
active public market for the Notes will develop.
MS&Co. acted as placement agent in connection with the original private
placement of the Notes and received a placement fee of $3,805,000 in connection
therewith. MS&Co. also acted as the lead managing underwriter in connection with
the initial public offering of Wireless' Class A Common Stock, in which the
underwriters received underwriting discounts and commissions of approximately
$5,460,000 in the aggregate. MS&Co. is affiliated with entities that
beneficially own approximately 51% of the outstanding Common Stock.
Although there are no agreements to do so, MS&Co., as well as others, may
act as broker or dealer in connection with the sale of Notes contemplated by
this Prospectus and may receive fees or commissions in connection therewith.
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Wireless has agreed to indemnify MS&Co. against certain liabilities under
the Securities Act or to contribute to payments that MS&Co. may be required to
make in respect of such liabilities.
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.
EXPERTS
The Consolidated Financial Statements of the Company at December 31, 1995
and 1996, and for each of the three years in the period ended December 31, 1996,
incorporated by reference herein, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto and are incorporated by reference herein, in reliance upon the authority
of said firm as experts in giving said reports.
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PageMart
Wireless, Inc.
