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Filed pursuant to Rule 424(b) under the
Securities Act of 1933, as amended.
This prospectus relates to Registration
Statement No. 333-18313.
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PROSPECTUS
Issued January 2, 1997
561,660 Shares
PAGEMART WIRELESS INC.
COMMON STOCK
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This Prospectus relates to the issuance of 561,660 shares (the
"Shares") of Class A Common Stock (the "Class A Common Stock") of PageMart
Wireless, Inc. (the "Company"), which is not being underwritten, upon exercise
of warrants (the "Warrants") previously issued to certain persons or entities
described herein. All of the Shares are being sold by such persons or
entities (the "Selling Shareholders"). The Warrants were issued and the
Shares have been or will be issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). The Shares are being registered by the Company pursuant to
registration rights granted to the Selling Shareholders in connection with the
private placement of the Warrants.
The Shares may be offered by the Selling Shareholders from time
to time in transactions on the NASDAQ National Market, in privately negotiated
transactions, or by a combination of such methods of sale, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
Selling Shareholders may effect such transactions by selling the Shares to or
through broker-dealers and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Shareholders or
the purchasers of the Shares for whom such broker-dealers may act as agent or
to whom they sell as principal or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). See "Plan of
Distribution."
The Company will not receive any of the proceeds from the sale
of the Shares by the Selling Shareholders. The Company has agreed to bear
certain expenses in connection with the registration and sale of the Shares
being offered by the Selling Shareholders.
The Class A Common Stock of the Company is traded on the NASDAQ
National Market under the symbol "PMWI." On December 31, 1996, the last sale
price for the Class A Common Stock as reported by NASDAQ was $6 5/8 per share.
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The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
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THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE
HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES OFFERED HEREBY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
Page
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Prospectus Summary.................................................... 3
Risk Factors.......................................................... 7
Business.............................................................. 14
Selling Shareholders.................................................. 14
Plan of Distribution.................................................. 18
Description of Capital Stock.......................................... 19
Legal Matters......................................................... 23
Experts............................................................... 23
Available Information................................................. 23
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, 1995; (b) Forms 10-K/A dated May 7, 1996 and May 21, 1996 amending the
Annual Report on Form 10-K for the fiscal year ended December 31, 1995; (c)
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; (d) Form
10-Q/A for the quarter ended March 31, 1996; (e) Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996; (f) Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996; and (g) the description of the Company's
Common Stock which is contained in its Registration Statement on Form 8-A
filed May 31, 1996, including any amendments or reports filed for the purpose
of updating such description.
All reports and other documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act,
prior to the filing of a post-effective amendment which indicates that all
securities offered hereby have been sold or which deregisters all securities
remaining unsold, 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.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere or incorporated by reference in this
Prospectus. Unless the context otherwise requires, the term "Company" refers
to PageMart Wireless, Inc. and its consolidated subsidiaries. The Company has
four classes of common stock outstanding. See "Description of Capital Stock."
Certain of the information contained in this summary and elsewhere in this
Prospectus, including information with respect to the Company's plans and
strategy for its two-way messaging business and related financing, are
forward-looking statements. For a discussion of important factors that could
cause actual results to differ materially from the forward-looking statements,
see "Risk Factors."
THE COMPANY
The Company is one of the fastest growing providers of wireless
messaging services in the United States. The Company has grown to become the
sixth largest paging carrier in the United States, based on 1,688,506
subscribers at September 30, 1996. The Company's number of subscribers has
increased at annual growth rates of 180%, 136% and 60% in 1993, 1994 and 1995,
respectively, as compared to an average annual growth rate of approximately
31% for 1993 through 1995 for the paging industry. The Company has made no
acquisitions, and all subscriber growth has been internally generated. The
Company has invested heavily in order to achieve rapid growth in its
subscriber base and, as a result, the Company has sustained net losses of
$31.1 million, $45.8 million, $53.1 million and $35.7 million for 1993, 1994,
1995 and the nine months ended September 30, 1996, respectively.
The Company offers local, multi-city, regional and nationwide
paging and other one-way wireless services in all 50 states, covering 90% of
the population of the United States. The Company also provides services in
Puerto Rico, the U.S. Virgin islands and the Bahamas, and has recently
initiated nationwide services in Canada. The Company employs a digital, state
of the art transmission network that is 100% FLEX([Registered]) enabled,
allowing the use of high speed messaging technology thereby providing
increased transmission capacity.
Operating Strategy
The Company attributes the significant growth of its paging
business to the successful implementation of its six operating principles:
(i) diversified distribution channels, (ii) nationwide common frequency, (iii)
efficient network architecture, (iv) spectrum-rich frequency position, (v)
centralized administration, and (vi) customer service capabilities.
Diversified Distribution Channels. The Company utilized a number of
distribution channels to market its products and services, including retail
marketing, private brand strategic alliances and national sales offices.
Retail Marketing. The Company believes that it is a leading supplier
of paging units to consumers through retail distribution channels. The
Company has been selected as the pager supplier for a number of leading
retail chains, including Office Depot Inc., Radio Shack, Federated
Department Stores, Target Stores, Inc. and Best Buy, Inc.
Private Brand Strategic Alliances. The Company was one of the first
paging companies to broaden its distribution reach by establishing
strategic relationships with large communications providers. The
Company has established strategic relationships with GTE Corporation,
Southwestern Bell Mobile Systems, AT&T Wireless Services, Ameritech
Mobile Services, Inc. and long distance reseller EXCEL
Telecommunications, Inc.
National Sales Offices. The Company's national sales offices sell
equipment and services through three distribution channels: direct
sales, third-party resellers and local retailers. The Company has a
direct sales force presence in approximately 80 Metropolitan Statistical
Areas ("MSAs") through 64 offices.
Management believes that a diversified approach to distribution is
important to sustain growth as paging services more deeply penetrate the
United States population, especially the consumer market. This
diversification is a key element of the Company's strategy of expanding its
subscriber base as rapidly as possible to increase cash flow through
greater utilization of its nationwide wireless communications network. A
diversified distribution strategy also provides a cost effective method for
managing disconnection rates. The Company's average monthly disconnection
rates for the twelve months ended December 31, 1994, December 31, 1995 and
September 30, 1996 were 3.4%, 2.5% and 2.3% per month, respectively.
Nationwide Common Frequency. The Company has constructed its
nationwide messaging network on a common frequency. Use of a common
frequency provides the Company with a number of important strategic
advantages not available to many of its competitors, which operate on
multiple frequencies across markets. The use of a common frequency
enables the Company's customers to travel throughout the United States,
Canada and the Bahamas while continuing to use the same messaging
device. As a result, the Company is able to provide multi-city coverage
customized to accommodate the customer's needs ("coverage on demand").
The common frequency also provides a competitive advantage to the
Company when marketing its services to regional and national retailers
and private brand strategic alliance partners. These distributors are
able to buy the paging unit without being limited by where they can
distribute the product or by the service they sell with the unit. This
allows retailers and strategic partners to offer customers all service
options while minimizing the number of stock keeping units ("SKUs") that
the distributor must carry, thus reducing inventory carrying costs.
Efficient Network Architecture. The Company is an industry leader in
the implementation of advanced telecommunications technologies, including
pioneering the use of direct broadcast satellite ("DBS") technology for
paging. The Company's nationwide wireless transmission network is 100%
controlled by DBS technology, which gives the Company a flexible, highly
reliable and efficient network architecture. The use of DBS technology
eliminates the need for expensive terrestrial radio frequency ("Rf")
control links and repeater equipment while enabling the Company to provide
a wide range of coverage options. The Company's network covers the top
300 MSAs across the United States, or approximately 90% of the total
population in the United States, and is designed to serve a significantly
larger subscriber base than the one currently served by the Company. The
Company's wireless transmission network is 100% FLEX enabled, allowing the
use of high speed FLEX protocol to transmit messages and maximize system
capacity.
Spectrum-Rich Frequency Position. The Company ranks among the top
four paging carriers in the United States in licensed nationwide
frequencies. The Company's exclusive frequency licenses include two
nationwide paging frequencies and 150 kHz of nationwide Narrowband
Personal Communications Service ("NPCS") frequency (the "NPCS
Licenses"). The Company believes that this frequency has important
strategic value because it may enable the Company to grow significantly
its one-way subscriber base and to provide two-way messaging and other
value-add services to its subscribers. As a result, the Company
believes its spectrum-rich frequency position enables it to attract
private brand strategic alliance partners.
Centralized Administration. The Company has centralized customer
service, information systems, inventory control and distribution, credit
and collections, accounting and marketing functions. This centralized
administration has enabled the Company to become one of the lowest cost
providers of paging and other one-way wireless communications services in
the United States. In addition, the administrative infrastructure is
designed to support a significantly larger customer base than that
currently served by the Company, which will allow it to realize additional
operating efficiency as the Company continues to grow.
Customer Service Capabilities. Management has focused on developing
industry-leading customer service capabilities. The Company employs over
560 highly trained customer service personnel operating in state of the art
call center facilities. Management believes that these services are an
important factor in supporting and retaining its strategic partners,
retailers and subscribers.
Financial Strategy
The Company's principal financial objectives are to (i)
maximize profitability with respect to its existing subscriber base, as
measured by operating profit before selling expenses per subscriber and (ii)
grow the subscriber base on a cost efficient basis, as measured by selling
expenses (including loss on equipment sales) per net subscriber addition. The
Company achieves operating efficiency through its efficient transmission
network, its nationwide common frequency and its centralized administration.
The Company's operating profit before selling expenses per subscriber per
month for the Company's one-way operations was $1.01, $1.45, $1.66 and $2.11
during each quarter of 1995, and was $2.20 during the quarter ended September
30, 1996, although on an overall basis the Company has sustained increasing
net losses for each year of its operations. See "Risk Factors -- History of
Operating Losses." The Company's selling expenses per net subscriber addition
were $91, $81, and $91 in the years ended 1993, 1994 and 1995, respectively
and were $85 for the nine months ended September 30, 1996.
The Company's operating model is unique in the industry in that
it follows a strategy of selling rather than leasing messaging equipment to
subscribers. As of September 30, 1996, approximately 98% of the Company's
units were Customer Owned and Maintained ("COAM"). This COAM strategy results
in the Company having much less capital invested in messaging equipment than
other paging carriers, which lease messaging equipment to a majority of their
subscribers. The Company believes that its COAM strategy, coupled with its
network design, enables it to incur significantly lower capital expenditures,
depreciation and amortization, and interest expense associated with serving
subscribers than other companies. Management measures capital efficiency by
the amount of capital employed per subscriber and believes capital efficiency
is an important indicator of its financial performance. The Company's capital
employed per subscriber was $42 and $40 at December 31, 1994 and 1995,
respectively and was $49 at September 30, 1996.
The Company's strategy is to expand its subscriber base as
rapidly as possible and, through a combination of scale, operating efficiency
and capital efficiency, to provide a significant return on capital employed.
Two-Way Messaging Strategy
One of the Company's principal strategies is to become a
leading provider of two-way messaging services in the United States.
Management believes that the introduction of two-way messaging services may
present significant future growth opportunities to the Company by enabling it
to provide a new generation of advanced messaging services, including data
messaging, stored voice messaging and other services, to new and existing
subscribers.
The Company's two-way messaging strategy is founded on four
principal competitive advantages: (i) nationwide spectrum, (ii) incremental
introduction of technology, (iii) established diversified distribution
channels, and (iv) operating efficiency.
Nationwide Spectrum. With the acquisition of the NPCS
Licenses, the Company became one of four companies with 150 kHz or more of
nationwide NPCS frequency. As a result, the Company is position to create a
high capacity nationwide network capable of delivering local, multi-city,
regional, or nationwide data and stored voice messaging services to a large
number of subscribers.
Incremental Introduction of Technology. The Company intends to
introduce two-way data services technology by initially building upon its
one-way transmission network, enabling the Company to minimize the level of
capital expenditures and investments. The Company may later assess the market
for two-way stored voice service before making a determination to invest in
its own two-way stored voice service network.
Established Diversified Distribution Channels. The Company
plans to leverage its established diversified distribution channels to achieve
efficient marketing of its two-way services.
Operating Efficiency. The Company expects to utilize its
existing one-way network and centralized administration to minimize
incremental costs of product and service expansion. Management believes that
the Company's centralized customer service, information systems, inventory
control and distribution, credit and collections, accounting and marketing
organizations will be capable of supporting the Company's two-way strategy.
As a result of these operating advantages, the Company plans to
provide a complete array of two-way data services at affordable prices that
the Company believes should appeal to a large number of potential subscribers.
The Company began testing two-way data services in late 1996.
Upon completion of testing, two-way data services are expected to be marketed
on a city-by-city basis beginning in early 1997. Two-way data services may
include guaranteed alphanumeric message delivery with acknowledgment and
message with response capabilities. The Company plans to initially provide
two-way stored voice services by reselling the services of another provider.
The Company may later assess the market for two-way stored voice service
before making a determination to invest in its own two-way stored voice
service network.
International Expansion
The Company plans to provide messaging services in selected
countries on a seamless international network. Management believes that its
technology, operational structure and distribution strategies can be
replicated in foreign countries to establish nationwide wireless networks. In
each country in which the Company plans to offer paging and messaging
services, the Company will seek to obtain a nationwide frequency common to at
least one of the nationwide frequencies it holds in the United States in order
to allow a single messaging device to be used in multiple countries. The
Company expects to pursue international opportunities through minority
interests in joint venture arrangements whereby the Company would contribute
its expertise in designing and managing messaging services with minimal
incremental capital investments.
The Company's international strategy is initially to pursue
opportunities in North America, Latin America, and South America. One of the
Company's affiliates, PageMart Canada Limited ("PageMart Canada"), has
obtained a nationwide license in Canada based on a frequency common to one of
its frequencies in the United States. PageMart Canada began providing service
in the largest metropolitan areas in Canada to U.S. subscribers in March 1996
and to Canadian subscribers in April 1996. Through PageMart International,
Inc., the Company owns 20% of the voting common stock of PageMart Canada.
Additionally, PageMart International Inc. owns 33% of the voting common stock
of PageMart Canada Holding ("Canada Holding") which owns the remaining 80% of
the voting common stock of PageMart Canada. The Company also provides paging
coverage in the Bahamas.
As a result of its business strategy, the Company has
structured its business into three operating divisions: PageMart One-Way,
PageMart Two-Way and PageMart International.
The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"),
Morgan Stanley Capital Partners III, L.P. ("MSCP III"), Morgan Stanley Capital
Investors, L.P. ("MSCI"), Morgan Stanley Venture Capital Fund, C.V. ("MSVC"),
Morgan Stanley Venture Capital Fund II, C.V. ("MSVC II"), MSCP 892 Investors,
L.P. ("MSCP 892") and Morgan Stanley Venture Investors, L.P. ("MSVI")
(collectively, the "Morgan Stanley Shareholders") currently own approximately
51.2% of the outstanding Common Stock of the Company and approximately 48.9%
of the outstanding voting Common Stock. Certain of the Morgan Stanley
Shareholders are Selling Shareholders hereunder. See "Selling Shareholders."
RISK FACTORS
Prior to making an investment decision, prospective investors
should carefully consider, along with 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 $9.2 million for the nine months ended September 30, 1996 and an
aggregate of $81.7 million of operating losses for the three-year period ended
December 31, 1995. The Company expects to continue to incur operating losses
for the next several years. In addition, management anticipates that the
Company's average monthly revenue per unit ("ARPU") will decline in the
foreseeable future due to increased competition and a higher mix of
subscribers added through private brand strategic alliance programs and
third-party resellers, both of which yield lower ARPU. Although the Company's
one-way operations generated $6.4 million of positive EBITDA for the first
nine months of 1996, the Company has had negative EBITDA in each year of its
operations, and negative EBITDA of $10.1 million for the year ended December
31, 1995. EBITDA is not derived pursuant to GAAP and therefore should not be
construed as an alternative to operating income, as an alternative to cash
flows from operating activities (as determined in accordance with GAAP) or as
a measure of liquidity. The calculation of EBITDA resulted principally from
expenditures associated with the establishment of the Company's one-way
operations infrastructure and the growth of its subscriber base. Although the
Company expects that its one-way operations will continue to generate positive
EBITDA, as the Company begins development and implementation of two-way
messaging services, the Company will incur substantial additional operating
losses and negative EBITDA during the start-up phase for two-way services.
Any positive cash flow from the Company's one-way operations will be used
primarily to fund the Company's two-way operations for the next several years.
There can be no assurance that the Company's consolidated operations will
become profitable or have positive EBITDA or that its one-way operations will
continue to generate positive EBITDA. If the Company cannot achieve operating
profitability or positive EBITDA, it may not be able to make required debt
service payments, and the Common Stock may have little or no value.
High Leverage; Restrictive Covenants
The Company is highly leveraged, primarily as a result of debt
financing incurred to fund the construction of the Company's nationwide
operations infrastructure, the growth of its subscriber base and to finance the
acquisition of the NPCS Licenses. At September 30, 1996, the Company's
long-term debt was $232.6 million and its stockholders' equity was $22.9
million. In addition, the accretion of original issue discount on the
Company's outstanding indebtedness will cause an increase in indebtedness of
$111.2 million by 2001. The Company's deficiency of earnings before fixed
charges to cover fixed charges for the nine months ended September 30, 1996
was $35.7 million and for each of the three years ended December 31, 1993,
1994 and 1995, was $31.1 million, $45.8 million and $53.1 million,
respectively.
The indenture pursuant to which the Company's 15% Senior
Discount Notes due 2005 (the "15% Notes") were issued (the "15% Indenture")
and the indenture pursuant to which the 12 1/4% Senior Discount Notes due 2003
(the "12 1/4% Notes") of the Company's operating subsidiary, PageMart, Inc.
("PageMart") were issued (the 12 1/4% Indenture") contain certain restrictive
covenants. Such restrictions affect, and in many respects significantly limit
or prohibit, among other things, the ability of the Company to incur
additional indebtedness, make prepayments of certain indebtedness, pay
dividends, make investments, engage in transactions with stockholders and
affiliates, issue capital stock of restricted subsidiaries, create liens, sell
assets and engage in mergers and consolidations.
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."
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.
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, 1994, December
31, 1995 and September 30, 1996 were 3.4%, 2.5% and 2.3% per month,
respectively. An increase in its rate of disconnections would adversely
affect the Company's results of operations.
Risks of Implementation and Financing of Two-Way Services
In the FCC NPCS auctions, the Company acquired a total of 100
kHz of forward frequency and 50 kHz of return frequency nationwide.
Specifically, the Company acquired a 50 kHz unpaired nationwide NPCS license
(the "Nationwide Narrowband License") and five 50/50 kHz paired regional NPCS
licenses (the "Regional Narrowband Licenses" or collectively, with the
Nationwide Narrowband License, the NPCS Licenses). These acquired licenses
could be utilized to offer two-way messaging services or, if two-way messaging
services are not fully implemented, to expand the Company's existing one-way
transmission capacity.
The development and implementation of two-way services will
require the application of new technology and the construction of a
transmission network, in addition to the network used in the Company's
existing one-way messaging business. Existing two-way wireless data services
have had only limited market acceptance. There can be no assurance that
two-way services will be commercially viable, and the success of two-way
services could be affected by matters beyond the Company's control such as the
future cost of infrastructure and subscriber equipment, technological changes
in wireless messaging services, marketing and pricing strategies of
competitors, regulatory developments and general economic conditions.
Significant additional financing will be required to fund the
construction of a transmission network for two-way services, other start-up
costs and selling expenses. The Company anticipates investing $50 to $75
million through fiscal 1998 to test and construct a two-way transmission
network. Thereafter, the Company anticipates that its two-way operations may
require $100 to $150 million of additional investment to substantially
complete the network buildout. The Company expects to require additional
financing to complete the buildout, which may include entering joint venture
arrangements, however there can be no assurance that sufficient financing will
be available to the Company. The Company's ability to incur indebtedness is
limited by the covenants contained in the 15% Indenture, the 12 1/4% Indenture
and the Revolving Credit Agreement between the Company and BT Commercial
Corporation, as Agent, and Bankers Trust Company, as Issuing Bank that
provides a $50 million revolving line of credit, and as a result, any
additional financing may need to be equity financing. The Company does not
anticipate any significant revenues from two-way services during 1996 or 1997.
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"
and "Business--Competition."
Dependence on Key Suppliers
The Company does not manufacture any of the pagers used in its
paging operations. The Company buys pagers primarily from Motorola, Inc.
("Motorola") as well as some other manufacturers and therefore is dependent on
such manufacturers to obtain sufficient pager inventory for new subscriber and
replacement needs. In addition, the Company has acquired terminals and
transmitters primarily through vendor financing agreements with Motorola and
Glenayre Technologies, Inc. ("Glenayre") and thus is dependent on such
manufacturers for sufficient terminals and transmitters to meet its expansion
and replacement requirements. There can be no assurance that the Company will
not experience significant delays in obtaining pagers, terminals or
transmitters in the future. Although the Company has entered into a one-year
pager supply agreement with Motorola, this agreement provides no assurance
that Motorola will be able to fill the Company's orders in a timely manner.
In addition, 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 has 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 also are 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.
As a result of the enactment of the Telecommunications Act of
1996 (the "1996 Act"), the Company may face additional financial obligations.
In November 1996, in response to a directive in the 1996 Act, the FCC adopted
new rules that govern compensation to be paid to pay phone providers. These
rules are the subject of several judicial appeals. If the FCC rules
ultimately are adopted, however, the cost of providing certain paging
services, including 800 number paging, could increase. Also in response to
changes made by the 1996 Act, the FCC currently is considering the adoption of
new rules regarding payments by telecommunications firms into a revamped fund
that will provide for the widespread availability of telecommunications
services, including to low-income consumers ("Universal Service"). Prior to
the implementation of the 1996 Act, Universal Service obligations largely were
met by local telephone companies. Under the proposed rules, all
telecommunications carriers, including paging companies, will be required to
contribute to the Universal Service fund. Payments into the fund will likely
increase the cost of doing business, and could make the Company's services
less competitive with other services.
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
telecommunications 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 and is not
aware of any other currently pending legislation or regulations which will
have a material adverse impact on the Company's operations. However, there
can be no assurance that Federal or other state legislation will not be
adopted, or that the FCC or the various state agencies will not adopt
regulations or take other actions, that would adversely affect the business of
the Company.
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 (the "FCC Rules"). Based on currently available
information, the Company estimates that its foreign ownership is approximately
22%. However, this percentage is subject to change at any time upon any
transfer of direct or indirect ownership of the Company's Common Stock. These
restrictions on foreign ownership could also adversely affect the ability of
the Company to attract additional equity financing from entities that are, or
are owned by, non-U.S. persons.
Risks of International Operations
The Company intends to continue to expand internationally.
Recently, the Company was successful in obtaining licenses for frequencies
with its foreign partners in Canada and the Bahamas. The Company may seek
joint venture partners in certain other countries, in particular where
domestic regulations prohibit foreign control of telecommunications companies.
The Company will need to obtain licenses for frequencies in any foreign
country in which it seeks to expand and, if the licenses are obtained, to
construct or acquire a transmission network and thereafter to begin sales and
marketing efforts. However, there can be no assurance that the Company will
be able to obtain licenses in foreign countries, that it will be successful in
finding joint venture partners or that its foreign operations, if established,
will be profitable. Acquiring licenses, constructing or acquiring a
transmission network and commencing operations could require the Company to
provide funding for such operations and could require the Company to seek
additional debt or equity capital. In countries where the Company is or may
become a minority holder in a joint venture controlled by another party, such
as the Company's existing joint venture in Canada, the success of such joint
venture's operations will depend substantially on the efforts of the Company's
venture partner and may be impeded if disputes arise between the parties.
International operations are subject to various risks not present in domestic
operations such as fluctuations in currency exchange ratios, nationalization
or expropriation of assets, import/export controls, political instability,
variations in the protection of intellectual property rights, limitations on
foreign investment, restrictions on the ability to convert currency and the
additional expenses and risks inherent in conducting operations in
geographically distant locations, with customers speaking different languages
and having different cultural approaches to the conduct of business. To
mitigate the effects of foreign currency fluctuations on the results of its
foreign operations, the Company anticipates utilizing forward exchange
contracts and engaging in other efforts to hedge foreign currency
transactions. However, there can be no assurance as to the effectiveness of
such mitigation efforts in limiting any adverse effects of foreign currency
fluctuations on the Company's foreign operations and on the Company's overall
results of operations.
Significant Ownership
The Morgan Stanley Shareholders currently own approximately
51.2% of the outstanding Common Stock (as defined below) of the Company and
approximately 48.9% 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
Group Inc. ("MS Group"). Four of the nine directors of the Company are
employees of a wholly-owned subsidiary of MS Group. As a result of its
ownership interest in the Company and certain rights pursuant to the Amended
and Restated Agreement among certain Stockholders dated as of May 10, 1996
(the "Stockholders Agreement"), among the Morgan Stanley Shareholders, the
Company and certain other stockholders, the Morgan Stanley Shareholders have a
significant influence over the affairs of the Company.
Potential Adverse Effect on Market Price Because of Shares Eligible
for Future Sale
Of the 34,380,318 shares of Class A Common Stock which will be
outstanding after consummation of the Offering (assuming all shares offered
hereby are sold), only the 6,000,000 shares offered in the initial public
offering and the 561,660 shares being offered hereby will be eligible for
immediate resale in the public market without restriction, except to the
extent that any of such shares are acquired by an affiliate of the Company.
The future sale of a substantial number of shares of Common Stock in the
public market following the Offering, or the perception that such sales could
occur, could adversely affect the market price for Common Stock. The Company
has granted all the investors party to the Stockholders Agreement certain
registration rights with respect to the Common Stock owned by these investors.
If these investors should sell a substantial amount of such Common Stock, the
prevailing market price for the Common Stock could be adversely affected. The
Company, these investors and the officers and directors of the Company have
agreed not to sell any shares of the Common Stock, or any securities
convertible into or exercisable or exchangeable for Common Stock without the
consent of Morgan Stanley & Co. Incorporated ("MS & Co."). See "Shares
Eligible for Future Sale."
Anti-Takeover Effects of Provisions of the Certificate of
Incorporation, By-laws and Delaware Law
Certain provisions of the Company's Certificate of
Incorporation, By-laws and the Stockholders Agreement, as well as provisions
of the Delaware General Corporation Law, may have the effect of delaying or
preventing transactions involving a change of control of the Company,
including transactions in which stockholders might otherwise receive a
substantial premium for their shares over then current market prices, and may
limit the ability of stockholders to approve transactions that they may deem
to be in their best interests. In particular, under the certificate of
incorporation, the Board of Directors is authorized to issue one or more
classes of preferred stock having such designations, rights and preferences as
may be determined by the Board. See "Description of Capital Stock."
Potential Dilution of Voting Power Upon Conversion Into
Class A Common Stock
As of December 1, 1996, there were 3,809,363 shares of Class B
Common Stock ("Class B Common Stock") outstanding, 1,428,472 shares of Class C
Common Stock ("Class C Common Stock") outstanding and 679,945 shares of Class
D Common Stock ("Class D Common Stock," and, together with the Class A Common
Stock, Class B Common Stock and Class C Common Stock, collectively, the
"Common Stock") outstanding, representing, in the aggregate, approximately
14.9% of the total outstanding Common Stock (14.7% after giving effect to
issuance of the Class A Common Stock offered hereby). Conversion of shares
of Class B Common Stock, Class C Common Stock or Class D Common Stock into
shares of Class A Common Stock would result in a decrease in the voting power
of the investors in the Class A Common Stock offered hereby, as well as
holders of the previously outstanding Class A Common Stock. After giving
effect to the Offering, if all such shares of Class B Common Stock, Class C
Common Stock and Class D Common Stock were so converted, the holders of such
newly converted Class A Common Stock would own approximately 14.7% of the
outstanding Class A Common Stock. Although shares of Class D Common Stock are
freely convertible into Class A Common Stock, shares of Class B Common Stock
and Class C Common Stock are by their terms convertible into Class A Common
Stock only so long as the aggregate percentage of shares of Class A Common
Stock owned by certain holders remains below a certain level. See
"Description of Capital Stock--Common Stock." The Morgan Stanley Shareholders
have informed the Company that any conversion of their shares of Class B
Common Stock into Class A Common Stock will be solely to maintain their current
level of ownership of voting Common Stock.
THE COMPANY
The Company was incorporated in Delaware on November 29, 1994
as a wholly-owned subsidiary of PageMart, Inc. Effective January 19, 1995,
PageMart, Inc. merged with a wholly-owned subsidiary of the Company, pursuant
to which PageMart, Inc. was the surviving corporation (the "Reorganization").
As part of the Reorganization, each share of outstanding common stock of
PageMart, Inc. was converted into the right to receive one share of Common
Stock of the Company. Upon consummation of the Reorganization, the
stockholders of PageMart had the same ownership interest in the Company as
they had in PageMart, and the Company owned all of the capital stock of
PageMart. On December 28, 1995, the name of the Company was changed from
PageMart Nationwide, Inc. to PageMart Wireless, Inc.
The Company's executive offices are located at 6688 North
Central Expressway, Suite 800, Dallas, Texas 75206, its telephone number is
(214) 750-5809 and its fax number is (214) 987-2029.
BUSINESS
General
The Company is one of the fastest growing providers of wireless
messaging services in the United States. Since commencing operations in 1990,
the Company has grown to become the sixth largest paging carrier in the United
States, based on 1,688,506 subscribers at September 30, 1996. The Company's
number of subscribers has increased at annual growth rates of 180%, 136% and
60% in 1993, 1994 and 1995, respectively, as compared to an average annual
growth rate of approximately 31% for 1993 through 1995 for the paging
industry. The Company has made no acquisitions, and all subscriber growth has
been internally generated. The Company has invested heavily in order to
achieve rapid growth in its subscriber base and, as a result, the Company has
sustained net losses of $31.1 million, $45.8 million, $53.1 million and $35.7
million for 1993, 1994, 1995 and the nine months ended September 30, 1996,
respectively.
The Company offers local, multi-city, regional and nationwide
paging and other one-way wireless services in all 50 states, covering 90% of
the population of the United States. The Company also provides services in
Puerto Rico, the U.S. Virgin Islands and the Bahamas, and has recently
initiated nationwide services in Canada. The Company employs a digital, state
of the art transmission network that is 100% FLEX enabled, allowing the use of
high speed messaging technology, thereby providing increased transmission
capacity.
SELLING SHAREHOLDERS
The following table sets forth certain information, as of the
date hereof, with respect to the number of shares of Class A Common Stock
owned by each of the Selling Shareholders and as adjusted to give effect to
the sale of the Shares offered hereby. The Shares are being registered to
permit public secondary trading of the Shares, and the Selling Shareholders
may offer the Shares for resale from time to time. See "Plan of Distribution."
The Shares being offered by the Selling Shareholders were
acquired from the Company under warrants to purchase shares of Class A Common
Stock of the Company (the "Warrants") at a purchase price of $3.26 per share.
The Class A Common Stock was or will be issued pursuant to an exemption from
the registration requirements of the Securities Act. Except as indicated,
none of the Selling Shareholders has had a material relationship with the
Company within the past three years other than as a result of the ownership of
the Shares or other securities of the Company.
Each Selling Shareholder that purchased Shares pursuant to the
Warrant Agreement represented to the Company that it was acquiring the Shares
for investment and with no present intention of distributing the Shares. The
Company has filed with the Commission, under the Securities Act of 1933, as
amended (the "Securities Act"), a Registration Statement on Form S-3, of which
this Prospectus forms a part, with respect to the resale of the Shares from
time to time on the NASDAQ National Market or in privately-negotiated
transactions and has agreed to use its best efforts to keep such Registration
Statement effective until the earlier of (i) such date as all of the Shares
have been resold or (ii) 90 days from the date such Registration Statement
becomes effective.
The Shares offered by this Prospectus may be offered from time
to time by the Selling Shareholders named below:
<TABLE>
<CAPTION>
Number of Shares
Owned Prior to Offering (1) Ownership After Offering(1)
-------------------------------- ---------------------------------
Number of
Name and Address of Number of Shares Number of
Selling Shareholders Shares Percent Being Offered Shares Percent
-------------------- -------------- -------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Frisco Inc.
c/o Montreal Trust Co.
1800 McGill College Ave.,
4th Floor (Pensions)
Montreal, Quebec H3A 3K9....... 2,070 * 2,070 0 *
General Motors Retirement
Program for Salaried
Employees High Yield
Account
c/o Prudential Investments
2 Gateway Center
McCarter Hwy & Mkt. St.
Newark, NJ 07102-5096.......... 9,200 * 9,200 0 *
The High Yield Income
Fund, Inc.
c/o Prudential Investments
2 Gateway Center
McCarter Hwy & Mkt. St.
Newark, NJ 07102-5096.......... 8,100 * 4,600 3,500 *
William C. Miller
c/o Montreal Trust Co.
1800 McGill College Ave.,
4th Floor (Pensions)
Montreal, Quebec H34 3K9....... 2,530 * 2,530 0 *
William C. Miller IV
191 E. Linden Avenue
Englewood, NJ 07631-3621....... 4,600 * 4,600 0 *
Mitchell Hutchins Asset
Management
1285 6th Ave.
New York, NY 10019............. 34,500 * 34,500 0 *
Morgan Stanley & Co.,
Incorporated
1 Pierrepont Plaza
Brooklyn, N.Y. 11201(2)........ 445,160 1.3% 144,440 300,720 *
The Prudential Series Fund,
Inc. High Yield Bond
Portfolio
c/o Prudential Investments
2 Gateway Center
McCarter Hwy & Mkt. St.
Newark, NJ 07102-5096.......... 22,325 * 9,200 13,125 *
Putnam Capital Manager
Trust-PCM Diversified
Income Fund
25 Braintree Hill Office
Park
Braintree, MA 02184............ 460 * 460 0 *
Putnam Capital Manager
Trust-PCM High Yield
Fund
25 Braintree Hill Office
Park
Braintree, MA 02184............ 7,130 * 7,130 0 *
Putnam Diversified Income
Trust
25 Braintree Hill Office
Park
Braintree, MA 02184............ 13,800 * 13,800 0 *
Putnam High Yield
Advantage Fund
25 Braintree Hill Office
Park
Braintree, MA 02184............ 33,580 * 33,580 0 *
Putnam High Yield Managed
Trust
25 Braintree Hill Office
Park
Braintree, MA 02184............ 9,200 * 9,200 0 *
Putnam High Yield Trust
25 Braintree Hill Office
Park
Braintree, MA 02184............ 72,220 * 72,220 0 *
Putnam Master Income
Trust
25 Braintree Hill Office
Park
Braintree, MA 02184............ 5,290 * 5,290 0 *
Putnam Master Intermediate
Income Trust
25 Braintree Hill Office
Park
Braintree, MA 02184............ 1,840 * 1,840 0 *
Putnam Premier Income
Trust
25 Braintree Hill Office
Park
Braintree, MA 02184............ 12,880 * 12,880 0 *
S.B. Diversified Strategic
Income Portfolio
c/o Tim Mohan
Smith Barney
388 Greenwich Street
New York, NY 10013............. 42,090 * 42,090 0 *
Smith Barney
388 Greenwich Street,
23rd Floor
New York, NY 10013............. 119,830 * 119,830 0 *
State Street Research Equity
Income Fund
State Street Research
One Financial Center, 30th Fl.
Boston, MA 02111............... 3,450 * 3,450 0 *
State Street Research High
Income Fund
State Street Research
One Financial Center, 30th Fl.
Boston, MA 02111............... 21,850 * 21,850 0 *
State Street Research
Managed Assets
State Street Research
One Financial Center, 30th Fl.
Boston, MA 02111............... 2,300 * 2,300 0 *
Thames Corp. Seven
c/o Lee Ludwig
The Bank of New York
One Wall Street
New York, NY 10286............. 4,600 * 4,600 0 *
TOTAL......................... 879,005 2.6% 561,660 317,345 0.9%
<FN>
__________
* Less than 1%
(1) Based upon 33,818,658 shares of Class A Common Stock outstanding on
December 1, 1996 and assumes the sale of all 561,660 shares of Class A
Common Stock issuable upon exercise of the Warrants. This Registration
Statement shall also cover any additional shares of Class A Common Stock
which become issuable in connection with the shares registered for sale
hereby by reason of any stock dividend, stock split, recapitalization or
other similar transaction effected without the receipt of consideration
which results in an increase in the number of the Registrant's outstanding
shares of Class A Common Stock.
(2) MS & Co. is a wholly-owned subsidiary of MS Group. Four of the nine
directors of the Company are employees of MS & Co. The general partner
and/or the managing general partner of each of the general partners of the
Morgan Stanley Shareholders is a wholly-owned subsidiary of MS Group. See
"Risk Factors--Significant Ownership."
</TABLE>
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The
Shares offered hereby may be sold by the Selling Shareholders from time to
time in transactions in the over-the-counter market, in negotiated
transactions, or a combination of such methods of sale, at fixed prices which
may be changed, at market prices prevailing at the time of sale, at prices
related to prevailing market prices or at negotiated prices. The Selling
Shareholders may effect such transactions by selling the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Shareholders and/or
the purchasers of the Shares for whom such broker-dealers may act as agents or
to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
In order to comply with the securities laws of certain states,
if applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of the Securities Act,
and any commissions received by them and any profit on the resale of the
Shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
Under applicable rules and regulations under the Exchange Act,
any person engaged in the distribution of the Shares may not simultaneously
engage in market making activities with respect to the Common Stock of the
Company for a period of two business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, each Selling
Shareholder will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, which provisions may limit the timing of
purchases and sales of shares of the Company's Common Stock by the Selling
Shareholders.
The Shares are issuable upon the exercise of warrants
originally issued to the Selling Shareholders pursuant to an exemption from
the registration requirements of the Securities Act. The Company agreed to
register the Shares under the Securities Act, and pay all reasonable fees and
expenses incident to the filing of this Registration Statement.
DESCRIPTION OF CAPITAL STOCK
General
The following summary of the Company's capital stock does not
purport to be complete and is subject to and qualified in its entirety by the
Company's Amended and Restated Certificate of Incorporation, as amended (the
"Certificate"), and the laws of the State of Delaware.
The Certificate authorizes the issuance of 85,000,000 shares of
Capital Stock, consisting of 60,000,000 shares of Class A Common Stock,
12,000,000 shares of Class B Common Stock, 2,000,000 shares of Class C Common
Stock, 1,000,000 shares of Class D Common Stock and 10,000,000 shares of
preferred stock. As of December 1, 1996, 33,818,658 of the authorized shares
of Class A Common Stock were outstanding, 3,809,363 of the authorized shares
of Class B Common Stock were outstanding, 1,428,472 of the authorized shares
of Class C Common Stock were outstanding, 679,945 of the authorized shares of
Class D Common Stock were outstanding and none of the authorized shares of
Preferred Stock were outstanding. As of December 1, 1996, there were 192
holders of Class A Common Stock, eight holders of Class B Common Stock, two
holders of Class C Common Stock and one holder of Class D Common Stock. As of
December 1, 1996, 3,429,640 shares of Class A Common Stock were reserved for
issuance upon exercise of outstanding stock options, 627,900 shares of such
stock were reserved for issuance upon exercise of the Warrants, 714,286 shares
of such stock were reserved for issuance upon conversion of securities by
unaffiliated third-party Canadian stockholders of Canada Holding and 206,748
shares of such stock were reserved for issuance on exercise of the warrants
issued to Mitsui Co., Ltd. in 1995 (the "Mitsui Warrants").
Common Stock
Class A Common Stock. Holders of Class A Common Stock are
entitled to one vote for each share of Class A Common Stock held on each
matter submitted to a vote of stockholders, including the election of
directors. Holders of Class A Common Stock are not entitled to cumulative
voting. Shares of Class A Common Stock have no preemptive or other
subscription rights and are convertible (except as provided in the
Stockholders Agreement) (i) by the Morgan Stanley Shareholders into an equal
number of Class B Common Stock and (ii) by J. P. Morgan Capital Corporation
and BT Investment Partners, Inc. (together, the "Regulated Shareholders") into
an equal number of shares of Class C Common Stock.
Class B Common Stock. Holders of the Class B Common Stock have
no right to vote on matters submitted to a vote of stockholders, except (i) as
otherwise required by law and (ii) that the holders of Class B Common Stock
shall have the right to vote as a class on any amendment, repeal or
modification to the Certificate that adversely affects the powers, preferences
or special rights of the holders of such class. Shares of Class B Common
Stock have no preemptive or other subscription rights and are convertible into
an equal number of shares of Class A Common Stock (x) at the option of the
holder thereof to the extent the Morgan Stanley Shareholders do not, in the
aggregate, own more than 49% of the outstanding shares of Class A Common Stock
and (y) automatically upon the transfer by any Morgan Stanley Shareholder of
such shares to a person that is not a Morgan Stanley Shareholder or an
affiliate of a Morgan Stanley Shareholder.
Class C Common Stock. Holders of the Class C Common Stock have
no right to vote on matters submitted to a vote of stockholders, except (i) as
otherwise required by law and (ii) that the holders of Class C Common Stock
shall have the right to vote as a class on any amendment, repeal or
modification to the Certificate that adversely affects the powers, preferences
or special rights of the holders of such class. Shares of Class C Common
Stock have no preemptive or other subscription rights and are convertible, at
the option of the holder thereof, into an equal number of shares of Class A
Common Stock but only to the extent such holder and its affiliates would not,
as a result of such conversion, own, control or have the power to vote a
greater number of shares of Class A Common Stock than such holder and its
affiliates are permitted to own, control or have the power to vote under
Regulation Y of the Board of Governors of the Federal Reserve System (12
C.F.R. part 225) ("Regulation Y").
Class D Common Stock. Holders of the Class D Common Stock have
no right to vote on matters submitted to a vote of stockholders, except (i) as
otherwise required by law and (ii) that the holders of Class D Common Stock
shall have the right to vote on any merger, consolidation or disposition of
asset that requires stockholder approval under Delaware law, in which case
holders of Class D Common Stock shall vote (at a rate of one vote per share of
Class D Common Stock held) with holders of Common Stock as a single class on
such matters unless otherwise required by law. Shares of Class D Common Stock
have no preemptive or other subscription rights and are convertible, at the
option of the holder thereof, into an equal number of shares of Class A Common
Stock at any time.
Conversion of the Class B Common Stock, the Class C Common
Stock and the Class D Common Stock into shares of Class A Common Stock would
result in a decrease in the voting power of the holders of the previously
outstanding Class A Common Stock and the holders of the Class A Common Stock
offered hereby.
Dividends. All holders of Common Stock are entitled to receive
such dividends or other distributions, if any, as may be declared from time to
time by the Board of Directors in its discretion out of funds legally
available therefor, subject to the prior rights of any preferred stock then
outstanding, and to share equally, share for share, in such dividends or other
distributions as if all shares of Common Stock were of a single class.
Dividends or other distributions declared or paid in shares of Common Stock,
or options, warrants or rights to acquire such stock or securities convertible
into or exchangeable for shares of such stock, are payable to all of the
holders of Common Stock ratably according to the number of shares held by
them, in shares of Class A Common Stock to holders of that class of stock,
Class B Common Stock to holders of that class of stock, Class C Common Stock
to holders of that class of stock, and Class D Common Stock to holders of that
class of stock.
Liquidation. Subject to the prior rights of holders of all
classes of stock outstanding having prior rights with respect to the assets of
the Company, upon the liquidation or dissolution of the Company, the holders
of Common Stock are entitled to share ratably according to the number of
shares held by them in all assets remaining available for distribution to
stockholders.
Full Payment and Nonassessability. All outstanding shares of
Common Stock are, and the shares to be issued by the Company in connection
with the exercise of the Warrants will be, fully paid and nonassessable.
Preferred Stock
The Board of Directors, without further stockholder
authorization, is authorized to issue additional shares of preferred stock in
one or more class or series and to fix the rights, preferences and privileges
of each additional class or series, including dividend rights and preferences
over dividends on the Common Stock, conversion rights, voting rights (in
addition to those provided by law), redemption rights and the terms of any
sinking fund therefor, and rights upon liquidation, including preferences over
the Common Stock. The issuance of any of such preferred stock may have the
effect of delaying or preventing transactions involving a change of control of
the Company, including transactions in which stockholders might otherwise
receive a substantial premium for their shares over then current market
prices, and may limit the ability of the stockholders to approve transactions
that they deem to be in their best interests
Certain Redemption Rights
Under the Certificate, the Company has the right to redeem
outstanding shares of its capital stock if the Board of Directors determines
that such redemption is necessary to prevent the loss or secure the
reinstatement of any governmental license or franchise held by the Company at
a price equal to the current market value of such shares (as determined in
accordance with the Certificate). For example, if at any time the percentage
of the Company's outstanding capital stock owned by persons or entities that
are not U.S. persons under the FCC rules ("Non-U.S. Persons") were to exceed
25%, the Company could redeem shares of the Company's capital stock held by
Non-U.S. Persons. If the Company were to redeem shares of its stock in order
to comply with regulatory restrictions, the shares to be redeemed would be
selected in a manner determined by the Board of Directors, which may include
selection first of the most recently purchased shares, selection by lot or
selection in any other manner determined by the Board of Directors. Based on
currently available information, the Company estimates that its percentage of
foreign ownership is approximately 22%.
Warrants
In 1993, the Company issued the Warrants to purchase Common
Stock at an exercise price of $3.26 per share as part of the placement of the
12 1/4% Notes. The Warrants are currently exercisable for 627,900 shares of
Class A Common Stock. In 1995, the Company issued to Mitsui Co., Ltd. the
Mitsui Warrants to purchase Common Stock at an exercise price of $10.00 per
share. The Mitsui Warrants may be exercised in whole or in part starting on
March 20, 1997 and until March 20, 2005. The Mitsui Warrants will be
exercisable for 206,748 shares of Class A Common Stock. The number of shares
covered by the Warrants and the Mitsui Warrants may be adjusted on the
occurrence of certain events, specifically including, in the case of the
Warrants, the issuance of securities of the Company at less than fair market
value (as defined therein), or certain dividends, distributions or
recapitalization with respect to the Class A Common Stock. See "Shares
Eligible for Future Sale."
Limitation on Directors' Liability
The Certificate provides that the Company's directors are not
liable to the Company or its stockholders for monetary damages (for breach of
their fiduciary duties to the fullest extent permitted by Delaware law. Under
existing Delaware law, directors would not be liable except under certain
circumstances, including breach of the director's duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law or any transaction from which the director derived improper
personal benefit. The inclusion of this provision in the Certificate may have
the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or the Company from
bringing a lawsuit against directors of the Company for breach of their duty
of care. However, the provision does not affect the availability of equitable
remedies such as an injunction or rescission.
Delaware Takeover Statute
Section 203 of the Delaware Corporation Law, as amended
("Section 203"), provides that, subject to certain exceptions specified
therein, an "interested stockholder" of a Delaware corporation shall not engage
in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation with the corporation for
a three-year period following the date that such stockholder becomes an
"interested stockholder" unless (i) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an "interested stockholder", (ii)
upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder", the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding certain shares) or (iii) on or subsequent to
such date, the business combination is approved by the board of directors of
the corporation and authorized at an annual or special meeting of stockholders
by the affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the "interested stockholder." Except as otherwise
specified in Section 203, an "interested stockholder" is defined to include
(x) any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within three years immediately prior to the relevant
date and (y) the affiliates and associates of any such person.
These provisions could have the effect of delaying, deferring
or preventing a change of control of the Company. The Company's stockholders,
by adopting an amendment to its Certificate or bylaws, may elect not to be
governed by Section 203, effective twelve months after adoption. Neither the
Certificate nor the bylaws, may elect not to be governed by Section 203,
effective twelve months after adoption. Neither the Certificate nor the
by-laws presently exclude the Company from the restrictions imposed by Section
203.
Registrar and Transfer Agent
KeyCorp Shareholder Services, Inc., is the Registrar and
Transfer Agent for the Company's Class A Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, assuming all shares offered
hereby are sold, the Company will have outstanding 40,298,098 shares of Common
Stock. Upon completion of the offering, assuming all shares offered hereby
are sold, the Company will have outstanding 34,380,318 shares of Class A
Common Stock, 3,809,363 shares of Class B Common Stock, 1,428,472 shares of
Class C Common Stock, and 679,945 shares of Class D Common Stock. Shares of
Class B, C and D Common Stock are convertible, subject to certain ownership
and regulatory restrictions, at the option of the holder into an equal number
of shares of Class A Common Stock. Shares of Class A Common Stock held by the
Morgan Stanley Shareholders are convertible into an equal number of shares of
Class B Common Stock and shares of Class A Common Stock held by the Regulated
Shareholders are convertible into an equal number of shares of Class C Common
Stock. The Company has outstanding 3,429,640 options to purchase shares of
Class A Common Stock pursuant to the Stock Option Plan. In 1995, 36,654
shares of Class A Common Stock were issued upon the exercise of options
granted pursuant to the Stock Option Plan. Approximately 32,387 of such
shares were registered pursuant to a Form S-8 registration statement.
However, the shares registered under the Form S-8 are subject to certain
transfer restrictions contained in the stock purchase agreement executed by
each optionee upon exercise of each option. In addition, 272,988 shares of
Common Stock, other than the shares offered hereby, are issuable upon the
exercise of outstanding warrants. See "Description of Capital Stock." Only
the 6,000,000 shares sold in the initial public offering, and the shares
offered hereby, will be freely transferable in the United States without
restriction under the Securities Act unless such shares of Common Stock are
hold by an "affiliate" of the Company (as that term is defined under the rules
and regulations of the Securities Act). Any such affiliate will be subject to
the resale limitations of Rule 144 adopted under the Securities Act in the
event such affiliate desires to publicly dispose of such shares. Restricted
securities may not be resold except in compliance with the registration
requirements of the Securities Act or pursuant to an exemption therefrom, such
as the exemptions provided by Rule 144 and Rule 144A.
In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated), including an affiliate, who has
beneficially owned "restricted securities" for at least two years will be
entitled to sell within any three-month period a number of shares that does
not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock (approximately 402,981 shares) and (ii) the average weekly trading
volume in the Common Stock on all national securities exchanges and/or
reported through the automated quotation system of registered securities
associations during the four calendar weeks immediately preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission
(the "Commission"). Sales pursuant to Rule 144 are also subject to certain
other requirements regarding the manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the three months immediately preceding the sale is
entitled to sell restricted securities pursuant to Rule 144(k) without regard
to the limitations described above, provided that three years have expired
since the later of the date on which such restricted securities were acquired
from the Company or the date they were acquired from an affiliate of the
Company. As defined in Rule 144, an "affiliate" of an issuer is a person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, such issuer. The Commission
has proposed reducing the periods of beneficial ownership of "restricted
securities" required by Rule 144. Under the proposal, persons who have
beneficially owned restricted securities for at least one year instead of two
years as currently required, would be able to resell such securities by
complying with the volume limitations described above. In the case of a
person who is not deemed to be an affiliate of the Company during the
preceding three months, the proposal would permit sales without regard to the
limitations described above as long as such person had held the securities for
a least two years, instead of three years as currently required. There can be
no assurance that the proposed revisions to Rule 144 will be adopted by the
Commission.
LEGAL MATTERS
Certain legal matters with respect to the validity of the
shares of Common Stock offered hereby are being passed upon for the Company by
Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1994 and 1995, and for each of the three years in the period
ended December 31, 1995, 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.
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration
Statement on Form S-3 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission (the "Commission") under the Securities
Act, omits certain of the information set forth in the Registration Statement.
Reference is hereby made to the Registration Statement and to the exhibits
thereto for further information with respect to the Company and the exhibits
thereto for further information with respect to the Company and the securities
offered hereby. Copies of the Registration Statement and the exhibits thereto
are on file at the offices of the Commission and may be obtained upon payment
of the prescribed fee or may be examined without charge at the public
reference facilities of the Commission described below.
The Company is subject to the information requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and
other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and the following regional offices of the Commission: New York Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048; and
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed rates and may be accessed
electronically by means of the Commission's home page on the Internet at
http:/www.sec.gov. The Company's Common Stock is quoted on the NASDAQ
National Market. Reports, proxy statements and other information concerning
the Company may be inspected at the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
