-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IavxCYxaDf9ancSQ8IyaO9rTNUG0edv5dObipkykB/2FASYmWWXVBitxQVRaxzIF TcHk/oBewf3SMB0ohy07DQ== 0000950109-99-001915.txt : 19990518 0000950109-99-001915.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950109-99-001915 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SKYTEL COMMUNICATIONS INC CENTRAL INDEX KEY: 0000842915 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 640518209 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17316 FILM NUMBER: 99628804 BUSINESS ADDRESS: STREET 1: 200 SOUTH LAMAR STREET STREET 2: SKYTEL CENTRE SOUTH BUILDING CITY: JACKSON STATE: MS ZIP: 39202 BUSINESS PHONE: 601944-1300 MAIL ADDRESS: STREET 1: 200 S LAMAR ST STREET 2: SKYTEL CENTRE SOUTH BUILDING CITY: JACKSON STATE: MS ZIP: 39201 FORMER COMPANY: FORMER CONFORMED NAME: MOBILE TELECOMMUNICATION TECHNOLOGIES CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended March 31,1999 Commission File No. 0-17316 SKYTEL COMMUNICATIONS, INC. --------------------------- (Exact name of Registrant as specified in its charter) Delaware 64-0518209 ---------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 200 South Lamar Street, SkyTel Centre, Jackson, Mississippi 39201 ------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (601) 944-1300 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ --- Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. 60,082,963 shares of Common Stock, par value $.01 per share, as of April 30, 1999 SKYTEL COMMUNICATIONS, INC. QUARTERLY REPORT ON FORM 10-Q INDEX PART I. FINANCIAL INFORMATION --------------------- Item 1. Consolidated Financial Statements Consolidated Balance Sheets - March 31, 1999 and December 31, 1998. Consolidated Statements of Operations - Three Months Ended March 31, 1999 and 1998. Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1999 and 1998. Notes to Consolidated Financial Statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES ---------- 2 SKYTEL COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1999 1998 -------------------- -------------------- ASSETS: CURRENT ASSETS Cash and cash equivalents $ 26,303,626 $ 17,000,752 Accounts receivable, net of allowances for losses 55,827,198 49,553,165 Assets held for sale 2,050,233 2,050,233 Other current assets 4,599,117 5,395,254 -------------------- -------------------- TOTAL CURRENT ASSETS 88,780,174 73,999,404 -------------------- -------------------- MESSAGING NETWORKS Property and equipment, net 248,258,825 260,702,952 Certificates of authority and license costs, net 142,426,602 142,741,719 Network construction and development costs, net 19,886,481 21,644,749 -------------------- -------------------- TOTAL MESSAGING NETWORKS 410,571,908 425,089,420 -------------------- -------------------- GOODWILL, net 101,048,466 102,089,718 INVESTMENT IN UNCONSOLIDATED INTERNATIONAL VENTURES 12,378,753 11,797,993 OTHER ASSETS 18,458,351 20,220,290 -------------------- -------------------- $ 631,237,652 $ 633,196,825 ==================== ==================== LIABILITIES AND STOCKHOLDERS' INVESTMENT: CURRENT LIABILITIES Current maturities of long-term debt $ 500,031 $ 1,000,900 Accounts payable and accrued liabilities 106,817,475 99,189,149 Notes payable 14,000,000 20,000,000 -------------------- -------------------- TOTAL CURRENT LIABILITIES 121,317,506 120,190,049 -------------------- -------------------- LONG-TERM DEBT, net of current maturities 344,642,371 364,662,400 MINORITY INTEREST 34,008,979 24,399,687 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' INVESTMENT Preferred Stock, par value $.01 per share; 25,000,000 shares authorized; 3,750,000 shares of $2.25 Cumulative Convertible Exchangeable Preferred Stock outstanding in 1999 and 1998 37,500 37,500 Common Stock, par value $.01 per share; 100,000,000 shares authorized; shares outstanding: 60,080,963 in 1999 and 60,024,227 in 1998 600,810 600,242 Additional paid-in-capital 639,782,018 638,583,669 Accumulated deficit (503,717,645) (509,859,814) Cumulative translation adjustment (5,433,887) (5,416,908) -------------------- -------------------- TOTAL STOCKHOLDERS' INVESTMENT 131,268,796 123,944,689 -------------------- -------------------- $ 631,237,652 $ 633,196,825 ==================== ====================
See notes to consolidated financial statements. 3 SKYTEL COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, ----------------------------------- 1999 1998 ------------- ------------- Revenues $ 139,868,612 $ 121,514,301 Expenses: Operating 39,339,010 33,472,543 Selling, general and administrative 63,100,423 63,136,290 Depreciation and amortization 22,262,931 21,714,685 ------------- ------------- 124,702,364 118,323,518 ------------- ------------- Operating income 15,166,248 3,190,783 Interest income 338,937 354,972 Interest expense (11,903,733) (13,105,325) Gain (loss) on sale of assets 2,888,896 (112,476) Other income 462,357 67,330 ------------- ------------- Income (loss) before income taxes and equity income 6,952,705 (9,604,716) Provision for income taxes 317,485 1,052,231 Equity in income of investments 1,616,322 717,475 ------------- ------------- Net income (loss) before cumulative effect of a change in accounting principle 8,251,542 (9,939,472) Cumulative effect of a change in accounting principle 0 (58,128,849) ------------- ------------- Net income (loss) 8,251,542 (68,068,321) Preferred dividend requirement 2,109,375 3,234,676 ------------- ------------- Net income (loss) available to common stockholders $ 6,142,167 ($71,302,997) ============= ============= Net income (loss) per common share: Basic $ 0.10 ($1.29) ============= ============= Diluted $ 0.10 ($1.29) ============= =============
See notes to consolidated financial statements. 4 SKYTEL COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, ----------------------------------- 1999 1998 ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 8,251,542 ($68,068,321) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 22,262,931 21,714,685 Provision for losses on accounts receivable and paging inventory 6,426,620 5,002,076 Amortization of debt issuance costs 632,115 632,115 Write-off of start-up costs 0 58,128,849 Foreign currency transaction (gain) loss (71,649) 61,879 (Gain) loss on sale of assets (2,888,896) 112,476 Minority interest loss (390,708) (129,209) Equity in income from investments (1,616,322) (717,475) Change in assets and liabilities: (Increase) decrease in accounts receivable (9,857,899) 1,401,495 Decrease in assets held for sale 0 21,690 Decrease in other current assets 796,137 51,173 Increase (decrease) in accounts payable and accrued liabilities 1,685,140 (3,956,629) ------------- -------------- Net Cash Provided By Operating Activities 25,229,011 14,254,804 ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of assets 3,033,249 278,165 Capital expenditures, net (9,644,941) (16,565,376) (Increase) decrease in investment in unconsolidated international ventures 993,475 (498,013) Decrease in other assets 1,123,436 11,083 ------------- -------------- Net Cash Used In Investing Activities (4,494,781) (16,774,141) ------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (20,520,898) (10,013,773) Payment of dividends on preferred stock (2,109,375) (2,109,375) Sale of stock and exercise of options 1,198,917 2,900,556 Sale of Mtel Latam PIK preferred stock 10,000,000 0 ------------- -------------- Net Cash Used In Financing Activities (11,431,356) (9,222,592) ------------- -------------- Net increase (decrease) in cash and cash equivalents 9,302,874 (11,741,929) Cash and cash equivalents-beginning of period 17,000,752 19,812,116 ------------- -------------- Cash and cash equivalents-end of period $ 26,303,626 $ 8,070,187 ============= ==============
See notes to consolidated financial statements. 5 SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION SkyTel Communications, Inc. ("SkyTel" or the "Company"), formerly Mobile Telecommunication Technologies Corp., is a leading provider of nationwide messaging services in the United States. SkyTel's principal operations include one-way messaging services in the United States, advanced messaging services on the narrowband personal communication services ("PCS") network (the "Advanced Messaging Network") in the United States and international one-way messaging operations. The Company's wholly-owned subsidiary, SkyTel Corp., operates a one-way nationwide messaging system whereby subscribers can be reached in thousands of towns and cities in the United States by means of two dedicated 931 MHz frequencies licensed by the Federal Communications Commission ("FCC"), a ground- based transmitter system, leased satellite facilities and proprietary network software. SkyTel also currently operates its Advanced Messaging Network in the United States that utilizes spectrum allocated by the FCC for narrowband PCS. The Advanced Messaging Network is a location independent network that utilizes a proprietary system architecture designed and developed by SkyTel. Services on the Advanced Messaging Network currently include advanced text messaging services with guaranteed delivery, interactive two-way services and fixed location services. SkyTel, through its subsidiaries and joint ventures, operates one-way wireless messaging systems in various countries outside the United States, primarily in Latin America. In addition, SkyTel provides its subscribers with access to an international messaging network that utilizes 6 SkyTel's proprietary technology and interconnects the systems operated by its international subsidiaries and joint ventures with systems in the United States, Canada, Singapore and other countries. 2. BASIS OF PRESENTATION The consolidated financial statements include the accounts of SkyTel and its majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The Company's consolidated financial statements for the three months ended March 31, 1999 and 1998 have not been audited by independent public accountants. However, in the opinion of management, these financial statements include all adjustments necessary for a fair presentation. The results for these periods are not necessarily indicative of the results for the year ending December 31, 1999. 3. EARNINGS (LOSS) PER SHARE Net income per share for the first quarter of 1999 is calculated by dividing the net income (after deducting preferred stock dividends) by the weighted average number of shares of common stock outstanding during the period, with effect given to common stock equivalents where such effect was not considered antidilutive. Net loss per share for the first quarter of 1998 was calculated by dividing the net loss (after deducting preferred stock dividends) by the weighted average number of shares of common stock outstanding during the period, with no effect given to common stock equivalents because such effect would have been antidilutive. The weighted average number of 7 shares of common stock outstanding in the first quarter of 1999 and 1998 was 60,070,338 and 55,122,588 respectively. The weighted average number of equivalent shares of common stock outstanding for the purpose of calculating diluted earnings per share in the first quarter of 1999 was 61,464,749. Basic and diluted per share amounts were the same for each of the periods presented. 4. COMPREHENSIVE INCOME (LOSS) In January 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which establishes standards for reporting comprehensive income and its components. Comprehensive income is defined as all changes in the equity of a business enterprise from transactions and other events and circumstances, except those resulting from investments by owners and distributions to owners. The Company reported comprehensive income, which included the consolidated net income and foreign currency translation gains and losses, of $8.2 million for the quarter ended March 31,1999, and a comprehensive loss, which included the consolidated net loss and foreign currency translation gains and losses, of $68.2 million for the quarter ended March 31, 1998. 5. INTEREST RATE SWAP AGREEMENTS In April 1998, the Company entered into certain interest rate swap agreements with respect to the $265 million outstanding principal amount of its 13.5% Senior Notes due 2002 (the "Senior Notes"). These agreements involve the exchange of interest obligations on fixed and floating interest rate debt without the exchange of the underlying principal amounts. The agreements have varying maturities but in no instance exceed the maturity date of the Senior Notes. The interest rate swap 8 agreements establish an effective interest rate of 10.75% on the Senior Notes through December 15, 2000. During the period from December 15, 2000 to December 15, 2002, the Company will be required to make payments to the swap counterparty in an amount equal to 12.07% multiplied by the sum of the principal amount of the Senior Notes and the 6.75% redemption premium on the Senior Notes. During this period, the Company will receive an amount equal to the 3-month London Interbank Offered Rate ("LIBOR") plus 1% (currently 6.0%) multiplied by the sum of the principal amount of the Senior Notes and the 6.75% redemption premium on the Senior Notes. The Company is continuing to record an amount equal to 13.5% of the principal amount of the Senior Notes as interest expense in its consolidated statements of operations. 6. PIK PREFERRED STOCK CONVERSION The preferred dividend requirement in the quarter ended March 31, 1998 included dividends of $1.1 million accrued on the Company's 7.5% Cumulative Convertible Accruing Pay-In-Kind Preferred Stock (the "PIK Preferred Stock"). In May 1998, the Company made an offer to the holders of the PIK Preferred Stock in order to encourage the voluntary conversion of the PIK Preferred Stock into common stock, par value $.01 per share (the "Common Stock") of the Company. The Company agreed to reduce the conversion price of the PIK Preferred Stock by 0.81% for any holder who converted shares of PIK Preferred Stock into Common Stock of the Company on or before May 15, 1998. The holders of the PIK Preferred Stock converted all the outstanding shares of PIK Preferred Stock, together with all shares of PIK Preferred Stock accrued as dividends as of the date of conversion, into an aggregate of 3.4 million shares of Common Stock of the Company. As a result of the conversion, no dividends were accrued during the quarter ended March 31, 1999 on the PIK Preferred Stock. Although dividends on the PIK Preferred Stock were not treated as an expense on the 9 Company's consolidated statements of operations and, therefore, did not affect reported net income, such dividends were deducted from net income for the purpose of determining net income (loss) per common share. 7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid by SkyTel was $2.2 million and $4.5 million during the three months ended March 31, 1999 and 1998, respectively. No federal income taxes were paid during these periods. 8. STATEMENT OF POSITION 98-5 In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5 ("SOP"), "Reporting on the Costs of Start-Up Activities." The SOP required all companies to expense, on or before March 31, 1999, all start-up costs previously capitalized, and thereafter to expense all costs of start-up activities as incurred. Prior to the issuance of the SOP, all companies had the option of capitalizing or expensing costs associated with start-up activities in accordance with generally accepted accounting principles. The SOP broadly defines start-up activities as one-time activities related to the opening of a new facility, the introduction of a new product or service, the commencement of business in a new territory, the establishment of business with a new class of customer, the initiation of a new process in an existing facility or the commencement of a new operation. The Company elected to adopt the SOP in the quarter ended September 30, 1998 and recorded a one-time, non-cash write-off of $58.1 million, representing primarily start-up costs incurred in conjunction with the development and construction of the Company's Advanced Messaging Network. The adoption of the SOP was effective as of January 1, 1998 and was 10 recorded as a cumulative effect of a change in accounting principle. As a result of the adoption of the SOP, the net loss in the quarter ended March 31, 1998 increased by $55.6 million, or $1.01 per common share, which represents the cumulative effect of a change in accounting principle of $58.1 million net of a decrease in depreciation and amortization expense of $2.5 million. 9. SEGMENT INFORMATION SkyTel has adopted SFAS No. 131-"Disclosures About Segments of an Enterprise and Related Information." The Company is organized based on the services that it offers and geographically for all international units. Under this organizational structure, the Company operates in three principal areas: domestic one-way messaging operations, domestic advanced messaging operations and international one-way messaging operations. In 1999 and 1998, the Company's "other" category is primarily composed of air-to-ground telecommunications operations. For purposes of reporting net income (loss) for the Company's business segments, certain indirect operating and selling, general and administrative costs must be allocated among the business segments. Such costs are generally allocated among the one-way messaging, advanced messaging and international messaging segments based on various financial and operational factors which reflect usage of services. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Effective July 1, 1998, the results of Mtel Puerto Rico, Inc. ("Mtel Puerto Rico") were included in the results of operations for the Company's domestic one-way messaging segment. Prior 11 to July 1, 1998, the results of operations of Mtel Puerto Rico were included in the Company's international messaging segment. A summary of operations for Mtel Puerto Rico is as follows: Mtel Puerto Rico, Inc. Summary of Operations (All amounts in thousands of dollars)
Condensed Statements of Operations: Three Months Ended March 31, 1999 1998 ---------------------------- Revenues $ 666 $ 877 Expenses: Operating 234 470 Selling, general and administrative 668 1,100 Depreciation and amortization 181 123 --------- --------- 1,083 1,693 --------- --------- Operating income (loss) (417) (816) Interest income (expense) - 33 --------- --------- Income (loss) before taxes (417) (783) Provision for taxes - - --------- --------- Net income (loss) before cumulative effect of a change in accounting principle (417) (783) Cumulative effect of a change in accounting principle - (391) --------- --------- Net income (loss) $ (417) $ (1,174) ========= =========
SEGMENT PROFIT AND LOSS AND SEGMENT ASSETS THREE MONTHS ENDED MARCH 31, 1999 (IN THOUSANDS)
One-Way Advanced International Messaging Messaging Messaging Other Consolidated ----------------------------------------------------------------------------------- Revenues $ 86,628 $ 45,586 $ 7,085 $ 570 $ 139,869 Operating cash flow 32,942 6,133 (1,137) (509) 37,429 Depreciation and amortization 10,714 9,904 1,617 28 22,263 Interest income - - 81 258 339 Interest expense 6 9,310 1,936 651 11,903 Equity in income from investments - - 1,616 - 1,616 Provision for income taxes 209 - 133 (25) 317 Net income (loss) 21,976 (13,145) (2,671) 2,092 8,252 Total assets 181,013 315,601 67,667 66,957 631,238 Capital expenditures 449 7,225 614 1,357 9,645
12 THREE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS)
One-Way Advanced International Messaging Messaging Messaging Other Consolidated ----------------------------------------------------------------------------------- Revenues $ 88,173 $ 23,669 $ 8,978 $ 694 $ 121,514 Operating cashflow 34,790 (6,141) (2,401) (1,343) 24,905 Depreciation and amortization 10,991 8,746 1,884 94 21,715 Interest income - - 191 164 355 Interest expense 8 10,424 2,010 663 13,105 Equity in income from investments - - 717 - 717 Provision for income taxes 917 - 135 - 1,052 Cumulative effect of a change in accounting principle - (52,791) (5,338) - (58,129) Net income (loss) 22,818 (78,119) (10,790) (1,977) (68,068) Total assets 206,604 326,435 73,266 50,568 656,873 Capital expenditures 1,712 11,402 1,033 2,418 16,565
GEOGRAPHIC INFORMATION (IN THOUSANDS)
1999 1998 ------------------------------- ------------------------------ Long-Lived Long-Lived Revenues Assets Revenues Assets Domestic $ 132,784 $ 488,626 $ 112,536 $ 531,826 International 7,085 53,831 8,978 63,513 ------------------------------------------------------------------ Consolidated $ 139,869 $ 542,457 $ 121,514 $ 595,339 ==================================================================
13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the consolidated financial condition and results of operations of SkyTel for the quarters ended March 31, 1999 and 1998 and certain factors that will affect SkyTel's financial condition. Certain statements set forth in this Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical facts constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Among the factors that could cause actual results to differ materially are competitive pressures, the performance of the Company's existing distribution channels, the successful implementation of new distribution channels and the market acceptance of new value-added services. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. RESULTS OF OPERATIONS REVENUES Revenues on a consolidated basis increased 15% in the three months ended March 31, 1999 as compared to the three months ended March 31, 1998, primarily due to a 93% increase in revenues from advanced messaging services compared to the same period in 1998. Revenues from one-way messaging operations in the United States decreased approximately 2% in the first three months of 1999 as compared to the first three months of 1998. 14 During the first quarter of 1999, management adjusted the Company's methodology for recognizing usage-based revenues and expenses. As a result, during the first quarter of 1999 the Company recognized $2.4 million of such revenues and $2.5 million of such expenses. As of March 31, 1999, the Company had 993,500 one-way messaging units in service in the United States, which included approximately 58,500 prepaid paging units, as compared to 939,700 one-way messaging units in service as of March 31, 1998, of which approximately 13,400 were prepaid paging units. SkyTel also had 450,600 advanced messaging units in service as of March 31, 1999, an increase of 100.4% over the 224,900 advanced messaging units in service as of March 31, 1998. Approximately 9,300 of net unit additions placed in service on the Advanced Messaging Network in the first quarter of 1999 represented conversions of units from one-way to advanced messaging services, as compared to approximately 12,400 of net unit additions on the Advanced Messaging Network in the first quarter of 1998. In the first quarter of 1999, the Company reported 26,300 advanced messaging net unit additions and a decrease of 11,300 one-way messaging units. Net unit additions in the first quarter were impacted by an increased disconnect rate in the reseller channel, which included the disconnection of approximately 22,000 advanced messaging units by a major reseller as a result of an account reconciliation, and increased price competition for numeric one-way messaging units. The Company also believes that net unit additions in the first quarter of 1999 were impacted by changing wireless industry trends resulting from the extensive promotion of national one-rate wireless telephone plans and the Company's strategy to encourage customer-owned advanced messaging devices. During the remainder of 1999, the Company intends to continue its efforts to expand the distribution network and increase the market awareness for its advanced messaging services. The ability of the Company to achieve improved unit growth and operating results in 1999 and future periods will be dependent on the performance of the Company's existing distribution channels, the successful 15 implementation of new distribution channels and the market acceptance of new services. In addition, the Company cannot predict the extent to which competitive advanced messaging services or other competitive telecommunication services will impact the Company's future operating results. Average revenue per domestic unit in service was $31.83 in the first quarter of 1999 as compared to $32.96 in the first quarter of 1998 and $32.15 in the fourth quarter of 1998. Average revenue per one-way unit in service was $30.48 in the first quarter of 1999 as compared to $31.29 in the first quarter of 1998 and $30.21 in the fourth quarter of 1998, and average revenue per advanced messaging unit was $34.74 in the first quarter of 1999 as compared to $41.15 in the first quarter of 1998 and $36.85 in the fourth quarter of 1998. The decline in average monthly revenue per domestic unit in service is attributable to lower usage charges resulting from pricing plans for advanced messaging services that include increased character allotments, the implementation of usage related billing arrangements for certain major customers, and the reduction of equipment rental revenues resulting from the Company's strategy to encourage customer-owned advanced messaging devices. The Company cannot predict the extent to which average monthly revenue per domestic unit in service will continue to decline or the extent to which such average monthly revenue will be offset by revenues from value-added features. In addition, the Company plans to introduce new lower priced advanced messaging service offering in 1999, such as "local only" service and campus applications, which could also impact average monthly revenue per domestic unit in service. During the first three months of 1999, one-way messaging operations provided approximately 62% of SkyTel's consolidated revenues as compared to 73% in the first three months of 1998. Advanced messaging operations provided approximately 33% of consolidated revenues during the first three months of 1999 as compared to 19% in the first three months of 1998. Other SkyTel 16 operations provided less than 1% of revenues in the first three months of 1999 as compared to 1% in the first three months of 1998. For the first quarter of 1999, SkyTel's consolidated revenues include revenues recorded by the Company's international operations in Argentina, Colombia, Costa Rica, Uruguay and Venezuela. Revenues recorded by the Company's consolidated international operations provided approximately 5% of SkyTel's consolidated revenues in the first three months of 1999 as compared to 7% of consolidated revenues during the same period of 1998. Revenues from international operations during the first quarter of 1999 decreased 20.2% as compared to the first quarter of 1998. This decrease resulted, in part, from the transfer of the Company's Puerto Rican operations from Mtel Latin America, Inc. ("Mtel Latam"), the holding company for the Company's Latin American operations, to a wholly-owned domestic operating subsidiary and the inclusion of the operating results of the Puerto Rican operations as part of the Company's domestic one-way messaging business segment as of June 30, 1998. In addition, the Company's operating results in Latin America in the first quarter of 1999 continued to be impacted by the general economic conditions prevailing throughout the region and increased competition from cellular telephone and other telecommunication services. The Company cannot predict the extent to which such competitive services will affect the future operating results of the Company's Latin American operations or the extent to which any new product offerings being introduced by the Company in 1999 will be successful. EXPENSES Expenses include operating, selling, general and administrative, and depreciation and amortization. Operating expenses primarily consist of telephone costs and transmitter and receiver site rentals associated with the Company's one-way and advanced messaging operations in the United States 17 and one-way international messaging operations, as well as expenses associated with the maintenance of the Company's operating equipment and facilities. These expenses on a consolidated basis increased 18% in the first three months of 1999 as compared to the first three months of 1998. This increase primarily reflects increased telephone and system costs associated with the increasing one-way and advanced messaging subscriber base in the United States, increased transmitter and receiver site rentals resulting from the continued expansion of coverage of the Company's Advanced Messaging Network in the United States and increased messaging unit refurbishment costs. As a percentage of consolidated revenues, operating expenses remained level at 28% in the first three months of 1999 as compared to the first three months of 1998. SkyTel expects to continue to incur increased operating expenses during the remainder of 1999 and in future periods, primarily as a result of the continued projected increase in the number of units in service on its one-way and advanced messaging networks in the United States and the continued expansion of coverage of the Advanced Messaging Network. Operating expenses related to the one-way messaging system in the United States increased 14% in the first three months of 1999 as compared to the first three months of 1998, and as a percentage of revenues, was 25% in the first quarter of 1999 as compared to 21% in the first quarter of 1998. Operating expenses related to advanced messaging operations in the United States increased 31% in the first quarter of 1999 as compared to the first quarter of 1998, and decreased as a percentage of revenues to 34% in the first quarter of 1999 as compared to 50% in the first quarter of 1998. Operating expenses of the Company's international subsidiaries decreased 17% in the first quarter of 1999 as compared to the first quarter of 1998 and increased only slightly as a percentage of revenues to 31% in the first quarter of 1999 as compared to 29% in the first quarter of 1998. Selling, general and administrative expenses include marketing and advertising costs, personnel costs associated with the direct sales and marketing staff, costs associated with customer 18 support operations and corporate overhead costs, primarily salaries and administrative expenses. On a consolidated basis, these expenses were flat in the first three months of 1999 as compared to the first three months of 1998 primarily due to decreased selling expenses and shipping costs resulting from the slower growth in net unit additions during the first quarter of 1999. As a percentage of consolidated revenues, selling, general and administrative expenses decreased to 45% in the first three months of 1999 as compared to 52% in the first three months of 1998. The Company anticipates that selling, general and administrative expenses will increase during the remainder of 1999 as a result of the continued expansion of the Company's direct sales force and advertising and marketing expenses that will be incurred in connection with the promotion of products and services on the Advanced Messaging Network. Selling, general and administrative expenses related to the one-way messaging system in the United States decreased 7% in the first three months of 1999 as compared to the first three months of 1998, and as a percentage of revenues were 37% in the first three months of 1999 as compared to 39% in the first quarter of 1998. Selling, general and administrative expenses related to advanced messaging operations in the United States increased 33% in the first three months of 1999 as compared to the first three months of 1998, and as a percentage of revenues were 52% in the first three months of 1999 as compared to 76% in the first quarter of 1998. Selling, general and administrative expenses of the Company's international subsidiaries decreased 31% in the first three months of 1999 as compared to the first three months of 1998, and decreased as a percentage of revenues to 85% in the first quarter of 1999 as compared to 98% in the first quarter of 1998. Depreciation and amortization on a consolidated basis increased 3% in the first three months of 1999 as compared to the first three months of 1998, primarily due to the continued expansion of 19 coverage of the Company's Advanced Messaging Network in the United States. The adoption of the SOP, which was effective as of January 1, 1998, resulted in a one-time, non-cash charge of $58.1 million of previously capitalized start-up costs relating primarily to the development and construction of the Advanced Messaging Network and reduced depreciation and amortization expenses by approximately $2.5 million in the first quarter of 1998. See Note 8 of Notes to Consolidated Financial Statements. As a percentage of revenues, depreciation and amortization expenses on a consolidated basis decreased to 16% in the first three months of 1999 as compared to 18% in the first three months of 1998. OPERATING INCOME (LOSS) SkyTel reported consolidated operating income of approximately $15.2 million for the first quarter of 1999 as compared to consolidated operating income of approximately $3.2 million for the first three months of 1998. For the three-month period ended March 31, 1999, one-way messaging operations recorded operating income of $22.2 million as compared to $23.8 million in the first quarter of 1998. Advanced messaging operations during the first quarter of 1999 recorded an operating loss of $3.8 million as compared to an operating loss of $14.9 million in the first quarter of 1998. The Company's international operations recorded an operating loss of 2.8 million during the first quarter of 1999 as compared to an operating loss of $4.3 million in the first quarter of 1998. Future levels of operating income will be dependent on the performance of the Company's existing distribution channels, the successful implementation of new distribution channels and the timely availability and market acceptance of new services on its Advanced Messaging Network. In addition, the Company cannot predict the extent to which competitive advanced messaging services or other competitive telecommunication services will impact the Company's future operating results. 20 INTEREST EXPENSE AND INTEREST INCOME Interest expense decreased 9% in the first three months of 1999 as compared to the first three months of 1998. The decrease in interest expense in the first quarter of 1999 resulted from a decrease in the Company's outstanding bank debt, which was $72.5 million as of March 31, 1999 as compared to $115.5 million as of March 31, 1998. Interest income totaled $0.3 million in the first three months of 1999 as compared to $0.4 million in the first three months of 1998. PROVISION FOR INCOME TAXES SkyTel recorded a provision for state and local income taxes of $0.3 million and $1.1 million in the first three months of 1999 and 1998, respectively. The Company reported net losses for federal income tax purposes during the three month period ended March 31, 1999 and 1998, and accordingly, no provision for federal income taxes has been made for such periods. PREFERRED STOCK DIVIDENDS The Company accrued and paid dividends of approximately $2.1 million in each of the quarters ended March 31, 1999 and 1998 on the Company's $2.25 Cumulative Convertible Exchangeable Preferred Stock (the "$2.25 Preferred Stock"). As a result of the conversion of all of the outstanding shares of PIK Preferred Stock into Common Stock in May 1998, no amounts were accrued for stock dividends on the PIK Preferred Stock in the first quarter of 1999, as compared to approximately $1.1 million of accrued dividends in the first quarter of 1998. See Note 6 of Notes to Consolidated Financial Statements for information relating to the conversion of the PIK Preferred Stock. Although dividends on the $2.25 Preferred Stock and the PIK Preferred Stock were not treated as an expense on the Company's consolidated statements of operations and, therefore, did not affect reported 21 net income, such dividends were deducted from net income for the purpose of determining net income (loss) per common share. NET INCOME (LOSS) SkyTel recorded consolidated net income of $8.3 million in the quarter ended March 31, 1999, which included a $3 million one-time gain on the sale of assets. Combined with the effect of preferred stock dividends, consolidated net income per common share in the quarter ended March 31, 1999 was $.10 for both the basic and diluted per share amounts for such period. Not including the one- time gain, consolidated net income in the quarter ended March 31, 1999 was $5.3 million, which, combined with the effect of preferred stock dividends, resulted in consolidated net income per common share of $.05 for both the basic and diluted per share amounts for such period. See Note 3 of Notes to Consolidated Financial Statements. This compares to a consolidated net loss of approximately $12.4 million, or $.28 in the first three months of 1998, before the cumulative effect of the change in accounting principle related to the adoption of the SOP. See Note 8 of Notes to Consolidated Financial Statements. For the first quarter of 1999, the Company's one-way messaging operations recorded net income of $22.0 million, which was offset by a net loss of $13.1 million from advanced messaging operations and a net loss of $2.7 million from international operations. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates, which could impact its results of operations and financial condition. SkyTel manages its exposure to these market risks through its regular operating and financing activities and, when deemed 22 appropriate, through the use of derivative financial instruments. The Company uses derivative financial instruments as risk management tools and not for speculative or trading purposes. The Company's policy is to manage interest rates through use of a combination of fixed and variable rate debt. To manage this risk, the Company has entered into certain interest rate swap agreements with respect to the Senior Notes. See Note 5 of Notes to Consolidated Financial Statements. The balance on the Company's variable rate debt was paid down $20.0 million during the quarter. Otherwise, there has been no material change in market risk during the first quarter of 1999 regarding interest rates. The Company is subject to exposure resulting from adverse trends in exchange rates relative to local foreign currencies. Management periodically reviews its exchange rate risks and may take certain actions to reduce such risks. The Company has not previously used derivative financial instruments to hedge its foreign currency exchange rate risks due, in part, to the lack of availability of appropriate hedging instruments in many of the countries in which the Company has investments. There has been no material change in market risk during the first quarter of 1999 regarding foreign currency exchange rates. LIQUIDITY AND CAPITAL RESOURCES DOMESTIC The Company invested a total of $0.5 million in the first quarter of 1999 to fund the expansion of its one-way messaging system and the procurement of messaging devices to support its one-way messaging subscriber base. In addition, in the first quarter 1999, the Company incurred capital expenditures of $7.2 million for advanced messaging devices and infrastructure equipment related to the continued expansion of the Advanced Messaging Network. Capital expenditures in the first quarter of 23 1999 were funded with cash generated from one-way messaging operations and cash on-hand at the beginning of the quarter. During the first quarter of 1999, the Company repaid $20.0 million of indebtedness outstanding under its bank credit facility, and had a balance of $72.5 million of borrowings outstanding as of March 31, 1999 as compared to a balance of $115.5 million as of March 31, 1998. Letters of credit in the amount of $4.7 million had been issued under the credit facility as of March 31, 1999, and the credit available under the facility has been reduced by a corresponding amount. As of March 31, 1999, the Company had borrowing availability under the bank credit facility of approximately $97.8 million. The Company may be required to incur additional borrowings under the bank credit facility during the remainder of 1999 and in 2000 to fund capital expenditures and working capital requirements, including the payment of interest on the Senior Notes, to the extent that cash flows from operations do not satisfy these requirements. INTERNATIONAL During the first three months of 1999, Mtel Latam required approximately $0.6 million to fund capital expenditures and working capital requirements of its subsidiaries and joint ventures in Latin America. In January 1999, Mtel Latam completed the sale of 10,000 shares of Cumulative Accruing Pay-In-Kind Preferred Stock ("Latam Preferred Stock") for a total purchase price of $10,000,000. The Latam Preferred Stock accrues dividends, which are payable in the form of additional shares of Latam Preferred Stock, at an annual compounded rate of 25% or $250 per share the first year, 30% or $300 per share the second year and 35% or $350 per share the third year, and will accrue quarterly. The Latam Preferred Stock ranks senior to the common stock of Mtel Latam with respect to dividend rights and rights upon liquidation. The Latam Preferred Stock is redeemable, in whole or in part, at the option of 24 Mtel Latam, at any time after the first anniversary of the issuance date, at a redemption price of $1,010 for each share to be redeemed, plus an amount equal to all accrued but unpaid dividends. The holder of the Latam Preferred Stock may require Mtel Latam to redeem the Latam Preferred Stock upon the occurrence of certain events, including the merger or consolidation of Mtel Latam, the completion of an initial public offering by Mtel Latam or the occurrence of a change of control of Mtel Latam. In addition, Mtel Latam may not incur aggregate indebtedness for borrowed money in excess of $20 million so long as the Latam Preferred Stock remains outstanding. Approximately $6.5 million of the net proceeds from the sale of the Latam Preferred Stock was used to repay a portion of the indebtedness outstanding under the Latam Line of Credit (as defined below) and the balance is being used for working capital purposes. Mtel Latam maintains a secured revolving line of credit with Credit Lyonnais New York Branch (the "Latam Line of Credit"). Under the Latam Line of Credit, as amended, Mtel Latam may borrow up to $20.0 million to fund capital expenditures and working capital requirements (other than acquisitions). Borrowings under the Latam Line of Credit bear interest at the "alternate base rate" or LIBOR (as such terms are defined in the agreement relating to the Latam Line of Credit, as amended) and are secured by the capital stock of Mtel Latam's subsidiaries in Argentina, Colombia and Venezuela and its equity interest in its Mexican joint venture. Borrowings under the Latam Line of Credit are evidenced by a demand note and mature on December 31, 1999 or earlier at the discretion of Credit Lyonnais New York Branch. As of March 31, 1999, Mtel Latam had borrowings of $14.0 million outstanding under the Latam Line of Credit. 25 YEAR 2000 READINESS Overview. The Year 2000 ("Y2K") issue exists because many computer systems and applications, including those embedded in equipment and facilities, use two-digit rather than four-digit date fields to designate an applicable year. As a result, the systems and applications utilized by certain companies may not properly recognize the Year 2000, or certain dates prior or subsequent thereto, or process data which includes a reference to the Year 2000, potentially causing data miscalculations or inaccuracies, or operational malfunctions or failures. Since late 1997, the Company has devoted significant efforts to address Y2K issues. The Company has developed a comprehensive, company-wide plan to identify, evaluate and remediate Y2K issues (the "Y2K Project Plan") and has established a Y2K Project Office to coordinate the implementation of the Company's Y2K Project Plan. The Company has also established a cross-functional steering committee, which is comprised of management personnel from key departments in the Company, that is responsible for oversight of Y2K readiness activities. The Y2K Project Office and steering committee report to the Company's Senior Vice President-Finance and Chief Financial Officer. The Company has retained a third-party consulting firm to assist the Company in evaluating the methodology contained in, and the completeness of, the Y2K Project Plan. The Company's Y2K Project Plan is focused on those areas which are critical to maintaining uninterrupted service to the Company's customers and includes network systems, applications and infrastructure for the provision of one-way and advanced messaging services and business information systems and applications. In addition, the Y2K Project Plan includes a review of the Y2K readiness of the Company's vendors, resellers, suppliers and other third parties who have material relationships with the Company and its subsidiaries (collectively, "External Parties"). The 26 major phases of the Company's Y2K Project Plan with respect to each of these categories include an inventory of all hardware and software components with possible date implications, an assessment of the Y2K readiness status of all inventory items, the remediation of all Y2K issues which have been identified in the assessment phase, and validation-testing and certification as to Y2K readiness of any items requiring remediation. A consulting firm has been retained by the Company to independently validate the Y2K testing procedures utilized by the Company and to conduct an independent review of the Company's Y2K readiness in certain mission-critical areas. Status. The Company's Y2K Project Plan with respect to its network operations in the United States includes hardware and software components of the one-way and advanced messaging network operation centers, transmitters, receivers and other equipment comprising the radio frequency ("RF") infrastructure of the Company's messaging networks which are located at more than 4,400 sites throughout the United States, and one-way and advanced messaging subscriber devices. The Company has completed the inventory and assessment phases and has completed approximately 98% of the remediation and validation-testing/certification phases for the mission-critical hardware and software components of the Company's one-way and advanced messaging network operation centers. The Company intends to continue to conduct periodic Y2K testing of its network operation centers during the remainder of 1999. The Company has substantially completed the inventory and assessment phases and is approximately 90% complete with the remediation phase of its Y2K Project Plan that relates to the information technology portion of its RF infrastructure. The Company has completed internal testing of those RF infrastructure components which it has identified to date as requiring remediation and has scheduled final testing of all RF infrastructure components in conjunction with the manufacturers of its infrastructure equipment in the second quarter of 1999. In addition, the 27 Company is working with the manufacturers of its RF infrastructure equipment to develop additional testing procedures to ensure the synchronization of certain mission-critical infrastructure components with the network operation centers. The Company expects that these additional testing procedures will also be completed in the second quarter of 1999. The Company has been working with the manufacturers of one-way and advanced messaging subscriber devices in order to confirm the Y2K readiness of such devices. Based upon validation-testing conducted directly by the Company as well as testing conducted in conjunction with the device manufacturers, the Company has confirmed that all subscriber devices utilized on its networks are Y2K compliant in all material respects, with the exception of approximately 100,000 older models of subscriber devices currently in use on the Company's networks. Certain of these models will require manual reordering of message files on January 1, 2000 and others will require manual resetting of the calendar function on March 1, 2000, but the ability of these devices to receive messages transmitted through the Company's network will not be impacted. The Company has included information regarding the date issues involving such models of subscriber devices on the SkyTel Y2K Web site. The Company's Y2K Project Plan for its business information systems and applications involves all hardware and software components which relate to major internal business and administrative functions, such as customer service, billing, inventory, and credit and collections. In early 1998, the Company retained a software engineering consulting firm to assist the Company in the assessment and remediation phases related to the Company's business information systems, software and applications. The Company has completed the inventory phase, and estimates that over 95% of the assessment phase and over 75% of the remediation phase of its mission-critical hardware and software comprising its business systems has been 28 completed. The Company estimates that it has completed over 50% of the validation-testing/certification phase for its business information systems and applications and expects this phase to be completed on or before June 30, 1999. The remediation effort relating to certain of the Company's business systems involves the decommissioning of certain hardware and software and the installation of new hardware and software which has been certified as Y2K compliant. A significant portion of the remaining remediation and validation- testing/certification phases of the Y2K Project Plan related to the Company's business information systems and applications will be completed when such new hardware and software is installed in the second quarter of 1999. The Company has completed the inventory and assessment phases of the Y2K Project Plan with respect to the operations conducted by its subsidiaries in Latin America. Since the Company licenses its one-way messaging network operations software to such subsidiaries and the one-way messaging networks in Latin America generally use equipment, including subscriber devices, and software of the type utilized by the Company's one-way messaging network in the United States, the Company intends to apply the experience obtained in remediating and testing its domestic one-way network operations center, RF infrastructure and subscriber devices in Latin America. As a result, the schedule for the remediation and validation-testing/certification phases of the Y2K Project Plan related to the Latin American operations was structured to take advantage of the Company's domestic experience. The Company estimates that Mtel Latam has completed approximately 60% of the remediation phase and has completed approximately 40% of the validation-testing/certification phase for the mission- critical components of the network operation centers, RF infrastructure and subscriber devices of its Latin American subsidiaries. The Company expects to substantially complete such phases on or before June 30, 1999. 29 The Company participated with a third-party vendor in the development of the business information software which is used by the Company's Latin American subsidiaries. The Company has completed the inventory and assessment phases and estimates that it has completed approximately 70% of the remediation and validation-testing/certification phases with respect to the business systems and applications used by its Latin American operations. Mtel Latam expects to complete these phases on or before June 30, 1999. Mtel Latam has minority investments in joint ventures in certain countries in Latin America which interconnect with the Company's international network. Although Mtel Latam does not control or designate the management of these joint ventures, Mtel Latam is assisting the management teams of these joint ventures in their Y2K readiness efforts and is encouraging such management teams to adopt a methodology similar to the Y2K Plan adopted by the Company. These joint ventures also license the Company's one-way messaging network operations software and use equipment similar to that used by the Company's subsidiaries in Latin America, and processes utilized by Mtel Latam in completing the Y2K Project Plan for its Latin American subsidiaries will be made available to these joint ventures. External Parties. The Company is working directly with various mission-critical External Parties such as its major equipment vendors, telecommunications service providers, local radio common carriers and resellers to assess and certify Y2K readiness, and has conducted or intends to conduct testing procedures with certain of these External Parties in order to confirm Y2K readiness. In addition, the Company has identified and prioritized other External Parties that provide equipment and services to the Company for purposes of assessing their Y2K readiness and has forwarded inquiries to more than 6,000 other External Parties in order to obtain reasonable assurance of their Y2K readiness. The Company intends to assess all the responses it receives from External 30 Parties to evaluate Y2K readiness and to forward follow-up communications when appropriate. The Company is also using the Internet as a resource for determining the Y2K readiness of External Parties. The Company is scheduled to complete its evaluation of the Y2K readiness of External Parties by mid-year 1999, although this will be dependent on the efforts of the External Parties. The Company also plans to further communicate with certain External Parties during the second half of 1999 for purposes of additional follow-up reviews, as appropriate. Contingency Plans. Contingency planning to maintain and restore service in the event of natural disasters or technical problems has been part of the Company's standard operating procedures, and the Company intends to leverage this experience in the development of contingency plans related to the Company's Y2K readiness. The Company has also retained a nationally recognized contingency planning consulting firm to perform a business risk assessment and impact analysis and to assist the Company in preparing a contingency plan for its critical business functions and processes. The contingency plan will include: (i) a business impact analysis designed to identify and quantify the potential impact on the Company in the event of an interruption of normal business operations; (ii) an incident management plan to be used by senior management and support personnel when responding to incidents that might interrupt or impact the Company's ability to maintain normal business operations; and (iii) business resumption plans and procedures to address interruptions or failures of the Company's essential functions and services, such as network operations and infrastructure, business systems and applications or those provided by mission- critical External Parties. The Company expects to complete and finalize its contingency plan by June 30, 1999. Costs. The Company's estimate of the total cost of its Y2K readiness efforts, based on amounts expended or committed to date, plus estimated amounts of additional remediation costs, is 31 approximately $5.0 million to $10.0 million, of which approximately $2,215,000 has been incurred through March 31, 1999. The estimated Y2K costs have not been independently verified and may vary in the event of unforeseen Y2K remediation costs or costs related to the implementation of the Company's contingency plans which have not yet been completed. Certain costs budgeted for the procurement of upgrades or replacements of the Company's network and business information systems have not been included in this amount since these upgrades or replacements were being made by the Company independent of Y2K readiness. In addition, the estimated Y2K costs do not include the Company's internal costs, such as compensation and benefits of employees delegated Y2K responsibilities, since such costs are not internally allocated by the Company. The Company expects to fund its Y2K compliance efforts with cash flows from operations. The failure by the Company or certain External Parties to achieve Y2K readiness with respect to any mission-critical aspect of the Company's business could result in an interruption in, or a failure of, certain normal operations or business activities of the Company. Such failures could materially and adversely affect the Company's results of operations, financial condition or liquidity. For example, the Company's networks are interconnected with, or dependent upon, systems operated by third parties, including telecommunications service providers and public utilities, and the ability of the Company's networks to operate is dependent on these External Parties. Since External Parties are responsible for addressing their own Y2K readiness, the Company is unable to determine at this time whether any Y2K-related interruptions or failures will occur or the extent to which any such interruptions or failures might have a material impact on the Company's results of operations, financial condition or liquidity. The Company's Y2K Project Plan is expected to reduce the level of uncertainty regarding the Company's Y2K readiness and the Y2K readiness of External Parties. The Company believes that, as the Y2K 32 Project Plan described above progresses, the possibility of significant interruptions or failures of the Company's operations as a result of Y2K issues should be substantially reduced. Certain information regarding the Company's Y2K readiness activities constitutes forward-looking statements under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon certain assumptions, and there can be no assurance that the Company's expectations will be achieved, that there will not be delays or increased costs associated with the Company's Y2K readiness activities or that the Company will be successful in remediating all Y2K issues. Factors that could impact the success of the Company's Y2K Project Plan include the availability of personnel trained in specified technical areas involved in the Company's businesses, the ability to locate and correct all relevant software code in its network and business systems that could be affected by the Year 2000 and the successful remediation of Y2K issues by mission-critical External Parties such as telecommunications service providers or energy companies. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement, which applies to all entities, establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 is effective for financial statements for fiscal years beginning after June 15, 1999. SkyTel intends to comply with this statement and has not yet determined the impact of SFAS No. 133 on its consolidated financial statements. 33 PART II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- The Company is not aware of any material legal or regulatory proceedings involving the Company other than license applications and renewals and other regulatory proceedings incident to the Company's business. Item 2. Changes in Securities --------------------- In 1994, Microsoft Corporation ("Microsoft") and certain other investors acquired a minority interest in Destineer Corporation ("Destineer"), a subsidiary of the Company that was engaged in the development of the Advanced Messaging Network. In conjunction with this investment, Microsoft and Destineer entered into a technology development and marketing agreement pursuant to which Microsoft and Destineer agreed to jointly develop wireless applications on the Advanced Messaging Network for certain Microsoft products then under development. Microsoft also received a warrant to purchase additional shares of Destineer common stock (the "Destineer Warrant") at a warrant price equal to the original purchase price paid by Microsoft for the Destineer common stock. In 1995, Microsoft and the other investors in Destineer exchanged each share of Destineer common stock for 1,170 shares of SkyTel Common Stock (the "Exchange Ratio") constituting an implied purchase price of $17.09 per share of SkyTel Common Stock, and Destineer became a wholly-owned subsidiary of SkyTel. As a result of changing market conditions and business strategies, Microsoft and SkyTel agreed in January 1999 to terminate the original technology development and marketing agreement. The parties also agreed to use commercially reasonable efforts to cooperate with each other to provide support, resources, information and assistance to develop hardware and applications that utilize Skytel's Advanced Messaging Network. In addition, the Destineer Warrant was exchanged by Microsoft for a warrant to purchase 409,500 shares of SkyTel Common Stock (the "SkyTel Warrant") at an exercise price of $17.09 per share and for certain registration rights with respect to the shares of SkyTel Common Stock issuable upon exercise of the SktTel Warrant. The number of shares of SkyTel Common Stock subject to the SkyTel Warrant represents the number of shares of Destineer common stock vested under the Destineer Warrant multiplied by the Exchange Ratio. The SkyTel Warrant terminates on July 26, 2005, and was not registered under the Securities Act of 1933, as amended (the "Act"), based on an exemption under Section 4(2) of the Act. 34 Item 3. Defaults upon Senior Securities ------------------------------- None. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. Item 5. Other Information ----------------- None. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits The following Exhibits are filed as part of this Quarterly Report on Form 10-Q: Exhibit No. Description 4.1 Form of Warrant for shares of SkyTel common stock issued to Microsoft Corporation, dated January 28, 1999. 27.1 Financial Data Schedule. (b) Reports on Form 8-K None. 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SKYTEL COMMUNICATIONS, INC. Dated: May 17, 1999 By /s/ John T. Stupka ----------------------- John T. Stupka President and Chief Executive Officer Dated: May 17, 1999 By /s/ Robert Kaiser ----------------------- Robert Kaiser Senior Vice President-Finance and Chief Financial Officer 36 EX-4.1 2 WARRANT CERTIFICATE THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK ISSUABLE UPON EXERCISE THEREOF MAY NOT BE TRANSFERED, OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (ii) RULE 144 UNDER SUCH ACT, TO THE EXTENT APPLICABLE (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. Certificate No. _________ January 28, 1999 SKYTEL COMMUNICATIONS, INC. Warrant Certificate THIS WARRANT CERTIFICATE CERTIFIES THAT, for value received, Microsoft Corporation, a Washington corporation ("MS" and, along with its successors and assigns, "Holder") is entitled to purchase from SkyTel Communications, Inc., a Delaware corporation (the "Company"), at any time from 9:00 A.M., New York time, on January ____, 1999 until 5:00 P.M., New York time, on July 26, 2005 (the "Expiration Date"), up to 409,500 fully paid and nonassessable shares of common stock, par value $0.01 per share (the "Common Stock" and the shares of Common Stock issuable upon any exercise of this Warrant Certificate are hereinafter referred to as the "Warrant Shares"), of the Company, at the purchase price of $17.094017 per Warrant Share (the "Exercise Price") on the terms and subject to the conditions and the adjustments to the Exercise Price and number of Warrant Shares issuable hereunder set forth in this Warrant Certificate (this "Warrant"). 1. Exercise of Warrant. ------------------- (a) This Warrant is issued to MS in consideration of (i) the termination of the Destineer Agreements (as defined in that certain Omnibus Termination, Release and Mutual Cooperation Agreement (the "Omnibus Agreement") dated of even date herewith by and among the Company, MS and Destineer Corporation, a Delaware corporation and wholly-owned subsidiary of the Company ("Destineer")), and (ii) MS' agreement, as set forth in the Omnibus Agreement, to continue to collaborate and cooperate with the Company and Destineer to provide support, resources, information and assistance deemed commercially reasonable and appropriate to develop hardware and applications that utilize the Company's advanced messaging network. This Warrant may be exercised by Holder, in whole or in part from time to time, by surrender to the Company at its principal executive office of this Warrant together with the form of election to purchase annexed hereto as Exhibit A, duly completed and signed ("Exercise --------- Notice"), and upon payment to the Company of the Exercise Price, as the same may be adjusted from time to time in accordance with the provisions of Section 7 hereof, for the number of Warrant Shares in respect of which this Warrant is then being exercised. Upon any due exercise of this Warrant, the Company shall issue, sell and deliver to Holder the number of Warrant Shares for which this Warrant is then exercised. The date of exercise of any Warrant shall be deemed to be the date of receipt by the Company of such form of election to purchase, accompanied by proper payment of the Exercise Price as provided herein, and upon exercise of the rights evidenced by this Warrant, Holder shall be deemed to be a record holder of the Warrant Shares issued upon such exercise immediately prior to the close of business on the date on which this Warrant shall have been surrendered to the Company in the manner and at the place as aforesaid. Payment of the Exercise Price may be made in cash, by certified or official bank check or any combination thereof. (b) Upon surrender of this Warrant during the Exercise Period, accompanied by a duly completed form of election to purchase Warrant Shares and payment of the Exercise Price as aforesaid, the Company shall issue and cause to be delivered a certificate or certificates for the number of full Warrant Shares so purchased upon the exercise of this Warrant. If this Warrant is exercised only in part, the Company shall at the time it delivers certificate(s) for the Warrant Shares, deliver to Holder a new Warrant evidencing the right to purchase the remaining Warrant Shares and shall cancel the exercised Warrant. (c) If any shares of Common Stock to be reserved for the issuance of the Warrant Shares upon the exercise of this Warrant require registration with or approval or consent of any governmental authority or regulatory body under any federal or state statute, rule or regulation, or of any other person, before such Warrant Shares may be validly issued or delivered upon each exercise, then the Company shall in good faith and as expeditiously as possible endeavor to secure such registration, approval or consent, as the case may be. If, and so long as, the Common Stock is listed on any national securities exchange or quoted by the National Association of Securities Dealers ("NASD"), the Company shall, if permitted by the rules of such exchange or the NASD, list and keep listed on such exchange or eligible for quotation by the NASD, upon official notice of issuance, all shares of Common Stock issuable upon exercise of this Warrant. (d) At any time, or from time to time, through and including the Expiration Date, Holder may convert this Warrant or any portion thereof (the "Conversion Right"), without payment by Holder of the Exercise Price in cash or any other consideration, into shares of Common Stock as provided hereinbelow. Upon exercise of the Conversion Right with respect to a particular number of Warrant Shares (the "Converted Warrant Shares"), the Company shall deliver to Holder (without payment by Holder of the Exercise Price in cash or any other consideration) that number of shares of Common Stock as is determined by the following formula: -2- (CMP x CWS) - (EP x CWS) ------------------------ CMP where: CMP is the average of the closing bid and asked prices for a share of Common Stock as reported on The Nasdaq Stock Market for the date on which the Exercise Notice is received by the Company pursuant to the terms of this Warrant (or on such other national securities exchange upon which shares of Common Stock shall then be admitted for trading (hereinafter, the "Public Market"); CWS is the Converted Warrant Shares that are subject to such Exercise Notice; and EP is the then Exercise Price. No fractional shares of Common Stock shall be issued upon the exercise of the Conversion Right, and if the number of shares of Common Stock to be issued determined in accordance with the above formula is other than a whole number, then the Company shall pay to Holder an amount in cash equal to the CMP multiplied by such fractional portion of a share of Common Stock. The Conversion Right shall terminate (or be suspended) in the event that (or for so long as) there is no Public Market for the Common Stock. All other requirements for the due and proper exercise of this Warrant shall apply in connection with the exercise of a Conversion Right hereunder. Upon completion of a Conversion Right, the number of shares of Warrant Shares issuable upon exercise of this Warrant shall be reduced by the number of Converted Warrant Shares. 2. Warrant and Warrant Share Certificates. Certificates evidencing this -------------------------------------- Warrant bearing the manual or facsimile signatures of individuals who are at any time on or after the date hereof the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any one of them shall have ceased to hold such offices prior to the delivery of such Warrant or did not hold such offices on the date hereof. Certificates representing this Warrant shall be dated as of the date of execution thereof by the Company and shall be numbered and registered on the books of the Company (the "Warrant Register") as they are issued. The certificates for Warrant Shares shall be numbered and Warrant Shares evidenced by such certificates shall be registered on the books of the Company (the "Share Register") as they are issued. 3. Transfer of Warrant and Warrant Shares. -------------------------------------- (a) This Warrant and all rights hereunder are transferable, in whole or in part, but only with the prior written consent of the Company, which consent shall not be unreasonably withheld. In order to Transfer (as defined below) this Warrant, the Holder shall deliver to the Company at its principal executive office this Warrant together with the Assignment Form annexed hereto as Exhibit B, duly completed and signed. It shall be a condition to any Transfer --------- of this Warrant that the Company shall have received, at the time of such Transfer, a representation in writing that this Warrant (or portion hereof transferred) is being acquired for -3- investment and not with a view to any sale or distribution thereof, and a statement of the pertinent facts covering any proposed distribution thereof. It shall be a further condition to any Transfer of this Warrant that the Company shall have received a legal opinion, in form and substance reasonably satisfactory to the Company and its counsel, reciting the pertinent circumstances surrounding the proposed Transfer and stating that such Transfer complies with the Communications Act of 1934, as amended, and is exempt from the prospectus and the registration requirements of the Securities Act of 1933, as amended (the "Act"), and any other applicable state securities laws. It shall be a further condition to each such Transfer that the transferee shall receive and accept a Warrant, of like tenor and date, executed by the Company. (b) Warrant Shares issuable upon the exercise of this Warrant by the Holder may be transferred in accordance with applicable laws, rules and regulations, including the Communications Act of 1934, as amended. Upon compliance with all applicable provisions regarding Transfer, the Warrant Shares shall be transferable only on the Share Register upon delivery of the share certificates evidencing such Warrant Shares duly endorsed by the Holder or by his duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to Transfer. "Transfer" shall mean any offer, transfer, sale, exchange, assignment, mortgage, pledge, grant of lien on or security interest in, gift or other disposition or encumbrance of any nature, whether voluntary, involuntary or by operation of law. 4. No Payment of Taxes. Upon any Transfer or exercise of this Warrant ------------------- and the issuance of any Warrant Shares upon any such exercise, the Company shall not be required to pay any tax or taxes, including, without limitation, any income taxes or taxes which may be payable in respect of any Transfer or related issue or delivery of any warrants pursuant to Section 3(a) above or certificates for Warrant Shares and the Company shall not be required to issue or deliver such warrants or certificates for Warrant Shares unless or until the Holder shall have paid to the Company the amount of any such taxes or shall have established to the satisfaction of the Company that all such taxes have been paid. 5. Mutilated or Missing Certificates. In case any certificate --------------------------------- evidencing this Warrant or any Warrant Shares shall be mutilated, lost, stolen or destroyed, the Company shall issue and deliver in exchange and in substitution for and upon cancellation of the mutilated certificate evidencing this Warrant or Warrant Shares, or in lieu of and in substitution for certificates evidencing this Warrant or Warrant Shares lost, stolen or destroyed, a new certificate evidencing this Warrant or Warrant Shares of like tenor and representing an equivalent right or interest; but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of such certificate and indemnity or bond, if requested, also reasonably satisfactory to the Company. A Holder requesting that substitute certificates be so issued shall also comply with such other reasonable requirement and pay such other reasonable charges as the Company may prescribe. 6. Reservation of Warrant Shares. There have been and will be reserved ----------------------------- out of the authorized and unissued Common Stock a number of shares sufficient to provide for the exercise of the rights of purchase represented by this Warrant, and the transfer agent for the Common Stock, which may be the Company ("Transfer Agent"), and every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of this Warrant are -4- hereby irrevocably authorized and directed at all times until the Expiration Date to reserve such number of authorized and unissued shares as shall be required for such purpose. The Company will supply such Transfer Agent and any subsequent transfer agent with duly executed share certificates for such purpose. 7. Adjustment of Exercise Price and Number of Warrant Shares. --------------------------------------------------------- (a) If at any time subsequent to the issuance of this Warrant and prior to the Expiration Date the Company shall by subdivision, consolidation, or reclassification of its Common Stock change as a whole the outstanding shares of its Common Stock into a different number or class of shares, the number and class of shares of Common Stock so changed shall, for the purposes of this Warrant and the terms and conditions hereof, replace the shares of Common Stock outstanding immediately prior to such change, and the Exercise Price in effect, and the number of Warrant Shares purchasable under this Warrant, immediately prior to the date upon which such change shall become effective, shall be proportionately adjusted. (b) Whenever the Exercise Price and number of Warrant Shares purchasable upon exercise of this Warrant are adjusted, the Company shall promptly mail to Holder a notice of adjustment briefly stating the facts requiring the adjustment and the manner of computing it. (c) In case of any consolidation or merger of the Company with any other entity (other than a wholly-owned subsidiary of the Company) , or in case of any sale or transfer of all or substantially all of the assets of the Company, or in the case of any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property, the Company shall make appropriate provision or cause appropriate provision to be made so that this Warrant then outstanding shall be exercisable for the kind and amount of shares of stock and other securities and property receivable upon such consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock for which this Warrant might have been exercisable immediately prior to the effective date of such consolidation, merger, sale, transfer or share exchange. If in connection with any such consolidation, merger, sale, transfer or share exchange, each holder of shares of Common Stock is entitled to elect to receive either securities, cash or other assets upon completion of such transaction, the Company shall provide or cause to be provided to Holder the right to elect to receive the securities, cash or other assets for which this Warrant shall be exercisable after completion of any such transaction on the same terms and subject to the same conditions applicable to holders of the Common Stock (including, without limitation, notice of the right to elect, limitations on the period in which such election shall be made and the effect of failing to exercise the election). The Company shall not effect any such transaction unless the provisions of this paragraph have been fulfilled. The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges. (d) For the purposes of this Section 7, the term "Common Stock" shall mean (i) the class of stock designated as the Common Stock of the Company as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that at any time as a result of an adjustment made -5- pursuant to Section 7(c), Holder shall become entitled to receive any securities instead of or in addition to shares of Common Stock, thereafter the kind and amount of such securities so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to this Warrant contained in this Section 7. 8. Fractional Interests. The Company shall not be required to issue -------------------- fractional Warrant Shares on the exercise of this Warrant or to distribute certificates which evidence fractional Warrant Shares. If any fraction of a Warrant Share would, except for the provisions of this Section 8, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall round down to the next full number of Warrant Shares then issuable, except when the Conversion Right of Section 1(d) provides otherwise. 9. Registration under the Securities Act. Holder shall not dispose of ------------------------------------- this Warrant or any Warrant Shares except in compliance with applicable state securities laws and pursuant to (i) an effective registration statement under the Act, (ii) Rule 144 under the Act (or any similar rule under the Act relating to the disposition of securities), or (iii) an opinion of counsel, satisfactory to counsel for the Company, which approval as satisfactory will not be unreasonably withheld, that an exemption from registration under the Act is available. 10. No Rights as Stockholders. Nothing contained in this Warrant shall be ------------------------- construed as conferring upon Holder the right to vote or to receive dividends or to consent to or receive notice as a stockholder in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any rights whatsoever as a stockholder of the Company. 11. Registration Rights. MS shall have the benefit of the provisions ------------------- contained in that certain Registration Rights Agreement, dated as of the date hereof, by and between the Company and MS with respect to Warrant Shares. 12. Notices. Any notice hereunder to be given or made by Holder to the ------- Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed as follows: SkyTel Communications, Inc., 200 South Lamar Street, SkyTel Centre, South Building, Jackson, Mississippi 39225, Attention: Leonard G. Kriss, Esq. Notices or demands authorized or required hereby to be given or made to Holder shall be sufficiently given or made (except as otherwise provided herein) if sent by first-class mail, postage prepaid, addressed to MS at One Microsoft Way, Redmond, Washington 98052-6399 Attention: Treasurer. 13. Governing Law. This Warrant shall be governed by and construed in ------------- accordance with the laws of the State of Delaware, without giving effect to principles of conflict of laws thereof. 14. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to MS that: (a) the offering, issuance, sale, execution and delivery to MS of this Warrant has been duly authorized by all necessary corporate action of the Company, and this Warrant is -6- the validly issued, legally binding agreement of the Company enforceable in accordance with its terms, except as rights to indemnity and contribution hereunder may be limited by Federal or state securities laws and except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and except that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought; (b) the offering, issuance, sale, execution and delivery of this Warrant, the consummation of the transactions herein contemplated and the fulfillment of the terms hereof will not result in a breach of any of the terms or provisions of, or constitute a default under, the Company's Certificate of Incorporation or Bylaws or any indenture, mortgage, deed of trust or other agreement or instrument to which the Company is now a party or by which it is bound, or any order of any court or governmental agency or authority entered in any proceeding to which the Company was or is now a party or by which it is bound; (c) all orders, consents or other authorizations or approvals of any governmental board or agency legally required for the validity of this Warrant or the Warrant Shares or of any transaction hereunder have been obtained (except such as may be required with respect to the sale of the Warrant Shares); (d) the Warrant Shares have been duly authorized and, when issued upon exercise of this Warrant in accordance with the terms of this Warrant, will be validly issued, fully paid and nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof; and (e) the Company has reserved out of its authorized and unissued shares of Common Stock a number of shares sufficient to provide for the exercise of the rights to purchase initially represented by this Warrant. 15. Certificates to Bear Legends. The Warrant Shares or other securities ---------------------------- issued upon exercise of this Warrant and the certificate or certificates evidencing any such Warrant Shares shall bear the following legend by which Holder thereof shall be bound: "THE SHARES (OR OTHER SECURITIES) REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. 16. Impairments. The Company will not, by amendment of its Certificate of ----------- Incorporation, or through any reorganization, issuance or sale of securities or any other voluntary -7- action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 17. Specific Enforcement. The Company stipulates that the remedies at law -------------------- of Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained in this Warrant or by an injunction against a violation of any of the terms hereof or otherwise. 18. Successors. All the covenants and provisions of this Warrant by or ---------- for the benefit of the Company or Holder shall bind and inure to the benefit of their respective successors and assigns hereunder. 19. Benefits. Nothing in this Warrant shall be construed to give to any -------- person or corporation other than the Company and Holder any legal or equitable right, remedy or claim under this Warrant, but the agreements contained in this Warrant shall be for the sole and exclusive benefit of the Company and Holder. IN WITNESS WHEREOF, SkyTel Communications, Inc. has caused this Warrant to be duly executed by the authorized officer set forth below. SKYTEL COMMUNICATIONS, INC. By: /s/ Robert Kaiser ------------------ Name: Robert Kaiser Title: Senior Vice President - Finance -8- Exhibit A --------- PURCHASE FORM (To be executed upon exercise of the Warrant) To: SkyTel Communications, Inc. The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant for, and to purchase thereunder, ________ shares of Common Stock of SkyTel Communications, Inc. (the "Shares"), as provided for therein, and tenders herewith payment of the Exercise Price in full in the form of cash or a certified or official bank check, in the amount of $__________. The undersigned hereby irrevocably elects to exercise the Conversion Right represented by Section 1(d) of the within Warrant for ________ Shares. The surrender of warrant rights with respect to those Converted Warrant Shares shall be irrevocable and shall result in the issuance of that number of Warrant Shares pursuant to which the undersigned is entitled, along with a payment in cash for any fractional share as provided for therein. The Shares are being purchased for the undersigned's own account, for investment, and not with a view to any distribution thereof, and the undersigned will not distribute such Shares in violation of the Securities Act of 1933, as amended (the "Act") or the applicable securities laws of any state. The undersigned understands that the Shares have not been registered under the Act or the securities laws of any state and are being offered and sold pursuant to an exemption from the registration requirements contained in the Act and, as a result, the Shares must be held indefinitely unless subsequently registered under the Act and any applicable state securities laws or unless an exemption from such registration becomes or is available. The undersigned is financially able to hold the Shares for long-term investment, believes that the nature and amount of the Shares being purchased by it is consistent with the undersigned's overall investment program and financial position, recognizes that there are risks involved in the ownership of the Shares, and can afford a complete loss of such investment. The undersigned has had the opportunity to ask questions of SkyTel Communications, Inc. management and to review such information as the undersigned may deem necessary or appropriate in connection with formulating an informed decision regarding its investment in the Shares. Please issue a certificate or certificates for such Shares in the name of _______________________________________________________________________________. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] If said number of Shares shall not be all the shares purchasable under the Warrant, a new certificate representing the Warrant certificate is to be issued in the name of the undersigned for the balance remaining of the shares purchasable thereunder. PLEASE INSERT FEDERAL Holder [insert full name on next line] IDENTIFICATION NUMBER _________________________________ ____________________________ By:______________________________ Name:____________________________ Title:___________________________ Dated:_______________ Exhibit B --------- ASSIGNMENT FORM (To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.) To: SkyTel Communications, Inc. FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to ________________________________________________________________________________ [Please type or print name.] whose address is _____________________________________________ [Please type or print address.] _____________________________________________ _____________________________________________ By:____________________________________ Its:___________________________________ Holder's Address:___________________________________ ___________________________________ ___________________________________ ___________________________________ Signature Guaranteed:________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever, and must be guaranteed by a bank or trust company. Officers of corporation and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 26,303,626 0 81,150,248 25,323,050 0 88,780,174 466,124,309 217,865,484 631,237,652 121,317,506 344,642,371 37,500 0 600,810 130,630,486 631,237,652 139,868,612 139,868,612 0 124,702,364 0 0 11,903,733 8,569,027 317,485 8,251,542 0 0 0 8,251,542 0.10 0.10
-----END PRIVACY-ENHANCED MESSAGE-----