-----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, FUiXnvd8+WJjELtY33aA55AW9jgpeAZvrNd+4xbUQttV6tYGanWCbDN5gj5BCq6j FjDXk1KWgsSIqeuWa8bIQA== 0000950134-96-002368.txt : 19960522 0000950134-96-002368.hdr.sgml : 19960522 ACCESSION NUMBER: 0000950134-96-002368 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960521 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAGEMART WIRELESS INC CENTRAL INDEX KEY: 0000947268 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 752575229 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28196 FILM NUMBER: 96570291 BUSINESS ADDRESS: STREET 1: 6688 NORTH CENTRAL EXPRESSWAY STREET 2: STE 800 CITY: DALLAS STATE: TX ZIP: 75206 BUSINESS PHONE: 2147505809 MAIL ADDRESS: STREET 1: 6688 NORTH CENTRAL EXPRESSWAY STREET 2: STE 800 CITY: DALLAS STATE: TX ZIP: 75206 FORMER COMPANY: FORMER CONFORMED NAME: PAGEMART NATIONWIDE INC /DE DATE OF NAME CHANGE: 19950627 10-K/A 1 AMENDMENT NO. 2 TO FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-K/A Amendment No. 2 to (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1995 or TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from _________ to _________ Commission File No. 33-91142 -------------------- PAGEMART WIRELESS, INC. (FORMERLY PAGEMART NATIONWIDE, INC.) (Exact name of registrant as specified in charter) DELAWARE 75-2575229 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 6688 NORTH CENTRAL EXPRESSWAY, SUITE 800 DALLAS, TEXAS 75206 (Address of principal executive offices) (Registrant's telephone number, including area code): (214) 750-5809 -------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of each exchange Title of each class on which registered ------------------- --------------------- None None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE -------------------- 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] There is no established market for the registrant's common stock. Accordingly, the registrant is unable to estimate the value of shares held by non-affiliates. See Item 5 entitled "Market for the Registrant's Common Equity and Related Stockholder Matters" for additional information concerning the market for the registrant's common stock. As of March 1, 1996, 33,711,269 shares of the Registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: None ================================================================================ 2 PART I ITEM 1. BUSINESS GENERAL The Company is one of the fastest growing providers of wireless messaging services in the United States. The Company has grown to become the fifth largest paging carrier in the United States, based on 1,240,024 subscribers at December 31, 1995. The Company's number of subscribers has increased at annual growth rates of 180%, 136% and 60% in 1993, 1994 and 1995, respectively, as compared to an average annual growth rate of approximately 31% for 1993 through 1995 for the paging industry. The Company has made no acquisitions, and all subscriber growth has been internally generated. The Company has invested heavily in order to achieve rapid growth in its subscriber base and, as a result, the Company has sustained net losses of $31.1 million, $45.8 million and $53.1 million for 1993, 1994 and 1995, respectively. The Company offers local, multi-city, regional and nationwide paging and other one-way wireless services in all 50 states, covering 90% of the population of the United States. The Company also provides services in Puerto Rico, the U.S. Virgin Islands and the Bahamas, and has recently initiated nationwide services in Canada. The Company employs a digital, state of the art transmission network that is 100% FLEX[Registered] enabled, allowing the use of high speed messaging technology thereby providing increased transmission capacity. The Company was incorporated in Delaware on November 29, 1994 as a wholly-owned subsidiary of PageMart, Inc. ("PageMart"). Effective January 19, 1995, PageMart merged with a wholly-owned subsidiary of the Company, pursuant to which PageMart was the surviving corporation (the "Reorganization"). As part of the Reorganization, each share of outstanding common stock of PageMart was converted into the right to receive one share of common stock of the Company. Upon consummation of the Reorganization, the stockholders of PageMart had the same ownership interest in the Company as they had in PageMart, and the Company owned all of the capital stock of PageMart. On December 28, 1995, the name of the Company was changed from PageMart Nationwide, Inc. to PageMart Wireless, Inc. ("Wireless"). OPERATING STRATEGY The Company attributes the significant growth of its paging business to the successful implementation of its six operating principles: (i) diversified distribution channels, (ii) nationwide common frequency, (iii) efficient network architecture, (iv) spectrum-rich frequency position, (v) centralized administration, and (vi) customer service capabilities. DIVERSIFIED DISTRIBUTION CHANNELS. The Company utilizes a number of distribution channels to market its products and services, including retail marketing, private brand strategic alliances and national sales offices. Retail Marketing. The Company believes that it is a leading supplier of paging units to consumers through retail distribution channels. The Company has been selected as the pager supplier for a number of leading retail chains, including Office Depot Inc., Comp USA, Inc., Montgomery Ward Company, Inc., Target Stores, Inc. and Best Buy, Inc. Private Brand Strategic Alliances. The Company was one of the first paging companies to broaden its distribution reach by establishing strategic relationships with large communications providers. The Company has established strategic relationships with GTE Corporation, Southwestern Bell Mobile Systems, AT&T Wireless Services, Ameritech Mobile Services, Inc. and long distance reseller EXCEL Telecommunications, Inc. National Sales Offices. The Company's national sales offices sell equipment and services through three distribution channels: direct sales, third-party resellers and local retailers. The Company has a direct sales force presence in over 75 Metropolitan Statistical Areas ("MSAs") through 63 offices. 1 3 Management believes that a diversified approach to distribution is important to sustain growth as paging services more deeply penetrate the United States population, especially the consumer market. This diversification is a key element of the Company's strategy of expanding its subscriber base as rapidly as possible to increase cash flow through greater utilization of its nationwide wireless communication network. A diversified distribution strategy also provides a cost effective method for managing disconnection rates. The Company's average monthly disconnection rates for the twelve months ended December 31, 1994 and 1995 were 3.4% and 2.5%, respectively. NATIONWIDE COMMON FREQUENCY. The Company has constructed its nationwide messaging network on a common frequency. Use of a common frequency provides the Company with a number of important strategic advantages not available to many of its competitors which operate on multiple frequencies across markets. The use of a common frequency enables the Company's customers to travel throughout the United States, Canada and the Bahamas while continuing to use the same messaging device. As a result, the Company is able to provide multi-city coverage customized to accommodate the customer's needs ("coverage on demand"). The common frequency also provides a competitive advantage to the Company when marketing its services to regional and national retailers and private brand strategic alliance partners. These distributors are able to buy the paging unit without being limited by where they can distribute the product or by the service they sell with the unit. This allows retailers and strategic partners to offer customers all service options while minimizing the number of Stock Keeping Units ("SKUs") that the distributor must carry, thus reducing inventory carrying costs. EFFICIENT NETWORK ARCHITECTURE. The Company is an industry leader in the implementation of advanced telecommunications technologies, including pioneering the use of direct broadcast satellite ("DBS") technology for paging. The Company's nationwide wireless transmission network is 100% controlled by DBS technology, which gives the Company a flexible, highly reliable and efficient network architecture. The use of DBS technology eliminates the need for expensive terrestrial Rf control links and repeater equipment while enabling the Company to provide a wide range of coverage options. The Company's network covers the top 300 MSAs across the United States, or approximately 90% of the total population in the United States and is designed to serve a significantly larger subscriber base than the one currently served by the Company. The Company's wireless transmission network is 100% FLEX enabled, allowing the use of the high speed FLEX protocol to transmit messages and maximize system capacity. SPECTRUM-RICH FREQUENCY POSITION. The Company ranks among the top four paging carriers in the United States in licensed nationwide frequencies. The Company's exclusive frequency licenses include two nationwide paging frequencies and 150 kHz of nationwide Narrowband Personal Communications Service ("NPCS") frequency (the "NPCS Licenses"). The Company believes that this frequency has important strategic value because it may enable the Company to grow significantly its one-way subscriber base and to provide two-way messaging and other value-added services to its subscribers. As a result, the Company believes its spectrum-rich frequency position enables it to attract private brand strategic alliance partners. CENTRALIZED ADMINISTRATION. The Company has centralized customer service, information systems, inventory control and distribution, credit and collections, accounting and marketing functions. This centralized administration has enabled the Company to become one of the lowest cost providers of paging and other one-way wireless communications services in the United States. In addition, the administrative infrastructure is designed to support a significantly larger customer base than that currently served by the Company, which will allow it to realize additional operating efficiency as the Company continues to grow. CUSTOMER SERVICE CAPABILITIES. Management has focused on developing industry-leading customer service capabilities. The Company employs over 600 highly trained customer service personnel operating in state of the art call center facilities. Management believes that these services are an important factor in supporting and retaining its strategic partners, retailers and subscribers. 2 4 TWO-WAY MESSAGING STRATEGY One of the Company's principal strategies is to become a leading provider of two-way messaging services in the United States. Management believes that the introduction of two-way messaging services may present significant future growth opportunities to the Company by enabling it to provide a new generation of advanced messaging services, including data messaging, stored voice messaging and other services, to new and existing subscribers. The Company's two-way messaging strategy is founded on four principal competitive advantages: (i) nationwide spectrum, (ii) incremental introduction of technology, (iii) established diversified distribution channels, and (iv) operating efficiency. NATIONWIDE SPECTRUM. With the acquisition of the NPCS Licenses, the Company became one of four companies with 150 kHz or more of nationwide NPCS frequency. As a result, the Company is positioned to create a high capacity nationwide network capable of delivering local, multi-city, regional, or nationwide data and stored voice messaging services to a large number of subscribers. INCREMENTAL INTRODUCTION OF TECHNOLOGY. The Company intends to introduce two-way messaging technology by initially building upon its one-way transmission network, enabling the Company to minimize the level of capital expenditures and investments. The Company plans to introduce two-way stored voice service paced to the availability of infrastructure equipment, subscriber devices and to meet the market demand for such services. ESTABLISHED DIVERSIFIED DISTRIBUTION CHANNELS. The Company plans to leverage its established diversified distribution channels to achieve efficient, rapid market penetration of its two-way services. OPERATING EFFICIENCY. The Company expects to utilize its existing one-way network and centralized administration to minimize incremental costs of product and service expansion. Management believes that the Company's centralized customer service, information systems, inventory control and distribution, credit and collections, accounting and marketing organizations will be capable of supporting the Company's two-way strategy. As a result of these operating advantages, the Company plans to provide a complete array of two-way services at affordable prices, including data and stored voice services, that the Company believes should appeal to a large number of potential subscribers. The Company expects to begin testing two-way data and stored voice services in the second quarter of 1996. Upon completion of testing, two-way data services are expected to be marketed on a city-by-city basis beginning in late 1996. Two-way data services may include guaranteed alphanumeric message delivery with acknowledgment and message with response capabilities. In 1997, the Company plans to introduce its VoiceMart[Trademark] service which should provide subscribers with the ability to receive stored voice messages directly to their messaging devices. Introduction of the VoiceMart service will be paced to the availability of infrastructure equipment, subscriber devices and market demand. COAM STRATEGY The Company's operating model is unique in the industry in that it follows a strategy of selling rather than leasing messaging equipment to subscribers. The selling expenses of the Company, which include advertising, compensation paid to its sales force and the loss on pagers sold, associated with the Company's Customer Owned and Maintained ("COAM") strategy, are substantial for each messaging unit. As of December 31, 1995, approximately 99% of the Company's messaging units were COAM, which compares to an industry average of approximately 56%. The Company believes that by following a COAM strategy it can achieve significantly better capital efficiency than if it were to follow a lease strategy, which is reflected in its relatively low capital employed per subscriber of $40 at December 31, 1995. Capital employed per subscriber represents total assets, 3 5 less NPCS Licenses, cash, non-debt current liabilities and international investments divided by units in service. The Company believes that its COAM strategy provides additional benefits, including reduced risk of technological obsolescence and avoidance of the credit risk associated with leasing pagers to end-users. In addition, management believes that this strategy minimizes its disconnection rates in the retail channel. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. SALES AND MARKETING The Company's customers include individuals, corporations and other organizations that desire affordable communication services offering substantial mobility, accessibility and the ability to receive timely information. The Company utilizes a number of distribution channels to market its products and services, including retail marketing, private brand strategic alliances and national sales offices. Management believes that a diversified approach to distribution is important to sustain growth as demand for paging services more deeply penetrates the United States population, especially the consumer market. This diversification is a key element of the Company's strategy of expanding its subscriber base as rapidly as possible to increase cash flow through greater utilization of its nationwide wireless communication network. The Company is not dependent on any single customer or a few customers, the loss of one or more of whom would have a material adverse effect on the Company. RETAIL MARKETING Since early 1993, the Company has been an industry pioneer in developing the retail distribution channel through sales arrangements with regional and national retail chains that sell electronic and business equipment or consumer goods. The Company provides equipment to a retailer who then sells the equipment to potential users. Once the unit is purchased, the customer can activate it and subscribe for local, regional or nationwide paging coverage with the Company by simply calling the toll-free number identified on the unit. Because the Company's pagers operate on a common nationwide frequency, they can be sold in any retail store located in the Company's nationwide coverage area. By contrast, competitors that use multiple frequencies across markets require retailers to maintain many more SKUs to serve each local market that utilizes a different frequency. The Company has entered into sales arrangements with a number of large retail chains such as Office Depot, Inc., Comp USA, Inc., Montgomery Ward Company, Inc., Target Stores, Inc. and Best Buy, Inc. Retail distribution also allows the Company to sell pagers in markets that would not support a direct sales office but in which it has installed the necessary equipment required for providing paging services. The Company can thus enter new markets by capitalizing on its existing infrastructure of transmitters with the only incremental expense being the procurement of local access phone lines. The Company expects retail sales to become an increasingly important channel of distribution for pagers. The number of national retail store locations has increased to 3,411 stores from 2,200 stores and 840 stores at December 31, 1995, 1994 and 1993, respectively. Approximately 25% of the Company's sales are made through the retail channel. PRIVATE BRAND STRATEGIC ALLIANCES The Company has established numerous strategic relationships with large communications providers. These companies utilize their brand awareness and billing efficiencies to market private brand pagers and services using the Company's transmission network. Approximately 10% of the Company's sales are made through private brand strategic alliances, and the Company expects this proportion to increase over the next several years. GTE CORPORATION ("GTE"). During 1993 and 1994, the Company and GTE signed a series of agreements providing for the sale and marketing through GTE of GTE-labeled services throughout the United States. In addition, several of these agreements provide for joint cooperation in the deployment of paging network facilities for the provision of wireless messaging and data transmission in the United States. Pursuant to the terms of one of the agreements, GTE will purchase up to 250 new transmitters to be deployed throughout the Company's nationwide network. The Company will lease, operate and maintain the transmitters and will provide wireless services to GTE customers, as well as customers of the Company via the Company's nationwide network. The 4 6 Company's services are sold across the United States through GTE Telephone Operations, GTE Phone Mart Stores and GTE Mobilnet. SOUTHWESTERN BELL MOBILE SYSTEMS ("SBMS"). In May 1995, the Company and SBMS signed an agreement for the sale and marketing through SBMS of SBMS-labeled services. After a successful test in several Texas markets in the third quarter of 1995, SBMS has expanded marketing of the service into its other major markets including Chicago, Kansas City, St. Louis, Boston and Washington, D.C. AT&T WIRELESS SERVICES ("AT&T WIRELESS"). In November 1995, the Company and AT&T Wireless entered into a three-year agreement for the sale and marketing through AT&T Wireless of AT&T Wireless-labeled services. In March 1996, AT&T Business Communications commenced controlled introduction of its Personal Reach Service, which utilizes the Company's network. AMERITECH MOBILE SERVICES, INC. ("AMERITECH"). In February 1996, the Company and Ameritech signed an agreement for the sale and marketing through Ameritech of Ameritech-labeled services. EXCEL TELECOMMUNICATIONS, INC. ("EXCEL"). In March 1996, the Company and Excel, a long distance reseller, signed an agreement for the sale and marketing through Excel of Excel-labeled services. NATIONAL SALES OFFICES The Company's national sales offices sell equipment and services through three distribution channels: direct sales, third-party resellers and local retailers. The Company has a direct sales force of 445 personnel located in over 75 MSAs through 63 offices. DIRECT SALES. The Company markets its equipment through its direct sales force and related marketing activities such as telemarketing and advertisements in radio, print media and telephone company yellow pages. Direct sales representatives are paid by commission (which varies depending on the type of service subscribed for and other factors) for each unit sold or placed in service. Approximately 30% of the Company's sales are generated through its direct sales force. THIRD-PARTY RESELLERS. In addition to offering paging and messaging services directly to end-users, the Company also provides services under marketing agreements with third-party resellers. Typically, the Company offers third-party resellers paging services in bulk quantities at a wholesale monthly rate that is lower than the Company's regular retail rates. Approximately 35% of the Company's sales are made through third-party resellers. LOCAL RETAILERS. The Company markets its services under sales arrangements with local retailers located in the MSAs where national sales offices are present. MESSAGING SERVICES PAGING SERVICES The Company charges subscribers a monthly fee which covers the paging and messaging services subscribed for and any additional services purchased by the subscriber. The amount of the monthly fee varies primarily based on the type of service provided and the geographic area covered. The Company charges higher rates for multi-city and nationwide service options. 5 7 The Company currently offers the following three basic types of one-way paging and messaging services.
Service Functions ------- --------- Numeric paging . . . . . . . . Provides the subscriber with the telephone number of the person who is seeking to contact the subscriber. Numeric pagers can store and retrieve up to 40 numeric messages, which are displayed on a liquid crystal display. Alphanumeric paging . . . . . Offers the subscriber the ability to receive a text message rather than simply a numeric message. Alphanumeric pagers can store and retrieve up to 40 messages of up to 80 characters each, which are displayed on a liquid crystal display. Wireless messaging . . . . . . Offers subscribers the ability to receive detailed text messages and information services through "message ready" electronic organizers and PCMCIA cards. Wireless messaging devices are capable of receiving messages of several thousand characters in length.
NUMERIC PAGING. Among the Company's subscribers who use a numeric display pager, a high percentage select local coverage, although the percentage of subscribers who select multi-city coverage has been increasing. Monthly fees for regional and national paging coverage are substantially higher than the fees charged for single local area coverage. The Company's revenues from multi-city coverage increased to approximately 28% of airtime revenues for the month ended December 31, 1995 from approximately 23% during the month ended December 31, 1994. ALPHANUMERIC PAGING. The Company launched its alphanumeric paging services in July 1993 under the tradenames InfoPage [Registered] and InfoNow [Registered], and the number of subscribers utilizing this service represented approximately 1.4% of the Company's total subscribers as of December 31, 1995. The percentage of paging industry subscribers utilizing alphanumeric pagers at the end of 1995 was reported to be approximately 9%. The Company has not focused a significant portion of its selling and marketing efforts on alphanumeric paging service, primarily because technology has inhibited the Company's ability to deliver the service in a cost effective manner. With the Company's introduction of high speed FLEX protocols, the Company anticipates alphanumeric paging service becoming a larger portion of its selling and marketing efforts. The ability of alphanumeric pagers to deliver longer text messages, including the ability to store messages received for playback when desired by the subscriber, allows the Company to charge significantly higher monthly fees for its InfoPage and InfoNow services than for numeric display paging services. WIRELESS MESSAGING. The Company began offering one-way wireless messaging services to subscribers with electronic organizers at the end of the first quarter of 1994. The Company has developed strategic relationships with computer manufacturers that are integrating advanced wireless messaging capabilities into their applications software and a new generation of personal digital assistants and portable computers. Handheld computers featuring PCMCIA slots can accommodate PCMCIA pager cards to provide office professionals with "message ready" devices that allow them to be in touch while away from their offices. The Company's wireless services to PCMCIA pager cards is being marketed under the service mark InfoAdvantage(SM). The Company has established the following strategic relationships for the marketing and provision of wireless data transmission. The market for the one-way delivery of extended length messages is small in comparison to traditional numeric and alphanumeric services, and the Company has not realized significant 6 8 revenues from these relationships to date. However, management believes these relationships will be valuable for distribution of its two-way messaging services. International Business Machines, Inc. ("IBM"). In December 1993, IBM selected PageMart to be a ThinkPad Proven Vendor to provide one-way wireless messaging services to IBM portable computer customers. PageMart markets its wireless services to existing owners of ThinkPads through a direct mail program and to new owners through a pre-installed computer slide show that IBM includes on selected new ThinkPad models. Mitsui Comtek Corporation ("Mitsui"). The Company has worked with Mitsui in the design of the industry's first electronic organizer with a built in wireless messaging receiver and now provides one-way messaging services for electronic organizers manufactured by Casio Computer Company Limited. CompuServe, Inc. ("CompuServe"). In May 1995, the Company was one of several paging carriers selected by CompuServe for the wireless delivery of electronic mail (or notice thereof) to CompuServe subscribers. ADDITIONAL VALUE-ADDED SERVICES In addition to paging services, the Company offers subscribers a number of additional value-added services, including voicemail services that allow subscribers to retrieve voice messages from persons attempting to contact the subscriber. In addition, the Company offers a numeric message retrieval service which allows a subscriber to retrieve messages that were sent at a time when the subscriber was outside of his or her service area. Other optional services include a nationwide toll-free 800 access number for paging subscribers, a customized voice prompt that allows subscribers to record a personal greeting, maintenance agreements and loss protection programs. Approximately 21% of the Company's recurring revenues during the fiscal quarter ended December 31, 1995 were derived from these additional services. The Company also plans to offer wireless connectivity to the Internet for message transfer and information requests through the "PageMart Wireless Web" service utilizing the Company's wireless communications network. These services will include electronic mail, news and other information delivered to messaging devices as well as guaranteed message delivery with acknowledgement using the Company's wireless network for transmissions and response. TWO-WAY SERVICES One of the Company's principal strategies is to become a leading provider of two-way messaging services in the United States. Management believes that the introduction of two-way messaging services may present significant future growth opportunities to the Company by enabling it to provide a new generation of advanced messaging services, including data messaging, stored voice messaging and other services, to new and existing subscribers. The Company expects to begin testing two-way data and stored voice services in the second quarter of 1996. Upon completion of testing, two-way data services are expected to be marketed on a city-by-city basis beginning in late 1996. Two-way data services may include guaranteed alphanumeric message delivery with acknowledgment and message with response capabilities. In 1997, the Company plans to introduce its VoiceMart service, which will provide subscribers with the ability to receive stored voice messages directly to their messaging devices. Introduction of the VoiceMart service will be paced to the availability of infrastructure equipment, subscriber devices and market demand. The Company's planned service offerings are expected to be delivered to a pocket-sized subscriber unit containing a transmitter, enabling it to send a signal identifying its location to the Company's network. Management estimates that the Company's enhanced alphanumeric services and stored voice messaging services will be offered to 7 9 customers at monthly prices competitive with current one-way alphanumeric paging services in similar service areas. The Company's service offerings are expected to include: ENHANCED ALPHANUMERIC MESSAGING. The Company's enhanced alphanumeric messaging service will enable the subscriber to receive alphanumeric messages up to several thousand characters in length (compared to the approximately 80 characters in traditional one-way alphanumeric messaging) which will be input by either (i) a computer or other software-enabled device with the proper software and a modem that can access the Company's network or (ii) a dispatch operator. The service is expected to be based on Motorola Inc.'s ("Motorola") state of the art ReFLEX25 (TM) technology. This technology will permit the network to locate the subscriber before sending the message and verify that the subscriber unit has obtained the message ("guaranteed delivery"). The Company believes that penetration of alphanumeric service on a regional and nationwide basis has been limited to date due to the reluctance of many one-way paging operators to promote the service because of its relatively high use of system capacity during transmission. The NPCS Licenses and the ReFLEX25 and InFLEXion[Trademark] technologies should offer significant increases in capacity and delivery speed over the spectrum and technology currently delivering alphanumeric messaging services. The Company expects that its enhanced alphanumeric service will improve upon traditional service by permitting longer messages, by guaranteeing and acknowledging delivery and, eventually, by permitting the subscriber to initiate limited data responses. Management believes that these service enhancements, along with its competitive pricing, will appeal to subscribers of traditional alphanumeric messaging services and to cost conscious customers who have not previously subscribed to such services. VOICEMART SERVICE. The Company's VoiceMart service will be an entirely new generation of messaging service. The service may utilize Motorola's state of the art InFLEXion compressed stored voice technology to deliver a high quality transmission of the sender's voice to the wireless stored voice messaging product. The unit will store up to four minutes of voice messages, which the subscriber will be able to play, fast-forward, rewind and delete, much like an answering machine or voice mailbox. If the subscriber unit is full, the sender's message will be stored in a network server. The network will then transmit a "message waiting" notification to the subscriber unit. The subscriber can delete old messages to enable the unit to immediately receive messages stored by the network. While the subscriber will not be able to respond directly to the caller by speaking into the unit, the subscriber unit will acknowledge receipt of the voice message to the network. The subscriber unit will have a volume control to allow the subscriber to listen to messages privately, or to play them aloud for others to hear. OTHER SERVICES. Over time, the Company intends to participate in the growth of wireless data messaging services through new and existing strategic alliances, wireless data alliances with software companies and electronic equipment manufacturers to develop additional data messaging services. In addition to pocket-sized pagers, the Company expects that wireless data transmissions will be received by computers, organizers or PDAs equipped with two-way Rf modems or built-in Rf capability. It is anticipated that a limited response by the device will be possible. pACT[TRADEMARK] SERVICES. The Company anticipates that its two-way messaging network will also be capable of broadcasting the pACT protocol, a high speed NPCS protocol developed by AT&T. However, the Company has not yet received a commitment from its suppliers to provide such capability and there can be no assurance that such capability will be made available to the Company. Messaging services provided on the pACT protocol are expected to be very similar to enhanced alphanumeric messaging, voice messaging services and other services described above. ONE-WAY TRANSMISSION NETWORK The Company utilizes DBS technology exclusively in its one-way transmission network. Although the Company's one-way transmission network is substantially built out, the Company continues to make expenditures to improve and expand its coverage into new areas. The Company's use of the DBS system 8 10 has certain cost and performance advantages over traditional paging systems and traditional satellite paging systems. Traditional Paging Systems. The traditional method of controlling paging transmitters in local and regional simulcasting systems is to use terrestrial Rf control links that originate from one broadcast transmitter that is controlled by a local paging terminal. At the paging terminal, the messages are received and assembled for transmission via Rf or wireline control link to each transmitter. Once a message is received by each transmitter in a simulcast market, it in turn broadcasts the paging information using the paging broadcast frequency. The Rf control link frequency is different from the paging broadcast frequency. In order to simulcast the paging signal, a traditional system must be fine-tuned (optimized) so that each transmitter broadcasts the paging signal at the same time. Optimization becomes more complex and expensive as the service area expands. In addition, since a traditional system requires line-of-site transmission of the Rf control link signal, repeater stations must be used to re-broadcast this Rf signal in a large system such as the New York or Los Angeles metropolitan areas. The more distant the transmitter sites are from the central Rf control link transmitter, the more repeaters are necessary. Repeater stations make optimization more difficult and increase equipment and recurring tower rental costs. For non-contiguous regional coverage either telephone lines or microwave communication links are typically used in lieu of Rf control links. Traditional Satellite Paging Systems. Some paging system operators have adopted an alternative approach using satellites, rather than telephone lines, to communicate between the paging terminal and the traditional Rf control link systems. Numeric and alphanumeric messages are processed by a central paging terminal that uplinks the messages to a satellite, which then broadcasts the messages to the destination cities. The satellite signal is received by one central Rf radio control transmitter paging dish in each city and broadcast via traditional Rf control link transmitters to the paging transmitters in that city. With this infrastructure, the satellite is used only in place of other long distance communication options. Both an Rf control link frequency and a paging signal frequency must be employed as with a traditional system. The current broadcast configuration employed by many other leading nationwide carriers has the added inefficiency of satellite transmissions that address their entire nationwide system or entire regions whenever a page transmission is sent, thus limiting the total number of subscribers on the system. The Company's Direct Broadcast Satellite Paging System. The Company has developed an innovative satellite-based transmission network that gives the Company a flexible, highly reliable network architecture and an efficient operating structure. The Company's network is comprised of three primary components: network access, a nationwide network linking the Company's paging terminals and a satellite network which controls the Company's transmitters. The Company's numeric and alphanumeric paging services can be accessed via local telephone numbers or 800 numbers using a touch-tone key pad or personal computer messaging software. Local numbers are provided by regional telephone companies and 800 number service is provided by long distance telecommunications services providers. The Company uses a nationwide data network to carry all paging traffic from local telephone markets to its satellite uplink facilities in Illinois. This network configuration allows the Company to add new lines quickly and efficiently and provides the Company with back-up power, fire protection and diverse routing capabilities. The Company began using DBS technology in 1990 and was the first one-way wireless communications carrier to use DBS technology to control all of its transmitters. Currently, the Company is one of only three carriers that employ DBS technology in a nationwide paging system. With a DBS paging system, the satellite can broadcast messages directly to each transmitter in the Company's paging system, which then broadcasts the message to pagers on the Company's nationwide broadcast frequency. DBS eliminates the expensive terrestrial radio link and repeater equipment that many paging companies have 9 11 employed to control simulcast transmissions in large metropolitan markets. In addition, the Company's satellite system can selectively address one or any combination of its transmitters, thereby providing a wide range of coverage options and permitting efficient use of paging frequencies in each market. The Company leases its satellite services pursuant to the Satellite Service and Space Segment Lease Agreement, dated January 2, 1995, with SpaceCom Systems, Inc. ("SpaceCom"). The agreement subjects the Company to monthly service charges based on the amount and types of services used and expires on January 31, 2002. The agreement may be terminated by SpaceCom upon certain failures of the Company to pay monthly service fees. The agreement does not include any renewal provisions. Although the Company is currently party to only one satellite service agreement, management believes that the services provided by SpaceCom are sufficient to meet the Company's foreseeable needs and that there are numerous alternate satellite sources available to the Company on comparable terms and conditions. As a result, the Company does not believe the loss of its relationship with its current satellite supplier would have a material adverse effect on its business and operations. The Company does not manufacture any of the pagers used in its paging operations. Currently, the Company buys approximately 60% of its pagers from Motorola with the remainder purchased from other manufacturers. The Company is dependent on such manufacturers to obtain sufficient pager inventory for new subscriber units and replacement needs. Benefits of the Direct Broadcast Satellite . The use of a DBS broadcast system provides a number of benefits to the Company including: o Selectively addresses one or all markets to provide a wide range of local, multi-city, regional or nationwide coverage options. The Company's system configuration employs a high degree of spectrum efficiency with regard to the paging frequency because only the coverage area the customer has elected will be activated with each page. o Replaces terrestrial Rf control link equipment with satellite based equipment and signaling. This eliminates capital expenditures associated with terrestrial RF control link equipment and the associated telecommunications expenses, utilities and ongoing site rent and requires much lower expenditures for satellite receivers and satellite service. o Suffers significantly less degradation in performance due to building reflection and simulcasting problems, such as the overlapping of two independently controlled markets. o Allows for rapid deployment of the network system because the transmitters are operational immediately upon installation, while terrestrial Rf control links need to be optimized, which can take up to three months in some large urban markets. o Supports the high data rates that will be required in order to effectively provide enhanced services such as two-way messaging services. Management believes that this will allow the Company to implement higher speed signal technologies quickly and in a cost effective manner. TWO-WAY MESSAGING NARROWBAND PCS PROTOCOLS Paging networks use various "protocols" to provide seamless communications between the various components which make up a paging network. Protocols regulate the format and flow of messages which are transmitted over the network. As such, protocols facilitate the orderly and efficient flow of message traffic over the network. Motorola has developed, and licensed to Glenayre, several protocols, including FLEX, ReFLEX25, ReFLEX 50(TM) and InFLEXion. Of these four protocols, the Company believes that ReFLEX25, ReFLEXE50 and InFLEXion permit two-way alphanumeric messaging, but only InFLEXion currently has the capability to offer cost- efficient stored voice messaging, very high-speed data delivery and the transmission of data to the subscriber unit. The company believes that AT&T has also developed a 10 12 proprietary protocol "Personal Air Communications Technology," or pACT, for two-way wireless transmission of data and alphanumeric messages. These various protocols have different transmission speeds and capacity characteristics. Consequently, the ability to deliver various types of wireless messaging services, including stored voice messaging, on a cost-efficient basis is dependent upon the protocol used. The following table illustrates certain characteristics of various protocols based on current publicly available information.
InFLEXion ReFLEX50 ReFLEX25 pACT Outbound Transmission Speed per Channel................. 16,000 bits per 6,400 bits per 6,400 bits per 8,000 bits per second second second second Number of Channels(1)......... 7 4 3 3 Outbound Throughput(1)........ 112,000 bps per 25,600 bps per 19,200 bps per 24,000 bps per cluster area area cluster Frequency Reuse............... Some No (2) Yes Message Acknowledgement....... Yes Yes Yes Yes Limited Alphanumeric Message Response............ Yes Yes Yes Yes Stored Voice Messaging(3)..... Yes No No (4)
- ------------- (1) Bits per second (bps) gross rate including message overhead. Based on NPCS networks with 50 kHz outbound frequency. (2) REFLEX25 protocol will support cellular-like frequency reuse if the Company requires it for additional capacity. (3) Although the ReFLEX50 and ReFLEX25 protocols technically have the ability to support these service offerings, management believes that neither of these protocols can cost-effectively support these service offerings. (4) Not currently available. TWO-WAY NETWORK BUILDOUT The Company expects to design and construct its nationwide NPCS network to provide stored voice and data services and currently expects to complete substantially its network buildout by the end of 1998. The key elements of the network buildout are as follows: Design. The design of the Company's nationwide NPCS network is expected to be based upon Motorola's ReFLEX25 and InFLEXion technologies in order to achieve efficient use of the Company's spectrum and to accommodate a greater number of subscribers. The Company may also incorporate AT&T's proprietory messaging protocol pACT into its network. The design process requires extensive Rf planning, which involves the selection of specific sites for the placement of transmitters and receivers as well as functioning infrastructure equipment from manufacturers. As part of the design process, the Company's engineers are identifying sites using the Company's proprietary database (as well as other sources), which contains specific information about available sites throughout the nation. Sites are chosen on the basis of their coverage and on frequency propagation characteristics, such as terrain, topography, building penetration and population density. The Company's engineers currently project that the Company's nationwide NPCS network will consist of approximately 2,300 transmitter/receiver sites and approximately 1,700 stand-alone receivers when the network is substantially completed. Equipment. The infrastructure of the Company's network will consist of radio transmitters and receivers, switches, Rf controllers and ancillary equipment, such as coaxial cable and antennas. The Company plans to purchase this infrastructure equipment (other than the ancillary equipment) from industry leading equipment suppliers, Motorola and Glenayre Technologies, Inc. ("Glenayre"). The Company believes that currently there is only a limited number of suppliers of terminals and transmitters and as a result the Company is dependent on such suppliers for its infrastructure equipment needs. The Company currently has no agreements that require it to purchase infrastructure equipment or messaging units for its two-way services. 11 13 Development of Technology. While the terminals and transmitters will be similar to the equipment used in the Company's one-way messaging network, the Company believes that Motorola is conducting over-the-air testing of its InFLEXion technology, infrastructure equipment and subscriber units in its factory in Fort Worth, Texas. While the tests do not take into account certain factors prevalent in the design of the Company's two-way network buildout such as terrain topography, building penetration and population density, the Company believes that Motorola expects to establish that the technology and equipment can deliver a wireless voice message to subscriber unit under controlled circumstances. The Company also believes that Motorola's ReFlex technology has recently been introduced and has been used commercially by another paging company. However, there can be no assurance that two-way service will be commercially viable, and the success of two-way service could be affected by matters beyond the Company's control. The Company expects to purchase a significant portion of its subscriber messaging units from Motorola, with the remainder expected to be purchased from other manufacturers. The Company understands that Motorola has licensed to other wireless equipment manufacturers the relevant signaling system technology, as Motorola has done with signaling system technology for its other FLEX protocols. Although the Company believes that sufficient alternative sources of two-way messaging units will exist, the Company would be adversely affected if it were unable to obtain the units on satisfactory terms. The Company currently has no agreements that require it to purchase infrastructure equipment or messaging units for its two-way services. As the Company begins development and implementation of two-way services, the Company expects to incur significant additional operating losses during the start-up phase for such services, and it will be necessary for the Company to make substantial investments. The Company anticipates requiring additional sources of capital to fund the construction of a two-way messaging network, including expenditures relating to the build-out requirements of the FCC. See "--Government Regulation." The Company anticipates investing $75 to $100 million through fiscal 1997 to test and construct a two-way transmission network. Thereafter, the Company anticipates that its two-way operations may require up to $100 million of additional investment to substantially complete the network buildout. The Company expects to require additional financing to complete the buildout, which may include entering into joint venture arrangements, however there can be no assurance that sufficient financing will be available to the Company. See Item 7. Management's Discussion of Financial Condition and Results of Operations--Liquidity and Capital Resources. INTERNATIONAL EXPANSION The Company plans to provide messaging services in selected countries on a seamless international network. Management believes that its technology, operational structure and distribution strategies can be replicated in foreign countries to establish nationwide wireless networks. In each country in which the Company plans to offer paging and messaging services, the Company will seek to obtain a nationwide frequency common to at least one of the nationwide frequencies it holds in the United States in order to allow a single messaging device to be used in multiple countries. The Company expects to pursue international opportunities through minority interests in joint venture arrangements whereby the Company would contribute its expertise in designing and managing messaging services with minimal incremental capital investments. The Company's international strategy is initially to pursue opportunities in North America, Latin America, and South America. One of the Company's affiliates, PageMart Canada Limited ("PageMart Canada"), has obtained a nationwide license in Canada based on a frequency common to one of its frequencies in the United States. PageMart Canada began providing service in the largest metropolitan areas in Canada to U.S. subscribers in March 1996 and to Canadian subscribers in April 1996. The Company also provides paging coverage in the Bahamas. 12 14 In 1994, PageMart Canada purchased the Canadian network facilities of Motorola EMBARC Canada for approximately $1.7 million and entered into an agreement with Motorola to sell transmission time to Motorola for five years. In 1995, Toronto Dominion Capital Group Ltd. ("TD Capital") and Working Ventures Canadian Fund, Inc. ("Working Ventures") purchased a majority interest of PageMart Canada Holding ("Canada Holding") for $5 million. In January 1996, PageMart Canada was awarded one of the same nationwide frequencies the Company uses in the United States. The Company's cash investment in Canada Holding and PageMart Canada totals approximately $3.7 million. Through PageMart International, Inc. the Company owns 20% of the voting common stock of PageMart Canada. Additionally, PageMart International, Inc. owns 33% of the voting common stock of Canada Holding which owns the remaining 80% of the voting common stock of PageMart Canada. The common frequency allows the Company's affiliates in each country to provide customized coverage that extends beyond the borders of the serving country, using the same pager. For example, a subscriber in New York could choose New York and Toronto coverage. COMPETITION The Company competes primarily on the basis of the price of its equipment and wireless services as well as its coverage capability. Its competitors include both companies which provide paging or other mobile communications services in local markets in which the Company operates and regional and nationwide paging service providers. These include both large and small paging service providers and regional telephone companies, such as Paging Network, Inc., MobileMedia Corporation, Inc., AirTouch Communications, Inc. and Arch Communications Group, Inc. Certain of these companies have substantially greater financial, technical and other resources than the Company. In addition, a number of paging carriers have constructed or are in the process of constructing nationwide wireless networks that will compete with the Company's services, including the provision of two-way messaging. Management believes that its low cost base and service offerings will enable it to continue to compete effectively in all markets. A number of competing technologies, including cellular telephone service, broadband and narrowband personal communications services, specialized mobile radio, low speed data networks and mobile satellite services, are used in, or projected to be used for, two-way wireless messaging services. Cellular telephone technology provides an alternative communications system for customers who are frequently away from fixed-wire communications systems (i.e., ordinary telephones). Compared to cellular telephone service, paging service is generally less expensive, offers longer battery life, provides better in-building penetration, extends over wider coverage areas, and is more transportable. For those cellular customers for whom convenience and price are considerations, paging can compete successfully by complementing their cellular usage. Management believes that paging will remain one of the lowest-cost forms of wireless messaging due to the low-cost infrastructure associated with paging systems, as well as advances in technology that will reduce paging costs. Broadband personal communications services technologies are currently under development and will be similar to cellular technology. When offered commercially, this technology will offer greater capacity for two-way wireless messaging services and, accordingly, is expected to result in greater competition. Technological advances in the telecommunications industry have created, and are expected to continue to create, new services and products competitive with the wireless services currently provided by the Company. In addition, certain companies are developing one-way and two-way wireless messaging services which may compete with the one-way and two-way wireless messaging services which the Company expects to provide. There can be no assurance that the Company will not be adversely affected as new competitive technologies become available and are implemented in the future. In addition, the Company may be adversely affected if cellular telephone companies or broadband personal communications service providers begin to provide other wireless services or enter into partnerships with other companies to provide wireless services that complement cellular or broadband PCS services. 13 15 GOVERNMENT REGULATION Wireless messaging operations are subject to regulation by the FCC under the Communications Act of 1934, as amended (the "Communications Act") including recent amendments contained in the Telecommunications Act of 1996. At the present time, wireless messaging services are primarily offered over radio frequencies that the FCC has allocated for either common carriage (the licensees for which are known as radio common carriers ("RCCs")), or private carriage (the licensees for which are known as private carrier paging operators ("PCPs")). RCCs are granted an exclusive license to a particular radio frequency in a particular locality or region. Certain qualified PCPs have been granted such exclusive use of their frequencies as well. In addition, the FCC has recently granted, by auction, regional and nationwide NPCS licenses that can be used for advanced paging services, such as two-way paging. The Company provides one-way paging services directly to subscribers over its own transmission facilities and is currently regulated as a PCP for most of its services. The Company (through subsidiaries) holds certain RCC licenses (the "RCC Licenses") and two exclusive nationwide PCP licenses, as well as exclusive licenses on various PCP frequencies in certain metropolitan areas, including New York, Los Angeles and Chicago (the "PCP Licenses"). Additionally, the Company holds a 50 kHz unpaired nationwide NPCS license (the "Nationwide Narrowband License") and five 50/50 kHz paired regional NPCS licenses (the "Regional Narrowband Licenses"); the latter five licenses authorize the Company to operate regional narrowband systems on the same frequencies throughout the continental United States. The Nationwide Narrowband License was granted on September 29, 1994, and the Regional Narrowband Licenses were granted on January 27, 1995. The Nationwide Narrowband License and the Regional Narrowband Licenses may be utilized in connection with various two-way NPCS services or to expand the Company's existing one-way transmission network. The Omnibus Budget Reconciliation Act of 1993 (the "Budget Act") amended the Communications Act by creating a new consolidated category of communications services called Commercial Mobile Radio Services ("CMRS") in order to more uniformly regulate mobile wireless service providers. RCCs, PCPs, and NPCS providers are included in the new CMRS category. The FCC has promulgated regulations to implement these new statutory requirements. In general, regulatory changes caused by the creation of the CMRS category are scheduled to become effective in August 1996. Under the amended Communications Act, differential regulation of providers of CMRS is permitted only under limited circumstances. If there is no change in the recently adopted rules, PCPs, RCCs, NPCS licensees and other CMRS providers will have substantially similar obligations under the Communications Act beginning in August 1996. All of these licensees will be prohibited from engaging in any unreasonable discriminatory practices, will be subject to complaints regarding any unlawful practices and will be subject to provisions that authorize the FCC to provide remedial relief to an aggrieved party upon a finding of a violation of the Communications Act and related consumer protection provisions. It is expected that further rulemaking proceedings may be commenced by the FCC in its efforts to reconcile its regulation of RCCs, PCPs, and NPCS licensees. The Company's PCP, RCC and NPCS Licenses (collectively, the "Licenses") authorize the Company to use the radio frequencies necessary to conduct its paging operations. The Licenses prescribe the technical parameters, such as power output and tower height, under which the Company is authorized to use those frequencies. The Licenses are for varying terms of up to 10 years, at the end of which time renewal applications must be submitted to the FCC for approval. Most of the Company's PCP and RCC Licenses expire between 1996 and 1999. In order to be granted the exclusive use of a frequency, the Company is required to construct and maintain a specified minimum number of transmission sites, depending upon the breadth of the exclusivity, each of which is licensed by the FCC (the "Operating Licenses"). Of the Company's over 1,400 Operating Licenses, 90 require renewal in 1996 and 318 require renewal in 1997. The Nationwide Narrowband License will expire on September 29, 2004 unless renewed by the Company. The Regional Narrowband Licenses will expire on January 27, 2005 unless otherwise renewed. FCC renewals are routinely granted in most cases upon a demonstration of compliance with FCC regulations and adequate service to the public. Although the Company is unaware of the existence of any circumstances which would prevent the grant of any pending or future renewal applications, no 14 16 assurance can be given that the Licenses will be renewed by the FCC in the future. Furthermore, although revocation and involuntary modification of licenses are extraordinary regulatory measures, the FCC has the authority to restrict the operation of licensed facilities or to revoke or modify licenses. No License of the Company has ever been revoked or modified involuntarily. The Company has complied with FCC requirements with respect to the buildout of its existing one-way paging network. There are separate FCC buildout requirements with respect to the Company's NPCS Licenses. As a nationwide NPCS licensee, the Company must construct base stations that provide coverage to a composite area of 750,000 square kilometers or serve 37.5% of the U.S. population within five years of the initial license grant date and must construct base stations that provide coverage to a composite area of 1,500,000 square kilometers or serve 75% of the U.S. population within ten years of the initial license grant date. Additionally, as a regional NPCS licensee, the Company must construct base stations that provide coverage to a composite area of 150,000 square kilometers or serve 37.5% of the population of the service area within five years of its initial license grant date and must construct base stations that provide coverage to a composite area of 300,000 square kilometers or serve 75% of its service area population within ten years of the initial license grant date. Failure to meet the construction requirements will result in forfeiture of the license and ineligibility to regain it. The Communications Act requires licensees such as the Company to obtain prior approval from the FCC for the assignment of any station license or the transfer of control of any entity holding such licenses. The FCC has approved each transfer of control for which the Company has sought approval. The Communications Act also requires prior approval by the FCC of acquisitions of paging companies. The Company also regularly applies for FCC authority to use frequencies, modify the technical parameters of existing licenses, expand its service territory and provide new services. Although there can be no assurance that any requests for approval or applications filed by the Company will be approved or acted upon in a timely manner by the FCC, or that the FCC will grant the relief requested, the Company has no reason to believe any such requests, applications or relief will not be approved or granted. The Communications Act limits foreign ownership of entities that hold certain licenses from the FCC, including licenses of the type held by the Company. Because of this limitation, except pursuant to FCC discretion, no more than 25% of the Company's stock may be owned, directly or indirectly, or voted by non-U.S. citizens or their representatives, a foreign government or its representatives, or a foreign corporation. Based on currently available information, the Company estimates that its foreign ownership is approximately 22%. However, this percentage is subject to change at any time upon any transfer of direct or indirect ownership of the Company's Common Stock. If the Company obtains knowledge that the foreign ownership of its stock exceeds 25%, it would be forced to either seek approval from the FCC for the additional foreign ownership or redeem common stock at their current market value (determined as set forth in the Company's certificate of incorporation) from foreign shareholders in an amount sufficient to reduce such ownership to below 25% (as permitted by the Company's certificate of incorporation). The Budget Act imposed a structure of regulatory fees which the Company is required to pay with respect to its Licenses. The FCC increased these fees for fiscal year 1995. The FCC did not impose any increase in these fees for fiscal year 1996. The Company believes that these new regulatory fees will not have any material adverse effect on the Company's business. On February 9, 1996, the FCC released a Notice of Proposed Rule Making ("NPRM"), which proposed a system of competitive bidding ("auctions") to issue licenses for frequencies for which there are mutually exclusive applications. Under the FCC proposal, licenses for individual paging channels for which there are mutually exclusive applications would be auctioned on a geographic basis. In defining the area within which existing users would be protected from interference from the auction winners or neighboring licensees (an area known as an "interference contour"), the FCC proposed a new methodology that in many instances would reduce the size of the area within existing licensees' interference contours. This change, however, would not 15 17 have any impact on licensees with nationwide exclusivity (such as the Company), because no other operator has the right to apply for such licensees' exclusive frequencies. While the rulemaking proceeding is pending, the FCC proposed only to process applications for which the relevant period for filing competing applications had expired as of the date of the NPRM and which were not mutually exclusive with other applications. Under the FCC's proposal, licensees with nationwide exclusivity on a particular frequency (such as the Company), however, would be permitted to expand their systems. In April 1996, the FCC issued a Report and Order modifying the NPRM to, among other things, allow incumbent licensees to file applications for additional transmission sites that are within 40 miles of an authorized transmission site that was licensed to the same applicant on the same channel on or before February 8, 1996 and which is operational as of the date the application for the additional transmission site is filed. It is not clear when the rulemaking proceeding will be completed or what, if any, new rules the FCC will issue as a result of the rulemaking proceeding. In another ongoing rulemaking pertaining to interconnection between local exchange carriers ("LECs") and CMRS providers, the FCC has proposed that interconnection rates should be based on a "bill and keep" model (i.e., the LEC and the CMRS provider charge each other a rate of zero for the termination of the other's traffic). Under the current arrangement, LECs are required to compensate CMRS providers for the reasonable costs incurred by such providers in terminating traffic that originates at LEC facilities, and vice versa. The Company believes that the FCC's "bill and keep" proposal, if applied to paging services, would not have any material adverse effect on the Company's business. Some paging services are subject to state regulation as well as regulation by the FCC. Prior to the amendment of the Communications Act by the Budget Act, states were permitted to regulate entry into the RCC paging business. States were not, however, permitted to regulate the provision of paging services by PCPs. While the Communications Act prohibits states generally from regulating the entry of or the rates charged by any CMRS provider, whether RCC or PCP, the new law will not prohibit a state from regulating the other terms and conditions of CMRS. Several states petitioned the FCC for authority to continue pre-existing rate regulation over all CMRS providers. In August 1995, the FCC denied all of the petitions filed by the states. From time to time, legislation and regulations which could potentially affect the Company, either beneficially or adversely, are proposed by federal and state legislators and regulators. In May 1995, the Texas Legislature created the Telecommunications InfraStructure Fund (the "TIF") as part of the Telecommunications Act of 1995 (the "Act"). The TIF was established to collect $150 million annually from the telecommunications providers in Texas. The TIF is composed of two separate accounts, a "telecommunications utilities account" which includes telephone companies and long distance providers, and a "commercial mobile service providers" ("CMSP") account which includes cellular providers and paging companies. The accounts are financed by annual assessments totaling $75 million each on the telecommunications utilities and the CMSPs doing business in Texas. The fraction that is to be paid by each CMSP is determined by such provider's portion of the total telecommunications receipts reported by all CMSPs for the purpose of payment of state sales taxes. The TIF is to be used for grants and loans for equipment, infrastructure, curricula and training in education and medicine. The Act was signed into law effective September 1, 1995. The Company is not required to contribute to the CMSP account until August 1996, when the Company becomes a commercial mobile radio service provider under federal communications law. However, the Company joined an ad hoc coalition made up of the largest paging companies to fight the TIF assessment based on its unfair and disparate treatment of the CMSPs. The coalition filed a lawsuit in federal court on November 22, 1995, challenging the TIF on constitutional grounds. The lawsuit, among other things, requested an injunction prohibiting the state from collecting the assessment until the Texas Legislature has had an opportunity to rectify the disparity in treatment of the telecommunications utilities and the CMSPs. The Texas Legislature does not reconvene until January 1997. 16 18 On February 5, 1996, the District Court for the 261st Judicial District, Travis County, Texas, entered a final judgment declaring that the assessment on CMSP providers as proposed violated the "equal and uniform taxation" clause of the Texas Constitution. The court further concluded that CMSPs could be taxed only on a percentage of taxable telecommunications receipts that does not exceed the percentage assessed against the telephone utilities. After August 10, 1996, the Company will be assessed based on the lower rate applicable to telecommunications utilities. Management is not aware of proposed or pending state legislation imposing a similar assessment or creating a similar fund. TRADEMARKS The Company owns certain intellectual property, including without limitation, trademark and service mark rights associated with certain federal and foreign trademark registrations and applications, common law trademark, trade name and service mark rights, and other legal and equitable rights connected with the Company's voice and data communication products and services and, in particular, one-way and two-way paging systems and technologies and related services. The Company markets its multiple city wireless service under the name Pick-Your-Cities [Registered] and its nationwide service under the name Page-Me-USA [Registered], both of which are federally registered service marks. The Company has filed applications with the United States Patent and Trademark Office as well as certain foreign trademark offices to register approximately 85 additional service and trademarks. The Company also has full use of the name PageMart, as a mark. EMPLOYEES At December 31, 1995, the Company had 1,556 full-time employees, approximately 1,288 of whom were engaged in sales and customer service. No employees of the Company are covered by a collective bargaining agreement, and management believes the Company's relationship with its employees is good. ITEM 2. PROPERTIES The principal tangible assets of the Company are its paging network equipment. Paging network equipment utilized by the Company includes paging switching terminals, paging transmitters and a host of related equipment such as satellite and digital link controllers, satellite dishes, antennas, cable, etc. The Company continues to add equipment as it expands to new service areas. To date, it has not experienced any difficulty or delay in obtaining equipment as needed. The Company acquired the NPCS Licenses in auctions held by the FCC. The NPCS Licenses permit the nationwide operation of NPCS networks with 100 kHz of outbound capacity and 50 kHz of response capacity. The Company generally leases the locations used for its transmission facilities under operating leases. These leases, which are generally for five years or less, currently provide for aggregate annual rental charges of approximately $4.7 million. The Company does not anticipate difficulty in renewing these leases or finding equally suitable alternate facilities on acceptable terms. The Company also leases approximately 130,238 square feet of office space for its corporate headquarters in Dallas, Texas, at an annual cost of approximately $1.1 million and varying lesser amounts for local offices at other locations. Aggregate annual rental charges under the Company's local office leases are approximately $1.8 million. 17 19 ITEM 3. LEGAL PROCEEDINGS The Company is involved in various lawsuits arising in the normal course of business. In management's opinion, the ultimate outcome of these lawsuits will not have a material adverse effect on the results of operations or financial condition of the Company. On July 8, 1994, an action against the Company was filed in the United States District Court for the Eastern District of New York by Universal Contact Communications Inc., a former reseller of the Company's wireless messaging devices. The Company terminated the reseller relationship due to a monetary default by plaintiff. The Company subsequently contacted plaintiff's customers in an effort to provide continued service directly through the Company and discontinued plaintiff's paging services. In the complaint, plaintiff alleges, among other things, that the Company violated federal law by making unsolicited advertisements, breached its contract with plaintiff, slandered plaintiff, converted certain confidential information and trade secrets, tortiously interfered with plaintiff's business and contractual relations, and engaged in unfair competition. Plaintiff seeks, among other things, compensatory damages of $500,000 with respect to each of the nine causes of action included in the complaint, punitive damages of $5,000,000, and various forms of injunctive relief. The Company is vigorously defending the action. In management's opinion, the ultimate outcome of this lawsuit is not expected to have a material adverse effect on the results of operations or financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A Consent of Stockholders dated as of December 19, 1995 was executed by certain stockholders holding an aggregate of 13,241,543 shares of the voting common stock (representing 57% of the voting common stock of PageMart Wireless, Inc.) approving the corporate name change from PageMart Nationwide Inc. to PageMart Wireless, Inc., and approving an increase in the number of common shares authorized to be issued pursuant to the Company's 1991 Stock Option Plan by 1,000,000 shares. 18 20 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS There is currently no public market for any class of the Company's common stock. As of March 1, 1996, the Company's common stock was held by approximately 100 holders of record. The Company has not paid dividends on the common stock since its organization in 1989. The Company currently intends to retain future earnings for the development of its business and does not anticipate paying cash dividends on its common stock in the foreseeable future. The Company's future dividend policy will be determined by its Board of Directors on the basis of various factors, including the Company's results of operations, financial condition, capital requirements and investment opportunities. In addition, the Company's debt instruments substantially restrict (and currently prohibit) the payment of cash dividends. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth summary historical financial information and operating data for each of the five fiscal years ended December 31, 1995. The financial information and operating data were derived from, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements of the Company and the notes thereto included elsewhere in this report.
FISCAL YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- 1991 1992 1993 1994 1995 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT UNIT, ARPU, PER SUBSCRIBER AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Recurring revenues ................... $ 3,298 $ 6,668 $ 24,184 $ 56,648 $ 101,503 Equipment sales and activation fees .. 5,380 9,837 26,483 53,185 57,688 ----------- ----------- ----------- ----------- ----------- Total revenues ....................... 8,678 16,505 50,667 109,833 159,191 Cost of equipment sold ............... 6,436 10,044 28,230 57,835 63,982 Operating expenses ................... 10,844 25,584 47,448 85,322 118,557 ----------- ----------- ----------- ----------- ----------- Operating loss ....................... (8,602) (19,123) (25,011) (33,324) (23,348) Interest expense ..................... (1,486) (2,456) (6,538) (12,933) (30,720) Interest income ...................... 97 529 428 858 1,997 Other ................................ -- -- -- (414) (1,042) ----------- ----------- ----------- ----------- ----------- Net loss ............................. (9,991) (21,050) (31,121) (45,813) (53,113) =========== =========== =========== =========== =========== Net loss per common share ............ $ (1.02) $ (1.24) $ (1.51) $ (1.72) $ (1.53) Weighted average number of common shares and share equivalents outstanding ............ 9,814 16,962 20,627 26,574 34,653 BALANCE SHEET DATA (at period end): Current assets ....................... $ 23,607 $ 13,365 $ 51,279 $ 44,397 $ 62,535 Total assets ......................... 28,979 30,772 78,773 142,059 263,829 Current liabilities .................. 5,112 14,754 20,198 37,966 56,508 Long-term debt, less current maturities ................. 11,956 25,059 78,359 92,632 219,364 Stockholders' equity (deficit) .......................... 11,911 (9,041) (19,784) 11,461 (12,043) OTHER DATA: Units in service (at period end) ..... 52,125 117,034 327,303 772,730 1,240,024 Net subscriber additions ............. 37,812 64,909 210,269 445,427 467,294 ARPU(1) .............................. $ 8.27 $ 8.66 $ 9.81 $ 8.64 $ 8.62 Operating profit (loss) before selling expenses per subscriber per month(2) ....................... (7.78) (12.69) (.98) .90 2.11 Selling expenses per net subscriber addition(3) ............. 146 157 91 81 91 EBITDA(4) ............................ (7,378) (16,499) (19,930) (25,219) (10,076) Capital expenditures ................. 1,741 13,729 10,810 16,719 33,503 NPCS Licenses acquired(5) ............ -- -- -- 58,885 74,079 Depreciation and amortization ........ 1,224 2,624 5,081 8,105 13,272
19 21 - ------------- (1) Average monthly revenue per unit ("ARPU") is calculated by dividing (i) recurring revenues, consisting of fees for airtime, voicemail, customized coverage options, excess usage fees and other recurring revenues and fees associated with the subscriber base for the quarter by (ii) the average number of units in service for the quarter. ARPU is stated as the monthly average for the final quarter of the year. (2) Operating profit (loss) before selling expenses (selling expenses include loss on sale of equipment) per subscriber for the Company's one-way operations is calculated by dividing (i) recurring revenues less technical expenses, general and administrative expenses and depreciation and amortization by (ii) the average number of units in service for the final quarter of the period. Stated as the monthly average for the final quarter of the period. (3) Selling expenses per net subscriber addition for the Company's domestic one-way operations is calculated by dividing (i) selling expenses, including loss on sale of equipment for the year by (ii) the net subscriber additions for the year. (4) EBITDA represents earnings (loss) before interest, taxes, depreciation and amortization. EBITDA is a financial measure commonly used in the paging industry. EBITDA is not derived pursuant to generally accepted accounting principles ("GAAP") and therefore should not be construed as an alternative to operating income, as an alternative to cash flows from operating activities (as determined in accordance with GAAP) or as a measure of liquidity. The calculation of EBITDA does not include the commitments of the Company for capital expenditures and payment of debt and should not be deemed to represent funds available to the Company. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the financial operations and liquidity of the Company as determined in accordance with GAAP. (5) Reflects the acquisition of the NPCS Licenses in the FCC NPCS auctions. See Item 1. Business--Government Regulation. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto included elsewhere in this report. GENERAL The Company has constructed and operates a wireless messaging and communications network and provides paging and other one-way wireless messaging services to its subscribers. In addition, the Company sells and distributes wireless messaging equipment to subscribers, retailers and resellers. The Company earns recurring revenues from each subscriber in the form of fixed periodic fees and incurs substantial operating expenses in offering its services, including technical, customer service and general and administrative expenses. See "-- Management's Presentation of Results of Operations." Since commencing operations in 1990, the Company has invested heavily in its wireless communications network and administrative infrastructure in order to establish nationwide coverage, sales offices in major metropolitan areas, customer service call centers and centralized administrative support functions. The Company incurs substantial fixed operating costs related to its one-way wireless communications infrastructure, which is designed to serve a much larger subscriber base than the Company currently serves in order to accommodate growth. In addition, the Company incurs substantial costs associated with new subscriber additions. As a result, the Company has generated significant net operating losses for each year of its operations. See " --Management's Presentation of Results of Operations." The Company's strategy is to expand its subscriber base as rapidly as possible to increase cash flow through greater utilization of its nationwide wireless communications network. From January 1, 1992 to December 31, 1995, the number of units in service increased from 52,125 to 1,240,024. None of the Company's growth is attributable 20 22 to acquisitions. Given its growth strategy and the substantial associated selling and marketing expenses, the Company expects to continue to generate operating losses in 1996 from its one-way wireless communications business. In addition, the Company plans to begin development and implementation of two-way wireless messaging services during 1996, and expects to incur additional operating losses during the start-up phase for such services. The Company does not anticipate any significant revenues from two-way services during 1996 or 1997, however it expects to generate revenues with respect to two-way services in 1998. The Company's ability to generate operating income is primarily dependent on its ability to attain a sufficiently large installed subscriber base that generates recurring revenues which offset the fixed operating costs of its wireless networks, administration and selling and marketing expenses. The Company intends to achieve this growth by promoting its customized paging and other wireless messaging services through its national sales offices, retail distribution channels, private brand strategic alliances with GTE Corporation, Southwestern Bell Mobile Systems, AT&T Wireless Services, Ameritech Mobile Services, Inc. and long distance reseller EXCEL Telecommunications, Inc., and international expansion. Unlike most other paging carriers, the Company sells, rather than leases, substantially all of the messaging equipment used by its subscribers. As a result, the Company has much less capital invested in messaging equipment than other paging carriers since it recoups a substantial portion of messaging equipment costs upon sale to retailers and subscribers. This results in significantly lower capital expenditures, depreciation and amortization than if the Company leased such equipment to its subscribers. In addition, the Company's financial results are much different than other paging carriers that lease messaging equipment to subscribers because the Company recognizes the cost of messaging equipment sold in connection with adding new subscribers at the time of sale rather than capitalizing and depreciating the cost of messaging equipment over periods ranging from three to five years as occurs with paging carriers that lease messaging equipment to subscribers. However, the Company expects to lease rather than sell a portion of its two-way messaging units. In addition, the Company's retail distribution strategy results in the recognition of expenses associated with messaging equipment sales and other sales and marketing expenses in advance of new subscribers being added to the base and generating revenues (as retailers carry inventory). The Company sells its messaging equipment through multiple distribution channels including direct sales, third-party resellers, private brand strategic alliances and local and national retail stores. Selling and marketing expenses are primarily attributable to compensation paid to the Company's sales force, advertising and marketing costs and to losses resulting from the fact that, for competitive and marketing reasons, the Company generally sells each new unit for less than its acquisition cost. The Company's accounting practices result in selling and marketing expenses, including loss on sale of equipment, being recorded at the time a unit is sold. Units sold by the Company during a given month may exceed units activated and in service due to inventory stocking and distribution strategies of the retailers. As a result, selling and marketing expenses per net subscriber addition may fluctuate from period to period. In general, the Company anticipates that, based on its recent experience, 90% of its units sold through retail distribution channels will be activated and in service within 75 days of shipment. The Company derives its recurring revenue primarily from fixed periodic fees for services that are not generally dependent on usage. Consequently, the Company's ability to recoup its initial selling and marketing costs, to meet operating expenses and to achieve profitability is dependent on the average length of each customer's subscription period. As long as a subscriber continues to utilize the Company's service, operating results benefit from the recurring payments of the fixed fees without the incurrence of additional selling expenses by the Company. Conversely, operating results are adversely affected by customer disconnections. Each month a percentage of the Company's existing customers have their service terminated for a variety of reasons, including failure to pay, dissatisfaction with service and switching to a competing service provider. The Company's average monthly disconnection rates for the years ended December 31, 1993, 1994 and 1995 were 3.7%, 3.4% and 2.5%, respectively. More than 90% of the Company's ARPU is attributable to fixed fees for airtime, coverage options and features. A portion of the remainder of additional ARPU is dependent on usage. 21 23 RESULTS OF OPERATIONS The Company's principal operations to date are its domestic one-way wireless messaging division. The following discussion of results of operations analyzes the results of the Company's one-way wireless messaging operations, unless otherwise indicated. Certain of the following financial information is presented on a per unit basis. Management of the Company believes that such a presentation is useful in understanding the Company's results because it is a meaningful comparison period to period given the Company's growth rate and the significant differences in the number of subscribers of other paging companies. FISCAL YEARS 1993, 1994 AND 1995 Units in Service Units in service were 327,303, 772,730 and 1,240,024 as of December 31, 1993, 1994 and 1995, respectively. This represents a growth rate of 136% and 60% in 1994 and 1995, respectively. The Company has experienced strong growth in units in service due primarily to the success of its sales and marketing strategies in the direct sales, national retail and third-party reseller channels, as well as from private brand strategic alliance programs. According to industry sources, the paging industry in general has experienced growth rates of 29%, 38% and 25% for 1993, 1994 and 1995, respectively. Revenues Revenues for the fiscal years 1993, 1994 and 1995 were $50.7 million, $109.8 million and $159.2 million, respectively. Recurring revenues for airtime, voicemail and other services for the same periods were $24.2 million, $56.6 million and $101.5 million, respectively. Revenues from equipment sales and activation fees for 1993, 1994 and 1995 were $26.5 million, $53.2 million and $57.7 million, respectively. The increases in recurring revenues and revenues from equipment sales and activation fees were primarily due to rapid growth in the number of units in service. The increase in equipment sales during 1995 was somewhat offset by a decline in the average price per unit sold. The Company's ARPU was $9.81, $8.64 and $8.62 in the final quarter of 1993, 1994 and 1995, respectively. The Company's ARPU declined in 1994 and 1995 primarily as a result of an increase in subscribers added through third-party resellers and distribution through private brand strategic alliance programs, both of which yield lower ARPU. ARPU is lower for subscribers added through third-party resellers and private brand strategic alliances because these are generally high volume customers that are charged reduced airtime rates. However, because third-party resellers and private brand strategic alliance partners are responsible for selling and marketing costs, and billing, collection and other administrative costs associated with end-users, the Company does not incur these costs with respect to such subscribers. The decrease in 1995 was slightly offset by a higher mix of multi-city, regional and nationwide services as well as increased sales of other value-added services such as voicemail and toll free numbers. Cost of Equipment Sold The cost of equipment sold in 1993, 1994 and 1995 was $28.2 million, $57.8 million and $64.0 million, respectively. The increase was directly related to the increase in the number of units sold partially offset by lower average pager prices paid to suppliers. 22 24 Operating Expenses Technical expenses were $9.5 million, $16.2 million and $25.7 million in 1993, 1994 and 1995, respectively. The increase resulted primarily from the expansion of the Company's nationwide network infrastructure, which resulted in greater expenses associated with the addition of new transmitter sites, transmitter and terminal equipment and telecommunications expenses. On an average monthly cost per unit in service basis, technical expenses were $3.55, $2.45 and $2.13 in 1993, 1994 and 1995, respectively. The per unit decreases were the result of increased operating efficiencies and economies of scale experienced with the growth of the Company's subscriber base. During 1995, the Company incurred $222,000 in technical expenses associated with the development of its two-way wireless messaging services. Selling expenses in 1993, 1994 and 1995 were $17.3 million, $31.3 million and $36.1 million, respectively. This increase resulted from greater marketing and advertising costs related to the significant growth in units sold as well as from increased sales compensation because of the addition of sales personnel in new and existing operating markets. During the years ended December 31, 1993, 1994 and 1995, the Company added 210,269, 445,427 and 467,294 net new units in service, respectively. Sales and marketing employees increased from 305 at December 31, 1993 to 450 at December 31, 1994 and then decreased to 445 at December 31, 1995. Management believes the net loss on equipment sold to be a component of selling and marketing expenses incurred to add new subscribers. See "--Management's Presentation of Results of Operations." Selling and marketing expenses per net subscriber addition (including loss on equipment sales) were $91, $81 and $91 for the years ended December 31, 1993, 1994 and 1995, respectively. The increase in 1995 was due to the addition of new sales offices, expansion of existing sales offices and an increase in the number of retail stores supported by the Company's marketing organization. General and administrative expenses (including costs associated with customer service, field administration and corporate headquarters) in 1993, 1994 and 1995 were $15.6 million, $29.8 million and $43.5 million, respectively. This increase was attributable to the Company's expansion of its customer service call centers and continued expansion into new markets to support the growing subscriber base which required additional office space, administrative personnel and customer service representatives. The Company increased the number of representatives in its customer service call centers from 69 on December 31, 1993 to 389 on December 31, 1994 and to 600 on December 31, 1995, and believes it operates one of the most extensive of such facilities in the paging industry. On an average cost per month per unit in service basis, general and administrative expenses were $5.84, $4.52 and $3.60 in 1993, 1994 and 1995, respectively. The per unit decreases were a result of increased operating efficiencies and economies of scale achieved through the growth of the Company's subscriber base. During 1995, the Company incurred $154,000 in general and administrative expenses associated with the development of its two-way wireless messaging services. Depreciation and amortization in 1993, 1994 and 1995 was $5.1 million, $8.1 million and $13.3 million, respectively. The increases resulted from the expansion of the Company's network infrastructure including transmitter and terminal equipment, as well as the purchase and development of a new centralized administrative system in 1995. As an average cost per month per unit in service, depreciation and amortization was $1.91, $1.23 and $1.10 for the years ended December 31, 1993, 1994 and 1995, respectively. Interest Expense Interest expense increased from $6.5 million in 1993 to $12.9 million in 1994 and $30.7 million in 1995. The increase in 1994 was due to interest related to the 12 1/4% Senior Discount Notes due 2003 (the "12 1/4% Notes") issued by PageMart, partially offset by decreased borrowings under vendor financing agreements. The increase in 1995 was primarily the result of the issuance of the the Company's 15% Senior Discount Notes due 2005 (the "15% Notes") in January 1995, increased interest related to the 12 1/4% Notes, as well as increased 23 25 borrowings under vendor financing agreements. Interest expense related to the 12 1/4% Notes was $2.0 million, $10.8 million and $11.8 million in 1993, 1994 and 1995, respectively. Interest expense related to the 15% Notes was $15.3 million in 1995. Net Loss The Company sustained net losses in 1993, 1994 and 1995 of $31.1 million, $45.8 million and $53.1 million, respectively, principally due to the cost of funding the growth rate of the Company's subscriber base which resulted in an increase in units sold, selling and marketing expenses, operating expenses and interest expense. MANAGEMENT'S PRESENTATION OF RESULTS OF OPERATIONS COMPARISON WITH GAAP PRESENTATION The Company's audited Consolidated Financial Statements for the years ended December 31, 1993, 1994 and 1995, included elsewhere in this report, have been prepared in accordance with GAAP. For internal management purposes the Company prepares statements of operations that are derived from the Company's GAAP financial statements but are reordered in a format that management uses for its internal review of the Company's performance and that management believes are useful in understanding the Company's results. Management believes that operating profit before selling expenses is a meaningful indicator of the profitability of the Company's installed base of units in service because it measures the recurring revenues received for services less the costs (including depreciation and amortization) associated with servicing that installed base. Operating profit before selling expenses per subscriber per month for the Company's one-way operations has grown from $(.46) during the first quarter of 1994 to $2.11 during the fourth quarter of 1995 due primarily to the Company's increase in subscribers, operating efficiency and resulting benefits in economies of scale. Separately, selling and marketing expenses (including loss on equipment sold) provide a measure of the costs associated with obtaining new subscribers that the Company needs to generate the incremental recurring revenue necessary to achieve profitability. Under the GAAP presentation, recurring revenues and equipment and activation revenues are aggregated and are not separately compared to the costs associated with each. The items included in management's presentation of the results of operations and their derivation from financial information presented in accordance with GAAP are described below. Recurring Revenues. Recurring revenues include periodic fees for airtime, voicemail, customized coverage options, toll free numbers, excess usage fees and other recurring revenues and fees associated with the subscriber base. Recurring revenues do not include equipment sales revenues or initial activation fees. Recurring revenues are the same under both the management and GAAP presentations. Service Expenses. Service expenses under the management presentation include technical, customer service, general and administrative and headquarters expenses, but do not include selling and marketing expenses, depreciation or amortization. Depreciation and Amortization. This item is the same under the management and GAAP presentations. Operating Profit Before Selling Expenses. Operating profit before selling expenses under the management presentation is equal to recurring revenues less service expenses and depreciation and amortization. Operating profit before selling expenses is not derived pursuant to GAAP. 24 26 Selling Expenses. Selling expenses under the management presentation represent the cost to the Company of selling pagers and other messaging units to a customer, and are equal to selling costs (sales compensation, advertising, marketing, etc.) plus costs of units sold less revenues from equipment sales and activation fees. As described above, the Company sells rather than leases substantially all of the one-way messaging equipment used by subscribers. Selling expenses under the management presentation are not derived pursuant to GAAP. Net loss on equipment sales is not included in the GAAP presentation of selling expenses. Operating Income (Loss). This item is the same under the management and GAAP presentations. EBITDA. EBITDA represents earnings (loss) before interest, taxes, depreciation and amortization. EBITDA is a financial measure commonly used in the paging industry. EBITDA is not derived pursuant to GAAP and therefore should not be construed as an alternative to operating income, as an alternative to cash flows from operating activities (as determined in accordance with GAAP) or as a measure of liquidity. The calculation of EBITDA does not include the commitments of the Company for capital expenditures and payment of debt and should not be deemed to represent funds available to the Company. In the fourth quarter of 1995, the Company's EBITDA from its one-way operations became positive for the first time. 25 27 SELECTED QUARTERLY RESULTS OF OPERATIONS The table below sets forth management's presentation of results of domestic one-way operations and other data on a quarterly basis for the eight most recent fiscal quarters. This presentation should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto included elsewhere in this report, and should not be considered in isolation or as an alternative to results of operations that are presented in accordance with GAAP.
THREE MONTHS ENDED -------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1994 1994 1994 1994 ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT OTHER DATA) OPERATING DATA: Recurring revenues ............ $ 10,639 $ 12,946 $ 15,161 $ 17,902 Service expenses .............. 9,485 10,632 12,160 13,688 Depreciation and amortization . 1,658 1,876 2,217 2,354 ----------- ----------- ----------- ----------- Operating profit before selling expenses ............ (504) 438 784 1,860 Selling expenses(1) ........... 7,047 7,543 9,580 11,732 ----------- ----------- ----------- ----------- Operating income (loss) ....... $ (7,551) $ (7,105) $ (8,796) $ (9,872) =========== =========== =========== =========== EBITDA ........................ $ (5,893) $ (5,229) $ (6,579) $ (7,518) =========== =========== =========== =========== OTHER DATA: Units in service(2) ........... 402,017 495,605 608,427 772,730 Net subscriber additions ...... 74,314 93,588 112,822 164,303 ARPU(3) ....................... $ 9.73 $ 9.62 $ 9.15 $ 8.64 Operating profit before selling expenses per subscriber per month(4) ................ (.46) .33 .47 .90 Selling expenses per net subscriber addition(1)(5) ... 95 81 85 71 Capital employed per unit in service(6) .................. 84 69 53 42 THREE MONTHS ENDED --------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1995 1995 1995 1995 ----------- ----------- ----------- ------------ (IN THOUSANDS, EXCEPT OTHER DATA) OPERATING DATA: Recurring revenues ............ $ 20,464 $ 23,387 $ 26,994 $ 30,658 Service expenses .............. 15,157 16,208 18,192 19,258 Depreciation and amortization . 2,802 3,091 3,469 3,910 ----------- ----------- ----------- ----------- Operating profit before selling expenses ............ 2,505 4,088 5,333 7,490 Selling expenses(1) ........... 9,704 10,614 10,889 11,181 ----------- ----------- ----------- ----------- Operating income (loss) ....... $ (7,199) $ (6,526) $ (5,556) $ (3,691) =========== =========== =========== =========== EBITDA ........................ $ (4,397) $ (3,435) $ (2,087) $ 219 =========== =========== =========== =========== OTHER DATA: Units in service(2) ........... 874,944 1,008,683 1,131,464 1,240,024 Net subscriber additions ...... 102,214 133,739 122,781 108,560 ARPU(3) ....................... $ 8.28 $ 8.28 $ 8.41 $ 8.62 Operating profit before selling expenses per subscriber per month(4) ................ 1.01 1.45 1.66 2.11 Selling expenses per net subscriber addition(1)(5) ... 95 79 89 103 Capital employed per unit in service(6) .................. 45 39 39 40
- --------------- (1) Includes loss on sale of equipment. (2) Stated as of the end of each period. (3) Calculated by dividing recurring revenues for the quarter by the average number of units in service during that quarter. Stated as the monthly average for the quarter. (4) Calculated by dividing operating profit before selling expenses (selling expenses include loss on sale of equipment) for the quarter by the average number of units in service during that quarter. Stated as the monthly average for the quarter. (5) Calculated by dividing selling expenses, including loss on sale of equipment, for the quarter by the net subscriber additions for the quarter. (6) Calculated by dividing total assets (excluding cash, NPCS Licenses and international investments) minus current liabilities (excluding current maturities of long-term debt) at the end of the period, by units in service at the end of the period. 26 28 SUPPLEMENTARY INFORMATION The following table sets forth supplementary financial information related to the Company's various operations:
FISCAL YEAR ENDED DECEMBER 31, 1994 --------------------------------------------------- PAGEMART PAGEMART PAGEMART THE COMPANY ONE-WAY TWO-WAY INTERNATIONAL CONSOLIDATED --------- --------- --------- --------- (In thousands) Revenues ................. $ 109,833 $ -- $ -- $ 109,833 Operating loss ........... (33,324) -- -- (33,324) EBITDA ................... (25,219) -- -- (25,219) Total assets ............. 81,470 58,885 1,704 142,059 Capital expenditures ..... 16,719 -- -- 16,719
FISCAL YEAR ENDED DECEMBER 31, 1995 --------------------------------------------------- PAGEMART PAGEMART PAGEMART THE COMPANY ONE-WAY TWO-WAY INTERNATIONAL CONSOLIDATED --------- --------- --------- --------- (In thousands) Revenues .................... $ 159,191 $ -- $ -- $ 159,191 Operating loss .............. (22,972) (376) -- (23,348) EBITDA ...................... (9,700) (376) -- (10,076) Total assets ................ 120,004 140,235 3,590 263,829 Capital expenditures ........ 32,486 1,017 -- 33,503
SEASONALITY Pager usage is slightly higher during the spring and summer months, which is reflected in higher incremental usage fees earned by the Company. The Company's retail sales are subject to seasonal fluctuations that affect retail sales generally. Otherwise, the Company's results are generally not significantly affected by seasonal factors. LIQUIDITY AND CAPITAL RESOURCES The Company's operations require substantial capital investment for the development and installation of its wireless communications network, the procurement of messaging equipment and expansion into new markets. To date, these investments by the Company have been funded by the proceeds from the issuance of common stock, preferred stock, the 12 1/4% Notes and the 15% Notes, as well as borrowings under vendor financing agreements. Capital expenditures were $10.8 million, $16.7 million and $33.5 million for the years ended December 31, 1993, 1994 and 1995, respectively. Capital expenditures for 1995 include approximately $8.7 million for the development of the Company's new administrative system and approximately $1.0 million related to the development of two-way messaging services. The Company's expansion of its one-way wireless communications network and related administrative facilities will require capital expenditures currently estimated to be $25 million in 1996. During December 1995, the Company committed to purchase $40 million in network infrastructure equipment from a significant vendor from December 1, 1995 to October 31, 1999 (the "Vendor Commitment"). The Company's net cash used in operating activities was $23.2 million, $25.5 million and $2.9 million for the years ended December 31, 1993, 1994 and 1995, respectively. The decrease in 1995 was a result of improved operating results from a larger subscriber base and higher efficiencies in working capital achieved through improved collections procedures and improved inventory management. Net cash used in investing activities was $18.6 million, $69.1 million and $110.2 million for the years ended December 31, 1993, 1994 and 1995, respectively. The increase in 1994 over 1993 was primarily due to the $58.9 million used for the acquisition of the NPCS Licenses. Of the $110.2 million used in investing activities in 1995, $74.1 million was for the acquisition of the NPCS Licenses and the remainder was primarily for capital expenditures. Net cash provided by financing activities, including proceeds from borrowings and issuances of common and preferred stock was $61.8 million, $83.5 million and $125.5 million for the years ended December 31, 1993, 1994 and 1995, 27 29 respectively. The increase in 1994 resulted from the $76.9 million of net proceeds from the sale of stock (the "1994 Stock Offerings"). The increase in 1995 resulted primarily from the $100.1 million of net proceeds from the sale of units, consisting in the aggregate of $207.3 million principal amount at maturity of the 15% Notes and 725,445 shares of common stock, and $24.5 million of net proceeds from the sale of common stock (the "1995 Private Stock Offerings"). Long-term obligations, less current maturities, increased by approximately $126.7 million during 1995 and $14.3 million during 1994. Net increases in borrowings were $47.3 million, $16.5 million and $128.7 million for the years ended 1993, 1994 and 1995, respectively. The net increase in 1994 resulted primarily from the accretion of the 12 1/4% Notes and borrowings under vendor financing agreements. The increase in 1995 resulted from the issuance of the 15% Notes, the accretion of the 12 1/4% Notes and borrowings under vendor financing agreements. As of December 31, 1995, the Company's indebtedness under vendor financing arrangements was $15.0 million, its indebtedness under the 12 1/4% Notes was $94.9 million and its indebtedness under the 15% Notes was $114.9 million. The 12 1/4% Notes, which are unsecured senior obligations of PageMart, mature in 2003 and were issued at a substantial discount from their principal amount at maturity. The accretion of original issue discount on the 12 1/4% Notes will cause an increase in indebtedness from December 31, 1995 to November 1, 1998 of $41.6 million. From and after November 1, 1998, interest on the 12 1/4% Notes will be payable semiannually, in cash. The 15% Notes, which are unsecured senior obligations of Wireless, mature in 2005 and were issued at a substantial discount from their principal amount at maturity. The accretion of original issue discount on the 15% Notes will cause an increase in indebtedness from December 31, 1995 to February 1, 2000 of $92.4 million. From and after February 1, 2000, interest on the 15% Notes will be payable semiannually, in cash. In 1992, PageMart entered into an equipment lease agreement with Glenayre (the "Vendor Lease Financing Agreement"), providing for the financing of transmitter equipment up to a maximum aggregate amount of $15 million, pursuant to lease term schedules mutually agreed upon for lease terms not exceeding 60 months. The Vendor Lease Financing Agreement is not a revolving line of credit and the vendor's commitment expired on December 31, 1995. PageMart has an option, at the expiration of any schedule to purchase all of the equipment leased under that schedule at a nominal purchase price. The weighted average interest rate in effect on December 31, 1995 with respect to the Vendor Lease Financing Agreement was 13.46%. All outstanding indebtedness under the Vendor Lease Financing Agreement will be repaid with a portion of the net proceeds from the Offering. In May 1994, PageMart entered into a vendor purchase financing agreement with Motorola (the "Vendor Purchase Financing Agreement"), providing for the financing of transmitter equipment over a period of up to 36 months after the acquisition of such equipment up to a maximum aggregate amount of $8 million. The Vendor Purchase Financing Agreement is not a revolving line of credit. The interest rate applicable to such financing is 4% above the prime rate quoted in The Wall Street Journal from time to time. The weighted average interest rate in effect on December 31, 1995 with respect to the Vendor Purchase Financing Agreement was 12.75%. In May 1995, the Company entered into a four year Revolving Credit Agreement (the "Revolving Credit Agreement") with BT Commercial Corporation, as Agent, and Bankers Trust Company, as Issuing Bank, which provides for a $50 million revolving line of credit. Currently there are no loans outstanding under the Revolving Credit Agreement. The maximum amount available under the Revolving Credit Agreement at any time is limited to a borrowing base amount equal to the lesser of (i) 80% of eligible accounts receivable plus 50% eligible 28 30 inventory owned by Wireless, and (ii) an amount equal to the service contribution as defined in the Revolving Credit Agreement of Wireless and its subsidiaries for the immediately preceding three-month period times 4.0. As of December 31, 1995, the amount available under the Revolving Credit Agreement is $28.2 million. The Vendor Purchase Financing Agreement, the indenture pursuant to which the 12 1/4% Notes were issued (the "12 1/4% Indenture"), the indenture pursuant to which the 15% Notes were issued (the "15% Indenture") and the Revolving Credit Agreement contain certain restrictive covenants that, among other things, limit the ability of the Company to incur indebtedness, pay dividends, repurchase capital stock, engage in transactions with stockholders and affiliates, create liens, sell assets, enter into leases and engage in mergers and consolidations, and the Revolving Credit Agreement requires the Company to maintain certain financial ratios and limits the ability of the Company to make capital expenditures. In addition, the 12 1/4% Indenture prohibits PageMart from paying any dividends or making other distributions on its capital stock, making loans to Wireless, merging or consolidating with Wireless or assuming or guaranteeing any obligations of Wireless unless PageMart is in compliance with certain interest coverage ratios and certain other requirements. PageMart may, however, sell assets to Wireless in transactions that are arm's-length in nature. Wireless is currently a holding company with no business or operations of its own. Because all of Wireless's operations are conducted through its subsidiaries, Wireless's cash flow and consequently its ability to service debt, is almost entirely dependent upon the earnings of its subsidiaries and the distribution of those earnings or upon loans or other payment of funds by those subsidiaries to Wireless. Wireless's subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to Wireless's obligations or to make any funds available therefor, whether by dividends, loans or other payments. Until the maturity of the 12 1/4% Notes, which mature on November 1, 2003, and the indebtedness under the Vendor Purchase Financing Agreement, earlier repayment of such indebtedness or compliance with the requirements of such debt instruments, Wireless will be unable to use any amount of cash generated by the operations of PageMart and its subsidiaries. However, currently Wireless does not have significant cash requirements until August 2000 when interest on the 15% Notes must be paid in cash. On November 15, 1995, the Company purchased through PageMart International, Inc., 200,000 voting shares of common stock of PageMart Canada, which represents 20% of the ownership of PageMart Canada. PageMart International, Inc. also owns 33% of the voting common stock of Canada Holding, which owns the remaining 80% of the voting common stock of PageMart Canada. The Company's investment in Canada Holding and PageMart Canada totals approximately $3.7 million. As of December 31, 1995, the Company had approximately $27.0 million in cash and cash equivalents. The Company's cash balances, existing vendor financing arrangements and borrowings under the Revolving Credit Agreement are expected to be sufficient to fund the Company's one-way operations and related capital and debt service requirements through 1997. Significant additional financing will be required to fund the construction of a transmission network for two-way services and other start-up costs and selling and marketing expenses associated with the development and implementation of two-way services. The Company anticipates investing $75 to $100 million through fiscal 1997 to test and construct a two-way transmission network. Thereafter, the Company anticipates that the two-way operations may require up to $100 million of additional investment to substantially complete the network buildout. The Company expects to require additional financing to complete the buildout, which may include entering into joint venture arrangements, however, there can be no assurance that sufficient financing will be available to the Company. The Company's ability to incur indebtedness is limited by the covenants contained in the 15% Indenture, the 12 1/4% Indenture, the Revolving Credit Agreement and the Vendor Purchase Financing Agreement, and as a result any additional financing may need to be equity financing. Future revenues, costs, product mix and new product acceptance are all influenced by a number of factors which are inherently uncertain and difficult to predict. Therefore, no assurance can be given that financing for such investments will be available. No assurance can be given that the Company's strategy will be implemented as currently planned or that the Company's operations will generate positive cash flows. 29 31 On May 6, 1996, the Company filed a registration statement for the proposed offering of $96,600,000 maximum amount of Class A Common Stock, par value $.0001 per share. The Company expects that the net proceeds of the offering will be used as follows; approximately $50 million to fund the initial construction of the Company's Narrowband Personal Communications Services transmissions network; approximately $13 million for the retirement of the Company's vendor debt; with the balance to be used to repay approximately $8 million of outstanding loans under the Company's revolving credit facility and for other general corporate purposes. ------------------------ PageMart Wireless, Inc. cautions readers that any forward-looking statements contained in this Form 10-K or made by management of the Company involve risks and uncertainties, and are subject to change based on various important factors. The following factors, among others, in some cases have affected and in the future could affect the Company's financial performance and actual results, and could cause actual results for 1996 and beyond to differ materially from those expressed in any such forward-looking statements--economic conditions generally in the United States and consumer confidence; the ability of the Company to manage its high debt levels; the impact of technological change in the telecommunications industry; the future cost of network infrastructure and subscriber equipment; the impact of competition and pricing of paging and wireless services; changes in regulation by the FCC and various state regulatory agencies; and the ability of the Company to obtain financing to construct the transmission network for two-way services. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data are included in this report beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 30 32 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company's Board of Directors currently consists of nine members, which number may be increased or decreased from time to time so long as there are no fewer than three nor more than twelve members. The directors and executive officers of the Company, their ages as of March 1, 1996 and positions with the Company are as follows:
NAME AGE POSITION ---- --- -------- John D. Beletic ............ 44 Chairman, President and Chief Executive Officer Kenneth L. Hilton .......... 43 Executive V.P., Strategic Business Units Homer L. Huddleston ........ 59 Executive V.P., Technical Operations Sandra D. Neal ............. 48 Executive V.P., Administration G. Clay Myers .............. 36 V.P., Finance, Chief Financial Officer and Treasurer Richard S. Nelson .......... 47 V.P., International Frances W. Hopkins ......... 55 V.P., Customer Advocacy Douglas S. Glen ............ 38 V.P., Strategic Alliances Business Unit Douglas H. Kramp ........... 34 V.P., National Retail Business Unit Paul L. Turner ............. 37 V.P., Customer Service Jack D. Hanson ............. 52 V.P., Network Operations Daniel W. Hay .............. 54 V.P., Information Systems Thomas C. Keys ............. 37 V.P., Sales, Market Business Unit N. Ross Buckenham .......... 38 V.P., PCS Strategy Vick T. Cox ................ 46 V.P., PCS Development Lawrence H. Wecsler ........ 48 V.P., Field Marketing Todd A. Bergwall ........... 32 Corporate Counsel and Secretary Roger D. Linquist (2) ...... 57 Director Frank V. Sica (1) .......... 44 Director Guy L. de Chazal (1) ....... 48 Director Arthur Patterson (1) ....... 52 Director Andrew C. Cooper (2) ....... 34 Director Alejandro Perez Elizondo (2) 47 Director Leigh J. Abramson (2) ...... 27 Director Pamela D.A. Reeve .......... 47 Director
- --------------- (1) Member of Compensation Committee (2) Member of Audit Committee John D. Beletic, Chairman, President and Chief Executive Officer. Mr. Beletic was named Chairman of the Company's Board of Directors in August 1994. Mr. Beletic has been Chief Executive Officer of the Company since February 1994. Mr. Beletic joined the Company as President and director in March 1992 after spending a year in venture capital. Prior to that, Mr. Beletic served for five years as President and Chief Executive Officer of The Tigon Corporation ("Tigon"), a leading voicemail service provider. Tigon was acquired by Ameritech Development Corporation, a wholly-owned subsidiary of American Information Technologies Corporation in 1988. Before joining Tigon, Mr. Beletic was Senior Vice President of Operations and Chief Financial Officer for five years with VMX, Inc. ("VMX"), a manufacturer of voicemail systems. Mr. Beletic earned his bachelor's degree in finance from Cincinnati's Xavier University and his master's degree in business administration from the Harvard Business School. Mr. Beletic currently serves as a director of Digital Sound Corporation and Teloquent Communications Corporation. Within the paging industry, Mr. Beletic currently serves as a director of PCIA, the industry trade association and President of the Paging Leadership Association. Kenneth L. Hilton, Executive Vice President, Strategic Business Units. Mr. Hilton joined the Company in October 1994. Previously, Mr. Hilton spent five years as Vice President, Sales and Marketing for Visual Information Technologies, a manufacturer and distributor of high-end graphics cards for the UNIX marketplace. 31 33 Before joining Visual Information Technologies, Mr. Hilton spent fourteen years with IBM in various sales and marketing positions, the last being Branch Manager. Mr. Hilton also serves as a Director of PageMart Canada. Homer L. Huddleston, Executive Vice President, Technical Operations. Mr. Huddleston has been a Vice President since joining the Company in February 1994. Before joining the Company, he served as Vice President of Communications Operations for American Airlines from 1987 to 1993. Previously, Mr. Huddleston served as President and General Manager of Action Communication Systems, Honeywell's Network Communications Division and a provider of nationwide network systems, from 1979 to 1986. Prior to 1979, he held various engineering management, sales management and general management positions with Motorola for eighteen years. Sandra D. Neal, Executive Vice President, Administration. Ms. Neal has been a Vice President since joining the Company in July 1992. Prior to joining the Company, Ms. Neal was Vice President of Customer Service for Tigon from 1989 to 1992. Previously, Ms. Neal held the positions of Vice President of Finance and Controller at Tigon from 1986 to 1989. Before joining Tigon, Ms. Neal was a practicing certified public accountant from 1979 to 1986. G. Clay Myers, Vice President, Finance, Chief Financial Officer and Treasurer. Mr. Myers joined the Company in April 1993 as Vice President of Finance and Chief Financial Officer. Prior to joining the Company, Mr. Myers was Senior Operations Manager for Dell Computer Corporation from 1991 to 1993. Prior to joining Dell Computer Corporation, Mr. Myers was with Ernst & Young from 1982 to 1991. Mr. Myers is a certified public accountant. Richard S. Nelson, Vice President, International. Mr. Nelson was named Vice President, International on March 1, 1996. Formerly, Mr. Nelson was Vice President, Marketing of the Company since June 1992. Mr. Nelson also serves as President of PageMart International. Before joining the Company, Mr. Nelson was Vice President of Marketing for American Eagle, at American Airlines, where he held various staff positions from 1972 to May 1992. Frances W. Hopkins, Co-founder, Vice President, Customer Advocacy. Ms. Hopkins co-founded the Company in 1989 and was Vice President of Operations until she left the Company in September 1990 to pursue other business interests. Upon returning in July 1991, she was named Vice President, Operations. In 1995, Ms. Hopkins became Vice President, Customer Advocacy. Before co-founding the Company, Ms. Hopkins was President of Multicom, Inc., a subsidiary of PacTel Personal Communications for six years; President of Gencell, the cellular subsidiary of Communications Industries; and founded TelPage, a regional paging company. Douglas S. Glen, Vice President, Strategic Alliances Business Unit. Mr. Glen has been a Vice President since July 1989. Formerly, Mr. Glen was Regional Manager and Director of Finance and Administration for Multicom, Inc., a subsidiary of PacTel Personal Communications for three years. Additionally, Mr. Glen was manager of financial control with PepsiCola Bottling Group and a consultant with Arthur Andersen & Co. Mr. Glen serves as a director of PCIA, the industry trade association and chairman of the Paging and Narrowband PCS Alliance. Douglas H. Kramp, Vice President, National Retail Business Unit. Mr. Kramp joined the Company as a Vice President in August 1993. Before joining PageMart, Mr. Kramp was President and co-founder of Artificial Linguistics Inc. ("ALI"), a text management software company from 1988 to 1993. Before co-founding ALI, Mr. Kramp was responsible for starting up and managing high technology companies for the Hart Group from 1984 to 1988. Paul L. Turner, Vice President, Customer Service. Mr. Turner has been Vice President, Customer Service of the Company since March 1994. Before joining the Company, Mr. Turner was with MCI from 1984 to 1994 in positions of increasing responsibility. From 1990 to 1994 he held various management positions, the most recent being Senior Manager, MCI Consumer Markets. 32 34 Jack D. Hanson, Vice President, Network Operations. Mr. Hanson joined the Company in October 1993. Prior to joining the Company in October 1993, Mr. Hanson was Director of Engineering for Spectradyne, Inc. from June 1992 to October 1993. Previously, he held senior engineering positions with VMX from December 1984 to June 1992, the most recent being Vice President of National Account Support. Daniel W. Hay, Vice President, Information Systems. Mr. Hay joined the Company in March 1995. Prior to joining the Company, Mr. Hay was a Vice President and Business Unit Manager for Affiliated Computer Services from August 1994 to March 1995. Previously, Mr. Hay operated a management consulting practice from November 1992 to August 1994. Additionally, Mr. Hay was Vice President of Systems for Southwest Airlines from February 1988 to November 1992. Thomas C. Keys, Vice President, Sales, Market Business Unit. Mr. Keys was named Vice President in September 1994. Previously, Mr. Keys was Sales Director and General Manager from April 1994 to August 1994. Previously, Mr. Keys was the Area Manager for the Company's largest West Coast market for over one year. Before joining the Company, Mr. Keys held the position of Vice President of Sales at S.I.P., Inc., a welding equipment manufacturer, from December 1991 to December 1992. Previously, Mr. Keys held several key management positions at Metromedia Corporation from August 1990 to December 1991. Additionally, Mr. Keys was Regional Sales Manager at Savin, Inc. from April 1988 to August 1990. N. Ross Buckenham, Vice President, PCS Strategy. Mr. Buckenham assumed this role on January 15, 1996. Prior to joining the Company, Mr. Buckenham was President of Touchtone Solutions, Inc., a telecommunications and interactive voice response software and services company from 1992 to 1996. From 1984 to 1991, Mr. Buckenham was with Aquanautics Corporation, initially as Vice President of Development then as its President. From 1981 to 1984, Mr. Buckenham was with Bain & Co. as a senior consultant to companies in the voice processing, technology, finance and health care industries. Mr. Buckenham holds an MBA degree from Harvard Graduate School of Business Administration and a BS degree in Chemical Engineering from Canterbury University, New Zealand. Vick T. Cox, Vice President, PCS Development. Mr. Cox has been a Vice President since April 1993. Previously, he had been Director of Network Operations since January 1993. Before joining the Company he held engineering management positions with VMX from 1979 to 1991, where he helped develop the world's first voicemail system, and with Interphase, a manufacturer of intelligent network controllers from 1991 to January 1993. Lawrence H. Wecsler, Vice President, Field Marketing. Mr. Wecsler was named Vice President of Field Marketing in April 1994. Previously, he was Vice President of Human Resources and Sales Training for two years. Mr. Wecsler was Vice President, Western Region of the Company, from March 1990 to March 1992. Before joining the Company, Mr. Wecsler held positions in operations, sales, marketing and human resources with PacTel Paging for nine years. Previously, he held management positions with Texas Instruments and Braniff International. Todd A. Bergwall, Corporate Counsel. Mr. Bergwall has been Corporate Counsel since joining the Company in June 1994. Mr. Bergwall has also been Secretary of the Company since April of 1995. From August 1989 until joining the Company, Mr. Bergwall was engaged in private practice with the Dallas, Texas law firm Winstead Sechrest & Minick specializing in corporate and securities law. Roger D. Linquist, Director. Mr. Linquist has been a Director of the Company since co-founding it in 1989. He served as Chairman of the Company's Board of Directors from 1989 until April 1994. Prior to launching the Company, Mr. Linquist served for three years as President and Chief Executive Officer of PacTel Personal Communications, the cellular and paging division of Pacific Telesis Group ("PacTel"), the Regional Bell Operating Company that provides service to California and Nevada. Mr. Linquist served as Chief Executive Officer of Communications Industries before joining PacTel. 33 35 Frank V. Sica, Director. Mr. Sica has been a Director of the Company since December 1991. He is currently a Managing Director of Morgan Stanley & Co. Incorporated ("MS & Co."), and has been with MS & Co. since 1981, originally in the Mergers and Acquisitions Department and, since 1988, with the Merchant Banking Division. He serves as a director of numerous companies including ARM Financial Group, Inc., Consolidated Hydro, Inc., Fort Howard Corporation, Kohl's Corporation, Southern Pacific Rail Corporation and Sullivan Communications Inc. He is a director of the general partner of The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") and of the respective managing general partners of the general partner of Morgan Stanley Venture Capital Fund, L.P. ("MSVCF"), Morgan Stanley Venture Capital Fund II, L.P. ("MSVCF II") and Morgan Stanley Capital Partners III, L.P. ("MSCP III"). Mr. Sica was designated by MSLEF II pursuant to the Stockholders Agreement. See Item 13. Certain Relationships and Related Transactions--Election of Directors. Guy L. de Chazal, Director. Mr. de Chazal has been a Director of the Company since June 1989. Mr. de Chazal is President and a Director of the managing general partner of the general partner of MSVCF and MSVCF II and is a Managing Director of MS & Co. Mr. de Chazal is also a director of SPSS, Inc. and several private companies. From 1986 to 1990, Mr. de Chazal was a Vice President, and from 1991 to 1994 a Principal of MS & Co. Mr. de Chazal was designated by MSVCF pursuant to the Stockholders Agreement. See Item 13. Certain Relationships and Related Transactions -- Election of Directors. Arthur Patterson, Director. Mr. Patterson has been a Director of the Company since June 1989 and a Managing Partner of Accel Partners, a venture capital company since 1984. Mr. Patterson is also a director of UUNET, VIASOFT, Axent and the G.T. Global Group of Investment Companies as well as several private software and telecommunications companies. Mr. Patterson was designated by Accel Partners pursuant to the Stockholders Agreement. See Item 13. Certain Relationships and Related Transactions--Election of Directors. Andrew C. Cooper, Director. Mr. Cooper has been a Director of the Company since October 1990. Mr. Cooper is a Principal of MS & Co., an officer of the managing general partner of the general partner of MSVCF and MSVCF II, and has been with MS & Co. since 1984. Mr. Cooper was designated by MSVCF II pursuant to the Stockholders Agreement. See Item 13. Certain Relationships and Related Transactions--Election of Directors. Alejandro Perez Elizondo, Director. Mr. Perez has been a Director of the Company since August 1994. Since 1987, Mr. Perez has been associated with Pulsar, a diversified Mexican company with interests in the tobacco, insurance, agriculture, telecommunications, finance and other industries, and is currently Vice President of Diversification of Pulsar Internacional, S.A. de C.V. Mr. Perez is also a director of Ionica L3 Ltd. (a public telephone services company located in U.K.), Novalink Technologies, Inc. (a California modem manufacturing company), Fomento Empresarial Regiomontano, S.A. de C.V. (a Mexico-based telecommunications company), and Kb/Tel Telecommunications S.A. de C.V. (a Mexico-based holding company with investments in communications engineering companies). Mr. Perez was designated by Pulsar pursuant to the Stockholders Agreement. See Item 13. Certain Relationships and Related Transactions--Election of Directors. Leigh J. Abramson, Director. Mr. Abramson has been a Director of the Company since August 1994. He is currently an Associate of MS & Co. and an officer of the general partner of MSLEF II and of the general partner of the general partner of MSCP III. Mr. Abramson has been with MS & Co. since 1990, first in the Corporate Finance Division and, since 1992, in the Merchant Banking Division. Mr. Abramson was designated by MSCP III pursuant to the Stockholders Agreement. See Item 13. Certain Relationships and Related Transactions--Election of Directors. Pamela D. A. Reeve, Director. Ms. Reeve was elected Director of the Company in April 1996. Ms. Reeve is currently President, Chief Executive Officer and Director of Lightbridge, Inc. ("Lightbridge") and has been with Lightbridge since 1989. Lightbridge develops and manages software used by wireless telecommunications companies across the United States to support sales and marketing applications. Prior to joining Lightbridge, Ms. Reeve spent eleven years at The Boston Consulting Group, with senior operating responsibility for the firm's Boston office. Prior to joining The Boston Consulting Group, Ms. Reeve worked with the National Endowment for the Humanities managing educational projects and with real estate development and manufacturing firms, primarily in operations and marketing. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth compensation information for the Chief Executive Officer of the Company and its four most highly compensated executive officers, other than the Chief Executive Officer (collectively, the "Named Executive Officers"), for services rendered in the fiscal years ending December 31, 1995, 1994 and 1993. 34 36 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ ANNUAL SECURITIES COMPENSATION (1) UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(2) COMPENSATION(3) - --------------------------- ---- -------- -------- ------- -------- John D. Beletic (4) ......... 1995 $200,000 $150,000 100,000 $ 10,755 Chairman, President and 1994 200,000 187,500 100,000 11,220 Chief Executive Officer ..... 1993 200,000 73,640 200,000 17,141 Kenneth L. Hilton ........... 1995 150,000 46,500 40,000 7,998 Executive Vice President, 1994 27,885 12,250 125,000 711 Strategic Business Units 1993 -- -- -- -- Homer L. Huddleston ......... 1995 116,667 32,845 45,000 5,808 Executive Vice President, 1994 89,808 31,650 55,000 4,619 Technical Operations 1993 -- -- -- -- Sandra D. Neal .............. 1995 115,000 39,675 50,000 7,569 Executive Vice President, 1994 104,269 33,538 25,000 8,121 Administration 1993 99,000 28,063 25,000 13,238 Carol W. Dickson (5) ........ 1995 120,000 29,760 -- 2,922 Vice President, 1994 60,923 23,010 50,000 1,406 International Operations 1993 -- -- -- --
- --------------- (1) The amount of cash compensation does not include the value of personal benefits or securities, property or other non-cash compensation paid or distributed other than pursuant to a plan, which, with respect to any named executive officer, was less than the lesser of $50,000 and 10% of the cash compensation received by such officer. (2) Each of these options is exercisable for shares of the Company's Class A Convertible Common Stock (the "Class A Common Stock"). (3) The amounts shown represent one below-market loan made by the Company to Mr. Beletic in 1994, the compensatory value of which was $2,200 in 1994 and $2,400 in 1995, and insurance payments made by the Company on behalf of each named executive. In 1995, the Company made payments on behalf of Messrs. Beletic, Hilton and Huddleston, Ms. Neal and Ms. Dickson, respectively, of $648, $486, $356, $373 and $389 for life and accident insurance, of $780, $585, $429, $449 and $468 for long-term disability insurance and of $6,927, $6,927, $5,023, $6,747 and $2,065 for health insurance. (4) As of December 31, 1995, Mr. Beletic owned 12,500 shares of restricted Class A Common Stock subject to a vesting period ending March 17, 1996. At December 31, 1995, the stock had an aggregate market value of $125,000 based upon an estimated market value of $10.00 per share. No dividends on such shares have been paid or are expected to be paid in the future. (5) Ms. Dickson resigned from the Company effective February 29, 1996. 35 37 OPTION EXERCISES AND VALUATION The following table sets forth grants of stock options, during fiscal year 1995, to each Named Executive Officer.
OPTION GRANTS IN LAST FISCAL YEAR POTENTIAL REALIZATION VALUE NUMBER OF PERCENTAGE OF AT ASSUMED ANNUAL SECURITIES TOTAL OPTIONS RATES OF STOCK PRICE UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR OPTION TERM OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------- GRANTED(1) FISCAL 1995 PER SHARE DATE 5% 10% ------------------------------------------------------------------------------------------ John D. Beletic ............... 100,000 8.3% $ 10.00 11/17/2005 $ 628,890 $1,593,739 Kenneth L. Hilton ............. 40,000 3.3% 10.00 11/17/2005 251,555 637,495 Homer L. Huddleston ........... 10,000 .8% 7.00 05/23/2005 44,022 111,561 35,000 2.9% 10.00 11/17/2005 220,110 557,808 Sandra D. Neal ................ 10,000 .8% 7.00 01/01/2005 44,022 111,561 40,000 3.3% 10.00 11/17/2005 251,555 637,495 Carol W. Dickson .............. -- -- -- -- -- --
- --------------- (1) Each of these options is exercisable for shares of Class A Common Stock. Each of these options is immediately exercisable; however, the underlying option shares are unvested and remain subject to repurchase by the Company at the option price paid per share. The optionee acquires a vested interest in, and the Company's repurchase right accordingly lapses with respect to, (i) 20% of the option shares one year after the date of grant and (ii) the balance of the option shares in equal successive monthly installments over each of the next forty-eight (48) months of service thereafter. The following table sets forth stock options exercised during fiscal year 1995 and the fiscal year-end value of unexercised options for each Named Executive Officer. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Value of Securities Underlying Unexercised Unexercised Options In-the-Money Options Shares at December 31, 1995(1) at December 31, 1995(2) Acquired Value ---------------------------- ------------------------------ on Exercise Realized Exercisable Unexercisable(3) Exercisable Unexercisable(3) ----------- -------- ----------- --------------- ----------- --------------- John D. Beletic .................... -- $ -- 103,334 266,666 $596,739 $849,059 Kenneth L. Hilton .................. 14,285 42,855 14,881 135,834 44,643 287,502 Homer L. Huddleston ................ -- -- 18,666 81,334 85,330 189,670 Sandra D. Neal ..................... -- -- 32,499 97,501 223,687 317,312 Carol W. Dickson ................... -- -- 13,333 36,667 39,999 110,001
- --------------- (1) Each of these options is exercisable for shares of Class A Common Stock. (2) The fair market value at December 31, 1995 was estimated to be $10.00 per share. The fair market value was determined by the compensation committee of the Company's Board of Directors based on relative market values per share of other paging companies of comparable size and characteristics. (3) Each of these options is immediately exercisable; however, the underlying option shares are unvested and remain subject to repurchase by the Company at the option price paid per share. The optionee acquires a vested interest in, and the Company's repurchase right accordingly lapses with respect to, (i) 20% of the option shares one year after the date of grant and (ii) the balance of the option shares in equal successive monthly installments over each of the next forty-eight (48) months of service thereafter. 36 38 DIRECTORS' COMPENSATION Directors of the Company currently receive no compensation for their services in such capacity. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The compensation committee of the Company consists of Frank V. Sica, Guy L. de Chazal, and Arthur Patterson. No executive officer of the Company serves as a member of the compensation committee of the Company, or on the compensation committee of another corporation, an executive officer of which serves as a director of the Company or on the Company's compensation committee, and no executive officer of the Company serves as a director of another corporation, an executive officer of which serves as a member of the Company's compensation committee. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of Class A Common Stock as of March 1, 1996 (i) by each person known by the Company to own beneficially more than 5% of the outstanding Class A Common Stock, (ii) by each director of the Company, (iii) by each of the most highly compensated executive officers of the Company, and (iv) by all executive officers and directors of the Company as a group. Except as otherwise indicated, each named person has voting and investment power over the listed shares, and such voting and investment power is exercised solely by the named person or shared with a spouse.
SHARES OF PERCENT OF CLASS A CLASS A NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ The Morgan Stanley Leveraged Equity Fund II, L.P.(1) ....... 5,829,919 25.0% 1221 Avenue of the Americas New York, NY 10020 Morgan Stanley Capital Partners III, L.P.(1) ............... 3,488,846 15.0% 1221 Avenue of the Americas New York, NY 10020 Morgan Stanley Venture Capital Fund, L.P.(2) ............... 1,481,511 6.4% 1221 Avenue of the Americas New York, NY 10020 Other Morgan Stanley-sponsored limited partnerships(3) ..... 579,598 2.5% Mellon Bank, N.A., as Trustee for First Plaza Group Trust(4) .................................................. 3,214,286 13.8% One Mellon Plaza Pittsburgh, PA 15258 Accel Telecom L.P.(5) ...................................... 1,542,300 6.6% One Embarcadero Center, Ste. 3820 San Francisco, CA 94111 Accel III L.P.(5) .......................................... 1,416,200 6.1% One Embarcadero Center, Ste. 3820 San Francisco, CA 94111
37 39
SHARES OF PERCENT OF CLASS A CLASS A NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ Accel Investors `89 L.P.(5) ................................ 91,500 * One Embarcadero Center, Ste. 3820 San Francisco, CA 94111 Pulsar ..................................................... 2,142,857 9.2% Av. Roble, No. 300. Mezzanine Edificio Torre Alta Garza Garcia, N.L Mexico C.P. 66265 Directors and Most Highly Compensated Executive Officers: John D. Beletic(6) ....................................... 460,003 2.0% Roger D. Linquist(7) ..................................... 1,525,000 6.6% Kenneth L. Hilton(8) ..................................... 55,500 * Homer L. Huddleston(9) ................................... 22,333 * Sandra D. Neal(10) ....................................... 64,734 * Carol W. Dickson(11) ..................................... 15,000 * Frank V. Sica(1)(2) ...................................... 11,379,874 48.9% Guy L. de Chazal(2) ...................................... 1,880,839 8.1% Arthur Patterson(5)(12) .................................. 3,050,000 13.1% Andrew C. Cooper(2) ...................................... 1,880,839 8.1% Alejandro Perez Elizondo ................................. -- * Leigh J. Abramson(1) ..................................... 9,499,035 40.8% All directors and executive officers as a group(13) ........ 17,022,857 71.7%
- --------------- * Denotes less than 1%. (1) Each of these entities is an investment partnership for which Frank V. Sica, a director of the Company, is a director of the entity controlling such partnership. Each of these entities (other than MSVCF) is also an investment partnership for which Leigh J. Abramson is an officer of the entity controlling such partnership. The general partner of MSLEF II and the managing general partners of the respective general partners of MSCP III and each of the investment partnerships referred to in footnotes (2) and (3) below are each wholly-owned subsidiaries of Morgan Stanley Group, Inc. ("MS Group"). (2) This entity is an investment partnership for which Frank V. Sica and Guy L. de Chazal, directors of the Company, are directors of the entity controlling such partnership and, in the case of Mr. de Chazal, a general partner of the general partner of such partnership and for which Andrew C. Cooper, a director of the Company, is an officer of the entity controlling such partnership. Frank V. Sica, Guy L. de Chazal and Andrew C. Cooper each disclaim beneficial ownership of such shares. (3) Includes 256,307 shares owned by MSVCF II, 118,688 shares owned by Morgan Stanley Capital Investors, L.P. ("MSCI"), 73,676 shares owned by Morgan Stanley Venture Investors, L.P. ("MSVI"), 69,345 shares owned by Morgan Stanley Venture Capital Fund II, C.V. ("MSVC II") and 61,582 shares owned by MSCP III 892 Investors, L.P. ("MSCP 892"). Each of MSCI and MSCP 892 is an investment partnership for which the relationships described in footnote (1) above are applicable and Frank V. Sica and Leigh J. Abramson each disclaim beneficial ownership of shares held by such entities. Each of MSVCF II, MSVI and MSVC II is an investment partnership for which the relationships described in footnote (2) above are applicable and Frank V. Sica, Guy L. de Chazal, and Andrew C. Cooper each disclaim beneficial ownership of shares held by such entities. (4) Mellon Bank, N.A., acts as the trustee ("Mellon") for First Plaza Group Trust ("First Plaza"), a trust under and for the benefit of certain employee benefit plans of General Motors Corporation ("GM") and its subsidiaries. These shares may be deemed to be owned beneficially by General Motors Investment 38 40 Management Corporation ("GMIMCo"), a wholly-owned subsidiary of GM. GMIMCo's principal business is providing investment advice and investment management services with respect to the assets of certain employee benefit plans of GM and its subsidiaries and with respect to the assets of certain direct and indirect subsidiaries of GM and associated entities. GMIMCo's business address is 767 Fifth Avenue, New York, New York. GMIMCo is serving as First Plaza's investment manager with respect to these shares and in that capacity it has the sole power to direct the trustee as to the voting and disposition of these shares. Because of Mellon's limited role, beneficial ownership of the shares by Mellon is disclaimed. (5) Each of these entities is an investment partnership for which Arthur Patterson, a director of the Company, is a general partner. (6) Includes 328,000 shares of common stock issued pursuant to the Stock Option Plan and Stock Issuance Plan. Includes 123,334 stock options which are exercisable within the 60-day period commencing March 1, 1996 pursuant to the Stock Option Plan. (7) Includes 125,000 shares of common stock issued pursuant to the Stock Option Plan and Stock Issuance Plan. (8) Includes 23,215 stock options which are exercisable within the 60-day period commencing March 1, 1996 pursuant to the Stock Option Plan. (9) Includes 22,333 stock options which are exercisable within the 60-day period commencing March 1, 1996 pursuant to the Stock Option Plan. (10) Includes 41,666 stock options which are exercisable within the 60-day period commencing March 1, 1996 pursuant to the Stock Option Plan. (11) Includes 15,000 stock options which are exercisable within the 60-day period commencing March 1, 1996 pursuant to the Stock Option Plan. Ms. Dickson resigned from the Company effective February 29, 1996. (12) Includes shares of common stock held by the entities described in note 5 in which Arthur Patterson, a director of the Company, may be deemed to have beneficial ownership. Mr. Patterson disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. (13) Includes 511,907 stock options which are exercisable within the 60-day period commencing March 1, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. RELATED PARTY TRANSACTIONS The Company was organized in 1989 by Roger D. Linquist, MSVCF, Accel Telecom L.P., Accel Partners L.P. and Frances W. Hopkins. Through the acquisition of preferred stock in 1991 and 1993, MSLEF II became the owner of capital stock representing a majority of the voting power in the Company. The general partner of MSLEF II and the managing general partner of the general partner of MSVCF are both wholly-owned subsidiaries of MS Group. Four of the eight directors of the Company are employees of MS & Co. MS & Co. acted as placement agent for the offering of the 12 1/4% Notes and the offering of the 15% Notes and received compensation from the Company in the amount of $2.6 million and $3.8 million, respectively, for acting in such capacity. In two transactions consummated in March and May of 1993, the Company issued a total of 5,277,611 shares of the Company's Series C Preferred Stock, having an aggregate purchase price of $17,205,011, of which 5,214,724 shares were issued to MSLEFII. During the fiscal quarter ended September 30, 1994, the Company issued an aggregate of 11,242,857 shares of common stock in the 1994 Stock Offerings at a purchase price of $7.00 per share. The aggregate net proceeds (after expenses) of the 1994 Stock Offerings were approximately $76.9 million. Of the shares issued in the 1994 Stock Offerings, 5,000,000 shares of common stock were issued to MSCP III, MSCI, MSVCF II, MSVC II, and MSVI, 2,857,143 shares were issued to First Plaza Group Trust and 1,242,857 shares to certain other institutional investors. The remaining 2,142,857 shares of the common stock issued in the 1994 Stock Offerings were acquired by an affiliate of Pulsar pursuant to a private placement. 39 41 On May 11, 1995, the Company completed the issuance of 3,598,429 shares of common stock in the 1995 Private Stock Offering at a purchase price of $7.00 per share. The net proceeds (after expenses) of the 1995 Private Stock Offering were approximately $24.5 million. Of the shares issued in the 1995 Private Stock Offering, 2,277,286 were purchased by the MS Merchant Banking Funds (as defined herein), other than MSLEF II, and 357,143 shares were purchased by First Plaza Group Trust. The remaining 964,000 shares of common stock were purchased by other institutional investors and the following officers of the Company: John D. Beletic (3,000 shares), Danial W. Hay (1,000 shares), G. Clay Myers (5,000 shares), Todd A Bergwell (1,000 shares), Lawrence H. Wecsler (1,000 shares), Paul L. Turner (1,000 shares), Kenneth L. Hilton (18,000 shares) and Douglas H. Kramp (15,000 shares). In October 1995, MSLEF II, MSCP III, MSCI, MSVCF, MSVCF II, MSVC II, MSCP 892 Investors, L.P. ("MSCP 892"), and MSVI (collectively, the "Morgan Stanley Shareholders") exchanged a portion of their Class A Common Stock of the Company for Class B Common Stock in a share-for-share exchange without payment of any additional consideration. As of December 31, 1995, John D. Beletic, President of the Company, was indebted to the Company in the amount of $118,800 under three promissory notes. The first promissory note (the "First Note") was issued in January 1994 for $97,800 in connection with a stock option exercise by Mr. Beletic and bears interest at the rate of 3.55% per annum. Interest on the outstanding balance is due and payable annually beginning on January 28, 1995. The outstanding principal balance on the First Note is due and payable on January 28, 1999. The second promissory note (the "Second Note") was issued in November 1994 and bears interest at the rate of 7% per annum. Under the terms of the Second Note, Mr. Beletic may receive loans in various amounts, the total of which may not exceed $200,000. There were no amounts outstanding under the Second Note at March 31, 1996. The third promissory note (the "Third Note") was issued in May 1995 for $21,000 in connection with the purchase of Class A Common Stock by Mr. Beletic and bears interest at the rate of 6.9% per annum. Interest on the outstanding principal is due and payable annually beginning on May 11, 1996. The outstanding principal balance on the Third Note is due and payable on May 11, 1999. The First Note, the Second Note and the Third Note are all secured by the Class A Common Stock owned by Mr. Beletic. ELECTION OF DIRECTORS Pursuant to the Stockholders Agreement among certain Stockholders dated as of September 19, 1995, as amended (the "Stockholders Agreement"), the Morgan Stanley Shareholders have the right to designate and have elected one-half of the members of the Board of Directors of the Company for so long as the total number of shares of Common Stock of the Company owned by the Morgan Stanley Shareholders constitutes at least 50% of the outstanding Common Stock of the Company. If such ownership falls below 50%, the number of directors that the Morgan Stanley Shareholders will have the right to designate and have elected will be reduced to the number of directors which constitutes a percentage representation on the Board equal to the Morgan Stanley Shareholders' aggregate percentage ownership of the outstanding Common Stock of the Company. The rights of each of MSLEF II, MSCP III, MSVCF and MSVCF II to designate and have elected one member of the Board of Directors terminates once the total number of shares of common stock of the Company owned by such investor falls below 7.5%. However, each such stockholder will continue to have such rights if its ownership of Common Stock exceeds 2% and such stockholder has determined that the continued possession of such rights is necessary or desirable in order for such stockholder to qualify as a "venture capital operating company" within the meaning of Department of Labor Regulation Section 2510.3-101. MSVCF has made such a determination and continues, therefore, to have the right to designate and have elected one director. Accel Telecom L.P., Accel III, L.P. and Accel Investors 89, L.P. (collectively, "Accel") also has the right to designate one director for election to the Board of Directors so long as Accel owns at least 7.5% of the outstanding common stock of the Company. So long as Pulsar owns at least 5% of the outstanding capital stock of the Company (or until the expiration of the Pulsar Exclusivity Period, as defined in the Stockholders Agreement), it will have the right to designate one member of the Board of Directors. So long as J.P. Morgan Capital Corporation owns no less than 4% of the Common Stock of the Company, the Company will permit a representative of such holder to attend as an observer all meetings of the Board of Directors of the Company and all committees thereof. Such representative is entitled to receive all written materials and other information given to directors in connection with such meetings. 40 42 So long as the Morgan Stanley Shareholders hold securities representing at least 10% of the outstanding Common Stock, the Company is required to maintain compensation and audit committees of its Board of Directors, each consisting of up to four directors. Accel and those members of the Board of Directors who are not designated by the Morgan Stanley Shareholders are each entitled to designate one director on each such committee and the Morgan Stanley Shareholders are entitled to designate up to two directors on each such committee. The Company will not amend the Company's Restated Certificate of Incorporation or By-laws to eliminate the right of stockholders of the Company to take action upon written consent without a meeting, without prior notice and without a vote as provided in the Company's By-laws, so long as the MS Merchant Banking Funds (as defined below) hold at least 7.5% of the Company's Common Stock. REGISTRATION RIGHTS The Stockholders Agreement provides that the parties thereto, which include substantially all of the current stockholders of the Company (collectively, the "Holders"), collectively have the right to "demand" an unlimited number of registrations at any time at least six months after an initial public offering. Pursuant to these "demand" rights, Holders of common stock (the "Registrable Securities") may request in writing that the Company file a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering the registration of a number of shares equal to at least three million shares of common stock or a lesser number if such number represents a majority of the Registrable Securities then outstanding. The Company is obligated within ten days of the receipt thereof to give written notice of such request to all Holders and to use its best efforts to effect as soon as practicable the registration under the Securities Act of all Registrable Securities that the Holders request to be registered within 20 days of such notice by the Company. Unless the Holders of a majority of the Registrable Securities to be registered shall consent in writing, no other party (including the Company) will be permitted to offer securities under such demand registration. Under certain circumstances, Pulsar may also request that the Company file a registration under the Securities Act covering the registration of all of the Registrable Securities Pulsar owns. Pulsar may make no more than two such requests. The Company is not obligated to effect more than one demand registration in any six-month period. In the event the managing underwriter advises the Holders that the size of the offering is such that the success of the offering would be materially and adversely affected by inclusion of all Registrable Securities requested to be included, then the number of shares of Registrable Securities to be included in the underwriting will be reduced on a pro rata basis, provided that the Company will first reduce entirely all securities other than Registrable Securities to be included in such underwriting. The Stockholders Agreement also provides that, if the Company proposes to register any of its stock or other securities under the Securities Act in connection with the public offering of such securities solely for cash (other than an initial public offering), the Company shall, at such time, promptly (but in no event less than 30 days before the filing date) give each Holder written notice of such registration, and such notice shall offer the Holders the opportunity to register such number of shares of Registrable Securities as such Holder may request. Subject to certain restrictions, upon the written request of each Holder given within 20 days after delivery of such notice by the Company, the Company shall cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered. If the underwriters determine that the total amount of securities requested to be included in any such offering would materially and adversely affect the success of such offering, the Company will be required to include in the offering, in addition to any shares to be registered by the Company, only that number of such Registrable Securities that the underwriters determine in their sole discretion would not affect the success of such offering. 41 43 PREEMPTIVE RIGHTS Pursuant to the Stockholders Agreement, the Company has agreed that Holders of at least 1,000,000 shares of common stock will have preemptive rights with respect to any new offering of capital stock by the Company, with certain exceptions. RESTRICTIONS ON TRANSFER Under the Stockholders Agreement, if MSLEF II, MSCI, MSCP 892 and MSCP III (collectively, the "MS Merchant Banking Funds") propose to transfer (other than in a sale to the public) shares which, taken together with any prior transfers by the MS Merchant Banking Funds, represent more than 10% of the shares owned by them on the date of the Stockholders Agreement, the Holders have a right to require the transferee to purchase their shares on a pro rata basis. The Holders who own at least 67% of the voting common stock (the "Compelling Holders") also have the right to require all Holders to sell their shares to any third party that buys all of the shares owned by the Compelling Holders. The Stockholders Agreement further provides for certain restrictions on the amount of common stock which may be transferred by the parties to the Stockholders Agreement for a period of one year following any public offering of the Company's common stock, based on, with certain exceptions, the percentage of shares of common stock sold in any such offering by certain institutional investors party to the Stockholders Agreement. These restrictions on transfer, and the right of the Compelling Holders described above, will terminate, subject to certain extensions, approximately one year following the consummation of an initial public offering. The Stockholders Agreement also provides for certain restrictions on the transfer of shares of common stock by holders thereof subject to Regulation Y of the Board of Governors of the Federal Reserve System. RESTRICTIONS ON AMENDMENT OF CERTIFICATE OF INCORPORATION The Company will not amend the Company's Amended and Restated Certificate of Incorporation or By-laws to eliminate the right of stockholders of the Company to take action upon written consent of the holders of a majority of the outstanding shares of Class A Common Stock without a meeting, without prior notice and without a vote as provided in the Company's Bylaws, so long as the MS Merchant Banking Funds hold at least 7.5% of the Company's common stock. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this 10-K: (1) Financial Statements. See Index to Consolidated Financial Statements and Financial Statement Schedule on Page F-1 hereof. (2) Financial Statement Schedules. See Index to Consolidated Financial Statements and Financial Statement Schedule on Page F-1 hereof. (3) Exhibits Required by Item 601 of Regulation S-K. (A) EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- 3(i)*** Restated Certificate of Incorporation of PageMart Wireless, Inc. 3(ii)* By-laws of PageMart Wireless, Inc. 3(iii)*** Certificate of Amendment to Restated Certificate of Incorporation of PageMart Wireless, Inc.
42 44 4.1** Indenture, dated as of October 19, 1993, between PageMart, Inc. and United States Trust Company of New York, as Trustee, relating to the 12 1/4% Senior Discount Notes due 2003 4.2** Indenture dated as of January 17, 1995 between PageMart Nationwide, Inc. and United States Trust Company of New York, as Trustee, relating to the 15% Senior Discount Notes due 2005 10.1** Warrant Agreement, dated as of October 19, 1993, between PageMart, Inc. and United States Trust Company of New York, as Warrant Agent, relating to the Warrants to purchase Common Stock of the Company. 10.2** Telecommunications Service Agreement, dated May 29, 1992, between PageMart, Inc. and WilTel, Inc. 10.3** Equipment Lease Agreement, dated May 20, 1992, between PageMart, Inc. and Glenayre Electronics, Inc. 10.4** First Addendum to Equipment Lease Agreement, dated May 20, 1992, between PageMart, Inc. and Glenayre Electronics, Inc. 10.5** Amendment No. 2 to Equipment Lease Agreement, dated October 18, 1993, between PageMart, Inc. and Glenayre Electronics, Inc. 10.6** Lease Agreement and Addendum, dated January 10, 1990, between Kingston Houston Partners I, Ltd. and PageMart, Inc. 10.7** Expansion and Extension of Lease Agreement, dated April 7, 1993, between Kingston Houston Partners I, Ltd. and PageMart, Inc. 10.8** Office Lease Agreement, dated January 29, 1992, between Dallas Central Development Corp. and PageMart, Inc. 10.9** First Amendment to Office Lease Agreement, dated July 29, 1992, between Fulcrum Central Ltd., as successor in interest to Dallas Central Development Corp., and PageMart, Inc. 10.10** Second Amendment to Office Lease Agreement, dated December 1, 1992, between Fulcrum Central Ltd., as successor in interest to Dallas Central Development Corp., and PageMart, Inc. 10.11** Third Amendment to Office Lease Agreement, dated December 29, 1992, between Fulcrum Central Ltd., as successor in interest to Dallas Central Development Corp., and PageMart, Inc. 10.12** Fourth Amendment to Office Lease Agreement, dated July 21, 1993, between Fulcrum Central Ltd., as successor in interest to Dallas Central Development Corp., and PageMart, Inc. 10.13** License Agreement, dated May 12, 1994, between PageMart, Inc., licensee, and International Business Machines Corporation, licensor 10.14** Sales Contract, dated January 21, 1994, between PageMart, Inc., buyer, and Mitsui Comtek Corporation, seller 10.15** Resale Agreement, dated November 1, 1993, between PageMart, Inc., licensor, and GTE Service Corporation, licensee
43 45 10.16** Financing and Security Agreement between Motorola and Pagemart, Inc. dated May 18, 1994 10.17** Subscription Agreement, dated June 9, 1994, between PageMart, Inc. and Fomento Empresarial Regiomontano, S.A. de C.V. 10.18** Letter of Intent, dated June 9, 1994, between PageMart, Inc. and Fomento Empresarial Regiomontano, S.A. de C.V. 10.19* Strategic Alliance Agreement No. 1, dated September 15, 1994, between GTE Service Corporation and PageMart, Inc. 10.20* Strategic Alliance Agreement No. 2, dated October 13, 1994, between GTE Service Corporation and PageMart, Inc. 10.21* Secured promissory note of John D. Beletic, as Maker, in favor of PageMart, Inc. dated January 28, 1994, in the amount of $97,800 10.22* Secured promissory note of John D. Beletic, as Maker, in favor of PageMart, Inc. dated November 29, 1994, in the amount of $200,000 10.23* Agreement of Reorganization and Plan of Merger, dated as of December 5, 1994, between PageMart, Inc., PageMart Nationwide, Inc. and PM Merger Corp. 10.24* Registration Rights Agreement dated as of January 17, 1995 between PageMart Nationwide, Inc. and Morgan Stanley & Co. Incorporated 10.25++ PageMart Nationwide, Inc. Third Amended and Restated 1991 Stock Option Plan and Third Amended and Restated 1991 Stock Issuance Plan(1) 10.26** Satellite Services and Space Segment Lease Agreement, dated January 2, 1995, between PageMart, Inc. and SpaceCom Systems, Inc. 10.27** Credit Agreement, dated as of May 11, 1995, by and among PageMart Nationwide, Inc., the Lenders named therein, BT Commercial Corporation, as Agent, and Bankers Trust Company, as Issuing Bank 10.28** Subscription Agreement, dated as of May 11, 1995, by and among PageMart Nationwide, Inc. and the investors named therein 10.29+ Amended and Restated Agreement Among Certain Stockholders of PageMart Nationwide, Inc. dated as of September 19, 1995 10.30*** Secured promissory note of John D. Beletic, as Maker, in favor of PageMart Nationwide, Inc. dated May 11, 1995, in the amount of $21,000. 10.31*** Subscription Agreement dated as of July 7, 1995 among PageMart Nationwide, Inc., PageMart Canada Holding Corporation and TD Capital Group Ltd. 10.32*** Agreement Among Stockholders among PageMart Nationwide, Inc., PageMart International, Inc., TD Capital Group Ltd., PageMart Canada Holding Corporation and PageMart Canada Limited. 10.33**** Equipment Purchase Agreement between Motorola, Inc. and PageMart Wireless, Inc. (2) 10.34**** Technology Asset Agreement dated as of December 1, 1995 between Motorola, Inc. and PageMart Wireless, Inc. (2)
44 46 10.35*** PageMart Wireless, Inc. Employee Stock Purchase Plan(1) 10.36*** PageMart Wireless, Inc. Nonqualified Formula Stock Option Plan for Non-Employee Directors(1) 11.1*** Computation of earnings (loss) per share 21.1*** PageMart Wireless, Inc. Subsidiaries 27.1*** Financial Data Schedule for the year ended December 31, 1995.
* Each of these exhibits is hereby incorporated by reference to the Form 10-K of the Company for the fiscal year ended December 31, 1994. ** Each of these exhibits is hereby incorporated by reference to the Registration Statement on Form S-1 of the Company (Reg. No. 33-91142). *** Previously filed. **** Filed herewith. + Each of these exhibits is hereby incorporated by reference to the Form 8-K of the Company dated October 6, 1995. ++ Each of these exhibits is hereby incorporated by reference to the Registration Statement on Form S-8 of the Company (Reg. No. 33-98116). (1) This exhibit is a "management contract or compensatory plan or arrangement" required to be filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K. (2) The Company has requested confidential treatment for certain portions of this agreement. (B) REPORTS ON FORM 8-K A current report on Form 8-K dated October 6, 1995 was filed with the Securities and Exchange Commission on October 17, 1995 and disclosed that the Certificate of Incorporation of the Company had been amended. No financial statements were filed therewith. 45 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: May 21, 1996 PAGEMART WIRELESS, INC. (Registrant) By: /s/ JOHN D. BELETIC ----------------------------------------------- John D. Beletic Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN D. BELETIC Chairman, President and Chief - ---------------------------- Executive Officer John D. Beletic (Principal Executive Officer) May 21, 1996 /s/ G. CLAY MYERS Vice President, Finance, - ---------------------------- Chief Financial Officer G. Clay Myers and Treasurer (Principal Financial and Accounting Officer) May 21, 1996 /s/ FRANK V. SICA Director May 21, 1996 - ---------------------------- Frank V. Sica /s/ GUY L. DE CHAZAL Director May 21, 1996 - ---------------------------- Guy L. de Chazal /s/ ARTHUR PATTERSON Director May 21, 1996 - ---------------------------- Arthur Patterson Director - ---------------------------- Andrew C. Cooper /s/ ROGER D. LINQUIST Director May 21, 1996 - ---------------------------- Roger D. Linquist /s/ LEIGH J. ABRAMSON Director May 21, 1996 - ---------------------------- Leigh J. Abramson /s/ ALEJANDRO PEREZ ELIZONDO Director May 21, 1996 - ---------------------------- Alejandro Perez Elizondo Director - ---------------------------- Pamela D.A. Reeve
48 PAGEMART WIRELESS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants ............................... F-2 Consolidated Balance Sheets as of December 31, 1994 and 1995 ........... F-3 Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995...................................... F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1993, 1994 and 1995 ................. F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995...................................... F-6 Notes to Consolidated Financial Statements ............................. F-7 Report of Independent Public Accountants on Financial Statement Schedule ................................................... S-1 Schedule I--Condensed Financial Information of Registrant for the Year Ended December 31, 1995 ................................. S-2 Schedule II--Valuation and Qualifying Accounts for the Years Ended December 31, 1993, 1994 and 1995 ......................... S-6
F-1 49 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of PageMart Wireless, Inc.: We have audited the accompanying consolidated balance sheets of PageMart Wireless, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1995, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PageMart Wireless, Inc. and subsidiaries as of December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Dallas, Texas, February 12, 1996 (except with respect to the matter discussed in Note 13, as to which the date is April 1, 1996) F-2 50 PAGEMART WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts)
DECEMBER 31, ---------------------- 1994 1995 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents .......................................... $ 14,507 $ 26,973 Accounts receivable (net of allowance for doubtful accounts of $1,388 and $4,534 in 1994 and 1995, respectively) ................ 15,584 21,503 Inventories ........................................................ 12,809 11,179 Prepaid expenses and other current assets .......................... 1,497 2,880 --------- --------- Total current assets .......................................... 44,397 62,535 RESTRICTED INVESTMENTS ............................................... 500 500 PROPERTY AND EQUIPMENT (net of accumulated depreciation of $16,491 and $29,163 in 1994 and 1995, respectively) ............. 31,697 52,827 NARROWBAND LICENSES .................................................. 58,885 133,065 DEFERRED DEBT ISSUANCE COSTS (net of accumulated amortization of $959 and $2,011 in 1994 and 1995, respectively) .... 3,041 8,436 OTHER ASSETS ......................................................... 3,539 6,466 --------- --------- Total assets .................................................. $ 142,059 $ 263,829 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable ................................................... $ 16,451 $ 23,094 Deferred revenue ................................................... 13,962 21,409 Current maturities of long-term debt ............................... 3,513 5,479 Other current liabilities .......................................... 4,040 6,526 --------- --------- Total current liabilities ..................................... 37,966 56,508 LONG-TERM DEBT ....................................................... 92,632 219,364 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock, $.0001 par value per share; 10,000,000 shares authorized and none issued and outstanding at December 31, 1994 and December 31, 1995 .......................... -- -- Common stock, $.0001 par value per share, 92,000,000 shares authorized and 29,529,525 shares issued at December 31, 1994; no shares authorized and none issued at December 31,1995 ......... 3 -- Common stock, $.0001 par value per share, 60,000,000 shares authorized: Class A Convertible Common Stock, 23,277,293 shares issued at December 31, 1995 ............................................... -- 2 Class B Convertible Non-Voting Common Stock, 8,975,469 shares issued at December 31, 1995 ..................................... -- 1 Class C Convertible Non-Voting Common Stock, 731,846 shares issued at December 31, 1995 ..................................... -- -- Class D Convertible Non-Voting Common Stock, 725,445 shares issued at December 31, 1995 ..................................... -- -- Additional paid-in capital ......................................... 124,694 154,601 Accumulated deficit ................................................ (112,977) (166,090) Stock subscriptions receivable ..................................... (243) (557) Treasury stock, 200,000 shares of common stock at December 31, 1994, and none at December 31, 1995, at cost ........................... (16) -- --------- --------- Total stockholders' equity (deficit) .......................... 11,461 (12,043) --------- --------- Total liabilities and stockholders' equity (deficit) .......... $ 142,059 $ 263,829 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F-3 51 PAGEMART WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
YEARS ENDED DECEMBER 31, ----------------------------------- 1993 1994 1995 --------- --------- --------- REVENUES: Recurring revenue ......................... $ 24,184 $ 56,648 $ 101,503 Equipment sales and activation fees ....... 26,483 53,185 57,688 --------- --------- --------- Total revenues ....................... 50,667 109,833 159,191 COST OF EQUIPMENT SOLD ...................... 28,230 57,835 63,982 OPERATING EXPENSES: Technical ................................. 9,470 16,155 25,679 Selling ................................... 17,319 31,252 36,094 General and administrative ................ 15,578 29,810 43,512 Depreciation and amortization ............. 5,081 8,105 13,272 --------- --------- --------- Total operating expenses ............. 47,448 85,322 118,557 --------- --------- --------- Operating loss ....................... (25,011) (33,324) (23,348) OTHER (INCOME) EXPENSE: Interest expense .......................... 6,538 12,933 30,720 Interest income ........................... (428) (858) (1,997) Other ..................................... -- 414 1,042 --------- --------- --------- Total other (income) expense ......... 6,110 12,489 29,765 --------- --------- --------- NET LOSS .................................... $ (31,121) $ (45,813) $ (53,113) ========= ========= ========= NET LOSS PER SHARE (Primary and Fully Diluted) ............... $ (1.51) $ (1.72) $ (1.53) WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (Primary and Fully Diluted) ............... 20,627 26,574 34,653
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F-4 52 PAGEMART WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Dollars in thousands, except share amounts)
CONVERTIBLE PREFERRED STOCK COMMON STOCK ---------------------------- ---------------------------- ADDITIONAL NUMBER OF NUMBER OF PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL ------------ ------------ ------------ ------------ ------------ BALANCE, December 31, 1992 ..... 10,033,332 $ 1 2,500,000 $ -- $ 27,017 Issuance of 5,277,611 shares of Series C Preferred Stock at $3.26 per share ... 5,277,611 1 -- -- 17,034 Issuance of 627,900 common stock warrants at $5.50 per warrant .................... -- -- -- -- 3,453 171,074 shares of common stock issued under the stock option/stock issuance plan . -- -- 171,074 -- 19 Net loss ..................... -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ BALANCE, December 31, 1993 ..... 15,310,943 2 2,671,074 -- 47,523 11,242,857 shares of common stock issued in the 1994 Stock Offerings ....... -- -- 11,242,857 1 76,902 Conversion of convertible preferred stock to common stock ...................... (15,310,943) (2) 15,310,943 2 -- 304,651 shares of common stock issued under the stock option/stock issuance plan . -- -- 304,651 -- 269 Repayment of stock subscriptions receivable ... -- -- -- -- -- Net loss ..................... -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ BALANCE, December 31, 1994 ..... -- -- 29,529,525 3 124,694 Retirement of treasury stock . -- -- (200,000) -- (16) 725,445 shares of non-voting common stock issued in the Unit Offering ....... -- -- 725,445 -- 5,078 56,654 shares of common stock issued under the stock option/ stock issuance plan ........ -- -- 56,654 -- 156 3,598,429 shares of common stock issued in the 1995 Stock Offering ........ -- -- 3,598,429 -- 24,689 Net loss ..................... -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ BALANCE, December 31, 1995 ..... -- $ -- 33,710,053 $ 3 $ 154,601 ============ ============ ============ ============ ============ STOCK ACCUMULATED SUBSCRIPTIONS TREASURY DEFICIT RECEIVABLE STOCK TOTAL ------------ ------------ ------------ ------------ BALANCE, December 31, 1992 ..... $ (36,043) $ -- $ (16) $ (9,041) Issuance of 5,277,611 shares of Series C Preferred Stock at $3.26 per share ... -- (125) -- 16,910 Issuance of 627,900 common stock warrants at $5.50 per warrant .................... -- -- -- 3,453 171,074 shares of common stock issued under the stock option/stock issuance plan . -- (4) -- 15 Net loss ..................... (31,121) -- -- (31,121) ------------ ------------ ------------ ------------ BALANCE, December 31, 1993 ..... (67,164) (129) (16) (19,784) 11,242,857 shares of common stock issued in the 1994 Stock Offerings ....... -- -- -- 76,903 Conversion of convertible preferred stock to common stock ...................... -- -- -- -- 304,651 shares of common stock issued under the stock option/stock issuance plan . -- (216) -- 53 Repayment of stock subscriptions receivable ... -- 102 -- 102 Net loss ..................... (45,813) -- -- (45,813) ------------ ------------ ------------ ------------ BALANCE, December 31, 1994 ..... (112,977) (243) (16) 11,461 Retirement of treasury stock . -- -- 16 -- 725,445 shares of non-voting common stock issued in the Unit Offering ....... -- -- -- 5,078 56,654 shares of common stock issued under the Stock option/ Stock issuance plan ........ -- (125) -- 31 3,598,429 shares of common stock issued in the 1995 Stock Offering ........ -- (189) -- 24,500 Net loss ..................... (53,113) -- -- (53,113) ------------ ------------ ------------ ------------ BALANCE, December 31, 1995 ..... $ (166,090) $ (557) $ -- $ (12,043) ============ ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F-5 53 PAGEMART WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
YEARS ENDED DECEMBER 31, ------------------------------------ 1993 1994 1995 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ................................................ $ (31,121) $ (45,813) $ (53,113) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ......................... 5,081 8,105 13,272 Provision for bad debt ................................ 1,273 6,590 6,135 Accretion of discount on Senior Discount Exchange Notes 1,885 10,034 26,322 Changes in certain assets and liabilities: Increase in accounts receivable ...................... (6,541) (14,629) (12,054) (Increase) decrease in inventories ................... (5,024) (4,497) 1,630 Increase in prepaid expenses and other current assets (58) (1,091) (1,383) (Increase) decrease in other assets, net ............. (134) 254 (298) Increase in accounts payable ......................... 6,860 8,491 6,643 Increase in deferred revenue ......................... 2,602 6,780 7,447 Increase in other current liabilities ................ 1,992 248 2,486 --------- --------- --------- Net cash used in operating activities .............. (23,185) (25,528) (2,913) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments ..................... (8,616) (2,480) -- Proceeds from sales of short-term investments ........... 1,044 11,096 -- Purchases of Narrowband Licenses ........................ -- (58,885) (74,079) Purchases of property and equipment ..................... (10,810) (16,719) (33,503) Investment in international ventures .................... -- (1,902) (2,174) Purchases of intangible assets .......................... (224) (195) (403) --------- --------- --------- Net cash used in investing activities .............. (18,606) (69,085) (110,159) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of preferred stock ............... 16,910 -- -- Proceeds from issuance of common stock .................. -- 76,903 29,578 Proceeds from issuance of common stock under the stock option/stock issuance plan ....................... 15 53 31 Proceeds from issuance of Senior Discount Notes, net .... 67,575 -- 95,001 Payment of stock subscriptions receivable ............... -- 102 -- Proceeds from issuance of common stock warrants ......... 3,453 -- -- Deferred debt issuance costs incurred for Revolving Credit Agreement ............................. -- -- (1,447) Borrowings from vendor credit facilities ................ 20,111 8,540 6,777 Payments on vendor credit facilities .................... (46,281) (2,052) (4,402) --------- --------- --------- Net cash provided by financing activities .......... 61,783 83,546 125,538 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...... 19,992 (11,067) 12,466 CASH AND CASH EQUIVALENTS, beginning of period ............ 5,582 25,574 14,507 --------- --------- --------- CASH AND CASH EQUIVALENTS, end of period .................. $ 25,574 $ 14,507 $ 26,973 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest .............................................. $ 3,886 $ 998 $ 2,146 Income taxes .......................................... $ -- $ -- $ -- NONCASH TRANSACTIONS: Series C Preferred Stock issued in exchange for stock subscriptions receivable ........................ $ 125 $ -- $ -- Common stock issued in exchange for stock subscriptions receivable ............................................ $ 4 $ 216 $ 314 In August 1994, 15,310,943 shares of preferred stock were converted into 15,310,943 shares of common stock . $ -- $ -- $ --
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F-6 54 PAGEMART WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL PageMart, Inc. ("PageMart") was incorporated as a Delaware corporation on May 8, 1989, to provide wireless messaging products and services. In January 1995, PageMart effected a corporate reorganization pursuant to which PageMart Nationwide, Inc., a Delaware corporation, became the holding company parent of PageMart. In December 1995, the corporate name was changed from PageMart Nationwide, Inc. to PageMart Wireless, Inc. ("Wireless"). Wireless and its subsidiaries are referred to herein as the "Company." The consolidated financial statements of the Company include the accounts of PageMart and PageMart PCS, Inc. ("PageMart PCS"). PageMart PCS holds one of the NPCS Licenses (defined herein) and certain other assets to be used in two-way wireless messaging. The consolidated financial statements of PageMart include the accounts of PageMart II, Inc., PageMart Operations, Inc., PageMart of California, Inc., PageMart of Virginia, Inc. and PageMart International, Inc. Each of these companies is a wholly-owned subsidiary of PageMart. PageMart II, Inc. and PageMart Operations, Inc. hold certain Federal Communications Commission ("FCC") licenses. PageMart International, Inc., which has had no significant operations to date, holds certain investments in an international venture in Canada. Other than these licenses and international investments, the subsidiaries of PageMart have no significant assets or liabilities. The Company has incurred substantial losses from operations and negative cash flows from operations since inception and is highly leveraged. Management expects to continue to incur operating losses in 1996. These losses are driven by the Company's investment in the growth of its subscriber base and continued expansion into additional markets. The Company's business plan calls for substantial growth in its subscriber base in order for the Company to achieve operating profitability and positive cash flows from operations. There can be no assurance that the Company will meet its business plan, achieve operating profitability, or achieve positive cash flows from operations. If the Company cannot achieve operating profitability, it may not be able to make the required payments on existing or future obligations. The Company has made significant investments in Narrowband Personal Communications Services ("NPCS") licenses through participation in auctions conducted by the FCC. The Company plans to utilize these assets in connection with two-way wireless messaging services. The Company's success in implementing two-way services is dependent primarily upon market acceptance of proposed two-way services and the ability of the Company to successfully develop and construct a transmission network and market its two-way services. There can be no assurance that two-way services offered will be accepted by the market or that the Company will be successful in developing and constructing a transmission network or marketing its two-way services. During 1993, the Company received net proceeds of approximately $17 million from the issuance of Series C Preferred Stock and net proceeds of approximately $71 million from the issuance of 12 1/4% Senior Discount Notes due 2003 and common stock warrants (see Note 5). During 1994, the Company received net proceeds of approximately $76.9 million from the issuance of common stock (the "1994 Stock Offerings"). In conjunction with the 1994 Stock Offerings, each outstanding share of preferred stock was converted into one share of common stock (see Note 8). During 1995, the Company received net proceeds of approximately $100 million in connection with the issuance of 15% Senior Discount Notes due 2005 and non-voting common stock (see Note 5 and Note 8) and net proceeds of approximately $24.5 million from the issuance of common stock (see Note 8). Additionally, the Company entered into a revolving credit agreement with BT Commercial Corporation, as Agent, and Bankers Trust Company, as Issuing Bank, which provides for a $50 million revolving line of credit (the "Revolving Credit Agreement") (see Note 5). In management's opinion, the Company's current working capital combined with borrowings expected to be available from the Revolving Credit Agreement will be sufficient to support the planned growth for its one-way wireless communications operations through 1996. As the Company begins implementation and development of F-7 55 two-way services, the Company anticipates requiring additional sources of capital to fund the construction and operation of a two-way messaging network. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The accompanying financial statements include the accounts of Wireless and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. CASH AND CASH EQUIVALENTS The Company includes as cash and cash equivalents cash on hand, cash in banks and highly liquid investments with original maturities of three months or less. SHORT-TERM INVESTMENTS Short-term investments consist of investments in high-grade commercial paper with original maturities of more than three months for which market value approximates cost. The Company's short-term investments are made in reputable, creditworthy companies and government issues and do not generate significant credit risk to the Company. INVENTORIES Inventories consist of pagers held for resale and are stated at the lower of cost or market. Cost is determined by using the specific identification method, which approximates the first-in, first-out method. The Company purchases a majority of its pagers from Motorola, Inc. RESTRICTED INVESTMENTS Restricted investments represent certificates of deposit in the amount of $500,000 pledged as collateral on the Company's notes payable to a vendor. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated using the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes over estimated useful lives ranging from three to seven years. Depreciation expense totaled approximately $4,860,000, $7,824,000 and $12,683,000 for the years ended December 31, 1993, 1994 and 1995, respectively. The Company purchases a majority of its network equipment from Motorola, Inc. and Glenayre Technologies, Inc. Maintenance and repair costs are charged to expense as incurred. Property and equipment consisted of the following (in thousands):
December 31, ------------------------- 1994 1995 -------- -------- Network equipment ............................ $ 40,224 $ 58,404 Computer equipment ........................... 5,067 16,829 Furniture and equipment ...................... 2,897 6,757 -------- -------- 48,188 81,990 Less: Accumulated depreciation .............. (16,491) (29,163) -------- -------- $ 31,697 $ 52,827 ======== ========
F-8 56 REVENUE RECOGNITION The Company recognizes equipment revenue immediately upon the shipment of pagers adjusted by allowances for normal returns. Recurring revenue, including revenue from airtime charges and fees for other services such as voicemail, customized coverage options and toll-free numbers are recognized in the month in which the service is provided. All expenses related to the sale of equipment are recognized at the time of sale. Deferred revenue represents advance billings for services not yet performed. Such revenue is deferred and recognized in the month in which the service is provided. Patent licensing revenues are recognized on a straight-line basis over the term of the related agreement (see Note 6). Patent licensing revenues of $383,000 are included in recurring revenues in fiscal 1995. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ADVERTISING EXPENSES Advertising expenses are expensed as incurred. EARNINGS PER SHARE Net loss per share amounts as reflected on the statements of operations are based upon the weighted average number of common shares outstanding. The weighted average number of common shares outstanding assumes that the preferred shares were converted into common shares at January 1, 1993 (see Note 8). As required by the Securities and Exchange Commission rules, all warrants, options and shares issued during the year immediately preceding the initial public offering are assumed to be outstanding for all periods presented. Shares issuable upon the exercise of stock options and warrants granted before the year immediately preceding the initial public offering were not included in the net loss per share calculation as the effect from the exercise of those options would be antidilutive. RECLASSIFICATIONS Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the current year presentation. ACCOUNTING FOR LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). The Company will adopt SFAS 121 for the fiscal year ending December 31, 1996. SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS 121 requires that those assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through future cash flows. SFAS 121 requires that those assets to be disposed of be reported at the lower of the carrying amount or the fair value less cost to sell. Adoption of SFAS 121 is not expected to have a material effect on the financial statements of the Company. 3. NARROWBAND PERSONAL COMMUNICATIONS SERVICES LICENSES During July and December 1994, the Company participated in auctions of NPCS frequencies conducted by the FCC. As a result of the auctions, the Company was awarded two nationwide NPCS licenses for a total F-9 57 purchase price of approximately $133 million. Amortization of the NPCS licenses will commence when placed in service. The NPCS licenses will be amortized over a period not to exceed 40 years. The Company intends to follow the provisions of Statement of Financial Accounting Standards No. 34 "Capitalization of Interest Cost" with respect to its NPCS licenses and the related construction of its two-way messaging network. 4. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY Effective November 15, 1995, PageMart International, Inc. owns 200,000 shares of common stock of PageMart Canada Limited ("PageMart Canada") which represents 20% of the ownership of PageMart Canada. The remaining 800,000 shares (representing 80% of the ownership) is held by PageMart Canada Holding Corporation ("Canada Holding"). Canada Holding is owned 50% (1,000,000 shares of Class A Common Stock) by third-party Canadian investors unrelated to PageMart and 50% (1,000,000 shares of Class B Common Stock) by PageMart International, Inc. The common shares have identical economic rights. However, voting control of Canada Holding is held by the Class A Common Stockholders as the Class A shares have two votes per share. The Company accounts for its investments in PageMart Canada and Canada Holding under the equity method. Such investments are included in Other Assets in the Consolidated Balance Sheet. The agreement among stockholders contains provisions which restrict the transfer of Canada Holding shares and PageMart Canada shares for periods ranging from three to five years. During the two years following the third anniversary of the transactions, the third-party Canadian investors may exchange the 1,000,000 Class A common shares they hold in Canada Holding for 714,286 shares of voting common stock of Wireless, subject to certain U.S. and Canadian ownership requirements. Wireless is ultimately responsible for effectuating the exchange within the U.S. and Canadian ownership regulations. Such exchange may be accelerated in the event Wireless enters into an agreement to be acquired. After the third anniversary of the transactions, Wireless will have the right to purchase the shares held by the third-party Canadian investors at their fair market value provided regulatory ownership requirements permit such purchase. 5. LONG-TERM DEBT Long-term debt, including capital lease obligations, consisted of the following (in thousands):
December 31, ---------------------- 1994 1995 --------- --------- 12 1/4% Senior Discount Notes due November 1, 2003, at accreted value .......................... $ 83,494 $ 94,952 15% Senior Discount Exchange Notes due February 1, 2005, at accreted value ....................... -- 114,865 Vendor Purchase Financing Facility of $8 million, bearing interest at prime plus 4% based upon the rate quoted by The Wall Street Journal from time to time (rates on existing indebtedness were 12.5% at December 31, 1994, and 12.75% at December 31, 1995), secured by equipment purchased. Principal and interest is payable over 36 months from date of purchase ..... 4,756 5,138 Capital lease obligations to a vendor up to $15 million, bearing interest at 7 1/2% plus the weekly average U.S. Treasury Constant Maturities for 3-year Treasury Notes for the calendar week immediately preceding funding of the equipment financing (rates on existing indebtedness ranged from 11.84% -- 15.13% at December 31, 1994 and 1995), secured by equipment and cash with principal and interest payable over 60 months from date of financing .... 7,895 9,888 --------- --------- Total debt .................................... 96,145 224,843 Less: Current maturities .................... (3,513) (5,479) --------- --------- Long-term debt ................................ $ 92,632 $ 219,364 ========= =========
F-10 58 During the fourth quarter of 1993, the Company completed an offering in which it issued $136.5 million principal amount (at maturity) of 12 1/4% Senior Discount Notes due 2003 (the "12 1/4% Notes") with an initial accreted value of $71.6 million together with warrants to purchase 627,900 shares of its common stock for $3.26 per share. From and after May 1, 1999, interest on the 12 1/4% Notes will be payable semiannually in cash at the rate of 12 1/4% per annum. The 12 1/4% Notes represent senior indebtedness of the Company and are redeemable at the option of the Company, in whole or in part, at any time after November 1, 1998, at $136.5 million plus accrued interest. In addition, at any time prior to November 1, 1996, up to 35% of the accreted value of the 12 1/4% Notes are redeemable at the option of the Company with the proceeds of a Public Equity Offering (as defined) at 111% of accreted value plus accrued and unpaid interest, if any. In July 1994, the Company commenced an exchange offer pursuant to an effective registration statement whereby all outstanding 12 1/4% Notes were exchanged for the Company's 12 1/4% Senior Discount Exchange Notes due 2003. In January 1995, the Company completed an offering of 15% Senior Discount Notes due 2005 and 725,445 shares of non-voting common stock, par value $.0001 per share (the "Unit Offering"). Net proceeds from the Unit Offering were approximately $100 million, of which approximately $5.1 million was allocated to the non-voting common stock. The 15% Senior Discount Notes due 2005 (the "15% Notes") have a principal amount at maturity of $207.3 million with an initial accreted value of $100 million. The 15% Notes mature on February 1, 2005. From and after August 1, 2000, interest on the 15% Notes will be payable semiannually in cash at the rate of 15% per annum. The 15% Notes are redeemable at any time on or after February 1, 2000, at the option of the Company in whole or in part, at 105% of their principal amount at maturity, plus accrued and unpaid interest, declining to 100% of their principal amount at maturity plus accrued interest on and after February 1, 2002. In addition, at any time prior to February 1, 1998, up to 35% of the accreted value of the 15% Notes may be redeemed at a redemption price of 112.5% of their accreted value on the redemption date at the option of the Company in connection with a public offering of its common stock. In June 1995, the Company commenced an exchange offer pursuant to an effective registration statement whereby all outstanding 15% Notes were exchanged for the Company's 15% Senior Discount Exchange Notes due 2005. The 12 1/4% Notes and the 15% Notes carry certain restrictive covenants that, among other things, limit the ability of the Company to incur indebtedness, pay dividends, prepay subordinated indebtedness, repurchase capital stock, create liens, sell assets, engage in mergers and consolidations, and enter into transactions with any holder of 5% or more of any capital stock of the Company or any of its affiliates. The Company is in compliance with all such restrictive covenants. On May 11, 1995, the Company entered into the Revolving Credit Agreement which provides for a $50 million revolving line of credit. As of December 31, 1995, there were no loans outstanding under the Revolving Credit Agreement. The maximum amount available under the Revolving Credit Agreement at any time is limited to a borrowing base amount equal to the lesser of (i) a specified percentage of eligible accounts receivable and inventory owned by Wireless, and (ii) an amount equal to the service contribution of the Company as defined in the Revolving Credit Agreement for the immediately preceding three-month period times 4.0 (or 4.5, at all times prior to December 31, 1995). The interest rate applicable to loans under the Revolving Credit Agreement is, at the option of Wireless, either at a prime rate plus 1 1/4% or a Eurodollar rate plus 2 1/2%. Commitments under the Revolving Credit Agreement expire and all loans thereunder will be due and payable on March 31, 1999. The Revolving Credit Agreement contains certain covenants that, among other things, limit the ability of the Company to incur indebtedness, make capital expenditures and investments, pay dividends, repurchase capital stock, engage in transactions with affiliates, create liens, sell assets, or engage in mergers and consolidations, and also requires the Company to maintain certain financial ratios. F-11 59 The Revolving Credit Agreement is secured by all trade receivables and inventory owned by Wireless from time to time and by all of the capital stock of PageMart owned by Wireless. As of December 31, 1995, the maximum amount available under the Revolving Credit Agreement was $28.2 million. Maturities of long-term debt and capital lease obligations are as follows (in thousands):
FOR THE YEAR ENDING DECEMBER 31, - ------------------- 1996 ........................................... $ 5,479 1997 ........................................... 5,047 1998 ........................................... 2,359 1999 ........................................... 1,719 2000 ........................................... 422 Thereafter ..................................... 209,817 -------- $224,843 ========
6. COMMITMENTS AND CONTINGENCIES The Company has entered into various operating lease agreements for office space, office equipment and transmission equipment sites. Total rent expense for 1993, 1994 and 1995 was $4,246,000, $6,084,000 and $8,471,000, respectively. Included in network equipment is equipment held under capital leases with capitalized costs of $10,357,000 and $14,617,000 less accumulated depreciation of $2,632,000 and $5,054,000 at December 31, 1994 and 1995, respectively. Future minimum lease payments related to the Company's capital and operating leases are as follows (in thousands):
FOR THE YEAR CAPITAL OPERATING ENDING DECEMBER 31, LEASES LEASES - ------------------- ------- --------- 1996 .............................................. $ 3,989 $ 7,093 1997 .............................................. 3,626 6,169 1998 .............................................. 2,533 4,175 1999 .............................................. 1,902 2,936 2000 .............................................. 438 1,911 Thereafter ........................................ -- 1,726 ------- ------- Total minimum lease payments ...................... 12,488 $24,010 ======= Less: Amounts representing interest ............... 2,600 ------- Present value of future minimum lease payments..... $ 9,888 =======
The Company is party to various legal proceedings arising out of the ordinary course of business. The Company believes, based on the advice of legal counsel, that there is no proceeding, either threatening or pending, against the Company that could result in a material adverse effect on the results of operations or financial condition of the Company. F-12 60 In December 1995, the Company transferred certain intellectual property to a significant vendor in exchange for certain benefits which will be recognized over a forty-seven month period. The Company also committed to purchase $40 million in network infrastructure equipment over a forty-seven month period as part of this transaction. 7. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating the fair value disclosures for its financial instruments. For cash and cash equivalents, the carrying amounts reported in the Consolidated Balance Sheets are equal to fair value. For debt, management estimated the fair value based upon quoted market prices for publicly traded debt and based on the appropriate interest rate at year-end for all other debt. The carrying amounts and fair values of the Company's financial instruments at December 31, 1994 and 1995, are as follows (in thousands):
December 31, 1994 December 31, 1995 -------------------- -------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- Cash and cash equivalents ...... $ 14,507 $ 14,507 $ 26,973 $ 26,973 Long-term debt ................. $ 96,145 $ 95,548 $224,843 $241,621
8. STOCKHOLDERS' EQUITY (DEFICIT) PREFERRED STOCK On August 5, 1994, in conjunction with the 1994 Stock Offerings and the related stockholders' agreement, each outstanding share of preferred stock converted into one share of common stock. In September 1994, the Company's Certificate of Incorporation was amended to reduce the number of authorized shares of preferred stock to 10,000,000. At December 31, 1994 and 1995, none of the authorized shares of preferred stock were issued and outstanding. Under the Company's Certificate of Incorporation, the board of directors has the power to authorize the issuance of one or more classes or series of preferred stock and to fix the designations, powers, preferences and relative, participating, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, if any, with respect to each such class or series of preferred stock. COMMON STOCK During the fourth quarter 1993 in connection with issuance of the 12 1/4% Notes (see Note 5), the Company issued warrants to purchase 627,900 shares of its common stock for $3.26 per share. The warrants were valued at $5.50 per share at the date issued. The warrants may be exercised at any time prior to December 31, 2003. Warrants that are not exercised by such date will expire. During the third quarter of 1994, the Company issued an aggregate of 11,242,857 shares of common stock in the 1994 Stock Offerings at a purchase price of $7.00 per share. The aggregate net proceeds (after expenses) of the 1994 Stock Offerings were approximately $76.9 million. Of the total shares issued, 714,287 shares were convertible non-voting common stock and the remaining 10,528,570 shares were common stock. At the request of the holder, the non-voting common stock was converted to common stock in January 1995. During the first quarter of 1995 in connection with the Unit Offering (see Note 5), the Company issued 725,445 shares of non-voting common stock at a purchase price of $7.00 per share. During the second quarter of 1995, the Company completed a private offering of common stock to a group of institutional investors and certain officers of the Company (the "1995 Stock Offering"). In the 1995 Stock Offering, the Company sold 3,598,429 shares of common stock for net proceeds (after expenses) of approximately $24.5 million. In October 1995, the Company's Certificate of Incorporation was amended (the "Amended Certificate") and at that time the Amended and Restated Agreement Among Certain Stockholders of PageMart Nationwide, Inc. dated September 19, 1995 (the "Stockholders' Agreement"), became effective. The Amended Certificate provides that the Company will have four classes of outstanding common stock, summarized as follows:
SHARES ISSUED AND OUTSTANDING ----------------------------- SHARES DECEMBER 31, AUTHORIZED 1994 1995 ---------- ---------- ---------- Class A Convertible Common Stock, $.0001 par value per share (the "Class A Common Stock") 45,000,000 -- 23,277,293 Class B Convertible Non-Voting Common Stock, $.0001 par value per share (the "Class B Common Stock") 12,000,000 -- 8,975,469 Class C Convertible Non-Voting Common Stock, $.0001 par value per share (the "Class C Common Stock") 2,000,000 -- 731,846 Class D Convertible Non-Voting Common Stock, $.0001 par value per share (the "Class D Common Stock") 1,000,000 -- 725,445 ---------- ---------- ---------- 60,000,000 -- 33,710,053 ========== ========== ==========
Upon filing of the Amended Certificate, all shares of previously outstanding common stock were automatically converted into shares of Class A Common Stock, and all shares of previously outstanding non-voting common stock issued in the Unit Offering were converted into shares of Class D Common Stock. Additionally, pursuant to the Stockholders' Agreement, a number of shares of Class A Common Stock owned by certain institutional investors were automatically converted into shares of Class B Common Stock and Class C Common Stock, such that voting control of the Company lies with the stockholders generally. Class A Common Stock, Class B Common Stock and Class C Common Stock are convertible by certain institutional investors subject to voting control and regulatory restrictions at any time at the option of the holder, in accordance with the terms of the Stockholders' Agreement. Class D Common Stock is convertible, at the option of the holder, at any time after the occurrence of an initial public offering following which the common stock of the Company is publicly traded. The Stockholders' Agreement provides that the parties thereto ("Holders") shall collectively have the right to "demand" registrations at any time at least six months after an initial public offering following which the common stock of the Company is publicly traded. Pursuant to these "demand" rights, Holders of common stock (the "Registrable Securities") may request in writing that the Company file a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering the registration of a number of shares equal to at least three million shares or a lesser number if such number represents a majority of the Registrable Securities then outstanding. On March 20, 1995, the Company granted to a strategic partner warrants to purchase a total of 206,748 shares of the Company's common stock at an exercise price of $10.00. Management determined that the issuance of the warrants did not have a significant impact on the financial position or results of operations of the Company. Following is a schedule of common stock reserved at December 31, 1995:
Shares --------- Exercise of common stock warrants .......................... 834,648 Stock option/stock issuance plan ........................... 3,737,621 --------- 4,572,269 =========
F-14 61 9. STOCK OPTION/STOCK ISSUANCE PLAN The Company has a stock option/stock issuance plan (the "Plan") under which it grants common stock or options to purchase common stock. As of December 31, 1995, the number of shares of common stock issuable under the Plan may not exceed 4,550,000 shares. The Plan is administered by the board of directors. The stock options vest over 60 months and are exercisable for periods not to exceed 10 years from the date of grant. Vested options outstanding at December 31, 1993, 1994 and 1995, were approximately 268,000, 237,000 and 583,289, respectively, with exercise prices ranging from $.08 to $1.50 at December 31, 1993, $.08 to $3.26 at December 31, 1994 and $.08 to $9.00 at December 31, 1995. As of December 31, 1995, 3,737,621 shares of common stock are reserved for the Plan (see Note 8). The stock option activity was as follows:
SHARES PRICE PER SHARE ---------- --------------- Options outstanding at December 31, 1992 ...... 886,500 $ .08-1.50 Options granted .............................. 646,250 1.50-3.26 Options exercised ............................ (171,074) .08-1.00 Options canceled ............................. (214,458) .08-3.26 --------- Options outstanding at December 31, 1993 ...... 1,147,218 .08-3.26 Options granted .............................. 866,300 5.00-9.00 Options exercised ............................ (304,651) .08-3.26 Options canceled ............................. (112,158) .08-9.00 --------- Options outstanding at December 31, 1994 ...... 1,596,709 .08-9.00 Options granted .............................. 1,204,950 7.00-10.00 Options exercised ............................ (36,654) .08-7.00 Options canceled ............................. (95,872) 1.50-10.00 --------- Options outstanding at December 31, 1995....... 2,669,133 $ .08-10.00 =========
Under the provisions of the Plan, the Company may also issue stock to employees. The stock vests over a period not to exceed forty-eight months. Additional vesting occurs upon death or disability. Upon the termination of an officer, the Company can repurchase the unvested stock at cost. Under the Plan, the Company issued 300,000 shares to an officer during 1992, at $.326 per share. All awards under the Plan have been made at a price at or above the estimated fair value of the Company's common stock at the date of grant. In the second quarter of 1992, a non-employee consultant was granted options to purchase 20,000 shares of stock at an exercise price of $.33 per share. The options were exercised during 1995. In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The Company will adopt SFAS 123 for the fiscal year ending December 31, 1996. SFAS 123 establishes financial accounting and reporting standards for stock-based employee compensation plans and for transactions in which an entity issues its equity instruments to acquire goods or services from nonemployees. SFAS 123 recommends, but does not require, that companies account for all stock-based transactions as compensatory at the fair value of the equity instrument. However, since SFAS 123 does not require that the accounting be adopted, it allows companies to continue to account for such stock-based transactions under the provision of Accounting Principles Board Opinion No. 25 (the Company's current method), and disclose what the pro forma impact of adopting SFAS 123 would have been to net income and earnings per share had the Company elected to adopt the recommended accounting. The Company anticipates that it will not adopt the recommended accounting of SFAS 123, but will disclose the pro forma impact in the footnotes to the financial statements. 10. FEDERAL INCOME TAXES Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." SFAS 109 requires an asset and liability approach which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events which have been recognized in the Company's financial statements. The Company had approximately $104.7 million and $126.8 million of net operating loss carryforwards for federal income tax purposes at December 31, F-15 62 1994 and 1995, respectively. The net operating loss carryforwards will expire in the years 2004 through 2010 if not previously utilized. The utilization of these carryforwards is subject to certain limitations. Of the net operating loss carryforwards at December 31, 1995, management has estimated that approximately $34.1 million is subject to an annual utilization limit of $4.8 million. In connection with the adoption of SFAS 109, the Company has recorded a valuation reserve equal to its net deferred tax asset at each reporting period, due to historical and anticipated future operating losses. Accordingly, the adoption of SFAS 109 did not have an effect on the Company's financial position or results of operations. Management will evaluate the appropriateness of the reserve in the future based upon historical and operating results of the Company. Deferred income taxes reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their financial reporting basis and the potential benefits of certain tax carryforwards. The significant deferred tax assets and liabilities, as determined under the provisions of SFAS 109, and the change in those assets and liabilities are as follows (in thousands):
DECEMBER 31, 1994 CHANGE DECEMBER 31, 1995 ----------------- ------ ----------------- Gross deferred tax asset: Net operating loss carryforwards ...... $ 35,593 $ 7,535 $ 43,128 Bad debt reserve ...................... 472 1,626 2,098 Inventory reserve ..................... 542 286 828 Accretion of Senior Discount Notes .... 4,052 8,950 13,002 Other ................................. 341 602 943 -------- -------- -------- 41,000 18,999 59,999 Gross deferred tax liability: Depreciation .......................... (2,647) (1,047) (3,694) -------- -------- -------- 38,353 17,952 56,305 Valuation allowance ................. (38,353) (17,952) (56,305) -------- -------- -------- Net deferred tax asset .............. $ 0 $ 0 $ 0 ======== ======== ========
11. RELATED PARTY TRANSACTIONS In connection with the offering of the 12 1/4% Notes completed in 1993 (see Note 5), the Company incurred $2,626,000 in fees to an affiliate of a shareholder. In connection with the Unit Offering completed in 1995 (see Note 5), the Company incurred $3,805,000 in fees to an affiliate of a shareholder. As of December 31, 1995, the president and certain other officers of the Company are indebted to the Company in the aggregate amount of $557,000 under promissory notes issued in connection with the purchase of the Company's common stock (the "Notes"). The Notes have terms ranging from three to four years and are secured by common stock owned by the officers. The Notes bear interest at the Applicable Federal Rate in effect on the date of issuance as published by the Internal Revenue Service. Interest rates on the Notes range from 3.55% to 7.00%. Interest is due and payable annually beginning on the first anniversary of the date of each Note. All Notes are included in Stock Subscriptions Receivable in the Consolidated Balance Sheet. Wireless has entered into a receivables purchase agreement with PageMart pursuant to which PageMart may sell receivables to Wireless from time to time at book value less a reserve for normal bad debt. As of December 31, 1995, Wireless owned $11.4 million in receivables purchased from PageMart. PageMart is obligated to provide certain managerial and administrative services to PageMart Canada at PageMart Canada's request at agreed-upon rates. Under a technology license agreement, PageMart licenses PageMart Canada to use, in Canada, the intellectual property used by PageMart in its business in the U.S. The license is perpetual, irrevocable, and royalty-free. The agreement also permits PageMart Canada to purchase the license of new technology developed by PageMart for a royalty. The royalty is a portion of the cost of developing the technology, with the amount to F-16 63 be paid by PageMart Canada to be the portion of these costs equal to the ratio of PageMart Canada's revenue stream to that of PageMart. Under an intercompany rate agreement, the rates which the U.S. and Canadian companies will charge each other when customers of one travel into the other's jurisdiction are specified. Such rates approximate fair market value. 12. SUPPLEMENTARY INFORMATION The following table sets forth supplementary financial information related to the Company's various operations (in thousands):
FISCAL YEAR ENDED DECEMBER 31, 1993 --------------------------------------------------- PAGEMART PAGEMART PAGEMART ONE-WAY TWO-WAY INTERNATIONAL CONSOLIDATED --------- -------- ------------- ------------ Revenues ..................... $ 50,667 $ -- $ -- $ 50,667 Operating loss ............... (25,011) -- -- (25,011) Total assets ................. 78,773 -- -- 78,773 Capital expenditures ......... 10,810 -- -- 10,810
FISCAL YEAR ENDED DECEMBER 31, 1994 --------------------------------------------------- PAGEMART PAGEMART PAGEMART ONE-WAY TWO-WAY INTERNATIONAL CONSOLIDATED --------- -------- ------------- ------------ Revenues ..................... $ 109,833 $ -- $ -- $ 109,833 Operating loss ............... (33,324) -- -- (33,324) Total assets ................. 81,470 58,885 1,704 142,059 Capital expenditures ......... 16,719 -- -- 16,719
FISCAL YEAR ENDED DECEMBER 31, 1995 --------------------------------------------------- PAGEMART PAGEMART PAGEMART ONE-WAY TWO-WAY INTERNATIONAL CONSOLIDATED --------- -------- ------------- ------------ Revenues ..................... $ 159,191 $ -- $ -- $ 159,191 Operating loss ............... (22,972) (376) -- (23,348) Total assets ................. 120,004 140,235 3,590 263,829 Capital expenditures ........ 32,486 1,017 -- 33,503
13. SUBSEQUENT EVENT The Company has filed a Registration Statement on Form S-1 with the Securities and Exchange Commission in the contemplation of an initial public offering of the Company's Class A Common Stock. F-17 64 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors and Stockholders of PageMart Wireless, Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of PageMart Wireless, Inc. and subsidiaries included in this Form 10-K and have issued our report thereon dated February 12, 1996 (except with respect to the matter discussed in Note 13, as to which the date is April 1, 1996). Our audit was made for the purpose of forming an opinion on those financial statements taken as a whole. Schedules I and II are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Dallas, Texas, February 12, 1996 S-1 65 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT PAGEMART WIRELESS, INC. (PARENT COMPANY) CONDENSED BALANCE SHEET (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, 1995 ------------ ASSETS Current assets: Cash and cash equivalents..................................................... $ 17,075 Accounts receivable, net...................................................... 11,424 Prepaid expenses and other current assets..................................... 52 ---------- Total current assets....................................................... 28,551 Investment in PageMart PCS, Inc................................................. 95,912 Investment in PageMart, Inc..................................................... (27,022) Deferred debt issuance costs, net............................................... 5,741 ---------- Total assets.......................................................... $ 103,182 ========== LIABILITIES AND STOCKHOLDERS' DEFICIT Other current liabilities....................................................... $ 360 Long-term debt.................................................................. 114,865 Stockholders' deficit: Common stock $.0001 par value per share, 60,000,000 shares authorized, 33,710,053 shares issued at December 31, 1995.............................. 3 Additional paid-in capital.................................................... 154,601 Accumulated deficit........................................................... (166,090) Stock subscription receivable................................................. (557) ---------- Total stockholders' deficit................................................ (12,043) ---------- Total liabilities and stockholders' deficit........................... $ 103,182 ==========
See accompanying notes S-2 66 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED) PAGEMART WIRELESS, INC. (PARENT COMPANY) CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS)
DECEMBER 31, 1995 ------------ Operating loss.................................................................. $ 0 Other (income) expense: Equity in net loss of subsidiaries............................................ 38,858 Interest expense.............................................................. 15,521 Interest income............................................................... (1,266) -------- Total other (income) expense.......................................... 53,113 -------- Net loss........................................................................ $(53,113) ========
See accompanying notes S-3 67 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED) PAGEMART WIRELESS, INC. (PARENT COMPANY) CONDENSED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1995 ------------ Net cash provided by operating activities....................................... $ 1,623 -------- Cash flows from investing activities: Investment in PageMart, PCS, Inc.............................................. (96,287) -------- Net cash used in investing activities...................................... (96,287) -------- Cash flows from financing activities: Proceeds from issuance of senior discount notes, net.......................... 95,001 Proceeds from issuance of common stock........................................ 29,578 Proceeds from issuance of common stock under the stock option/stock issuance plan....................................................................... 31 Purchase of accounts receivable from subsidiary............................... (11,424) Deferred debt issuance costs incurred for Revolving Credit Agreement.......... (1,447) -------- Net cash provided by financing activities.................................. 111,739 -------- Net increase in cash and cash equivalents....................................... 17,075 Cash and cash equivalents, beginning of period.................................. -- -------- Cash and cash equivalents, end of period........................................ $ 17,075 ========
See accompanying notes S-4 68 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED) PAGEMART WIRELESS, INC. (PARENT COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION PageMart, Inc. ("PageMart") was incorporated as a Delaware corporation on May 8, 1989, to provide wireless messaging products and services. In January 1995, PageMart effected a corporate reorganization pursuant to which PageMart Nationwide, Inc., a Delaware corporation, became the holding company parent of PageMart. In December 1995, the corporate name was changed from PageMart Nationwide, Inc. to PageMart Wireless, Inc. (the "Company"). In the parent-company-only financial statements, the Company's investment in subsidiaries is stated at cost less equity in losses of subsidiaries since date of inception. The Company's share of net losses of its unconsolidated subsidiaries is included in consolidated net loss using the equity method. Parent-company-only financial statements should read in conjunction with the Company's consolidated financial statements. 2. LONG-TERM DEBT In January 1995, the Company completed an offering of 15% Senior Discount Notes due 2005 and 725,445 shares of non-voting common stock, par value $.0001 per share (the "Unit Offering"). Net proceeds from the Unit Offering were approximately $100 million, of which approximately $5.1 million was allocated to the non-voting common stock. The amount of 15% Senior Discount Notes outstanding at December 31, 1995, was $114,865. The 15% Senior Discount Notes due 2005 (the "15% Notes") have a principal amount at maturity of $207.3 million with an initial accreted value of $100 million. The 15% Notes mature on February 1, 2005. From and after August 1, 2000, interest on the 15% Notes will be payable semiannually in cash at the rate of 15% per annum. The 15% Notes are redeemable at any time on or after February 1, 2000, at the option of the Company in whole or in part, at 105% of their principal amount at maturity, plus accrued and unpaid interest, declining to 100% of their principal amount at maturity plus accrued interest on and after February 1, 2002. In addition, at any time prior to February 1, 1998, up to 35% of the accreted value of the 15% Notes may be redeemed at a redemption price of 112.5% of their accreted value on the redemption date at the option of the Company in connection with a public offering of its common stock. In June 1995, the Company commenced an exchange offer pursuant to an effective registration statement whereby all outstanding 15% Notes were exchanged for the Company's 15% Senior Discount Exchange Notes. On May 11, 1995, the Company entered into the Revolving Credit Agreement which provides for a $50 million revolving line of credit. As of December 31, 1995, there were no loans outstanding under the Revolving Credit Agreement. The maximum amount available under the Revolving Credit Agreement at any time is limited to a borrowing base amount equal to the lesser of (i) a specified percentage of eligible accounts receivable and inventory owned by the Company, and (ii) an amount equal to the service contribution (as defined in the Revolving Credit Agreement) of the Company for the immediately preceding three-month period times 4.0 (or 4.5, at times prior to December 31, 1995). The interest rate applicable to loans under the Revolving Credit Agreements is, at the option of the Company, either at a prime rate plus 1 1/4% or a Eurodollar rate plus 2 1/2%. Commitments under the Revolving Credit Agreement expire and all loans will be due and payable on March 31, 1999. The Revolving Credit Agreement contains certain covenants that, among other things, limit the ability of the Company to incur indebtedness, make capital expenditures and investments, pay dividends, repurchase capital stock, engage in transactions with affiliates, create liens, sell assets, or engage in mergers or consolidations, and also requires the Company to maintain certain financial ratios. The Revolving Credit Agreement is secured by all trade receivables and inventory owned by the Company from time to time and by all of the capital stock of PageMart owned by the Company. As of December 31, 1995, the maximum amount available under the Revolving Credit Agreement was $28.2 million. S-5 69 PAGEMART WIRELESS, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ADDITIONS ------------------------- BALANCE AT CHARGED TO CHARGED TO BEGINNING COSTS AND OTHER BALANCE AT DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD - -------------------------------------- ---------- ---------- ---------- ---------- ------------- Allowance for Doubtful Accounts Year Ended December 31, 1995 ......... $1,388 $6,135 $ 0 $2,989(a) $4,534 Year Ended December 31, 1994 ......... $1,172 $6,590 $ 0 $6,374(a) $1,388 Year Ended December 31, 1993 ......... $ 708 $1,273 $ 0 $ 809(a) $1,172
- --------------- (a) Accounts written off as uncollectible, net of recoveries. S-6 70 EXHIBIT INDEX
Exhibit Sequential No. Description of Exhibit Page No. - ------- ---------------------- ---------- 3(i)*** Restated Certificate of Incorporation of PageMart Wireless, Inc. 3(ii)* By-laws of PageMart Wireless, Inc. 3(iii)*** Certificate of Amendment to Restated Certificate of Incorporation of PageMart Wireless, Inc. 4.1** Indenture, dated as of October 19, 1993, between PageMart, Inc. and United States Trust Company of New York, as Trustee, relating to the 12 1/4% Senior Discount Notes due 2003 4.2** Indenture dated as of January 17, 1995 between PageMart Nationwide, Inc. and United States Trust Company of New York, as Trustee, relating to the 15% Senior Discount Notes due 2005 10.1** Warrant Agreement, dated as of October 19, 1993, between PageMart, Inc. and United States Trust Company of New York, as Warrant Agent, relating to the Warrants to purchase Common Stock of the Company. 10.2** Telecommunications Service Agreement, dated May 29, 1992, between PageMart, Inc. and WilTel, Inc. 10.3** Equipment Lease Agreement, dated May 20, 1992, between PageMart, Inc. and Glenayre Electronics, Inc. 10.4** First Addendum to Equipment Lease Agreement, dated May 20, 1992, between PageMart, Inc. and Glenayre Electronics, Inc. 10.5** Amendment No. 2 to Equipment Lease Agreement, dated October 18, 1993, between PageMart, Inc. and Glenayre Electronics, Inc. 10.6** Lease Agreement and Addendum, dated January 10, 1990, between Kingston Houston Partners I, Ltd. and PageMart, Inc. 10.7** Expansion and Extension of Lease Agreement, dated April 7, 1993, between Kingston Houston Partners I, Ltd. and PageMart, Inc. 10.8** Office Lease Agreement, dated January 29, 1992, between Dallas Central Development Corp. and PageMart, Inc. 10.9** First Amendment to Office Lease Agreement, dated July 29, 1992, between Fulcrum Central Ltd., as successor in interest to Dallas Central Development Corp., and PageMart, Inc. 10.10** Second Amendment to Office Lease Agreement, dated December 1, 1992, between Fulcrum Central Ltd., as successor in interest to Dallas Central Development Corp., and PageMart, Inc.
71
Exhibit Sequential No. Description of Exhibit Page No. - ------- ---------------------- ---------- 10.11** Third Amendment to Office Lease Agreement, dated December 29, 1992, between Fulcrum Central Ltd., as successor in interest to Dallas Central Development Corp., and PageMart, Inc. 10.12** Fourth Amendment to Office Lease Agreement, dated July 21, 1993, between Fulcrum Central Ltd., as successor in interest to Dallas Central Development Corp., and PageMart, Inc. 10.13** License Agreement, dated May 12, 1994, between PageMart, Inc., licensee, and International Business Machines Corporation, licensor 10.14** Sales Contract, dated January 21, 1994, between PageMart, Inc., buyer, and Mitsui Comtek Corporation, seller 10.15** Resale Agreement, dated November 1, 1993, between PageMart, Inc., licensor, and GTE Service Corporation, licensee 10.16** Financing and Security Agreement between Motorola and Pagemart, Inc. dated May 18, 1994 10.17** Subscription Agreement, dated June 9, 1994, between PageMart, Inc. and Fomento Empresarial Regiomontano, S.A. de C.V. 10.18** Letter of Intent, dated June 9, 1994, between PageMart, Inc. and Fomento Empresarial Regiomontano, S.A. de C.V. 10.19* Strategic Alliance Agreement No. 1, dated September 15, 1994, between GTE Service Corporation and PageMart, Inc. 10.20* Strategic Alliance Agreement No. 2, dated October 13, 1994, between GTE Service Corporation and PageMart, Inc. 10.21* Secured promissory note of John D. Beletic, as Maker, in favor of PageMart, Inc. dated January 28, 1994, in the amount of $97,800 10.22* Secured promissory note of John D. Beletic, as Maker, in favor of PageMart, Inc. dated November 29, 1994, in the amount of $200,000 10.23* Agreement of Reorganization and Plan of Merger, dated as of December 5, 1994, between PageMart, Inc., PageMart Nationwide, Inc. and PM Merger Corp. 10.24* Registration Rights Agreement dated as of January 17, 1995 between PageMart Nationwide, Inc. and Morgan Stanley & Co. Incorporated 10.25++ PageMart Nationwide, Inc. Third Amended and Restated 1991 Stock Option Plan and Third Amended and Restated 1991 Stock Issuance Plan(1) 10.26** Satellite Services and Space Segment Lease Agreement, dated January 2, 1995, between PageMart, Inc. and SpaceCom Systems, Inc.
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Exhibit Sequential No. Description of Exhibit Page No. - ------- ---------------------- ---------- 10.27** Credit Agreement, dated as of May 11, 1995, by and among PageMart Nationwide, Inc., the Lenders named therein, BT Commercial Corporation, as Agent, and Bankers Trust Company, as Issuing Bank 10.28** Subscription Agreement, dated as of May 11, 1995, by and among PageMart Nationwide, Inc. and the investors named therein 10.29+ Amended and Restated Agreement Among Certain Stockholders of PageMart Nationwide, Inc. dated as of September 19, 1995 10.30*** Secured promissory note of John D. Beletic, as Maker, in favor of PageMart Nationwide, Inc. dated May 11, 1995, in the amount of $21,000. 10.31*** Subscription Agreement dated as of July 7, 1995 among PageMart Nationwide, Inc., PageMart Canada Holding Corporation and TD Capital Group Ltd. 10.32*** Agreement Among Stockholders among PageMart Nationwide, Inc., PageMart International, Inc., TD Capital Group Ltd., PageMart Canada Holding Corporation and PageMart Canada Limited. 10.33**** Equipment Purchase Agreement between Motorola, Inc. and PageMart Wireless, Inc. (2) 10.34**** Technology Asset Agreement dated as of December 1, 1995 between Motorola, Inc. and PageMart Wireless, Inc. (2) 10.35*** PageMart Wireless, Inc. Employee Stock Purchase Plan(1) 10.36*** PageMart Wireless, Inc. Nonqualified Formula Stock Option Plan for Non-Employee Directors(1) 11.1*** Computation of earnings (loss) per share 21.1*** PageMart Wireless, Inc. Subsidiaries 27.1*** Financial Data Schedule for the year ended December 31, 1995
* Each of these exhibits is hereby incorporated by reference to the Form 10-K of the Company for the fiscal year ended December 31, 1994. ** Each of these exhibits is hereby incorporated by reference to the Registration Statement on Form S-1 of the Company (Reg. No. 33-91142). *** Previously filed. **** Filed herewith. + Each of these exhibits is hereby incorporated by reference to the Form 8-K of the Company dated October 6, 1995. ++ Each of these exhibits is hereby incorporated by reference to the Registration Statement on Form S-8 of the Company (Reg. No. 33-98116). (1) This exhibit is a "management contract or compensatory plan or arrangement" required to be filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K. (2) The Company has requested confidential treatment for certain portions of this agreement. EX-10.33 2 EQUIPMENT PURCHASE AGREEMENT 1 CONFIDENTIAL INFORMATION ON 27, 32 AND 35 HAS BEEN OMITTED AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION [LOGO] MOTOROLA ADVANCED MESSAGING SYSTEMS DIVISION EQUIPMENT PURCHASE AGREEMENT Between MOTOROLA, INC. Advanced Messaging Systems Division 5401 North Beach Street Fort Worth, Texas 76137 and PAGEMART WIRELESS, INC. 668 North Central Expressway Suite 800 Dallas, Texas 75206
MOTOROLA PROPRIETARY CONFIDENTIAL 1 2 CONFIDENTIAL INFORMATION ON PAGES 27, 32 AND 35 HAS BEEN OMITTED AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION [MOTOROLA LOGO] ADVANCED MESSAGING SYSTEMS DIVISION EQUIPMENT PURCHASE AGREEMENT between MOTOROLA, INC. Advanced Messaging Systems Division 5401 North Beach Street Fort Worth, Texas 76137 and PAGEMART WIRELESS, INC. 6688 North Central Expressway Suite 800 Dallas, Texas 75206
Motorola, Inc. ("Motorola") and PageMart Wireless, Inc. ("PageMart") agree that the following terms and conditions will govern the sale by Motorola to PageMart of the conventional one-way paging infrastructure equipment, the advanced two-way messaging radio paging communications equipment and subscriber units, and the services covered by this Agreement. Any attachments or schedules referenced herein, including any to be negotiated (TBN), which are or shall be appended to this Agreement, are also incorporated into the terms of this Agreement. TABLE OF CONTENTS
Page ---- PROJECT OVERVIEW 5 ARTICLE I: GENERAL PROVISIONS 6 Section 1. Scope of the Agreement 6 1.1 Definitions 1.2 General Scope of the Agreement 1.3 Contract Documents Section 2. Term 7 Section 3. Purchase and Sale of the System, Products and Services 7 3.1 Purchase of the Equipment 3.2 Licensing the Software 3.3 Purchase Orders Section 4. Statements of Work 8 4.1 Delivery of Statements of Work 4.2 Approval of Statements of Work Section 5. Delivery, Title and Risk of Loss 8 5.1 Delivery 5.2 Delivery Dates
MOTOROLA PROPRIETARY CONFIDENTIAL 2 3 5.3 Title and Risk of Loss Section 6. Acceptance and Training 8 6.1 System Acceptance Date 6.2 Immaterial Defects Will Not Bar Acceptance 6.3 Training Section 7. Payment of the Purchase Price 9 7.1 Payment Term 7.2 Delinquencies Section 8. Taxes and Other Additional Charges 10 Section 9. Equipment 10 9.1 Equipment Acceptance 9.2 Product Life 9.3 Equipment Modifications 9.4 Refurbished Parts Section 10. Software, Firmware and Documentation 10 10.1 Firmware 10.2 Software License 10.3 Software Maintenance 10.4 Protection of Source Code 10.5 Republication of Service Materials Section 11. Project Coordination and Changes 11 11.1 Appointment of Project Coordinators 11.2 Requests for Changes 11.3 Unforeseen Delays Section 12. Warranties and Disclaimers 12 12.1 Title to the Equipment 12.2 Limited Equipment Warranty 12.3 Disclaimer of Other Equipment Warranties 12.4 Software Warranty Section 13. Patent and Copyright Indemnity 12 Section 14. Limitation of Liability and Remedies 13 14.1 Remedies are Exclusive 14.2 Limitation on Damages 14.3 Maximum Liability Section 15. Default and Termination 13 15.1 Force Majeure 15.2 Elements of Default 15.3 Additional Rights Upon Default Section 16. Proprietary Information 14 16.1 General 16.2 Prohibition Against Unauthorized Use or Disclosure 16.3 Exclusions 16.4 No Manufacturing Rights Section 17. Compliance with Export Controls 14 Section 18. Dispute Resolution 14 18.1 Choice of Law 18.2 Mediation 18.3 Litigation Section 19. Relationship of the Parties 15 Section 20. Prohibition Against Improper Gifts or Payments 15 Section 21. Assignment and Subcontracting 15 Section 22. General 15 22.1 Amendments to Agreement 22.2 Notices 22.3 Public Announcements
MOTOROLA PROPRIETARY CONFIDENTIAL 3 4 22.4 Beta System Demonstration 22.5 Headings 22.6 Entire Agreement 22.7 Invalidity of Provisions 22.8 Acknowledgment ARTICLE II: SOFTWARE 17 Section 1. Paging Infrastructure Software License Agreement 17 Section 2. Software Maintenance Policy 21 ARTICLE III: ADVANCED MESSAGING SUBSCRIBER EQUIPMENT 26 Section 1. Seller Free Equipment Commitment 27 Section 2. Equipment Warranty 28 Section 3. Equipment Pricing 30 ARTICLE IV: INFRASTRUCTURE EQUIPMENT 31 Section 1. Commitments for Purchase, Equipment Credits, and Additional 32 Infrastructure Credit 1.1 Buyer Purchase Commitment 1.2 Credit for Infrastructure Equipment 1.3 Credit for Advanced Messaging Subscriber Units 1.4 Additional Infrastructure Credit Section 2. Equipment Warranty 33 Section 3. Equipment Pricing 35 ARTICLE V: GENERAL SYSTEMS ENGINEERING, INSTALLATION, SERVICES & MAINTENANCE 36
MOTOROLA PROPRIETARY CONFIDENTIAL 4 5 PROJECT OVERVIEW The purpose of this document is to define the systems, products, services, and agreements between Motorola and PageMart pursuant to continued support of PageMart's one-way paging network and a successful implementation of an advanced two-way messaging radio paging system. Toward this end, the following Articles will provide these definitions, as applicable to system and product development and to the design and implementation of the network(s). MOTOROLA PROPRIETARY CONFIDENTIAL 5 6 ARTICLE I: GENERAL PROVISIONS SECTION 1. SCOPE OF THE AGREEMENT 1.1 Definitions. In this Agreement: (a) The word "PageMart" means the Customer, PageMart Wireless, Inc., its successors and subsidiaries, collectively. (b) The word "Motorola" means the Seller, Motorola, Inc., acting through its Advanced Messaging Systems Division. The terms "the parties" and "both parties" may also be used on occasion to refer to Motorola and PageMart collectively when it is clear from the context that the term means the two parties together. (c) "Affiliate" means, with respect to a party, any corporation or other entity (i) which is directly or indirectly controlled by such party; (ii) which controls such party (the "Controlling Party"); and (iii) which the Controlling Party controls. For the purpose of this definition, "control" means the right to vote more than 50% of the shares or other securities of a corporation or other entity, or to contractually control the operations of a corporation or other entity. (d) "Contract Documents" means the documents which are specified in paragraph 1.3. (e) "Delivery Points" means the PageMart addresses to which the Products are to be delivered. (f) "Documentation" means the operating manuals, specifications and other documentation which are to be provided by Motorola to PageMart under the terms of this Agreement, as well as any other documentation which Motorola may provide to PageMart under this Agreement. At a minimum, the term "Documentation" will include all operating manuals, specifications and other documentation which Motorola customarily provides to customers who purchase the Products and Services contemplated by this Agreement. (g) "Effective Date" of this Agreement means 1 December 1995. (h) "Equipment" means the one-way and two-way paging infrastructure equipment and advanced messaging (two-way) paging subscriber equipment which is to be purchased by PageMart from Motorola, or provided to PageMart by Motorola, under the terms of this Agreement. Subscriber equipment includes but is not limited to the Tenor(TM) and "Pegasus" advanced messaging units. Infrastructure Equipment includes but is not limited to the Nucleus(R) transmitter, the Nucleus(R)-Orchestra! linear transmitter, the WMG(TM) Wireless Messaging Gateway(TM) terminal, the RF-Audience!(TM) inbound base receiver, the RF-Baton!(TM) controller, the RF-Conductor!(TM) controller, the RF-Arranger!(TM) controller, and associated parts and accessories. Equipment also will be deemed to mean any equipment commercially released by Motorola during the term of this Agreement which performs functions similar to the functions performed by the foregoing named equipment items. (i) "Functional Specifications" means the functional specifications for the Equipment and the Software which are set out in applicable Motorola Marketing Product Description (MPD) documents. Motorola shall provide these MPDs to PageMart as soon as reasonably practical. MPDs shall be generally applicable to customers of Motorola. (j) "Products" means the Equipment, the Software and the Documentation. (k) "Purchase Price" means the purchase price which PageMart is to pay for the System, Products, and/or Services, as specified in the individual Articles. (l) "Services" means any program management, engineering, installation, or other technical services which PageMart may order from Motorola under this Agreement. MOTOROLA PROPRIETARY CONFIDENTIAL 6 7 (m) "Software" means the computer-based programs which are to be licensed by PageMart from Motorola under the terms of the Software License Agreement. The term includes any updates, modifications, enhancements and extensions of such programs which are received by PageMart from Motorola from time to time under the Software License Agreement or any System Support Agreement. Software will also be deemed to include all computer-based programs Motorola customarily provides to customers who purchase the Equipment contemplated by this Agreement. (n) "Software License Agreement" means the form of software license agreement, located at Section 1 of Article II, which is to be entered into by both parties in connection with the licensing to PageMart of the Software and the Documentation. (See the definition of "Functional Specifications in Section 1.1(i) above.) (o) "System" means the advanced messaging paging communications system which is comprised of the Products and which will have the qualities and be capable of performing the functions set forth in Motorola Marketing Product Description (MPD) documents. (p) "Acceptance Date" means the date on which PageMart accepts or is deemed to have accepted the System, Products, or Services, as described in the individual Articles. (q) "System Support Agreement" means any agreement between the parties by which Motorola agrees to provide support and maintenance Services to PageMart for Equipment and/or Software. 1.2 General Scope of the Agreement. Under the terms of this Agreement, Motorola will sell and PageMart will buy the Equipment and may purchase Services, and Motorola will license to PageMart the Software, for PageMart's advanced two-way messaging project and conventional one-way paging network. 1.3 Contract Documents. The following documents collectively and exclusively constitute the entire agreement between us with respect to the sale and purchase of paging infrastructure Equipment, advanced messaging subscriber Equipment, the Dallas-Fort Worth (DFW) Beta System, Software and Services; Articles I-V, covering the general provisions; software; advanced messaging subscriber Equipment; infrastructure Equipment; and general systems engineering, installation, Services & maintenance, respectively. This Agreement will include any amendments and schedules to it. Motorola will not, pursuant to this Agreement, be responsible for providing any Services or delivering any Equipment, Software, Documentation or any other item which is not specifically required by the Contract Documents. These General Provisions control over any conflicting or ambiguous term in another Article or Contract Document. SECTION 2. TERM 2.1 This Agreement will begin on December 1, 1995, and will continue for a period of forty-seven (47) months thereafter ("the Term"), unless either party terminates the Agreement earlier under its provisions. At the end of the Term, this Agreement shall automatically renew on a year-to-year basis until either party, ninety (90) days prior to the expiration of the Term or of any subsequent one-year renewal term, provides written notice to the other party that it elects not to renew the Agreement. However, any such renewal of the Agreement shall not have the effect of extending any deadline or increasing any purchase commitment under the Agreement. SECTION 3. PURCHASE AND SALE OF THE SYSTEM, PRODUCTS AND SERVICES 3.1 Purchase of the Equipment. Motorola will sell to PageMart and PageMart will purchase from Motorola the Equipment which is to be purchased by PageMart from Motorola under the terms of this Agreement. 3.2 Licensing the Software. Motorola will grant PageMart a non-exclusive license to use the object code version of the Software and a non-exclusive license to use the Documentation which accompanies that Software. The licenses to the Software and the Documentation will be governed by the terms and conditions of MOTOROLA PROPRIETARY CONFIDENTIAL 7 8 the Software License Agreement located at Section 1 of Article II, which will specify the royalty rates (if any) for such Software code or Documentation. 3.3 Purchase Orders. Motorola and PageMart agree that, except as noted in the last sentence of this paragraph, the Contract Documents (and any other documents incorporated into this Agreement by its terms) are to be the sole legal documents governing PageMart's purchase of the System, Products and Services. PageMart will issue one or more purchase orders in connection with this Agreement, and each purchase order (P.O.) will incorporate the terms of this Agreement, whether or not this Agreement is specifically mentioned. Such P.O.s shall specify delivery times, dates, quantities, and locations consistent with the terms of this Agreement. Motorola shall invoice PageMart with reference to each P.O. generated. As stated in paragraph 22.6, this Agreement supersedes any conflicting terms or conditions contained on printed forms submitted as, or with, purchase orders, sales acknowledgments or invoices. If PageMart's purchase order introduces either a term or condition which is inconsistent with the terms of this Agreement or one which is not covered by this Agreement, then Motorola will not be bound by any such term or condition unless Motorola expressly consents in writing to such term or condition. SECTION 4. STATEMENTS OF WORK 4.1 Delivery of Statements of Work. Motorola will develop and deliver to PageMart Statements of Work (SOWs) which will set out in detail those matters which are associated with and required for the implementation of the System. Motorola will prepare the final acceptance test procedures for SOW deliverables. 4.2 Approval of Statements of Work. Following the receipt of a SOW, PageMart will have thirty (30) days to notify Motorola in writing of PageMart's approval or disapproval of such document or the acceptance test procedures therein, or to request in writing any specific clarifications, additions or modifications to the duties or specifications set out in the SOW. PageMart agrees, however, not to unreasonably withhold its approval of a SOW. In addition, if PageMart does not notify Motorola within such thirty-day period that PageMart disapproves of the SOW, PageMart will be deemed to have approved it. SECTION 5. DELIVERY, TITLE AND RISK OF LOSS 5.1 Delivery. Motorola will pack the Products for shipment and storage to meet commercial standards. Terms of delivery will be F.O.B. Motorola's facility in Fort Worth, Texas. PageMart will be responsible for all transportation charges, insurance expenses, and other charges relating to the Products, unless otherwise specified in an individual Article. 5.2 Delivery Dates. Motorola will use best efforts to meet the agreed-to delivery dates in the P.O.s. Motorola will promptly notify PageMart when any delivery will be delayed. Motorola will not be liable to PageMart for any expenses or damages because of any delay in delivery, unless Motorola fails to use best efforts to meet scheduled delivery dates. 5.3 Title and Risk of Loss. Unless otherwise specified in an individual Article, with the exception of Software and Documentation, title and risk of loss or damage to Products will pass to PageMart upon delivery of Products ordered hereunder to PageMart's designated carrier at Motorola's Fort Worth, Texas facility. PageMart must arrange for transportation of the Products, which transportation will be at PageMart's risk. Therefore, any loss or damage not caused by Motorola, after Motorola's delivery to the carrier, will be PageMart's responsibility and will not relieve PageMart of its payment obligations to Motorola. Title to the intellectual property rights related to the Software and Documentation will at all times remain with Motorola. SECTION 6. ACCEPTANCE AND TRAINING 6.1 Acceptance Date. PageMart will be deemed to have accepted the Products or Services on the earliest of the following dates (the "Acceptance Date"): MOTOROLA PROPRIETARY CONFIDENTIAL 8 9 (a) forty-five (45) days after delivery; or (b) the date that PageMart signs and delivers to Motorola a certificate of acceptance prepared by Motorola for this purpose; or (c) the date when the Products have been installed and PageMart is using the Products for the purpose of generating revenues. 6.2 Immaterial Defects Will Not Bar Acceptance. PageMart agrees that it will not refuse to accept the DFW Beta System, Equipment, or Services unless they fail to conform with one or more material specifications, requirements or functions set out in the Agreement, applicable MPDs or Documentation. 6.3 Training. Motorola will make available training classes and materials on the Equipment and Software to PageMart technicians specified by PageMart. Classes will be conducted in Fort Worth at Motorola's standard training rates. SECTION 7. PAYMENT OF THE PURCHASE PRICE 7.1 Payment for Beta System Products. (a) Down Payment. Within 30 days of submitting to Motorola each purchase order for the DFW Beta System pursuant to this Agreement. PageMart shall make a down payment to Motorola in the amount of twenty-five percent (25%) of the purchase price therein. (b) Payment of Balance. Upon delivery of Products, Motorola shall invoice PageMart for seventy-five percent (75%) of the purchase price of such Products, which PageMart shall pay within 30 days of its receipt of Motorola's invoices. 7.2 Payment for Services and non-Beta-System Products. Motorola shall invoice PageMart monthly for delivered infrastructure and two-way subscriber Equipment and for Services completed by Motorola. Within 30 days of the date of receipt of the invoice, PageMart shall pay all amounts due Motorola under this Agreement for such Equipment and Services, without deduction or offset. Payment shall be delivered at the address stated on the invoice. 7.3 Delinquencies. Any undisputed amount invoiced, or any amount which is later determined to be owed to Motorola, which is not paid within the terms and conditions of this Agreement will be considered delinquent. Based on accepted credit and collection practices, Motorola is entitled to a late-payment charge on the delinquent balance outstanding, in the amount of 1.5% per month. Any past due interest or late-payment charge will become due and payable immediately at Motorola's discretion. PageMart shall reimburse Motorola for legal fees and expenses reasonably incurred in collecting any amounts due hereunder. SECTION 8. TAXES AND OTHER ADDITIONAL CHARGES 8.1 PageMart will pay all sales, use, excise, value-added, and other taxes on the Products (except those on Motorola's net income or net worth) unless PageMart furnishes Motorola with a valid resale or exemption certificate. PageMart will also be responsible for reporting the Products for personal property tax purposes and for paying all transportation costs, insurance charges, customs duties, and loss or damage settlements from and after the date title to such Products passes to PageMart. The Purchase Price (and Motorola's prices for any add-on Products) do not include such taxes or charges; where applicable, they will be added to PageMart's total invoice amount. SECTION 9. EQUIPMENT 9.1 Equipment Acceptance. Before shipping any unit of Equipment (including an add-on unit) to PageMart, Motorola will perform its standard factory inspection and acceptance tests on the unit. PageMart will MOTOROLA PROPRIETARY CONFIDENTIAL 9 10 have the right to conduct its own incoming inspection and testing of the Equipment, but if Motorola has furnished PageMart with written specifications for an item of Equipment, PageMart may reject such item only if it fails to conform to its written specifications and PageMart gives Motorola written notice of the rejection. PageMart will be deemed to have accepted the unit unless, within 45 days after its receipt of its shipment, PageMart notifies Motorola in writing that PageMart is rejecting it for failure to conform to such specifications or criteria. PageMart's notice must advise Motorola of PageMart's specific reason for rejection. The act of payment for a unit will not be construed as acceptance, and PageMart's acceptance of the Equipment will not waive any of its warranty rights. Any Equipment which PageMart rejects must be returned to Motorola in the same condition as when PageMart received it, and only after Motorola has reviewed PageMart's notice and authorized the return. Any Equipment which PageMart returns must be shipped freight prepaid, but Motorola will then credit those charges to PageMart's account and pay the return freight charges to ship the repaired or replacement Equipment to PageMart. 9.2 Product Life. (a) Motorola does not represent that it will continue to manufacture any particular Equipment indefinitely or for any specific period. Motorola specifically reserves the right to remove any Equipment from the market and/or to cease manufacturing or supporting it. Notwithstanding the foregoing, Motorola warrants that it will make available the Products or their equivalent to PageMart for a minimum period of three years from the Effective Date, and will provide PageMart with at least 180 days written notice before dropping any Equipment from Motorola's product line. This notice is intended to allow PageMart to make an end-of-life purchase of the item before Motorola stops manufacturing it. (b) Notwithstanding Sections 9.2(a) and/or 9.3, but subject to the availability of parts from Motorola's suppliers, Motorola will sell PageMart parts and provide repair services for, or will replace, each Product at reasonable prices and lead times for at least seven years after the shipment of the last Product items purchased under this Agreement. Motorola's commitment to do so does not obligate PageMart to purchase such parts or services from Motorola during that period. 9.3 Equipment Modifications. Motorola also reserves the right to modify any of the specifications or characteristics of its Products, but no such modification will apply to Products for which a PageMart order has been accepted by Motorola prior to the modification of such specifications, without PageMart's written consent. As soon as is reasonably possible, Motorola will notify PageMart in advance of modifications. 9.4 Refurbished Parts. Some of the Equipment may contain re-manufactured parts, but those parts will be subject to the same specifications and quality control standards Motorola applies to new materials and will be warranted as if they were new. SECTION 10. SOFTWARE, FIRMWARE AND DOCUMENTATION 10.1 Firmware. Some of the Equipment to be sold to PageMart under this Agreement may contain computer programs built into their circuitry. PageMart's purchase of the Equipment includes a non-exclusive, paid-up license to use such firmware as part of the Equipment. The terms and conditions of the license for firmware related to infrastructure Equipment are set out in the Software License Agreement at Article II, Section 1. 10.2 Software License. Any Software program or Documentation related to infrastructure Equipment that Motorola furnishes to PageMart under this Agreement will be governed by the terms of the Software License Agreement located at Section 1 of Article II, to be executed by the parties before the Software is supplied to PageMart. Motorola reserves the right to modify any of the specifications, functions or features of any Software program (but no such modification will apply to a Software program for which a PageMart order has been accepted by Motorola prior to the modification of such Software, without PageMart's written consent), issue new release levels, or cease supporting a particular program or release level at any time. MOTOROLA PROPRIETARY CONFIDENTIAL 10 11 10.3 Software Maintenance. Installation, support and maintenance of Software related to infrastructure Equipment shall be performed by Motorola in accordance with the terms and conditions of the Software Maintenance Policy (SMP) located at Section 2 of Article II, to be executed by the parties before the Software is supplied to PageMart. 10.4 Protection of Source Code. PageMart acknowledges its obligation to protect the confidentiality and security of any Software source code disclosed to PageMart by Motorola, in accordance with Section 5, "Protection and Security," of the Software License Agreement. 10.5 Republication of Service Materials. PageMart may republish material from Motorola's standard service manual into PageMart's own manuals or other materials. But if PageMart does so, ita agrees to protect Motorola's underlying copyright in any of the materials which originate with Motorola. If PageMart reproduces any portion of materials for which Motorola or its supplier may hold a copyright, PageMart will annotate the material with an appropriate legend (which Motorola must approve) denoting the copyright. For materials copyrighted by Motorola, PageMart will either retain the existing Motorola notice or else substitute the following legend in its place: (C) COPYRIGHT [Name of appropriate PageMart entity], All Rights Reserved, 19 . Portions reprinted with permission of Motorola, Inc. [or Motorola's licensor, as the case may be]. Materials supplied by Motorola's licensors may require a different annotation. PageMart also agrees that it will not remove any proprietary notices, including those on the media or log-on presentations, from any products, user manuals or other material originating from Motorola or from any of its software licensors or suppliers, unless Motorola has given PageMart prior written authorization. SECTION 11. PROJECT COORDINATION AND CHANGES. 11.1 Appointment of Program Manager. Each party will appoint a Program Manager for this Agreement. The Program Manager will be responsible for maintaining technical liaison between the parties and for representing his or her company in such matters as periodic performance reviews, the formulation of specifications and acceptance criteria under the Agreement, and the processing of engineering change requests in accordance with Section 11.2. The Program Manager will also be responsible for maintaining any administrative liaison between the parties on such issues as proposed changes to this Agreement. Initially, the following individuals will serve as Program Managers for this Agreement:
PAGEMART PROGRAM MANAGER MOTOROLA PROGRAM MANAGER John Talbot, Manager, PCS Implementation Phillip Garret PageMart Wireless, Inc. Motorola Advanced Messaging Systems 6688 North Central Expressway, Suite 800 Division Dallas, Texas 75206 5401 North Beach Street Fort Worth, Texas 76137
11.2 Requests for Changes. PageMart will deliver to Motorola in writing any requests for additions, modifications or changes to this Agreement or to subsequent purchase orders hereunder. Provided the request is within the general scope of the Contract Documents, Motorola will, within a reasonable period of time from receipt of the request, issue to PageMart a written quotation detailing the effect, if any, on the implementation schedule and the purchase price. If PageMart does not accept the quotation within five business days of its receipt by providing Motorola with written notice of such acceptance, the quotation will be deemed to have been withdrawn. If PageMart accepts the quotation, this Agreement will be amended by way of a written amendment signed by both parties which incorporates the agreed upon additions, modifications and changes. Any requests for changes to this Agreement (or any of its Articles) will be sent to the other party's Program Manager. 11.2 Unforeseen Delays. PageMart and Motorola each recognize that unforeseen technical problems may preclude Motorola from being able to meet precisely the milestone dates specified in the quotations MOTOROLA PROPRIETARY CONFIDENTIAL 11 12 referenced in Section 11.2. In the event of such a delay, subsequent milestone dates will be postponed accordingly. SECTION 12. WARRANTIES AND DISCLAIMERS 12.1 Title to the Equipment. Motorola warrants that it is the owner of the Equipment and has the right to transfer title to the Equipment to PageMart. 12.2 Limited Equipment Warranty. Motorola warrants the Equipment under the terms of the Limited Product Warranty attached at Section 2 of Article III for advanced messaging subscriber Equipment, and at Section 2 of Article IV for paging infrastructure Equipment. 12.3 Non-Infringement of Patents and Copyrights. Motorola warrants that Products will not infringe a United States patent, copyright or other intellectual property right of a third party, subject to the remedies in Section 13 below. 12.4 Conformance with MPDs. Motorola warrants that the capabilities of the Products will be consistent with the Functional Specifications contained in the Motorola Marketing Product Descriptions. 12.5 Disclaimer of Other Equipment Warranties. THE WARRANTIES REFERENCED IN THIS SECTION ARE THE ONLY WARRANTIES FOR THE EQUIPMENT. MOTOROLA EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, GUARANTEES OR REPRESENTATIONS, WHETHER EXPRESS, IMPLIED, OR STATUTORY, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. MOTOROLA ALSO DISCLAIMS ANY IMPLIED WARRANTY ARISING OUT OF TRADE USAGE OR OUT OF A COURSE OF DEALING OR COURSE OF PERFORMANCE. 12.6 Software Warranty. Motorola's warranties for any of the Software programs are set out in the Software License Agreement at Section 1 of Article II. SECTION 13. PATENT AND COPYRIGHT INDEMNITY Motorola will defend and indemnify PageMart in the event of any allegation of infringement directed at PageMart with respect to its use of any Products purchased or provided hereunder as follows: 13.1 Motorola shall, at its expense, defend, indemnify and hold PageMart harmless against any claim alleging that the Products supplied hereunder infringe a United States patent or copyright, provided that PageMart promptly notifies Motorola in writing of the claim, that PageMart does not retain counsel without the prior written consent of Motorola, that Motorola has sole control of the instructing of such counsel and sole control of the defense and all related settlement negotiations, and that PageMart gives Motorola, at Motorola's request, information and assistance for the defense. Subject to the limitation of liability for incidental and consequential damages of this Agreement, Motorola will pay all resulting costs and damages finally awarded by a court of competent jurisdiction or settled by Motorola. Motorola will not be responsible for any settlement made without its written consent, or for any costs, expenses or fees incurred by PageMart without Motorola's prior written consent. 13.2 If PageMart becomes enjoined from using or selling the Products supplied hereunder by Motorola, Motorola, at its option and expense, will either procure the right for continued use of such Products, or replace or modify the same so that they become non-infringing. If neither of the foregoing alternatives is available on terms which are reasonable in Motorola's judgment, PageMart can return such Products to Motorola for credit or refund, at PageMart's option, of such Product's full depreciated value. 13.3 Motorola has no liability for any claim of parent or copyright infringement based upon adherence to specifications, designs or instructions furnished by PageMart or its customers, nor for any claim based upon the combination, operation or use of any Motorola products or components thereof with equipment of others, nor for any claim based upon Products which have been altered by PageMart or PageMart's customers. MOTOROLA PROPRIETARY CONFIDENTIAL 12 13 13.4 If Motorola becomes enjoined from manufacturing, using or selling Products supplied pursuant to PageMart's specifications or requirements, PageMart, at its option and expense, will either procure the right for continued use of such Products, or change or modify their specifications or requirements so that non-infringing Products can be made, used and sold by Motorola. 13.5 Motorola's total liability under this Section for patent and copyright infringement claims shall not exceed the lesser of (a) the actual funds paid to Motorola by PageMart for the Products purchased hereunder, or (b) $1 million U.S. SECTION 14. LIMITATION OF LIABILITY AND REMEDIES 14.1 Remedies are Exclusive. PageMart's exclusive remedies concerning Motorola's performance or nonperformance are those expressly stated in this Agreement. 14.2 Limitation on Damages. Except with respect to breaches of Section 16 and Motorola's obligations pursuant to Section 13, UNDER NO CIRCUMSTANCES WILL MOTOROLA OR PAGEMART BE LIABLE TO THE OTHER FOR LOSS OF USE, DAMAGE TO OR LOSS OF PRODUCTS OR SERVICES, LOSS OF DATA, FAILURE TO REALIZE EXPECTED SAVINGS, FRUSTRATION OF ECONOMIC OR BUSINESS EXPECTATIONS, LOST REVENUE OR PROFITS, OR FOR ANY OTHER SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF THEY WERE FORESEEABLE OR MOTOROLA OR PAGEMART WAS INFORMED OF THEIR POTENTIAL. And neither party will be liable to the other for claims by third parties, with the exception of claims regarding a party's intellectual property rights, as described in Section 13 hereof. 14.3 Maximum Liability. Each party's total liability to the other party for damages under this Agreement will not exceed (a) the price paid for the Products at issue in a claim regarding defective Products, or (b) the value of the Products at issue in the claim in all other instances. This limitation will apply regardless of the form of action (i.e., whether the lawsuit is in contract or in tort, including negligence). SECTION 15. DEFAULT AND TERMINATION 15.1 Force Majeure. Neither Motorola nor PageMart will be liable to the other for any delay or failure to perform if that delay or failure results from a cause beyond its reasonable control. Such causes include but are not limited to strikes or other labor disturbances, acts of God, acts of the other party, interruptions of transportation or inability to obtain necessary labor, materials, or facilities, default of any supplier, or delays in relevant telecommunications authorities in frequency authorization or license grant. The delivery and installation schedule shall be considered extended by a period of time equal to the time lost because of any excusable delay. In the event Motorola is unable to wholly or partially perform for a period greater than one hundred and eighty (180) days because of any cause beyond its control, either party may terminate any delayed order without any liability. 15.2 Elements of Default. Either party will be considered to be in default of this Agreement if any of the following occurs: (a) it assigns this Agreement or any of its rights under this Agreement in violation of Section 21; (b) it fails to perform any material obligation under this Agreement or the Technology Asset Agreement, including the obligation to pay amounts when due; (c) it makes an assignment for the benefit of its creditors, or a receiver, trustee in bankruptcy or similar officer is appointed to take charge of its assets; or (d) it files for relief under state or federal bankruptcy laws. In that event, the non-defaulting party may terminate this Agreement if the other has failed to take corrective action within 30 days after its receipt of a notice of default and intent to terminate. 15.3 Additional Rights upon Default. If PageMart fails to comply with any of the material terms of this Agreement, Motorola may, prior to terminating this Agreement, upon notification and provision of a 10-day cure period to PageMart, withhold its performance until PageMart's default is cured and pursue its other remedies. Motorola may also seek injunctive relief if PageMart's actions threaten Motorola's (or its supplier's) proprietary rights. These remedies are in addition to any other legal remedies Motorola may have. MOTOROLA PROPRIETARY CONFIDENTIAL 13 14 SECTION 16. PROPRIETARY INFORMATION 16.1 General. During the course of the parties' relationship under this Agreement, each party may be given access to certain confidential or proprietary information of the other. Motorola and PageMart will each exercise due diligence to maintain in confidence any such information disclosed by one to the other, if the information is furnished on a confidential basis and marked or identified as confidential or proprietary when first disclosed ("Proprietary Information"). Proprietary Information may include information furnished during oral presentations or discussions, if it is conspicuously identified as proprietary at the time and then confirmed in writing within 30 days, specifically describing what is considered to be proprietary. As used here, the term "due diligence" means the same precaution and standard of care which the receiving party uses to safeguard its own proprietary information, but in no event less than reasonable care. 16.2 Prohibition Against Unauthorized Use or Disclosure. The party receiving Proprietary Information from the other will use due diligence to prevent any unauthorized use, disclosure, publication or dissemination by it or its Affiliates. The receiving party may not reproduce, distribute or disclose any of the other's Proprietary Information to a third party, or use it for any commercial purpose outside this Agreement, without first obtaining written permission from the party which furnished it. In particular, Motorola and PageMart will each ensure that any of its employees who are given access to the Proprietary Information of the other will have a need to know and will be required to hold that Information in confidence and to use it only in the course of their employer's business. 16.3 Exclusions. This section does not impose any obligation on either party if the information is: (1) publicly known at the time of disclosure without breach of this Agreement; (2) already known to the receiving party at the time of disclosure; (3) independently developed by the receiving party without use of the Proprietary Information; or (4) disclosed pursuant to court or administrative order. Unless the parties agree otherwise, the obligations under this Section will expire five years after the date of Motorola's last shipment to PageMart under this Agreement. 16.4 No Manufacturing Rights. This Agreement does not grant PageMart any license under any patents or other industrial property rights that Motorola may own, control, or be licensed to use, except the right to buy, sell, and deal in the Products furnished by Motorola. In particular, PageMart acknowledges that this Agreement does not grant it any right to manufacture the Products under any circumstances. SECTION 17. COMPLIANCE WITH EXPORT CONTROLS 17.1 PageMart will not export from the U.S. any Equipment, Software, Documentation or other products or technical data furnished under this Agreement without first obtaining the necessary export licenses from the United States Government. PageMart further warrants that it will not resell, transfer or export any of the Equipment, Software, Documentation or other products or technical data in violation of any laws, regulations, transaction or export controls or economic sanctions imposed by the United States Government regarding any other country, government or political entity. PageMart's obligations under this Section will continue even after this Agreement ends. SECTION 18. DISPUTE RESOLUTION 18.1 Choice of Law. This Agreement is governed by the laws of the State of Illinois. 18.2 Mediation. Motorola and PageMart will attempt to settle any claim or dispute arising out of this Agreement through consultation and negotiation in good faith and a spirit of mutual cooperation. If those attempts fail, then the dispute will be mediated by a mutually-acceptable mediator to be chosen by Motorola and PageMart within 45 days after written notice by one of both parties demanding mediation. Neither party may unreasonably withhold consent to the selection of a mediator, and Motorola and PageMart will share the costs of the mediation equally. By mutual agreement, however, Motorola and PageMart may postpone mediation until each has completed some specified but limited discovery about the dispute. The parties may also agree to MOTOROLA PROPRIETARY CONFIDENTIAL 14 15 replace mediation with some other form of non-binding alternative dispute resolution (ADR), such as neutral fact-finding or a minitrial. The use of any ADR procedure will not be construed under the doctrines of laches, waiver or estoppel to affect adversely the rights of either party and shall toll the statute of limitations period while the ADR procedure is ongoing. 18.3 Litigation. Any dispute which the parties cannot resolve between them through negotiation or mediation within six months of the date of the initial demand for it by a party may then be submitted to the courts within the State of Illinois for resolution. Each party agrees to submit to the jurisdiction of those courts. Nothing in this paragraph will prevent either party from resorting to judicial proceedings if (a) good faith efforts to resolve the dispute under these procedures have been unsuccessful, or (b) interim relief from a court is necessary to prevent serious and irreparable injury to one party or to others. The parties knowingly, voluntarily and intentionally waive the right each may have to a jury for any such judicial proceedings. SECTION 19. RELATIONSHIP OF THE PARTIES 19.1 Each party will be deemed to be an independent contractor, and not an agent, joint venturer, or representative of the other. Neither party may create any obligations or responsibilities on behalf of or in the name of the other. 19.2 The personnel performing installation and other services on behalf of Motorola under this Agreement shall at all times be under Motorola's exclusive direction and control and shall be employees of (or subcontractors to) Motorola and not employees of PageMart. Motorola shall pay all wages, salaries and other amounts due its employees in connection with this Agreement, and shall be responsible, in compliance with applicable laws relating to worker's compensation and employer's liability insurance, for insuring all of its employees who perform services under this Agreement. SECTION 20. PROHIBITION AGAINST IMPROPER GIFTS OR PAYMENTS 20.1 No official, employee or agent of any government, governmental agency or political party shall be given any benefit, share in any proceeds from this Agreement, or receive any item of value related to this Agreement. The parties each warrant that they have not and will not, in connection with this Agreement, pay, donate, give or promise anything of value to any such person or entity on behalf of Motorola or PageMart. SECTION 21. ASSIGNMENT AND SUBCONTRACTING 21.1 Except as follows, neither party may assign this Agreement or delegate its performance under it without the prior written consent of the other, but such consent will not be unreasonably withheld. PageMart agrees, however, that Motorola may appoint subcontractors to perform certain of its obligations under this Agreement, including (but not limited to) those relating to the Software. In addition, Motorola may assign this entire Agreement to one of its affiliates, or sell, transfer or assign to a financing institution its right to receive payment from PageMart. Motorola will remain primarily liable for its performance under this Agreement notwithstanding any assignment or appointment. 21.2 This Agreement will be binding upon any successor or permitted assignee of either party. SECTION 22. GENERAL 22.1 Amendments to Agreement. Amendments to this Agreement may only be made in writing and signed by an officer or other authorized representative of each party. 22.2 Notices. Notices under this Agreement must be in writing and sent by facsimile, courier, or registered or certified mail to the appropriate party at its address stated on the first page of this Agreement (or to a new address if the other party has been properly notified of the change). A notice will not be effective until the person to whom it is addressed actually receives it. MOTOROLA PROPRIETARY CONFIDENTIAL 15 16 22.3 Public Announcements. PageMart and Motorola agree that the terms of this Agreement are confidential and cannot be disclosed by either party outside its respective organization without the other's written consent, with the following exceptions: 1) as may be required by law or regulatory agency; 2) for the purposes of a securities offering or financing; 3) to accountants, financial advisors, and their counsel, under the terms of a confidentiality agreement; or 4) to establish their rights under this Agreement. However, prior to PageMart's disclosure of such terms under the above exceptions, Motorola shall be given an opportunity to review the material to be disclosed. The parties agree to work together to produce such press releases and other public announcements as are acceptable to both parties, including a joint press release announcing only (1) the dismissal of PageMart's lawsuit against MobileMedia, and (2) the transfer of PageMart's parent portfolio to Motorola. 22.4 Beta System Demonstration. PageMart agrees to the reasonable use of the DFW Beta System for Motorola's product demonstration purposes. 22.5 Headings. The section headings in this Agreement are for convenience only and will not be considered part of, nor affect the construction or interpretation of, any provision of this Agreement. 22.6 Entire Agreement. The Technology Asset Agreement and Contract Documents of this Agreement represent the entire agreement between the parties regarding the transfer of PageMart patents and the sale and purchase of the System, Products and any Services. Their terms and conditions supersede any terms or conditions contained on printed forms submitted with purchase orders, sales acknowledgments or invoices, and all previous oral or written communications between the parties regarding the subject, except for the factual information on the front of that form regarding such matters as model numbers and quantities of equipment, prices, requested delivery date and time, and delivery instructions. 22.7 Invalidity of Provisions. If any provision of this Agreement is held illegal, invalid or unenforceable, such invalidity will not affect the enforceability of any other provision not held to be invalid. 22.8 Acknowledgment. Both parties acknowledge that they have read this Agreement, have had the opportunity to review it with an attorney if desired, understand it, and agree to be bound by its terms. All of which is signed on behalf of Motorola and PageMart by their authorized representatives. MOTOROLA, INC. PAGEMART WIRELESS, INC. By: /s/ LARRY CONLEE By: /s/ G. CLAY MYERS ---------------------------- ---------------------------- Print Name: Larry Conlee Print Name: G. Clay Myers -------------------- --------------------- Title: Corporate VP Title: V.P. Finance & CFO ------------------------- ------------------------- Date: 1/26/96 Date: 1/26/96 -------------------------- -------------------------- MOTOROLA PROPRIETARY CONFIDENTIAL 16 17 ARTICLE II: SOFTWARE SECTION 1. PAGING INFRASTRUCTURE SOFTWARE LICENSE AGREEMENT MOTOROLA PAGING INFRASTRUCTURE SOFTWARE LICENSE AGREEMENT (C) Motorola, Inc. 1995 This Paging Infrastructure Software License Agreement ("License Agreement") is made and entered into by and between MOTOROLA, INC. ("Motorola") and PAGEMART WIRELESS, INC., and its Affiliates ("Licensee"). In accordance with the following terms and conditions, Motorola agrees to grant to Licensee and Licensee agrees to accept from Motorola, a limited license for Motorola's Paging Infrastructure object code Software and related Documentation used in connection with items of Equipment purchased under this Agreement, including any supplements or updates to any such Software or Documentation item delivered to the Licensee from Motorola under the terms of either the initial purchase of the Software or according to the terms of a Software Maintenance Policy (SMP). In that regard, Motorola and Licensee specifically agree that, for as long as the Equipment Purchase Agreement ("the Agreement") is in effect, the Licensee may obtain from Motorola such items of Software offered by Motorola's Advanced Messaging Systems Division. Unless Motorola and Licensee execute a separate agreement specifically licensing a particular item of software, the Licensee's use of all Software purchased under this Agreement shall be subject to the terms and conditions of this License Agreement, and Motorola may supply such items of Software to Licensee subject to the terms and conditions of this License Agreement. 1. EFFECTIVE DATE OF LICENSE. This License Agreement is an offer to license by Licensee, and will become effective: (A) after the Licensee, or an authorized agent of the Licensee, has signed this Agreement and returned it to Motorola at the address below; and (B) either (i) an authorized agent of Motorola has acknowledged receipt of this Agreement in writing; or (ii) Motorola ships to the Licensee at its address below, an item or items of Software requested by the Licensee. 2. LICENSE. Motorola hereby grants to Licensee a personal, nonexclusive, nontransferable, limited license to use the Software, subject to the conditions and limitations contained in this License Agreement, solely for the purpose of operating or testing Motorola paging infrastructure Equipment in which the Software is initially installed. Licensee understands and agrees to each of the following: A. Each item of Software obtained by Licensee from Motorola pursuant to this License Agreement shall only be used by the Licensee upon Motorola hardware, or upon third-party hardware purchased through Motorola. B. Use of an item of Software at one location shall not include the right to access use of that Software through remote access from any other location. C. Licensee acknowledges and agrees that any material breach of this License Agreement or any unauthorized use, dissemination, distribution, or modification of software and programming information contained within Motorola infrastructure Equipment will likely cause Motorola substantial and irreparable harm. MOTOROLA PROPRIETARY CONFIDENTIAL 17 18 3. CHARGES AND PAYMENTS. For each item of Software licensed, Licensee agrees to pay a nonrefundable, lump-sum, per-Equipment-item charge. Each such charge shall be due and payable within thirty (30) days of receipt of invoice. Service charges at the maximum rate permitted by applicable law may be invoiced on accounts more than ten (10) days past due and shall be due and payable upon receipt of invoice. 4. TAXES. Licensee shall pay all sales, use and excise taxes, and any other assessments in the nature of taxes however designated, on the Software or its license or use, on any amount payable or any Services furnished under the License Agreement, or otherwise related to or resulting from the License Agreement. 5. PROTECTION AND SECURITY. Title to and ownership of any item of Software delivered hereunder and to any copies made by Licensee is, and shall at all times remain, in Motorola. Licensee acknowledges Motorola's claim that the Software contains valuable proprietary information and trade secrets and that unauthorized dissemination, distribution, modification, reverse engineering, disassembly, or unauthorized use of the Software could cause irreparable harm to Motorola. Therefore, Licensee agrees not to disclose, transfer, provide, or otherwise make available in any form whatsoever the Software, the information therein, or any portion thereof, to any person or organization other than Licensee's employees, without the prior written consent of Motorola. Licensee will take appropriate action, by instruction, agreement or otherwise, with any persons permitted access to the Software so as to enable Licensee to hold the Software in confidence and otherwise to satisfy its obligations under this License Agreement. Since unauthorized use of such Motorola software can greatly diminish the value of such trade secrets and cause irreparable harm to Motorola, Licensee also agrees that Motorola, in addition to any other remedies it may have, shall be entitled to equitable relief to protect such trade secrets, including without limitation, temporary and permanent injunctive relief, without the proving of amount of damage by Motorola. Licensee shall make no copies of the Software except those working or back-up copies necessary to enable Licensee's operation and testing in the specified licensed Equipment. A backup copy may be made for the Equipment licensed herein. Licensee will provide to Motorola, upon Motorola's request, the actual location of all copies of the Software. Licensee will reproduce and include all copyright and trademark notices and other proprietary legends, on all copies in accordance with Motorola's instructions. Licensee acknowledges and agrees that the existence of any copyright notice on any item of Software shall not be construed as an admission or presumption that publication of such item of Software has occurred. Licensee agrees that any breach of the terms of this Section 5 shall be considered by the parties hereto to be a substantial and material breach of this Agreement, which breach shall be grounds for Motorola to terminate Licensee's license hereunder pursuant to the terms of Section 9(a). The terms of this Section shall survive the termination of this License Agreement and any license hereunder. 6. MAINTENANCE. Motorola shall not be responsible for field support or field service of Software under this License Agreement. Any maintenance by Motorola, if available, shall be by separate agreement on Motorola's then current terms and conditions and at Motorola's then current prevailing rates for such maintenance. 7. SOFTWARE WARRANTY DISCLAIMER. LICENSEE ACCEPTS THE SOFTWARE LICENSED UNDER THE LICENSE AGREEMENT "AS IS." OTHER THAN AS WARRANTED IN SECTION 12 OF ARTICLE I, MOTOROLA EXTENDS NO WARRANTIES ON THE SOFTWARE, EITHER EXPRESS OR IMPLIED, AND SPECIFICALLY EXCLUDES WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. MOTOROLA PROPRIETARY CONFIDENTIAL 18 19 8.1 TERMINATION OF LICENSE. Any license granted under this License Agreement is effective until terminated as set forth below. Licensee may terminate a license for an item of Software at any time by returning to Motorola all originals and all copies of the Software (including documentation and materials). Licensee agrees that the termination of a license by Licensee or Motorola does not entitle Licensee to the refund of any license charge. Motorola may terminate a license for an item of Software, or terminate this entire License Agreement, if Licensee fails to comply with any material term or condition of this License Agreement. (See Section 9. Default.) Upon termination, Licensee agrees to return all copies of the Software to Motorola and delete all copies of the Software from any mass storage device. 8.2 TERMINATION FOR CAUSE. This Agreement may be terminated by Motorola immediately, and without notice to the Licensee, upon the occurrence of any of the following events: (a) Any material default by the Licensee as set forth in Section 9 below. (b) Licensee ceases to function as a going concern, declares bankruptcy, or otherwise becomes insolvent. 9. DEFAULT. Default includes, but is not limited to, any of the following acts or omissions: (a) Licensee fails to perform any of its obligations under Section 5, "Protection and Security," and such failure remains uncured for a period of ten (10) days after Licensee's receipt of written notice thereof from Motorola. (b) Licensee fails to perform any of its material obligations under this License Agreement, and such failure remains uncured for a period of thirty (30) days after Licensee's receipt of written notice thereof from Motorola. 10. REMEDIES. In the event of any material default by Licensee under this License Agreement, Licensee acknowledges that in addition to any other rights and remedies available to Motorola under law or in equity, Motorola may: - withhold performance hereunder; or, - terminate the license for any item of Software at any time; or, - terminate this entire License Agreement; or, - demand and be entitled to the immediate return of all copies of any or all items of Software. In any such event, Motorola's remedies shall be cumulative. There shall be no obligation upon Motorola to exercise a particular remedy. 11. LIMITATION OF LIABILITY. Motorola's entire liability to Licensee for Motorola's performance or nonperformance under this License Agreement shall be limited to a refund by Motorola of an amount not to exceed the total license charge paid by Licensee for the item of Software and the Equipment item in which it is contained that are directly related to such claim. UNDER NO CIRCUMSTANCES WILL MOTOROLA OR PAGEMART BE LIABLE TO THE OTHER FOR LOSS OF USE, DAMAGE TO OR LOSS OF PRODUCTS OR SERVICES, LOSS OF DATA, FAILURE TO REALIZE EXPECTED SAVINGS, FRUSTRATION OF ECONOMIC OR BUSINESS EXPECTATIONS, LOST REVENUE OR PROFITS, OR FOR ANY OTHER SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF THEY WERE FORESEEABLE OR MOTOROLA OR PAGEMART WAS INFORMED OF THEIR POTENTIAL. 12. ASSIGNMENT. Licensee is prohibited from assigning, transferring or sublicensing the Software without the prior written consent of Motorola. However, Licensee may sublicense a joint venturer with Motorola's written approval, such approval not to be unreasonably withheld. Any prohibited assignment, transfer or sub-license shall be null and void. Motorola reserves the right to assign the License Agreement, encumber or sell the Software, or subcontract any of its obligations hereunder, either in whole or in part, without notice to or the consent of MOTOROLA PROPRIETARY CONFIDENTIAL 19 20 Licensee, although Motorola shall be ultimately responsible for the performance of its obligations hereunder. 13. NOTICES. All formal notices and other communications required or permitted under the License Agreement shall be in writing to the addresses indicated in this License Agreement. 14. ENTIRE AGREEMENT. THIS LICENSE AGREEMENT CONSTITUTES THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN MOTOROLA AND LICENSEE, AND SUPERSEDES ALL ORAL OR WRITTEN PROPOSALS, PRIOR AGREEMENTS, AND OTHER PRIOR COMMUNICATIONS BETWEEN THE PARTIES, CONCERNING THE SUBJECT MATTER OF THE LICENSE AGREEMENT. 15. GENERAL TERMS AND CONDITIONS. This License Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. No amendment of this License Agreement or representation or promise relating thereto shall be binding unless it is in writing and signed by both parties. Notwithstanding any variance with the terms and conditions of any order submitted by Licensee, the terms and conditions of this License Agreement shall prevail. No waiver by a party of any breach of any provision of this License Agreement shall constitute a waiver of any other breach of that or any other provision of this License Agreement. Licensee recognizes that applicable Federal Communications Act and other statutes, laws, ordinances, rules and regulations may change from time to time. Accordingly, without liability and in its sole discretion, Motorola has the right to modify this License Agreement to comply with such changes. In the event that any of the provisions contained in this License Agreement are held to be unenforceable, this License Agreement shall be construed without such provisions. No action, regardless of form, arising out of this License Agreement may be brought by Licensee more than one (1) year after the cause of action has arisen. ACCEPTED AND APPROVED BY MOTOROLA AS OF 26 JANUARY, 1996. LICENSOR LICENSEE MOTOROLA, INC. PAGEMART WIRELESS, INC. BY: /s/ LARRY CONLEE BY: /s/ CLAY MYERS ----------------------------- --------------------------- (Authorized Signature) (Authorized Signature) Please type the following: Please type the following: NAME: LARRY CONLEE NAME: G. CLAY MYERS --------------------------- ------------------------- TITLE: CORP VP TITLE: V.P. FINANCE & CFO -------------------------- ------------------------ DATE: 1/26/96 DATE: 1/26/96 -------------------------- ------------------------ Address for Formal Notices: Address for Formal Notices: MOTOROLA, INC. PAGEMART WIRELESS, INC. Attn: SMP Dept. 6688 North Central Expressway Advanced Messaging Systems Division Suite 800 5401 North Beach Street Dallas, Texas 75206 Fort Worth, Texas 76137 Attn: /s/ TODD BERGWALL -------------------------
MOTOROLA PROPRIETARY CONFIDENTIAL 20 21 ARTICLE II: SOFTWARE SECTION 2. SOFTWARE MAINTENANCE POLICY [MOTOROLA LOGO] ADVANCED MESSAGING SYSTEMS DIVISION SOFTWARE MAINTENANCE POLICY TERMS AND CONDITIONS This is a Software Maintenance Policy (SMP) # , by and between PAGEMART WIRELESS, INC. ("PAGEMART"), located at 6688 North Central Expressway, Suite 800, Dallas, Texas 75206; and MOTOROLA, INC. ("MOTOROLA"), by and through its Advanced Messaging Systems Division (AMSD), located at 5401 North Beach Street, Fort Worth, Texas 76137. WHEREAS, MOTOROLA and PAGEMART have entered into a MOTOROLA PAGING INFRASTRUCTURE SOFTWARE LICENSE AGREEMENT having an effective date of , 1996, which grants PAGEMART certain rights relating to licensed Software operating on a Paging System installed or to be installed at PAGEMART locations as per the list in Attachment A, as the parties may amend from time to time. MOTOROLA and PAGEMART agree that software installation and maintenance services ("Services") provided by MOTOROLA to PAGEMART on the Software ("Software") and Documentation shall be performed exclusively pursuant to the fees, terms and conditions set forth in this SMP. This Software Maintenance Policy shall cover software residing in MOTOROLA-supplied paging infrastructure hardware purchased or provided pursuant to Articles I, III and IV of the Agreement. MOTOROLA will support only the current system software release and the immediately preceding system release for PAGEMART's market. Support for earlier releases will be available only on a time and materials basis. SUPPORT FEATURES: a. Telephone Technical Support: MOTOROLA will provide hotline support during the hours of 7 am - 7 pm, Central U.S. time, Monday through Friday, except MOTOROLA holidays. PAGEMART shall use the hotline for assistance in problem identification, problem solving, and configuration questions. b. 24 Hour, Emergency Telephone Technical Support: In addition to its regular phone support, MOTOROLA will provide 24-hour emergency telephone technical support, 365 days-a-year. (Non-emergency calls, as determined by MOTOROLA, other than between 7am - 7pm, will be billed at the standard MOTOROLA rates.) c. Updates: PAGEMART will receive new system Software and Documentation updates at no additional charge. Updates include fixes and debugs, and may include software enhancements at MOTOROLA's discretion. d. Existing Coverage Extended to Same-Year Purchases: Once a system is covered by this SMP, all qualifying equipment purchased and placed in service during the annual SMP term shall automatically receive coverage under the SMP. See Attachment A for a representative list of equipment covered by this SMP. e. Access To MOTOROLA's Customer Service Bulletin Board: As an SMP subscriber, PAGEMART can receive technical information from the AMSD Customer Service Bulletin Board, including updates on software-related issues, operation tips, trouble shooting advice, insight on using new software-based products to fullest advantage, and key features and enhancements of new software releases. MOTOROLA PROPRIETARY CONFIDENTIAL 21 22 1. Maintenance Response and Support: In the event MOTOROLA is unable to resolve a software failure through telephone support, then MOTOROLA shall use prompt and reasonable efforts to respond to PAGEMART's request for service.
- -------------------------------------------------------------------------------------------------- FEATURE WITHOUT SMP WITH SMP - -------------------------------------------------------------------------------------------------- Telephone Support (During Business Hours) Standard Rates Apply Included - -------------------------------------------------------------------------------------------------- Emergency Telephone Technical Support Standard Rates Apply Included - -------------------------------------------------------------------------------------------------- Software Updates Standard Software Pricing Applies Included - -------------------------------------------------------------------------------------------------- Access To Bulletin Board None Included - -------------------------------------------------------------------------------------------------- Maintenance Response and Support Standard Rates Apply Included - --------------------------------------------------------------------------------------------------
SMP ADVANTAGES: Cost savings, software updates provided, better support, quicker response time, reduced labor expense, downtime limited to a minimum in order to protect revenue. DURATION AND RENEWAL This SMP has a one-year term that is renewed annually. Since the SMP is based on equipment in service, PAGEMART shall report to MOTOROLA any change in location of MOTOROLA hardware in service in PAGEMART's system, in order to determine the SMP fee for the following SMP term, PAGEMART will receive an invoice for the renewed SMP at least thirty (30) days before the start of the next SMP term. At least ninety (90) days before any renewal period, and upon prior written notice to PAGEMART, MOTOROLA reserves the right to increase or decrease maintenance prices for the immediately following annual period. PAGEMART OBLIGATIONS UNDER THE SMP PAGEMART agrees to: [X] PROVIDE CURRENT EQUIPMENT LIST. Supply complete listing of system components indicating equipment serial numbers, software versions and equipment locations. [X] PERFORM FIRST-LEVEL DIAGNOSTICS. Carefully monitor its system and equipment for any indication of problems. If PAGEMART needs assistance with these first-level diagnostics, the hotline is available for help. [X] REPORT ANY PROBLEMS. PAGEMART shall report problems immediately to the One-Call-Support(TM) Center in order to set the correction process in motion. [X] MAINTAIN CURRENT SOFTWARE. Under this SMP, MOTOROLA supports only the current system software release and the immediately preceding system software release. MOTOROLA strongly recommends that all products operate on the latest releases. Support for releases other than the current system software release and the immediately preceding software release will be provided on a time and materials basis only. [X] PURCHASE HARDWARE IF NECESSARY. From time to time, PAGEMART may need to add or upgrade hardware to accommodate a new software release. MOTOROLA will notify PAGEMART of such hardware enhancements thirty (30) days prior to making a new software release available. This SMP does not include the costs of any required hardware upgrades. [X] SUPPLY REMOTE DIAL-IN PHONE LINE(S). In order to ensure the best possible support, PAGEMART must supply a direct dial-in phone line, to all supported equipment modems. If no phone line is available, it is PAGEMART'S responsibility to relay the appropriate information to MOTOROLA. [X] PRICES: Subject to the foregoing terms of this Agreement. PAGEMART shall pay MOTOROLA for the services to be rendered under this SMP at the prices and rates set forth in the Price Book. All sales tax, use taxes, or value-added taxes payable in connection with the Service to be provided by Motorola pursuant to this SMP shall be paid by PAGEMART. EXCLUSION MOTOROLA PROPRIETARY CONFIDENTIAL 22 23 MOVEMENT OF EQUIPMENT/SOFTWARE - Movement of equipment/software to new sites by organizations or persons not authorized by MOTOROLA, and reinstallation of equipment by anyone not authorized by MOTOROLA, shall void any obligation of MOTOROLA under this SMP with regard to equipment/software so moved or reinstalled. Provided PAGEMART notifies MOTOROLA in advance of its intention to move equipment/software and seeks authorization to do so, such authorization by MOTOROLA will not be unreasonably withheld. MOTOROLA shall have no obligation under this SMP to repair or replace items when such repair or replacement is necessitated by the following: (a) Forte Majeure. Neither party shall be liable for delay or failure in performance when such delay or failure is caused by any of the following that are beyond the actual control of the delayed party: acts of God, acts of the public enemy, acts or failures to act by the other party, acts of civil or military authority, governmental priorities, strikes or other labor disturbances, hurricanes, earthquakes, lightning, fires or floods, epidemics, embargoes, wars or riots, delays in transportation, loss or damage to goods in transit (subject to such goods being packed within the suppliers' specifications for such transit, and to the availability of necessary materials, components, services or facilities), or any other cause which the delayed party could not have prevented or for which the delayed party is not responsible. However, MOTOROLA agrees, upon PAGEMART's request, to participate with PAGEMART and make an assessment with respect to the damage as a result of any Force Majeure, and then to provide PAGEMART a quotation with respect to the repair and/or replacement of the items damaged as a result of the Force Majeure. (b) Acts of vandalism or any deliberate act or attempt to modify, remove, or obliterate a part's bar-coded serial number or other identifying marks. (c) Attempts to repair or modify the software by personnel not authorized or approved by MOTOROLA. (d) Misuse of the software. (e) Failure to maintain prescribed environmental conditions or external electrical parameters. (f) Damage which occurs during shipment from PAGEMART to MOTOROLA. (g) Failure to take any action required by MOTOROLA through its published Customer Service Report (CSR) or Bulletin Board, which shall be made available to PAGEMART. DEFAULT AND TERMINATION MOTOROLA AMSD shall have the right to immediately terminate this SMP, and to suspend its performance hereunder, upon notification and provision of a 10-day cure period to PAGEMART if PAGEMART: (a) makes any unauthorized modifications to the Software; (b) assigns or transfers PAGEMART's rights or obligations under this SMP without the prior written consent of MOTOROLA; (c) becomes bankrupt or insolvent, or is put into receivership; or (d) fails to pay any charge for services supplied under this SMP or any additional charges when due. MOTOROLA may also terminate this SMP if PAGEMART, on written notice from MOTOROLA, does not pay MOTOROLA all amounts then due within thirty (30) days of such notice. Notwithstanding such termination of the SMP to PAGEMART, PAGEMART shall remain responsible for all amounts then due. LIMITATION OF DAMAGES UNDER NO CIRCUMSTANCES WILL MOTOROLA OR PAGEMART BE LIABLE TO THE OTHER FOR LOSS OF USE, DAMAGE TO OR LOSS OF PRODUCTS OR SERVICES, LOSS OF DATA, FAILURE TO REALIZE EXPECTED SAVINGS, FRUSTRATION OF ECONOMIC OR BUSINESS EXPECTATIONS, LOST REVENUE OR PROFITS, OR FOR ANY OTHER SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF THEY WERE FORESEEABLE OR MOTOROLA OR PAGEMART WAS INFORMED OF THEIR POTENTIAL. Each party's total liability under or in connection with this SMP shall not exceed the total sums paid by PAGEMART to MOTOROLA with respect to such Software, Supplies, or Services provided hereunder. MOTOROLA PROPRIETARY CONFIDENTIAL 23 24 SEVERABILITY If any provision of this SMP is held to be illegal, invalid, or unenforceable, such invalidity will not affect the enforceability of any other provisions not held to be invalid. ENTIRE POLICY Article I and this SMP constitutes the entire understanding between the parties concerning the subject matter hereof and supersedes all prior discussions, policies and representations, whether oral or written and whether or not executed by MOTOROLA and PAGEMART. No modification, amendment, or other change may be made to this SMP or any part hereof unless made in writing and executed by authorized signing officers of MOTOROLA and PAGEMART. The terms and conditions of this SMP supersedes the terms and conditions contained on any purchase order or sales acknowledgments between the parties. The obligations of the parties hereto are obligations of the corporate entities executing this SMP alone. These obligations are neither the obligations of, nor are they implied or otherwise guaranteed by, any individual who signs this SMP or who is otherwise associated with the parties. I have read this SMP and agree to be bound by its terms. PAGEMART Signature Name (please print) __________________________________________________ Title ________________________________________________________________ Date _________________________________________________________________ MOTOROLA Signature ___________________________________________________ Name (please print) __________________________________________________ Title ________________________________________________________________ Date _________________________________________________________________ * See Attachment "A" for a representative list of Equipment covered by this SMP. 11/95 MOTOROLA PROPRIETARY CONFIDENTIAL 24 25 ATTACHMENT A MOTOROLA'S ADVANCED MESSAGING SYSTEMS DIVISION SOFTWARE MAINTENANCE POLICY (SMP) # ____________________ EQUIPMENT LISTING AND MAINTENANCE FEES This is Attachment A to the MOTOROLA System Equipment Software and Maintenance Policy dated ________________ by and between PAGEMART WIRELESS, INC. and MOTOROLA, INC. Maintenance for the period:________________, 199_ thru ____________, 199_.
SITE NO. SITE NAME ST DESCRIPTION MODEL/SERIAL # MFG./RELEASE DATE SMP FEE - --------- ---------- ---- ------------ --------------- ------------------ --------
MOTOROLA PROPRIETARY CONFIDENTIAL 25 26 ARTICLE III: ADVANCED MESSAGING SUBSCRIBER EQUIPMENT -TABLE OF CONTENTS SECTION 1. CREDIT FOR EQUIPMENT SECTION 2. EQUIPMENT WARRANTY SECTION 3. EQUIPMENT PRICING MOTOROLA PROPRIETARY CONFIDENTIAL 26 27 CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM SECTION 1 BELOW ARTICLE III: ADVANCED MESSAGING SUBSCRIBER EQUIPMENT SECTION 1. CREDIT FOR EQUIPMENT As described here and in Article IV, Section 1.3, as additional consideration for the transfer of the PageMart Patents to Motorola in accordance with the Technology Asset Agreement between the parties. Motorola agrees to furnish MOTOROLA PROPRIETARY CONFIDENTIAL 27 28 ARTICLE III: ADVANCED MESSAGING SUBSCRIBER EQUIPMENT SECTION 2. EQUIPMENT WARRANTY LIMITED WARRANTY FOR MOTOROLA ONE-WAY & TWO-WAY PAGERS I. WARRANTY STATEMENT Motorola warrants the pager against defects in material and workmanship under normal use and service for the period of time specified below. This express warranty is extended by Motorola, Inc., 1301 E. Algonquin Road, Schaumburg, IL 60195, to the original and end user purchasers only and is not assignable or transferable to any other party. An optional extended warranty is available as specified below. II. GENERAL PROVISIONS This warranty sets forth the full extent of Motorola's responsibilities regarding the pager. Repair, replacement, or refund of the purchase price, at Motorola's option, is the exclusive remedy. This warranty is given in lieu of all other express warranties. Implied warranties, including without limitation implied warranties of merchantability and fitness for a particular purpose, are limited to the duration of this limited warranty. In no event shall Motorola be liable for damages in excess of the purchase price of the Motorola pager, for any loss of use, loss of time, inconvenience, commercial loss, lost profits or savings or other incidental, special or consequential damages arising out of the use or inability to use such product to the full extent such may be disclaimed by law. III. WHAT THIS WARRANTY COVERS In the event of a defect, malfunction, or failure to conform to specifications contained in MPDs during the warranty period, Motorola will, at its option, either repair, replace or refund the purchase price of the pager. Repair may, at Motorola's option, include the replacement of parts or boards with functionally equivalent reconditioned or new parts or boards. Replaced parts and boards are warranted for the greater of (i) 90 days or (ii) the balance of the original warranty period. All parts and boards removed in the replacement process shall become the property of Motorola. This warranty does not cover defects, malfunctions, performance failures or damages to the unit resulting from use in other than its normal and customary manner; misuse, accident or neglect, the use of nonconforming parts; or improper alterations or repairs. This warranty does not cover batteries, internal physical or water damage, wear and tear on covers or housings, and coverage or range over which the pager will receive signals. IV. LENGTH AND TYPE OF WARRANTY Motorola ________ pagers are shipped from the factory with a standard warranty or an optional extended warranty. The standard warranty period is for one year on parts and 120 days on labor from the date of purchase based on proof of purchase. The optional extended warranty is provided in lieu of the standard warranty for a consideration over and above the price of the pager. This extended warranty covers parts and labor for the number of years chosen starting at the date of purchase of the pager by the end user. The type and length of warranty of the pager may be determined by the first and third characters of the pagers 10-character serial number as follows: - A number in the first position of the serial number denotes a standard warranty of 120 days for labor and one year for parts. - A letter in the first position of the serial number denotes extended warranty coverage. - If an extended warranty, then the number in the third position denotes the number of years of the warranty. Example: The number __ in the third position denotes warranty coverage of ____ years. The number __ in the third position denotes warranty coverage of ____ years. V. HOW TO RECEIVE SERVICE All pagers covered by standard warranty and extended warranty that require service must be sent or taken to one of the following Motorola Pager Care facilities only. All inbound shipping or transportation charges to Motorola must be paid by the purchaser. Motorola will pay for outbound shipping to the purchaser. Motorola AMDS 5401 North Beach Street Fort Worth, Texas 76137 (800) 520-7243 VI. STATE LAW RIGHTS Some states do not allow the exclusion or limitation of incidental or consequential damages, or a limitation on how long an implied warranty lasts, so the above limitations or exclusions may not apply. This warrant gives you specific legal rights and you may also have other rights which vary from state to state. VII. OUT-OF-WARRANTY REPAIR Replacement housings and out-of-warranty repairs are available at the above listed Motorola Pager Care facilities. Complete replacement housings cost $____ each. Out-of-warranty electrical repair costs $____. These prices include return shipping. VIII. HOW TO PURCHASE ADDITIONAL YEARS OF PAGER WARRANTY If this pager was purchased with only the standard warranty coverage, then at your option, additional years of extended warranty are available for an additional charge during the first ____ days following purchase of the pager. This extended warranty is in lieu of the standard warranty, and is available for one, three, or five full years from the date of purchase of the pager, subject to the above-stated terms and conditions. This extended warranty covers parts and labor for the number of years chosen. To purchase this optional extended warranty, please copy and fill out the section below, and along with your check made payable to Motorola, mail (within ____ days of pager purchase) to: Motorola, Boynton Beach Pager Care, 3020 High Ridge Road, Suite 600, Boyman Beach, FL 32426. MOTOROLA PROPRIETARY CONFIDENTIAL 28 29 FILL OUT AND MAIL ONLY IF YOU ARE PURCHASING ADDITIONAL YEARS OF WARRANTY. Customer Information (Please Print) Prices for extended warranty 1 full year 3 full years 5 full years Name ___________________________________________________ ----------- ------------ ------------ Address_________________________________________________ City, State, Zip________________________________________ Serial Number___________________________________________ Purchase __ additional years of extended warranty for a total of $________ (__ characters - starting with __ letters or a number.) Example:__________________________ Applicable sales taxes (state, city, country) $________ Daytime Phone # (Not pager #) __________ Total Amount Enclosed: $________
NOTE: All purchases of extended warranty are final. There are no refunds. Extended warranty is not transferable from one pager to another. MOTOROLA PROPRIETARY CONFIDENTIAL 29 30 ARTICLE III: ADVANCED MESSAGING SUBSCRIBER EQUIPMENT SECTION 3. EQUIPMENT PRICING MOTOROLA PROPRIETARY CONFIDENTIAL 30 31 ARTICLE IV: INFRASTRUCTURE EQUIPMENT - TABLE OF CONTENTS SECTION 1. COMMITMENTS FOR PURCHASE, EQUIPMENT CREDITS, AND ADDITIONAL INFRASTRUCTURE CREDIT SECTION 2. EQUIPMENT WARRANTY SECTION 3. EQUIPMENT PRICING MOTOROLA PROPRIETARY CONFIDENTIAL 31 32 CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM SECTION 1 BELOW ARTICLE IV: INFRASTRUCTURE EQUIPMENT SECTION 1. COMMITMENTS FOR PURCHASE, EQUIPMENT CREDITS, AND ADDITIONAL INFRASTRUCTURE CREDIT 1.1 Buyer Purchase Commitment. PageMart agrees to purchase from Motorola, of conventional one-way and two-way infrastructure Equipment over the forty-seven (47) month period beginning December 1, 1995 and ending October 31, 1999. In the event PageMart fails to order and take delivery from Motorola of of infrastructure Equipment prior to September 1, 1999, provided any failure to take delivery is not due to Force Majeure as described in Section 15.1 of Article I, or to Motorola's failure to meet reasonable scheduled delivery dates, then on September 1, 1999, Motorola may prepare an invoice for, and ship, infrastructure Products chosen at Motorola's sole discretion, with a total price (priced at the purchase prices of this Agreement) equivalent to the difference between and the amount of infrastructure Equipment previously ordered by PageMart and delivered under this Agreement. PageMart agrees to accept such Products and to pay such invoice within thirty (30) days of its receipt. 1.2 Credit for Infrastructure Equipment. As additional consideration for the transfer of the PageMart Patents to Motorola in accordance with the Technology Asset Agreement between the parties, Motorola agrees to furnish . 1.3 Credit for Advanced Messaging Subscriber Units. As described here and in Article III, Section 1, as additional consideration for the transfer of the PageMart Patents to Motorola in accordance with the Technology Asset Agreement between the parties, Motorola agrees to furnish . 1.4 Additional Infrastructure Credit. As additional consideration for the transfer of the PageMart Patents to Motorola in accordance with the Technology Asset Agreement between the parties, Motorola agrees to furnish . MOTOROLA PROPRIETARY CONFIDENTIAL 33 ARTICLE IV: INFRASTRUCTURE EQUIPMENT SECTION 2. EQUIPMENT WARRANTY [MOTOROLA LOGO] ADVANCED MESSAGING SYSTEMS DIVISION INFRASTRUCTURE LIMITED PRODUCT WARRANTY GENERAL TERMS 1.1 Motorola Advanced Messaging Systems Division (AMSD)-manufactured infrastructure Equipment is warranted to be free from defects in material and workmanship to the original purchaser only as set forth herein. 1.2 This Warranty covers Equipment that is used in the manner and for the purpose intended. 1.3 This Warranty specifically excludes any and all software products from any source. Motorola AMSD software products are the subject of the AMSD Software Maintenance Policy (SMP), addressed separately. 1.4 This Warranty shall commence on the date of shipment of the AMSD Equipment. 1.5 The term of Warranty for all AMSD infrastructure Equipment, except for base stations and Alphamate 250 paging entry terminal products, is one (1) year parts and labor. The Warranty term for Nucleus base stations is three (3) years parts and one (1) year labor. The Warranty term for Alphamate 250 paging entry terminals is one (1) year parts and 120 days labor in AMSD-authorized service centers. In-field labor, which is only available for base station warranty claims, is to be provided by AMSD-authorized service centers during the hours of 8:00 AM - 5:00 PM, Monday - Friday, excluding Motorola holidays. LIMITATIONS AND QUALIFICATIONS OF WARRANTY 2.1 LIMITATION - THE WARRANTIES SET OUT IN THIS SECTION ARE THE ONLY WARRANTIES FOR THE EQUIPMENT. MOTOROLA EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, GUARANTEES OR REPRESENTATIONS, WHETHER EXPRESS, IMPLIED, OR STATUTORY, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. MOTOROLA ALSO DISCLAIMS ANY IMPLIED WARRANTY ARISING OUT OF TRADE USAGE OR OUT OF A COURSE OF DEALING OR COURSE OF PERFORMANCE. 2.2 This Warrant does not cover, nor include a remedy for, damages, defects or failure caused by: (a) the equipment of any part of it NOT having been installed, modified, adapted, repaired, maintained, transported or relocated in accordance with Motorola technical specifications and instructions; (b) storage not conforming to the applicable Motorola Equipment Manual's Shipping, Receiving and Installation section. (c) environmental characteristics not conforming to the applicable Motorola Equipment Manual. (d) nonconformance with the Equipment Operating Instructions in the applicable Motorola Equipment Manual. (e) external causes including, without limitation, used in conjunction with incompatible equipment, unless such use was with or under Motorola's prior written consent; (f) cosmetic damages; (g) damages caused by external electrical stress; (h) lightning; (i) accidental damage; (j) negligence, neglect, mishandling, abuse or misuse by any party other than Motorola; (k) Force Majeure; and (l) damage caused by Shipper(s) RETURN OF EQUIPMENT 3 If an item of AMSD equipment malfunctions or fails in normal use within the Warranty Period: (a) PageMart shall promptly notify its nearest Motorola Paging One-Call-Support(TM) Center of the problem and provide the serial number of the defective item. Motorola shall, at its option, either resolve the problem over the telephone or issue a Return Authorization Number to PageMart. PageMart shall, at its cost, ship the item to the Motorola Paging One-Call-Support(TM) Center location designated at the time the Return Authorization Number is issued; MOTOROLA PROPRIETARY CONFIDENTIAL 33 34 (b) the Return Authorization Number must be shown on the label attached to each returned item. A description of the fault must accompany each returned item. The returned item must be properly packed, and the insurance and shipping charges prepaid; (c) Motorola shall either repair or replace the returned item. When a returned item is replaced by Motorola, the returned item shall become the property of Motorola; (d) Subject to all the terms of this Warranty, Motorola shall complete the repair or exchange of Motorola-manufactured equipment returned under Warranty within ten (10) working days of receipt of the equipment; (e) Motorola shall, at its cost, ship the repaired or replaced item to PageMart. If PageMart requests Express Shipping, PageMart shall pay Motorola an expedite fee; and (f) Equipment which is repaired or replaced by Motorola shall be free of defects in material and workmanship for the remainder of the original Warranty, or for 90 days from the date of repair or replacement, whichever is longer. All other terms of this Warranty shall apply to such repairs or replacements. ADVANCE REPLACEMENT 4.1 During the Warranty Period: (a) At the request and for the convenience of PageMart, Motorola may supply PageMart with Advance Replacement Parts (parts furnished in advance of Motorola's receipt of defective items). Motorola's provision of such parts will be contingent on part availability and on PageMart maintaining a satisfactory credit standing with Motorola's Paging Products Group. (b) Motorola shall ship the Advance Replacement Parts requested by PageMart within 48 hours of Motorola's determination that such service is justified under the circumstances, if stock is available at the Motorola service location. If stock is not available, Motorola will make every reasonable effort to locate and provide it to PageMart within ten (10) working days. (c) PageMart shall return defective items to Motorola within thirty (30) days of shipment of the Advance Replacement Parts; failing which, Motorola shall bill and PageMart shall pay the full current list price of the Advance Replacement Parts. 4.2 To secure payment of the list price of Advance Replacement Parts if the defective items are not returned to Motorola, PageMart hereby grants to Motorola a purchase money security interest in any Advance Replacement Parts. TELEPHONE TECHNICAL ASSISTANCE 5 During the Warranty Period, Motorola will provide PageMart with over-the-telephone technical fault analysis free of labor charges. For warranty calls exceeding 15 per location per month, or for non-warranty calls, Motorola shall charge PageMart per Motorola's then-current labor rates. EXCLUDED EQUIPMENT 6 The following equipment is excluded from this Warranty, covered instead by the original manufacturer's warranty: (a) equipment which is not an integral part of a basic system configuration and is not manufactured by Motorola: (b) peripheral equipment such as printers, modems, data loggers and video display terminals; and (c) equipment which is not listed in Motorola's Price Book. FORCE MAJEURE 7 Motorola shall not be responsible for failure to discharge its obligations under this Warranty due to causes beyond its reasonable control such as delays by suppliers, material shortages; strikes, lockouts or other labor disputes; disturbances; government regulations, floods, lightning, fires, wars, accidents, and acts of God. DEFAULT AND TERMINATION 8.1 Motorola shall have the right to immediately terminate this Warranty, and to suspend its performance under this Warranty, upon notification to PageMart if PageMart: (a) assigns or transfers PageMart's rights or obligations under this Warranty without Motorola's prior written consent; or (b) within thirty (30) days of written demand by Motorola, fails to pay any charge for Advance Replacement Parts supplied under this Warranty, if PageMart has not timely returned the defective item(s). 8.2 Notwithstanding termination of the Warranty to PageMart, PageMart shall remain responsible for all amounts then due. LIMITATION OF LIABILITY 9 UNDER NO CIRCUMSTANCES WILL MOTOROLA OR PAGEMART BE LIABLE TO THE OTHER FOR LOSS OF USE, DAMAGE TO OR LOSS OF PRODUCTS OR SERVICES, LOSS OF DATA, FAILURE TO REALIZE EXPECTED SAVINGS, FRUSTRATION OF ECONOMIC OR BUSINESS EXPECTATIONS, LOST REVENUE OR PROFITS, REPROCUREMENT COSTS, OR FOR ANY OTHER SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF THEY WERE FORESEEABLE OR MOTOROLA OR PAGEMART WAS INFORMED OF THEIR POTENTIAL. MOTOROLA PROPRIETARY CONFIDENTIAL 34 35 CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM SECTIONS BELOW ARTICLE IV: INFRASTRUCTURE EQUIPMENT SECTION 3. EQUIPMENT PRICING (a) Motorola's prices to PageMart for infrastructure Equipment, including related Software, shall (b) (c) MOTOROLA PROPRIETARY CONFIDENTIAL 35 36 ARTICLE V: GENERAL SYSTEMS ENGINEERING, INSTALLATION, SERVICES & MAINTENANCE Motorola may provide the following services to PageMart for the implementation of the advanced messaging System(s): ENGINEERING SERVICES Site or System Propagation Studies RF Coverage Verification Site Survey System Designs System Test Plans System Documentation Block Diagrams / Installation Drawings As-Built Information System Manuals System Staging and Testing INSTALLATION SERVICES Supervised Subcontracts Inventory Control Plans Warehousing Options Optimization Plans Regional or Nationwide Installation Plans Statements of Work PROGRAM MANAGEMENT SERVICES Project Task List Contract Management Plan Project Schedule Subcontract Plan with Statement of Work Site Survey Report Documentation Package Periodic Progress Reports System Test Plan Commissioning and Acceptance Plan MAINTENANCE Tailored Service Agreement Maintenance and Service Pricing Single Source Service Dispatch/Contact Centralized Repair Depot Centralized Region or Nationwide Billing Mixed Product Contracts MOTOROLA PROPRIETARY CONFIDENTIAL 36 EX-10.34 3 TECHNOLOGY ASSET AGREEMENT 1 CONFIDENTIAL INFORMATION ON PAGE 4, APPENDICES A AND C HAS BEEN OMITTED AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION MOTOROLA CONFIDENTIAL PROPRIETARY TECHNOLOGY ASSET AGREEMENT THIS AGREEMENT is effective as of the 1st day of December, 1995, by and between Motorola, Inc., a Delaware corporation having an office at 1303 East Algonquin Road, Schaumburg, IL 60196 U.S.A., (hereinafter called "MOTOROLA"), and PageMart Wireless, Inc., its successors, subsidiaries, and affiliates, including, but not limited to PageMart, Inc. and PageMart PCS, Inc. (hereinafter collectively called "PAGEMART"). WHEREAS, PAGEMART owns and has or may have intellectual property assets (set forth below in Section 1.2 through Section 1.3) relating to advanced messaging and paging technology in various countries of the world; and WHEREAS, MOTOROLA has an interest in acquiring all PAGEMART's rights and ownership in certain of PAGEMART's intellectual property assets owned or controlled by PAGEMART; NOW, THEREFORE, in consideration of the mutual covenants and undertakings set out herein and other good and valuable consideration, the, receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: Section 1 - DEFINITIONS 1.1 The PURCHASE AGREEMENT means that certain agreement by and between PAGEMART and MOTOROLA being concurrently executed with this Agreement detailing the purchasing commitments by PAGEMART with respect to one-way and two-way infrastructure equipment and two-way wireless subscriber equipment. 1.2 The PAGEMART PATENTS means any PAGEMART owned or controlled patents or pending patent applications including all world-wide: divisions, continuations, continuations-in-part, reissues, renewals, and extensions thereof, any counterparts claiming priority therefrom or the benefit of the filing date thereto, a list of which is attached hereto and marked Appendix A. Additionally, PAGEMART PATENTS shall further mean and include inventions conceived before January 1, 1997 by employees (of PAGEMART) or others under an obligation to assign to PAGEMART. Additionally, PAGEMART PATENTS means or includes the PAGEMART INVENTION INFORMATION (defined below). 1.3 PAGEMART INVENTION INFORMATION means all notes, reports, analysis, designs, schematics, processes, data, and like information owned, controlled, or created by PAGEMART relating to the PAGEMART PATENTS. 1 2 MOTOROLA CONFIDENTIAL PROPRIETARY Such PAGEMART INVENTION INFORMATION may be attached herein as Appendix B. 1.4 AFFILIATE of a party means any legal entity whose majority or controlling ownership interest representing the right to vote for or manage the affairs of the entity is, during the term of this Agreement, owned or controlled (but only so long as such ownership or control exists), directly or indirectly, by that party. For the purpose of this definition, "control" means the right to vote 50% or more of the shares or other securities of a U.S. corporation or other U.S. entity or the right to vote 20% or more of the shares or other securities of a foreign corporation or other foreign entity. 1.4.1 In the event that PAGEMART chooses to reduce their "control" in a foreign corporation or other foreign entity below the 20% voting rights described in sec.1.4, MOTOROLA agrees to negotiate a license agreement in good faith with the new controlling party with respect to its loss of any rights due to PAGEMART's loss of "control". 1.5 EFFECTIVE DATE is December 1, 1995. Section 2 - RELEASES 2.1 PAGEMART hereby releases, acquits and forever discharges MOTOROLA (and MOTOROLA's AFFILIATEs as of the EFFECTIVE DATE of this Agreement) from any and all claims or liability for infringement or alleged infringement of THE PAGEMART PATENTS by the fielding of any products or services, or acts in preparation of providing products or services, prior to the EFFECTIVE DATE of this Agreement. 2.2 PAGEMART hereby agrees to dismiss with prejudice the pending lawsuit against MobileMedia (Case No. 3-95CV1048-P, In the US District Court for the Northeastern District of Texas, Dallas Division) relating to infringement of U.S. Patent No. 5,239,671. PAGEMART further releases all rights to bring further suit against MOTOROLA or any third party based on infringement of the PAGEMART PATENTS. Section 3 - GRANTS AND OBLIGATIONS 3.1 PAGEMART, for itself and on behalf of its AFFILIATEs, heirs, successors, or assigns, hereby assigns to MOTOROLA all right, title, and interest to the PAGEMART PATENTS as evidenced by the assignment documents of Appendix C and other assignment documents that are 2 3 MOTOROLA CONFIDENTIAL PROPRIETARY reasonably required or requested by MOTOROLA from time to time that may be further recorded by MOTOROLA. 3.2 MOTOROLA, for itself and on behalf of its AFFILIATEs, heirs, successors, or assigns, hereby grants to PAGEMART and its AFFILIATES, a perpetual, fully paid, non-exclusive, non-transferable, non-sublicensable right-to-use and sell services license under the PAGEMART PATENTS (assigned to MOTOROLA under Section 3). AFFILIATEs of PAGEMART are licensed under this section so long as they meet the requirements of Section 1.4. 3.3 PAGEMART, for itself and on behalf of its AFFILIATEs, heirs, successors, or assigns, hereby assigns to MOTOROLA all right and title in all other patentable subject matter now known or later discovered as being conceived before January 1, 1997 and agrees to execute such documents to transfer such rights in the PAGEMART PATENTS to MOTOROLA and/or to aid in MOTOROLA's registration, maintenance, or perfection of such rights. PAGEMART shall pay for all reasonable expenses incurred in obtaining for MOTOROLA the appropriate assignment signatures from Roger D. Linquist, Malcolm M. Lorang, any PAGEMART employees, or any others who are under obligation to assign to PAGEMART the PAGEMART PATENTS. Expenses that may be incurred beyond obtaining assignment signatures described above (such as consulting fees to Mr. Lorang and Mr. Lindquist, if required) will be paid by MOTOROLA. 3.4 PAGEMART shall have a continuing obligation to notify or report to MOTOROLA regarding all information concerning all patents issued, pending patent applications filed, or inventions conceived by employees (of PAGEMART) or others under an obligation to assign to PAGEMART before January 1, 1997. 3.5 For the term of five (5) years from the EFFECTIVE DATE of this AGREEMENT, PAGEMART grants to MOTOROLA the right to inspect at MOTOROLA's expense all of PAGEMART's INVENTION INFORMATION relating to the conception of inventions (conceived before January 1, 1997) to determine whether such inventions shall be included as one of the PAGEMART PATENTS, provided that MOTOROLA gives PAGEMART 30 days prior written notice of their intent to inspect. 3.5.1 MOTOROLA's right to inspect PAGEMART's INVENTION INFORMATION is limited to three (3) inspections every twelve-month period. 3.5.2 MOTOROLA shall treat PAGEMART's INVENTION INFORMATION and other PAGEMART information received pursuant to Section 3.5.1 which is identified by PAGEMART as proprietary ("IDENTIFIED PROPRIETARY INFORMATION") as proprietary information and agrees for a period of five 3 4 CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM SECTION 4.3 BELOW MOTOROLA CONFIDENTIAL PROPRIETARY years from receipt of the INVENTION INFORMATION or the IDENTIFIED PROPRIETARY INFORMATION not to divulge any PAGEMART INVENTION INFORMATION or the IDENTIFIED PROPRIETARY INFORMATION it receives from PAGEMART to any other person, firm, or corporation without prior written consent from PAGEMART and shall use the same degree of care to avoid disclosure of such information as MOTOROLA employs with respect to its own proprietary information of like importance. This provision does not apply to PAGEMART's INVENTION INFORMATION that becomes the subject matter of a U.S. patent application filed by MOTOROLA. 3.6 PAGEMART has the right to file patent application(s) conceived by PAGEMART before January 1, 1997, which would otherwise be considered a PAGEMART PATENT assigned to MOTOROLA under this Agreement, provided that MOTOROLA is given a right of first refusal to file such patent application(s) on its own behalf and further provided that MOTOROLA receives a perpetual, fully paid, royalty-free license with the right to sublicense such patent application(s) in the event PAGEMART files patent application(s) under this paragraph. PAGEMART shall give written notice of its intent to file application(s) under this paragraph to allow MOTOROLA to determine whether to exercise its right of first refusal and MOTOROLA shall provide PAGEMART with its decision within 30 days. The requirements of paragraph 4.3 apply to any royalty revenues received by MOTOROLA under this paragraph. Patent applications filed by PAGEMART under this provision are PAGEMART property subject to MOTOROLA's rights herein. Section 4 - PAYMENT 4.1 A portion of the consideration for the transfer of the PAGEMART PATENTS to MOTOROLA is outlined in Articles 3 and 4 of the PURCHASE AGREEMENT. 4.2 This TECHNOLOGY ASSET AGREEMENT shall survive any breach by PAGEMART of the PURCHASE AGREEMENT and shall further survive termination by MOTOROLA of the PURCHASE AGREEMENT for such breach by PAGEMART. 4.3 In the event that MOTOROLA expressly licenses the PAGEMART PATENTS to third parties, such gross royalty revenues will be shared with PAGEMART Royalty revenue shall only include actual licensing revenue and shall exclude implied licenses. 4 5 MOTOROLA CONFIDENTIAL PROPRIETARY 4.4 PAGEMART shall bear all costs including, but not limited to filing fees, attorney fees, and maintenance fees incurred for all issued and pending PAGEMART PATENTS (including foreign counterparts) as of the EFFECTIVE DATE. MOTOROLA shall bear costs associated with the PAGEMART PATENTS that are due (if no already incurred and paid for by PAGEMART) after the EFFECTIVE DATE. SECTION 5 - TERM The term of this Agreement shall be from the EFFECTIVE DATE until the expiration of the last of the PAGEMART PATENTS. SECTION 6 - WARRANTIES, REPRESENTATIONS, & INDEMNITIES 6.1 Each party warrants that it has the requisite authority to convey the rights granted herein and that no commitments exist or shall be entertained for the duration of this Agreement which would restrict its right to grant the releases contemplated herein. 6.2 PAGEMART, warrants that: 6.2.1 PAGEMART is the owner of the full right and title to the PAGEMART PATENTS and the PAGEMART INVENTION INFORMATION, and that to PAGEMART's knowledge and belief, each of the foregoing are free and clear of all pledges, liens, or encumbrances, and that the grants herein shall be binding on its heirs, successors, and assigns. 6.2.2 There are no licensees or options to acquire licenses under the PAGEMART PATENTS as of the EFFECTIVE DATE of this Agreement except for those granted to PageMart Canada, Ltd., PageMart Latino America, S.A. de C.V., and PageMart Asia, which have been previously granted licenses or options to license the currently issued PAGEMART PATENTS. The present existence of these licenses will not be deemed to be a breach of this Agreement. 6.3 PAGEMART warrants that it will provide MOTOROLA all originals (ribbon copies) of the PAGEMART PATENTS that are issued as of the EFFECTIVE DATE or that subsequently issue. SECTION 7 - PUBLICITY AND CONFIDENTIALITY 7.1 MOTOROLA and PAGEMART agree to issue a mutually approved press release announcing only (1) the dismissal of the MobileMedia lawsuit, 5 6 MOTOROLA CONFIDENTIAL PROPRIETARY and (2) the transfer of PAGEMART PATENTS to MOTOROLA. Except as expressly granted herein, nothing in this Agreement shall be construed as conferring upon either party the right to include in advertising, packaging or other commercial activity any reference to the other party, its trademarks, trade names, service marks, or other trade identity in a manner likely to cause confusion, except that the parties shall have the right to acknowledge the existence of this Agreement. 7.2 Except as otherwise herein provided, the parties hereto shall keep the terms of this Agreement and the PURCHASE AGREEMENT confidential and shall not now or hereafter divulge any part thereof to any third party except: 7.2.1 with the prior written consent of the other party; or 7.2.2 to any governmental body having jurisdiction to request and to read the same; or 7.2.3 as otherwise may be required by law or legal processes; or 7.2.4 to legal counsel representing either party; or 7.2.5 to accountants for the preparation of required tax documents; or 7.2.5.1 to accountants for the preparation of required financial statements provided such parties agree to use best efforts to treat the content of this Agreement as confidential; or 7.2.6 to accountants, financial advisors, and their counsel provided such parties agree to treat the content of this Agreement as confidential; or 7.2.7 to regulatory agencies provided the parties hereto use their best efforts to obtain confidential treatment and further provided that the non-disclosing party is given an opportunity to review the material to be disclosed before disclosure to such regulatory agency. 7.3 PageMart and Motorola agree that the terms of this Agreement, and the terms of the PURCHASE AGREEMENT are confidential and cannot be disclosed by either party outside its respective organization without the other's written consent, except as may be required by law or for the purposes of securities offerings or financings or to establish their rights under such agreements. The parties agree, however, to work together to produce such press releases and other public announcements as are acceptable to both parties. 6 7 MOTOROLA CONFIDENTIAL PROPRIETARY SECTION 8 - MISCELLANEOUS PROVISIONS 8.1 Nothing contained in this Agreement shall be construed as: 8.1.1 imposing on either party any obligation to institute any suit or action for infringement of any patent or know-how, or to defend any suit or action brought by a third party which challenges or concerns the validity or enforceability or infringement of any patent; or 8.1.2 an obligation by either party to defend, indemnify or hold harmless the other party or its AFFILIATEs from any suits, actions or claims alleging infringement of any third party's patent or know-how, and neither party nor its AFFILIATEs shall have any liability therefor; or 8.1.3 imposing on either party any obligation to file any patent application or to secure any patent or maintain any patent in force or to seek reissue, reexamination, or an extension of any patent or trademark; or 8.1.4 an obligation on either party to enforce its patents against third parties; or 8.1.5 making either party the partner, joint venturer, agent, or employer/employee of the other. Neither party shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, except as provided for herein or authorized in writing by the party to be bound. 8.1.6 granting any party a sub-license under technology or intellectual property licenses currently held by either party except for those identified for the PAGEMART PATENTS. 8.2 No express or implied waiver by either of the parties to this Agreement of any breach of any term, condition or obligation of this Agreement by the other party shall be construed as a waiver of any subsequent breach of that term, condition or obligation or of any other term, condition or obligation of this Agreement of the same or of a different nature. 8.3 Anything contained in this Agreement to the contrary notwithstanding, the obligations of the parties hereto shall be subject to all laws, both present and future, of any Government having jurisdiction over either party hereto, and to orders or regulations of any such Government, or any department, agency, or court thereof, and to any contingencies resulting from acts of war, acts of public enemies, strikes, or other labor disturbances, fires, floods, acts of God, or any causes of like or different kind beyond the control of the parties, and the parties hereto shall be excused from any failure to perform any obligation hereunder to the extent such failure is caused by 7 8 MOTOROLA CONFIDENTIAL PROPRIETARY any such law, order, regulation, or contingency, but only so long as said law, order, regulation or contingency continues. 8.4 The captions used in this Agreement are for convenience only, and are not to be used in interpreting the obligations of the parties under this Agreement. 8.5 With respect to matters of contract construction and interpretation, the substantive law of the state of Illinois, United States of America shall apply. However, with respect to matters of infringement and validity of intellectual property rights, the substantive law of the nation having jurisdiction over such property or over matters affecting such intellectual property rights shall be applied. 8.6 In no event shall either party be liable to the other party by reason of breach or termination of this Agreement for any loss of prospective profits or incidental or consequential damages. 8.7 The provisions of Sections 2, 3, 4, 6, and 7 shall survive the expiration or termination of this Agreement for any cause. 8.8 If any term, clause, or provision of this Agreement shall be judged to be invalid, the validity of any other term, clause, or provision shall not be affected; and such invalid term, clause, or provision shall be deemed deleted from this Agreement. 8.9 This Agreement and the PURCHASE AGREEMENT set forth the entire Agreement and understanding between the parties as to the subject matter hereof and merges all prior discussions between them, and neither of the parties shall be bound by any conditions, definitions, warranties, understandings or representations with respect to such subject matter other than as expressly provided herein or as duly set forth on or subsequent to the date hereof in writing and signed by a proper and duly authorized officer or representative of the party to be bound thereby. 8.10 MOTOROLA and PAGEMART will attempt to settle any claim or dispute arising out of this Agreement through consultation and negotiation in good faith and a spirit of mutual cooperation. If those attempts fail, then the dispute will be mediated by a mutually-acceptable mediator to be chosen by Motorola and PageMart within 45 days after written notice by one of both parties demanding mediation. Neither party may unreasonably withhold consent to the selection of a mediator, and Motorola and PageMart will share the costs of the mediation equally. By mutual agreement, however, Motorola and PageMart may postpone mediation until each has completed some specified but limited discovery about the dispute. 8 9 MOTOROLA CONFIDENTIAL PROPRIETARY 8.10.1 The parties may also agree to replace mediation with some other form of non-binding alternative dispute resolution (ADR), such as neutral fact-finding or a minitrial. 8.10.2 Any dispute which the parties cannot resolve between them through negotiation or mediation within six months of the date of the initial demand for it by a party may then be submitted to the courts within the State of Texas for resolution. Each party agrees to submit to the jurisdiction of those courts. The use of any alternative dispute resolution procedure will not be construed under the doctrines of laches, waiver or estoppel to affect adversely the rights of either party and shall toll the statute of limitations period while the alternative dispute resolution procedure(s) are ongoing. And nothing in this paragraph will prevent either party from resorting to judicial proceedings if (a) good faith efforts to resolve the dispute under these procedures have been unsuccessful, or (b) interim relief from a court is necessary to prevent serious and irreparable injury to one party or to others. Motorola and Pagemart knowingly, voluntarily and intentionally waive the right each may have to a jury for any such judicial proceedings including any claim, counterclaim, setoff or defense relating in any way to this Agreement. 8.11 All notices, requests, demands, and other communications required or permitted to be given hereunder shall be in writing and shall be valid and sufficient if dispatched by registered or certified mail, postage prepaid and addressed as set forth below, in any post office in the United States, or sent via facsimile to the party identified below (provided that a confirmation cost is mailed within ten (10) days thereafter by registered mail or certified airmail). Either party may change its address and/or person to receive notice under this Agreement by giving written notice of the change(s) to the other party. 8.11.1 If to MOTOROLA: Motorola Inc. 1303 East Algonquin Road Schaumburg, Illinois 60196 Fax: (708) 576-3750 Attention: Vice President for Patents, Trademarks & Licensing with a copy to: Senior Credit Manager Motorola Inc. Pan American Paging Subscriber Group 1500 Gateway Boulevard Boynton Beach, Florida 33426-8292 Phone: (407) 739-2991, Fax: (407) 739-8790 9 10 MOTOROLA CONFIDENTIAL PROPRIETARY 8.11.2 If to PAGEMART: PageMart Wireless, Inc. 6688 N. Central Expressway Dallas, Tx 75206 Fax: (214) 373-6676 Attention: Legal Department 8.11.3 The date of actual receipt of such a notice shall be the date for the commencement of the running of the period provided for in such notice, or the date at which such notice takes effect, as the case may be. Any such notice, request, demand, or other communication shall be deemed to have been duly received fifteen (15) days after being mailed by registered or certified airmail in a postage-paid properly addressed envelope, or the date when sent via facsimile to the party intended (provided that a confirmation copy is mailed within ten (10) days thereafter by registered mail or certified airmail). IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed in duplicate originals by its duly authorized representative: MOTOROLA, INC. PAGEMART WIRELESS, INC. By; /s/ LARRY CARTER By: /s/ G. CLAY MYERS ---------------------------- --------------------------- Title: Corporate V. P. Title: V.P. Finance & CFO ------------------------- ------------------------ Date: 1/26/96 Date: 1/26/96 ------------------------- ------------------------ 10 11 CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM APPENDIX A BELOW MOTOROLA CONFIDENTIAL PROPRIETARY APPENDIX A "PAGEMART PATENTS" ISSUED PATENTS U.S. PATENT NO. 5,239,671 U.S. PATENT NO. 5,355,529 U.S. PATENT NO. 5,361,399 U.S. PATENT NO. 5,423,056 As of the EFFECTIVE DATE, counterparts of U.S. Patent Nos. 5,239,671, 5,361,399, and 5,423,056 were known to be filed in other countries and are also included herein. ALLOWED PENDING PATENT APPLICATIONS 1. U.S. PATENT APPLICATION NO. Attorney Docket No. 2. U.S. PATENT APPLICATION NO. Attorney Docket NO. 3. U.S. PATENT APPLICATION NO. Attorney Docket NO. PENDING PATENT APPLICATIONS 1. U.S. PATENT APPLICATION NO. Attorney Docket NO. 2. U.S. PATENT APPLICATION NO. Attorney Docket NO. 11 12 CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM APPENDIX A BELOW MOTOROLA CONFIDENTIAL PROPRIETARY 3. U.S. PATENT APPLICATION NO. Attorney Docket NO. 4. U.S. PATENT APPLICATION NO. Attorney Docket NO. 5. U.S. PATENT APPLICATION NO. Attorney Docket NO. 6. U.S. PATENT APPLICATION NO. Attorney Docket NO. 7. U.S. PATENT APPLICATION NO. Attorney Docket NO. 8. U.S. PATENT APPLICATION NO. Attorney Docket NO. 9. U.S. PATENT APPLICATION NO. Attorney Docket NO. 10. U.S. PATENT APPLICATION NO. Attorney Docket NO. 11. U.S. PATENT APPLICATION NO. Attorney Docket NO. (continuation of U.S. PATENT APPLICATION NO. Attorney Docket No. INVENTIONS CONCEIVED BEFORE JANUARY 1, 1997 TBD 12 13 MOTOROLA CONFIDENTIAL PROPRIETARY APPENDIX B THE PAGEMART INVENTION INFORMATION LISTING 13 14 MOTOROLA CONFIDENTIAL PROPRIETARY APPENDIX C PATENT ASSIGNMENT AND AGREEMENT FOLLOWS ON NEXT PAGE 14 15 CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM APPENDIX C BELOW PATENT ASSIGNMENT AND AGREEMENT For and in consideration of good and valuable consideration, the receipt of which is hereby acknowledged, PageMart, Inc., PageMart Wireless, Inc., and PageMart PCS, Inc., (hereinafter collectively called "PAGEMART") have sold, assigned and transferred, and do hereby sell, assign and transfer effective December 1st, 1995, unto MOTOROLA, INC., a corporation of the State of Delaware, having its principal office in Schaumburg, State of Illinois, United States of America, and its successors, assigns, and legal representatives, the entire right, title and interest for the United States of America in and to certain inventions described, illustrated and claimed in numerous U.S. Patent Applications and Letters Patent of the United State of America, in particular: U.S. PATENT NO. 5,239,671, U.S. PATENT NO. 5,355,529, U.S. PATENT NO. 5,361,399, and U.S. PATENT NO. 5,423,056; U.S. PATENT APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT APPLICATION NO. U.S. PATENT APPLICATION NO. and Attorney Docket No. and upon any division, extension, continuation, reexamination, or reissue thereof. PAGEMART hereby also sells, assigns and transfers unto MOTOROLA, INC. the entire right, title and interest in and to said inventions and Letters Patent therefor in all countries foreign to the United States of America, including all rights under any and all international conventions and treaties in respect of said inventions and said applications for Letters Patent in foreign countries that claim priority of the filing date of said Letters Patent under provisions of any and all international conventions and treaties. PAGEMART hereby authorizes and requests the Commissioner of Patents of the United States of America to issue Letters Patent upon any division, extension, continuation, reexamination, or reissue, to MOTOROLA, INC., for the sole use and behalf of MOTOROLA, INC., its successors, assigns and legal representatives, to the full end of the term for which said Letters Patent may be granted, the same as they would have been held and enjoyed by PAGEMART had this assignment not been made, and PAGEMART hereby authorizes and requests the equivalent authorities in foreign countries to similarly issue the patents of their respective countries to MOTOROLA, INC. 1 16 PAGEMART agrees that, when requested, will, without charge to MOTOROLA, INC., but at its expense, sign all papers, take all rightful oaths, and do all acts which may be reasonably necessary, desirable or convenient for securing and maintaining patents for said inventions in any and all countries and for vesting title thereto in MOTOROLA, Inc., its successors, assigns and legal representatives or nominees. PAGEMART covenants with MOTOROLA, INC., its successors, assigns and legal representatives, that the interest and property hereby conveyed is free from all prior assignment, grant, mortgage, license or other encumbrance and is binding upon my its heirs, successors, and assigns. /s/ G. CLAY MYERS Date: 1/26/96 ---------------------------------- ---------- Print Name: G. CLAY MYERS Title: V.P. FINANCE & CFO, PAGEMART STATE OF TEXAS COUNTY OF TARRANT Before me, the undersigned, a Notary Public, on this day personally appeared G. Clay Myers, known to me to be the person and officer whose name is subscribed to the foregoing instrument, and acknowledged to me that the same was the act of PAGEMART, and that he/she has executed the same as the act of PAGEMART for the purposes and consideration therein expressed, and in the capacity therein stated. Given under my hand and notarial seal this 26th day of January, 1996. STEPHANIE L. MORAN Notary Public Commission Number ____________ My commission expires: STEPHANIE L. MORAN Notary Public, State of Texas My Commission Expires 11-01-99 (SEAL) 2 -----END PRIVACY-ENHANCED MESSAGE-----