-----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, JcYDAq+B8GTxxuHX/LteKUHn7Aw+eq3LSywpKv+ovkG94MiUJl4e5V47WhsoVTLk 49/owAsGPzn/3NqpAT+IoQ== 0000950134-98-001423.txt : 19980223 0000950134-98-001423.hdr.sgml : 19980223 ACCESSION NUMBER: 0000950134-98-001423 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980220 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-K405 SEC ACT: SEC FILE NUMBER: 000-28196 FILM NUMBER: 98546475 BUSINESS ADDRESS: STREET 1: 6688 N CENTRAL EXPRESSWAY STREET 2: STE 800 CITY: DALLAS STATE: TX ZIP: 75206 BUSINESS PHONE: 2147505809 MAIL ADDRESS: STREET 1: 3333 LEE PARKWAY STREET 2: SUITE 100 CITY: DALLAS STATE: TX ZIP: 75219 FORMER COMPANY: FORMER CONFORMED NAME: PAGEMART NATIONWIDE INC /DE DATE OF NAME CHANGE: 19950627 10-K405 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 10-K (MARK ONE) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF ---- THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 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. 0-28196 ------------------------------ PAGEMART WIRELESS, 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)
3333 LEE PARKWAY, SUITE 100 DALLAS, TEXAS 75219 (Address of principal executive offices) (Registrant's telephone number, including area code): (214) 765-4000 ------------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: TITLE OF EACH CLASS --------------- Class A Common Stock, par value $0.0001 per share ------------------------------ 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 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] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on January 31, 1998 as reported on the Nasdaq National Market System, was approximately $76,430,161. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status for this purpose is not necessarily a conclusive determination for other purposes. As of January 31, 1998, 34,150,907 shares of the Registrant's Class A Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Proxy Statement for its Annual Meeting of Stockholders scheduled to be held on April 8, 1998 are incorporated by reference into Part III (items 11, 12 and 13) hereof. ================================================================================ 2 PART I ITEM 1. BUSINESS Unless the context otherwise requires, references to "the Company" are to PageMart Wireless, Inc. and its subsidiaries on a consolidated basis. References to "PageMart Wireless" are to PageMart Wireless, Inc. on a non-consolidated basis. References to "PageMart" are to PageMart, Inc., a wholly-owned subsidiary of PageMart Wireless that was merged into PageMart Wireless on January 28, 1998. FORWARD LOOKING STATEMENTS This Annual Report contains statements that constitute forward-looking statements. The words "estimate," "project," "plan," "expect," "believe" and similar expressions are intended to identify forward-looking statements. Readers are cautioned that such forward-looking statements involve risks and uncertainties, and are subject to change based on various important factors. The factors set forth in other filings with the Securities Exchange Commission and 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 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 outstanding indebtedness; the impact of technological change in the telecommunications industry; the future cost of network infrastructure and subscriber equipment; the impact of competition and pricing of paging and wireless services; the timely development and acceptance of new products; changes in regulation by the Federal Communications Commission ("FCC") and various state regulatory agencies; and the ability of the Company to fully finance the construction and operation of the transmission network for advanced messaging services. GENERAL The Company is one of the fastest growing providers of wireless messaging services in the United States. The Company is the sixth largest paging carrier in the United States, based on 2,530,737 subscribers at December 31, 1997. The Company's number of subscribers has increased at annual growth rates of 60%, 50% and 36% in 1995, 1996, and 1997, respectively. The Company has made no acquisitions, and all subscriber growth has been internally generated. The Company offers local, multi-city, statewide, 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 paging services to the countries that are parties to NAFTA and beyond, including Canada, Puerto Rico, the U.S. Virgin Islands and the Bahamas. In October 1997, the Company expanded services into Mexico through its network affiliation with Buscatel, a subsidiary of Telefonos de Mexico ("TelMex"), Mexico's largest telecommunications company, and into Panama and El Salvador through network affiliation agreements with leading telecommunications companies in those countries. In January 1998, the Company expanded services into Guatemala and Costa Rica, and expects to expand services into Nicaragua and Honduras in the first half of 1998. RECENT EVENTS On January 28, 1998 PageMart Wireless completed the offering (the "Offering") of its 11 1/4% Senior Subordinated Discount Notes due 2008 (the "11 1/4% Notes"), raising approximately $249.7 million in gross proceeds. Simultaneously with the closing of the Offering, the Company refinanced certain of its outstanding indebtedness (the "Refinancing"), and modified its corporate structure. The Refinancing consisted of: (i) purchasing all of the outstanding 12 1/4% Senior Discount Notes due 2003 (the "12 1/4% Notes") of PageMart ($136.5 million principal amount at maturity); (ii) amending certain terms of the covenants and agreements in the indenture relating to the 15% Senior Discount Exchange Notes due 2005 (the 15% Notes") of PageMart Wireless; and (iii) merging PageMart into PageMart Wireless with PageMart Wireless as the surviving corporation. Approximately $130.7 million of the net proceeds of the Offering of 11 1/4% Notes was 2 3 used to finance the purchase of the 12 1/4% Notes. The proceeds remaining after offering expenses and refinancing were approximately $107.8 million, which will be used to construct the Company's narrowband personal communications services network and for other general corporate purposes. ADVANCED MESSAGING SERVICES The Company has experienced increased demand for alphanumeric and wide area coverage services and believes that its nationwide narrowband personal communications services ("NPCS") spectrum may present significant future growth opportunities. NPCS spectrum will provide additional capacity, as well as the opportunity to introduce a new generation of wireless messaging services, including advanced alphanumeric messaging with guaranteed message delivery, automatic confirmation of receipt of messages and subscriber response to and origination of messages. The Company believes that initially the majority of demand for advanced messaging services will be from corporate and business users seeking reasonably priced, wide area communication and information services. Alphanumeric and wide area coverage services use significantly more network resources than numeric paging. The Company believes that growth in subscribers and increased demand for alphanumeric and wide area coverage services will create a shortage of industry capacity on existing one-way networks. However, NPCS networks will be designed to efficiently deliver alphanumeric messaging and wide area coverage services at lower operating costs relative to the current costs of delivering similar one-way alphanumeric messages at comparable network utilization levels. Therefore, the Company expects strategies employing NPCS networks to capture significant amounts of the projected industry growth because of their anticipated ability to deliver greater network capacity, higher quality and improved reliability compared to existing one-way networks. The Company believes it is well positioned to take advantage of these factors. In the NPCS auctions conducted by the FCC, the Company acquired licenses for a total of 100kHz of forward frequency and 50kHz of return frequency nationwide (the "NPCS Licenses"), becoming one of four companies in the United States with 150kHz or more of NPCS frequency nationwide. The Company has constructed NPCS networks in two cities in order to test several advanced messaging technologies. Based on successful test results, the Company has decided to employ ReFLEX25(TM) protocol in its NPCS network, which is a second generation ReFLEX(TM) technology developed by Motorola, Inc. ("Motorola") that is compatible with the FLEX(TM) protocol employed in the Company's existing one-way network. This will permit the Company to integrate its NPCS network with its existing one-way network, allowing the Company to build its NPCS network rapidly and substantially increase its network capacity in the most cost effective manner. The Company's objective is to ultimately have its NPCS network cover the same "footprint", or geographic coverage area, as its existing one-way network. The Company anticipates investing approximately $100 million in 1998 (which will be funded primarily with the proceeds from the Offering) to construct and deploy a NPCS network, which the Company expects to enable it to market advanced messaging services nationwide by the end of 1998. The Company believes that its operations will then comprise a highly efficient national one-way network and a state of the art NPCS network delivering advanced messaging services, in each case supported by common systems and infrastructure. NPCS networks employ both radio transmission and receiving equipment throughout the network. Subscriber units will contain a transmitter that broadcasts its identity and other data to the network receivers. As a result, the network knows the subscriber's approximate location and is able to broadcast messages from a limited number of transmitters in a zone rather than from all transmitters in the subscriber's coverage area, which results in higher network capacity due to efficient use of spectrum. The network can also determine whether a subscriber is within range. If a subscriber travels outside the range of the network, the network can store the message until the subscriber returns within range and then transmit the message, thereby guaranteeing delivery. The subscriber unit can provide simple automatic acknowledgment of receipt of a message and can also be used by the subscriber to send messages through the network ranging from a menu of predetermined responses to user created messages. 3 4 In contrast, a one-way network only has radio transmitters at its base stations. One-way subscriber units have no ability to send messages to the network. When a message is sent to a subscriber, the one-way network broadcasts the message simultaneously over all transmitters in the subscriber's coverage area. This results in inefficient use of spectrum and limits the capacity of the network to provide enhanced services, such as alphanumeric messaging. Because the subscriber unit cannot communicate with the network, there is no ability to confirm receipt of messages or determine whether the subscriber is actually within range of the network when the message is sent. The Company expects that NPCS subscriber units will have dimensions, battery life and building penetration capability similar to existing one-way alphanumeric units. Based on its successful test results, the Company believes that the superior technology and efficient use of spectrum of its NPCS network will enable it to offer high quality, reliable, cost-effective nationwide alphanumeric services. OPERATING STRATEGY The Company attributes the significant growth of its existing paging business to the successful implementation of its six operating principles: (i) diversified distribution channels, (ii) nationwide and NAFTA-wide common frequency, (iii) efficient network architecture, (iv) spectrum-rich frequency position, (v) centralized administration, and (vi) customer service capabilities. The Company expects these principles to be equally important in the development of the market for advanced messaging services. DIVERSIFIED DISTRIBUTION CHANNELS. The Company utilizes a number of distribution channels to market its current 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 nationwide retail distribution channels. The Company has been selected as the pager supplier for a number of leading retail chains, including Eckerd Drug; Office Depot, Inc; OfficeMax, Inc.; RadioShack, a division of Tandy Corporation; Southland (7-Eleven); 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, WorldCom Network Services, Inc., Ameritech Mobile Services, Inc., EXCEL Communications, Inc., ALLTEL Communications, Inc. ("ALLTEL"), Bluegrass Cellular and First Cellular of Southern Illinois. National Sales Offices. The Company's national sales offices sell and lease equipment and services through four distribution channels: direct sales, agents, third-party resellers and local retailers. At December 31, 1997, the Company had a direct sales force presence covering approximately 80 of the top 100 Metropolitan Statistical Areas ("MSAs"), through 58 sales offices. The Company intends to use its existing distribution channels and sales and marketing organizations as the basis for marketing and sales of advanced messaging services. The Company expects that sales of advanced messaging services will initially be dominated by business and corporate customers because of the growing need of business customers for mobile, reasonably priced communication and information services with wide area coverage and the higher cost of advanced messaging subscriber units compared to one-way units. As a result, the Company believes that its national sales offices and private brand strategic alliance distribution channels will initially be best suited for marketing and selling these services. 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 to increase profitability and cash flow through greater utilization of its nationwide wireless communication network. 4 5 NATIONWIDE AND NAFTA-WIDE COMMON FREQUENCY. The Company has constructed its nationwide one-way messaging network on a common frequency and its nationwide NPCS network will also be constructed on common frequencies. Use of common frequencies 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 across the United States enables the Company's customers to travel throughout the United States while continuing to use the same subscriber unit. In addition, the use of a common one-way frequency has been expanded NAFTA-wide and beyond, into Canada, Puerto Rico, the U.S. Virgin Islands and the Bahamas. In October 1997, the Company expanded services into Mexico, Panama and El Salvador through network affiliation agreements with leading telecommunications companies in those countries. In January 1998, the Company expanded services into Guatemala and Costa Rica, and expects to expand services into Nicaragua and Honduras in the first half of 1998. As a result, through the use of joint venture arrangements or network affiliation agreements, the Company is able to provide multi-city coverage customized to accommodate the customer's needs throughout North and Central America ("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. Because the Company's subscriber units 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 stock keeping units to serve each local market that utilizes a different frequency. 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 one-way wireless transmission network is 100% controlled by DBS technology, which gives the Company a flexible, highly reliable and efficient network architecture. The use of DBS technology eliminates the need for expensive terrestrial radio frequency ("RF") control links and repeater equipment while enabling the Company to provide a wide range of coverage options. The Company's efficient one-way network will be used as the outbound transmission infrastructure for the NPCS network, allowing the Company to build its NPCS network rapidly and substantially increase its network capacity in the most cost effective manner. The Company will implement very small aperture satellite terminal ("VSAT") equipment during construction of the NPCS network in order to permit two-way communication using DBS technology. The Company's one-way network covers the top 300 MSAs across the United States, or approximately 90% of the total population in the United States. The Company's one-way network is 100% FLEX(R) enabled, allowing the use of the high speed FLEX(R) protocol to transmit messages and maximize system capacity. The one-way networks included in the Company's NAFTA-wide coverage are also 100% FLEX(R) enabled. 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 one-way paging frequencies and 150 kHz of nationwide NPCS frequency. The Company believes that this frequency position has important strategic value because it enables the Company to grow its one-way subscriber base and introduce advanced messaging and other value-added services to its subscribers. As a result, the Company believes its spectrum-rich frequency position enables it to attract and retain national retail and private brand strategic alliance partners. CENTRALIZED ADMINISTRATION. The Company has centralized information systems, inventory control and distribution, finance and marketing functions, which can support both the Company's existing one-way network and, in the future, its NPCS network. This centralized administration has enabled the Company to become one of the lowest cost providers of paging and other wireless communications services in the United States relative to the services it provides. 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. 5 6 CUSTOMER SERVICE CAPABILITIES. Management has focused on developing industry-leading customer service capabilities which are designed to be used for both one-way and advanced messaging services and can be expanded as the customer base grows. At December 31, 1997, the Company employed approximately 950 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. ONE-WAY MESSAGING SERVICES The Company charges subscribers a fee which covers the paging and messaging services subscribed for and any additional services purchased by the subscriber. The amount of the fee varies primarily based on the type of service provided and the geographic area covered. The Company charges higher rates for service options providing more than local coverage. The Company currently offers the following two 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.
NUMERIC PAGING SERVICES. Although most subscribers select local coverage, the number 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. ALPHANUMERIC PAGING SERVICES. The Company provides alphanumeric paging services under the tradenames InfoPage(R) and InfoNowSM , and the number of subscribers utilizing the service represented 5.4% of the Company's total subscribers at December 31, 1997. 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(R) protocols, the Company anticipates alphanumeric paging service will continue to become a larger portion of its subscriber base and its selling and marketing efforts. The ability of alphanumeric pagers to receive text messages, in addition to numeric messages, allows the Company to charge higher monthly fees for its InfoPage(R) and InfoNowSM services than for numeric display paging services. ROAMING SERVICES. infoRoamSM and OmniRoamSM services allow customers the flexibility to change their local coverage through a simple phone call. Using a touch-tone phone, the customer needs only to enter the area code of the city to which he or she is traveling and the local coverage is changed. Numeric and text messages are automatically sent to the customer's "roaming" city until coverage is moved back to the "home" city. With these services, the customer does not pay for paging coverage that is not needed (i.e., nationwide). These services are available due to the Company's unique network architecture. These products give the Company's customers the ability to take local coverage with them when they travel to major communities in the United States, Canada, Mexico, El Salvador, Panama, U.S. Virgin Islands, Puerto Rico and the Bahamas. ADDITIONAL VALUE-ADDED SERVICES. In addition to paging services, the Company offers subscribers a number of additional value-added services, including voice mail 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 6 7 800 access number for paging subscribers, a customized voice prompt that allows subscribers to record a personal greeting, maintenance agreements and loss protection programs. During 1997, approximately 24% of the Company's recurring revenues are derived from these additional services. The Company also offers 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 include electronic mail, news and other information delivered to subscriber units. COAM STRATEGY The Company's operating model for one-way wireless messaging emphasizes a strategy of selling rather than leasing subscriber units. As of December 31, 1997, approximately 96% of the Company's subscriber units were customer owned and maintained ("COAM"), which compares to an industry average of approximately 62% at December 31, 1996. The Company believes that by following a COAM strategy for one-way wireless messaging 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 $34 at December 31, 1997. Capital employed per subscriber represents total assets, less NPCS assets, cash, non-debt current liabilities and international investments divided by domestic units in service. The Company believes that its COAM strategy for one-way wireless messaging provides additional benefits, including reduced risk of technological obsolescence and avoidance of the credit risk associated with leasing subscriber units to end-users. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". SALES AND MARKETING The Company's customers include individuals, corporations and other organizations that desire affordable communication services offering substantial mobility, accessibility and the ability to receive timely information. The Company utilizes a number of distribution channels to market its products and services, including retail marketing, private brand strategic alliances and national sales offices. Management believes that a diversified approach to distribution is important to sustain growth as demand for paging services more deeply penetrates the United States population, especially the consumer market. This diversification is a key element of the Company's strategy of expanding its subscriber base to increase profitability and cash flow through greater utilization of its nationwide wireless communication network. There is no single customer to which sales are made in an amount equal to 10% or more of the Company's consolidated revenues. RETAIL MARKETING. Since early 1993, the Company has been an industry pioneer in developing the national 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, multi-city, statewide, 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 stock keeping units to serve each local market that utilizes a different frequency. The Company has entered into sales arrangements with a number of large national retail chains such as Eckerd Drug; Office Depot, Inc.; OfficeMax, Inc.; RadioShack, a division of Tandy Corporation; Southland (7-Eleven); 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 continue to be an important channel of distribution for pagers. The number of retail store locations has increased to 12,924 stores at December 31, 1997 from 5,530 stores, 3,411 stores and 2,200 stores at December 31, 1996, 1995 and 1994, respectively. At December 31, 1997, approximately 26% of the Company's units in service are represented by the national retail channel. 7 8 PRIVATE BRAND STRATEGIC ALLIANCES. The Company has established numerous strategic relationships with large communications providers. These companies utilize their brand awareness and billing and distribution efficiencies to market private brand pagers and services using the Company's transmission network. At December 31, 1997, approximately 33% of the Company's units in service had been added through private brand strategic alliances, and the Company expects this proportion to increase over the next several years. GTE Corporation ("GTE"). Since 1993, the Company and GTE have 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 purchased approximately 250 new transmitters which have been deployed throughout the Company's nationwide network. The Company leases, operates and maintains the transmitters and will provide wireless services to GTE customers, as well as customers of the Company via the Company's nationwide network. The Company's services are sold across the United States through GTE Phone Mart Stores and certain GTE affiliates and authorized agents. Southwestern Bell Mobile Systems ("SBMS"). In May 1995, the Company and SBMS signed an agreement for SBMS' sale and marketing of SBMS-labeled services in all SBMS markets. AT&T Wireless Services ("AT&T Wireless"). In November 1995, the Company and AT&T Wireless entered into a three-year agreement for AT&T Wireless' sale and marketing of AT&T Wireless-labeled services. AT&T has recently announced an intention to sell its paging operations. No assurance can be given that the Company's arrangement with AT&T Wireless will continue if such sale occurs. Ameritech Mobile Services, Inc. ("Ameritech"). In February 1996, the Company and Ameritech signed an agreement for Ameritech's sale and marketing of Ameritech-labeled services. EXCEL Communications, Inc. ("EXCEL"). In March 1996, the Company and EXCEL, a long distance reseller, signed an agreement for EXCEL's sale and marketing of EXCEL-labeled services. ALLTEL, Bluegrass Cellular and First Cellular of Southern Illinois ("First Cellular"). In 1997, the Company signed separate agreements with each of ALLTEL, Bluegrass Cellular and First Cellular for their sale and marketing of private branded services. These agreements provide for each of ALLTEL, Bluegrass Cellular and First Cellular to purchase new transmitters to be deployed in their respective areas of operation. The Company will operate and maintain the transmitters as part of its nationwide network and will provide wireless services to ALLTEL, Bluegrass Cellular and First Cellular customers as well as customers of the Company via the Company's nationwide network. WorldCom Network Services, Inc. ("WorldCom"). In November 1997, the Company and WorldCom signed an agreement for WorldCom's sale and marketing of WorldCom-labeled services. NATIONAL SALES OFFICES. The Company's national sales offices sell and lease equipment and services through four distribution channels: direct sales, agents, third-party resellers and local retailers. At December 31, 1997, approximately 41% of the Company's units had been added through the national sales offices. At December 31, 1997, the Company had a direct sales force of approximately 500 persons covering approximately 80 of the top 100 MSAs through 58 offices. Direct Sales. The Company markets its equipment and services 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 in part by commission (which varies depending on the type of service subscribed for and other factors) for each unit sold or placed in service. Agents. The Company markets its equipment and services through agents. Agents establish customers which are billed directly by the Company. Agents earn a markup or margin on the initial sale and a share of future revenues for the customers they establish. 8 9 Third-Party Resellers. In addition to offering paging and messaging services directly to end-users, the Company also offers third-party resellers paging services in bulk quantities at wholesale monthly rates that are lower than the Company's regular retail rates. Local Retailers. The Company markets its services under sales arrangements with local retailers located in the MSAs where national sales offices are present. ONE-WAY TRANSMISSION NETWORK The Company developed an innovative satellite-based transmission network that gives the Company a flexible, highly reliable network architecture and an efficient operating structure. 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. With a DBS paging system, the satellite broadcasts messages directly to each transmitter in the Company's paging system, which then broadcasts the messages to pagers on the Company's nationwide broadcast frequency. DBS eliminates the expensive terrestrial radio link and repeater equipment that many paging companies have employed to control simulcast transmissions in large metropolitan markets. In addition, the satellite system can selectively address one or any combination of the Company's transmitters, thereby providing a wide range of coverage options and permitting efficient use of paging frequencies in each market. 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 leases satellite services pursuant to agreements with AvData Systems, Inc. ("AvData") and SpaceCom Systems, Inc. ("SpaceCom"). The agreements subject the Company to monthly service charges based on the amount and types of services used and expire on July 1, 2001 and January 31, 2002 respectively. The agreements may be terminated upon certain failures of the Company to pay monthly service fees. The agreements do not include any renewal provisions. Management believes that the services provided by AvData and SpaceCom are sufficient to meet the Company's foreseeable needs and that there are alternative 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 suppliers would have a material adverse long-term effect on its business and operations. ADVANCED MESSAGING OPERATIONS One of the Company's principal objectives is to become a leading provider of advanced messaging services in the United States utilizing its NPCS technology and spectrum. Management believes that the introduction of advanced messaging services may present significant future growth opportunities to the Company by enabling it to offer a new generation of services presenting sophisticated solutions for business and personal messaging needs, and by providing it the opportunity to place more units in service because of significantly increased network capacity. The Company expects that NPCS technology and spectrum will permit delivery of a new generation of wireless messaging services, including acknowledgment of receipt of messages, guaranteed delivery of messages, and subscriber response to and origination of messages. The Company believes NPCS networks will deliver higher network capacity, quality and reliability than existing one-way networks. Advanced messaging services will be delivered to a subscriber unit containing a transmitter, enabling it to send signals to the network that identifies its location and transmits other data. Advanced messaging services use the location identification capabilities of the NPCS network to automatically identify, without any action on the part of the subscriber, the network zone in which to transmit the subscriber's messages. Messages can 9 10 be transmitted from a limited number of transmitters rather than every transmitter in the subscriber's coverage area, permitting frequency reuse resulting in increased system capacity and reduced operating costs. Depending on the design of the subscriber unit, the subscriber will be able to respond to or originate messages with varying levels of sophistication when the network is fully developed. RESEARCH AND PLANNING After the Company acquired the NPCS Licenses in 1994 and 1995, the Company began a technical and market research program to evaluate the opportunities for advanced messaging services. Based on its research, the Company expects that the initial advanced messaging services offered will be designed to capitalize on the market trends toward alphanumeric messaging and wide area coverage. See "-- Planned Advanced Messaging Services." The Company's technical research focused on the identification and development of equipment and protocols that would be best suited to constructing a network to deliver the company's planned advanced messaging services at a reasonable capital cost. Paging networks use various "protocols" to provide seamless communications between the components which make up a paging network. Protocols regulate the format and flow of messages which are transmitted over the network. Motorola has developed several protocols, including FLEX(TM), ReFLEX25(TM), ReFLEX50(TM) and InFLEXion(TM) Voice. Of these protocols, ReFLEX25(TM) and ReFLEX50(TM) support advanced messaging, including two-way alphanumeric messaging, and InFLEXion(TM) Voice supports stored voice messaging. In 1996 and 1997, the Company constructed and tested two NPCS networks, one in Dallas and one in Austin, Texas. Each network is based on the network infrastructure equipment of a different vendor using subscriber units supplied by Motorola. The test networks were developed not only to evaluate the performance of the infrastructure equipment, but to evaluate factors such as terrain topography, building penetration, population density, protocol stability, equipment interfaces, and antennae technologies which the vendors were unable to adequately test independently. Test results from one of these networks indicated that an NPCS network using ReFLEX25(TM) protocols can be integrated with the Company's existing FLEX(TM) network. As a result of its technical evaluation, the Company determined to base its NPCS network on the ReFLEX25(TM) protocol technology. Unlike other NPCS protocols, ReFLEX25(TM) permits cost-effective sharing of equipment with its existing FLEX(TM) network and efficient use of the Company's spectrum to accommodate a greater number of subscribers. NPCS NETWORK BUILDOUT Using the proceeds of the Offering, the Company expects to deploy receivers and other equipment on a city-by-city basis. The Company expects to begin commercial operation of local coverage in the Austin/San Antonio and Dallas-Fort Worth areas in the second quarter of 1998. The Company plans to add other cities to the network during 1998 until there are a sufficient number to begin marketing nationwide coverage, which the Company expects to occur by the end of 1998. The Company plans to continue to build out its network and expand its coverage area during 1999. There is no assurance however, that the buildout will proceed as planned or be successfully completed. The key elements of the network buildout are as follows: DESIGN. The design of the Company's nationwide NPCS network is based upon Motorola's ReFLEX25(TM) technology. Existing transmitters and transmitter sites will be used for the outbound portion of the network. The Company's engineers have tested the outbound characteristics of ReFLEX25(TM) and have determined that they are sufficiently similar to FLEX(TM) that the existing transmitter infrastructure will successfully deliver ReFLEX25(TM) outbound services. The inbound or receive side of the network requires that new infrastructure equipment (i.e., receivers) be added to both existing sites and to new sites. The exact number of new receive sites required beyond those to be located on existing sites is a function of the amount of available space on existing sites and the local RF characteristics of the particular market being built out. As part of the design process, the Company's engineers are identifying sites using the Company's 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. 10 11 EQUIPMENT. The infrastructure of the Company's network will consist of a home terminal, encoders, satellite access controllers ("SAC's"), radio transmitters and receivers, switches, RF controllers and ancillary equipment, such as coaxial cable and antennas. The home terminal is a key component of a network that defines and controls the types of services that can be provided by the network. The Company purchased the paging terminals for its one-way transmission network from an outside vendor. When the Company wanted to add or change a feature of its service offerings, the Company had to request the vendor to make the required modifications to the terminals. If the vendor agreed to make the modifications, the time required to implement the modifications was often unacceptable to the Company. Once the modifications were made, the Company had no proprietary interest in them so they were usually released to competitors. As a result, the Company is developing the home terminal that will be used in its NPCS network. The advanced messaging services that can be provided on the NPCS network are more varied and complex than services provided on the Company's one-way network. In addition, because the market for advanced messaging services is relatively immature and undeveloped, the Company cannot predict with certainty how the market will adopt and use the advanced messaging services that are potentially available for commercial development. The Company believes that the ability to react quickly to developing market demand for advanced messaging services will be a critical element in successfully implementing its advanced messaging services strategy. As a result, the Company developed its proprietary home terminal, called the Advanced Cross Media Information Server ("AXIS(TM)"). As of December 31, 1997, the Company had invested approximately $6.3 million in the development of AXIS(TM) over a period of two years. AXIS(TM) contains an object-oriented software system that the Company believes will enable it to more rapidly develop new services as the market for them emerges, and more easily integrate wireless messaging into all types of information systems such as the Internet, intranets, e-mail, voice mail, fax in-boxes and other wireless communications systems. AXIS(TM) is currently being beta-tested for one-way messaging applications. The Company expects AXIS(TM) support for the planned local alphanumeric advanced messaging service to be ready for commercial release in the second quarter of 1998. The Company plans to purchase infrastructure equipment (other than the home terminal, SAC's and ancillary equipment) from industry leading equipment suppliers, Motorola and Glenayre Technologies, Inc. ("Glenayre"). The Company believes that currently these are the only two qualified suppliers of such infrastructure equipment and subscriber units and, as a result, the Company is dependent on these two suppliers for much of its infrastructure equipment and subscriber unit needs. The Company understands that Motorola and Glenayre have cross-licensed the relevant protocols. The Company expects to purchase infrastructure equipment from Motorola under an existing volume purchase agreement, and from Glenayre under a recently signed volume purchase agreement. The Company expects to purchase subscriber units from Motorola under a volume purchase agreement that the Company expects to amend in 1998 to cover advanced messaging subscriber units, and from Wireless Access, a subsidiary of Glenayre, under a recently signed supply agreement. The Company has entered into a volume purchase agreement with AvData to purchase VSAT and related equipment for its NPCS network. The Company believes that the satellite services available under its agreement with AvData are sufficient for both the one-way and advanced messaging services networks. The Company would be adversely affected if it were unable to obtain the infrastructure equipment and subscriber units on satisfactory terms by planned delivery dates. DEVELOPMENT OF TECHNOLOGY. The ReFLEX25(TM) technology has operated successfully in the test network environment and the Company is prepared to implement this technology throughout its existing network. However, the Company must complete the development of its AXIS(TM) terminal and the integration of the terminal with Glenayre equipment before commercial operations can begin. In addition, the Company, Motorola and Glenayre are still developing and conducting testing of ReFLEX25(TM) technology, infrastructure equipment and subscriber units to improve operational efficiency. The Company does not believe that any of these issues will affect the ultimate ability of the network to operate 11 12 in a commercially viable manner, although there can be no assurance of this. If any of these issues are not resolved on a timely basis, the Company's scheduled commercial introduction of advanced messaging services could be delayed, which could adversely affect the Company's results of operations. PLANNED ADVANCED MESSAGING SERVICES 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 to the Company's network that identifies its location and transmits other data. Advanced messaging subscriber units are currently available from Motorola and Wireless Access. These subscriber units make possible the following five levels of advanced messaging service: POTENTIAL ADVANCED MESSAGING SERVICE LEVELS
DESCRIPTION BENEFIT ----------- ------- Guaranteed Delivery............... Passive acknowledgment between the Identifies location of subscriber subscriber unit and the network. unit, guarantees message delivery and ensures message integrity. Message Acknowledgment............ When the message is received and/or Lets the sender know the message has read, an alert is triggered and sent been received and/or read. back through the network. Multiple-choice Response.......... Presents subscriber with a choice of Eliminates need for a return phone responses embedded in message. Sender call and complete the messaging loop. can create custom response on a PC, embed it in the message, and transmit it to the device. Preprogrammed Response............ Presents subscriber with a list of Provides a simple response method. preprogrammed messages for response. Message Origination............... Subscriber can create custom Allows messages to be sent and responses or initiate messages, also information to be requested on known as free form messaging. demand.
Reported industry growth rates for alphanumeric service significantly exceed the growth rate for traditional local numeric service. The Company's initial advanced messaging services are designed to take advantage of these trends. However, there can be no assurance that advanced messaging services will be commercially viable or that the advanced messaging service levels will be possible, and the success of advanced messaging service could be affected by matters beyond the Company's control. The Company's advanced messaging service offerings are expected to include the following: LOCAL ALPHANUMERIC MESSAGING. When the NPCS network is completed and tested in each city, the Company plans to introduce local alphanumeric messaging service in the city. The Company's local alphanumeric messaging service will enable the subscriber to receive alphanumeric messages up to several hundred 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 and a modem that can access the Company's network directly or via the Internet or (ii) a dispatch operator. This service will also provide store-and-forward delivery of messages so that messages are delivered later if the subscriber unit cannot be reached by the network on the initial attempt. The service takes 12 13 advantage of the positive receipt acknowledgment of the ReFLEX25(TM) protocol and the ability of two-way subscriber units to register and transmit positive acknowledgment. AUTO-ROAM ALPHANUMERIC MESSAGING. When the Company's networks are operating commercially in a sufficient number of cities, the Company plans to introduce auto-roam alphanumeric messaging service. Auto-roam alphanumeric messaging service allows a subscriber to receive an alphanumeric message anywhere within the coverage of the Company's network in the U.S. The service uses the location identification capabilities of the ReFLEX25(TM) network to automatically identify, without any action on the part of the subscriber, the network zone in which to transmit the subscriber's messages. The messages can be transmitted from a limited number of transmitters rather than from every transmitter in the subscriber's requested coverage area, as is required in the one-way transmission network. An auto-roam alphanumeric message service subscriber will have nationwide service at a lower price than can be offered on the Company's current one-way paging network. 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(TM) technology should offer significant increases in capacity over the one-way spectrum and technology currently delivering alphanumeric messaging services. The Company believes that its auto-roam alphanumeric service will improve upon traditional service by permitting longer messages and guaranteed delivery. 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 nationwide services. The Company expects many current one-way alphanumeric service subscribers to migrate to auto-roam alphanumeric service, which will create additional capacity for numeric service on the Company's one-way network, a service that can be very efficiently delivered on that network. MESSAGE ACKNOWLEDGMENT MESSAGING. When market demand has reached a commercially viable level and the technical requirements for message acknowledgment have been implemented in the Company's network, the Company plans to introduce message acknowledgment service. This service will provide the sender of a message confirmation that the message was delivered accurately to the subscriber unit. The sender can receive the acknowledgment through the same mechanism which was used to create the original message or by designating another communication path for the acknowledgment. RESPONSE AND TWO-WAY MESSAGING. When market demand has reached a commercially viable level and the technical requirements for full two-way messaging have been implemented in the Company's network, the Company plans to introduce response and two-way messaging services. Response messaging allows a subscriber to respond back to the sender of a message. Depending on the subscriber's unit, a subscriber can: - Select from a custom set of multiple choice responses sent with the message, - Send a response chosen from a set of predefined responses stored in his unit, - Create a free form text response. Multiple responses can be made to the same message. The sender is expected to be able to receive responses through the same mechanism which was used to create the original message or by designating another communication path for the response. Two-way messaging will allow a subscriber to originate and receive messages and other communications. Subscribers could be notified of the receipt of electronic mail, voice mail and faxes. Similarly, subscribers can originate messages which are delivered to a target recipient over several alternative communications networks. Using two-way messaging, a subscriber is expected to be able to stay in touch while mobile, using a portable and relatively inexpensive device and service. In addition to these benefits, this service will also 13 14 have the traditional benefits of one-way paging: broad geographic coverage; good building penetration; small disposable-battery powered subscriber units, which allows the device to be carried continuously; long battery life, which allows the device to be used continuously without servicing; and low costs of ownership and usage. 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 text messaging services. In addition to pocket-sized pagers, the Company believes that wireless text and data transmissions will be received by computers, organizers or a personal digital assistant equipped with two-way RF modems or built-in RF capability. It is anticipated that a limited response by the device will be possible. The Company will continue to monitor voice paging opportunities and technologies and may introduce one-way and/or two-way stored voice messaging service depending on market demand for such services. If the Company decides to introduce stored voice service, the Company expects to enter into agreements to provide the ability to resell the service of other wireless messaging service providers rather than incur the cost of developing its own network for stored voice messaging. SALES AND MARKETING Consistent with its strategy of utilizing existing resources to control the cost of its network and service expansion, the Company intends to use its existing distribution channels and sales and marketing organizations as the basis for marketing and sales of advanced messaging services. The Company expects that sales of advanced messaging services will initially be dominated by business and corporate customers because of the growing need of business customers for mobile, reasonably priced access to communication and information services with wide area coverage, the higher cost of advanced messaging subscriber units compared to one-way messaging units, and the lack of sales personnel in retail stores trained to sell the new services. As a result, the Company believes that its national sales offices and private brand strategic alliance distribution channels will initially be best suited for marketing and selling these services. Because of the higher cost of advanced messaging subscriber units compared to one-way messaging units and because the initial demand for advanced messaging services will likely be dominated by business and corporate customers, the Company expects to lease a substantial portion of its advanced messaging subscriber units. The Company expects that initially the strongest market demand for advanced messaging services will be from large, geographically dispersed corporate accounts. In preparation for the introduction of these services in 1998, the Company has divided the direct sales force of its national sales offices into a unit focusing on national accounts and a unit focusing on local markets. This enables the direct sales force personnel to personalize and specialize their approach to their target market. The national accounts unit will emphasize sales of advanced messaging services as a solution to business messaging needs. The Company has embarked on a program to hire and train sales personnel for its national accounts unit. As market demand for advanced messaging services develops, the Company expects its private brand strategic alliance distribution channel to grow in significance. The Company believes that a limited number of NPCS networks will be built nationwide. The Company believes that its NPCS network will be a low cost, high functionality network compared to the networks of its initial competitors, which will make reselling of the Company's services attractive to other paging companies and communications providers. These companies will resell such services under their own brand names. As the advanced messaging services become more prevalent, the Company expects the price of subscriber units to decrease. As this happens, the Company's retail distribution channel is expected to gain importance. INTERNATIONAL STRATEGY The Company plans to provide messaging services in selected countries on a seamless international network. The Company expects to pursue international opportunities through foreign related entities, interests in joint venture arrangements, or network affiliation agreements between the Company and the owners of 14 15 foreign networks. Network affiliation agreements provide, with minimal incremental capital investments by the Company, interconnection between the Company's network and the foreign network and roaming capabilities for the Company's and the foreign owner's subscribers. In each country in which the Company plans to offer paging and messaging services, the Company will seek the ability to offer such services on 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. There can be no assurance, however, that in each country in which the Company seeks to expand that a frequency will be available that is common to one of the Company's U.S. nationwide frequencies. The Company's international strategy is initially to pursue opportunities in North America, Central America and South America. One of the Company's related companies, PageMart Canada, obtained a nationwide license in Canada in 1995 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 United States and Canadian subscribers beginning in April 1996. The Company also provides paging coverage on the Company's nationwide frequency in the Bahamas, Puerto Rico and the U.S. Virgin Islands through affiliation agreements. In October 1997, the Company expanded services in Mexico, Panama and El Salvador. The Company has entered into an exclusive ten-year network affiliation agreement with TelMex through its wholly owned subsidiary, Buscatel. TelMex has acquired in Mexico the same nationwide frequency the Company uses nationwide in the United States and Canada and has installed it in all 33 markets where Buscatel operates. Under the terms of the agreement, the Company and Buscatel will integrate networks to enable efficient, user transparent messaging. The companies will jointly expand coverage, concentrating initially on major cities located along the 2,000-mile United States/Mexico border. The two companies will also jointly market services and co-brand pagers where appropriate. With the addition of Mexico via the TelMex agreement, PageMart offers true NAFTA-wide coverage. PageMart has also signed network affiliation agreements with leading paging companies in El Salvador, Nicaragua, Guatemala, Honduras, Costa Rica and Panama. As in the case of Mexico, the same nationwide 900MHz frequency used by the Company has been licensed by the Company's network affiliates in each country. The extension of the companies' services, including roaming, to these areas will allow the PageMart network to offer paging from Canada to the Panama Canal. The Company expanded services into Guatemala and Costa Rica in January 1998, and expects to launch services in Nicaragua, and Honduras in the first half of 1998. The common frequency allows the Company and its network 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 or Mexico City coverage. COMPETITION The Company competes primarily on the basis of the price of its equipment and wireless services, quality of service, and 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 regional telephone companies and both small and large paging service providers, such as Paging Network, Inc., Metrocall, Inc., AirTouch Communications, Inc., Arch Communications Group, Inc. and Mobile Telecommunications Technologies Corp. Certain of these companies have substantially greater financial, technical and other resources than the Company. In addition, a number of telecommunications carriers (including providers of broadband PCS) have constructed or are in the process of constructing nationwide wireless networks that will compete with the Company's services, including the provision of advanced messaging services. Management believes that the Company's low cost structure and service offerings will enable it to continue to compete effectively. A number of competing technologies, including cellular telephone service, broadband and narrowband personal communication services, specialized mobile radio, low speed data networks and mobile satellite services, are used in, or projected to be used for, advanced messaging services. Cellular telephone technology provides an alternative communications system for customers who are frequently away from fixed-wire 15 16 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 are expected to reduce paging costs. Broadband personal communications services technologies are currently being offered commercially in some cities, are under development in other areas of the United States, are similar to cellular technology and offer paging services in a single handset. This technology will offer greater capacity for advanced 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 advanced messaging services which may compete with the one-way and advanced 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. 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 (the "1996 Act"). The Company provides one-way messaging services directly to subscribers over its own transmission facilities. The Company (through subsidiaries) holds two exclusive nationwide one-way licenses, as well as exclusive licenses on various one-way frequencies in certain metropolitan areas, including New York, Los Angeles and Chicago. 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 will be utilized in connection with its NPCS networks. Under FCC rules governing regulation of commercial mobile radio services ("CMRS"), licensees such as the Company must provide interconnection upon reasonable request, must not engage in any unreasonably discriminatory practices and are subject to complaints regarding any unlawful practices. The Company is also subject to provisions that authorize the FCC to provide remedial relief to an aggrieved party upon finding a violation of the Communications Act and related customer protection provisions. The Company's CMRS Licenses (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. Several of the Company's Licenses expire in 1998 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 approximately 1,800 Operating Licenses, approximately 320 require renewal in 1998. 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 16 17 with FCC regulations and adequate service to the public. Although the Company is unaware of the existence of any circumstances which would prevent the grant of any pending or future renewal applications, no assurance can be given that the Licenses will be renewed by the FCC in the future. Furthermore, although revocation and involuntary modification of licenses are extraordinary regulatory measures, the FCC has the authority to restrict the operation of licensed facilities or to revoke or modify licenses. No License of the Company has ever been revoked or modified involuntarily. The Company has complied with FCC requirements with respect to the buildout of its existing one-way messaging 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 United States 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 United States 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 Omnibus Budget Reconciliation Act of 1993 (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 1997. The Company believes that these regulatory fees will not have a material adverse effect on the Company's business. The FCC, on April 23, 1997, released a Report and Order establishing competitive bidding rules for the remaining NPCS spectrum as well as a Further Notice of Proposed Rulemaking seeking commentary on a proposal to license NPCS spectrum that had previously been held in reserve and on a proposal to modify the existing spectrum allocation plan to aggregate smaller geographic license areas and create additional nationwide NPCS licenses. Adoption of either of these two proposals would increase the amount of nationwide NPCS spectrum available to the public and might negatively impact the value of the nationwide NPCS licenses held by the Company. On February 24, 1997, the FCC released its Second Report and Order, which sets 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 created a new methodology that in many instances reduces the size of the area within existing licensees' interference contours. This change, however, does not have an impact on licensees with nationwide exclusivity (such as the Company), because no other operator has the right to apply for such licensees' exclusive frequencies. The FCC's Second Report and Order contains a Further Notice of Proposed Rulemaking in which the FCC seeks commentary on whether it should impose coverage requirements on licensees with nationwide exclusivity (such as the Company), whether these coverage requirements should be imposed on a nationwide 17 18 or regional basis, and whether -- if such requirements are imposed -- failure to meet the requirements should result in a revocation of the entire nationwide license or just a portion of the license. If the FCC were to impose stringent coverage requirements on licensees with nationwide exclusivity, the Company might have to accelerate the build-out of its system in certain areas. In a rulemaking proceeding pertaining to interconnection between local exchange carriers ("LECs") and CMRS providers, the FCC has concluded that 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. With regard to the negotiation of these mutual compensation arrangements, the FCC has concluded that states have the authority under certain circumstances to mandate a "bill and keep" arrangement on negotiating parties (i.e., the LEC and the CMRS provider would charge each other a rate of zero for the termination of the other's traffic). The Company believes that "bill and keep" arrangements, if applied to paging services, would not have a material adverse effect on the Company's business. Consistent with this ruling mandating compensation for carriers terminating LEC-originated traffic, the FCC has determined that LECs may not charge a CMRS provider or other carrier for terminating LEC-originated traffic. Some LECs have been reluctant to comply with the FCC orders and have threatened to terminate interconnection arrangements with the Company if it does not agree to pay for dedicated facilities used to terminate LEC-originated traffic. The Company has made certain payments to the LECs under protest and has maintained reserves for payments that the LECs were claiming were due. The FCC's staff recently made it clear that under the FCC's current rules, LECs may not charge CMRS providers for such facilities, although these rules are being reconsidered and may be modified in the near future. As a result of the enactment of the 1996 Act, the Company will face additional financial obligations. In November 1996, in response to a directive in the 1996 Act, the FCC adopted new rules that govern compensation to be paid to pay phone providers. After these rules were vacated by the U.S. Court of Appeals for the D.C. Circuit, the FCC released an order mandating that long distance carriers compensate pay phone providers 28.4c for each 800 number, similar toll-free-to-the-caller number and access code (collectively, "800 Number") call during a two-year interim period. The long distance carriers are expected either to pass this cost through to the paging companies that provide 800 Number service to their subscribers or to block pay phone calls to 800 Numbers. This could increase the cost of providing certain 800 Number messaging services or limit the utility of 800 Number service. Petitions for review and stay of this order have been filed with a federal appellate court. Also, in response to changes made by the 1996 Act, the FCC has adopted new rules regarding payments by telecommunications firms into a revamped fund that will provide for the widespread availability of telecommunications services, including to low-income consumers ("Universal Service"). Prior to the implementation of the 1996 Act, Universal Service obligations largely were met by local telephone companies. Under the new rules, all telecommunications carriers, including paging companies, are required to contribute to the Universal Service Fund. Payments into the fund will likely increase the cost of doing business and could make the Company's service less competitive with the other services. From time to time, legislation and regulations which could potentially adversely affect the Company are proposed by federal and state legislators and regulators. Legislation is currently in effect in Texas requiring paging companies to contribute a portion of their taxable telecommunications revenues to a Telecommunication Infrastructure Fund created by the state legislature. Management does not believe that the Texas law will have a material adverse effect on the Company's operations and is not aware of any other currently pending legislation or regulations which will have a material adverse impact on the Company's operations. However, there can be no assurance that Federal or other state legislation will not be adopted, or that the FCC or the various state agencies will not adopt regulations or take other actions that would adversely affect the business of the Company. INTELLECTUAL PROPERTY The Company has established an intellectual property program to protect its investment in its messaging services and related proprietary technologies. 18 19 The Company has obtained a United States service mark registration for its PAGEMART word mark. The Company owns registrations for 14 of its other marks in the United States. These federal registrations may be renewed as long as the marks continue to be used in interstate commerce. At December 31, 1997, the Company had 55 service mark/trademark applications pending before the United States Patent and Trademark Office. The Company has also obtained, or is in various stages of applying for, registrations for the PAGEMART mark and several of its other marks in approximately 28 other countries or jurisdictions where the Company conducts or anticipates expanding its international business. The Company has also taken steps to reserve corporate names in certain foreign countries where the Company anticipates expanding its international business. At December 31, 1997, the Company had three United States patent applications pending. The inventions claimed in those patent applications cover aspects of the Company's current and possible future messaging systems and related proprietary technologies. The Company is in the process of preparing other United States patent applications. The Company's present intention is not to rely primarily on intellectual property rights to protect or establish further its market position; however, the Company is committed to developing a portfolio of patents that it anticipates may be of value in negotiating intellectual property rights with others in the industry. The Company does not currently intend to broadly license its intellectual property rights. EMPLOYEES At December 31, 1997, the Company had 2,249 full-time employees. No employees of the Company are covered by a collective bargaining agreement, and management believes the Company's relationship with its employees is good. 19 20 EXECUTIVE OFFICERS AND DIRECTORS OF REGISTRANT The Company's Board of Directors currently consists of seven 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, executive officers and other key officers of the Company, their positions with the Company, and their ages as of January 31, 1998 are as follows:
NAME AGE POSITION ---- --- -------- John D. Beletic............... 46 Chairman and Chief Executive Officer N. Ross Buckenham............. 40 President Douglas H. Kramp.............. 36 Executive V.P., Strategic Business Units Douglas S. Glen............... 40 Executive V.P., Strategic Alliances Business Unit and President, Carrier Services Division Sandra D. Neal................ 49 Executive V.P., Strategic Projects Frederick G. Anderson......... 46 V.P., General Counsel and Secretary Allan D. Angus................ 47 V.P., Technology Todd A. Bergwall.............. 34 V.P., Law and Assistant General Counsel Bo Bernard.................... 52 V.P., Core Markets Sales Stephen D. Hansberry.......... 50 V.P., Information Systems Operations Jack D. Hanson................ 54 V.P., Network Operations Frances W. Hopkins............ 57 V.P., Customer Advocacy Thomas C. Keys................ 39 V.P., Market Development Bradley W. Kinzbach........... 42 V.P., Inventory and Distribution G. Clay Myers................. 38 V.P., Finance, Chief Financial Officer and Treasurer Richard S. Nelson............. 49 V.P., International and President of PageMart International W. Wayne Stargardt............ 45 V.P., Marketing Paul L. Turner................ 39 V.P., Customer Service Robert H. Niehaus............. 42 Director Guy L. de Chazal(1)........... 50 Director Arthur Patterson(1)........... 54 Director Alejandro Perez Elizondo(2)... 48 Director Leigh J. Abramson(1)(2)....... 29 Director Pamela D.A. Reeve(1)(2)....... 48 Director
- --------------- (1) Member of Compensation Committee (2) Member of Audit Committee John D. Beletic, Chairman and Chief Executive Officer. Mr. Beletic joined the Company as President and a director in March 1992. Mr. Beletic became Chief Executive Officer of the Company in February 1994 and Chairman of the Company's Board of Directors in August 1994. In November 1997, Mr. Beletic became the Chairman and Chief Executive Officer when Mr. Buckenham assumed the position of President. Prior to joining the Company, Mr. Beletic spent a year in venture capital, and he served for five years as President and Chief Executive Officer of The Tigon Corporation ("Tigon"), a leading voice mail 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 voice mail 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. Within the paging industry, Mr. Beletic currently serves as a director of PCIA, the industry trade association, and President of the Paging Leadership Association. N. Ross Buckenham, President. Mr. Buckenham joined the Company in January 1996 as Vice President, PCS Strategy, was promoted to Vice President and General Manager, PCS in September 1996, was promoted 20 21 to Executive Vice President, General Manager, PCS in May 1997 and was promoted to President in November 1997. 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 Business School and a BS degree in Chemical Engineering from Canterbury University, New Zealand. Douglas H. Kramp, Executive Vice President, Strategic Business Units. Mr. Kramp joined the Company as a Vice President in August 1993, was promoted to Executive Vice President, National Retail Business Unit in May 1997, and was promoted to Executive Vice President, Strategic Business Units in November 1997. 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. Douglas S. Glen, Executive Vice President, Strategic Alliances Business Unit and President, Carrier Services Division. Mr. Glen has been a Vice President since July 1989 and was promoted to Executive Vice President, Strategic Alliances Business Unit in May 1997, and to President of the newly organized Carrier Services Division of the Company in December 1997. 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 served as a director of PCIA, the industry trade association, and Chairman of the Paging and Narrowband PCS Alliance from 1995 to 1997. Sandra D. Neal, Executive Vice President, Strategic Projects. Ms. Neal joined the Company as Vice President in July 1992. She was promoted to Executive Vice President, Administration in January 1996 and became Executive Vice President, Strategic Projects in January 1998. Prior to joining the Company, Ms. Neal was Vice President of Customer Service for Tigon, a voice messaging service provider, 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. Frederick G. Anderson, Vice President, General Counsel and Secretary. Mr. Anderson joined the Company in August 1997 as Vice President, General Counsel and Secretary. Prior to joining the Company, Mr. Anderson was Senior Vice President, General Counsel and Secretary of American Eagle Group, Inc. from March 1992 through July 1997. American Eagle Group, Inc. is a public specialty property and casualty insurance holding company, and its principal subsidiary, American Eagle Insurance Company, was placed in receivership by the Texas Department of Insurance in December 1997. Prior to joining American Eagle Group, Inc., Mr. Anderson was a partner in the corporate and securities section of Akin, Gump, Strauss, Hauer & Feld, L.L.P., an international law firm. Allan D. Angus, Vice President, Technology. Mr. Angus joined the Company in March 1996 as Director of Technology, and was promoted to Director of PCS Technology in September, 1996. He was promoted to Vice President, Technology in December 1997. Prior to joining the Company, Mr. Angus was Manager of Regulatory and Standards for JRC International, Inc. and its predecessor, NovAtel Communications, Ltd., for more than five years, where he served as a representative to American and Canadian technology standards organizations and was instrumental in developing many cellular standards. Todd A. Bergwall, Vice President, Law and Assistant General Counsel. Mr. Bergwall joined the Company as Corporate Counsel in June 1994. Mr. Bergwall was also Secretary of the Company from April 1995 through August 1997. Mr. Bergwall was named Vice President, Law and Assistant General Counsel in August 1997. From August 1989 until joining the Company, Mr. Bergwall was engaged in private practice with the Dallas, Texas law firm Winstead Sechrest & Minick, P.C. specializing in corporate and securities law. 21 22 Bo Bernard, Vice President, Core Markets Sales. Mr. Bernard joined the Company in February 1997 as Vice President, Sales. In July 1997, he was promoted to Vice President, Core Markets Sales. Prior to joining the Company, Mr. Bernard was Executive Vice President and co-founder of ProNet, Inc., a formerly publicly traded paging company, from August 1982 to December 1996. Stephen D. Hansberry, Vice President, Information Systems Operations. Mr. Hansberry joined the Company in May 1997 as Vice President, Information Systems, and became Vice President Information Systems Operations in January 1998. Prior to joining the Company, Mr. Hansberry was Assistant Store Manager of K-Mart Corporation from December 1995 until May 1997 and Senior Vice President of Systems Development of Citicorp Diners Club from April 1993 until October 1994. Mr. Hansberry was Senior Vice President of Systems Development of Citibank from February 1990 until April 1993. 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. Frances W. Hopkins, Co-founder, Vice President, Customer Advocacy. Ms. Hopkins co-founded the Company in 1989 and was Executive Vice President, Chief Operations Officer until she left the Company in September 1990 to pursue other business interests. Upon returning in July 1991, she was named Vice President, Division General Manager. 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. Thomas C. Keys, Vice President, Market Development. 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., an industrial 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. Bradley W. Kinzbach, Vice President, Inventory and Distribution. Mr. Kinzbach joined the Company in February 1994 as Manager, Inventory and Distribution, and was promoted to Vice President, Inventory and Distribution in December 1996. Prior to joining the Company, Mr. Kinzbach was President of BKCM Corporation, a distributor of bottled water, from March 1992 until December 1993 and was Director of Distribution for Blockbuster Entertainment Corporation and held various management positions from February 1986 to February 1992. 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 and President of PageMart International. Mr. Nelson was named Vice President, International in March 1996. Formerly, Mr. Nelson was Vice President, Marketing of the Company since June 1992. 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. W. Wayne Stargardt, Vice President, Marketing. Mr. Stargardt joined the Company in May 1996 as Vice President, Marketing. Prior to joining the Company, Mr. Stargardt served as Vice President of Marketing for Pinpoint Communications Inc., a venture-funded start-up company developing a wireless radiolocation-based mobile data network, from 1991 to January 1996. Pinpoint Communications, Inc. filed a petition in bankruptcy in January 1996 and was subsequently liquidated. 22 23 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. Robert H. Niehaus, Director. Mr. Niehaus has been a Director of the Company since February 1998. He has been a Managing Director of Morgan Stanley & Co. Incorporated ("Morgan Stanley") since 1990. He serves as a director of numerous companies including American Italian Pasta Company, Silgan Holdings, Inc., Fort James Corporation, Waterford Wedgwood UK, plc (of which he is Chairman) and several private companies. He is a Managing Director and a director of the general partner of The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") and the managing general partner of the general partner of Morgan Stanley Capital Partners III, L.P. ("MSCP III"). Mr. Niehaus was designated by MSLEF II pursuant to the Amended and Restated Stockholders Agreement among the Company and certain stockholders of the Company dated as of May 10, 1996, as amended (the "Stockholders Agreement"). 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 Morgan Stanley Venture Capital Fund, L.P. ("MSVCF") and Morgan Stanley Venture Capital Fund II, L.P. ("MSVCF II") and is a Managing Director of Morgan Stanley. Mr. de Chazal is also a director of several private companies. Mr. de Chazal was designated by MSVCF pursuant to the Stockholders Agreement. 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 VIASOFT 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. 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 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.), Novaweb Technologies, Inc. (a California modem manufacturing company), Encanto Networks Inc. (a California internet company), Fomento Empresarial Regiomontano, S.A. de C.V. (a Mexico-based holding company with investments in telecommunications companies), and Merkafon (a Mexico-based communications engineering company). Mr. Perez was designated by Pulsar pursuant to the Stockholders Agreement. Leigh J. Abramson, Director. Mr. Abramson has been a Director of the Company since August 1994. He is currently a Vice President of Morgan Stanley 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 Morgan Stanley since 1990, first in the Corporate Finance Division and, since 1992, in the Merchant Banking Division. Mr. Abramson is also a Director of Silgan Holdings and Jefferson Smurfit Corporation. Mr. Abramson was designated by MSCP III pursuant to the Stockholders Agreement. 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. Ms. Reeve is also a director of Natural Microsystems, Inc. CORPORATE STRUCTURE PageMart Wireless was incorporated in Delaware on November 29, 1994 as a wholly-owned subsidiary of PageMart. Effective January 19, 1995, PageMart merged with a wholly-owned subsidiary of PageMart 23 24 Wireless, pursuant to which PageMart was the surviving corporation (the "Reorganization"). As part of the Reorganization, each share of outstanding common stock of PageMart was converted into one share of common stock of PageMart Wireless. Upon consummation of the Reorganization, the stockholders of PageMart had the same ownership interest in PageMart Wireless as they had in PageMart, and PageMart Wireless owned all of the capital stock of PageMart. On December 28, 1995, the name of PageMart Wireless was changed from PageMart Nationwide, Inc. to PageMart Wireless, Inc. On January 28, 1998, PageMart was merged into PageMart Wireless, which was the surviving corporation in the merger. ITEM 2. PROPERTIES The principal tangible assets of the Company are its paging network equipment, which 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 and begins the buildout of its NPCS network. To date, it has not experienced any material 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 100kHz of outbound capacity and 50kHz of response capacity. The Company generally leases the locations used for its transmission and receiving facilities under operating leases. These leases, which are generally for five years or less, provide for aggregate annual rental charges of approximately $12.2 million as of December 31, 1997. The Company does not anticipate material difficulty in renewing these leases or finding equally suitable alternate facilities on acceptable terms. The Company leases approximately 140,000 square feet of office space for its corporate headquarters in Dallas, Texas with an additional 30,000 square feet to be added by May 1998. The lease will have an annual cost of approximately $2.9 million in 1998, and is subject to annual escalations during the term of the lease. The lease expires on January 31, 2008, and the Company has the option to renew it for an additional five year term. The Company leases varying amounts of space for local offices, call centers and other facilities at various locations. Aggregate annual rental charges under these leases were approximately $4.7 million as of December 31, 1997. 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 October 27, 1997, an action against PageMart and Paging Network, Inc. was filed in Superior Court of the State of California, County of San Francisco, by two customers of EconoPage, Inc. ("EconoPage"), a reseller of the Company's services that had resold PageMart's paging services to approximately 38,000 customers. PageMart terminated the reseller agreement due to monetary default by EconoPage. In the complaint, plaintiffs have requested class action status on behalf of EconoPage customers and allege that EconoPage was an agent of PageMart, that PageMart was aware that EconoPage's pricing would not permit it to sustain its business and PageMart permitted EconoPage to continue to enter into service contracts with customers while EconoPage was having serious financial difficulties. The complaint alleges violation of statute, fraud and negligent misrepresentation by PageMart, and requests injunctive relief as well as compensatory, punitive, special and incidental damages in an unspecified amount. PageMart denies all claims and will vigorously defend itself. The Company does not expect the ultimate outcome of this suit to have a material adverse effect on its results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 24 25 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The Company's Class A Common Stock, $0.0001 par value, is listed on the Nasdaq National Market System under the symbol PMWI. There currently is no public market for the Company's Class B, Class C or Class D Common Stock. Class A Common Stock is convertible by certain holders thereof into either Class B or C Common Stock. Classes B, C and D Common Stock are convertible to Class A Common Stock. The following table indicates the high and low sales prices for shares of the Company's Class A Common Stock for the periods from June 13, 1996, the date of the company's initial public offering:
HIGH LOW ---- --- 1996: Second Quarter (from June 13, 1996)............... $13 1/4 $10 Third Quarter..................................... $11 7/8 $ 8 1/4 Fourth Quarter.................................... $10 1/8 $ 6 1997: First Quarter..................................... $ 7 5/8 $ 4 3/8 Second Quarter.................................... $ 9 1/2 $ 4 7/8 Third Quarter..................................... $11 3/8 $ 7 Fourth Quarter.................................... $13 1/4 $ 7 1/2
As of January 31, 1998, the Company's Class A, Class B, Class C and Class D Common Stock was held by approximately 216, 8, 2 and 2 holders of record, respectively. 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. 25 26 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, 1997. 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" and the Consolidated Financial Statements of the Company and the notes thereto included elsewhere in this Report.
FISCAL YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1993 1994 1995 1996 1997 ---------- ---------- ------------ ------------ ------------ (IN THOUSANDS, EXCEPT UNIT, ARPU, PER SUBSCRIBER AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Recurring revenues............................. $ 24,184 $ 56,648 $ 101,503 $ 153,041 $ 206,907 Equipment sales and activation fees............ 26,483 53,185 57,688 68,551 70,871 -------- -------- ---------- ---------- ---------- Total revenues................................. 50,667 109,833 159,191 221,592 277,778 Cost of equipment sold......................... 28,230 57,835 63,982 78,896 86,175 Operating expenses............................. 47,448 85,322 118,557 155,265 194,194 -------- -------- ---------- ---------- ---------- Operating loss................................. (25,011) (33,324) (23,348) (12,569) (2,591) Interest expense............................... (6,538) (12,933) (30,720) (35,041) (38,499) Interest income................................ 428 858 1,997 1,140 501 Other.......................................... -- (414) (1,042) (2,128) (3,298) -------- -------- ---------- ---------- ---------- Net loss....................................... $(31,121) $(45,813) $ (53,113) $ (48,598) $ (43,887) ======== ======== ========== ========== ========== Net loss per common share...................... $ (1.51) $ (1.72) $ (1.53) $ (1.30) $ (1.10) Weighted average number of common shares and share equivalents outstanding................ 20,627 26,574 34,653 37,462 39,922 BALANCE SHEET DATA (AT PERIOD END): Current assets................................. $ 51,279 $ 44,397 $ 62,535 $ 70,572 $ 84,133 Total assets................................... 78,773 142,059 263,829 313,620 361,876 Current liabilities............................ 20,198 37,966 56,508 62,503 104,973 Long-term debt, less current maturities........ 78,359 92,632 219,364 240,687 289,344 Stockholders' equity (deficit)................. (19,784) 11,461 (12,043) 10,430 (32,441) OTHER DATA: Units in service (at period end)............... 327,303 772,730 1,240,024 1,859,407 2,530,737 Net subscriber additions....................... 210,269 445,427 467,294 619,383 671,330 ARPU(1)........................................ $ 9.81 $ 8.64 $ 8.62 $ 8.04 $ 7.80 Operating profit (loss) before selling expenses per domestic subscriber per month(2)......... (0.98) 0.90 2.11 2.25 2.54 Selling expenses per net domestic subscriber addition(3).................................. 91 81 91 87 100 EBITDA(4)...................................... (19,930) (25,219) (10,076) 8,623 27,261 Capital expenditures........................... 10,810 16,719 33,503 63,804 67,506 Dividends paid/declared........................ -- -- -- -- -- Depreciation and amortization.................. 5,081 8,105 13,272 21,192 29,852 Deficiency of earnings to fixed charges(5)..... (31,121) (45,813) (53,113) (48,598) (43,887)
- --------------- (1) Average monthly revenue per unit ("ARPU") is calculated by dividing (i) domestic recurring revenues, consisting of fees for airtime, voice mail, customized coverage options, excess usage fees and other recurring revenues and fees associated with the subscriber base for the quarter by (ii) the average number of domestic units in service for the quarter. ARPU is stated as the monthly average for the final quarter of the period. (2) Operating profit (loss) before selling expenses (selling expenses include loss on sale of equipment) per subscriber for the Company's domestic one-way messaging operations is calculated by dividing (i) recurring revenue less technical expenses, general and administrative expenses, and depreciation and amortization for the final quarter of the period by (ii) the average number of domestic 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 domestic subscriber addition for the Company's domestic one-way messaging operations is calculated by dividing (i) selling expenses, including loss on sale of equipment, for the period by (ii) the net domestic subscriber additions for the period. (4) EBITDA represents earnings (loss) before interest, taxes, depreciation and amortization. EBITDA is a financial measure commonly used in the paging industry. EBITDA is not derived pursuant to generally accepted accounting principles ("GAAP") and therefore should not be construed as an alternative to operating income, as an alternative to cash flows from operating activities (as determined in accordance with GAAP) or as a measure of liquidity. The calculation of EBITDA does not include the commitments of the Company for capital expenditures and payment of debt and should not be deemed to represent funds available to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of the financial operations and liquidity of the Company as determined in accordance with GAAP. (5) For purposes of calculating the deficiency of earnings to fixed charges, (i) earnings is defined as net loss plus fixed charges and (ii) fixed charges as interest expense plus amortization of debt issuance costs and the interest portion of rental and lease expense. 26 27 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the results of operations and financial condition of the Company for the three years ended December 31, 1997. This discussion should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto included elsewhere in this report. When used in this discussion, the words "estimate," "project," "plan," "expect" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements as the assumptions or market conditions underlying the forward looking statements may change or prove to be incorrect. GENERAL The Company has constructed and operates a wireless messaging and communications network and provides paging and other one-way wireless messaging services to its subscribers. In addition, the Company sells and distributes wireless messaging equipment to subscribers, retailers and resellers. The Company earns recurring revenues from each subscriber in the form of fixed periodic fees and incurs substantial operating expenses in offering its services, including technical, customer service and general and administrative expenses. See "-- Management's Presentation of Results of Operations." Since commencing operations in 1990, the Company has invested heavily in its one-way wireless communications network and administrative infrastructure in order to establish nationwide coverage, sales offices in major metropolitan areas, centralized customer service call centers and administrative support functions. The Company incurs substantial fixed operating costs related to its one-way wireless communications infrastructure, which is designed to serve a larger subscriber base than the Company currently serves in order to accommodate growth. In addition, the Company incurs substantial costs associated with new subscriber additions. As a result, the Company has generated significant net operating losses for each year of its operations. See "-- Management's Presentation of Results of Operations." The Company's strategy is to expand its subscriber base to increase profitability and cash flow through greater utilization of its nationwide wireless communications network. From January 1, 1992 to December 31, 1997, the number of units in service increased from 52,125 to 2,530,737. None of the Company's growth is attributable to acquisitions. 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 and private brand strategic alliances with GTE Corporation, Southwestern Bell Mobile Systems, AT&T Wireless Services, WorldCom Network Services, Inc., Ameritech Mobile Services, Inc., EXCEL Communications, Inc., ALLTEL Communications, Inc., Bluegrass Cellular and First Cellular of Southern Illinois, as well as international expansion. Given the fixed operating costs of its wireless networks, administration and selling and marketing expenses associated with its growth strategy, the Company generated operating losses in 1997 from its one-way wireless communications business. In the third quarter of 1997, the Company began generating operating profits in its one-way business and management expects this trend to continue in 1998. In addition, the Company began testing and development of advanced messaging services in 1996, and completed testing and development in 1997. The Company plans to begin implementation in 1998, and expects to incur additional operating losses and make significant capital expenditures during 1998 and 1999. The Company does not anticipate any significant revenues from advanced messaging services during 1998. The Company has historically sold, rather than leased, substantially all of the subscriber units used by its subscribers. As a result, the Company has had much less capital invested in subscriber units than other paging carriers since it has recouped a substantial portion of subscriber unit costs upon sale to retailers and subscribers. This has resulted in significantly lower capital expenditures and depreciation expense than if the Company had leased units to its subscribers. In addition, the Company's financial results are much different than other paging carriers that lease subscriber units to subscribers because the Company recognizes the cost of subscriber units sold in connection with adding new subscribers at the time of sale rather than capitalizing and depreciating the cost of subscriber units over periods ranging from three to five years as occurs with paging carriers that lease subscriber units to subscribers. In addition, the Company's retail distribution strategy results 27 28 in the recognition of expenses associated with subscriber unit sales and other sales and marketing expenses in advance of new subscribers being added to the subscriber base and generating recurring revenues (as retailers carry inventory). The Company expects, however, to lease a substantial portion of its advanced messaging subscriber units because sales of advanced messaging services will initially be dominated by business and corporate customers and because of the higher cost of advanced messaging subscriber units compared to one-way messaging units. The Company may require up to $50 million of financing in order to fund the purchase of such subscriber units and intends to seek off-balance-sheet structures to accomplish such financing. See "-- Liquidity and Capital Resources." The Company sells its subscriber units through multiple distribution channels, including direct sales, third party resellers, private brand strategic alliances and local and national retail stores. At December 31, 1997, the Company's total subscriber base was comprised of 26% from the National Retail strategic business unit ("SBU"), 33% from the Private Brand Strategic Alliance SBU and 41% from the National Sales Offices SBU. Selling and marketing expenses are primarily attributable to compensation paid to the Company's sales force, advertising and marketing costs and losses resulting from the fact that, for competitive and marketing reasons, the Company generally sells each new unit to national retailers 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. The Company expects its cost of subscriber units on a per unit basis generally to remain constant or decline only slightly as sales volumes increase. Management anticipates that loss on equipment sold will generally remain constant on a per unit basis for the foreseeable future. Units sold by the Company during a given month may exceed units activated and in service due to inventory stocking and distribution strategies of the retailers. As a result, selling and marketing expenses per net subscriber addition may fluctuate from period to period. The Company derives its recurring revenue primarily from fixed periodic fees for services that are not generally dependent on usage. Consequently, the Company's ability to recoup its initial selling and marketing costs, to meet operating expenses and to achieve profitability is dependent on the average length of each customer's subscription period. As long as a subscriber continues to utilize the Company's service, operating results benefit from the recurring payments of the fixed fees without the incurrence of additional selling expenses by the Company. Conversely, operating results are adversely affected by customer disconnections. Each month a percentage of the Company's existing customers have their service terminated for a variety of reasons, including failure to pay, dissatisfaction with service and switching to a competing service provider. The Company's average monthly disconnection rates for the years ended December 31, 1995, 1996, and 1997 were 2.5%, 2.4% and 2.5%, respectively. Approximately 90% of the Company's average revenue per unit ("ARPU") is attributable to fixed fees for airtime, coverage options and features. A portion of the remainder is dependent on usage. Management anticipates that the Company's ARPU will decline in the foreseeable future due to a continued higher mix of subscribers added through private brand strategic alliance programs, which yield lower ARPU because strategic alliance partners are generally high volume customers that are charged wholesale airtime rates. However, because private brand strategic alliance partners are responsible for selling and marketing costs, billing, collection and other administrative costs associated with end-users, the Company incurs substantially lower marketing and administrative costs with respect to such subscribers. RESULTS OF OPERATIONS The Company's principal operations to date are its domestic one-way wireless operations. The following discussion of results of operations analyzes the results of the Company's domestic one-way wireless messaging operations, unless otherwise indicated. Certain of the following financial information is presented on a per subscriber unit basis. Management of the Company believes that such a presentation is useful in understanding the Company's results because it provides 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. 28 29 FISCAL YEARS 1995, 1996 AND 1997 Units in Service Units in service were 1,240,024, 1,851,445 and 2,513,337 as of December 31, 1995, 1996 and 1997, respectively. This represents a domestic annual growth rate of 49% and 36% in 1996 and 1997, respectively. In addition, for the years ended December 31, 1996 and 1997, PageMart Canada's units in service were 13,270 and 29,000, respectively. As a result of its ownership interest in PageMart Canada, the Company's proportional share of the units in service of PageMart Canada was 7,962 and 17,400 units at December 31, 1996 and 1997. The Company has experienced strong growth in units in service due primarily to the success of its sales and marketing strategies in national retail and private brand strategic alliance programs. Revenues Revenues for the fiscal years 1995, 1996 and 1997 were $159.2 million, $221.6 million and $277.6 million, respectively. Recurring revenues for airtime, voice mail and other services for the same periods were $101.5 million, $153.0 million and $206.9 million, respectively. Revenues from equipment sales and activation fees for 1995, 1996 and 1997 were $57.7 million, $68.6 million and $70.7 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 1996 and 1997 was partially offset by a decline in the average price per unit sold. The Company's ARPU was $8.62, $8.04 and $7.80 in the final quarter of 1995, 1996 and 1997, respectively. The decline in 1996 and 1997 resulted primarily from an increase in subscribers added through private brand strategic alliance channels. This decrease in ARPU has been offset partially by a higher mix of multi-city, regional and nationwide services as well as increased sales of other value-added services such as voice mail and toll-free numbers. Cost of Equipment Sold The cost of equipment sold in 1995, 1996 and 1997 was $64.0 million, $78.9 million and $86.0 million, respectively. The change in 1996 was a combination of an increase in the number of units sold and slightly lower average pager prices paid to suppliers. The change in 1997 was primarily due to an increase in the number of units sold. The Company expects pager costs generally to remain constant, with modest reductions in cost to the Company as a result of volume purchases. Operating Expenses Technical expenses were $25.5 million, $36.7 million and $46.5 million in 1995, 1996 and 1997, respectively. The increases were primarily due to increased telecommunications and site expenses associated with servicing the Company's expanded network and larger subscriber base. On an average monthly cost per unit in service basis, technical expenses were $2.11, $1.98 and $1.78 in 1995, 1996 and 1997, 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. Selling expenses in 1995, 1996 and 1997 were $36.1 million, $42.6 million and $50.8 million, respectively. This increase resulted from greater marketing and advertising costs related to the growth in units sold as well as from increased sales compensation because of the addition of sales personnel in existing business units during 1996. During the years ended December 31, 1995, 1996 and 1997, the Company added 467,294, 611,421 and 661,892 net new domestic units in service, respectively. Sales and marketing employees increased from 445 at December 31, 1995 to 552 at December 31, 1996 and then decreased to 505 at December 31, 1997. Management views the net loss on equipment sold to be a component of selling and marketing expenses incurred to add new subscribers. See "-- Management's Presentation of Results of Operations." Selling and marketing expenses per net domestic subscriber addition (including loss on equipment sales) were $91, $87 and $100 for the years ended December 31, 1995, 1996 and 1997, respectively. The increase in 1997 was due to losses recognized on the sale of pagers due to stocking new retail outlets. The Company added 7,394 29 30 additional retail outlets during the year including additions from Radio Shack, Eckerd Drug, OfficeMax and Southland (7-Eleven) stores. The losses on equipment sold are recognized when pagers are shipped to the retailers, usually before the units are placed into service, thus increasing selling expenses (including loss on sale of equipment) per net subscriber addition. During the year ended December 31, 1997, the Company incurred $526,000 in selling expenses associated with international operations. General and administrative expenses (including costs associated with customer service, field administration and corporate headquarters) in 1995, 1996 and 1997 were $43.4 million, $53.7 million and $66.4 million, respectively. This increase was attributable to the Company's expansion of its customer service call centers, information systems and administrative capabilities to support the growing subscriber base which required additional office space, administrative personnel and customer service representatives. On an average cost per month per unit in service basis, general and administrative expenses were $3.59, $2.89 and $2.54 for fiscal years 1995, 1996, and 1997, 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. Depreciation and amortization in 1995, 1996 and 1997 was $13.3 million, $21.2 million and $29.7 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 1996 and 1997. As an average cost per month per unit in service, depreciation and amortization was $1.10, $1.14, $1.13 for the years ended December 31, 1995, 1996 and 1997, respectively. Interest Expense Consolidated interest expense increased from $30.7 million in 1995 to $35.0 million in 1996 and to $38.5 million in 1997. The increases in 1996 and 1997 were primarily the result of the increased interest related to the 15% Notes and the 12 1/4% Notes. Interest expense related to the 12 1/4% Notes was $11.8 million, $13.3 million and $15.1 million in 1995, 1996 and 1997, respectively. Interest expense related to the 15% Notes was $15.3 million, $18.4 million and $21.2 million in 1995, 1996 and 1997, respectively. Interest expense related to vendor financing was $0.9 million in 1997. Net Loss The Company sustained consolidated net losses in 1995, 1996 and 1997 of $53.1 million, $48.6 million and $43.9 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 and operating expenses. MANAGEMENT'S PRESENTATION OF RESULTS OF OPERATIONS COMPARISON WITH GAAP PRESENTATION The Company's audited Consolidated Financial Statements for the years ended December 31, 1995, 1996 and 1997, included elsewhere in this report have been prepared in accordance with generally accepted accounting principles ("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 domestic subscriber per month for the Company's one-way operations has grown from $1.01 during the first quarter of 1995 to $2.54 during the fourth quarter of 1997 due primarily to the Company's increase in subscribers and resulting benefits in economies of scale. In addition, selling and marketing expenses (including loss on equipment sold) provide a measure of the costs associated with obtaining new subscribers that the Company needs to generate the incremental recurring 30 31 revenue necessary to achieve profitability. Under the GAAP presentation, recurring revenues and equipment and activation revenues are aggregated and are not separately compared to the costs associated with each. The items included in Management's Presentation of the Results of Operations and their derivation from financial information presented in accordance with GAAP are described below. Recurring Revenues. Recurring revenues include periodic fees for airtime, voice mail, customized coverage options, toll-free numbers, excess usage fees and other recurring revenues and fees associated with the subscriber base. Recurring revenues do not include equipment sales revenues or initial activation fees. Recurring revenues are the same under both the management and GAAP presentations. Technical Expenses. This item is the same under the management and GAAP presentations. General and Administrative Expenses. This item is the same under the management and GAAP presentations. Depreciation and Amortization. This item is the same under the management and GAAP presentations. Operating Profit Before Selling Expenses. Operating profit before selling expenses under the management presentation is equal to recurring revenues less technical expenses, general and administrative expenses and depreciation and amortization. Operating profit before selling expenses is not derived pursuant to GAAP. Selling Expenses. Selling expenses under the management presentation represent the cost to the Company of selling pagers and other messaging units to a customer, and are equal to selling costs (sales compensation, advertising, marketing, etc.) plus costs of units sold less revenues from equipment sales and activation fees. As described above, the Company sells rather than leases substantially all of the one-way messaging equipment used by subscribers. Selling expenses under the management presentation are not derived pursuant to GAAP. Net loss on equipment sales is not included in the GAAP presentation of selling expenses. Operating Income (Loss). This item is the same under the management and GAAP presentations. EBITDA. EBITDA represents earnings (loss) before interest, taxes, depreciation and amortization. EBITDA is a financial measure commonly used in the paging industry. EBITDA is not derived pursuant to GAAP and therefore should not be construed as an alternative to operating income, as an alternative to cash flows from operating activities (as determined in accordance with GAAP) or as a measure of liquidity. The calculation of EBITDA does not include the commitments of the Company for capital expenditures and payment of debt and should not be deemed to represent funds available to the Company. 31 32 SELECTED QUARTERLY RESULTS OF OPERATIONS The table below sets forth management's presentation of results of one-way domestic operations and other data on a quarterly basis for the eight most recent fiscal quarters. This presentation should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto included elsewhere in this report and the Company's quarterly reports on Form 10-Q for the corresponding periods below, and should not be considered in isolation or as an alternative to results of operations that are presented in accordance with GAAP (in thousands, except other data).
THREE MONTHS ENDED ----------------------------------------------------------------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, 1996 1996 1996 1996 1997 1997 1997 1997 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- (UNAUDITED) OPERATING DATA: Recurring revenues........ $ 33,743 $ 36,964 $ 39,697 $ 42,637 $ 46,475 $ 50,004 $ 53,593 $ 56,828 Technical expenses........ 7,943 8,783 9,725 10,273 10,765 11,385 11,963 12,397 General and administrative expenses................ 12,792 13,043 13,668 14,162 15,763 15,814 16,957 17,911 Depreciation and amortization............ 4,248 4,942 5,714 6,288 6,808 7,240 7,626 7,987 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating profit before selling expenses........ 8,760 10,196 10,590 11,914 13,139 15,565 17,047 18,533 Selling expenses(1)....... 11,601 12,836 13,588 14,900 15,443 16,556 16,981 17,191 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating income (loss)... $ (2,841) $ (2,640) $ (2,998) $ (2,986) $ (2,304) $ (991) $ 66 $ 1,342 ========== ========== ========== ========== ========== ========== ========== ========== EBITDA.................... $ 1,407 $ 2,302 $ 2,716 $ 3,302 $ 4,504 $ 6,249 $ 7,692 $ 9,329 ========== ========== ========== ========== ========== ========== ========== ========== OTHER DATA: Units in service(2)....... 1,374,146 1,524,297 1,684,937 1,851,445 2,001,525 2,181,775 2,343,299 2,513,337 Net subscriber additions............... 134,122 150,151 160,640 166,508 150,080 180,250 161,524 170,038 ARPU(3)................... $ 8.61 $ 8.50 $ 8.25 $ 8.04 $ 8.04 $ 7.97 $ 7.90 $ 7.80 National retail outlets... 3,690 4,286 5,025 5,530 7,388 10,412 12,171 12,924 Operating profit before selling expenses per domestic subscriber per month(4)................ $ 2.23 $ 2.35 $ 2.20 $ 2.25 $ 2.27 $ 2.48 $ 2.51 $ 2.54 Selling expenses per net domestic subscriber addition(5)............. 86 85 85 89 103 92 105 101 Capital employed per unit in service(6)........... 41 49 49 43 41 40 36 34
- --------------- (1) Includes loss on sale of equipment. (2) Stated as of the end of each period. (3) Calculated by dividing domestic recurring revenues for the quarter by the average number of domestic 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 domestic 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 domestic subscriber additions for the quarter. (6) Calculated by dividing consolidated total assets (excluding cash, NPCS assets and international investments) minus current liabilities (excluding current maturities of long-term debt) at the end of the period, by domestic units in service at the end of the period. 32 33 SUPPLEMENTARY INFORMATION The following table sets forth-supplementary financial information related to the Company's various operations (in thousands):
FISCAL YEAR ENDED DECEMBER 31, 1995 --------------------------------------------------------- ONE-WAY ADVANCED MESSAGING MESSAGING INTERNATIONAL CONSOLIDATED --------- --------- ------------- ------------ 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
Fiscal Year Ended December 31, 1996 ---------------------------------------------------------- ONE-WAY ADVANCED MESSAGING MESSAGING International(1) Consolidated --------- --------- ---------------- ------------ Revenues......................................... $221,592 $ -- $ -- $221,592 Operating loss................................... (11,465) (657) (447) (12,569) EBITDA........................................... 9,727 (657) (447) 8,623 Total assets .................................... 160,858 151,108 1,654 313,620 Capital expenditures............................. 50,838 12,966 -- 63,804
Fiscal Year Ended December 31, 1997 ---------------------------------------------------------- ONE-WAY ADVANCED MESSAGING MESSAGING International(1) Consolidated --------- --------- ---------------- ------------ Revenues......................................... $277,605 $ -- $ 173 $277,778 Operating loss................................... (1,887) (207) (497) (2,591) EBITDA........................................... 27,774 (16) (497) 27,261 Total assets .................................... 177,090 185,943 (1,157) 361,876 Capital expenditures............................. 32,169 35,337 -- 67,506
- --------------- (1) Expenses reflected in this column are for the Company's international headquarters operations. The Company accounts for its investments in Canada under the equity method. Consequently, the Company's share of expenses from its Canadian operations are not reflected in this table. SEASONALITY Pager usage is slightly higher during the spring and summer months, which is reflected in higher incremental usage fees earned by the Company. The Company's retail sales are subject to seasonal fluctuations that affect retail sales generally. Otherwise, the Company's results are generally not significantly affected by seasonal factors. LIQUIDITY AND CAPITAL RESOURCES The Company's operations have historically required substantial capital investment for the development and installation of its wireless communications network, the procurement of subscriber units and expansion into new and existing 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, the 15% Notes, as well as borrowings under vendor financing arrangements and the Revolving Credit Agreement (as defined herein). Capital expenditures were $33.5 million, $63.8 million and $67.5 million for the years ended December 31, 1995, 1996 and 1997, respectively. Capital expenditures for 1995 related entirely to the Company's one-way messaging operation. Capital expenditures for 1996 include $44.4 million for the Company's one-way messaging operations, $13.0 million related to the development of advanced messaging services, and $6.4 million for the development of the Company's new administrative system. Capital expenditures for 1997 include approximately $35.3 million related to the development of advanced messaging services, $22.7 million 33 34 for the Company's one-way messaging operations and $9.5 million for the development of the Company's new administrative system. During December 1995, the Company committed to purchase $40 million in network infrastructure equipment from Motorola from December 1, 1995 to October 31, 1999. Through December 31, 1997, the Company had purchased $21.9 million of network infrastructure under this purchase commitment. The Company's net cash used in operating activities for the year ended December 31, 1995 was $2.9 million and net cash provided by operating activities for the years ended December 31, 1996 and 1997 was $3.6 million and $37.2 million, respectively. The increased operating cash flow in 1997 was a result of improved operating results from a larger subscriber base. Net cash used in investing activities was $110.2 million, $64.0 million and $68.5 million for the years ended December 31, 1995, 1996 and 1997, respectively. Of the $110.2 million used in investing activities in 1995, $74.1 million was for the acquisition of NPCS Licenses and the remainder was primarily for capital expenditures. The $64.0 million and the $68.5 million used in investing activities in 1996 and 1997, respectively, were primarily for capital expenditures. Net cash provided by financing activities, including borrowings and equity issuances was $125.5 million, $56.0 million and $17.0 million for the years ended December 31, 1995, 1996 and 1997, respectively. Cash provided by financing activities in 1995 resulted primarily from $100.1 million of net proceeds from the issuance of the 15% Notes and non-voting common stock. Cash provided by financing activities in 1996 resulted primarily from $70.5 million in net proceeds received in connection with the initial public offering of the Company's Class A Common Stock. Cash provided by financing activities in 1997 resulted from borrowings of $17.1 million under a vendor financing arrangement. Net increases in borrowings were $128.7 million, $15.8 million and $51.4 million for the years ended 1995, 1996 and 1997, respectively. The net increase in 1995 resulted from the issuance of the 15% Notes, the accretion of the 12 1/4% Notes and borrowings under vendor financing arrangements. The net increases in borrowings for 1996 and 1997 resulted primarily from the accretion of the 12 1/4% Notes and the 15% Notes. In addition, net increases in borrowings for 1997 resulted from borrowings under vendor financing arrangements. On January 28, 1998, the Company completed an offering resulting in approximately $249.7 million in gross proceeds of 11 1/4% Senior Subordinated Discount Notes due 2008 (the "Offering"). Simultaneously, with the closing of the Offering, the Company refinanced certain of its outstanding indebtedness, (the "Refinancing"), and modified its corporate structure. The Refinancing consisted of the following: (i) purchasing all of the outstanding 12 1/4% Notes ($136.5 million principal amount at maturity), (ii) the amending of certain terms of the covenants and agreements in the indenture relating to the 15% Notes; and (iii) merging PageMart, Inc. into PageMart Wireless, Inc., with PageMart Wireless, Inc. as the surviving corporation. Approximately $130.7 million of the gross proceeds of the Offering was used to purchase all of the outstanding 12 1/4% Notes. The proceeds remaining after offering expenses and refinancing were approximately $107.8 million. The Company intends to use the remaining proceeds to fund the construction of its NPCS network and for general corporate purposes. In connection with the Refinancing, the Company expects to incur an extraordinary charge of approximately $13.9 million related to the early extinguishment of debt in the first quarter of 1998. The 11 1/4% Senior Subordinated Discount Notes due 2008 ("11 1/4% Notes"), which are unsecured senior obligations of PageMart 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 11 1/4% Notes will cause an increase in indebtedness from January 28, 1998 to February 1, 2008 of $182.3 million. From and after August 1, 2003 interest on the 11 1/4% Notes will be payable semiannually, in cash. In March 1997, the Company entered into a vendor financing arrangement with an infrastructure vendor (the "Vendor Financing Arrangement"), providing for the financing of one-way or advanced messaging infrastructure equipment over a period of 60 months up to a maximum aggregate amount of $30 million. Borrowings under the Vendor Financing Arrangement are secured by the equipment purchased. The interest rate applicable to such financing is equal to the sum of 7.00% and the London interbank offered rate ("LIBOR") as published in The Wall Street Journal for three-month maturities or the sum of 4.25% and the 34 35 U.S. prime rate of interest as published in The Wall Street Journal. The weighted average interest rate in effect on December 31, 1997 with respect to the Vendor Financing Arrangement was 12.6%. In June 1996, the Company sold an aggregate of 6.0 million shares of Class A Common Stock in an initial public offering at a price to the public of $13 per share. The Company received net proceeds of approximately $70.5 million of which approximately $12.9 million was used to retire vendor debt and $11.9 million was used to repay outstanding loans under the Company's Revolving Credit Agreement (as defined below). In May 1995, the Company entered into a four year Revolving Credit Agreement with BT Commercial Corporation, as Agent, and Bankers Trust Company, as Issuing Bank, which provides for a $50 million revolving line of credit (the "Revolving Credit Agreement"). As of December 31, 1997 there were no loans outstanding under the Revolving Credit Agreement. As of December 31, 1997, the Company had $16.0 million outstanding under the Vendor Financing Arrangement and its indebtedness under the 12 1/4% Notes was $122.7 million and its indebtedness under the 15% Notes was $153.4 million. 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, 1997 to February 1, 2000 of $53.9 million. From and after August 1, 2000, interest on the 15% Notes will be payable semiannually, in cash. The indenture under which the 15% Notes were issued (the "15% Indenture"), the indenture pursuant to which the 11 1/4% Notes were issued (the "11 1/4% Indenture"), the Vendor Financing Arrangement 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. On November 15, 1995, the Company purchased through PageMart International, Inc., 200,000 voting shares of common stock of PageMart Canada, which represents 20% of the ownership of PageMart Canada. PageMart International, Inc. also owns 33% of the voting common stock of the holding company parent of PageMart Canada ("Canada Holding"), which owns the remaining 80% of the voting common stock of PageMart Canada. The Company's initial investment in Canada Holding and PageMart Canada totaled approximately $3.7 million. The Company plans to begin the implementation of advanced messaging services during 1998. The Company expects to incur significant capital expenditures and operating losses associated with the implementation and start-up phase for advanced messaging services. The Company anticipates capital expenditures of approximately $90 million in 1998 to construct and deploy an NPCS network, which the Company expects to enable it to market advanced messaging services nationwide by the end of 1998. In addition, the Company expects to incur cash operating expenses of approximately $10 million in 1998. Thereafter, the Company anticipates that the advanced messaging operations will require up to $55 million of additional capital expenditures to complete construction and to add capacity to the network in 1999. In addition, the Company expects the advance messaging operation to require up to $45 million to fund operations and marketing in 1999 and 2000 as the Company's advanced messaging customer base grows. In addition, the Company may require up to $50 million of secured vendor financing to fund the purchase of subscriber units. Although the Company does not currently have a source to fund the purchase of the subscriber units, the Company believes that it will not require such financing until 1999 and thereafter. The Company expects such financing to be available. As of December 31, 1997, the Company had approximately $8.3 million in cash and cash equivalents. On January 28, 1998 the Company received net proceeds of approximately $107.8 million from the Offering. At December 31, 1997 the Company's borrowings available under the Revolving Credit Agreement were approximately $41.7 million and borrowings available under the Vendor Financing Arrangement were 35 36 approximately $13 million. The Company anticipates its one-way messaging operations will generate sufficient cash flows to fund one-way capital expenditures and consolidated working capital requirements for 1998 and 1999. The Company anticipates that its capital resources, combined with anticipated excess cash flows from the Company's one-way messaging operations, will be sufficient to fund the Company's consolidated operations and capital expenditures through 1998 and 1999. In 1997, the Company began an evaluation of its computer systems and paging networks for Year 2000 compliance. The Company is aware that it will be required to upgrade certain software systems to a new commercial release that is currently available. Although the Company's evaluation is not yet complete, the Company currently believes that the cost of becoming Year 2000 compliant will not be material to the Company. From time to time, the Company will selectively consider potential opportunities to make acquisitions intended to enhance its strategic position in the wireless messaging industry. If the Company were to pursue any such acquisitions, the Company would expect to obtain any necessary financing through additional borrowings and/or equity financing and would need to successfully integrate the acquired business into the existing operations. 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. 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. 36 37 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information required by this item is contained in this report under the caption "Item 1. Business -- Executive Officers and Directors of the Registrant." ITEM 11. EXECUTIVE COMPENSATION See "Executive Compensation" in the Company's definitive proxy statement dated February 16, 1998, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See "Security Ownership of Certain Beneficial Owners and Management" in the Company's definitive proxy statement dated February 16, 1998, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See "Certain Relationships and Related Transactions" in the Company's definitive proxy statement dated February 16, 1998, which is incorporated herein by reference. PART IV 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 on Page F-1 hereof. (2) Financial Statement Schedules. See Index to Consolidated Financial Statements on Page F-1 hereof. (3) Exhibits Required by Item 601 of Regulation S-K. See Exhibit Index on Page E-1 hereof. (b) Reports on Form 8-K The following current report on Form 8-K was filed by PageMart Wireless, Inc. during the quarter ended December 31, 1997: Current Report on Form 8-K dated November 3, 1997 reporting under Item 5 "Other Events" the Company's proposal to refinance certain of its outstanding indebtedness and modify its corporate structure. 37 38 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: February 16, 1998 PAGEMART WIRELESS, INC. (Registrant) By: /s/ JOHN D. BELETIC ---------------------------------- John D. Beletic Chairman 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 and Chief Executive February 16, 1998 - ----------------------------------------------------- Officer (Principal Executive John D. Beletic Officer) /s/ G. CLAY MYERS Vice President, Finance, February 16, 1998 - ----------------------------------------------------- Chief Financial Officer and G. Clay Myers Treasurer (Principal Financial and Accounting Officer) Director February , 1998 - ----------------------------------------------------- Robert H. Niehaus /s/ GUY L. DE CHAZAL Director February 16, 1998 - ----------------------------------------------------- Guy L. De Chazal /s/ ARTHUR PATTERSON Director February 16, 1998 - ----------------------------------------------------- Arthur Patterson /s/ LEIGH J. ABRAMSON Director February 16, 1998 - ----------------------------------------------------- Leigh J. Abramson /s/ ALEJANDRO PEREZ ELIZONDO Director February 16, 1998 - ----------------------------------------------------- Alejandro Perez Elizondo /s/ PAMELA D.A. REEVE Director February 16, 1998 - ----------------------------------------------------- Pamela D.A. Reeve
38 39 PAGEMART WIRELESS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................... F-2 Consolidated Balance Sheets as of December 31, 1996 and 1997...................................................... F-3 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997.......................... F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1995, 1996 and 1997...... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997.......................... F-6 Notes to Consolidated Financial Statements.................. F-7 Report of Independent Public Accountants on Financial Statement Schedule........................................ S-1 Schedule II -- Valuation and Qualifying Accounts for the Years Ended December 31, 1995, 1996, and 1997............. S-2
F-1 40 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, 1996 and 1997, 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, 1997. 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, 1996 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ARTHUR ANDERSEN LLP Dallas, Texas, February 3, 1998 F-2 41 PAGEMART WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, -------------------- 1996 1997 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 22,603 $ 8,337 Accounts receivable (net of allowance for doubtful accounts of $4,776 and $7,170 at December 31, 1996 and 1997, respectively).................................... 33,446 61,394 Inventories............................................... 11,702 5,359 Prepaid expenses and other current assets................. 2,821 9,043 -------- -------- Total current assets.............................. 70,572 84,133 PROPERTY AND EQUIPMENT (net of accumulated depreciation of $48,851 and $76,388 at December 31, 1996 and 1997, respectively)............................................. 96,943 136,727 NARROWBAND LICENSES......................................... 133,065 133,065 DEFERRED DEBT ISSUANCE COSTS (net of accumulated amortization of $4,094 and $4,940 at December 31, 1996 and 1997, respectively)....................................... 6,378 5,532 OTHER ASSETS................................................ 6,662 2,419 -------- -------- Total assets...................................... $313,620 $361,876 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable.......................................... $ 23,186 $ 28,009 Deferred revenue.......................................... 27,047 53,469 Current maturities of long-term debt...................... -- 2,755 Other current liabilities................................. 12,270 20,740 -------- -------- Total current liabilities......................... 62,503 104,973 LONG-TERM DEBT.............................................. 240,687 289,344 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT): Common stock, $.0001 par value per share, 75,000,000 shares authorized: Class A Convertible Common Stock, 33,887,152 shares issued at December 31, 1996; 34,115,157 shares issued at December 31, 1997.................................. 3 3 Class B Convertible Non-Voting Common Stock, 3,809,363 shares issued at December 31, 1996 and December 31, 1997.................................................. 1 1 Class C Convertible Non-Voting Common Stock, 1,428,472 shares issued at December 31, 1996 and December 31, 1997.................................................. -- -- Class D Convertible Non-Voting Common Stock, 679,945 shares issued at December 31, 1996 and December 31, 1997.................................................. -- -- Additional paid-in capital................................ 225,661 226,622 Accumulated deficit....................................... (214,688) (258,575) Stock subscriptions receivable............................ (547) (492) -------- -------- Total stockholders' equity (deficit).............. 10,430 (32,441) -------- -------- Total liabilities and stockholders' equity (deficit)....................................... $313,620 $361,876 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F-3 42 PAGEMART WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, ------------------------------ 1995 1996 1997 -------- -------- -------- REVENUES: Recurring revenue......................................... $101,503 $153,041 $206,907 Equipment revenue......................................... 57,688 68,551 70,871 -------- -------- -------- Total revenues.................................... 159,191 221,592 277,778 COST OF EQUIPMENT SOLD...................................... 63,982 78,896 86,175 OPERATING EXPENSES: Technical................................................. 25,679 37,021 46,513 Selling................................................... 36,094 43,046 51,371 General and administrative................................ 43,512 54,006 66,458 Depreciation and amortization............................. 13,272 21,192 29,852 -------- -------- -------- Total operating expenses.......................... 118,557 155,265 194,194 -------- -------- -------- Operating loss.................................... (23,348) (12,569) (2,591) OTHER (INCOME) EXPENSE: Interest expense.......................................... 30,720 35,041 38,499 Interest income........................................... (1,997) (1,140) (501) Other..................................................... 1,042 2,128 3,298 -------- -------- -------- Total other (income) expense...................... 29,765 36,029 41,296 -------- -------- -------- NET LOSS.................................................... $(53,113) $(48,598) $(43,887) ======== ======== ======== NET LOSS PER SHARE (Basic and Diluted)....................................... $ (1.53) $ (1.30) $ (1.10) WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (Basic and Diluted).................................................. 34,653 37,462 39,922
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F-4 43 PAGEMART WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK -------------------- ADDITIONAL STOCK NUMBER OF PAID-IN ACCUMULATED SUBSCRIPTIONS TREASURY SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE STOCK TOTAL ---------- ------ ---------- ----------- ------------- -------- -------- BALANCE, December 31, 1994............... 29,529,525 $ 3 $124,694 $(112,977) $ (243) $(16) $ 11,461 Retirement of treasury stock........... (200,000) -- (16) -- -- 16 -- 725,445 shares of non-voting common stock issued in the Unit Offering.... 725,445 -- 5,078 -- -- -- 5,078 56,654 shares of common stock issued under the stock option/stock issuance plan................................. 56,654 -- 156 -- (125) -- 31 3,598,429 shares of common stock issued in the 1995 stock offering........... 3,598,429 -- 24,689 -- (189) -- 24,500 Net loss............................... -- -- -- (53,113) -- -- (53,113) ---------- --- -------- --------- -------- ---- -------- BALANCE, December 31, 1995............... 33,710,053 3 154,601 (166,090) (557) -- (12,043) 94,879 shares of common stock issued under the stock option/stock issuance plan/Employee stock purchase plan.... 94,879 -- 561 -- -- -- 561 Repayment of stock subscriptions receivable........................... -- -- -- -- 10 -- 10 6,000,000 shares of common stock issued in initial public offering........... 6,000,000 1 70,499 -- -- -- 70,500 Net loss............................... -- -- -- (48,598) -- -- (48,598) ---------- --- -------- --------- -------- ---- -------- BALANCE, December 31, 1996............... 39,804,932 4 225,661 (214,688) (547) -- 10,430 179,705 shares of common stock issued under the stock option/stock issuance plan/employee stock purchase plan.... 179,705 -- 804 -- (45) -- 759 Exercise of common stock warrants...... 48,300 -- 157 -- -- -- 157 Repayment of stock subscriptions receivable........................... -- -- -- -- 100 -- 100 Net loss............................... -- -- -- (43,887) -- -- (43,887) ---------- --- -------- --------- -------- ---- -------- BALANCE, December 31, 1997............... 40,032,937 $ 4 $226,622 $(258,575) $ (492) $ -- $(32,441) ========== === ======== ========= ======== ==== ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F-5 44 PAGEMART WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1996 1997 -------- --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $(53,113) $ (48,598) $(43,887) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization........................... 13,272 21,192 29,852 Provision for bad debt.................................. 6,135 6,986 10,910 Accretion of discount on Senior Discount Exchange Notes.................................................. 26,322 30,871 35,431 Amortization of deferred debt issuance costs............ 1,052 2,083 846 Changes in certain assets and liabilities: Increase in accounts receivable....................... (12,054) (18,929) (38,858) (Increase) decrease in inventories.................... 1,630 (523) 6,343 (Increase) decrease in prepaid expenses and other current assets....................................... (1,383) 59 (6,222) (Increase) decrease in other assets, net.............. (1,350) (1,052) 3,105 Increase in accounts payable.......................... 6,643 92 4,823 Increase in deferred revenue.......................... 7,447 5,638 26,422 Increase in other current liabilities................. 2,486 5,744 8,470 -------- --------- -------- Net cash (used in) provided by operating activities.......................................... (2,913) 3,563 37,235 -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Narrowband Licenses.......................... (74,079) -- -- Purchases of property and equipment....................... (33,503) (63,804) (67,506) Release of restricted cash................................ -- 500 -- Other..................................................... (2,577) (648) (992) -------- --------- -------- Net cash used in investing activities............... (110,159) (63,952) (68,498) -------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock.................... 29,578 70,500 -- Proceeds from issuance of common stock under the stock option/stock issuance plan.............................. 31 561 759 Proceeds from conversion of common stock warrants......... -- -- 157 Proceeds from issuance of Senior Discount Notes, net...... 95,001 -- -- Payment of stock subscriptions receivable................. -- 10 100 Deferred debt issuance costs incurred for Revolving Credit Agreement............................................... (1,447) (25) -- Borrowings under Revolving Credit Agreement............... -- 31,100 3,000 Payments under Revolving Credit Agreement................. -- (31,100) (3,000) Borrowings from vendor financing arrangements............. 6,777 -- 17,053 Payments on vendor financing arrangements................. (4,402) (15,027) (1,072) -------- --------- -------- Net cash provided by financing activities........... 125,538 56,019 16,997 -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 12,466 (4,370) (14,266) CASH AND CASH EQUIVALENTS, beginning of period.............. 14,507 26,973 22,603 -------- --------- -------- CASH AND CASH EQUIVALENTS, end of period.................... $ 26,973 $ 22,603 $ 8,337 ======== ========= ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest................................................ $ 2,146 $ 1,231 $ 1,306 Income taxes............................................ $ -- $ -- $ --
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F-6 45 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., a wholly owned subsidiary of Wireless, ("PageMart PCS"). PageMart PCS holds certain narrowband personal communications services licenses. 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 consolidated operations since inception and is highly leveraged. Management expects to continue to incur consolidated operating losses in 1998. In the third quarter of 1997, the Company began generating operating profits in its one-way business and management expects this trend to continue into 1998. The Company's consolidated operating losses will be driven by the Company's investments in new advanced messaging capabilities and the associated investment in the growth of its subscriber base for such services. The Company's business plan calls for substantial growth in its subscriber base in order for the Company to achieve overall operating profitability. There can be no assurance that the Company will meet its business plan or achieve operating profitability. If the Company cannot achieve operating profitability, it may not be able to make the required payments on existing or future obligations or realize its cost in developing the advanced messaging network. In January 1998, the Company completed an offering of 11 1/4% Senior Subordinated Discount Notes due 2008, (the "11 1/4% Notes") yielding gross proceeds of approximately $249.7 million. In management's opinion, the remaining proceeds from the Offering, current working capital, cash flow from operations, borrowings expected to be available from the Revolving Credit Agreement, (defined herein), and the Vendor Financing Arrangement, (defined herein), will be sufficient to support the planned growth for its wireless communications operations through 1998, including the planned construction and implementation of a network capable of providing advanced messaging services. 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. INVENTORIES Inventories consist of pagers held for resale and are stated at the lower of cost or market. Cost is determined by using the average cost method, which approximates the first-in, first-out method. The Company purchases a majority of its pagers from Motorola, Inc. F-7 46 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 $12,683,000, $19,688,000 and $28,690,000 for the years ended December 31, 1995, 1996 and 1997, 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, ------------------- 1996 1997 -------- -------- Network equipment........................................... $109,901 $157,543 Computer equipment.......................................... 26,268 41,023 Furniture and equipment..................................... 9,625 14,549 -------- -------- 145,794 213,115 Less: Accumulated depreciation.............................. (48,851) (76,388) -------- -------- $ 96,943 $136,727 ======== ========
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 voice mail, 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 1995 and $4,596,000 are included in recurring revenues in both fiscal 1996 and 1997, respectively. 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. As required by the Securities and Exchange Commission rules, all warrants, options and shares issued during the year immediately preceding the initial public offering in June 1996 are assumed to be outstanding prior to the closing of the initial public offering 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. In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 128, "Earnings per Share," ("SFAS 128"). The Company adopted SFAS 128 for the fiscal year ending F-8 47 December 31, 1997. SFAS 128 replaces the primary earnings per share calculation with a basic earnings per share calculation and modifies the calculation of diluted earnings per share. Adoption of SFAS 128 did not affect the calculation of earnings per share for the Company. 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 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 adopted 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 did not affect the Company's results of operations for the years ended December 31, 1996 and 1997. The Company will continue to evaluate the effect of SFAS 121 in subsequent periods. 3. NARROWBAND PERSONAL COMMUNICATIONS SERVICES LICENSES During July and December 1994, the Company participated in auctions of Narrowband Personal Communications Services ("NPCS") licenses frequencies conducted by the FCC. As a result of the auctions, the Company was awarded two nationwide NPCS licenses for a total purchase price of approximately $133 million. Amortization of the NPCS licenses will commence when placed in service. The NPCS licenses will be amortized over a period not to exceed 40 years. The Company estimates that amortization of the NPCS licenses will commence in the fourth quarter of 1998. 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 advanced messaging network. 4. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY Effective November 15, 1995, PageMart International, Inc. purchased 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 Sheets. 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 United States and Canadian ownership requirements. Wireless is ultimately responsible for effectuating the exchange within the United States and Canadian ownership regulations. Such exchange may be accelerated in the event Wireless enters into an agreement to be acquired. After the third anniversary of the transactions, Wireless will have the right to purchase the shares held by the third-party Canadian investors at their fair market value provided regulatory ownership requirements permit such purchase. F-9 48 5. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
DECEMBER 31, -------------------- 1996 1997 -------- -------- 12 1/4% Senior Discount Exchange Notes, face amount $136,500 due November 1, 2003, at accreted value................... $107,947 $122,720 15% Senior Discount Exchange Notes, face amount $207,270 due February 1, 2005, at accreted value....................... 132,740 153,398 Vendor Financing Arrangement of $30 million, bearing interest at the sum of 7.00% and the London interbank offered rate for three month maturities, or the sum of 4.25% and the U.S. prime rate. (Based upon rates quoted by The Wall Street Journal, effective interest rates ranged from 12.44% to 12.72% at December 31, 1997.).............. -- 15,981 -------- -------- Total debt........................................ 240,687 292,099 Less: Current maturities.......................... -- (2,755) -------- -------- Long-term debt.................................... $240,687 $289,344 ======== ========
On January 28, 1998, the Company, in a private offering, raised approximately $249.7 million in gross proceeds of 11 1/4% Senior Subordinated Discount Notes due 2008 (the "Offering"). Simultaneously, with the closing of the Offering, the Company refinanced certain of its outstanding indebtedness, (the "Refinancing"), and modified its corporate structure. The Refinancing consisted of: (i) purchasing all of the outstanding 12 1/4% Notes (defined below); (ii) amending certain terms of the covenants and agreements in the indenture relating to the Company's 15% Notes (defined below); and (iii) merging PageMart, Inc. into PageMart Wireless, Inc., with PageMart Wireless, Inc. as the surviving corporation (the "Merger"). Approximately $130.7 million of the net proceeds of the Offering was used to finance the retirement of the 12 1/4% Notes (defined below). The proceeds remaining after expenses of the Offering and Refinancing were approximately $107.8 million. In connection with the Refinancing, the Company estimates that an extraordinary charge of approximately $13.9 million related to the early extinguishment of debt will be incurred in the first quarter of 1998. In October 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. In July 1994, the Company commenced an exchange offer pursuant to an effective registration statement whereby all outstanding 12 1/4% Notes were exchanged for the Company's 12 1/4% Senior Discount Exchange Notes due 2003. In January 1995, the Company completed an offering of 15% Senior Discount Notes due 2005 and 725,445 shares of non-voting common stock, par value $.0001 per share (the "Unit Offering"). Net proceeds from the Unit Offering were approximately $100 million, of which approximately $5.1 million was allocated to the non-voting common stock. The 15% Senior Discount Notes due 2005 (the "15% Notes") have a principal amount at maturity of $207.3 million with an initial accreted value of $100 million. The 15% Notes mature on February 1, 2005. From and after August 1, 2000, interest on the 15% Notes will be payable semiannually in cash at the rate of 15% per annum. The 15% Notes are redeemable at any time on or after February 1, 2000, at the option of the Company in whole or in part, at 105% of their principal amount at maturity, plus accrued and unpaid interest, declining to 100% of their principal amount at maturity plus accrued interest on and after February 1, 2002. In addition, at any time prior to February 1, 1998, up to 35% of the accreted value of the 15% Notes may be redeemed at a redemption price of 112.5% of their accreted value on the redemption date at the option of the Company in connection with a public offering of its common stock. F-10 49 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 11 1/4% Notes, 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. In March 1997, the Company entered into a vendor financing arrangement with an infrastructure vendor (the "Vendor Financing Arrangement"), providing for the financing of one-way or advanced messaging infrastructure equipment over a period of 60 months up to a maximum aggregate amount of $30 million. Borrowings under the Vendor Financing Arrangement are secured by the equipment purchased. The interest rate applicable to such financing is equal to the sum of 7.00% and the London interbank offered rate ("LIBOR") as published in The Wall Street Journal for three-month maturities or the sum of 4.25% and the U.S. prime rate of interest as published in The Wall Street Journal. The weighted average interest rate in effect on December 31, 1997 with respect to the Vendor Financing Arrangement was 12.63%. On May 11, 1995, the Company entered into a four year Revolving Credit Agreement with BT Commercial Corporation, as Agent, and Bankers Trust Company, as Issuing Bank, which provides for a $50 million revolving line of credit (the "Revolving Credit Agreement"). As of December 31, 1997, there were no loans outstanding under the Revolving Credit Agreement. The maximum amount available under the Revolving Credit Agreement at any time is limited to a borrowing base amount equal to the lesser of (i) 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. The interest rate applicable to loans under the Revolving Credit Agreement is, at the option of Wireless, either at a prime rate plus 1 1/4% or a Eurodollar rate plus 2 1/2%. Commitments under the Revolving Credit Agreement expire and all loans thereunder will be due and payable on March 31, 1999. The Revolving Credit Agreement contains certain covenants that, among other things, limit the ability of the Company to incur indebtedness, make capital expenditures and investments, pay dividends, repurchase capital stock, engage in transactions with affiliates, create liens, sell assets, or engage in mergers and consolidations, and also requires the Company to maintain certain financial ratios. The Revolving Credit Agreement is secured by all trade receivables and inventory owned by Wireless from time to time and by all of the capital stock of PageMart owned by Wireless. As of December 31, 1997, the maximum amount available under the Revolving Credit Agreement was $41.7 million. On January 15, 1998, the Company amended the Revolving Credit Agreement to provide for the changes in debt and corporate structure that occurred with the Refinancing and the Merger. Maturities of long-term debt and capital lease obligations are as follows (in thousands):
FOR THE YEAR ENDING DECEMBER 31, - ------------------- 1998................................................................. $ 2,755 1999................................................................. 3,123 2000................................................................. 3,541 2001................................................................. 4,015 2002................................................................. 2,547 Thereafter........................................................... 276,118 -------- $292,099 ========
F-11 50 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 1995, 1996 and 1997 was approximately $8,471,000, $13,496,000 and $18,379,000, respectively. Future minimum lease payments related to the Company's operating leases are as follows (in thousands):
FOR THE YEAR ENDING OPERATING DECEMBER 31, LEASES - ------------------- --------- 1998.................................................................. $14,446 1999.................................................................. 12,228 2000.................................................................. 10,038 2001.................................................................. 7,557 2002.................................................................. 5,086 Thereafter............................................................ 19,769 ------- Total minimum lease payments.......................................... $69,124 =======
The Company is party to various legal proceedings arising out of the ordinary course of business. The Company believes, based on the advice of legal counsel, that there is no proceeding, either threatening or pending, against the Company that could result in a material adverse effect on the results of operations or financial condition of the Company. In December 1995, the Company transferred certain intellectual property to a significant vendor in exchange for certain benefits which will be recognized over a forty-seven month period. The Company also committed to purchase $40 million in network infrastructure equipment over a forty-seven month period as part of this transaction. Through December 31, 1997, the Company had purchased $21.9 million of network infrastructure under this purchase commitment. 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, 1996 and 1997, are as follows (in thousands):
DECEMBER 31, 1996 DECEMBER 31, 1997 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Cash and cash equivalents......................... $ 22,603 $ 22,603 $ 8,337 $ 8,337 Long-term debt.................................... $240,687 $250,156 $292,099 $263,281
8. STOCKHOLDERS' EQUITY (DEFICIT) PREFERRED STOCK 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. At December 31, 1996 and 1997, there were 10 million shares of preferred stock authorized with a par value of $.0001 and none of the authorized shares of preferred stock were issued and outstanding. F-12 51 COMMON STOCK In October 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. As of December 31, 1997, 579,600 of the warrants were outstanding. 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 ----------------------- DECEMBER 31, SHARES ----------------------- AUTHORIZED 1996 1997 ---------- ---------- ---------- Class A Convertible Common Stock, $.0001 par value per share (the "Class A Common Stock").................... 60,000,000 33,887,152 34,115,157 Class B Convertible Non-Voting Common Stock, $.0001 par value per share (the "Class B Common Stock").......... 12,000,000 3,809,363 3,809,363 Class C Convertible Non-Voting Common Stock, $.0001 par value per share (the "Class C Common Stock").......... 2,000,000 1,428,472 1,428,472 Class D Convertible Non-Voting Common Stock, $.0001 par value per share (the "Class D Common Stock").......... 1,000,000 679,945 679,945 ---------- ---------- ---------- 75,000,000 39,804,932 40,032,937 ========== ========== ==========
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 Amended Certificate. Class A Common Stock is convertible by certain holders thereof into either Class B or C Common Stock. Classes B, C and D Common Stock are convertible to Class A Common Stock. The Stockholders' Agreement provides that the parties thereto ("Holders") shall collectively have the right to "demand" registrations at any time. 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. On June 19, 1996, the Company issued an aggregate of 6,000,000 shares of Class A Common Stock in an initial public offering at a price of $13.00 per share. The Company received proceeds from the initial public offering of approximately $70.5 million after deducting underwriting discounts, commissions, fees and expenses associated with the initial public offering. Upon receipt of the net proceeds, the Company retired F-13 52 vendor debt of approximately $12.9 million and repaid approximately $11.9 million of loans outstanding under the Company's Revolving Credit Agreement. Following is a schedule of common stock reserved at December 31, 1997:
SHARES --------- Exercise of common stock warrants........................... 786,348 Stock option/stock issuance plan............................ 6,488,928 Employee Stock Purchase Plan................................ 424,109 Non-Employee/Director Stock Option Plan..................... 75,000 --------- 7,774,385 =========
9. STOCK OPTION/STOCK ISSUANCE/STOCK PURCHASE PLANS STOCK COMPENSATION PLANS At December 31, 1997, the Company has three stock-based compensation plans, the 1991 Stock Option/Issuance Plan, the 1996 Nonqualified Stock Option Plan for Non-Employee Directors and the Employee Stock Purchase Plan. The Company applies Accounting Principles Board Opinion 25 and related Interpretations to account for expenses related to its plans. Accordingly, no compensation costs have been recognized for its fixed option plans or its employee stock purchase plan. If compensation costs for these plans had been determined based on the fair value at the grant dates for awards under the plans consistent with the method of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", the Company's net loss and loss per share would have been increased to the pro forma amounts indicated below:
1995 1996 1997 -------- -------- -------- Net loss (in 000's)..................... As reported $(53,113) $(48,598) $(43,887) Pro forma (53,380) (50,095) (46,568) Basic and diluted earnings per share.... As reported $ (1.53) $ (1.30) $ (1.10) Pro forma (1.54) (1.34) (1.17)
As the Employee Stock Purchase Plan and the 1996 Nonqualified Stock Option Plan for Non-Employee Directors were adopted in 1996, 1995 pro forma balances do not include expenses for these plans. FIXED STOCK OPTION PLANS The Company has two fixed stock option plans. Under the Fifth Amended and Restated 1991 Stock Option Plan, ("1991 Plan"), the Company may grant options to its employees for up to 7,500,000 shares of Class A Common Stock. Under the 1996 Nonqualified Stock Option Plan for Non-Employee Directors, ("Directors Plan"), the Company may grant options to its non-employee directors for up to 100,000 shares of common stock. Under both plans, the exercise price of each option equals the market price of the Company's stock at the close of the market on the date of grant and an option's maximum term is 10 years. Options are granted at various times during the year and vest over a five year period under the 1991 Plan and over a three year period under the Directors Plan. Both plans are administered by the Board of Directors. Under the provisions of the Third Amended and Restated 1991 Stock Issuance 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 $0.326 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. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1995, 1996 and 1997: F-14 53 dividend yield of 0 percent for all years; expected volatility of 40 percent for 1995 and 1996 and 47.3 percent for 1997 for the 1991 Plan and 40 percent for 1996 and 1997 for the Directors Plan, risk-free interest rates average 6.44 percent in 1995, 6.35 percent in 1996 and 6.31 percent in 1997 for the 1991 Plan and 6.67 percent in 1996 and 1997 for the Directors Plan; and expected lives of 8.23 years for 1995 and 1996 and 8.69 for 1997 for the 1991 Plan and 8.23 years for 1996 and 1997 for the Directors Plan. A summary of the status of the Company's 1991 Plan as of December 31, 1995, 1996 and 1997 and the Directors Plan as of December 31, 1996 and 1997 and changes during the years ending on these dates is presented below: 1991 PLAN
1995 1996 1997 ----------------- ----------------- ----------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE (000) PRICE (000) PRICE (000) PRICE ------ -------- ------ -------- ------ -------- Outstanding at beginning of year........ 1,597 $4.83 2,669 $6.59 3,473 $7.09 Granted................................. 1,205 8.84 1,126 8.49 2,502 8.36 Exercised............................... (37) 4.12 (64) 5.24 (135) 4.19 Forfeited............................... (96) 5.82 (258) 8.51 (1,564) 9.28 ----- ----- ------ Outstanding at end of year.............. 2,669 $6.59 3,473 $7.09 4,276 $7.12 ===== ===== ====== Options exercisable at year-end......... 583 1,077 1,502 ===== ===== ====== Weighted-average fair value of options granted during the year............... $5.07 $5.02 $4.74 ===== ===== =====
DIRECTORS PLAN
1996 1997 -------------------------- -------------------------- WEIGHTED WEIGHTED SHARES AVERAGE SHARES AVERAGE (000) EXERCISE PRICE (000) EXERCISE PRICE ------ -------------- ------ -------------- Outstanding at beginning of year............... -- $ -- 25 $12.00 Granted........................................ 25 12.00 -- -- Exercised...................................... -- -- -- -- Forfeited...................................... -- -- -- -- ----- ----- Outstanding at end of year..................... 25 $12.00 25 $12.00 ===== ===== Options exercisable at year-end................ 6 15 ===== ===== Weighted-average fair value of options granted during the year.............................. $ 7.04 $ -- ====== ======
F-15 54 The following table summarized information about fixed stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ---------------------------- NUMBER WEIGHTED-AVG. NUMBER RANGE OF OUTSTANDING REMAINING WEIGHTED-AVG. EXERCISABLE WEIGHTED-AVG. EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE - --------------- ----------- ---------------- -------------- ----------- -------------- 1991 PLAN $ 0.00 to 2.00 202,000 4.2 $ 1.01 202,000 $ 1.01 2.01 to 4.00 412,000 5.4 3.26 365,000 3.26 4.01 to 6.00 126,000 8.7 5.61 18,000 5.00 6.01 to 8.00 2,279,000 8.5 6.89 904,000 6.95 8.01 to 10.00 1,241,000 9.8 9.93 8,000 10.00 10.01 to 12.00 16,000 8.4 10.83 5,000 10.85 --------- --------- 4,276,000 8.4 7.12 1,502,000 5.27 ========= ========= DIRECTORS PLAN $ 0.00 to 12.00 25,000 8.2 $12.00 15,000 $12.00 ========= =========
EMPLOYEE STOCK PURCHASE PLAN Under the Employee Stock Purchase Plan, the Company is authorized to issue up to 500,000 shares of common stock to its eligible employees. Under terms of the Plan, employees can choose on January 1 and July 1 of each year to have a portion of their earnings not to exceed $25,000 of market value per year withheld to purchase the Company's common stock. The purchase price of the stock is 90 percent of the lower of the market price on the grant date or the market price on the June 30 or December 31 immediately following the grant date of an option. Under the Plan, the Company sold 31,275 shares to employees in 1996 and 44,616 shares in 1997. Compensation cost is recognized for the fair value of the employees's purchase rights, which was estimated using the Black-Scholes model with the following assumptions for 1996 and 1997: dividend yield of 0 percent; an expected life of 0.5 years; expected volatility of 40 percent in 1996 and 47.3 percent in 1997; and a risk-free interest rate of 6.27 percent in 1996 and 5.37 percent in 1997. The weighted-average fair value of those purchased rights granted in 1996 was $2.14 and $1.65 in 1997. 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 $149.2 million and $157.5 million of net operating loss carryforwards for federal income tax purposes at December 31, 1996 and 1997, respectively. The net operating loss carryforwards will expire in the years 2004 through 2012 if not previously utilized. The utilization of these carryforwards is subject to certain limitations. Of the net operating loss carryforwards at December 31, 1997, management has estimated that approximately $38.9 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. F-16 55 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, DECEMBER 31, 1996 CHANGE 1997 ------------ -------- ------------ Gross deferred tax asset: Net operating loss carryforwards................. $ 50,741 $ 2,804 $ 53,545 Bad debt reserve................................. 3,115 1,094 4,209 Inventory reserve................................ 1,527 1,940 3,467 Accretion of Senior Discount Notes............... 23,497 12,047 35,544 Other............................................ 782 597 1,379 -------- -------- -------- 79,662 18,482 98,144 Gross deferred tax liability: Depreciation..................................... (6,999) (4,290) (11,289) -------- -------- -------- 72,663 14,192 86,855 Valuation allowance........................... (72,663) (14,192) (86,855) -------- -------- -------- Net deferred tax asset........................ $ -- $ -- $ -- ======== ======== ========
11. RELATED-PARTY TRANSACTIONS In connection with the Unit Offering completed in 1995 (see Note 5), the Company incurred $3.8 million in fees to an affiliate of a shareholder. In addition, an affiliate of a shareholder acted as an underwriter of the Company's initial public offering in June 1996 and received $2.0 million in compensation in the form of an underwriter's discount. An affiliate of a shareholder also acted as placement agent for the Offering (see Note 5) and received compensation from the Company in the amount of $8.1 million for acting in such capacity. As of December 31, 1997, the president and certain other officers of the Company are indebted to the Company in the aggregate amount of $617,225 under promissory notes issued in connection with the purchase of the Company's common stock and for general purposes (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 6.90%. 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 and Accounts Receivable in the Consolidated Balance Sheets. F-17 56 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, 1995 ------------------------------------------------------- ONE-WAY ADVANCED MESSAGING MESSAGING INTERNATIONAL CONSOLIDATED --------- --------- ------------- ------------ Revenues...................................... $159,191 $ -- $ -- $159,191 Operating loss................................ (22,972) (376) -- (23,348) EBITDA(1)..................................... (9,700) (376) -- (10,076) Total assets.................................. 120,004 140,235 3,590 263,829 Capital expenditures.......................... 32,486 1,017 -- 33,503
FISCAL YEAR ENDED DECEMBER 31, 1996 ------------------------------------------------------- ONE-WAY ADVANCED MESSAGING MESSAGING INTERNATIONAL(2) CONSOLIDATED --------- --------- ---------------- ------------ Revenues...................................... $221,592 $ -- $ -- $221,592 Operating loss................................ (11,465) (657) (447) (12,569) EBITDA(1)..................................... 9,727 (657) (447) 8,623 Total assets.................................. 160,858 151,108 1,654 313,620 Capital expenditures.......................... 50,838 12,966 -- 63,804
FISCAL YEAR ENDED DECEMBER 31, 1997 ------------------------------------------------------- ONE-WAY ADVANCED MESSAGING MESSAGING INTERNATIONAL(2) CONSOLIDATED --------- --------- ---------------- ------------ Revenues...................................... $277,605 $ -- $ 173 $277,778 Operating loss................................ (1,887) (207) (497) (2,591) EBITDA(1)..................................... 27,774 (16) (497) 27,261 Total assets.................................. 177,090 185,943 (1,157) 361,876 Capital expenditures.......................... 32,169 35,337 -- 67,506
- --------------- (1) EBITDA represents earnings (loss) before interest, taxes, depreciation and amortization. (2) Expenses reflected in this table are for the Company's international headquarters operations. The Company accounts for its investments in Canada under the equity method. Consequently, the Company's share of expenses from its Canadian operations are not reflected in this table. F-18 57 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE 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 3, 1998. Our audit was made for the purpose of forming an opinion on those financial statements taken as a whole. Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ARTHUR ANDERSEN LLP Dallas, Texas, February 3, 1998 S-1 58 PAGEMART WIRELESS, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS 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, 1997..... $4,776 $10,910 $ -- $8,516(a) $7,170 Year Ended December 31, 1996..... $4,534 $ 6,986 $ -- $6,744(a) $4,776 Year Ended December 31, 1995..... $1,388 $ 6,135 $ -- $2,989(a) $4,534
- --------------- (a) Accounts written off as uncollectible, net of recoveries. S-2 59 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------- ---------------------- 3.1 Restated Certificate of Incorporation of PageMart Wireless, Inc. (filed as an exhibit to the Registration Statement on Form S-1 of the Company (Reg. No. 33-03012), and incorporated herein by reference). 3.2 Certificate of Amendment to Restated Certificate of Incorporation of PageMart Wireless, Inc. (filed as an exhibit to the Registration Statement on Form S-1 of the Company (Reg. No. 33-03012), and incorporated herein by reference). 3.3 By-laws of PageMart Wireless, Inc. 4.1 Indenture, dated as of January 28, 1998, between PageMart Wireless, Inc. and United States Trust Company of New York, as Trustee, relating to the 11 1/4% Senior Subordinated Discount Notes due 2008. 4.2 Indenture, dated as of January 17, 1995, between PageMart Wireless, Inc. and United States Trust Company of New York, as Trustee, relating to the 15% Senior Discount Notes due 2005. (filed as an exhibit to the Registration Statement on Form S-1 of the Company (Reg. No. 33-91142), and incorporated herein by reference). 4.3 First Supplemental Indenture, dated as of December 31, 1997, among PageMart Wireless, Inc. and United States Trust Company of New York, as Trustee (filed as an exhibit to the Form 8-K of the Company dated January 28, 1998, and incorporated herein by reference). 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 (filed as an exhibit to the Form 10-K of the Company for the fiscal year ended December 31, 1994, and incorporated herein by reference). 10.2 Telecommunications Service Agreement, dated May 29, 1992, between PageMart, Inc. and Wiltel, Inc. (filed as an exhibit to the Registration Statement on Form S-1 of the Company (Reg. No. 33-91142), and incorporated herein by reference). 10.3 Amended and Restated Satellite Services Supplemental Agreement, dated as of December 18, 1997, between PageMart Wireless, Inc. and AvData Systems, Inc.(1) 10.4 Satellite Services and Space Segment Lease Agreement, dated January 2, 1995, between PageMart, Inc. and SpaceCom Systems, Inc. (filed as an exhibit to the Registration Statement on Form S-1 of the Company (Reg. No. 33-91142), and incorporated herein by reference). 10.5 Credit Agreement, dated as of May 11, 1995, by and among PageMart Wireless, Inc. (formerly known as PageMart Nationwide, Inc.), the Lenders named therein, BT Commercial Corporation, as Agent, and Bankers Trust Company, as Issuing Bank. (filed as an exhibit to the Registration Statement on Form S-1 of the Company (Reg. No. 33-91142), and incorporated herein by reference). 10.6 Fourth Amendment to Credit Agreement, dated as of January 15, 1998, among PageMart Wireless, Inc., the Lenders named therein, BT Commercial Corporation, as Agent, and Bankers Trust Company, as Issuing Bank. 10.7 Promissory Note and Security Agreement, dated May 21, 1997, between PageMart, Inc. and Glenayre Electronics, Inc. (filed as an exhibit to the Form 10-Q of the Company for the quarter ended June 30, 1997, and incorporated herein by reference).
E-1 60
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------- ---------------------- 10.8 Amended and Restated Agreement Among Certain Stockholders of PageMart Nationwide, Inc. dated as of September 19, 1995 (filed as an exhibit to the Form 8-K of the Company dated October 6, 1995, and incorporated herein by reference). 10.9 Amendment No. 1 to Amended and Restated Agreement Among Certain Stockholders, dated as of October 1, 1997, among PageMart Wireless, Inc. and certain of its stockholders. 10.10 Subscription Agreement dated as of July 7, 1995 among PageMart Nationwide, Inc., PageMart Canada Holding Corporation and TD Capital Group Ltd. (filed as an exhibit to the Registration Statement on Form S-1 of the Company (Reg. No. 33-03012), and incorporated herein by reference). 10.11 Agreement Among Stockholders among PageMart Nationwide, Inc., PageMart International, Inc., TD Capital Group Ltd., PageMart Canada Limited. (filed as an exhibit to the Registration Statement on Form S-1 of the Company (Reg. No. 33-03012), and incorporated herein by reference). 10.12 Equipment Purchase Agreement, dated as of January 26, 1996, between Motorola, Inc. and PageMart Wireless, Inc. (filed as an exhibit to the Form 10-K of the Company for the fiscal year ended December 31, 1995, and incorporated herein by reference)(1). 10.13 Technology Asset Agreement, dated as of December 1, 1995, between Motorola, Inc. and PageMart Wireless, Inc. (filed as an exhibit to the Form 10-K of the Company for the fiscal year ended December 31, 1995, and incorporated herein by reference)(1). 10.14 PageMart Wireless, Inc. Employee Stock Purchase Plan (filed as an exhibit to the Registration Statement on Form S-1 of the Company (Reg. No. 33-03012), and incorporated herein by reference). 10.15 PageMart Wireless, Inc. Nonqualified Formula Stock Option Plan for Non-Employee Directors. (filed as an exhibit to the Registration Statement on Form S-1 of the Company (Reg. No. 33-03012), and incorporated herein by reference). 10.16 Office Lease Agreement, dated as of November 26, 1996, between Crescent Real Estate Equities Limited and PageMart Wireless, Inc. (filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference). 10.17 PageMart Wireless, Inc. Fifth Amended and Restated 1991 Stock Option Plan (filed as an exhibit to the definitive proxy statement of the Company dated April 18, 1997, and incorporated herein by reference). 10.18 Severance and Reimbursement Agreement, dated September 12, 1997, between PageMart Wireless, Inc. and N. Ross Buckenham (filed as an exhibit to the Form 10-Q of the Company for the quarter ended September 30, 1997, and incorporated herein by reference). 10.19 Resale Agreement, dated November 1, 1993, between PageMart, Inc., licensor, and GTE Service Corporation, licensee. (filed as an exhibit to the Registration Statement on Form S-1 of the Company (Reg. No. 33-91142), and incorporated herein by reference). 10.20 Strategic Alliance Agreement No. 1, dated September 15, 1994, between GTE Service Corporation and PageMart, Inc. (filed as an exhibit to the Registration Statement on Form S-1 of the Company (Reg. No. 33-91142), and incorporated herein by reference).
E-2 61
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------- ---------------------- 10.21 Strategic Alliance Agreement No. 2, dated October 13, 1994, between GTE Service Corporation and PageMart, Inc. (filed as an exhibit to the Form 10-K of the Company for the fiscal year ended December 31, 1994, and incorporated herein by reference). 10.22 Resale Agreement, dated as of December 12, 1997, between PageMart Wireless, Inc. and GTE Communications Corporation.(1) 10.23 Third Amended and Restated 1991 Stock Issuance Plan (filed as an exhibit to the Registration Statement on Form S-8 (Reg. No. 33-98116), and incorporated herein by reference). 10.24 Agreement between PageMart Incorporated and GTE Communications Systems Corporation to assume and Amendment No. 2 to Resale Agreement Number 999999-93-12 between PageMart Incorporated and GTE Service Corporation, dated October 2, 1997.(1) 10.25 Resale Agreement between GTE MobileNet Service Corp., licensee and PageMart, Inc., licensor dated July 1, 1996.(1) 11.1 Computation of per share earnings (loss) for the three months ended December 31, 1997. 11.2 Computation of per share earnings (loss) for the three months ended December 31, 1996. 11.3 Computation of per share earnings (loss) for the year ended December 31, 1997. 11.4 Computation of per share earnings (loss) for the year ended December 31, 1996. 21.1 PageMart Wireless, Inc. Subsidiaries. 27.1 Financial Data Schedule for the year ended December 31, 1997.
- --------------- (1) The Company has requested confidential treatment for certain portions of this agreement. E-3 EX-3.3 2 BY-LAWS OF PAGEMART WIRELESS, INC. 1 EXHIBIT 3.3 BYLAWS OF PAGEMART WIRELESS, INC. * * * * * * ARTICLE I OFFICES Section 1. Registered Office. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. Section 3. Books. The books of the Corporation may be kept within or without of the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meetings. All meetings of stockholders shall be held at such place, either within or without the State of Delaware, on such date and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a designation by the Board of Directors). Section 2. Annual Meeting. Annual meetings of stockholders, commencing with the year 1995, shall be held to elect the Board of Directors and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of stockholders may be called by the Board of Directors or the Chairman of the Board and shall be called by the Secretary at the request in writing of holders of record of a majority of the outstanding capital stock of the Corporation entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. 1 2 Section 4. Notice of Meetings and Adjourned Meetings; Waivers of Notice. (a) Whenever stockholders are required or permitted to take any action at a meeting, a written notice of be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended ("Delaware Law"), such notice shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Unless these bylaws otherwise require, when a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (b) A written waiver of any such notice signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Business transacted at any special meeting of stockholders shall be limited to the purpose stated in the notice. Section 5. Quorum. Unless otherwise provided under the certificate of incorporation or these bylaws and subject to Delaware Law, the presence, in person or by proxy, of the holders of a majority of the outstanding capital stock of the Corporation entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business. Section 6. Voting. (a) Unless otherwise provided in the certificate of incorporation and subject to Delaware Law, each stockholder shall be entitled to one vote for each outstanding share of capital stock of the Corporation held by such stockholder. Unless otherwise provided in Delaware Law, the certificate of incorporation or these bylaws, the affirmative vote of a majority of the shares of capital stock of the Corporation present, in person or by proxy, at 2 3 a meeting of stockholders and entitled to vote on the subject matter shall be the act of the stockholders. (b) Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to a corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 7. Action by Consent. (a) Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding capital stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. (b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this Section and Delaware Law to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Section 8. Organization. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, (or in his absence or if one shall not have been elected, the President) shall act as chairman of the meeting. The Secretary or in his absence or inability to act, the person whom the chairman of the meeting shall 3 4 appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof. Section 9. Order of Business. The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting. ARTICLE III DIRECTORS Section 1. General Powers. Except as otherwise provided in Delaware Law or the certificate of incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. Section 2. Number, Election and Term of Office. The number of directors which shall constitute the whole Board shall be fixed from time to time by resolution of the Board of Directors but shall not be less than three nor more than nine. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 12 of this Article III, and each director so elected shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal. Directors need not be stockholders. Section 3. Quorum and Manner of Acting. Unless the certificate of incorporation or these bylaws require a greater number, a majority of the total number of directors shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the directors present at meeting at which a quorum is present shall be the act of the Board of Directors. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting. If a quorum shall not be present at any meeting of the Board of directors the directors present thereat may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 4. Time and Place of Meetings. The Board of Directors shall hold its meetings at such place, either within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a determination by the Board of Directors). 4 5 Section 5. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such place either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice. Section 6. Regular Meetings. After the place and time of regular meetings of the Board of Directors shall have been determined and notice thereof shall have been once given to each member of the Board of Directors, regular meetings may be held without further notice being given. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called by the Chairman of the Board, President or Secretary on the written request of three directors. Notice of special meetings of the Board of Directors shall be given to each director at least three days before the date of the meeting in such manner as is determined by the Board of Directors. Section 8. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the bylaws of the Corporation; and unless the resolution of the Board of Directors or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. 5 6 Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 9. Action by Consent. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 10. Telephonic Meetings. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 11. Resignation. Any director may resign at any time by giving written notice to the Board of Directors or to the Secretary of the Corporation. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 12. Vacancies. Unless otherwise provided in the certificate of incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. Each director so chosen shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. If there are no directors in office, then an election of directors may be held in accordance with Delaware Law. Unless otherwise provided in the certificate of incorporation, when one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so 6 7 resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in the filling of other vacancies. Section 13. Removal. Any director or the entire Board of Directors may be removed, with or without cause, at any time by the affirmative vote of the holders of a majority of the outstanding capital stock of the Corporation entitled to vote and the vacancies thus created may be filled in accordance with Section 12 of this Article III. Section 14. Compensation. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have authority to fix the compensation of directors, including fees and reimbursement of expenses. ARTICLE IV OFFICERS Section 1. Principal Officers. The principal officers of the Corporation shall be a President, one or more Vice Presidents, a Treasurer and a Secretary who shall have the duty, among other things, to record the proceedings of the meetings of stockholders and directors in a book kept for that purpose. The Corporation may also have such other principal officers, including one or more Controllers, as the Board may in its discretion appoint. One person may hold the offices and perform the duties of any two or more of said offices, except that no one person shall hold the hold the offices and perform the duties of President and Secretary. Section 2. Election, Term of Office and Remuneration. The principal officers of the Corporation shall be elected annually by the Board of Directors at the annual meeting thereof. Each such officer shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. The remuneration of all officers of the Corporation shall be fixed by the Board of Directors. Any vacancy in any office shall be filled in such manner as the Board of Directors shall determine. Section 3. Subordinate Officers. In addition to the principal officers enumerated in Section 1 of this Article IV, the Corporation may have one or more Assistant Treasurers, Assistant Secretaries and Assistant Controllers and such other subordinate officers, agents and employees as the Board of Directors 7 8 may deem necessary, each of whom shall hold office for such period as the Board of Directors may from time to time determine. The Board of Directors may delegate to any principal officer the power to appoint and to remove any such subordinate officers, agents or employees. Section 4. Removal. Except as otherwise permitted with respect to subordinate officers, any officer may be removed, with or without cause, at any time, by resolution adopted by the Board of Directors. Section 5. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors (or to a principal officer if the Board of Directors has delegated to such principal officer the power to appoint and to remove such officer). The resignation of any officer shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 6. Powers and Duties. The officers of the Corporation shall have such powers and perform such duties incident to each of their respective offices and such other duties as may from time to time be conferred upon or assigned to them by the Board of Directors. ARTICLE V GENERAL PROVISIONS Section 1. Fixing the Record Date. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote a meeting of stockholders shall apply to any adjournment of the meeting; provided that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in 8 9 writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by Delaware Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by Delaware Law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversation or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 2. Dividends. Subject to limitations contained in Delaware Law and the certificate of incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, in property or in shares of the capital stock of the Corporation. Section 3. Fiscal Year. The fiscal year of the Corporation shall commence on January 1 and end on December 31 of each year. 9 10 Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced. Section 5. Voting of Stock Owned by the Corporation. The Board of Directors may authorize any person, on behalf of the Corporation, to attend, vote at and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock. Section 6. Amendments. These bylaws or any of them, may be altered, amended or repealed, or new bylaws may be made, by the stockholders entitled to vote thereon at any annual or special meeting thereof or by the Board of Directors. Section 7. Indemnification. Each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Delaware Law. The right to indemnification conferred by this Section 7 shall also include payment by the Corporation of the expenses incurred in connection with any such proceeding in advance of its final disposition to the fullest extent authorized by Delaware Law. The right to indemnification conferred in this Section 7 shall be a contract right. 10 EX-4.1 3 INDENTURE DATED AS OF JANUARY 28, 1998 1 EXHIBIT 4.1 EXECUTION COPY ================================================================================ PAGEMART WIRELESS, INC., as Issuer and UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee --------------------- Indenture Dated as of January 28, 1998 --------------------- 11 1/4% Senior Subordinated Discount Notes due 2008 ================================================================================ 2 CROSS-REFERENCE TABLE
TIA Sections Indenture Sections - ------------ ------------------ Section 310(a)(1) .............................................................. 7.10 (a)(2) ......................................................................... 7.10 (b) ............................................................................ 7.08 Section 313(c) ................................................................. 7.06; 11.02 Section 314(a) ................................................................. 4.17; 11.02 (a)(4) ......................................................................... 4.16; 11.02 (c)(1) ......................................................................... 11.03 (c)(2) ......................................................................... 11.03 (e) ............................................................................ 11.04 Section 315(b) ................................................................. 7.05; 11.02 Section 316(a)(1)(A) ........................................................... 6.05 (a)(1)(B) ...................................................................... 6.04 (b) ............................................................................ 6.07 Section 317(a)(1) .............................................................. 6.08 (a)(2) ......................................................................... 6.09 Section 318(a) ................................................................. 11.01 (c) ............................................................................ 11.01
Note: The Cross-Reference Table shall not for any purpose be deemed to be a part of the Indenture. 3 INDENTURE, dated as of January 28, 1998, between PAGEMART WIRELESS, INC., a Delaware corporation, as Issuer (the "Company"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York corporation, as Trustee (the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of up to $432,000,000 aggregate principal amount at maturity ($249,700,320 initial Accreted Value) of the Company's 11 1/4% Senior Subordinated Discount Notes due 2008 (the "Notes") issuable as provided in this Indenture. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done, and the Company has done all things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee hereunder and duly issued by the Company, the valid obligations of the Company as hereinafter provided. This Indenture is subject to, and shall be governed by, the provisions of the Trust Indenture Act of 1939, as amended, that are required to be a part of and to govern indentures qualified under the Trust Indenture Act of 1939, as amended. AND THIS INDENTURE FURTHER WITNESSETH For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders, as follows. ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "12 1/4% Indenture" means the Indenture dated as of October 19, 1993, between PageMart, Inc., a Delaware corporation, and United States Trust Company of New York, a New York corporation, as Trustee relating to the 12 1/4% Notes, as amended from time to time. "15% Indenture" means the Indenture dated as of January 17, 1995, between the Company (f/k/a PageMart Nationwide Inc.) and United States Trust Company of New York, a New York corporation, as Trustee relating to the 15% Notes, as amended from time to time. 4 2 "12 1/4% Notes" means the 12 1/4% Senior Discount Notes of PageMart, Inc. due 2003 issued pursuant to the 12 1/4% Indenture. "15% Notes" means the 15% Senior Discount Notes of the Company due 2005 issued pursuant to the 15% Indenture. "Acceleration Notice" has the meaning provided in Section 6.02. "Accreted Value" means, for any Specified Date, the amount calculated pursuant to (i), (ii), (iii) or (iv) for each $1,000 principal amount at maturity of Notes: (i) if the Specified Date occurs on one of the following dates (each a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount set forth below for such Semi-Annual Accrual Date:
SEMI-ANNUAL Accreted Accrual Date Value - ------------------ -------- August 1, 1998 $611.08 February 1, 1999 $645.45 August 1, 1999 $681.76 February 1, 2000 $720.11 August 1, 2000 $760.62 February 1, 2001 $803.40 August 1, 2001 $848.59 February 1, 2002 $896.32 August 1, 2002 $946.74 February 1, 2003 $1,000.00
(ii) if the Specified Date occurs before the first Semi-Annual Accrual Date, the Accreted Value will equal the sum of (a) $578.01 and (b) an amount equal to the product of (1) the Accreted Value for the first Semi-Annual Accrual Date less $578.01 multiplied by (2) a fraction, the numerator of which is the number of days from the issue date of the Notes to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is the number of days elapsed from the issue date of the Notes to the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-day months; (iii) if the Specified Date occurs between two Semi-Annual Accrual Dates, the Accreted Value will equal the sum of (a) the Accreted Value for the Semi-Annual Accrual Date immediately preceding such Specified Date and (b) an amount equal to the product of (1) the Accreted Value for the immediately following Semi-Annual 5 3 Accrual Date less the Accreted Value for the immediately preceding Semi-Annual Accrual Date multiplied by (2) a fraction, the numerator of which is the number of days from the immediately preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is 180; or (iv) if the Specified Date occurs after the last Semi-Annual Accrual Date, the Accreted Value will equal $1,000. "Acquired Indebtedness" means Indebtedness of a Person existing at the time such Person became a Restricted Subsidiary and not Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary. "Adjusted Consolidated Net Income" means, for any period, the aggregate net income (or loss) of the Company and its Restricted Subsidiaries for such period determined in conformity with GAAP; provided that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (i) the net income (or loss) of any Person that is not a Restricted Subsidiary, except (x) with respect to net income, to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries by such Person during such period and (y) with respect to net losses, to the extent of the amount of Investments made by the Company or any Restricted Subsidiary in such Person during such period, (ii) solely for the purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (C) of the first paragraph of Section 4.06 (and in such case, except to the extent includible pursuant to clause (i) above), the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or any of its Restricted Subsidiaries or all or substantially all of the property and assets of such Person are acquired by the Company or any of its Restricted Subsidiaries, (iii) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis) attributable to Asset Sales; (v) except for purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (C) of the first paragraph of Section 4.06, any amount paid as dividends on Preferred Stock of the Company or any Restricted Subsidiary owned by Persons other than the Company and any of its Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary losses. "Adjusted Consolidated Net Tangible Assets" means the total amount of assets of the Company and its Restricted Subsidiaries (less applicable depreciation, amortization and other valuation reserves), except to the extent resulting from write-ups of capital assets 6 4 (excluding write-ups in connection with accounting for acquisitions in conformity with GAAP), after deducting therefrom (i) all current liabilities of the Company and its Restricted Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, all as set forth on the most recently available quarterly or annual consolidated balance sheet of the Company and its Restricted Subsidiaries, prepared in conformity with GAAP, and filed with the Commission or provided to the Trustee pursuant to Section 4.18. "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" means any Registrar, Paying Agent, authenticating agent or co-Registrar. "Agent Members" has the meaning provided in Section 2.07(a). "Asset Acquisition" means (i) an investment by the Company or any of its Restricted Subsidiaries in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged into or consolidated with the Company or any of its Restricted Subsidiaries or (ii) an acquisition by the Company or any of its Restricted Subsidiaries of the property and assets of any Person other than the Company or any of its Restricted Subsidiaries that constitute substantially all of a division or line of business of such Person. "Asset Disposition" means the sale or other disposition by the Company or any of its Restricted Subsidiaries (other than to the Company or another Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of any Restricted Subsidiary or (ii) all or substantially all of the assets that constitute a division or line of business of the Company or any of its Restricted Subsidiaries. "Asset Sale" means any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transactions) in one transaction or a series of related transactions by the Company or any of its Restricted Subsidiaries to any Person other than the Company or any of its Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted Subsidiary, (ii) all or substantially all of the property and assets of an operating unit or business of the Company or any of its Restricted Subsidiaries or (iii) any other property and assets (other than the Capital Stock or other Investment in an Unrestricted 7 5 Subsidiary) of the Company or any of its Restricted Subsidiaries outside the ordinary course of business of the Company or such Restricted Subsidiary and, in each case, that is not governed by the provisions of Article Five; provided that "Asset Sale" shall not include (a) sales or other dispositions of inventory, receivables and other current assets, (b) sales, transfers or other dispositions of assets constituting Restricted Payments permitted to be made under Section 4.06 or (c) sales or other dispositions of assets for consideration at least equal to the fair market value of the assets sold or disposed of, to the extent that the consideration received would constitute property or assets of the kinds described in clause (B) of Section 4.11. "Average Life" means, at any date of determination with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from such date of determination to the dates of each successive scheduled principal payment of such debt security and (b) the amount of such principal payment by (ii) the sum of all such principal payments. "Bank Agent" shall mean BT Commercial Corporation, or its successor as agent for the lenders under the Credit Agreement. "Board of Directors" means the Board of Directors of the Company or any committee of such Board of Directors duly authorized to act under this Indenture. "Board Resolution" means a copy of a resolution, certified by the Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in The City of New York, or in the city of the Corporate Trust Office of the Trustee, are authorized by law to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) in equity of such Person, whether outstanding on the Closing Date or issued thereafter, including, without limitation, all Common Stock and Preferred Stock. "Capitalized Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) of which the discounted present value of the rental obligations of such Person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person. "Capitalized Lease Obligations" means the discounted present value of the rental obligations under a Capitalized Lease. 8 6 "Change of Control" means such time as (i) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 30% of the total voting power of the Voting Stock and such ownership is greater than the amount of the total voting power of the Voting Stock of the Company, on a fully diluted basis, than is held by the Existing Stockholders on such date; or (ii) individuals who on the Closing Date constitute the Board of Directors (together with any new directors whose election by the Board of Directors or whose nomination by the Board of Directors for election by the Company's stockholders was approved by a vote of at least two-thirds of the members of the Board of Directors then in office who either were members of the Board of Directors on the Closing Date or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors then in office. "Closing Date" means the date on which the Notes are originally issued under this Indenture. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the TIA, then the body performing such duties at such time. "Common Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's common stock, whether now outstanding or issued after the date of this Indenture, including, without limitation, all series and classes of such common stock. "Company" means the party named as such in the first paragraph of this Indenture until a successor replaces it pursuant to Article Five of this Indenture and thereafter means the successor. "Company Order" means a written request or order signed in the name of the Company (i) by its Chairman, a Vice Chairman, its President or a Vice President and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee; provided, however, that such written request or order may be signed by any two of the officers or directors listed in clause (i) above in lieu of being signed by one of such officers or directors listed in such clause (i) and one of the officers listed in clause (ii) above. "Consolidated EBITDA" means, for any period, Adjusted Consolidated Net Income for such period plus, to the extent such amount was deducted in calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest Expense, (ii) income taxes 9 7 (other than income taxes (either positive or negative) attributable to extraordinary and non-recurring gains or losses or sales of assets), (iii) depreciation expense, (iv) amortization expense and (v) all other non-cash items reducing Adjusted Consolidated Net Income (other than items that will require cash payments and for which an accrual or reserve is, or is required by GAAP to be, made), less all non-cash items increasing Adjusted Consolidated Net Income, all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in conformity with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount of the Adjusted Consolidated Net Income attributable to such Restricted Subsidiary multiplied by (B) the percentage ownership interest in the income of such Restricted Subsidiary not owned on the last day of such period by the Company or any of its Restricted Subsidiaries. "Consolidated Interest Expense" means, for any period, the aggregate amount of interest in respect of Indebtedness (including, without limitation, amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation, calculated in accordance with the effective interest method of accounting; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with Interest Rate Agreements; and Indebtedness that is Guaranteed or secured by the Company or any of its Restricted Subsidiaries) and all but the principal component of rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be accrued by the Company and its Restricted Subsidiaries during such period; excluding, however, (i) any amount of such interest of any Restricted Subsidiary if the net income of such Restricted Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the definition thereof (but only in the same proportion as the net income of such Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the definition thereof) and (ii) any premiums, fees and expenses (and any amortization thereof) payable in connection with the offering of the Notes, all as determined on a consolidated basis (without taking into account Unrestricted Subsidiaries) in conformity with GAAP. "Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of (i) the aggregate amount of Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis outstanding on such Transaction Date to (ii) the aggregate amount of Consolidated EBITDA for the then most recent four fiscal quarters for which financial statements of the Company have been filed with the Commission or provided to the Trustee pursuant to Section 4.18 (such four fiscal quarter period being the "Four Quarter Period"); provided that, in making the foregoing calculation, (A) pro forma effect shall be given to any Indebtedness to be Incurred or repaid on the Transaction Date; (B) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions (including giving pro forma effect to the application of proceeds of any Asset Disposition) that occur from the beginning of the Four 10 8 Quarter Period through and including the Transaction Date (the "Reference Period"), as if they had occurred and such proceeds had been applied on the first day of such Reference Period; and (C) pro forma effect shall be given to asset dispositions and asset acquisitions (including giving pro forma effect to the application of proceeds of any asset disposition) that have been made by any Person that has become a Restricted Subsidiary or has been merged with or into the Company or any Restricted Subsidiary during such Reference Period and that would have constituted Asset Dispositions or Asset Acquisitions had such transactions occurred when such Person was a Restricted Subsidiary as if such asset dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the first day of such Reference Period; provided that to the extent that clause (B) or (C) of this sentence requires that pro forma effect be given to an Asset Acquisition or Asset Disposition, such pro forma calculation shall be based upon the four full fiscal quarters immediately preceding the Transaction Date of the Person, or division or line of business of the Person, that is acquired or disposed of for which financial information is available. "Consolidated Net Worth" means, at any date of determination, stockholders' equity as set forth on the most recently available quarterly or annual consolidated balance sheet of the Company and its Restricted Subsidiaries (which shall be as of a date not more than 90 days prior to the date of such computation, and which shall not take into account Unrestricted Subsidiaries), less any amounts attributable to Redeemable Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of the Capital Stock of the Company or any of its Restricted Subsidiaries, each item to be determined in conformity with GAAP (excluding the effects of foreign currency exchange adjustments under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 52). "Corporate Trust Office" means the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date of this Indenture, located at 114 W. 47th Street, New York, New York 10036, Attention: Corporate Trust Department. "Credit Agreement" means the Credit Agreement dated as of May 11, 1995, as amended, by and among the Company (f/k/a PageMart Nationwide Inc.), the lenders named therein, BT Commercial Corporation, as Agent and Bankers Trust Company, as Issuing Bank, together with the related documents thereof (including without limitation any guarantees and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented, renewed, extended, substituted, replaced or otherwise modified from time to time, including any agreement extending the maturity of, refinancing or otherwise restructuring (including, but not limited to, the inclusion of additional borrowers thereunder that are Subsidiaries of the Company) all or any portion of the Indebtedness under such agreement or any successor agreement, with 11 9 the same or different lenders as such agreement may be amended, renewed, extended, substituted, replaced, restated and otherwise modified from time to time. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Depositary" shall mean The Depository Trust Company, its nominees, and their respective successors. "Designated Senior Indebtedness" means the Indebtedness under the Credit Agreement and the 15% Notes and any other Indebtedness constituting Senior Indebtedness that, at the date of determination, has an aggregate principal amount outstanding of at least $25 million and that is specifically designated by the Company, in the instrument creating or evidencing such Senior Indebtedness as "Designated Senior Indebtedness". "Event of Default" has the meaning provided in Section 6.01. "Excess Proceeds" has the meaning provided in Section 4.11. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means any notes of the Company containing terms identical to the Notes (except that such Exchange Notes (i) shall be registered under the Securities Act and (ii) shall have an interest rate equal to 11 1/4% per annum, without provision for adjustment as provided in the fourth paragraph of Section 1 of the Notes) that are issued and exchanged for the Notes pursuant to the Registration Rights Agreement and this Indenture. "Existing Stockholders" means (i) The Morgan Stanley Leveraged Equity Fund II, L.P., Morgan Stanley Capital Partners III, L.P., Morgan Stanley Capital Investors, L.P., Morgan Stanley Venture Capital Fund, L.P., Morgan Stanley Venture Capital Fund II, L.P., Morgan Stanley Venture Capital Fund II, C.V., Morgan Stanley Venture Investors, L.P., Accel Telecom L.P., Accel III L.P. and Accel Investors '89 L.P and (ii) solely for purposes of determining whether any other person's ownership of Voting Stock exceeds the voting power of the Voting Stock held by the Existing Stockholders, First Plaza Group Trust, Pulsar Internacional, S.A. de C.V., John D. Beletic and Roger D. Linquist. "fair market value" means the price that would be paid in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy, as determined in good faith by the 12 10 Board of Directors, whose determination shall be conclusive if evidenced by a Board Resolution; provided that for purposes of clause (xi) of the second paragraph of Section 4.03(a), (x) the fair market value of any security registered under the Exchange Act shall be the average of the closing prices, regular way, of such security for the 20 consecutive trading days immediately preceding the sale of Capital Stock and (y) in the event the aggregate fair market value of any other property (other than cash or cash equivalents) received by the Company exceeds $10 million, the fair market value of such property shall be determined by a nationally recognized investment banking firm and set forth in their written opinion which shall be delivered to the Trustee. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Closing Date, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained or referred to in this Indenture shall be computed in conformity with GAAP applied on a consistent basis, except that calculations made for purposes of determining compliance with the terms of the covenants set forth in Article Four and Article Five and with other provisions of this Indenture shall be made without giving effect to (i) the amortization of any expenses incurred in connection with the offering of the Notes and (ii) except as otherwise provided, the amortization of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and 17. "Global Notes" has the meaning provided in Section 2.01. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services (unless such purchase arrangements are on arm's-length terms and are entered into in the ordinary course of business), to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guaranteed Indebtedness" has the meaning provided in Section 4.09. 13 11 "Holder" means the registered holder of any Note. "Incur" means, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness, including an "Incurrence" of Acquired Indebtedness; provided that neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables, (v) all Capitalized Lease Obligations of such Person, (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise included in this definition, obligations under Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided (A) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP, (B) that money borrowed and set aside at the time of the Incurrence of any Indebtedness in order to prefund the payment of the interest on such Indebtedness shall not be deemed to be "Indebtedness" so long as such money is held to secure the payment of such interest and (C) that Indebtedness shall not include any liability for federal, state, local or other taxes. "Indenture" means this Indenture as originally executed or as it may be amended or supplemented from time to time by one or more indentures supplemental to this Indenture entered into pursuant to the applicable provisions of this Indenture. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. 14 12 "Interest Payment Date" means each semiannual interest payment date on February 1 and August 1 of each year, commencing August 1, 2003. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement, option or future contract or other similar agreement or arrangement. "Investment" in any Person means any direct or indirect advance, loan or other extension of credit (including, without limitation, by way of Guarantee or similar arrangement; but excluding advances to customers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable on the balance sheet of the Company or its Restricted Subsidiaries) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, such Person and shall include (i) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair market value of the Capital Stock (or any other Investment), held by the Company or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to be a Restricted Subsidiary, including, without limitation, by reason of any transaction permitted by clause (iii) of Section 4.08; provided that the fair market value of the Investment remaining in any Person that has ceased to be a Restricted Subsidiary shall not exceed the aggregate amount of Investments previously made in such Person valued at the time such Investments were made less the net reduction of such Investments. For purposes of the definition of "Unrestricted Subsidiary" and Section 4.06, (i) "Investment" shall include the fair market value of the assets (net of liabilities (other than liabilities to the Company or any of its Restricted Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair market value of the assets (net of liabilities (other than liabilities to the Company or any of its Restricted Subsidiaries)) of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary shall be considered a reduction in outstanding Investments and (iii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof or any agreement to give any security interest). "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, 15 13 component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of (i) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes will actually be paid or are payable) as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (A) is secured by a Lien on the property or assets sold or (B) is required to be paid as a result of such sale and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP and (b) with respect to any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of attorney's fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Non-U.S. Person" means a person who is not a U.S. person, as defined in Regulation S. "Note Register" has the meaning provided in Section 2.04. "Notes" means any of the notes, as defined in the first paragraph of the recitals hereof, that are authenticated and delivered under this Indenture. For all purposes of this Indenture, the term "Notes" shall include Exchange Notes to be issued and exchanged for any Notes pursuant to the Registration Rights Agreement and this Indenture and, for purposes of this Indenture, all Notes and Exchange Notes shall vote together as one series of Notes under this Indenture. "Offer to Purchase" means an offer to purchase Notes by the Company from the Holders commenced by mailing a notice to the Trustee and each Holder stating: (i) the covenant pursuant to which the offer is being made and that all Notes validly tendered will be accepted for payment on a pro rata basis; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date 16 14 such notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will continue to accrue interest (or original issue discount) pursuant to its terms; (iv) that, unless the Company defaults in the payment of the purchase price, any Note accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest (or original issue discount) on and after the Payment Date; (v) that Holders electing to have a Note purchased pursuant to the Offer to Purchase will be required to surrender the Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount at maturity of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount at maturity of $1,000 or integral multiples thereof. On the Payment Date, the Company shall (i) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes or portions thereof so accepted together with an Officers' Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Note equal in principal amount at maturity to any unpurchased portion of the Note surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount at maturity of $1,000 or integral multiples thereof. The Company will publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company is required to repurchase Notes pursuant to an Offer to Purchase. "Officer" means, with respect to the Company, (i) the Chairman of the Board, the President, any Vice President, the Chief Financial Officer, and (ii) the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant Secretary. "Officers' Certificate" means a certificate signed by one Officer listed in clause (i) of the definition thereof and one Officer listed in clause (ii) of the definition thereof. Each Officers' Certificate (other than certificates provided pursuant to TIA Section 314(a)(4)) shall include the statements provided for in TIA Section 314(e). 17 15 "Offshore Global Note" has the meaning provided in Section 2.01. "Offshore Physical Notes" has the meaning provided in Section 2.01. "Opinion of Counsel" means a written opinion signed by legal counsel who may be an employee of or counsel to the Company. Each such Opinion of Counsel shall include the statements provided for in TIA Section 314(e). "Paying Agent" has the meaning provided in Section 2.04, except that, for the purposes of Article Eight, the Paying Agent shall not be the Company or a Subsidiary of the Company or an Affiliate of any of them. The term "Paying Agent" includes any additional Paying Agent. "Payment Blockage Period" has the meaning provided in Section 10.02. "Permitted Investment" means (i) an Investment in the Company or a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary or be merged or consolidated with or into or transfer or convey all or substantially all its assets to, the Company or a Restricted Subsidiary; provided that such person's primary business is related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash Investments; (iii) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; (iv) stock, obligations or securities received in satisfaction of judgments; and (v) Investments received as consideration in Asset Sales to the extent permitted under Section 4.11. "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Physical Notes" has the meaning provided in Section 2.01. "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's preferred or preference stock, whether now outstanding or issued after the date of the Indenture, including, without limitation, all series and classes of such preferred or preference stock. "principal" of a debt security, including the Notes, means the principal amount due on the Stated Maturity as shown on such debt security. 18 16 "Private Placement Legend" means the legend initially set forth on the Notes in the form set forth in Section 2.02. "Public Equity Offering" means an underwritten primary public offering of Common Stock of the Company pursuant to an effective registration statement under the Securities Act. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Redeemable Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise is (i) required to be redeemed prior to the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Notes or (iii) convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled maturity prior to the Stated Maturity of the Notes; provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the Stated Maturity of the Notes shall not constitute Redeemable Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in Sections 4.11 and 4.12 and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to the Company's repurchase of such Notes as are required to be repurchased pursuant to the provisions of Sections 4.11 and 4.12. "Redemption Date", when used with respect to any Note to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Note to be redeemed, means the price at which such Note is to be redeemed pursuant to this Indenture. "Registrar" has the meaning provided in Section 2.04. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of January 28, 1998, between the Company and Morgan Stanley & Co. Incorporated, and certain permitted assigns specified therein. "Registration Statement" means the Registration Statement as defined and described in the Registration Rights Agreement. 19 17 "Regular Record Date" for the interest payable on any Interest Payment Date means the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act. "Responsible Officer", when used with respect to the Trustee, means the chairman or any vice chairman of the board of directors, the chairman or any vice chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, any assistant vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Restricted Payments" has the meaning provided in Section 4.06. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act. "Secured Indebtedness" has the meaning provided in Section 4.05. "Securities Act" means the Securities Act of 1933, as amended. "Senior Indebtedness" means the following obligations of the Company, whether outstanding on the Closing Date or thereafter Incurred: (i) all Indebtedness and all other monetary obligations (including expenses, indemnities, fees and other monetary obligations) of the Company under the Credit Agreement, any Interest Rate Agreement or Currency Agreement relating to Indebtedness under the Credit Agreement, the 12 1/4% Notes, the 15% Notes and the Vendor Financing Arrangement and (ii) all Indebtedness and all other monetary obligations of the Company (other than the Notes), including principal and interest on such Indebtedness, unless such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, is pari passu with, or subordinated in right of payment to, the Notes; provided that the term "Senior Indebtedness" shall not include (a) any Indebtedness of the Company that, when Incurred, was without recourse to the Company, (b) any Indebtedness of the Company to a Subsidiary of the Company, or to a joint venture in which the Company has an interest, (c) any Indebtedness of the Company, to the extent not permitted by Section 4.03 or Section 4.04 (but as to any 20 18 such Indebtedness under the Credit Agreement, no such violation shall be deemed to exist for purposes of this clause (c) if the Bank Agent shall have received an Officers' Certificate to the effect that the issuance of such Indebtedness does not violate such covenant), (d) any Indebtedness to any employee of the Company or any of its respective Subsidiaries, (e) any liability for taxes owed or owing by the Company or (f) any Trade Payables. Senior Indebtedness will also include interest accruing subsequent to events of bankruptcy of the Company and its respective Subsidiaries at the rate provided for in the document governing such Senior Indebtedness, whether or not such interest is an allowed claim enforceable against the debtor in a bankruptcy case under bankruptcy law. "Senior Subordinated Obligations" means any principal of, premium, if any, or interest (including, without limitation, any additional interest payable by reason of the Company's failure to consummate an exchange offer to cause a shelf registration to become effective) on the Notes payable pursuant to the terms of the Notes or upon acceleration, including any amounts received upon the exercise of rights of rescission or other rights of action (including claims for damages) or otherwise, to the extent relating to the purchase price of the Notes or amounts corresponding to such principal, premium, if any, or interest on the Notes. "Significant Subsidiary" means, at any date of determination, any Restricted Subsidiary that, together with its Subsidiaries, (i) for the most recent fiscal year of the Company, accounted for more than 10% of the consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more than 10% of the consolidated assets of the Company and its Restricted Subsidiaries, all as set forth on the most recently available consolidated financial statements of the Company for such fiscal year. "Specified Date" means any Redemption Date, any Payment Date for an Offer to Purchase or any date on which the Notes first become due and payable after an Event of Default. "S&P" means Standard & Poor's Ratings Services and its successors. "Stated Maturity" means, (i) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (ii) with respect to any scheduled installment of principal of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the voting power of the outstanding 21 19 Voting Stock is owned, directly or indirectly, by such Person and one or more other Subsidiaries of such Person. "Subsidiary Guarantee" has the meaning provided in Section 4.09. "Temporary Cash Investment" means any of the following: (i) direct obligations of the United States of America or any agency thereof or obligations fully and unconditionally guaranteed by the United States of America or any agency thereof, (ii) time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P, and (v) securities with maturities of six months or less from the date of acquisition issued or fully and unconditionally guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or Moody's. "TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbb), as in effect on the date this Indenture was executed, except as provided in Section 9.06. "Trade Payables" means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person or any of its Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services. "Transaction Date" means, with respect to the Incurrence of any Indebtedness by the Company or any of its Restricted Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. 22 20 "Trustee" means the party named as such in the first paragraph of this Indenture until a successor replaces it in accordance with the provisions of Article Seven of this Indenture and thereafter means such successor. "United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended and as codified in Title 11 of the United States Code, as amended from time to time hereafter, or any successor federal bankruptcy law. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below; and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Restricted Subsidiary (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the Company or such Restricted Subsidiary (or both, if applicable) at the time of such designation; (B) either (I) the Subsidiary to be so designated has total assets of $1,000 or less or (II) if such Subsidiary has assets greater than $1,000, such designation would be permitted under Section 4.06 and (C) if applicable, the Incurrence of Indebtedness and the Investment referred to in clause (A) of this proviso would be permitted under Sections 4.03 and 4.06. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that (i) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such designation and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately after such designation would, if Incurred at such time, have been permitted to be Incurred (and shall be deemed to have been Incurred) for all purposes of the Indenture. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Global Note" has the meaning provided in Section 2.01. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to the Stated Maturity of the Notes, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government 23 21 Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "U.S. Physical Notes" has the meaning provided in Section 2.01. "Vendor Financing Arrangement" means the Financing and Security Agreement between Glenayre Electronics Inc. and the Company dated March 21, 1997, as amended from time to time. "Voting Stock" means with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "Warrant Agreement" means the Warrant Agreement dated as of October 19, 1993 between the Company and United States Trust Company of New York, as warrant agent. "Warrants" means the warrants issued under the Warrant Agreement, each of which entitles the holder thereof to purchase one share of Common Stock of the Company at a price of $3.26 per share, subject to adjustment. "Wholly Owned" means, with respect to any Subsidiary of any Person, the ownership of all of the outstanding Capital Stock of such Subsidiary (other than any director's qualifying shares or Investments by foreign nationals mandated by applicable law) by such Person or one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a Holder; "indenture to be qualified" means this Indenture; 24 22 "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Company or any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by a rule of the Commission and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (iii) "or" is not exclusive; (iv) words in the singular include the plural, and words in the plural include the singular; (v) provisions apply to successive events and transactions; (vi) "herein", "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (vii) all ratios and computations based on GAAP contained in this Indenture shall be computed in accordance with the definition of GAAP set forth in Section 1.01; and (viii) all references to Sections or Articles refer to Sections or Articles of this Indenture unless otherwise indicated. ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating. The Notes and the Trustee's certificate of authentication shall be substantially in the form annexed hereto as Exhibit A. The Notes may have notations, legends or endorsements required by law, stock exchange agreements to which the Company is subject or usage. The Company shall approve the form of the Notes 25 23 and any notation, legend or endorsement on the Notes. Each Note shall be dated the date of its authentication. The terms and provisions contained in the form of the Notes annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Indenture. To the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent global Notes in registered form, substantially in the form set forth in Exhibit A (the "U.S. Global Notes"), deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the U.S. Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Notes offered and sold in offshore transactions in reliance on Regulation S shall be issued initially in the form of one or more permanent global Notes in registered form substantially in the form set forth in Exhibit A (the "Offshore Global Notes") deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Offshore Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Notes offered and sold in reliance on Regulation D under the Securities Act shall be issued in the form of permanent certificated Notes in registered form in substantially the form set forth in Exhibit A (the "U.S. Physical Notes"). Notes issued pursuant to Section 2.07 in exchange for interests in the Offshore Global Notes shall be in the form of permanent certificated Notes in registered form substantially in the form set forth in Exhibit A (the "Offshore Physical Notes"). The Offshore Physical Notes and U.S. Physical Notes are sometimes collectively herein referred to as the "Physical Notes". The U.S. Global Note and the Offshore Global Note are sometimes referred to herein as the "Global Notes". The definitive Notes shall be typed, printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Notes may be listed, all as determined by the Officers executing such Notes, as evidenced by their execution of such Notes. 26 24 SECTION 2.02. Restrictive Legends. Unless and until a Note is exchanged for an Exchange Note in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, (i) each U.S. Global Note and each U.S. Physical Note shall bear the legend, set forth below on the face thereof and (ii) each Offshore Physical Note and each Offshore Global Note shall bear the legend set forth below on the face thereof until at least the 41st day after the Closing Date and receipt by the Company and the Trustee of a certificate substantially in the form of Exhibit B hereto. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF TRANSFER OF SUCH NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN ACCRETED VALUE OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE 27 25 IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS. Each Global Note, whether or not an Exchange Note, shall also bear the following legend on the face thereof: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS 28 26 MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.08 OF THE INDENTURE. SECTION 2.03. Execution, Authentication and Denominations. Subject to Article Four, the aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is unlimited. The Notes shall be executed by an Officer of the Company listed in clause (i) of the definition of Officer herein and attested by its Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer. The signature of any of these Officers on the Notes may be by facsimile or manual signature, in the name and on behalf of the Company. If an Officer whose signature is on a Note no longer holds that office at the time the Trustee or authenticating agent authenticates the Note, the Note shall be valid nevertheless. A Note shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. At any time and from time to time after the execution of this Indenture, the Trustee or an authenticating agent shall upon receipt of a Company Order authenticate for original issue Notes in the aggregate principal amount specified in such Company Order; provided that the Trustee shall be entitled to receive an Officers' Certificate and an Opinion of Counsel of the Company that it may reasonably request in connection with such authentication of Notes. Such Company Order shall specify the amount of Notes to be authenticated, the date on which the original issue of Notes is to be authenticated and the aggregate principal amount of Notes then authorized and in case of an issuance of Notes pursuant to Section 2.15, shall certify that such issuance is in compliance with Article Four. The Trustee may appoint an authenticating agent to authenticate Notes. If the appointment of such authenticating agent is not at the discretion and for the convenience of the Trustee, then such authenticating agent shall be compensated by the Company. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such authenticating agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. The Notes shall be issuable only in registered form without coupons and only in denominations of $1,000 in principal amount and any integral multiple thereof. SECTION 2.04. Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for 29 27 exchange (the "Registrar"), an office or agency where Notes may be presented for payment (the "Paying Agent") and an office or agency where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served, which shall be in the Borough of Manhattan, The City of New York. The Company shall cause the Registrar to keep a register of the Notes and of their transfer and exchange (the "Note Register"). The Note Register shall be in written form or any other form capable of being converted into written form within a reasonable time. The Company may have one or more co-Registrars and one or more additional Paying Agents. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall give prompt written notice to the Trustee of the name and address of any such Agent and any change in the address of such Agent. If the Company fails to maintain a Registrar, Paying Agent and/or agent for service of notices and demands, the Trustee shall act as such Registrar, Paying Agent and/or agent for service of notices and demands. The Company may remove any Agent upon written notice to such Agent and the Trustee; provided that no such removal shall become effective until (i) the acceptance of an appointment by a successor Agent to such Agent as evidenced by an appropriate agency agreement entered into by the Company and such successor Agent and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as such Agent until the appointment of a successor Agent in accordance with clause (i) of this proviso. The Company, any Subsidiary of the Company, or any Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar, and/or agent for service of notice and demands. The Company initially appoints the Trustee as Registrar, Paying Agent, authenticating agent and agent for service of notice and demands. If, at any time, the Trustee is not the Registrar, the Registrar shall make available to the Trustee at least seven Business Days before each Interest Payment Date and at such other times as the Trustee may reasonably request, the names and addresses of the Holders as they appear in the Note Register. At the option of the Company, payment of interest may be made by check mailed to the address of the Holders as such address appears in the Note Register. SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than each due date of the principal, premium, if any, and interest on any Notes, the Company shall deposit with the Paying Agent money in immediately available funds sufficient to pay such principal, premium, if any, and interest so becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Notes (whether such money has been paid to it by the Company or any other obligor on the Notes), and such Paying Agent shall promptly notify the Trustee of any default by the Company (or any other obligor on the 30 28 Notes) in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed, and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company or any Subsidiary of the Company or any Affiliate of any of them acts as Paying Agent, it will, on or before each due date of any principal of, premium, if any, or interest on the Notes, segregate and hold in a separate trust fund for the benefit of the Holders a sum of money sufficient to pay such principal, premium, if any, or interest so becoming due until such sum of money shall be paid to such Holders or otherwise disposed of as provided in this Indenture, and will promptly notify the Trustee of its action or failure to act. SECTION 2.06. Transfer and Exchange. The Notes are issuable only in registered form. A Holder may transfer a Note by written application to the Registrar stating the name of the proposed transferee and otherwise complying with the terms of this Indenture. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Registrar in the Note Register. Prior to the registration of any transfer by a Holder as provided herein, the Company, the Trustee, and any agent of the Company shall treat the person in whose name the Note is registered as the owner thereof for all purposes whether or not the Note shall be overdue, and neither the Company, the Trustee, nor any such agent shall be affected by notice to the contrary. Furthermore, any Holder of a Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Note may be effected only through a book entry system maintained by the Holder of such Global Note (or its agent) and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry. When Notes are presented to the Registrar or a co- Registrar with a request to register the transfer or to exchange them for an equal principal amount of Notes of other authorized denominations (including an exchange of Notes for Exchange Notes), the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met; provided that no exchanges of Notes for Exchange Notes shall occur until a Registration Statement shall have been declared effective by the Commission and that any Notes that are exchanged for Exchange Notes shall be cancelled by the Trustee. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Notes at the Registrar's request. No service charge shall be made for any registration of transfer or exchange or redemption of the Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other similar governmental charge payable upon exchanges pursuant to Section 2.11, 3.08 or 9.04). 31 29 The Registrar shall not be required (i) to issue, register the transfer of or exchange any Note during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Notes selected for redemption under Section 3.03 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. SECTION 2.07. Book-Entry Provisions for Global Notes. (a) The U.S. Global Notes and Offshore Global Notes initially shall (i) be registered in the name of the Depositary for such Global Notes or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 2.02. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Note. (b) Transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in a Global Note may be transferred in accordance with the rules and procedures of the Depositary and the provisions of Section 2.08. In addition, U.S. Physical Notes and Offshore Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in the U.S. Global Notes or the Offshore Global Notes, respectively, if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the U.S. Global Notes or the Offshore Global Notes, as the case may be, and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a request to the foregoing effect from the Depositary. (c) Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of an interest in the other Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest. 32 30 (d) In connection with any transfer of a portion of the beneficial interests in a U.S. Global Note or Offshore Global Note to beneficial owners pursuant to paragraph (b) of this Section, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Notes or Offshore Global Notes in an amount equal to the principal amount of the beneficial interest in such Global Notes to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more U.S. Physical Notes or Offshore Physical Notes, as the case may be, of like tenor and amount. (e) In connection with the transfer of the entire U.S. Global Note or Offshore Global Note to beneficial owners pursuant to paragraph (b) of this Section, the U.S. Global Note or Offshore Global Note, as the case may be, shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the U.S. Global Note or Offshore Global Note, as the case may be, an equal aggregate principal amount of U.S. Physical Notes or Offshore Physical Notes, as the case may be, of authorized denominations. (f) Any U.S. Physical Note delivered in exchange for an interest in the U.S. Global Note pursuant to paragraph (b), (d) or (e) of this Section shall, except as otherwise provided by paragraph (e) of Section 2.08, bear the legend regarding transfer restrictions applicable to the U.S. Physical Note set forth in Section 2.02. (g) Any Offshore Physical Note delivered in exchange for an interest in the Offshore Global Note pursuant to paragraph (b), (d) or (e) of this Section shall, except as otherwise provided by paragraph (e) of Section 2.08, bear the legend regarding transfer restrictions applicable to the Offshore Physical Note set forth in Section 2.02. (h) The registered holder of a Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. (i) Beneficial owners of interests in a U.S. Global Note may receive U.S. Physical Notes (which shall bear the Private Placement Legend if required by Section 2.02) in accordance with the procedures of the Depositary. In connection with the execution, authentication and delivery of such U.S. Physical Notes, the Registrar shall reflect on its books and records a decrease in the principal amount of the relevant U.S. Global Note equal to the principal amount of such U.S. Physical Notes and the Company shall execute and the Trustee shall authenticate and deliver one or more U.S. Physical Notes having an equal aggregate principal amount. 33 31 SECTION 2.08. Special Transfer Provisions. Unless and until a Note is exchanged for an Exchange Note in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, the following provisions shall apply: (a) Transfers to Non-QIB Institutional Accredited Investors. The following provisions shall apply with respect to the registration of any proposed transfer of a Note to any Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons): (i) The Registrar shall register the transfer of any Note, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after the time period referred to in Rule 144(k) under the Securities Act as in effect with respect to such transfer or (y) the proposed transferee has delivered to the Registrar (A) a certificate substantially in the form of Exhibit C hereto and (B) if the Accreted Value of the Notes being transferred is less than $100,000 at the time of such transfer, an opinion of counsel acceptable to the Company that such transfer is in compliance with the Securities Act. (ii) If the proposed transferor is an Agent Member holding a beneficial interest in the U.S. Global Note, upon receipt by the Registrar of (x) the documents, if any, required by paragraph (i) and (y) instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Note in an amount equal to the principal amount of the beneficial interest in the U.S. Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more U.S. Physical Notes of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a U.S. Physical Note, an interest in a U.S. Global Note or an interest in an Offshore Global Note prior to the removal of the Private Placement Legend to a QIB (excluding Non-U.S. Persons): (i) If the Note to be transferred consists of (x) either (A) an interest in a Offshore Global Note prior to the removal of the Private Placement Legend or (B) U.S. Physical Notes, the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance 34 32 on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A or (y) an interest in the U.S. Global Notes, the transfer of such interest may be effected only through the book entry system maintained by the Depositary. (ii) If the proposed transferee is an Agent Member, and the Note to be transferred consists of U.S. Physical Notes, upon receipt by the Registrar of the documents referred to in clause (i) and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the U.S. Global Notes in an amount equal to the principal amount of the U.S. Physical Notes, to be transferred, and the Trustee shall cancel the U.S. Physical Notes so transferred. (c) Transfers of Interests in the Offshore Global Note or Offshore Physical Notes. The following provisions shall apply with respect to any transfer of interests in the Offshore Global Notes or Offshore Physical Notes: (i) prior to the removal of the Private Placement Legend from a Offshore Global Note or Offshore Physical Note pursuant to Section 2.02, the Registrar shall refuse to register such transfer unless such transfer complies with Section 2.08(b) or Section 2.08(d), as the case may be; and (ii) after such removal, the Registrar shall register the transfer of any such Note without requiring any additional certification. (d) Transfers to Non-U.S. Persons at Any Time. The following provisions shall apply with respect to any transfer of a Note to a Non-U.S. Person: (i) The Registrar shall register any proposed transfer to any Non-U.S. Person if the Note to be transferred is a U.S. Physical Note or an interest in the U.S. Global Note only upon receipt of a certificate substantially in the form of Exhibit D from the proposed transferor. (ii) (a) If the proposed transferor is an Agent Member holding a beneficial interest in a U.S. Global Note, upon receipt by the Registrar of (x) the documents required by paragraph (i) and (y) instructions in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of such U.S. Global Note in an amount equal to the principal amount of the beneficial interest in the U.S. Global Note to be transferred, and (b) if the proposed transferee is an Agent Member, upon receipt by 35 33 the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Offshore Global Note in an amount equal to the principal amount of the U.S. Physical Notes or the U.S. Global Note, as the case may be, to be transferred, and the Trustee shall cancel the Physical Note, if any, so transferred or decrease the amount of the U.S. Global Note. (e) Private Placement Legend. Upon the transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless either (i) the circumstances contemplated by paragraphs (a)(i)(x) or (c)(ii) of this Section 2.08 exist or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (f) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall not register a transfer of any Note unless such transfer complies with the restrictions on transfer of such Note set forth in this Indenture. In connection with any transfer of Notes, each Holder agrees by its acceptance of the Notes to furnish the Registrar or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided that the Registrar shall not be required to determine (but may conclusively rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.07 or this Section 2.08. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. SECTION 2.09. Replacement Notes. If a mutilated Note is surrendered to the Trustee or if the Holder claims that the Note has been lost, destroyed or wrongfully taken, then, in the absence of notice to the Company or the Trustee that such Note has been acquired by a bona fide purchaser, the Company shall issue and the Trustee shall authenticate a replacement Note of like tenor and principal amount; provided that the requirements of this Section 2.09 are met. If required by the Trustee or the Company, an indemnity bond must 36 34 be furnished that is sufficient in the judgment of both the Trustee and the Company to protect the Company, the Trustee or any Agent from any loss that any of them may suffer if a Note is replaced. The Company may charge such Holder for the expenses of the Company and the Trustee in replacing a Note. In case any such mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Company in its discretion may pay such Note instead of issuing a new Note in replacement thereof. Every replacement Note is an additional obligation of the Company and shall be entitled to the benefits of this Indenture. The provisions of this Section 2.09 are exclusive and shall preclude (to the extent lawful) all other rights and remedies against the Company and the Trustee with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Notes. SECTION 2.10. Outstanding Notes. Notes outstanding at any time are all Notes that have been authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section 2.10 as not outstanding. If a Note is replaced pursuant to Section 2.09, it ceases to be outstanding unless and until the Trustee and the Company receive proof satisfactory to each of them that the replaced Note is held by a bona fide purchaser. If the Paying Agent (other than the Company or an Affiliate of the Company) holds on a Redemption Date or the Stated Maturity of the Notes money sufficient to pay Notes payable on that date, then on and after that date such Notes cease to be outstanding and interest on them shall cease to accrue. Notes, or portions thereof, for the payment or redemption of which moneys or U.S. Government Obligations (as provided for in Article Eight) in the necessary amount shall have been deposited in trust with the Trustee or with any Paying Agent (other than the Company) or shall have been set aside, segregated and held in trust by the Company for the Holders of such Notes (if the Company shall act as its own Paying Agent), on and after that time shall cease to be outstanding and, in the case of redemption, interest on such Notes shall cease to accrue, provided that if such Notes, or portions thereof, are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as herein provided, or provision satisfactory to the Trustee shall have been made for giving such notice. A Note does not cease to be outstanding because the Company or one of its Affiliates holds such Note, provided, however, that, in determining whether the Holders of the requisite principal amount of the outstanding Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Company or any other obligor upon the Notes or any Affiliate of the Company or of such other obligor 37 35 shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee has actual knowledge to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company or any other obligor upon the Notes or any Affiliate of the Company or of such other obligor. SECTION 2.11. Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and execute and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have insertions, substitutions, omissions and other variations determined to be appropriate by the Officers executing the temporary Notes, as evidenced by their execution of such temporary Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for such purpose pursuant to Section 4.02, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall be entitled to the same benefits under this Indenture as definitive Notes. SECTION 2.12. Cancellation. The Company at any time may deliver, or cause to be delivered, Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for transfer, exchange or payment. The Trustee (and no one else) shall cancel all Notes surrendered for transfer, exchange, payment, replacement or cancellation and shall destroy them in accordance with its normal procedure. SECTION 2.13. CUSIP Numbers. The Company in issuing the Notes may use "CUSIP," "CINS" and "ISIN" numbers (if then generally in use), and the Trustee shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of redemption or exchange as a convenience to Holders; provided that any such notice shall state that no representation is made as to the correctness of such CUSIP, CINS or ISIN numbers either as printed on the Notes or as contained in any notice of redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Notes; and provided further that failure to use CUSIP, CINS or ISIN numbers in any notice of redemption or exchange shall not affect the validity or sufficiency of such notice. The Company shall promptly notify the Trustee of any change in CUSIP numbers. 38 36 SECTION 2.14. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay, or shall deposit with the Paying Agent money in immediately available funds sufficient to pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date. A special record date, as used in this Section 2.14 with respect to the payment of any defaulted interest, shall mean the 15th day next preceding the date fixed by the Company for the payment of defaulted interest, whether or not such day is a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder and to the Trustee a notice that states the subsequent special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.15. Issuance of Additional Notes. The Company may, subject to Article Four of this Indenture, issue additional Notes under this Indenture. The Notes issued on the Closing Date and any additional Notes subsequently issued shall be treated as a single class for all purposes under this Indenture. ARTICLE THREE REDEMPTION SECTION 3.01. Right of Redemption. (a) The Notes may be redeemed at the election of the Company, in whole or in part, at any time and from time to time on or after February 1, 2003 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's last address as it appears in the Note Register, at the following Redemption Prices (expressed in percentages of their principal amount at maturity), plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date that is on or prior to the Redemption Date to receive interest due on an Interest Payment Date) if redeemed during the 12-month period commencing February 1, of the applicable years set forth below:
Redemption Year Price ---- ---------- 2003 105.625% 2004 103.750 2005 101.875 2006 and thereafter 100.000
(b) In addition, at any time prior to February 1, 2001, the Company may redeem up to 35% of the principal amount of the Notes with the proceeds of one or more sales of Capital Stock (other than Redeemable Stock), of the Company, at any time or from time to time in part, at a Redemption Price equal to 111.250% of their Accreted Value on 39 37 the Redemption Date provided that at least $280.8 million aggregate principal amount at maturity of Notes remains outstanding after each of such redemption. SECTION 3.02. Notices to Trustee. If the Company elects to redeem Notes pursuant to Section 3.01(a) or 3.01(b), it shall notify the Trustee in writing of the Redemption Date and the principal amount of Notes to be redeemed. The Company shall give each notice provided for in this Section 3.02 in an Officers' Certificate at least 45 days before the Redemption Date (unless a shorter period shall be satisfactory to the Trustee). SECTION 3.03. Selection of Notes to Be Redeemed. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed in compliance with the requirements, as certified to it by the Company, of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, by lot or by such other method as the Trustee in its sole discretion shall deem fair and appropriate; provided that no Notes of $1,000 in principal amount at maturity or less shall be redeemed in part. The Trustee shall make the selection from the Notes outstanding and not previously called for redemption. Notes in denominations of $1,000 in principal amount at maturity may only be redeemed in whole. The Trustee may select for redemption portions (equal to $1,000 in principal amount at maturity or any integral multiple thereof) of Notes that have denominations larger than $1,000 in principal amount at maturity. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The Trustee shall notify the Company and the Registrar promptly in writing of the Notes or portions of Notes to be called for redemption. SECTION 3.04. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first class mail to each Holder whose Notes are to be redeemed. The notice shall identify the Notes to be redeemed and shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the name and address of the Paying Agent; (iv) that Notes called for redemption must be surrendered to the Paying Agent in order to collect the Redemption Price; 40 38 (v) that, unless the Company defaults in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders is to receive payment of the Redemption Price plus accrued interest to the Redemption Date upon surrender of the Notes to the Paying Agent; (vi) that, if any Note is being redeemed in part, the portion of the principal amount (equal to $1,000 in principal amount at maturity or any integral multiple thereof) of such Note to be redeemed and that, on and after the Redemption Date, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof will be reissued; and (vii) that, if any Note contains a CUSIP number as provided in Section 2.13, no representation is being made as to the correctness of the CUSIP number either as printed on the Notes or as contained in the notice of redemption and that reliance may be placed only on the other identification numbers printed on the Notes. At the Company's request (which request may be revoked by the Company at any time prior to the time at which the Trustee shall have given such notice to the Holders), made in writing to the Trustee at least 60 days (or such shorter period as shall be satisfactory to the Trustee) before a Redemption Date, the Trustee shall give the notice of redemption in the name and at the expense of the Company. If, however, the Company gives such notice to the Holders, the Company shall concurrently deliver to the Trustee an Officers' Certificate stating that such notice has been given. SECTION 3.05. Effect of Notice of Redemption. Once notice of redemption is mailed, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender of any Notes to the Paying Agent, such Notes shall be paid at the Redemption Price, plus accrued interest, if any, to the Redemption Date. Notice of redemption shall be deemed to be given when mailed, whether or not the Holder receives the notice. In any event, failure to give such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of Notes held by Holders to whom such notice was properly given. SECTION 3.06. Deposit of Redemption Price. On or prior to any Redemption Date, the Company shall deposit with the Paying Agent (or, if the Company is acting as its own Paying Agent, shall segregate and hold in trust as provided in Section 2.05) money sufficient to pay the Redemption Price of and accrued interest on all Notes to be redeemed on that date other than Notes or portions thereof called for redemption on that date that have been delivered by the Company to the Trustee for cancellation. 41 39 SECTION 3.07. Payment of Notes Called for Redemption. If notice of redemption has been given in the manner provided above, the Notes or portion of Notes specified in such notice to be redeemed shall become due and payable on the Redemption Date at the Redemption Price stated therein, together with accrued interest to such Redemption Date, and on and after such date (unless the Company shall default in the payment of such Notes at the Redemption Price and accrued interest to the Redemption Date, in which case the principal, until paid, shall bear interest from the Redemption Date at the rate prescribed in the Notes), such Notes shall cease to accrue interest. Upon surrender of any Note for redemption in accordance with a notice of redemption, such Note shall be paid and redeemed by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders registered as such at the close of business on the relevant Regular Record Date. SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder a new Note equal in principal amount to the unredeemed portion of such surrendered Note. ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes. The Company shall pay the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes and this Indenture. An installment of principal, premium, if any, or interest shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company, a Subsidiary of the Company, or any Affiliate of any of them) holds on that date money designated for and sufficient to pay the installment. If the Company or any Subsidiary of the Company or any Affiliate of any of them, acts as Paying Agent, an installment of principal, premium, if any, or interest shall be considered paid on the due date if the entity acting as Paying Agent complies with the last sentence of Section 2.05. As provided in Section 6.09, upon any bankruptcy or reorganization procedure relative to the Company, the Trustee shall serve as the Paying Agent and conversion agent, if any, for the Notes. The Company shall pay interest on overdue principal, premium, if any, and interest on overdue installments of interest, to the extent lawful, at the rate per annum specified in the Notes. SECTION 4.02. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, the City of New York an office or agency where Notes may be surrendered for registration of transfer or exchange or for presentation for 42 40 payment and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the Corporate Trust Office of the Trustee, located in the Borough of Manhattan, the City of New York, as such office of the Company in accordance with Section 2.04. SECTION 4.03. Limitation on Indebtedness. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness existing on the Closing Date); provided that the Company may Incur Indebtedness if, after giving effect to the Incurrence of such Indebtedness and the receipt and application of the proceeds therefrom, the Consolidated Leverage Ratio would be greater than zero and less than (x) 7:1, for Indebtedness Incurred on or prior to December 31, 2000 or (y) 6:1, for Indebtedness Incurred thereafter. Notwithstanding the foregoing, the Company and any Restricted Subsidiary (except as specified below) may Incur each and all of the following: (i) Indebtedness of the Company outstanding at any time in an aggregate principal amount not to exceed the greater of (x) $150 million and (y) an amount equal to 4.5 times the Company's Consolidated EBITDA for the then most recent four fiscal quarters for which financial statements of the Company have been filed with the Commission or provided to the Trustee pursuant to Section 4.18, in each case less any amount of such Indebtedness permanently repaid as provided under Section 4.11; (ii) Indebtedness owed (A) to the Company evidenced by a promissory note or (B) to any Restricted Subsidiary; provided that any event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) 43 41 shall be deemed, in each case, to constitute an Incurrence of such Indebtedness not permitted by this clause (ii); (iii) Indebtedness issued in exchange for, or the net proceeds of which are used to refinance or refund, then outstanding Indebtedness (other than Indebtedness Incurred under clause (i), (ii), (iv), (vii), (ix) or (xi) of this paragraph) and any refinancings thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, fees and expenses); provided that Indebtedness the proceeds of which are used to refinance or refund the Notes or Indebtedness that is pari passu with, or subordinated in right of payment to, the Notes shall only be permitted under this clause (iii) if (A) in case the Notes are refinanced in part or the Indebtedness to be refinanced is pari passu with the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced is subordinated in right of payment to the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the Notes at least to the extent that the Indebtedness to be refinanced is subordinated to the Notes and (C) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded; and provided further that in no event may Indebtedness of the Company be refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A) in respect of performance, surety or appeal bonds provided in the ordinary course of business, (B) under Currency Agreements and Interest Rate Agreements; provided that such agreements (a) are designed solely to protect the Company or its Restricted Subsidiaries against fluctuations in foreign currency exchange rates or interest rates and (b) do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), in a principal amount not to exceed the 44 42 gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (v) Indebtedness under letters of credit and bankers' acceptances issued in the ordinary course of business; (vi) Acquired Indebtedness; provided that, with respect to this clause (vi), after giving effect to the Incurrence thereof, the Company's Consolidated Leverage Ratio is not more than it was immediately prior to the Incurrence of such Acquired Indebtedness; (vii) Indebtedness, in an amount not to exceed $2 million at any one time outstanding, Incurred by the Company in connection with the purchase, redemption, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company or any Restricted Subsidiary, options on any such shares or related stock appreciation rights or similar securities held by officers or employees or former officers or employees (or their estates or beneficiaries under their estates), upon death, disability, retirement, termination of employment or pursuant to any agreement under which such shares of stock or related rights were issued; provided that (A) such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, is expressly made subordinate in right of payment to the Notes, (B) such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, provides that no payments of principal of such Indebtedness by way of sinking fund, mandatory redemption or otherwise (including defeasance) may be made by the Company at any time prior to the Stated Maturity of the Notes and (C) the scheduled maturity of all principal of such Indebtedness is beyond the Stated Maturity of the Notes; (viii) Indebtedness of the Company to the extent the net proceeds thereof are promptly (A) used to purchase Notes tendered in an Offer to Purchase made as a result of a Change in Control or (B) deposited to defease the Notes in accordance with Section 8.01; (ix) Guarantees of the Notes and Guarantees of Indebtedness of the Company by any Restricted Subsidiary provided the Guarantee of such Indebtedness is permitted by and made in accordance with Section 4.09; (x) Indebtedness Incurred to finance the cost (including the cost of design, development, acquisition, construction, installation, improvement, transportation or integration) of equipment, inventory or network assets (including under any Capitalized Lease and the cost of the Capital Stock of a Person that becomes a Restricted Subsidiary to the extent of the fair market value of the equipment, 45 43 inventory or network assets of such Person at the time it becomes a Restricted Subsidiary) to be acquired by the Company or a Restricted Subsidiary after the Closing Date; (xi) Indebtedness of the Company not to exceed, at any time outstanding, two times the sum of (A) the Net Cash Proceeds received by the Company after the Closing Date from the issuance and sale of its Capital Stock (other than Redeemable Stock) to a Person that is not a Subsidiary of the Company, to the extent such Net Cash Proceeds have not been used pursuant to clause (C)(2) of the first paragraph or clause (iii), (iv) or (vi) of the second paragraph of Section 4.06 to make a Restricted Payment and (B) 80% of the fair market value of property (other than cash and cash equivalents) received by the Company after the Closing Date from the sale of its Capital Stock (other than Redeemable Stock) to a Person that is not a Subsidiary of the Company, to the extent such sale of Capital Stock has not been used pursuant to clause (iii), (iv) or (vii) of the second paragraph of Section 4.06 to make a Restricted Payment; provided that such Indebtedness does not mature prior to the Stated Maturity of the Notes and has an Average Life longer than the Notes; and (xii) Guarantees of Indebtedness, in an aggregate principal amount not to exceed $10 million, of any Person the primary business of which is located outside the United States and is related, ancillary or complementary to the business of the Company and its Restricted Subsidiaries. (b) Notwithstanding any other provision of this Section 4.03, the maximum amount of Indebtedness that the Company or a Restricted Subsidiary may Incur pursuant to this Section 4.03 shall not be deemed to be exceeded, with respect to any outstanding Indebtedness due solely to the result of fluctuations in the exchange rates of currencies. (c) For purposes of determining any particular amount of Indebtedness under this Section 4.03, (1) Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included and (2) any Liens granted pursuant to the equal and ratable provisions referred to in Section 4.05 shall not be treated as Indebtedness. For purposes of determining compliance with this Section 4.03, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, the Company, in its sole discretion, shall classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of such clauses. SECTION 4.04. Limitation on Senior Subordinated Indebtedness. The Company shall not Incur any Indebtedness that is subordinate in right of payment to any Senior Indebtedness unless such Indebtedness is pari passu with, or subordinated in right of payment to, the Notes; provided that the foregoing limitation shall not apply to distinctions 46 44 between categories of Senior Indebtedness of the Company that exist by reason of any Liens or Guarantees arising or created in respect of some but not all such Senior Indebtedness. SECTION 4.05. Limitation on Liens. The Company shall not Incur any Indebtedness secured by a Lien ("Secured Indebtedness") which is not Senior Indebtedness unless contemporaneously therewith effective provision is made to secure the Notes equally and ratably with (or, if the Secured Indebtedness is subordinated in right of payment to the Notes, prior to) such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. SECTION 4.06. Limitation on Restricted Payments. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make any distribution on or with respect to its Capital Stock (other than (x) dividends or distributions payable solely in shares of its Capital Stock (other than Redeemable Stock) or in options, warrants or other rights to acquire shares of such Capital Stock and (y) pro rata dividends or distributions on Common Stock of Restricted Subsidiaries held by minority stockholders) held by Persons other than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of (A) the Company or an Unrestricted Subsidiary (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Person, or (B) a Restricted Subsidiary (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Affiliate of the Company (other than a Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate of such holder) of 5% or more of the Capital Stock of the Company, (iii) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Notes, or (iv) make any Investment, other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (i) through (iv) being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing, (B) the Company could not Incur at least $1.00 of Indebtedness under the first paragraph of Section 4.03(a) or (C) the aggregate amount expended for all Restricted Payments (the amount, if other than in cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) made after the Closing Date shall exceed the sum of (1) 50% of the aggregate amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100% of the amount of such loss) (determined by excluding income resulting from transfers of assets by the Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative basis during the period (taken as one accounting period) beginning on the first day of the fiscal quarter immediately following the Closing Date and ending on the last day of the last fiscal quarter preceding the Transaction Date for which reports have been filed with the Commission or provided to the Trustee pursuant to Section 4.18 plus (2) the aggregate Net Cash Proceeds 47 45 received by the Company after the Closing Date from the issuance and sale permitted by this Indenture of its Capital Stock (other than Redeemable Stock) to a Person who is not a Subsidiary of the Company, including an issuance or sale permitted by this Indenture of Indebtedness of the Company for cash subsequent to the Closing Date, upon the conversion of such Indebtedness into Capital Stock (other than Redeemable Stock) of the Company, or from the issuance to a Person who is not a Subsidiary of the Company of any options, warrants or other rights to acquire Capital Stock of the Company (in each case, exclusive of any Redeemable Stock or any options, warrants or other rights that are redeemable at the option of the holder, or are required to be redeemed, prior to the Stated Maturity of the Notes), in each case except to the extent such Net Cash Proceeds are used to Incur Indebtedness pursuant to clause (xi) of the second paragraph of Section 4.03 plus (3) an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) in any Person resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such Investment (except, in each case, to the extent any such payment or proceeds are included in the calculation of Adjusted Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"), not to exceed, in each case, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary. The foregoing provision shall not be violated by reason of: (i) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of declaration, such payment would comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes including premium, if any, and accrued and unpaid interest, with the proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of the second paragraph of Section 4.03(a); (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company or an Unrestricted Subsidiary (or options, warrants or other rights to acquire said Capital Stock) in exchange for, or out of the proceeds of a substantially concurrent offering of, shares of Capital Stock (other than Redeemable Stock) of the Company (or options, warrants or other rights to acquire such Capital Stock); (iv) the making of any principal payment or the repurchase, redemption, retirement, defeasance or other acquisition for value of Indebtedness of the Company which is subordinated in right of payment to the Notes in exchange for, or out of the 48 46 proceeds of, a substantially concurrent offering of, shares of the Capital Stock (other than Redeemable Stock) of the Company (or options, warrants or other rights to acquire such Capital Stock); (v) payments or distributions, to dissenting stockholders pursuant to applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with the provisions of this Indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of the Company; (vi) Investments in any Person the primary business of which is related, ancillary or complementary to the business of the Company and its Restricted Subsidiaries on the date of such Investments; provided that the aggregate amount of Investments made pursuant to this clause (vi) does not exceed the sum of (x) $15 million plus (y) the amount of Net Cash Proceeds received by the Company after the Closing Date from the sale of its Capital Stock (other than Redeemable Stock) to a Person who is not a Subsidiary of the Company, except to the extent such Net Cash Proceeds are used to Incur Indebtedness pursuant to clause (xi) of Section 4.03 or to make Restricted Payments pursuant to clause (C)(2) of the first paragraph, or clauses (iii) or (iv) of this paragraph, of this Section 4.06, plus (z) the net reduction in Investments made pursuant to this clause (vi) resulting from distributions on or repayments of such Investments or from the Net Cash Proceeds from the sale of any such Investment (except in each case to the extent any such payment or proceeds is included in the calculation of Adjusted Consolidated Net Income) or from such Person becoming a Restricted Subsidiary (valued in each case as provided in the definition of "Investments"), provided that the net reduction in any Investment shall not exceed the amount of such Investment; (vii) Investments acquired in exchange for Capital Stock (other than Redeemable Stock) of the Company; (viii) the declaration or payment of dividends on the Common Stock of the Company following a Public Equity Offering of such Common Stock, of up to 6% per annum of the Net Cash Proceeds received by the Company in such Public Equity Offering; (ix) repurchases of Warrants pursuant to a Repurchase Offer (as defined in the Warrant Agreement); (x) any purchase of any fractional share of Common Stock of the Company in connection with an exercise of the Warrants; 49 47 (xi) the purchase, redemption, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company or any Restricted Subsidiary, options on any such shares or related stock appreciation rights or similar securities held by officers or employees or former officers or employees (or their estates or beneficiaries under their estates), upon death, disability, retirement, termination of employment or pursuant to any agreement under which such shares of stock or related rights were issued; provided that the aggregate cash consideration paid for such purchase, redemption, acquisition, cancellation or other retirement of such shares of Capital Stock or related rights after the Closing Date does not exceed an aggregate amount of $5 million; (xii) the purchase, redemption, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company or any Restricted Subsidiary to the extent necessary, in the judgment of the Board of Directors, to prevent the loss or secure the renewal or reinstatement of any license or franchise held by the Company or any of its Restricted Subsidiaries from any governmental agency; (xiii) Investments in any Person the primary business of which is located outside the United States and is related, ancillary or complementary to the business of the Company and its Restricted Subsidiaries on the date of such Investments, provided that the aggregate amount of Investments pursuant to this clause (xiii) does not exceed (x) $10 million plus (y) the net reduction in Investments made pursuant to this clause (xiii) resulting from distributions on or repayments of such Investments or from the Net Cash Proceeds from the sale of any such Investment (except in each case to the extent any such payment or proceeds is included in the calculation of Adjusted Consolidated Net Income) or from such Person becoming a Restricted Subsidiary (valued in each case as provided in the definition of "Investments"), provided that the net reduction in any Investment shall not exceed the amount of such Investment; or (xiv) Investments in the form of Guarantees Incurred under Section 4.03(a)(xii); provided that, except in the case of clauses (i) and (iii), no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. Each Restricted Payment permitted pursuant to this Section 4.06 (other than the Restricted Payment referred to in clause (ii), an exchange of Capital Stock for Capital Stock or Indebtedness referred to in clause (iii) or (iv) and an Investment referred to in clause (vi) or (vii)), and the Net Cash Proceeds from any issuance of Capital Stock referred to in clauses (iii) and (iv), shall be included in calculating whether the conditions of clause (C) of the first paragraph of this Section 4.06 have been met with respect to any 50 48 subsequent Restricted Payments. In the event the proceeds of an issuance of Capital Stock of the Company are used for the redemption, repurchase or other acquisition of the Notes, or Indebtedness that is pari passu with the Notes, then the Net Cash Proceeds of such issuance shall be included in clause (C) of the first paragraph of this Section 4.06 only to the extent such proceeds are not used for such redemption, repurchase or other acquisition of Indebtedness. SECTION 4.07. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make loans or advances to the Company or any other Restricted Subsidiary or (iv) transfer any of its property or assets to the Company or any other Restricted Subsidiary. The foregoing provisions shall not restrict any encumbrances or restrictions: (i) existing on the Closing Date in the Credit Agreement, the Vendor Financing Arrangement, the 15% Indenture, this Indenture or any other agreements in effect on the Closing Date, and any extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (ii) existing under or by reason of applicable law; (iii) existing with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired; (iv) in the case of clause (iv) of the first paragraph of this Section 4.07, (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, 51 49 individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; (v) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary; or (vi) contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was issued if (A) the encumbrance or restriction applies only in the event of a payment default or a default with respect to a financial covenant contained in such Indebtedness or agreement, (B) the encumbrance or restriction is not materially more disadvantageous to the Holders of the Notes than is customary in comparable financings (as determined by the Company) and (C) the Company determines that any such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Notes. Nothing contained in this Section 4.07 shall prevent the Company or any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in Section 4.05 or (2) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. SECTION 4.08. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries. The Company will not sell, and will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of Capital Stock of a Restricted Subsidiary (including options, warrants or other rights to purchase shares of such Capital Stock) except (i) to the Company or a Wholly Owned Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales to foreign nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent required by applicable law; (iii) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect to such issuance or sale would have been permitted to be made under Section 4.06 if made on the date of such issuance or sale; or (iv) issuances and sales of Common Stock, if the Net Cash Proceeds from such issuance or sale are applied, to the extent required to be applied, pursuant to Section 4.11. SECTION 4.09. Limitation on Issuances of Guarantees by Restricted Subsidiaries. The Company will not permit any Restricted Subsidiary, directly or indirectly, to Guarantee any Indebtedness of the Company which is pari passu with or subordinate in right of payment to the Notes ("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture 52 50 providing for a Guarantee (a "Subsidiary Guarantee") of payment of the Notes by such Restricted Subsidiary and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Subsidiary Guarantee; provided that this paragraph shall not be applicable to any Guarantee of any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the Notes, then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is subordinated to the Notes. Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted Subsidiary may provide by its terms that it shall be automatically and unconditionally released and discharged upon (i) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's and each Restricted Subsidiary's Capital Stock in, or all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the Indenture) or (ii) the release or discharge of the Guarantee which resulted in the creation of such Subsidiary Guarantee, except a discharge or release by or as a result of payment under such Guarantee. SECTION 4.10. Limitation on Transactions with Shareholders and Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of 5% or more of any class of Capital Stock of the Company or with any Affiliate of the Company or any Restricted Subsidiary, except upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than could be obtained, at the time of such transaction or, if such transaction is pursuant to a written agreement, at the time of the execution of the agreement providing therefor, in a comparable arm's-length transaction with a Person that is not such a holder or an Affiliate. The foregoing limitation does not limit, and shall not apply to: (i) transactions (A) approved by a majority of the disinterested members of the Board of Directors or (B) for which the Company or a Restricted Subsidiary delivers to the Trustee a written opinion of a nationally recognized investment banking firm stating that the transaction is fair to the Company or such Restricted Subsidiary from a financial point of view; 53 51 (ii) any transaction solely between the Company and any of its Wholly Owned Restricted Subsidiaries or solely between Wholly Owned Restricted Subsidiaries; (iii) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company; (iv) any payments or other transactions pursuant to any tax-sharing agreement between the Company and any other Person with which the Company files a consolidated tax return or with which the Company is part of a consolidated group for tax purposes; (v) the payment of amounts to Morgan Stanley & Co. Incorporated or its Affiliates pursuant to underwriting or placement agreements; (vi) any loans or advances to officers or employees of the Company or any Restricted Subsidiary in the ordinary course of business; (vii) any Restricted Payments not prohibited by Section 4.06 (including any Permitted Investment); (viii) the sale, lease, transfer or other disposition by the Company or any Restricted Subsidiary of Capital Stock or assets of any Unrestricted Subsidiary having a fair market value of less than $5 million as determined by the Board of Directors; and (ix) any transactions solely between shareholders of the Company (including amendments to any shareholder agreement to which the Company is a party); provided that the Company is not affected in any material way by any such transaction. SECTION 4.11. Limitation on Asset Sales. The Company will not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale, unless (i) the consideration received by the Company or such Restricted Subsidiary is at least equal to the fair market value of the assets sold or disposed of and (ii) at least 75% of the consideration received consists of cash or Temporary Cash Investments or the assumption of Indebtedness of the Company or such Restricted Subsidiary provided that the Company and its Restricted Subsidiaries are irrevocably released from all liability with respect to such Indebtedness. In the event and to the extent that the Net Cash Proceeds received by the Company or any of its Restricted Subsidiaries from one or more Asset Sales occurring on or after the Closing Date in any period of 12 consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the date closest to the commencement of such 12-month period for 54 52 which a consolidated balance sheet of the Company and its Subsidiaries has been filed with the Commission pursuant to Section 4.18), then the Company shall or shall cause the relevant Restricted Subsidiary to (x) within 12 months after the date Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply an amount equal to such excess Net Cash Proceeds to permanently repay Senior Indebtedness of the Company, or any Restricted Subsidiary providing a Subsidiary Guarantee pursuant to Section 4.09 or Indebtedness of any other Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries or (B) invest an equal amount, or the amount not so applied pursuant to clause (A) (or enter into a definitive agreement committing to so invest within 12 months after the date of such agreement), in property or assets (other than current assets) of a nature or type or that are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Restricted Subsidiaries existing on the date of such investment (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (y) apply (no later than the end of the 12-month period referred to in clause (x)) such excess Net Cash Proceeds (to the extent not applied pursuant to clause (x)) as provided in the following paragraphs of this Section 4.11. The amount of such excess Net Cash Proceeds required to be applied (or to be committed to be applied) during such 12- month period as set forth in clause (x) of the preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds". If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this Section 4.11 totals at least $10 million, the Company must commence, not later than the fifteenth Business Day of such month, and consummate an Offer to Purchase from the Holders on a pro rata basis an aggregate Accreted Value of Notes equal to the Excess Proceeds on such date, at a purchase price equal to 100% of the Accreted Value of the Notes on the relevant Payment Date, plus, in each case, accrued interest (if any) to the Payment Date. SECTION 4.12. Repurchase of Notes upon a Change of Control. The Company shall commence, within 30 days of the occurrence of a Change of Control, and consummate an Offer to Purchase for all Notes then outstanding, at a purchase price equal to 101% of the Accreted Value thereof on the relevant Payment Date, plus accrued interest (if any) to the Payment Date. SECTION 4.13. Existence. Subject to Articles Four and Five of this Indenture, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence and the existence of each of its Restricted Subsidiaries in accordance with the respective organizational documents of the Company and each such Subsidiary and the rights (whether pursuant to charter, partnership certificate, agreement, statute or otherwise), material licenses and franchises of the Company and each such 55 53 Subsidiary; provided that the Company shall not be required to preserve any such right, license or franchise, or the existence of any Restricted Subsidiary, if the maintenance or preservation thereof is no longer desirable in the conduct of the business of the Company and Restricted its Subsidiaries taken as a whole. SECTION 4.14. Payment of Taxes and Other Claims. The Company will pay or discharge and shall cause each of its Subsidiaries to pay or discharge, or cause to be paid or discharged, before the same shall become delinquent (i) all material taxes, assessments and governmental charges levied or imposed upon (a) the Company or any such Subsidiary, (b) the income or profits of any such Subsidiary which is a corporation or (c) the property of the Company or any such Subsidiary and (ii) all material lawful claims for labor, materials and supplies that, if unpaid, might by law become a lien upon the property of the Company or any such Subsidiary; provided that the Company shall not be required to pay or discharge, or cause to be paid or discharged, any such tax, assessment, charge or claim the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate reserves have been established. SECTION 4.15. Maintenance of Properties and Insurance. The Company will cause all properties used or useful in the conduct of its business or the business of any of its Restricted Subsidiaries, to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided that nothing in this Section 4.15 shall prevent the Company or any such Subsidiary from discontinuing the use, operation or maintenance of any of such properties or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Company, desirable in the conduct of the business of the Company or such Subsidiary. The Company will provide or cause to be provided, for itself and its Restricted Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds customarily insured against by corporations similarly situated and owning like properties, including, but not limited to, products liability insurance and public liability insurance, with reputable insurers or with the government of the United States of America, or an agency or instrumentality thereof, in such amounts, with such deductibles and by such methods as shall be customary for corporations similarly situated in the industry in which the Company or such Restricted Subsidiary, as the case may be, is then conducting business. SECTION 4.16. Notice of Defaults. In the event that the Company becomes aware of any Default or Event of Default the Company, promptly after it becomes aware thereof, will give written notice thereof to the Trustee. 56 54 SECTION 4.17. Compliance Certificates. (a) The Company shall deliver to the Trustee, within 45 days after the end of each fiscal quarter (90 days after the end of the last fiscal quarter of each year), an Officers' Certificate stating whether or not the signers know of any Default or Event of Default that occurred during such fiscal quarter. In the case of the Officers' Certificate delivered within 90 days of the end of the Company's fiscal year, such certificate shall contain a certification from the principal executive officer, principal financial officer or principal accounting officer that a review has been conducted of the activities of the Company and its Restricted Subsidiaries and the Company's and its Restricted Subsidiaries' performance under this Indenture and that the Company has complied with all conditions and covenants under this Indenture. For purposes of this Section 4.17, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. If they do know of such a Default or Event of Default, the certificate shall describe any such Default or Event of Default and its status. The first certificate to be delivered pursuant to this Section 4.17(a) shall be for the first fiscal quarter beginning after the execution of this Indenture. (b) The Company shall deliver to the Trustee, within 90 days after the end of the Company's fiscal year, a certificate signed by the Company's independent certified public accountants stating (i) that their audit examination has included a review of the terms of this Indenture and the Notes as they relate to accounting matters, (ii) that they have read the most recent Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of this Section 4.17 and (iii) whether, in connection with their audit examination, anything came to their attention that caused them to believe that the Company was not in compliance with any of the terms, covenants, provisions or conditions of Article Four and Section 5.01 of this Indenture as they pertain to accounting matters and, if any Default or Event of Default has come to their attention, specifying the nature and period of existence thereof; provided that such independent certified public accountants shall not be liable in respect of such statement by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of an audit examination conducted in accordance with generally accepted auditing standards in effect at the date of such examination. (c) Within 90 days of the end of each of the Company's fiscal years, the Company shall deliver to the Trustee a list of all Significant Subsidiaries. The Trustee shall have no duty with respect to any such list except to keep it on file and available for inspection by the Holders. SECTION 4.18. Commission Reports and Reports to Holders. Whether or not the Company is then required to file reports with the Commission, the Company shall file with the Commission all such reports and other information as it would be required to file with the Commission by Sections 13(a) or 15(d) under the Exchange Act if it were subject thereto. The Company shall supply the Trustee and each Holder, or shall supply to 57 55 the Trustee for forwarding to each such Holder, without cost to such Holder, copies of such reports or other information. SECTION 4.19. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. When Company May Merge, Etc. The Company shall not consolidate with, merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into the Company unless: (i) the Company shall be the continuing Person, or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or that acquired or leased such property and assets of the Company shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, all of the obligations of the Company on all of the Notes and under the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction on a pro forma basis, (A) the Company or any Person becoming the successor obligor of the Notes, as the case may be, shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction, or (B) the Company or any Person becoming the successor obligor of the Notes, as the case may be, shall have a Consolidated Leverage Ratio no more than the greater of (I) 58 56 7:1, on or prior to December 31, 2000, or 6:1 thereafter and (II) the Consolidated Leverage Ratio of the Company immediately prior to such transaction; provided that this clause (iii) shall not apply to a consolidation or merger with or into a Wholly Owned Restricted Subsidiary with a positive net worth; provided that, in connection with any such merger or consolidation, no consideration (other than Capital Stock (other than Redeemable Stock) in the surviving Person or the Company) shall be issued or distributed to the stockholders of the Company; and (iv) the Company delivers to the Trustee an Officers' Certificate (attaching the arithmetic computations to demonstrate compliance with clause (iii)) and Opinion of Counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with; provided, however, that clause (iii) above does not apply if, in the good faith determination of the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of the Company; and that any such transaction shall not have as one of its purposes the evasion of the foregoing limitations. SECTION 5.02. Successor Substituted. Upon any consolidation or merger, or any sale, conveyance, transfer, lease or other disposition of all or substantially all of the property and assets of the Company in accordance with Section 5.01 of this Indenture, the successor Person formed by such consolidation or into which the Company is merged or to which such sale, conveyance, transfer, lease or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default. An "Event of Default" shall occur with respect to the Notes if: (a) the Company defaults in the payment of the principal of (or premium, if any, on) any Note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise, whether or not such payment is prohibited by Section Ten; 59 57 (b) the Company defaults in the payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days whether or not such payment is prohibited by Section Ten; (c) the Company defaults in the performance of or breaches the provisions of this Indenture applicable to mergers, consolidations and transfers of all or substantially all of the assets of the Company or fails to make or consummate an Offer to Purchase in accordance with Section 4.11 or Section 4.12; (d) the Company defaults in the performance of or breaches any other covenant or agreement of the Company in this Indenture or under the Notes (other than a default specified in clause (a), (b) or (c) above) and such default or breach continues for a period of 30 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; (e) there occurs with respect to any issue or issues of Indebtedness of the Company or any Significant Subsidiary having an outstanding principal amount of $10 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (I) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days of such acceleration and/or (II) the failure to make a principal payment at the final (but not any interim) fixed maturity and such defaulted payment shall not have been made, waived or extended within 30 days of such payment default; (f) any final judgment or order (not covered by insurance) for the payment of money in excess of $10 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Significant Subsidiary and shall not be paid or discharged, and there shall be any period of 30 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $10 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary 60 58 or for all or substantially all of the property and assets of the Company or any Significant Subsidiary or (C) the winding up or liquidation of the affairs of the Company or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (h) the Company or any Significant Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all of the property and assets of the Company or any Significant Subsidiary or (C) effects any general assignment for the benefit of creditors. SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in clause (g) or (h) of Section 6.01 that occurs with respect to the Company) occurs and is continuing under this Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding, by written notice to the Company (and to the Trustee if such notice is given by the Holders), may, and the Trustee at the request of such Holders shall, declare the Accreted Value of, premium, if any, and accrued interest on the Notes to be immediately due and payable. Upon a declaration of acceleration (the "Acceleration Notice"), such Accreted Value of, premium, if any, and accrued interest shall be immediately due and payable; provided, however, that if there are any amounts outstanding under the Credit Agreement, such declaration shall not become effective until the earlier of (i) an acceleration of the Indebtedness under the Credit Agreement and (ii) five Business Days after receipt by the Company and the Bank Agent of such Acceleration Notice. In the event of a declaration of acceleration because an Event of Default set forth in clause (e) of Section 6.01 has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (e) shall be remedied or cured by the Company or the relevant Significant Subsidiary or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. If an Event of Default specified in clause (g) or (h) of Section 6.01 occurs with respect to the Company, the Accreted Value of, premium, if any, and accrued interest on the Notes then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after such a declaration of acceleration, but before a judgment or decree for the payment of the money due has been obtained by the Trustee, the Holders of at least a majority in principal amount of the outstanding Notes by written notice to the Company and to the Trustee may waive all past Defaults and rescind and annul such declaration of acceleration and its consequences if (a) the Company has paid or deposited 61 59 with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes, (iii) the principal of and premium, if any, on any Notes that have become due otherwise than by such declaration or occurrence of acceleration and interest thereon at the rate prescribed therefor by such Notes, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate prescribed therefor by such Notes, (b) all existing Events of Default, other than the nonpayment of the Accreted Value of, premium, if any, and accrued interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived and (c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, premium, if any, or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07 and 9.02, the Holders of at least a majority in principal amount of the outstanding Notes, by notice to the Trustee, may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of, premium, if any, or interest on any Note as specified in clause (a) or (b) of Section 6.01 or in respect of a covenant or provision of this Indenture which cannot be modified or amended without the consent of the holder of each outstanding Note affected. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. SECTION 6.05. Control by Majority. The Holders of at least a majority in aggregate principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided, that the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders not joining in the giving of such direction; and provided further, that the Trustee may take any other action it deems proper that is not inconsistent with any directions received from Holders of Notes pursuant to this Section 6.05. 62 60 SECTION 6.06. Limitation on Suits. A Holder may not institute any proceeding, judicial or otherwise, with respect to this Indenture or the Notes, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (i) such Holder has previously given to the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in aggregate principal amount of outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (iii) such Holder or Holders have offered to the Trustee indemnity reasonably satisfactory to the Trustee against any costs, liabilities or expenses to be incurred in compliance with such request; (iv) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (v) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes have not given the Trustee a direction that is inconsistent with such written request. For purposes of Section 6.05 of this Indenture and this Section 6.06, the Trustee shall comply with TIA Section 316(a) in making any determination of whether the Holders of the required aggregate principal amount of outstanding Notes have concurred in any request or direction of the Trustee to pursue any remedy available to the Trustee or the Holders with respect to this Indenture or the Notes or otherwise under the law. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of the Accreted Value of, premium, if any, or interest on such Holder's Note on or after the respective due dates expressed on such Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default in payment of principal, premium or interest specified in clause (a), (b) or (c) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee 63 61 of an express trust against the Company or any other obligor of the Notes for the whole amount of principal, premium, if any, and accrued interest remaining unpaid, together with interest on overdue principal, premium, if any, and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate specified in the Notes, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor of the Notes), its creditors or its property and shall be entitled and empowered to collect and receive any monies, securities or other property payable or deliverable upon conversion or exchange of the Notes or upon any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for all amounts due under Section 7.07; Second: to Holders for amounts then due and unpaid for principal of, premium, if any, and interest on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal, premium, if any, and interest, respectively; and Third: to the Company or any other obligors of the Notes, as their interests may appear, or as a court of competent jurisdiction may direct. 64 62 The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 of this Indenture, or a suit by Holders of more than 10% in principal amount of the outstanding Notes. SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then, and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Company, Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Notes in Section 2.09, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Six or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. 65 63 ARTICLE SEVEN TRUSTEE SECTION 7.01. General. The duties and responsibilities of the Trustee shall be as provided by the TIA and as set forth herein. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article Seven. SECTION 7.02. Certain Rights of Trustee. Subject to TIA Sections 315(a) through (d): (i) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document; (ii) before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Section 11.04. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion; (iii) the Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care; (iv) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction; (v) the Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers or for any action it takes or omits to take in accordance with the direction of the Holders of a majority in principal amount at maturity of the Outstanding Notes relating to the time, method and place of conducting any proceeding for any remedy available to the 66 64 Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; provided that the Trustee's conduct does not constitute gross negligence or bad faith; (vi) whenever in the administration of this Indenture the Trustee shall deem it desirable that a making be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate; and (vii) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company personally or by agent or attorney. SECTION 7.03. Individual Rights of Trustee. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not the Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to TIA Sections 310(b) and 311. SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no representation as to the validity or adequacy of this Indenture or the Notes, (ii) shall not be accountable for the Company's use or application of the proceeds from the Notes and (iii) shall not be responsible for any statement in the Notes other than its certificate of authentication. SECTION 7.05. Notice of Default. If any Default or any Event of Default occurs and is continuing and if such Default or Event of Default is known to the Trustee, the Trustee shall mail to each Holder in the manner and to the extent provided in TIA Section 313(c) notice of the Default or Event of Default within 45 days after it occurs, unless such Default or Event of Default has been cured; provided, however, that, except in the case of a default in the payment of the principal of, premium, if any, or interest on any Note, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders. 67 65 SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each May 15, beginning with May 15, 1998, the Trustee shall mail to each Holder as provided in TIA Section 313(c) a brief report dated as of such May 15, if required by TIA Section 313(a). SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee such compensation as shall be agreed upon in writing for its services. The compensation of the Trustee shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses and advances incurred or made by the Trustee. Such expenses shall include the reasonable compensation and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee for, and hold it harmless against, any loss or liability or expense incurred by it without negligence or bad faith on its part in connection with the acceptance or administration of this Indenture and its duties under this Indenture and the Notes, including the costs and expenses of defending itself against any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties under this Indenture and the Notes. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of, premium, if any, and interest on particular Notes. If the Trustee incurs expenses or renders services after the occurrence of an Event of Default specified in clause (g) or (h) of Section 6.01, the expenses and the compensation for the services will be intended to constitute expenses of administration under Title 11 of the United States Bankruptcy Code or any applicable federal or state law for the relief of debtors. SECTION 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. The Trustee may resign at any time by so notifying the Company in writing at least 30 days prior to the date of the proposed resignation. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee with the consent of the Company. The Company may at any time remove the Trustee, by Company Order given at least 30 days prior to the date of the proposed removal. 68 66 If the Trustee resigns or is removed, or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If the successor Trustee does not deliver its written acceptance required by the next succeeding paragraph of this Section 7.08 within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after the delivery of such written acceptance, subject to the lien provided in Section 7.07, (i) the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, (ii) the resignation or removal of the retiring Trustee shall become effective and (iii) the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If the Trustee is no longer eligible under Section 7.10, any Holder who satisfies the requirements of TIA Section 310(b) may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. The Company shall give notice of any resignation and any removal of the Trustee and each appointment of a successor Trustee to all Holders. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligation under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee with the same effect as if the successor Trustee had been named as the Trustee herein. SECTION 7.10. Eligibility. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have a combined capital and surplus of at least $25,000,000 as set forth in its most recent published annual report of condition. 69 67 SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article Eight of this Indenture. SECTION 7.12. Withholding Taxes. The Trustee, as agent for the Company, shall exclude and withhold from each payment of principal and interest and other amounts due hereunder or under the Notes any and all withholding taxes applicable thereto as required by law. The Trustee agrees to act as such withholding agent and, in connection therewith, whenever any present or future taxes or similar charges are required to be withheld with respect to any amounts payable in respect of the Notes, to withhold such amounts and timely pay the same to the appropriate authority in the name of and on behalf of the holders of the Notes, that it will file any necessary withholding tax returns or statements when due, and that, as promptly as possible after the payment thereof, it will deliver to each holder of a Note appropriate documentation showing the payment thereof, together with such additional documentary evidence as such holders may reasonably request from time to time. ARTICLE EIGHT DISCHARGE OF INDENTURE SECTION 8.01. Termination of Company's Obligations. Except as otherwise provided in this Section 8.01, the Company may terminate its obligations under the Notes and this Indenture if: (i) all Notes previously authenticated and delivered (other than destroyed, lost or stolen Notes that have been replaced or Notes that are paid pursuant to Section 4.01 or Notes for whose payment money or securities have theretofore been held in trust and thereafter repaid to the Company, as provided in Section 8.05) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder; or (ii) (A) the Notes mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption, (B) the Company irrevocably deposits in trust with the Trustee during such one-year period, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds solely for the benefit of the Holders for that purpose, money or U.S. Government Obligations sufficient (in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee), without consideration of any reinvestment of any interest thereon, to pay principal, 70 68 premium, if, any, and interest on the Notes to maturity or redemption, as the case may be, and to pay all other sums payable by it hereunder, (C) no Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit, (D) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound and (E) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. With respect to the foregoing clause (i), the Company's obligations under Section 7.07 shall survive. With respect to the foregoing clause (ii), the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive. After any such irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Notes and this Indenture except for those surviving obligations specified above. SECTION 8.02. Defeasance and Discharge of Indenture. The Company will be deemed to have paid and will be discharged from any and all obligations in respect of the Notes on the 123rd day after the date of the deposit referred to in clause (A) of this Section 8.02, and the provisions of this Indenture will no longer be in effect with respect to the Notes, and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same, except as to (i) rights of registration of transfer and exchange, (ii) substitution of apparently mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of Holders to receive payments of principal thereof and interest thereon, (iv) the Company's obligations under Section 4.02, (v) the rights, obligations and immunities of the Trustee hereunder and (vi) the rights of the Holders as beneficiaries of this Indenture with respect to the property so deposited with the Trustee payable to all or any of them; provided that the following conditions shall have been satisfied: (A) with reference to this Section 8.02, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10 of this Indenture) and conveyed all right, title and interest for the benefit of the Holders, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee as trust funds in trust, specifically pledged to the Trustee for the benefit of the Holders as security for payment of the principal of, premium, if any, and interest, if any, on the Notes, and dedicated solely to, the benefit of the Holders, in and to (1) money in an amount, (2) U.S. Government Obligations that, through the payment of interest, premium, if any, and principal in respect thereof in accordance with their terms, will provide, not 71 69 later than one day before the due date of any payment referred to in this clause (A), money in an amount or (3) a combination thereof in an amount sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the principal of, premium, if any, and accrued interest on the outstanding Notes at the Stated Maturity of such principal or interest; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of such principal, premium, if any, and interest with respect to the Notes; (B) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound; (C) immediately after giving effect to such deposit on a pro forma basis, no Default or Event of Default shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after such date of deposit; (D) the Company shall have delivered to the Trustee (1) either (x) a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this Section 8.02 and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised or (y) an Opinion of Counsel to the same effect as the ruling described in clause (x) above accompanied by a ruling to that effect published by the Internal Revenue Service, unless there has been a change in the applicable federal income tax law since the Closing Date such that a ruling from the Internal Revenue Service is no longer required and (2) an Opinion of Counsel to the effect that (x) the creation of the defeasance trust does not violate the Investment Company Act of 1940 and (y) after the passage of 123 days following the deposit (except, with respect to any trust funds for the account of any Holder who may be deemed to be an "insider" for purposes of the United States Bankruptcy Code, after one year following the deposit), the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case commenced by or against the Company under either such statute, and either (I) the trust funds will no longer remain the property of the Company (and therefore will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally) or (II) if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, 72 70 (a) assuming such trust funds remained in the possession of the Trustee prior to such court ruling to the extent not paid to the Holders, the Trustee will hold, for the benefit of the Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise except for the effect of Section 552(b) of the United States Bankruptcy Code on interest on the trust funds accruing after the commencement of a case under such statute and (b) the Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used in such case or proceeding; (E) the Company is not prohibited from making payments in respect of the Notes by the provisions of Section Ten; (F) if the Notes are then listed on a national securities exchange, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that such deposit defeasance and discharge will not cause the Notes to be delisted; and (G) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.02 have been complied with. Notwithstanding the foregoing, prior to the end of the 123-day (or one year) period referred to in clause (D)(2)(y) of this Section 8.02, none of the Company's obligations under this Indenture shall be discharged. Subsequent to the end of such 123-day (or one year) period with respect to this Section 8.02, the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06 shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive. If and when a ruling from the Internal Revenue Service or an Opinion of Counsel referred to in clause (D)(1) of this Section 8.02 is able to be provided specifically without regard to, and not in reliance upon, the continuance of the Company's obligations under Section 4.01, then the Company's obligations under such Section 4.01 shall cease upon delivery to the Trustee of such ruling or Opinion of Counsel and compliance with the other conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.02. After any such irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Notes and this Indenture except for those surviving obligations in the immediately preceding paragraph. SECTION 8.03. Defeasance of Certain Obligations. The Company may omit to comply with any term, provision or condition set forth in clauses (iii) and (iv) of Section 5.01 and Sections 4.03 through 4.18, and clause (c) of Section 6.01 with respect to 73 71 clauses (iii) and (iv) of Section 5.01, and clause (d) of Section 6.01 with respect to Sections 4.03 through 4.18 and clauses (e) and (f) of Section 6.01 shall be deemed not to be Events of Default, in each case with respect to the outstanding Notes if: (i) with reference to this Section 8.03, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10) and conveyed all right, title and interest to the Trustee for the benefit of the Holders, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee as trust funds in trust, specifically pledged to the Trustee for the benefit of the Holders as security for payment of the principal of, premium, if any, and interest, if any, on the Notes, and dedicated solely to, the benefit of the Holders, in and to (A) money in an amount, (B) U.S. Government Obligations that, through the payment of interest and principal in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment referred to in this clause (i), money in an amount or (C) a combination thereof in an amount sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the principal of, premium, if any, and interest on the outstanding Notes on the Stated Maturity of such principal or interest; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of such principal, premium, if any, and interest with respect to the Notes; (ii) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound; (iii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (iv) the Company has delivered to the Trustee an Opinion of Counsel to the effect that (A) the creation of the defeasance trust does not violate the Investment Company Act of 1940, (B) the Holders have a valid first-priority security interest in the trust funds, (C) the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain obligations and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred and (D) after the passage of 123 days following the deposit (except, with respect to any trust funds for the account of any Holder who may be deemed to be an 74 72 "insider" for purposes of the United States Bankruptcy Code, after one year following the deposit), the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case commenced by or against the Company under either such statute, and either (1) the trust funds will no longer remain the property of the Company (and therefore will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally) or (2) if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, (x) assuming such trust funds remained in the possession of the Trustee prior to such court ruling to the extent not paid to the Holders, the Trustee will hold, for the benefit of the Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise (except for the effect of Section 552(b) of the United States Bankruptcy Code on interest on the trust funds accruing after the commencement of a case under such statute), (y) the Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used in such case or proceeding and (z) no property, rights in property or other interests granted to the Trustee or the Holders in exchange for, or with respect to, such trust funds will be subject to any prior rights of holders of other Indebtedness of the Company or any of its Subsidiaries; (v) the Company is not prohibited from making payments in respect of the Notes by the provisions of Section Ten; (vi) if the Notes are then listed on a national securities exchange, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that such deposit defeasance and discharge will not cause the Notes to be delisted; and (vii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.03 have been complied with. SECTION 8.04. Application of Trust Money. Subject to Section 8.06, the Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the case may be, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with the Notes and this Indenture to the payment of principal of, premium, if any, and interest on the Notes; but such money need not be segregated from other funds except to the extent required by law. 75 73 SECTION 8.05. Repayment to Company. Subject to Sections 7.07, 8.01, 8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the Company upon request set forth in an Officers' Certificate any excess money held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal, premium, if any, or interest that remains unclaimed for two years; provided that the Trustee or such Paying Agent before being required to make any payment may cause to be published at the expense of the Company once in a newspaper of general circulation in the City of New York or mail to each Holder entitled to such money at such Holder's address (as set forth in the Note Register) notice that such money remains unclaimed and that after a date specified therein (which shall be at least 30 days from the date of such publication or mailing) any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or 8.03, as the case may be, by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01, 8.02 or 8.03, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or 8.03, as the case may be; provided that, if the Company has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders. The Company, when authorized by a resolution of its Board of Directors, and the Trustee may amend or supplement this Indenture or the Notes without notice to or the consent of any Holder: (1) to cure any ambiguity, defect or inconsistency in the Indenture; provided that such amendments or supplements shall not adversely affect the interests of the Holders in any material respect; 76 74 (2) to comply with Article Five; (3) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the TIA; (4) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee; or (5) to make any change that, in the good faith opinion of the Board of Directors as evidenced by a Board Resolution, does not materially and adversely affect the rights of any Holder. SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and 6.07 and without prior notice to the Holders, the Company, when authorized by its Board of Directors (as evidenced by a Board Resolution), and the Trustee may amend this Indenture and the Notes with the written consent of the Holders of a majority in principal amount of the Notes then outstanding, and the Holders of a majority in principal amount of the Notes then outstanding by written notice to the Trustee may waive future compliance by the Company with any provision of this Indenture or the Notes. Notwithstanding the provisions of this Section 9.02, without the consent of each Holder affected, an amendment or waiver, including a waiver pursuant to Section 6.04, may not: (i) change the Stated Maturity of the principal of, or any installment of interest on, any Note, or reduce the Accreted Value or principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or adversely affect any right of repayment at the option of any Holder of any Note, or change any place of payment where, or the currency in which, any Note or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); (ii) reduce the percentage in principal amount of outstanding Notes the consent of whose Holders is required for any such supplemental indenture, for any waiver of compliance with certain provisions of this Indenture or certain Defaults and their consequences provided for in this Indenture; (iii) waive a Default in the payment of principal of, premium, if any, or interest on, any Note; 77 75 (iv) modify the provisions of Section Ten in a manner adverse to the Holders; or (v) modify any of the provisions of this Section 9.02, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Note affected thereby. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. The Company will mail supplemental indentures to Holders upon request. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. SECTION 9.03. Revocation and Effect of Consent. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the Note of the consenting Holder, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to its Note or portion of its Note. Such revocation shall be effective only if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver shall become effective on receipt by the Trustee of written consents from the Holders of the requisite percentage in principal amount of the outstanding Notes. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then, notwithstanding the last two sentences of the immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies) and only those persons shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder unless it is of the type described in any of clauses (i) through (v) of Section 9.02. In case of an amendment or waiver of the type described in clauses (i) through 78 76 (v) of Section 9.02, the amendment or waiver shall bind each Holder who has consented to it and every subsequent Holder of a Note that evidences the same indebtedness as the Note of the consenting Holder. SECTION 9.04. Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note about the changed terms and return it to the Holder and the Trustee may place an appropriate notation on any Note thereafter authenticated. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. Subject to the preceding sentence, the Trustee shall sign such amendment, supplement or waiver if the same does not adversely affect the rights of the Trustee. The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article Nine shall conform to the requirements of the TIA as then in effect. ARTICLE TEN SUBORDINATION OF NOTES SECTION 10.01. Notes Subordinated to Senior Indebtedness. The Company and the Trustee each covenants and agrees, and each Holder, by its acceptance of a Note, likewise covenants and agrees that all Notes shall be issued subject to the provisions of this Article Ten; and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that Senior Subordinated Obligations shall, to the extent and in the manner set forth in this Article Ten, be subordinated in right of payment to the prior payment in full, in cash or cash equivalents, of all amounts payable under Senior Indebtedness (including any interest accruing subsequent to an event specified in Sections 6.01(g) and 6.01(h) of this Indenture, whether or not such interest is an allowed claim enforceable against the debtor under the United States Bankruptcy Code). SECTION 10.02. No Payment on Notes in Certain Circumstances. (a) No direct or indirect payment by or on behalf of the Company of Senior Subordinated Obligations, whether pursuant to the terms of the Notes or upon acceleration or otherwise, 79 77 shall be made if, at the time of such payment, there exists a default in the payment of all or any portion of the obligations of any Senior Indebtedness of the Company (including, without limitation, a payment default arising from the acceleration of any Senior Indebtedness), and such default shall not have been cured or waived or the benefits of this sentence waived by or on behalf of the holders of such Senior Indebtedness. (b) During the continuance of any other event of default with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated, upon receipt by the Trustee of written notice from the trustee or other representative for the holders of such other Designated Senior Indebtedness (or the holders of at least a majority in principal amount of such Designated Senior Indebtedness then outstanding), no payment of Senior Subordinated Obligations may be made by or on behalf of the Company upon or in respect of the Notes for a period (a "Payment Blockage Period") commencing on the date of receipt of such notice and ending 179 days thereafter (unless, in each case, such Payment Blockage Period shall be terminated by written notice to the Trustee from such trustee of, or other representatives for, such holders or by repayment in full in cash or cash equivalents of such Designated Senior Indebtedness). Not more than one Payment Blockage Period may be commenced with respect to the Notes during any period of 360 consecutive days; provided that, subject to the limitation contained in the next sentence, the commencement of a Payment Blockage Period by the representatives for, or the holders of, Designated Senior Indebtedness other than under the Credit Agreement shall not bar the commencement of another Payment Blockage Period by the Bank Agent within such period of 360 consecutive days. Notwithstanding anything in this Indenture to the contrary, there must be 180 consecutive days in any 360-day period in which no Payment Blockage Period is in effect. For all purposes of this Section 10.02(b), no event of default that existed or was continuing (it being acknowledged that any subsequent action that would give rise to an event of default pursuant to any provision under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose) on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or shall be made, the basis for the commencement of a second Payment Blockage Period by the representative for, or the holders of, such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. (c) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by Section 10.02(a) or 10.02(b) of this Indenture, the Trustee shall promptly notify the holders of Senior Indebtedness of such prohibited payment and such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that, upon notice from the Trustee to the holders of Senior Indebtedness that such prohibited payment has been made, the holders of the Senior 80 78 Indebtedness (or their representative or representatives of a trustee) within 30 days of receipt of such notice from the Trustee notify the Trustee of the amounts then due and owing on the Senior Indebtedness, if any, and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness and any excess above such amounts due and owing on Senior Indebtedness shall be paid to the Company. SECTION 10.03. Payment over Proceeds upon Dissolution, Etc. (a) Upon any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, upon any dissolution or winding up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness (including any interest accruing subsequent to an event specified in Sections 6.01(g) and 6.01(h) of this Indenture, whether or not such interest is an allowed claim enforceable against the debtor under the United States Bankruptcy Code) shall first be paid in full, in cash or cash equivalents, before the Holders or the Trustee on their behalf shall be entitled to receive any payment by the Company on account of Senior Subordinated Obligations, or any payment to acquire any of the Notes for cash, property or securities, or any distribution with respect to the Notes of any cash, property or securities. Before any payment may be made by, or on behalf of, the Company on any Senior Subordinated Obligations upon any such dissolution, winding up, liquidation or reorganization, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee on their behalf would be entitled, but for the provisions of this Article Ten, shall be made by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person making such payment or distribution, or by the Holders or the Trustee if received by them or it, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their representatives or to any trustee or trustees under any indenture pursuant to which any such Senior Indebtedness may have been issued, as their respective interests appear, to the extent necessary to pay all such Senior Indebtedness in full, in cash or cash equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Indebtedness. (b) To the extent any payment of Senior Indebtedness (whether by or on behalf of the Company, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Indebtedness or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. To the extent the obligation to repay any Senior Indebtedness is declared to be fraudulent, invalid, or otherwise set aside under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then the obligations so declared 81 79 fraudulent, invalid or otherwise set aside (and all other amounts that would come due with respect thereto had such obligation not been so affected) shall be deemed to be reinstated and outstanding as Senior Indebtedness for all purposes hereof as if such declaration, invalidity or setting aside had not occurred. (c) In the event that, notwithstanding the foregoing provision prohibiting such payment or distribution, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, shall be received by the Trustee or any Holder at a time when such payment or distribution is prohibited by Section 10.03(a) of this Indenture and before all obligations in respect of Senior Indebtedness are paid in full, in cash or cash equivalents, such payment or distribution shall be received and held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness (pro rata to such holders on the basis of such respective amount of Senior Indebtedness held by such holders) or their representatives, or to the trustee or trustees under any indenture pursuant to which any such Senior Indebtedness may have been issued, as their respective interests appear, for application to the payment of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has been paid in full, in cash or cash equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Indebtedness. (d) For purposes of this Section 10.03, the words "cash, property or securities" shall not be deemed to include, so long as the effect of this clause is not to cause the Notes to be treated in any case or proceeding or similar event described in this Section 10.03 as part of the same class of claims as the Senior Indebtedness or any class of claims pari passu with, or senior to, the Senior Indebtedness for any payment or distribution, securities of the Company or any other corporation provided for by a plan of reorganization or readjustment that are subordinated, at least to the extent that the Notes are subordinated, to the payment of all Senior Indebtedness then outstanding; provided that (1) if a new corporation results from such reorganization or readjustment, such corporation assumes the Senior Indebtedness and (2) the rights of the holders of the Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the sale, conveyance, transfer, lease or other disposition of all or substantially all of its property and assets to another corporation upon the terms and conditions provided in Article Five of this Indenture (including in connection with the Acquisition) shall not be deemed a dissolution, winding up, liquidation or reorganization for the purposes of this Section 10.03 if such other corporation shall, as a part of such consolidation, merger, sale, conveyance, transfer, lease or other disposition, comply (to the extent required) with the conditions stated in Article Five of this Indenture. SECTION 10.04. Subrogation. (a) Upon the payment in full of all Senior Indebtedness in cash or cash equivalents, the Holders shall be subrogated to the rights of the 82 80 holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company made on such Senior Indebtedness until the principal of, premium, if any, and interest on the Notes shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders or the Trustee on their behalf would be entitled except for the provisions of this Article Ten, and no payment pursuant to the provisions of this Article Ten to the holders of Senior Indebtedness by Holders or the Trustee on their behalf shall, as between the Company, its creditors other than holders of Senior Indebtedness, and the Holders, be deemed to be a payment by the Company to or on account of the Senior Indebtedness. It is understood that the provisions of this Article Ten are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of the Senior Indebtedness, on the other hand. (b) If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Ten shall have been applied, pursuant to the provisions of this Article Ten, to the payment of all amounts payable under Senior Indebtedness, then, and in such case, the Holders shall be entitled to receive from the holders of such Senior Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount required to make payment in full, in cash or cash equivalents, of such Senior Indebtedness of such holders. SECTION 10.05. Obligations of Company Unconditional. (a) Nothing contained in this Article Ten or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of, premium, if any, and interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Holders or the Trustee on their behalf from exercising all remedies otherwise permitted by applicable law upon Default under this Indenture, subject to the rights, if any, under this Article Ten of the holders of the Senior Indebtedness. (b) Without limiting the generality of the foregoing, nothing contained in this Article Ten will restrict the right of the Trustee or the Holders to take any action to declare the Notes to be due and payable prior to their Stated Maturity pursuant to Section 6.01 of this Indenture or to pursue any rights or remedies hereunder; provided, however, that all Senior Indebtedness then due and payable or thereafter declared to be due and payable shall first be paid in full, in cash or cash equivalents, before the Holders or the Trustee are entitled to receive any direct or indirect payment from the Company of Senior Subordinated Obligations. SECTION 10.06. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company that would prohibit the making of any payment to or by the Trustee in respect of the Notes pursuant to the provisions of this 83 81 Article Ten. The Trustee shall not be charged with the knowledge of the existence of any default or event of default with respect to any Senior Indebtedness or of any other facts that would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing at its Corporate Trust Office to that effect signed by an Officer of the Company, or by a holder of Senior Indebtedness or trustee or agent thereof; and prior to the receipt of any such written notice, the Trustee shall, subject to Article Seven, be entitled to assume that no such facts exist; provided that, if the Trustee shall not have received the notice provided for in this Section 10.06 at least two Business Days prior to the date upon which, by the terms of this Indenture, any monies shall become payable for any purpose (including, without limitation, the payment of the principal of, premium, if any, or interest on any Note), then, notwithstanding anything herein to the contrary, the Trustee shall have full power and authority to receive any monies from the Company and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary that may be received by it on or after such prior date except for an acceleration of the Notes prior to such application. Nothing contained in this Section 10.06 shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by this Article Ten. The foregoing shall not apply if the Payment Agent is the Company. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Senior Indebtedness (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee or representative on behalf of any such holder. (b) In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article Ten, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Ten and, if such evidence is not furnished to the Trustee, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 10.07. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets or securities referred to in this Article Ten, the Trustee and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which bankruptcy, dissolution, winding up, liquidation or reorganization proceedings are pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person making such payment or distribution, delivered to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Ten. 84 82 SECTION 10.08. Trustee's Relation to Senior Indebtedness. (a) The Trustee and any Paying Agent shall be entitled to all the rights set forth in this Article Ten with respect to any Senior Indebtedness that may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Indebtedness and nothing in this Indenture shall deprive the Trustee or any Paying Agent of any of its rights as such holder. (b) With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Ten, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness (except as provided in Sections 10.02(c) and 10.03(c) of this Indenture) and shall not be liable to any such holders if the Trustee shall in good faith mistakenly pay over or distribute to Holders of Notes or to the Company or to any other person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article Ten or otherwise. SECTION 10.09. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness. No right of any present or future holders of any Senior Indebtedness to enforce subordination as provided in this Article Ten will at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. The provisions of this Article Ten are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness. SECTION 10.10. Holders Authorize Trustee to Effectuate Subordination of Notes. Each Holder by his acceptance of any Notes authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Ten, and appoints the Trustee his attorney-in-fact for such purposes, including, in the event of any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the property and assets of the Company, the filing of a claim for the unpaid balance of its Notes in the form required in those proceedings. If the Trustee does not file a proper claim or proof of indebtedness in the form required in such proceeding at least 30 days before the expiration of the time to file such claim or claims, each holder of Senior Indebtedness is hereby authorized to file an appropriate claim for and on behalf of the Holders. SECTION 10.11. Not to Prevent Events of Default. The failure to make a payment on account of principal of, premium, if any, or interest on the Notes by reason of 85 83 any provision of this Article Ten will not be construed as preventing the occurrence of an Event of Default. SECTION 10.12. Trustee's Compensation Not Prejudiced. Nothing in this Article Ten will apply to amounts due to the Trustee pursuant to other sections of this Indenture, including Section 7.07. SECTION 10.13. No Waiver of Subordination Provisions. Without in any way limiting the generality of Section 10.09, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders, without incurring responsibility to the Holders and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders to the holders of Senior Indebtedness, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding or secured; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (c) release any Person liable in any manner for the collection of Senior Indebtedness; and (d) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 10.14. Payments May Be Paid Prior to Dissolution. Nothing contained in this Article Ten or elsewhere in this Indenture shall prevent (i) the Company except under the conditions described in Section 10.02 or 10.03, from making payments of principal of, premium, if any, and interest on the Notes, or from depositing with the Trustee any money for such payments, or (ii) the application by the Trustee of any money deposited with it for the purpose of making such payments of principal of, premium, if any, and interest on the Notes to the Holders entitled thereto unless, at least two Business Days prior to the date upon which such payment becomes due and payable, the Trustee shall have received the written notice provided for in Section 10.02(b) of this Indenture (or there shall have been an acceleration of the Notes prior to such application) or in Section 10.06 of this Indenture. The Company shall give prompt written notice to the Trustee of any dissolution, winding up, liquidation or reorganization of the Company. SECTION 10.15. Trust Moneys Not Subordinated. Notwithstanding anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under Article Eight by the Trustee for the payment of principal of, premium, if any, and interest on the Notes shall not be subordinated to the prior payment of any Senior Indebtedness (provided that at the time deposited, such deposit did not violate the terms of any then outstanding Senior Indebtedness), and none of the Holders shall be obligated to pay over any such amount to any holder of Senior Indebtedness. 86 84 ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. Trust Indenture Act of 1939. Prior to the effectiveness of the Registration Statement, this Indenture shall incorporate and be governed by the provisions of the TIA that are required to be part of and to govern indentures qualified under the TIA. After the effectiveness of the Registration Statement, this Indenture shall be subject to the provisions of the TIA that are required to be a part of this Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 11.02. Notices. Any notice or communication shall be sufficiently given if in writing and delivered in person or mailed by first class mail addressed as follows: if to the Company: PageMart Wireless, Inc. 3333 Lee Parkway Suite 900 Dallas, Texas 75219 Attention: President if to the Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed to him at his address as it appears on the Note Register by first class mail and shall be sufficiently given to him if so mailed within the time prescribed. Copies of any such communication or notice to a Holder shall also be mailed to the Trustee and each Agent at the same time. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. Except for a notice to the Trustee, which is deemed given only when received, and except as otherwise provided in this Indenture, if a notice or communication is mailed in the manner provided in this Section 11.02, it is duly given, whether or not the addressee receives it. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the 87 85 event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 11.03. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (i) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (ii) an Opinion of Counsel stating that, in the opinion of such Counsel, all such conditions precedent have been complied with. SECTION 11.04. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (i) a statement that each person signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based; (iii) a statement that, in the opinion of each such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that, with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 11.05. Rules by Trustee, Paying Agent or Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. 88 86 SECTION 11.06. Payment Date Other Than a Business Day. If an Interest Payment Date, Redemption Date, Stated Maturity or date of maturity of any Note shall not be a Business Day, then payment of principal of, premium, if any, or interest on such Note, as the case may be, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity or date of maturity of such Note; provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Stated Maturity or date of maturity, as the case may be. SECTION 11.07. Governing Law. The laws of the State of New York shall govern this Indenture and the Notes. The Trustee, the Company and the Holders agree to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture or the Notes. SECTION 11.08. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.09. No Recourse Against Others. No recourse for the payment of the principal of, premium, if any, or interest on any of the Notes, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company contained in this Indenture, or in any of the Notes, or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator or against any past, present or future partner, shareholder, other equityholder, officer, director, employee or controlling person, as such, of the Company or of any successor Person, either directly or through the Company or any successor Person, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes. SECTION 11.10. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 11.11. Duplicate Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 11.12. Separability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 89 87 SECTION 11.13. Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof. SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. PAGEMART WIRELESS, INC. By: --------------------------------- Name: Title: UNITED STATES TRUST COMPANY OF NEW YORK By: --------------------------------- Name: Title: 90 EXHIBIT A [FACE OF NOTE] PAGEMART WIRELESS, INC. 11 1/4% Senior Subordinated Discount Note Due 2008 [CUSIP] [CINS] [ISIN] __________ No. $_________ The following information is supplied for purposes of Sections 1273 and 1275 of the Internal Revenue Code: Issue Date: January 28, 1998 Yield to maturity for period from Issue Date to February 1, 2008: 11 1/4%, compounded semi-annually on February 1 and August 1 commencing August 1, 1998 (computed without giving effect to the additional payments of interest in the event the issuer fails to commence the exchange offer or cause the registration statement to be declared effective, each as described on the reverse hereof) Original issue discount under Section 1273 of the Internal Revenue Code (for each $1,000 principal amount): $984.49 Issue Price (for each $1,000 principal amount): $578.01 PAGEMART WIRELESS, INC., a Delaware corporation (the "Company", which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to____________, or its registered assigns, the principal sum of _____________($_______) on February 1, 2008. Interest Payment Dates: February 1 and August 1, commencing August 1, 2003. Regular Record Dates: January 15 and July 15. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. 91 A-2 IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. Date: January 28, 1998 PAGEMART WIRELESS, INC. By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: (Form of Trustee's Certificate of Authentication) This is one of the 11 1/4% Senior Subordinated Discount Notes due 2008 described in the within-mentioned Indenture. _______________, as Trustee By: ---------------------------------- Authorized Signatory 92 A-3 [REVERSE SIDE OF NOTE] PAGEMART WIRELESS, INC. 11 1/4% Senior Subordinated Discount Note due 2008 1. Principal and Interest. The Company will pay the principal of this Note on February 1, 2008. The Company promises to pay interest on the principal amount of this Note on each Interest Payment Date, as set forth below, at the rate per annum shown above. Interest will be payable semiannually (to the holders of record of the Notes at the close of business on the January 15 or July 15 immediately preceding the Interest Payment Date) on each Interest Payment Date, commencing August 1, 2003; provided that no interest shall accrue on the principal amount of this Note prior to February 1, 2003 and no interest shall be paid on this Note prior to August 1, 2003, except as provided in the next paragraph. If an exchange offer registered under the Securities Act is not consummated, or a shelf registration statement under the Securities Act with respect to resales of the Notes is not declared effective by the Commission, on or before July 28, 1998 in accordance with the terms of the Registration Rights Agreement dated January 28, 1998 between the Company and Morgan Stanley & Co. Incorporated, interest on the Notes (in addition to the accrual of original discount during the period ending February 1, 2003 and in addition to the interest otherwise due on the Notes after such date) will accrue, at an annual rate of 0.5% of Accreted Value on the preceding Semiannual Accrual Date from July 28, 1998, payable in cash semiannually, in arrears, on each February 1 and August 1, commencing February 1, 1999. The Holder of this Note is entitled to the benefits of such Registration Rights Agreement. From and after February 1, 2003, interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from February 1, 2003; provided that, if there is no existing default in the payment of interest and this Note is authenticated between a Regular Record Date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest, to the extent lawful, at a rate per annum that is 2% in excess of the rate otherwise payable. 93 A-4 2. Method of Payment. The Company will pay interest (except defaulted interest) on the principal amount of the Notes as provided above on each February 1 and August 1 to the persons who are Holders (as reflected in the Note Register at the close of business on such January 15 and July 15 immediately preceding the Interest Payment Date), in each case, even if the Note is cancelled on registration of transfer or registration of exchange after such record date; provided that, with respect to the payment of principal, the Company will make payment to the Holder that surrenders this Note to a Paying Agent on or after February 1, 2008. The Company will pay principal, premium, if any, and as provided above, interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal, premium, if any, and interest by its check payable in such money. It may mail an interest check to a Holder's registered address (as reflected in the Note Register). If a payment date is a date other than a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. 3. Paying Agent and Registrar. Initially, the Trustee will act as authenticating agent, Paying Agent and Registrar. The Company may change any authenticating agent, Paying Agent or Registrar without notice. The Company, any Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar. 4. Indenture; Limitations. The Company issued the Notes under an Indenture dated as of January 28, 1998 (the "Indenture"), between the Company and United States Trust Company of New York, as trustee (the "Trustee"). Capitalized terms herein are used as defined in the Indenture unless otherwise indicated. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note and the terms of the Indenture, the terms of the Indenture shall control. The Notes are general unsecured obligations of the Company. The Company may, subject to Article Four of the Indenture, issue additional Notes under the Indenture. 94 A-5 5. Redemption. The Notes will be redeemable, at the Company's option, in whole or in part, at any time on or after February 1, 2003 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's last address as it appears in the Note Register, at the following Redemption Prices (expressed in percentages of their principal amount at maturity), plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date that is on or prior to the Redemption Date to receive interest due on an Interest Payment Date) if redeemed during the 12-month period commencing February 1 of the applicable years set forth below:
Redemption Year Price ---- ----------- 2003 105.625% 2004 103.750 2005 101.875 2006 and thereafter 100.000
In addition, prior to February 1, 2001, the Company may redeem up to 35% of the principal amount of the Notes with the proceeds of one or more sales of Capital Stock (other than Redeemable Stock) of the Company, at any time or from time to time in part, at a Redemption Price equal to 111.250% of their Accreted Value on the Redemption Date provided that at least $280.8 million aggregate principal amount at maturity of Notes remains outstanding after each of such redemption. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at his last address as it appears in the Note Register. Notes in original denominations larger than $1,000 may be redeemed in part. On and after the Redemption Date, interest ceases to accrue on Notes or portions of Notes called for redemption, unless the Company defaults in the payment of the Redemption Price. 6. Repurchase upon Change in Control. The Company shall commence, within 30 days of the occurrence of a Change of Control, and consummate an Offer to Purchase for all Notes then outstanding, at a purchase price equal to 101% of the Accreted Value thereof on the relevant Payment Date, plus accrued interest (if any) to the Payment Date. A notice of such Change of Control will be mailed within 30 days after any Change of Control occurs to each Holder at his last address as it appears in the Note Register. Notes in original denominations larger than $1,000 may be sold to the Company in part. On and after the Change of Control Payment Date, interest ceases to accrue on Notes or portions 95 A-6 of Notes surrendered for purchase by the Company, unless the Company defaults in the payment of the Change of Control Payment. 7. Denominations; Transfer; Exchange. The Notes are in registered form without coupons in denominations of $1,000 of principal amount at maturity and multiples of $1,000 in excess thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer or exchange of any Notes selected for redemption. Also, it need not register the transfer or exchange of any Notes for a period of 15 days before a selection of Notes to be redeemed is made. 8. Persons Deemed Owners. A Holder shall be treated as the owner of a Note for all purposes. 9. Unclaimed Money. If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment, unless an abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. 10. Discharge Prior to Redemption or Maturity. If the Company deposits with the Trustee money or U.S. Government Obligations sufficient to pay the then outstanding principal of, premium, if any, and accrued interest on the Notes (a) to redemption or maturity, the Company will be discharged from the Indenture and the Notes, except in certain circumstances for certain sections thereof, and (b) to the Stated Maturity, the Company will be discharged from certain covenants set forth in the Indenture. 96 A-7 11. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding, and any existing default or compliance with any provision may be waived with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding. Without notice to or the consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency and make any change that does not materially and adversely affect the rights of any Holder. 12. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries, among other things, to Incur additional Indebtedness, make Restricted Payments, use the proceeds from Asset Sales, engage in transactions with Affiliates or merge, consolidate or transfer substantially all of its assets. Within 45 days after the end of each fiscal quarter (90 days after the end of the last fiscal quarter of each year), the Company must report to the Trustee on compliance with such limitations. 13. Successor Persons. When a successor person or other entity assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor person will be released from those obligations. 14. Defaults and Remedies. The following events constitute "Events of Default" under the Indenture: (a) default in the payment of the principal of (or premium, if any, on) any Note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise, whether or not such payment is prohibited by Section Ten; (b) default in the payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days whether or not such payment is prohibited by Section Ten; (c) default in the performance of or breaches the provisions of the Indenture applicable to mergers, consolidations and transfers of all or substantially all of the assets of the Company or fails to make or consummate an Offer to Purchase in accordance with Section 4.11 or Section 4.12 of the Indenture; (d) the Company defaults in the performance of or breaches any other covenant or agreement of the Company in the Indenture or under the Notes (other than a default specified in clause (a), (b) or (c) above) and such default or breach continues for a period of 30 consecutive days after written notice by the Trustee or the Holders of 25% or more in 97 A-8 aggregate principal amount of the Notes; (e) there occurs with respect to any issue or issues of Indebtedness of the Company or any Significant Subsidiary having an outstanding principal amount of $10 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (I) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days of such acceleration and/or (II) the failure to make a principal payment at the final (but not any interim) fixed maturity and such defaulted payment shall not have been made, waived or extended within 30 days of such payment default; (f) any final judgment or order (not covered by insurance) for the payment of money in excess of $10 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Significant Subsidiary and shall not be paid or discharged, and there shall be any period of 30 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $10 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all of the property and assets of the Company or any Significant Subsidiary or (C) the winding up or liquidation of the affairs of the Company or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (h) the Company or any Significant Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all of the property and assets of the Company or any Significant Subsidiary or (C) effects any general assignment for the benefit of creditors. If an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes may declare all the Notes to be due and payable. Upon a declaration of acceleration (the "Acceleration Notice"), such Accreted Value of, premium, if any, and accrued interest shall be immediately due and payable; provided, however, that if there are any amounts outstanding under the Credit Agreement, such declaration shall not become effective until the earlier of (i) an acceleration of the Indebtedness under the Credit Agreement and (ii) five Business Days after receipt by the Company and the Bank Agent of such Acceleration Notice. If a bankruptcy or insolvency default with respect to the Company or any Restricted Subsidiary occurs and is 98 A-9 continuing, the Notes automatically become due and payable. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of at least a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. 15. Subordination The payment of the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full, in cash or cash equivalents, of all Senior Indebtedness. 16. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company or its Affiliates and may otherwise deal with the Company or its Affiliates as if it were not the Trustee. 17. No Recourse Against Others. No incorporator or any past, present or future partner, shareholder, other equity holder, officer, director, employee or controlling person as such, of the Company or of any successor Person shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 18. Authentication. This Note shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Note. 19. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). 99 A-10 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to PageMart Wireless, Inc., 3333 Lee Parkway, Suite 900, Dallas, Texas 75219, Attention: President. 100 A-11 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. - -------------------------------------------------------------------------------- Please print or typewrite name and address including zip code of assignee - -------------------------------------------------------------------------------- the within Note and all rights thereunder, hereby irrevocably constituting and appointing ____________________________________attorney to transfer said Note on the books of the Company with full power of substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL NOTES OTHER THAN EXCHANGE NOTES, UNLEGENDED OFFSHORE GLOBAL NOTES AND UNLEGENDED OFFSHORE PHYSICAL NOTES] In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date the shelf registration statement is declared effective or (ii) the end of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder. or [ ] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. 101 A-12 If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.08 of the Indenture shall have been satisfied. Date: --------------- ------------------------------------ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: --------------- ------------------------------------------------ NOTICE: To be executed by an executive officer 102 A-13 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 4.11 or Section 4.12 of the Indenture, check the Box: |_| If you wish to have a portion of this Note purchased by the Company pursuant to Section 4.11 or Section 4.12 of the Indenture, state the amount (in principal amount at maturity): $___________________. Date: ----------------------- Your Signature: ----------------------------------------------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ------------------------------ 103 EXHIBIT B Form of Certificate ______________,___ United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department Re: PageMart Wireless, Inc. (the "Company") 11 1/4% Senior Subordinated Discount Notes due 2008 (the "Notes") Dear Sirs: This letter relates to U.S. $ principal amount at maturity of Notes represented by a Note (the "Legended Note") which bears a legend outlining restrictions upon transfer of such Legended Note. Pursuant to Section 2.01 of the Indenture (the "Indenture") dated as of January 28, 1998 relating to the Notes, we hereby certify that we are (or we will hold such securities on behalf of) a person outside the United States to whom the Notes could be transferred in accordance with Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933, as amended. Accordingly, you are hereby requested to exchange the legended certificate for an unlegended certificate representing an identical principal amount at maturity of Notes, all in the manner provided for in the Indenture. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Holder] By: ------------------------------------ Authorized Signature 104 EXHIBIT C Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Accredited Investors ____________,___ United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department Re: PageMart Wireless, Inc. (the "Company") 11 1/4% Senior Subordinated Discount Notes due 2008 (the "Notes") Dear Sirs: In connection with our proposed purchase of $___________________ aggregate principal amount at maturity of the Notes, we confirm that: 1. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture dated as of January 28, 1998, relating to the Notes (the "Indenture") and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Notes Act, and that the Notes may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Notes, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter 105 C-2 substantially in the form of this letter, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act, or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 3. We understand that, on any proposed resale of any Notes, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] By: -------------------------------- Authorized Signature 106 EXHIBIT D Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S ____________,___ United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department Re: PageMart Wireless, Inc. (the "Company") 11 1/4% Senior Subordinated Discount Notes due 2008 (the "Notes") Dear Sirs: In connection with our proposed sale of U.S.$ aggregate principal amount at maturity of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended, and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States; (2) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States; (3) no directed selling efforts have been made by us in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1933. 107 D-2 You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: -------------------------------------- Authorized Signature 108 TABLE OF CONTENTS
Page RECITALS OF THE COMPANY..................................................................................... 1 ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions.................................................................................. 1 SECTION 1.02. Incorporation by Reference of Trust Indenture Act............................................ 21 SECTION 1.03. Rules of Construction........................................................................ 22 ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating.............................................................................. 22 SECTION 2.02. Restrictive Legends.......................................................................... 24 SECTION 2.03. Execution, Authentication and Denominations.................................................. 26 SECTION 2.04. Registrar and Paying Agent................................................................... 26 SECTION 2.05. Paying Agent to Hold Money in Trust.......................................................... 27 SECTION 2.06. Transfer and Exchange........................................................................ 28 SECTION 2.07. Book-Entry Provisions for Global Notes....................................................... 29 SECTION 2.08. Special Transfer Provisions.................................................................. 31 SECTION 2.09. Replacement Notes............................................................................ 33 SECTION 2.10. Outstanding Notes............................................................................ 34 SECTION 2.11. Temporary Notes.............................................................................. 35 SECTION 2.12. Cancellation................................................................................. 35 SECTION 2.13. CUSIP Numbers................................................................................ 35 SECTION 2.14. Defaulted Interest........................................................................... 36 SECTION 2.15. Issuance of Additional Notes................................................................. 36 ARTICLE THREE REDEMPTION SECTION 3.01. Right of Redemption.......................................................................... 36 SECTION 3.02. Notices to Trustee........................................................................... 37 SECTION 3.03. Selection of Notes to Be Redeemed............................................................ 37 SECTION 3.04. Notice of Redemption......................................................................... 37 SECTION 3.05. Effect of Notice of Redemption............................................................... 38 SECTION 3.06. Deposit of Redemption Price.................................................................. 38 SECTION 3.07. Payment of Notes Called for Redemption....................................................... 39
- -------- Note: The Table of Contents shall not for any purposes be deemed to be a part of the Indenture. 109 ii SECTION 3.08. Notes Redeemed in Part....................................................................... 39 ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes............................................................................. 39 SECTION 4.02. Maintenance of Office or Agency.............................................................. 39 SECTION 4.03. Limitation on Indebtedness................................................................... 40 SECTION 4.04. Limitation on Senior Subordinated Indebtedness............................................... 43 SECTION 4.05. Limitation on Liens.......................................................................... 44 SECTION 4.06. Limitation on Restricted Payments............................................................ 44 SECTION 4.07. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.............................................................. 48 SECTION 4.08. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries......................................................................... 49 SECTION 4.09. Limitation on Issuances of Guarantees by Restricted Subsidiaries............................. 49 SECTION 4.10. Limitation on Transactions with Shareholders and Affiliates.................................. 50 SECTION 4.11. Limitation on Asset Sales.................................................................... 51 SECTION 4.12. Repurchase of Notes upon a Change of Control................................................. 52 SECTION 4.13. Existence.................................................................................... 52 SECTION 4.14. Payment of Taxes and Other Claims............................................................ 53 SECTION 4.15. Maintenance of Properties and Insurance...................................................... 53 SECTION 4.16. Notice of Defaults........................................................................... 53 SECTION 4.17. Compliance Certificates...................................................................... 54 SECTION 4.18. Commission Reports and Reports to Holders.................................................... 54 SECTION 4.19. Waiver of Stay, Extension or Usury Laws...................................................... 55 ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. When Company May Merge, Etc.................................................................. 55 SECTION 5.02. Successor Substituted........................................................................ 56 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default............................................................................ 56 SECTION 6.02. Acceleration................................................................................. 58 SECTION 6.03. Other Remedies............................................................................... 59 SECTION 6.04. Waiver of Past Defaults...................................................................... 59 SECTION 6.05. Control by Majority.......................................................................... 59 SECTION 6.06. Limitation on Suits.......................................................................... 60
110 iii SECTION 6.07. Rights of Holders to Receive Payment......................................................... 60 SECTION 6.08. Collection Suit by Trustee................................................................... 60 SECTION 6.09. Trustee May File Proofs of Claim............................................................. 61 SECTION 6.10. Priorities................................................................................... 61 SECTION 6.11. Undertaking for Costs........................................................................ 62 SECTION 6.12. Restoration of Rights and Remedies........................................................... 62 SECTION 6.13. Rights and Remedies Cumulative............................................................... 62 SECTION 6.14. Delay or Omission Not Waiver................................................................. 62 ARTICLE SEVEN TRUSTEE SECTION 7.01. General ..................................................................................... 63 SECTION 7.02. Certain Rights of Trustee.................................................................... 63 SECTION 7.03. Individual Rights of Trustee................................................................. 64 SECTION 7.04. Trustee's Disclaimer......................................................................... 64 SECTION 7.05. Notice of Default............................................................................ 64 SECTION 7.06. Reports by Trustee to Holders................................................................ 65 SECTION 7.07. Compensation and Indemnity................................................................... 65 SECTION 7.08. Replacement of Trustee....................................................................... 65 SECTION 7.09. Successor Trustee by Merger, Etc............................................................. 66 SECTION 7.10. Eligibility.................................................................................. 66 SECTION 7.11. Money Held in Trust.......................................................................... 67 SECTION 7.12. Withholding Taxes............................................................................ 67 ARTICLE EIGHT DISCHARGE OF INDENTURE SECTION 8.01. Termination of Company's Obligations......................................................... 67 SECTION 8.02. Defeasance and Discharge of Indenture........................................................ 68 SECTION 8.03. Defeasance of Certain Obligations............................................................ 70 SECTION 8.04. Application of Trust Money................................................................... 72 SECTION 8.05. Repayment to Company......................................................................... 73 SECTION 8.06. Reinstatement................................................................................ 73 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders................................................................... 73 SECTION 9.02. With Consent of Holders...................................................................... 74 SECTION 9.03. Revocation and Effect of Consent............................................................. 75 SECTION 9.04. Notation on or Exchange of Notes............................................................. 76
111 iv SECTION 9.05. Trustee to Sign Amendments, Etc.............................................................. 76 SECTION 9.06. Conformity with Trust Indenture Act.......................................................... 76 ARTICLE TEN SUBORDINATION OF NOTES SECTION 10.01. Notes Subordinated to Senior Indebtedness................................................... 76 SECTION 10.02. No Payment on Notes in Certain Circumstances................................................ 76 SECTION 10.03. Payment over Proceeds upon Dissolution, Etc................................................. 78 SECTION 10.04. Subrogation................................................................................. 79 SECTION 10.05. Obligations of Company Unconditional........................................................ 80 SECTION 10.06. Notice to Trustee........................................................................... 80 SECTION 10.07. Reliance on Judicial Order or Certificate of Liquidating Agent.............................. 81 SECTION 10.08. Trustee's Relation to Senior Indebtedness................................................... 82 SECTION 10.09. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness............................................ 82 SECTION 10.10. Holders Authorize Trustee to Effectuate Subordination of Notes.............................. 82 SECTION 10.11. Not to Prevent Events of Default............................................................ 82 SECTION 10.12. Trustee's Compensation Not Prejudiced....................................................... 83 SECTION 10.13. No Waiver of Subordination Provisions....................................................... 83 SECTION 10.14. Payments May Be Paid Prior to Dissolution................................................... 83 SECTION 10.15. Trust Moneys Not Subordinated............................................................... 83 ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. Trust Indenture Act of 1939................................................................. 84 SECTION 11.02. Notices..................................................................................... 84 SECTION 11.03. Certificate and Opinion as to Conditions Precedent.......................................... 85 SECTION 11.04. Statements Required in Certificate or Opinion............................................... 85 SECTION 11.05. Rules by Trustee, Paying Agent or Registrar................................................. 85 SECTION 11.06. Payment Date Other Than a Business Day...................................................... 86 SECTION 11.07. Governing Law............................................................................... 86 SECTION 11.08. No Adverse Interpretation of Other Agreements............................................... 86 SECTION 11.09. No Recourse Against Others.................................................................. 86 SECTION 11.10. Successors.................................................................................. 86 SECTION 11.11. Duplicate Originals......................................................................... 86 SECTION 11.12. Separability................................................................................ 86 SECTION 11.13. Table of Contents, Headings, Etc............................................................ 87
112 v EXHIBIT A Form of Note................................................................................. A-1 EXHIBIT B Form of Certificate.......................................................................... B-1 EXHIBIT C Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S........................................................ C-1 EXHIBIT D Form of Certificate to be Delivered in Connection with Transfers to Non-QIB Accredited Investors................................................. D-1
EX-10.3 4 AMENDED & RESTATED SATELLITE SERVICE SUPPL. AGMT 1 AMENDED AND RESTATED SATELLITE SERVICES SUPPLEMENTAL AGREEMENT THIS AMENDED AND RESTATED SATELLITE SERVICES SUPPLEMENTAL AGREEMENT (the "SSS Agreement") is made and entered into as of December 18, 1997 (the "Execution Date") by and between AvData Systems, Inc., a Delaware corporation ("AvData"), whose principal place of business is located at 55 Marietta Street, NW, Atlanta, Georgia 30303 and PageMart Wireless Inc. (the "Customer" or "PageMart"), a corporation existing under the laws of the state of Delaware with offices at 3333 Lee Parkway, Suite 100, Dallas, Texas, 75219. WHEREAS, AvData and PageMart, Inc. entered into a Satellite Services Supplemental Agreement dated as of September 30, 1995 (the "Existing SSS Agreement") concerning the purchase of certain satellite services and have subsequently amended the Existing SSS Agreement by Amendment Number 1 (the "Amendment"). WHEREAS, PageMart, Inc. has assigned its rights in the Existing SSS Agreement to its sole stockholder, Customer, and AvData and Customer now desire to restate and amend the Existing SSS Agreement as amended to reflect the parties' actions to date, to integrate the pertinent provisions of the Amendment and to specify certain additional and/or revised terms and conditions as more fully stated below; WHEREAS, Customer and AvData have entered into an Amended and Restated Master Agreement dated December 18, 1997 ("Master Agreement"); and WHEREAS, the parties acknowledge and agree that the SSS Agreement is a separate, free standing document, independent of the Master Agreement and all of the parties' rights and obligations hereunder shall continue in full force and effect notwithstanding any termination of or default by either party under the Master Agreement; and WHEREAS, AvData leases certain Ku-Band satellite transponder capacity on multiple satellites, and Customer desires to purchase from AvData and AvData is willing to provide to Customer, a portion of such satellite transponder capacity for use in the VNI Network. AGREEMENT NOW, THEREFORE, in consideration of the premises, and other good and valuable consideration received and acknowledged, AvData and Customer further agree that as of the Execution Date, the Existing SSS Agreement as amended by the Amendment, is hereby amended and restated to read in its entirety as follows: During the Satellite Services Term, AvData shall provide Customer's Satellite Capacity in accordance with, and Customer shall be bound by, the terms and conditions set forth below: A. "SATELLITE SERVICES TERM": 1. "Commencement Date": 12:00 a.m. (Eastern Time) on August 1, 1996. 2. "Termination Date": 11:59 p.m. (Eastern Time) on July 31, 2001 unless earlier terminated pursuant to this SSS Agreement. B. CUSTOMER'S SATELLITE CAPACITY: AvData shall provide satellite transponder capacity for the VNI Network according to the terms hereof. From the Commencement Date through the Termination Date Customer's Satellite Capacity shall be provided through Ku-band transponder capacity leased by AvData on Satellite(s) selected by AvData in its sole discretion subject to approval by Customer, which shall not be A & R Satellite AvData Systems, Inc. Services Supplemental Proprietary 1 2 AMENDED AND RESTATED SATELLITE SERVICES SUPPLEMENTAL AGREEMENT unreasonably withheld; provided, however, that at least one of the Satellites (i.e. GE-1) provides coverage for all fifty states of the USA. C. PRICE: Customer shall pay to AvData a monthly satellite capacity payment for Customer's Satellite Capacity, in accordance with Section J below and Schedule 1 attached hereto, except that payment for the first month of any increased usage shall be due and payable on the date the Customer uses any increase in satellite capacity, with a corresponding increase in subsequent monthly satellite capacity payments. D. DEPOSIT: The parties acknowledge that Customer paid AvData a non-refundable satellite services deposit on the date of execution of the Existing SSS Agreement, which has been retained by AvData in consideration for the modifications contained therein. PageMart acknowledges that it is not entitled to a set-off against any financial obligations with respect to such payment. E. CERTAIN DEFINITIONS 1. "Affiliates" shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control (i.e., the power to direct affairs by reason of ownership of voting stock, by contract or otherwise) with such Person and any member, director, officer or employee of such Person. 2. "FCC" shall mean the Federal Communications Commission or any successor organization. 3. "Satellite(s)" shall mean GE-1 and Galaxy IV and such other geo-stationary communications satellite or satellites through which AvData will provide Customer's Satellite Capacity. 4. "Laws" shall mean all international, federal, state, local and other laws, rules and other regulations, including without limitation, those issued by the FCC. 5. "Person" shall mean any person or entity, whether an individual, trustee, corporation, general partnership, limited partnership, trust, unincorporated organization, business association, firm, joint venture, governmental agency or authority, or otherwise. 6. "Transponder(s)" shall mean a component of the Satellite(s) which, for a particular frequency band, receives, amplifies, translates frequency and retransmits radio signals. Each Transponder contains one traveling wave tube amplifier (a "TWTA"). Transponder shall also mean, for purposes of this definition, any replacement or alternate components thereof. 7. "Satellite Capacity Failure" shall mean the failure of AvData to provide Customer's aggregate Satellite Capacity on a Satellite(s) (due to a Satellite failure). Determination that a Satellite Capacity Failure has occurred shall be made by AvData in its sole discretion. 8. "Usage" or "Use" shall refer to radio transmission to, or utilization of, the Satellite(s) for the VNI Network. 9. "Satellite Operators" shall mean the owner(s) of the Satellite(s) specifically authorized by the FCC to operate the Satellite(s) and through whom AvData makes available the satellite capacity required for the VNI Network. 10. "Primary Hub" shall mean the Equipment at AvData's primary hub location in Atlanta, Georgia which will be used to access Customer's Satellite Capacity to run the VNI Network. 11. "Alternate Hub" shall mean the equipment PageMart sets up at a site to be determined which will be used to access Customer's Satellite Capacity to run the VNI Network for load sharing with, or failure of the Primary Hub. 12. "Customer's Satellite Capacity" shall mean the satellite capacity to be provided hereunder to Customer (expressed as SCUs or High Power SCUs) during the Satellite Services Term, as more A & R Satellite AvData Systems, Inc. Services Supplemental Proprietary 2 3 AMENDED AND RESTATED SATELLITE SERVICES SUPPLEMENTAL AGREEMENT particularly described in Paragraph J.2. hereof. In addition, if PageMart requests additional satellite capacity as described in Schedule 1 attached hereto, subject to availability of such satellite capacity, such additional satellite capacity shall be included upon commencement of service for such satellite capacity. 13. "Equipment" shall mean the Very Small Aperture satellite Terminals (VSATs) and associated hub hardware and remote site hardware including embedded software provided by AvData under the Master Agreement. 14. "Satellite Capacity Unit" or "SCU" - One SCU equals 800 kHz of bandwidth, which is normally configured as one (1) 128 Kbps outbound channel and two (2) 64 Kbps inbound channels. Using standard power levels and BPSK modulation, the percentage of available bandwidth in the transponder that is utilized by a SCU is equal to the percentage of the power available in the transponder utilized by that SCU. 15. "High Power SCU" - One High Power SCU consumes twice the satellite capacity of one standard power SCU. Using high power levels and BPSK modulation, the percentage of available power in the transponder that is utilized by a High Power SCU is equal to two (2) times the percentage of available bandwidth in the transponder that is utilized by a SCU. A High Power SCU has a power density of not less than 9 dBW/4KHz and requires authorization from the Federal Communications Commission (FCC). 16. "VNI" or "VNI Network" shall mean the VSAT network infrastructure consisting of the Equipment, and software provided by AvData under the Master Agreement. F. CERTAIN UNDERSTANDINGS 1. Ownership of Transponders. Customer understands and agrees that the Satellite Operators are the FCC-authorized operator of the Satellites . Neither this SSS Agreement nor Customer's Satellite Capacity shall, or shall be deemed to, convey title or any other ownership interest to Customer in or to any Satellite, any Transponder or any part thereof. Customer acknowledges and agrees (i) that nothing contained in this SSS Agreement shall prevent any sale, mortgage, or encumbrance of any Satellite or any Transponder thereof by the owner, (ii) that Customer's Satellite Capacity is provided on a right to use basis (with Equipment and services provided by AvData under the Master Agreement) and is not being sold to Customer, (iii) that neither any Transponder nor any Satellite, nor any right to use thereof nor any interest of any type therein, shall be subject to any claim, prior, subsequent or otherwise, of Customer or its creditors as a result of this SSS Agreement, and (iv) that, as to any Transponder, the rights of Customer under this SSS Agreement will be subject and subordinate to the rights of any purchaser purchasing such Transponder and leasing it back to the Satellite Operator pursuant to a sale and leaseback transaction. Notwithstanding the foregoing, AvData shall use reasonable efforts to provide that the foregoing restrictions shall not impact or interfere with Customer's use of Customer's Satellite Capacity as provided for herein. 2. Control of Satellite. Customer understands and agrees that the Satellite Operator(s) shall control and provide for the operation of the Satellite(s). 3. Communication with Satellite. All communications with the Satellite(s) will be provided through Equipment controlled by AvData at either the Primary Hub or Alternate Hub; provided, however, upon the prior written request of Customer, AvData shall use its reasonable efforts to obtain the consent of each Satellite Operator to permit Customer to exercise control of the Equipment at the Alternate Hub, and upon obtaining such consent(s), Customer shall have the right to make communications with the Satellite(s) through Equipment controlled by Customer or its nominee at the Alternate Hub. A & R Satellite AvData Systems, Inc. Services Supplemental Proprietary 3 4 AMENDED AND RESTATED SATELLITE SERVICES SUPPLEMENTAL AGREEMENT G. CONTINUITY OF SERVICE 1. Preemption/Interruption of Service. Customer recognizes and agrees with respect to each Satellite that for "Technical or Safety Reason(s)", which shall include, but shall not be limited to, (1) the protection of the overall health or performance of the Satellite or its Transponders; (2) the prevention of interference or cross-talk; (3) the protection of public safety; or (4) compliance with an order from the FCC or other governmental authorities - and the existence of which the Satellite Operator shall determine in its sole discretion - the Satellite Operator may take the following "Action(s)": (i) preempt or interfere with Customer's Use of any Transponder or other component of the Satellite, (ii) reassign TWTAs to different Transponders on the Satellite, or (iii) reassign the frequency assignment of Customer's Satellite Capacity. Customer acknowledges and agrees that an Action by Satellite Operator may result in the preemption or interruption of the Use of Customer's Satellite Capacity. AvData shall notify Customer as soon as reasonably practical after receipt by AvData of oral or written notice from the Satellite Operator concerning an Action and shall use reasonable efforts to cause the Satellite Operator to schedule and conduct such Action so as to minimize the Satellite Operator disruption of Customer's Use of Customer's Satellite Capacity. Customer acknowledges and agrees that if such preemption or interruption occurs, then Customer shall cooperate with and assist AvData and the Satellite Operator during such periods and Customer's sole remedies shall be the termination of this SSS Agreement or reduction in Customer's Satellite Capacity pursuant to Paragraph K herein. 2. Provision of Continuing Service. In the event of a Satellite Capacity Failure, AvData shall use its best efforts to cause the Satellite Operator to provide Customer's Satellite Capacity using spare Transponder capacity on the Satellite, if available, or if such spare capacity is unavailable, then by using an alternate Transponder on the Satellite of the same polarity, if available. The availability of such spare or alternate Transponder on the Satellite, on a permanent or temporary basis, shall be determined by the Satellite Operator in its sole discretion. The foregoing notwithstanding, Customer's sole remedies for any preemption or interruption of Use shall be the termination of this SSS Agreement or reduction in Customer's Satellite Capacity pursuant to Paragraph K herein. H. CUSTOMER'S OBLIGATIONS 1. Compliance With SSS Agreement and Laws. During the Satellite Services Term, Customer shall comply with the terms of this SSS Agreement and shall be responsible for complying with, and shall comply with all Laws applicable to it regarding the operation and Use of the Satellites and the Transponders, or Use of Customer's Satellite Capacity. Customer shall be permitted to use Customer's Satellite Capacity for any business unit, subsidiary, Strategic Alliance Partner or customer of PageMart subject to the approval of AvData, which shall not be unreasonably withheld, provided, however, operation of the Equipment provided under the Master Agreement or any other equipment used to access Customer's Satellite Capacity, including PageMart's Alternate Hub, must be in strict accordance with guidelines and instructions provided by the Satellite Operator directly or through AvData. I. REMEDIES 1. LIMITATION OF LIABILITY a. ANY AND ALL EXPRESS AND IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR USE, ARE EXPRESSLY EXCLUDED AND DISCLAIMED BY AVDATA. CUSTOMER EXPRESSLY AGREES THAT AVDATA'S SOLE OBLIGATIONS AND CUSTOMER'S EXCLUSIVE REMEDIES FOR ANY CAUSE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LIABILITY ARISING FROM NEGLIGENCE) ARISING OUT OF OR RELATING TO THIS SSS AGREEMENT AND/OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY ARE LIMITED TO TERMINATION OF THIS SSS AGREEMENT FOR THE REASONS DESCRIBED IN PARAGRAPH G ABOVE, AND ALL OTHER REMEDIES OF ANY KIND ARE EXPRESSLY EXCLUDED. A & R Satellite AvData Systems, Inc. Services Supplemental Proprietary 4 5 AMENDED AND RESTATED SATELLITE SERVICES SUPPLEMENTAL AGREEMENT b. IN NO EVENT SHALL AVDATA BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER FORESEEABLE OR NOT, OCCASIONED BY ANY DEFECT IN CUSTOMER'S SATELLITE CAPACITY, FAILURE OF THE CUSTOMER'S SATELLITE CAPACITY TO PERFORM OR ANY OTHER CAUSE WHATSOEVER. AVDATA MAKES NO WARRANTY, EXPRESS OR IMPLIED, TO ANY OTHER PERSON CONCERNING CUSTOMER'S SATELLITE CAPACITY AND CUSTOMER SHALL INDEMNIFY AVDATA FROM ANY CLAIMS MADE UNDER ANY WARRANTY OR REPRESENTATION BY CUSTOMER TO ANY THIRD PARTY. 2. Indemnification. Customer shall indemnify and save AvData and the Satellite Operators harmless from all liability to Customer disclaimed by AvData, as specified above, to the extent such liability arises in connection with the provision by AvData or the Satellite Operators of facilities and/or Customer's Satellite Capacity or use of Customer's Satellite Capacity pursuant to this SSS Agreement provided, however, Customer shall not be obligated to indemnify AvData from such liability to the extent such liability arises from the willful misconduct or gross negligence of AvData. J. PAYMENTS TO AVDATA 1. Payment. a. Unless otherwise provided, any sum due AvData for the provision of Customer's Satellite Capacity shall be invoiced and payable in advance on the first day of each month. b. If any payment of any sum due from Customer is not received by AvData within thirty (30) days after such payment is due, then such overdue amount shall be subject to a delinquency charge at the rate of interest equal to one and one-half percent (1 1/2%) per month, from the date such overdue amount was actually due until the date it is actually received by AvData. c. Customer's obligations to make the monthly satellite capacity payments provided by Paragraph C above and J(2) below shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which Customer may have against AvData or anyone else for any reason whatsoever. d. The charges specified herein do not include any amounts for sales, use, property, privilege, license, excise or similar taxes, fees or assessments which may be levied by any governmental agency on this SSS Agreement, the services provided or the payments made hereunder. Any such taxes or charges shall be paid directly by Customer to the taxing authority, if legally permitted. Otherwise, if required to be paid by AvData, the amount shall be reimbursed to AvData by the Customer. Upon request, the Customer shall provide AvData with tax exemption certificates, if applicable, or evidence of tax payments, if made by Customer. 2. Required Satellite Capacity. a. Commencing August 1, 1996, PageMart shall pay per month per Satellite Capacity Unit ("SCU") for satellite capacity, * Nothing contained in A & R Satellite AvData Systems, Inc. Services Supplemental Proprietary 5 6 AMENDED AND RESTATED SATELLITE SERVICES SUPPLEMENTAL AGREEMENT this paragraph is intended to limit PageMart's ability to increase its number of SCUs at a rate faster than * per month. PageMart shall have the right to designate by written notice by PageMart that a portion of Customer's Satellite Capacity, not to exceed ten (10) SCUs (i.e. five (5) High Power SCUs), shall be provided as High Power SCUs. The provision of Customer's Satellite Capacity as High Power SCUs shall be subject to availability of High Power SCUs on the Satellite(s) and regulatory approval by the FCC. Upon receipt of such written notice, AvData shall pursue such regulatory approval on a "best efforts" basis, at PageMart's sole cost and expense. One (1) High Power SCU shall count as two (2) SCUs for the purpose of the above calculations. b. * c. * d. * K. TERMINATION 1. Events of Termination. This Agreement shall terminate automatically upon the Termination Date, unless terminated earlier pursuant to one of the following paragraphs: a. Termination for Satellite Capacity Failure. If a Satellite Capacity Failure continues uninterrupted for more than ten (10) consecutive days, or such other period is mutually agreed upon in writing by AvData and Customer, then this Agreement may be immediately terminated by either party by written notice to the other delivered on or before the thirtieth day after the calendar day on which the Satellite Capacity Failure began; provided, however, that if such Satellite Capacity Failure affects only one Satellite and a portion of Customer's Satellite Capacity remains available from other Satellite(s), then the right of termination shall apply only to Customer's Satellite Capacity received hereunder from such failed Satellite and this SSS Agreement shall continue in force with respect to the remaining portion of Customer's Satellite Capacity. If so terminated, AvData shall refund to Customer the amount of any prepaid monthly charges for the terminated capacity prorated from the date of the Satellite Capacity Failure, and AvData shall have no other or further liability to Customer. b. Cancellation for Non-Payment and Violations of Law. Notwithstanding anything to the contrary and in addition to all other remedies AvData may have, AvData may immediately cancel this Agreement and accelerate all remaining payments due through the Satellite Services Term if Customer materially breaches any provision of this Agreement, including for example (but without limitation), (1) if Customer fails to pay when due any amounts due pursuant to this Agreement within ten (10) days after AvData has delivered notice to Customer of such non-payment, or (2) if Customer violates the provisions of Paragraph H.1. ("Compliance with Laws"). Upon termination, pursuant to this Paragraph K.1.b, AvData shall be entitled to transfer Customer's Satellite Capacity immediately to whomever AvData sees fit, Customer shall not be entitled to any equitable relief as a result thereof, and Customer's exclusive remedy shall be limited to recovery of any payments made by it to AvData for the period of time as to which it has A & R Satellite AvData Systems, Inc. Services Supplemental Proprietary 6 7 AMENDED AND RESTATED SATELLITE SERVICES SUPPLEMENTAL AGREEMENT been canceled, without interest, less any claim AvData has against Customer by reason of such Customer's default. c. Termination by Customer. In event that AvData fails to provide Customer's Satellite Capacity to Customer as a result of the termination by a Satellite Operator of the lease to AvData of Ku-Band satellite transponder capacity due to a default by AvData, Customer, provided that Customer is not in default hereunder, shall have the right to reduce Customer's Satellite Capacity under this Agreement to the extent of the Customer's Satellite Capacity received hereunder from such Satellite Operator if AvData fails to cure such failure within thirty (30) days after receiving written notice of such failure from Customer. If Customer's Satellite Capacity is so reduced, AvData shall (i) refund to Customer the amount of any prepaid monthly charges for the terminated Customer's Satellite Capacity prorated from the date AvData failed to provide such Customer's Satellite Capacity and (ii) provide reasonable cooperation, at Customer's request and expense, with any efforts by Customer to contract directly with the Satellite Operator for such terminated Customer's Satellite Capacity, and AvData shall have no other or further liability to Customer with respect to such terminated Customer's Satellite Capacity. 2. Continuation after Termination of Master Agreement. The parties acknowledge and agree that this SSS Agreement is a separate, free standing contract and is independent of the Master Agreement. This SSS Agreement, and the parties rights and obligations hereunder, shall continue in full force and effect notwithstanding any termination of or default by either party under the Master Agreement. L. MISCELLANEOUS 1. Headings. The Paragraph headings used in this SSS Agreement, except where terms are specifically defined, are for reference and convenience only and shall not enter into the interpretation hereof. 2. Waiver. No delay or omission by either party to exercise any right or power shall impair any such right or power or be construed to be a waiver thereof. A waiver by either of the parties of any of the covenants, conditions or agreements to be performed by the other or any breach thereof shall not be construed to be a waiver of any succeeding breach thereof or of any other covenant, condition or agreement herein contained. 3. Severability. If, but only to the extent that, any provision of this SSS Agreement is declared or found to be illegal, unenforceable or void, then both parties shall be relieved of all obligations arising under such provision, it being the intent and agreement of the parties that this SSS Agreement shall be deemed amended by modifying such provision to the extent necessary to make it legal and enforceable while preserving its intent. If that is not possible, another provision that is legal and enforceable and achieves substantially the same objective shall be substituted. If the remainder of this SSS Agreement is not affected by such declaration or finding and is capable of substantial performance then the remainder shall be enforced to the extent permitted by law. 4. Relationship of Parties. AvData is performing pursuant to this SSS Agreement only as an independent contractor and nothing set forth in this SSS Agreement shall be construed to create the relationship of principal and agent between AvData and Customer. Neither AvData nor Customer shall act or attempt to act or represent itself, directly or by implication, as an agent of the other party or its Affiliates or in any manner assume or create, or attempt to assume or create, any obligation on behalf of, or in the name of, the other party or its Affiliates. 5. Approvals and Authorizations. The obligations of the parties hereto shall be subject to obtaining and maintaining all necessary regulatory and other governmental approvals and authorizations. The parties agree to use their respective and, where applicable, collective best reasonable efforts to obtain promptly and maintain any such approvals. A & R Satellite AvData Systems, Inc. Services Supplemental Proprietary 7 8 AMENDED AND RESTATED SATELLITE SERVICES SUPPLEMENTAL AGREEMENT 6. Notices. In addition to such other requirements as may be set forth herein, any notices hereunder by one party to the other party shall be given in writing by personal delivery (or by recognized overnight delivery service) or posted by certified mail return receipt requested, to the parties at the following addresses: IF AVDATA, SEND TO: IF CUSTOMER, SEND TO: AvData Systems, Inc. PageMart Wireless, Inc. 55 Marietta Street 3333 Lee Parkway, Suite 100 Atlanta, GA 30303 Dallas, TX 75219 Attn: Judith H. Drobinski Attn: James E. Freytag V.P. - Finance & Admin. Director of Network Implementation Notices will be deemed to have been given hereunder when delivered (whether or not accepted by the addressee). 7. Confidentiality. Each party hereby agrees that all non-public, confidential or proprietary information communicated to it by the other party or its customers, whether before or after the Execution Date, shall be and was received in strict confidence, shall be used only for purposes of this SSS Agreement, and, for a period of five (5) years following the termination of this SSS Agreement, shall not be disclosed by such party, its agents or employees without the prior written consent of the other party, except as may be necessary by reason of legal, accounting or regulatory requirements beyond the reasonable control of the disclosing party. The obligations set forth in this Section shall survive termination of this SSS Agreement. 8. Force Majeure. The term "Force Majeure" shall include, but not be limited to, fires or other casualties or accidents, acts of God, severe weather conditions, sun outages, strikes or labor disputes, war or other violence, any law, order, proclamation, regulation, ordinance, demand or requirement of any governmental agency or any other act or condition whatsoever beyond the reasonable control of the affected party. A party whose performance of its obligations hereunder is prevented, restricted or interfered with by reason of a Force Majeure condition shall be excused from such performance to the extent of such Force Majeure condition so long as such party immediately continues performance whenever and to the extent such causes are removed. Nothing in this Section shall relieve Customer of its obligations to make payments to AvData in accordance with Paragraphs C and J of this Satellite Services Supplemental Agreement, except to the extent that AvData is relieved of its obligations to make payments to the Satellite Operator by such Force Majeure condition. 9. Applicable Law and Entire Agreement. THIS SSS AGREEMENT SHALL BE INTERPRETED, CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA. This SSS Agreement constitutes the entire agreement between the parties, supersedes all previous understandings, commitments or representations and is intended as the complete and exclusive statement of the terms of the agreement between the parties concerning the subject matter hereof. This SSS Agreement may not be amended or modified in any way, and none of its provisions may be waived, except by a writing signed by each party hereto. 10. Attorney's Fees. In the event of any dispute or controversy arising hereunder, any court having jurisdiction in any such dispute or controversy shall determine which of the parties is the prevailing party and shall award to the prevailing party the reasonable fees and expenses of counsel, experts and other court costs incurred in connection with such dispute or controversy. 11. No right of Transfer. Customer shall not, and shall not have the right to, grant, sell, assign, encumber, permit the utilization of, license, lease, or otherwise convey, directly or indirectly, in whole or in part (individually, a "Transfer:"), Customer's Satellite Capacity, or any of its rights under this SSS Agreement, to any other entity or person. Notwithstanding the foregoing, Customer may assign its A & R Satellite AvData Systems, Inc. Services Supplemental Proprietary 8 9 AMENDED AND RESTATED SATELLITE SERVICES SUPPLEMENTAL AGREEMENT Satellite Capacity, and its rights under this SSS Agreement, without AvData's written consent, to any corporation, partnership or other entity which is controlled by Customer and in which Customer has not less than fifty-one percent (51%) of the ownership interest, provided that no such assignment shall relieve Customer of any of its obligations hereunder. 12. Successors and Assigns. Subject to Paragraph L.11 above, this SSS Agreement shall be binding on and shall inure to the benefit of any successors and assigns of the parties, provided that no assignment of this SSS Agreement shall relieve either party hereto of its obligations to the other party. Any purported assignment by either party not in compliance with the provisions of this SSS Agreement shall be null and void and of no force and effect. - ------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer, have caused this Agreement to be executed as of the date written above.
PAGEMART, INC. AVDATA SYSTEMS, INC. By: By: Harold E. Cowan ------------------------------------ ------------------------------------ Title: Title: Vice President Account Management ------------------------------------ ------------------------------------ Date: Date: December 18, 1997 ------------------------------------ ------------------------------------ Signed: /s/ ILLEGIBLE Signed: /s/ HAROLD E COWAN ------------------------------------ ------------------------------------
A & R Satellite AvData Systems, Inc. Services Supplemental Proprietary 9 10 AMENDED AND RESTATED SATELLITE SERVICES SUPPLEMENTAL AGREEMENT SCHEDULE 1 * EX-10.6 5 FOURTH AMENDMENT TO CREDIT AGREEMENT 1/15/98 1 EXHIBIT 10.6 FOURTH AMENDMENT FOURTH AMENDMENT (this "Amendment"), dated as of January 15, 1998, among PAGEMART WIRELESS, INC. (formerly PageMart Nationwide, Inc.) (the "Borrower"), the financial institutions party to the Credit Agreement referred to below (the "Lenders"), BT COMMERCIAL CORPORATION, as Agent (the "Agent"), and BANKERS TRUST COMPANY, as Issuing Bank (the "Issuing Bank"). All capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the Credit Agreement. W I T N E S S E T H : WHEREAS, the Borrower, the Lenders, the Agent, and the Issuing Bank are parties to a Credit Agreement, dated as of May 11, 1995 (as amended, modified or supplemented through, but not including, the date hereof, the "Credit Agreement"); WHEREAS, the parties hereto wish to further modify the Credit Agreement as herein provided; and WHEREAS, subject to the terms and conditions of this Amendment, the parties hereto agree as follows; NOW, THEREFORE, it is agreed: 1. Section 1 of the Credit Agreement is hereby amended by: (a) inserting the following definitions in the appropriate alphabetical order: "'Capital Expenditure Amount' shall mean (i) $175,000,000 less (ii) the amount by which (x) $90,000,000 exceeds (y) the Net Refinancing Amount plus (iii) the Permitted Equity Basket. 'Consent Solicitation Statement' shall mean the Amended Consent Solicitation Statement dated December 17, 1997 relating to the 15% Senior Discount Notes due 2005, a copy of which has been provided to the Agent and the Lenders prior to the Fourth Amendment Effective Date. 2 'Fourth Amendment Effective Date' shall mean the date on which the Fourth Amendment to this Agreement becomes effective in accordance with its terms. 'Indenture Amendments' shall mean, collectively, (i) the amendments to the Indenture for the 12 1/4% Senior Discount Notes due 2003 described in the Offer to Purchase and (ii) the amendments to the Indenture for the 15% Senior Discount Notes due 2005 described in the Consent Solicitation Statement. 'Merger' shall mean the merger of PageMart into the Borrower pursuant to which the Borrower will be the surviving corporation. 'Net Refinancing Amount' shall mean (i) the net cash proceeds received by the Borrower from the issuance of the Senior Subordinated Notes, less (ii) the amounts paid in connection with the prepayment of the 12 1/4% Senior Discount Notes due 2003 less (iii) all fees and expenses incurred in connection with the Refinancing (including, without limitation, all consent fees payable in connection with the Consent Solicitation Statement). 'Offer to Purchase' shall mean the Offer to Purchase and Consent Solicitation Statement relating to the 12 1/4% Senior Discount Notes due 2003 dated December 23, 1997, a copy of which has been provided to the Agent and the Lenders prior to the Fourth Amendment Effective Date. 'Refinancing' shall mean (i) the repurchase of the 12 1/4% Senior Discount Notes due 2003 as described in the Offer to Purchase, (ii) the Indenture Amendments, (iii) the Merger and (iv) the issuance of the Senior Subordinated Notes. 'Senior Subordinated Notes' shall mean the senior subordinated discount notes to be issued by the Borrower, the terms of which are described in the Offering Memorandum issued January 6, 1998 (a copy of which has been provided to the Agent and the Lenders prior to the Fourth Amendment Effective Date) and which on the date of issuance thereof are otherwise satisfactory in form and substance to the Agent."; (b) amending the definition of "Eligible Accounts Receivable" set forth therein by (x) deleting the "(i)" immediately after the word "Accounts" in the first line thereof and (y) deleting the phrase "and (ii) title to which has been effectively conveyed by PageMart to the Borrower pursuant to the Asset Transfer Documents"; (c) amending the definition of "Indentures" set forth therein by (i) deleting the "and" before clause (ii) thereof and inserting a comma in lieu thereof and (ii) adding the following at the end thereof "and (iii) the Indenture pursuant to which the -2- 3 Borrower issues its Senior Subordinated Notes, as each such Indenture may be amended and modified from time to time in accordance with the terms hereof"; (d) amending the definition of "PageMart" set forth therein by adding the following phrase at the end thereof "provided that after the consummation of the Merger all references to 'PageMart' set forth in the Credit Documents shall be deemed to be references to the Borrower"; (e) amending the definition of "Permitted Equity Basket" set forth therein by (i) inserting the phrase "received after the Fourth Amendment Effective Date" after the word "proceeds" in the second line thereof and (iii) inserting the phrase "after the Fourth Amendment Effective Date and" after the word "used" in the fourth line thereof; and (f) deleting the definitions of "Asset Transfers," "Asset Transfer Documents," "Permitted Indenture Financing," "Permitted Indenture Financing Basket" and "Permitted Two Way Vendor Financing" set forth therein (and all references to such terms in the Credit Agreement are also deleted). 2. Section 2.12 of the Credit Agreement is hereby amended by deleting the phrase "(a) the segregation of Collections in respect of Accounts, on the one hand, from collections in respect of accounts receivable of PageMart, on the other hand and (b)". 3. Section 7.2 of the Credit Agreement is hereby amended by adding the following phrase at the end of the parenthetical in the second line thereof "and any other week if no Revolving Loan or Letter of Credit is then outstanding". 4. Section 8.6 of the Credit Agreement is hereby deleted in its entirety and the following provision is inserted in lieu thereof: "8.6 Capital Expenditures. Neither the Borrower nor any of its Restricted Subsidiaries shall make, or commit to make, any Capital Expenditures after the Fourth Amendment Effective Date other than (a) Capital Expenditures made or committed to be made the aggregate amount of which does not exceed the Capital Expenditure Amount and (b) Capital Expenditures allowed under Section 8.7(d)." 5. Section 8.7 of the Credit Agreement is hereby amended by (i) deleting the text of clauses (a) and (e) of said Section 8.7 in their entirety and inserting "[Intentionally Deleted]" in lieu thereof and (ii) deleting from clauses 5(c) and (d) of said Section 8.7 the following phrase "the Permitted Indenture Financing Basket". 6. Section 8.8 of the Credit Agreement is hereby amended as follows: (i) clause (d) of said Section 8.8 is amended by deleting the phrase "Indebtedness under the Indentures and any other" set forth therein; -3- 4 (ii) clause (g) of said Section 8.8 is amended by adding the following phrase at the end thereof "except that the Borrower may guarantee Indebtedness of PageMart Canada Holding Corporation provided that the aggregate principal amount of such guaranteed Indebtedness does not exceed $5,000,000"; (iii) clause (h) of said Section 8.8 is hereby deleted in its entirety and substituted in lieu thereof is the following: "(h) Indebtedness of the Borrower, and prior to the Merger, PageMart under the Indentures, provided that (x) the initial accreted value of the Senior Subordinated Notes shall not exceed $225 million or such higher amount as shall be permitted under the Indentures, (y) the Senior Subordinated Notes may be issued only in connection with the Refinancing and (z) the aggregate principal amount of the 12 1/4% Senior Discount Notes due 2003 which remain outstanding after the consummation of the Refinancing shall not exceed, $58,000,000;", and (iv) deleting the text of clause (j) of said Section 8.8 in its entirety and inserting "[Intentionally Deleted]" in lieu thereof. 7. Section 8.12(b) of the Credit Agreement is hereby amended by (i) deleting the "and" before clause (iv) thereof and inserting a comma in lieu thereof and (ii) inserting the following at the end thereof "and (v) the Borrower may make prepayments of the 12 1/4% Senior Discount Notes due 2003 as described in the Offer to Purchase provided that (x) such prepayments do not exceed the aggregate net proceeds received by the Borrower from the issuance of the Senior Subordinated Notes, (y) the amounts paid in respect of such prepayments do not exceed the amount set forth in the Offer to Purchase and (z) such prepayments may only be made in connection with the Refinancing." 8. Article 8 of the Credit Agreement is hereby amended by adding the following new covenant: "8.19 Indentures. (a) The Borrower shall not, and shall not permit any of its Subsidiaries to, amend or modify any Indenture without the prior written consent of the Agent and the Majority Lenders except that the Indenture Amendments shall be permitted. (b) The Borrower shall not designate any Indebtedness as 'Designated Senior Indebtedness' under the Indenture for the Senior Subordinated Notes." -4- 5 9. Section 9.1(h) of the Credit Agreement is hereby amended deleting the word "either" set forth in the second line thereof and inserting the word "any" in lieu thereof. 10. This Amendment shall become effective on the date (the "Fourth Amendment Effective Date") when each of the following conditions have been met: (a) the Borrower, the Agent, the Majority Lenders and the Issuing Bank shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Agent at the Notice Office; (b) the Agent shall have received resolutions of the Board of Directors of the Borrower, which resolutions shall be certified by the Secretary or any Assistant Secretary of the Borrower and shall authorize the execution, delivery and performance by the Borrower of this Amendment and the consummation of the transactions contemplated hereby, and the foregoing shall be reasonably acceptable to the Agent; (c) the Merger and the Indenture Amendments shall have become effective; (d) the Agent shall have received evidence satisfactory to it that all filings, notices and recordings necessary and advisable to perfect the security interests created under the Collateral Documents after giving effect to the Merger had been made, given or accomplished. 11. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that: (a) no Default or Event of Default exists on the Fourth Amendment Effective Date, after giving effect to this Amendment and the Refinancing; and (b) on the Fourth Amendment Effective Date, and after giving effect to this Amendment and the Refinancing, all representations and warranties contained in the Credit Agreement and in the other Credit Documents are true and correct in all material respects as though such representations and warranties were made on the Fourth Amendment Effective Date. 12. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be delivered to the Borrower and the Agent. -5- 6 13. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 14. From and after the Fourth Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the "Credit Agreement" shall be deemed to be references to the Credit Agreement as modified hereby. 15. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. * * * -6- 7 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. PAGEMART WIRELESS, INC. By ---------------------------------- --- Title: BT COMMERCIAL CORPORATION, as Agent By ---------------------------------- --- Title: BANKERS TRUST COMPANY, as Issuing Bank By ---------------------------------- --- Title: FIRST UNION NATIONAL BANK By ---------------------------------- --- Title: -7- 8 BANK ONE, TEXAS, N.A. By ---------------------------------- --- Title: TORONTO DOMINION (TEXAS), INC) By ---------------------------------- --- Title: -8- EX-10.9 6 AMENDMENT NO. 1 TO AMENDED & RESTATED AGREEMENT 1 EXHIBIT 10.9 AMENDMENT NO. 1 TO AMENDED AND RESTATED AGREEMENT AMONG CERTAIN STOCKHOLDERS This Amendment No. 1 to Amended and Restated Agreement Among Certain Stockholders (this "Amendment") dated to be effective as of October 1, 1997 among PageMart Wireless, Inc. (the "Company") and certain of the holders of common stock of the Company listed on the signature pages herein. WHEREAS, the Company and certain of the holders of common stock of the Company entered into the Amended and Restated Agreement Among Certain Stockholders dated as of May 10, 1996 (the "Stockholders Agreement"); and WHEREAS, the Company and the parties who have signed this Amendment wish to amend the Agreement in certain respects as set forth below; NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. All capitalized terms not defined in this Amendment will have the meanings given them in the Stockholders Agreement. 2. Amendment. The Stockholders Agreement is amended as follows: (a) The term "Voting Parties" as defined in Section 3.1 of the Stockholders Agreement is hereby amended to include only the following parties: The Morgan Stanley Shareholders, Accel, FERSA, BTIP, TDCGL and John D. Beletic. The term "Voting Parties" shall no longer include Roger Linquist. (b) A new Section 5.11 is added as follows: 5.11 Transfers by Linquist. Roger Linquist agrees that he will only Transfer the number of shares of Common Stock that he would have been permitted to Transfer under Securities and Exchange Commission Rule 144(e)(1) if he were subject to such rule. Linquist will report to the Secretary of the Company (or his designee) within 10 days after the end of each month the number of shares of Common Stock Transferred by him during the preceding month. Upon request from Linquist, the Company will provide to Linquist the current calculation of the maximum number of shares that he would have been permitted to Transfer under Rule 144(e)(1). 1 2 3. Effectiveness of Amendment. Pursuant to Section 7.5 of the Stockholders Agreement, this Amendment will be effective as of the date shown above upon receipt by the Company of a counterpart of this Amendment executed by Holders of a majority of the shares of Voting Common Stock then owned by the Holders. 4. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 5. Full Force and Effect. The Stockholder Agreement, as specifically amended by this Amendment, shall remain in full force and effect. 2 3 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first written above. PAGEMART WIRELESS, INC. By: ---------------------------------------------- John D. Beletic Chairman & CEO Address: 3333 Lee Parkway Suite 100 Dallas, Texas 75206 THE MORGAN STANLEY LEVERAGED EQUITY FUND II, L.P. By: MORGAN STANLEY LEVERAGED EQUITY FUND II, INC., its General Partner By: ---------------------------------------------- Name: Title: Address: 1221 Avenue of the Americas New York, New York 10020 MORGAN STANLEY CAPITAL PARTNERS III, L.P. By: MSCP III, L.P., its General Partner By: Morgan Stanley Capital Partners III, Inc., its General Partner By: ---------------------------------------------- Name: Title: Address: 1221 Avenue of the Americas New York, New York 10020 3 4 MORGAN STANLEY CAPITAL INVESTORS, L.P. By: MSCP III, L.P., its General Partner By: Morgan Stanley Capital Partners III, Inc., its General Partner By: ---------------------------------------------- Name: Title: Address: 1221 Avenue of the Americas New York, New York 10020 MSCP III 892 INVESTORS, L.P. By: MSCP III, L.P., its General Partner By: Morgan Stanley Capital Partners III, Inc., its General Partner By: ---------------------------------------------- Name: Title: Address: 1221 Avenue of the Americas New York, New York 10020 MORGAN STANLEY VENTURE CAPITAL FUND II, L.P. By: Morgan Stanley Venture Partners II, L.P., its General Partner By: Morgan Stanley Venture Capital II, Inc., its Managing General Partner By: ---------------------------------------------- Name: Title: Address: 1221 Avenue of the Americas New York, New York 10020 4 5 MORGAN STANLEY VENTURE CAPITAL FUND, L.P. By: Morgan Stanley Venture Partners L.P., its General Partner By: Morgan Stanley Venture Capital Inc., its Managing General Partner By: ---------------------------------------------- Name: Title: Address: 1221 Avenue of the Americas New York, New York 10020 MORGAN STANLEY VENTURE CAPITAL FUND II, C.V. By: Morgan Stanley Venture Partners II, L.P., its General Partner By: Morgan Stanley Venture Capital II, Inc., its Managing General Partner By: ---------------------------------------------- Name: Title: Address: 1221 Avenue of the Americas New York, New York 10020 MORGAN STANLEY VENTURE INVESTORS, L.P. By: Morgan Stanley Venture Partners II, L.P., its General Partner By: Morgan Stanley Venture Capital II, Inc., its Managing General Partner By: ---------------------------------------------- Name: Title: Address: 1221 Avenue of the Americas New York, New York 10020 5 6 FIRST PLAZA GROUP TRUST By: MELLON BANK, N.A., TRUSTEE (as directed by General Motors Investment Management Corporation) By: ---------------------------------------------- Name: Title: Address: c/o Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258-0001 Attention: Bernadette Rist General Motors Investment Management Corporation 767 5th Avenue New York, NY 10153 Attention: Kathryn T. Stokel Robert D. Cromwell J.P. MORGAN CAPITAL CORPORATION By: ---------------------------------------------- Name: Title: SIXTY WALL STREET FUND 1995, L.P. By: Sixty Wall Street Corporation By: ---------------------------------------------- Name: Title: Address: 60 Wall Street New York, New York 10260 6 7 ACCEL TELECOM L.P. By: Accel Telecom Associates, L.P., its General Partner By: ---------------------------------------------- Name: Title: Address: One Palmer Square Princeton, NJ 08542 ACCEL INVESTORS '89 L.P. By: ---------------------------------------------- Name: Title: Address: One Palmer Square Princeton, NJ 08542 ACCEL III L.P. By: Accel III Associates L.P., its General Partner By: ---------------------------------------------- Name: Title: Address: One Palmer Square Princeton, NJ 08542 BT INVESTMENT PARTNERS, INC. By: ---------------------------------------------- Name: Title: Address: 130 Liberty Street, 25th Floor New York, New York 10006 Attention: Mr. Brian Talbot Vice President 7 8 LEADERSHIP INVESTMENTS LTD. By: ---------------------------------------------- Name: Title: Address: c/o FOMENTO EMPRESARIAL REGIOMONTANO, S.A. DE C.V., Venecia 835-5 Col. Mitras Sur Monterrey, N.L. 64020 Mexico EMPRESAS LA MODERNA, S.A. DE C.V. By: ---------------------------------------------- Name: Title: Address: c/o FOMENTO EMPRESARIAL REGIOMONTANO, S.A. DE C.V., Venecia 835-5 Col. Mitras Sur Monterrey, N.L. 64020 Mexico SEGUROS COMERCIAL AMERICA, S.A. DE C.V. By: ---------------------------------------------- Name: Title: Address: c/o FOMENTO EMPRESARIAL REGIOMONTANO, S.A. DE C.V., Venecia 835-5 Col. Mitras Sur Monterrey, N.L. 64020 Mexico 8 9 TD CAPITAL GROUP, LTD. By: ---------------------------------------------- Name: Title: Address: Ernst & Young Tower, 20th Floor P.O. Box 1, Toronto Dominion Centre Toronto, Ontario M5K 1A2 Canada 9 10 ELLMORE C. PATTERSON ANNE H. PATTERSON BRANDYWINE TRUST COMPANY, ET. AL, TRUSTEES U/A 5/4/56 FBO JANE C. BECK BRANDYWINE TRUST COMPANY, TRUSTEE U/A 2/10/56 FBO MICHAEL E. PATTERSON BRANDYWINE TRUST COMPANY, TRUSTEE U/A 2/10/56 FBO ROBERT E. PATTERSON BRANDYWINE TRUST COMPANY, TRUSTEE U/A 2/10/56 FBO DAVID C. PATTERSON BRANDYWINE TRUST COMPANY, TRUSTEE U/A 2/10/56 FBO THOMAS H.C. PATTERSON MARIA W. PATTERSON, C/F ELOISE C. PATTERSON U/NYUGMA MARIA W. PATTERSON, C/F DAVID G. PATTERSON U/NYUGMA MARIA W. PATTERSON, C/F DAPHNE D. PATTERSON U/NYUGMA MICHAEL E. PATTERSON & ELENA C. PATTERSON, TRUSTEES U/A 9/6/90 FBO ANNE H. PATTERSON MICHAEL E. PATTERSON & ELENA C. PATTERSON, TRUSTEES U/A 9/6/90 FBO ELENA A. PATTERSON MICHAEL E. PATTERSON & ELENA C. PATTERSON, TRUSTEES U/A 3/12/92 FBO MICHAEL E. PATTERSON, JR. 10 11 By: Kaplan, Choate Management Inc., as Investment Manager By: ---------------------------------------------- Name: Title: Address: c/o Kaplan Choate & Co. 880 Third Avenue New York, NY 10022 UNITED MISSOURI BANK OF KANSAS CITY, N.A. FOR THE BENEFIT OF GARI L. CHEEVER By: ---------------------------------------------- Name: Title: Address: 1010 Grand P.O. Box 419226 Kansas City, MO 64141-6226 UNITED MISSOURI BANK OF KANSAS CITY, N.A. FOR THE BENEFIT OF EDWARD M. LEONARD By: ---------------------------------------------- Address: 1010 Grand P.O. Box 419226 Kansas City, Mo 64141-6226 By: ---------------------------------------------- Roger Linquist Address: 8144 Walnut Hill Lane Suite 600 Dallas, Texas 75231 11 12 By: John A. Beletic Address: P.O. Box 18662 Cleveland Heights, OH 44118-0662 By: ---------------------------------------------- John D. Beletic Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- John D. Beletic as Custodian For Allison C. Beletic Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- Walter F. Loeb Address: P. O. Box 1155 New York, NY 10580 By: ---------------------------------------------- Vick T. Cox Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- Frances W. Hopkins Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 12 13 By: ---------------------------------------------- Sandra D. Neal Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- Richard S. Nelson Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- Mary Jo Hernandez Sabeti Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- Gari L. Cheever Address: 520 Lowell Avenue Palo Alto, CA 94301 By: ---------------------------------------------- G. Clay Myers Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- Kenneth L. Hilton Address: 1205 Windy Meadow Dr. Plano, Texas 75023 13 14 By: ---------------------------------------------- Homer Huddleston Address: P.O. Box 700007 Dallas, Texas 75370-0007 By: ---------------------------------------------- Douglas S. Glen Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- Carol W. Dickson Address: 142 Allencrest Dr. Coppell, Texas 75019 By: ---------------------------------------------- Lawrence H. Wecsler Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- Douglas H. Kramp Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- Paul L. Turner Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 14 15 By: ---------------------------------------------- Jack D. Hanson Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- Thomas C. Keys Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- Todd A. Bergwall Address: 3333 Lee Parkway, Suite 100 Dallas, Texas 75219 By: ---------------------------------------------- Cesary Pasiuk Address: c/o Kaplan Choate & Co. 880 Third Avenue New York, NY 10022 EX-10.22 7 RESALE AGREEMENT DATED 12/12/97 - PAGEMART & GTE 1 EXHIBIT 10.22 RESALE AGREEMENT BETWEEN GTE COMMUNICATIONS CORPORATION AND PAGEMART WIRELESS, INC. 2 TABLE OF CONTENTS
PAGE 1. TERM 1 2. DEFINITIONS 1 3. LICENSE 2 4. INDEPENDENT PARTIES 2 5. SCOPE 3 6. LICENSOR RESPONSIBILITIES 3 7. RESELLER RESPONSIBILITIES 5 8. PERFORMANCE STANDARDS 5 9. PERFORMANCE MEASUREMENTS 6 10. SERVICE COMMITMENT 6 11. PUBLIC REGULATION 7 12. PRICING 8 13. BILLING AND COLLECTIONS 9 14. TERMS OF PAYMENT 9 15. WARRANTY 10 16 RIGHT TO AUDIT 10 17. PRECEDENCE OF DOCUMENTS 10 18. USE OF CONFIDENTIAL INFORMATION 11 19. PUBLICITY 12 20. COMPLIANCE WITH LAWS 12 21. FORCE MAJEURE 12 22. LIABILITY 13 23. ASSIGNMENT 15 24. TAXES 15 25. RECORDS 15
3 26. RIGHT OF ACCESS 16 27. TERMINATION 16 28. DISPUTE RESOLUTION 17 29. NOTICES 18 30. NONWAIVER 19 31. SEVERABILITY 19 32. SECTION HEADINGS 19 33. SURVIVAL OF OBLIGATIONS 20 34. CHOICE OF LAW 20 35. ENTIRE AGREEMENT 20 SIGNATURES 20 EXHIBIT A. - PRICING 21 EXHIBIT B. - PERFORMANCE REQUIREMENTS 22 EXHIBIT C. - REPAIR REPORTING & ESCALATION PROCEDURES 23 EXHIBIT D. - NETWORK REPORTS CRITERIA 24
4 RESALE AGREEMENT This Agreement is made as of December 12, 1997, by and between PageMart Wireless, Inc., a Delaware corporation, with offices for the purpose of this Agreement located at 3333 Lee Parkway, Suite 100, Dallas, Texas 75219 (hereinafter referred to as "LICENSOR") and GTE Communications Corporation, a Delaware corporation, with offices located at 5221 North O'Connor Boulevard, 14th Floor, Irving, Texas 75039 (hereinafter referred to as "RESELLER"). WHEREAS, LICENSOR provides paging, voice messaging, and related messaging services (hereinafter referred to as "SERVICES"); and WHEREAS, RESELLER desires to contract with LICENSOR to resell such SERVICES and, in connection therewith, to receive blocks of Personal Identification Numbers (hereinafter referred to as "PINs") and Direct Inward Dialing numbers (hereinafter referred to as "DIDs") that provide individual access to LICENSOR's system and SERVICES, for resale to members of the general public; THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties agree as follows: 1. TERM This Agreement shall be effective on the date written above and shall continue in effect thereafter for a period of thirty-six (36) months (hereinafter the "Term") unless terminated or modified by either party in accordance with the provisions of this Agreement. This Agreement shall be automatically terminated unless renewed by RESELLER by written notice to LICENSOR not less than thirty (30) days prior to the end of the Term. At the end of each twelve (12) month period of the Term either party shall have the option to request review of the Agreement terms and adjustment of such terms as are mutually agreed upon by the parties. Unless mutually agreed otherwise, the Agreement shall remain in force as written until the end of the Term. 2. DEFINITIONS (a) CAP Code - The numeric code that identifies and is unique to each pager placed in service on LICENSOR's Paging System. (b) DID - A local telephone number assigned by LICENSOR to identify a specific pager on the LICENSOR's network. (c) Equipment - Pagers and related message receiving devices. (d) Paging Terminal - A paging switch that processes paging calls. Page 1 5 (e) Paging System - A telecommunications and radio frequency(ies) network that provides paging and related messaging services throughout a specific geographic area. (f) PIN - Personal Identification Number. A specific number assigned by LICENSOR to identify a pager on the LICENSOR's network. By entering the PIN into LICENSOR's computer via a touch-tone telephone, the respective pager is activated. (g) SERVICES - paging, voice messaging, and related messaging services currently offered for resale by LICENSOR, including but not limited to such additional SERVICES as LICENSOR makes available in the retail or reseller market during the Term of this Agreement. Notwithstanding the foregoing, at such time LICENSOR makes available two-way messaging for resale, the parties shall mutually agree to the terms and conditions under which such services will be provided to RESELLER. (h) Subscriber - A person or entity that is an end user of the LICENSOR's Paging System. (i) Telephone Interconnect Charges - Those charges directly associated with acquiring Direct Inward Dial (DID) paging telephone numbers and transporting calls from the local exchange carrier. 3. LICENSE (a) LICENSOR grants RESELLER a non-exclusive license to resell LICENSOR's SERVICES subject to the terms of the Agreement and the rules, regulations and decisions of the Federal Communications Commission (hereinafter referred to as "the FCC"). (b) RESELLER is authorized to license its own sub-agents and affiliates for the marketing, promotion and resale of LICENSOR's SERVICES, provided that RESELLER shall be responsible for the observance by its sub-agents, affiliates, and sub-licensees of the terms and conditions of this Agreement. RESELLER shall provide notice to LICENSOR of all sub-agents and affiliates authorized for promotion and resale on its behalf. 4. INDEPENDENT PARTIES Each party is an independent contractor. Except as provided in this Agreement, neither party shall have the right, power, or authority to act or to create any obligation, express or implied, on behalf of the other party. Except as permitted pursuant to paragraph 3(b) above, all sales by RESELLER shall be in its own name and for its own account. Page 2 6 5. SCOPE (a) This Agreement is non-exclusive and RESELLER is under no obligation to LICENSOR to resell any certain amount of SERVICES or refrain from selling or reselling competing SERVICES. (b) LICENSOR hereby agrees to provide SERVICES in an efficient, economic, and timely fashion in accordance with the generally accepted commercial and business practices in the industry. (c) This Agreement is solely between LICENSOR and RESELLER and is not intended to create rights in or obligations to any third party. 6. LICENSOR RESPONSIBILITIES For the Term: (a) LICENSOR shall establish a dedicated account manager for communications with RESELLER and shall actively manage the relationship between the parties. The account manager will be the focal point for all issues and questions that may arise during this relationship and shall be available by pager at all times. Escalation procedures have been defined by both the LICENSOR and RESELLER as outlined in Exhibit C. (b) LICENSOR shall provide RESELLER's Subscribers with access to its Paging System to initiate and receive paging messages and shall use commercially reasonable good faith efforts to provide continuous network service in the geographical locations where LICENSOR is legally authorized and has the facilities to provide SERVICES. (c) The SERVICES provided by LICENSOR for resale by RESELLER shall include but not be limited to those listed on Exhibit A hereto as amended by the parties from time to time. (d) LICENSOR shall assign and coordinate all DID, CAP Code and, at RESELLER's option, toll free numbers in order to ensure the compatible initiation of SERVICES to RESELLER's Subscribers placed on LICENSOR's Paging System. LICENSOR shall provide at no charge, all required software, documentation and training to RESELLER to authorize and enable RESELLER to initiate and terminate SERVICES to RESELLER's customers as Subscribers on LICENSOR's Paging System. Page 3 7 (e) * (f) LICENSOR will provide sample collateral and marketing materials. This will include network manuals and features / options collateral. RESELLER shall have the right to copy, modify, reproduce and change all collateral and use and distribute such collateral in modified or unmodified form without further consent of or payment to LICENSOR provided that RESELLER shall not omit or misstate any material fact contained in the collateral or marketing material, including without limitation, the specifications or functionality of the equipment, the SERVICES, or LICENSOR's network capability. RESELLER will defend, indemnify and hold harmless LICENSOR from any claim, assertion, suit, demand or proceeding ("Claim"), to the extent that such Claim is caused by modification by RESELLER to, or use by RESELLER beyond that contemplated by this Agreement of, collateral, marketing materials or manuals provided by LICENSOR to RESELLER under this Section 6(f). (g) At the request of RESELLER, LICENSOR shall provide RESELLER training for all SERVICES covered by the scope of this Agreement no less than ten (10) days, but not more than thirty (30) days prior to RESELLER's scheduled introduction of those SERVICES. (h) LICENSOR shall provide and support on-line access to LICENSOR's administration system by which RESELLER may activate, deactivate, suspend, or terminate SERVICES to its Subscribers. (i) LICENSOR shall provide, support and update its zip code coverage area database to reflect its Paging System coverage areas. (j) LICENSOR shall use its commercially reasonable best efforts to provide at least ninety (90) days' prior written notice of new products and services offerings. (k) LICENSOR shall use its commercially reasonable best efforts to provide at least ninety (90) days' notice of revisions to LICENSOR's administrative ordering system that may materially affect LICENSOR's ability to provide SERVICES or RESELLER's ability to initiate and terminate SERVICES to RESELLER's customers as Subscribers on LICENSOR's Paging System. (l) If LICENSOR alters or revises transmission protocols, LICENSOR shall provide at least one hundred eighty (180) days' advance notice to RESELLER prior to the effective date of such proposed change. If LICENSOR changes transmission protocols whereby previously authorized Equipment is no longer authorized for additional users on LICENSOR's transmission system, except only to the extent prohibited by law, LICENSOR agrees to grandfather all of Page 4 8 RESELLER's existing Subscriber's Equipment for continued use on the LICENSOR's network until LICENSOR proposes a mutually acceptable transition plan for such grandfathered Subscribers' Equipment. At the end of the one hundred eighty (180) days' notice period, RESELLER shall no longer sell or place into service under lease additional units of Equipment that is no longer authorized for additional users on LICENSOR's transmission system. (m) LICENSOR shall assist and support RESELLER in integrating RESELLER'S billing and administration systems with LICENSOR's administration system to permit RESELLER to simplify and maximize its efficiency in reselling LICENSOR's SERVICES. (n) LICENSOR shall provide repair services to RESELLER and RESELLER's Subscribers in accordance with the terms of Exhibit C to this Agreement. (o) LICENSOR shall provide network reports in accordance with the terms in Exhibit D to this Agreement. 7. RESELLER RESPONSIBILITIES (a) RESELLER shall be solely responsible for providing all sales, Equipment and customer support services to its Subscribers. RESELLER further agrees that all Equipment provided to its Subscribers shall be compatible with the existing transmission system of LICENSOR. RESELLER further agrees that all Equipment provided to its Subscribers for use on LICENSOR'S transmission system shall utilize the industry standard of FLEX (TM) based protocols. (b) RESELLER shall be solely responsible for all billings to and collections from its Subscribers, including but not limited to the sending of periodic bills, collection of amounts owed or past due, and the collection and return of all applicable taxes on such SERVICES or Equipment rentals. (c) RESELLER shall provide and mail all announcements or notices required to be mailed to its Subscribers as required by any regulatory agency. (d) RESELLER shall maintain and keep in good working order all Equipment sold or leased by RESELLER to its Subscribers pursuant to the terms of this Agreement, in accordance with all manufacturer's specifications and the provisions of the filed tariffs of LICENSOR. 8. PERFORMANCE STANDARDS LICENSOR agrees to comply with the Performance Requirements encompassed in Exhibit B to this Agreement. If LICENSOR fails to meet any of the Performance Page 5 9 Requirements (except to the extent such failure is caused by a Force Majeure event or an act or omission of RESELLER), RESELLER may provide written notice to LICENSOR regarding such failure and LICENSOR shall use its best efforts to comply with such Performance Requirements. If LICENSOR fails to meet such Performance Requirements (except to the extent such failure is caused by a Force Majeure event or an act or omission of RESELLER)* 9. PERFORMANCE MEASUREMENTS LICENSOR's performance shall be measured against the Performance Requirements of Exhibit B as reported by RESELLER's Performance Measurements Report Card. RESELLER shall meet with LICENSOR within thirty (30) days of contract execution to present Report Card Performance Measurements. The Report Card Performance Measurements will also reflect RESELLER's Performance Objectives, which may in many respects be more stringent than the contract requirements. On a quarterly basis, RESELLER shall compile the performance data and publish the Performance Report on Vendor Effectiveness (PROVE) Report Card. LICENSOR shall provide written action plans for Performance Measurements that do not meet RESELLER's Performance Requirements Report Card. Additional action plans shall be provided to RESELLER in conjunction with pre-scheduled meetings for all Report Card Performance Measurements not met on a quarterly basis. The corrective action associated with the action plans shall be implemented within thirty (30) days, unless the parties otherwise agree. 10. SERVICE COMMITMENT * Page 6 10 11. PUBLIC REGULATION (a) It is understood that the ultimate control and responsibility for the standard and quality of SERVICES required under the provisions of and license issued by the FCC to LICENSOR shall be retained, rest and remain the prerogative and obligation solely of LICENSOR. No provision of this Agreement shall be construed as vesting in RESELLER any control whatsoever of the radio communication facilities and operations of LICENSOR. To the extent any performance obligations assumed in this Agreement exceed standards set by the FCC, paragraphs (b) or (c) of this section shall not be construed to relieve LICENSOR from the performance obligations assumed in this Agreement. (b) This Agreement is subject to all of the terms and conditions of LICENSOR's outstanding authorizations from the FCC and the utility regulatory agencies in the states to which this Agreement pertains, as such tariffs and authorizations are presently in effect or as they may hereafter be revised. Nothing in this Agreement shall be construed so as to impair or diminish LICENSOR's control over the facilities of the applicable stations. (c) It shall be LICENSOR's obligation to obtain all federal, state and local approvals that are required for LICENSOR's lawful participation in this Agreement. (d) This Agreement shall be terminated, amended, revised, or supplemented immediately if required by applicable law or regulation; provided, that RESELLER shall have the option to terminate this Agreement on thirty (30) days' written notice to LICENSOR, given after receipt of written notice from LICENSOR of such a required amendment, revision or supplement, that RESELLER determines will have a material impact on its products, services or business. (e) The imposition by federal, state or local regulatory agencies of any amendments, revisions, deletions or supplements to this Agreement shall thereby relieve LICENSOR and RESELLER of any obligations or liabilities to the other resulting from the provisions of this Agreement which were ordered amended, revised, deleted or supplemented; provided, that RESELLER shall have the option to terminate this Agreement on thirty (30) days' written notice to LICENSOR, given after receipt of written notice from LICENSOR of such a required amendment Page 7 11 revision or supplement, that RESELLER determines will have a material impact on its products, services or business. 12. PRICING (a) RESELLER hereby agrees to pay LICENSOR the charges and fees for SERVICES specified in Exhibit A in accordance with the terms and conditions contained herein. (b) The charges and fees specified in Exhibit A shall commence at the time RESELLER activates each particular number in LICENSOR's Paging System. Such charges shall continue for each number for a minimum of thirty (30) days, and thereafter until the number in question is canceled or otherwise disconnected in accordance with the provisions herein. When a number is activated in the middle of a month, the applicable rate will be prorated to the first of the following month so that all subsequent bills will be tendered thereafter on a monthly basis. (c) With the exception of Telephone Interconnect Charge changes, the specified prices in Exhibit A shall remain firm for the first twelve (12) months of this Agreement. Thereafter, each party may propose price adjustments once in each successive twelve (12) month period of the Term by giving written notice to the other at least ninety (90) days prior to the proposed effective date of the new pricing. However, no price adjustment will be effective unless mutually agreed by the parties in writing. LICENSOR shall honor all prices for SERVICES for which orders have been issued prior to the effective date of such adjustment. (d) Notwithstanding the foregoing or anything to the contrary contained in this Agreement or any schedule or exhibit attached hereto, LICENSOR shall have the right, where permitted by applicable law or regulation, to change the fees charged for SERVICES at any time upon thirty (30) days prior notice to RESELLER in the event LICENSOR deems such change necessary to comply with applicable law or regulation, whether state or federal, or in the event LICENSOR determines that a change in applicable law or regulation substantially affects LICENSOR's operating costs. If RESELLER deems such requested changes unreasonable or undesirable, RESELLER may terminate this Agreement upon thirty (30) days written notice to LICENSOR. (e) * Page 8 12 (f) Where allowable by the state regulating authority, the prices charged by RESELLER to its Subscribers for all SERVICES shall be determined solely by RESELLER. In states where tariff rates are required, RESELLER may operate under its own tariff or the tariff of LICENSOR. 13. BILLING AND COLLECTIONS (a) LICENSOR will provide RESELLER a single tape for monthly recurring charges and excess usage in an agreed format. LICENSOR shall provide usage data to RESELLER no later than ten (10) days after the first day following the month such charges were incurred. Invoice and detail shall be received no later than fifteen (15) days after the first day of the month following the month such charges were incurred. LICENSOR shall endeavor to reduce the interval for provision of invoices and detail to no more than five (5) days as soon as feasible for RESELLER data. (b) The invoice and associated detail must be generated and supplied in an acceptable electronic format as predetermined by both parties. (c) Both parties shall collaboratively develop and establish mutually acceptable protocol and system requirements to accommodate electronic data transfer between their respective computer systems. (d) * (e) LICENSOR shall provide the data required by RESELLER's billing department to credit RESELLER for network outages. This credit process shall be an automated process and shall not require a credit request from RESELLER. 14. TERMS OF PAYMENT Payment shall be due thirty-one (31) days after the date of LICENSOR's invoice, or the receipt of LICENSOR's invoice, whichever is later. The invoice rendering date and dates showing the time period covered by the invoice must be printed on the invoice. Amounts disputed by RESELLER shall be withheld from the monthly remittance and LICENSOR shall be notified in writing of such disputed amounts and shall be provided with documentation supporting such disputed amounts within thirty-one (31) days of RESELLER's receipt of the invoice containing such disputed charges. If the parties are unable to resolve the dispute within thirty (30) days following LICENSOR's receipt of RESELLER's written notice of disputed charges and supporting documentation, the dispute shall at the request of either party that wishes to pursue the matter be submitted for resolution via the terms of Section 28 of this Agreement. RESELLER shall only be assessed late charges for amounts held in dispute that are determined pursuant to the resolution provisions of Section 28 to have been disputed in bad faith. Page 9 13 Such late charges shall be assessed at the rate of one and one-half percent (1 1/2%) per month on the disputed amount outstanding. 15. WARRANTY LICENSOR represents and warrants that its Paging System and any software provided to RESELLER for use in association with the SERVICES is capable of correctly processing, providing, and receiving date data as well as properly exchanging accurate date data with all products (for example, hardware, software and firmware) with which this Paging System and software is designed to be used and will not malfunction or cease to function due to an inability to correctly process such date data, including but not limited to transitions to or from the years 1999 and 2000. 16. RIGHT TO AUDIT Upon written notice to LICENSOR, RESELLER or its authorized representative, shall have the right to commence an audit of LICENSOR's books, records and operations pertaining to its performance of this Agreement. The scope of the audit may include, but is not limited to: financial records, documentation and procedures, and input and output processing. Within thirty (30) days of such notice, the Parties will determine the location, date and specific information to be audited. No more than two audits may be conducted in any calendar year. Audits will be conducted during normal business hours and shall be of such records, accounts and internal processes and procedures that contain information concerning any reports provided by LICENSOR or any charges payable under the terms of this Agreement including, but not limited to, billing logic and associated systems. The cost of the audit shall be borne by RESELLER if the amount of overcharges discovered but not previously reimbursed to RESELLER does not exceed five percent (5%) of net payments to LICENSOR over the previous twelve (12) months. However, the cost of such audit shall be borne by LICENSOR if the amount of overcharges discovered but not previously reimbursed to RESELLER exceeds five percent (5%) of RESELLER's net payments to LICENSOR over the previous twelve (12) months. All auditors shall be subject to the confidentiality requirements of both parties established herein. 17. PRECEDENCE OF DOCUMENTS All orders for SERVICES placed by RESELLER upon LICENSOR during the Term hereof shall be subject to and governed by the provisions contained herein. The terms and conditions of this written Agreement shall control over any conflicting or inconsistent terms and conditions contained in any order placed with LICENSOR by RESELLER and in any order confirmation issued by LICENSOR to RESELLER. Page 10 14 18. USE OF CONFIDENTIAL INFORMATION (a) Any specifications, drawings, sketches, models, samples, tools, computer programs, technical information, or confidential business information or data disclosed by one party to the other hereunder, if in writing and clearly marked as "confidential" or with words of clearly similar meaning, at the time of disclosure, or if oral and designated as confidential at the time of disclosure as well as summarized in a writing indicating the confidential nature of the same within twenty (20) days of disclosure (hereinafter called "Confidential Information"), shall remain the property of the supplier of such Information. All copies of such Confidential Information in written, graphic or other tangible form shall be returned to the discloser upon request, (b) For the purposes of this Agreement, Confidential Information shall not include any information that: (1) was previously known to the recipient; (2) is subsequently received by the recipient free from any obligation to keep it confidential; (3) is independently developed by the receiving party; or (4) was or is subsequently made public by the supplier or a third party, without breach of any obligation of confidentiality. All Confidential Information shall be treated as confidential and not disclosed by the recipient, and shall unless the prior written consent of the disclosing party is obtained be used by the recipient only in connection with fulfilling the obligations of the recipient that arise pursuant to this Agreement, Confidential Information shall only be distributed to those employees of the recipient who have a need to know. (c) Each party shall treat the other's Confidential Information in accordance with a standard of care reasonably calculated to prevent inadvertent or accidental disclosure. Nothing herein shall be construed as waiving the right of any party to require the other party to execute a written nondisclosure agreement, containing reasonable additional terms and conditions, prior to the supplying of particular Confidential Information from time to time. (d) LICENSOR shall take such measures as necessary to ensure that all information regarding RESELLER's customers and potential customers received by LICENSOR from RESELLER is not made available to or used by LICENSOR, its affiliates, employees or agents for any purposes other than to support RESELLER. This shall not, however, be construed to prohibit Page 11 15 LICENSOR from competing with RESELLER, provided it does not use RESELLER provided information to do so. 19. PUBLICITY The parties agree to submit to one another for written approval all advertising, sales promotion, press releases and other publicity matters relating to the SERVICES furnished or the SERVICES performed by them pursuant to this Agreement whereby their respective names or marks are mentioned or language from which the connection of said names or marks therewith may be inferred or implied, and the parties further agree not to publish or use such advertising, sales promotions, press releases, or publicity matters without such prior written approval. Such approval shall not be unreasonably withheld or delayed by either party. 20. COMPLIANCE WITH LAWS The parties hereto shall comply with the provisions of all applicable federal, state, county and local laws, ordinances, regulations and codes (including procurement of required permits or certificates) in their respective performance hereunder, including, but not limited to, the standards promulgated under the Occupational Safety and Health Act, Executive Order 11246, as amended, relative to Equal Employment Opportunity, Section 503 of the Vocational Rehabilitation Act of 1973, as amended, and Section 402 of the Vietnam Era Veterans Readjustment Assistance Act of 1974 and all applicable laws, orders and regulations concerning immigrants and non-discrimination in the employment of minorities, females, veterans and the handicapped. Each party hereby agrees to indemnify the other party, and defend the same against, any claims, loss or damage sustained because of its noncompliance hereunder. 21. FORCE MAJEURE Neither LICENSOR nor RESELLER shall be responsible for any delay or failure in performance of any part of this Agreement to the extent that such delay or failure is caused by an event beyond its control, which may include, but not be limited to, fire, flood, explosion, war, strike, embargo, government requirement, civil or military authority, and acts of God ("Condition(s)"). If any such Condition(s) occur(s), the party delayed or unable to perform shall promptly give notice to the other party and, if such Condition(s) remains at the end of thirty (30) days thereafter or for more than thirty (30) days within any ninety (90) day period, the party affected by the other's delay or inability to perform may elect to suspend this Agreement or part thereof, and resume performance of this Agreement once the Condition(s) cease(s), with an option in the affected party to extend the period of this Agreement up to the length of time the Condition(s) endured. If such Conditions continue for more than thirty (30) days, or for more than thirty (30) days within any ninety (90) day period, either party shall have the right to terminate this Agreement upon written notice to the other party. Page 12 16 22. LIABILITY (a) Notwithstanding anything to the contrary herein, each party shall indemnify and save the other harmless the other from any loss or damages (including reasonable attorney's fees) incurred by the other because of claims, suits, or demands based on personal injury or death or property damage or third party claims, suits or demands of any kind, to the extent such loss or damage is caused by or results from the negligent or willful acts or omissions of the other or its employees or agents. The indemnifying party shall receive the full opportunity and authority to assume the defense of and settlement of such suits. The indemnified party may participate in the indemnifying party's defense of such matter through its own counsel at its own expense if it so elects. The indemnified party agrees to furnish to the indemnifying party upon request all information and reasonable assistance available to the indemnified party for defense against any such suit, claim, or demand. (b) LICENSOR will defend, indemnify and hold harmless RESELLER, and RESELLER's employees, agents and customers, from any claim, assertion, suit, demand or proceeding ("Claim") alleging that the SERVICES, or any materials related thereto (including collateral, marketing materials and manuals referred to in Section 6(f) herein except to the extent RESELLER is obligated to indemnify LICENSOR pursuant to 6(f)), provided by LICENSOR under this Agreement, or use or possession thereof, constitute, cause or result in direct or contributory infringement or inducement of infringement, misappropriation, misuse of any patent, copyright, trademark, trade secret or other intellectual property or proprietary right, including any right of privacy or publicity, of any person or entity. LICENSOR shall pay all damages, settlements, judgments, fines, penalties and costs (including court costs and reasonable fees of attorneys) incurred in connection with the Claim. RESELLER will promptly notify LICENSOR of the Claim and, at LICENSOR's expense, provide LICENSOR with all requested information and assistance reasonably necessary to the defense of the Claim. (c) LICENSOR makes no warranty, either express or implied concerning its facilities, products, or SERVICES, including, without limitation, warranties of merchantability or fitness for a particular purpose. RESELLER acknowledges that service interruptions in the telecommunications industry frequently are due to circumstances beyond a carrier's control and are difficult to assess as to cause or resulting damages. The parties agree that LICENSOR shall not be liable beyond the actual and direct loss to RESELLER arising out of any mistakes, omissions, interruptions, delays, errors, or defects in transmission of pages on LICENSOR's Paging System. Except as otherwise provided in Sections 8 and 10, LICENSOR's liability in each instance shall not exceed an amount equivalent to the proportionate charge to RESELLER for the period of the disruption of Page 13 17 SERVICES or the amount of five hundred dollars ($500), whichever is more. LICENSOR shall not be liable for any act or omission of any other entity furnishing services to RESELLER. Except with respect to a breach of the provisions of Section 18, neither party shall be liable for any special, incidental or other consequential damage or losses, including without limitation lost profits, or for loss of stored, transmitted or recorded data, even if it has been advised of the possibility of such damages, nor shall either party be liable for any such damages due to the fault or negligence of the other party or its employees, agents, or representatives. With regard to breaches of Section 18, the liability of the breaching party shall not exceed ten thousand dollars ($10,000.00) per breach unless the breach is found to be knowing and intentional. (d) All work performed under this Agreement by any party shall be performed as an independent contractor and not as an agent of any other party. Persons furnished by the respective parties shall be solely the employees or agents of the furnishing party, and shall be under the sole and exclusive direction and control of such party. They shall not be considered employees of the other party for any purpose. Each party shall be responsible for compliance with all laws, rules and regulations involving its employees or agents, including (but not limited to) employment of labor, hours of labor, health and safety, working conditions and payment of wages. Each party shall also be responsible, for payment of taxes, including federal, state, and municipal taxes, chargeable or assessed with respect to its employees or agents, such as social security, unemployment, workers' compensation, disability insurance and federal and state income tax withholding. (d) RESELLER and LICENSOR each agree to maintain during the term hereof all insurance and/or bonds required by law or this Agreement, including, but not limited to (1) Workers' Compensation and related insurance as prescribed by applicable law; (2) employer's liability insurance with limits of at least $100,000 for each occurrence, and (3) comprehensive general liability insurance including products liability, and, if the use of motor vehicles is required, comprehensive motor vehicle liability insurance, each with limits of at least $500,000 for combined single limit for bodily injury, including death, and/or property damage. RESELLER and LICENSOR each shall cause the other to be included as an Additional Insured under their respective policies and RESELLER's and LICENSOR's appropriate coverage under such policies shall be primary. RESELLER and LICENSOR each shall furnish certificates or evidence of the foregoing insurance indicating the amount and nature of such coverage, the expiration date of each policy, and stating that no material change or cancellation of any such policy shall be effective unless thirty (30) days advanced written notice is given to the party named as an Additional Insured. Notwithstanding the above, LICENSOR and RESELLER shall each have the option, where permitted by law, to self-insure any or all of the foregoing risks. Page 14 18 23. ASSIGNMENT (a) Except as otherwise provided herein, the rights and obligations of the parties hereunder shall neither be assigned nor delegated without the prior written consent of the other party, provided that either may assign or delegate its respective rights and obligations hereunder, in whole or in part, to any parent, subsidiary or affiliate of RESELLER or LICENSOR that was a parent, subsidiary or affiliate at the time of execution of this Agreement upon notice and without the consent of the other party. Such assignment shall not diminish any rights or duties that LICENSOR or RESELLER may have had prior to the effective date of assignment. (b) The limitation on assignment does not apply to an assignment confined solely to moneys due or to become due under this Agreement, provided that the assigning party gives the other party to this Agreement thirty (30) days prior written notice of such assignment. An assignment of moneys shall be void to the extent that it imposes upon RESELLER or LICENSOR obligations to the assignee in addition to the payment of such moneys, or to preclude RESELLER or LICENSOR from dealing solely and directly with the other in all matters pertaining hereto, including negotiation of amendments or settlement of amounts due. If RESELLER or LICENSOR makes such an assignment, it is and shall remain responsible for payment hereunder. (c) Either party may transfer this Agreement as part of a merger or upon the sale of all or substantially all of that party's business on notice to the other party whose consent shall not be required unless the purchaser is a direct competitor of the party receiving the notice, in which case the party receiving the notice shall have the option to terminate this Agreement on ninety (90) days' notice. 24. TAXES RESELLER shall be liable for and shall reimburse LICENSOR for actual payments of any retailers' excise taxes, state and local sales and use taxes, or any similar taxes as applicable, with respect to transactions under this Agreement. Taxes payable by RESELLER shall be separately stated in LICENSOR's invoices and shall not be included In LICENSOR's prices. RESELLER shall not be liable for any tax for which a valid exemption certificate acceptable to the applicable state or local taxing authorities is furnished by RESELLER to LICENSOR. 25. RECORDS (a) LICENSOR shall maintain complete and accurate records of all amounts billable to and payments made by RESELLER hereunder, in accordance with generally accepted accounting practices. LICENSOR shall retain such records Page 15 19 for a period of three (3) years from the date of rendering of SERVICES covered by this Agreement. LICENSOR agrees to provide to RESELLER supporting documentation concerning any disputed amount of invoice within thirty (30) days after RESELLER provides written notification of the dispute to LICENSOR along with RESELLER's documentation supporting any disputed amount. LICENSOR shall retain such records for three (3) years from date of invoice. (b) RESELLER's original Subscriber records shall be and remain the property of RESELLER. LICENSOR shall be entitled at LICENSOR's expense during normal business hours to make copies of such records directly relating to information verifying the number of Subscribers or compliance by RESELLER to the terms of this Agreement. 26. RIGHT OF ACCESS LICENSOR and RESELLER shall each permit reasonable access during normal working hours to its facilities in connection with work hereunder. No charge shall be made for such visits. It is agreed that reasonable prior notification shall be given when access is required and that access is subject to compliance with the facility rules of conduct and security procedures of the visited property. 27. TERMINATION (a) RESELLER may terminate this Agreement with or without cause, upon thirty (30) days' written notice to LICENSOR. Termination shall not affect any order placed prior to the date of termination, (b) Either party may terminate this Agreement, effective immediately, without liability for said termination, upon written notice to the other party, if any of the following events occur: (1) The other files a voluntary petition in bankruptcy; (2) The other is adjudged bankrupt; (3) A court assumes jurisdiction of the assets of the other under a federal reorganization act; (4) A trustee or receiver is appointed by a court for all or a substantial portion of the assets of the other; (5) The other becomes insolvent or suspends its business; (6) The other makes an assignment of its assets for the benefit of its creditors, except as required in the ordinary course of business; Page 16 20 (c) Either party may immediately terminate this Agreement for a material breach or default of any of the terms, conditions or covenants of this Agreement by the other, provided that such termination may be made only following the expiration of a thirty (30) day period during which the other party has failed to cure such breach after having been given written notice of such breach. (d) In the event of a material breach or default by LICENSOR, provided that LICENSOR has failed to cure the same within thirty (30) days of its receipt of RESELLER's written notice of default, or if said default cannot be cured within a thirty (30) day period, LICENSOR has failed to commence and diligently pursue curing such a default, RESELLER shall be under no obligation to continue to provide LICENSOR's SERVICES to its Subscribers, and RESELLER shall have the right to assign those Subscribers to another paging service. 28. DISPUTE RESOLUTION (a) The parties desire to resolve certain disputes, controversies and claims arising out of this Agreement without litigation. Accordingly, except in the case of (i) a suit, action or proceeding to compel a party to comply with its obligations to indemnify the other party pursuant to this Agreement or (ii) a suit, action or proceeding to compel either party to comply with the dispute resolution procedures set forth in this Section 27, the parties agree to use the following alternative procedure as their sole remedy with respect to any dispute, controversy or claim arising out of or relating to this Agreement or its breach. The term "Arbitrable Dispute" means any dispute, controversy or claim to be resolved in accordance with the dispute resolution procedure specified in this Section 27. (b) At the written request of a party, each party shall appoint a knowledgeable, responsible representative to meet and negotiate in good faith to resolve any Arbitrable Dispute arising under this Agreement. The parties intend that these negotiations be conducted by nonlawyer, business representatives. The discussions shall be left to the discretion of the representatives. Upon written agreement, the representatives may utilize other alternative dispute resolution procedures such as mediation to assist in the negotiations. Discussions and correspondence among the representatives for purposes of these negotiations shall be treated as confidential information developed for purposes of settlement, shall be exempt from discovery and production, and shall not be admissible in the arbitration described below or in any lawsuit without the concurrence of all parties. Documents identified in or provided with such communications, which are not prepared for purposes of the negotiations, are not so exempted and may, if otherwise admissible, be admitted in evidence in the arbitration or lawsuit. Page 17 21 (c) If the negotiations do not resolve the Arbitrable Dispute within sixty (60) days of the initial written request, the Arbitrable Dispute shall be submitted to binding arbitration by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. A party may demand such arbitration in accordance with the procedures set out in those rules. Discovery shall be controlled by the arbitrator and shall be permitted to the extent set out in this Section. Each party may submit in writing to a party, and that party shall so respond, to a maximum of any combination of thirty-five (35) (none of which may have subparts) of the following: interrogatories, demands to produce documents and requests for admission. Each party is also entitled to take the oral deposition of one (1) individual of another party. Additional discovery may be permitted upon mutual agreement of the parties. The arbitration hearing shall be commenced within sixty (60) days of the demand for arbitration and the arbitration shall be held in Dallas, Texas. The arbitrator shall control the scheduling so as to process the matter expeditiously. The parties may submit written briefs. The arbitrator shall rule on the Arbitrable Dispute by issuing a written opinion within thirty (30) days after the close of hearings. The times specified in this Section may be extended upon mutual agreement of the parties or by the arbitrator upon a showing of good cause. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. (d) Each party shall bear its own cost of these procedures. A party seeking discovery shall reimburse the responding party the cost of production of documents (to include search time and reproduction time costs). The parties shall equally share the fees of the arbitration and the arbitrator. 29. NOTICES Any notice or demand given under the terms of this Agreement or pursuant to statute shall be in writing and shall be given or made by telegram, facsimile transmission, certified or registered mail, express mail or other overnight delivery service or hand delivery, proper postage or other charges paid and addressed or directed to the respective parties as follows; To RESELLER: GTE Communications Corporation 5221 N. O'Connor Boulevard East Tower, 14th Floor Irving, Texas 75039 Attention: Director - Contract Management (HQL06C43) Page 18 22 To RESELLER's LEGAL: GTE Communications Corporation 5221 N. O'Connor Boulevard East Tower, 14th Floor Irving, Texas 75039 Attention: Legal Department (HQL06B62) To LICENSOR: PageMart Wireless, Inc. 3333 Lee Parkway Suite 100 Dallas, Texas 75219 Attention: Vice President - Strategic Alliance Business Unit Such notice or demand shall be deemed to have been given or made when actually received or the third business day following the day it is dispatched after being sent, whichever occurs first. The address for notice set out above may be changed at any time by giving thirty (30) days prior written notice in the manner above. 30. NONWAIVER Either party's failure to enforce any of the provisions of this Agreement and/or any purchase order, or to exercise any option hereunder, shall in no way be construed as a waiver of such provisions, rights, or options, or in any way be deemed to affect the validity of this Agreement or any purchase order. 31. SEVERABILITY Should any material part of this Agreement for any reason be declared invalid by order of any court or regulatory agency, the parties shall meet and determine whether such action shall not affect the validity of any remaining portion, which shall remain in force and effect as if this Agreement had been executed with the invalid portion eliminated, or shall require renegotiation or termination. 32. SECTION HEADINGS The headings of the sections herein are inserted for convenience only and are not intended to affect the meaning or interpretation of this Agreement. Page 19 23 33. SURVIVAL OF OBLIGATIONS The respective obligations of LICENSOR and RESELLER under this Agreement which by their nature would continue beyond the termination, cancellation or expiration hereof, shall survive termination, cancellation or expiration hereof. 34. CHOICE OF LAW The construction, interpretation and performance of this Agreement shall be governed by and construed in accordance with the domestic laws of the state of Texas. 35. ENTIRE AGREEMENT This Agreement and the exhibits hereto constitute the entire agreement between LICENSOR and RESELLER. No modifications shall be made to this Agreement unless in writing and signed by appropriate representatives of the parties. IN WITNESS WHEREOF, the parties hereto have executed this Agreement through their authorized corporate representatives. GTE COMMUNICATIONS PAGEMART WIRELESS, INC. CORPORATION By: /s/ ROBERT E. STEWART for By: /s/ DOUGLAS S. GLEN Deb Covey Name: Robert E. Stewart Name: Douglas S. Glen Title: AVP-Billing and Cost Mgmt. Title: Executive Vice President Date: 12/30/97 Date: 12/19/97 Page 20 EX-10.24 8 AGMT TO ASSUME & AMEND NO 2 TO AGMT-PAGEMART & GTE 1 EXHIBIT 10.24 AGREEMENT BETWEEN PAGEMART INCORPORATED AND GTE COMMUNICATION SYSTEMS CORPORATION TO ASSUME AND AMENDMENT NO. 2 TO RESALE AGREEMENT NUMBER 999999-93-12 BETWEEN PAGEMART INCORPORATED AND GTE SERVICE CORPORATION ASSUMPTION GTE Communication Systems Corporation, acting through its GTE Supply division, for the benefit of itself and the affiliates enumerated in Exhibit D, with offices at 700 Hidden Ridge, Irving, Texas 75038 ("RESELLER") assumes and Pagemart Incorporated. with its principal offices located at 6688 North Central Expressway, Suite 900, Dallas, Texas 75026 ("LICENSOR") accepts its assumption of all rights and obligations of GTE SERVICE CORPORATION as RESELLER in said Agreement Number 999999-93-12 as amended (Agreement). AMENDMENT THIS AMENDMENT NO. 2 to Resale Agreement Number 999999-93-12, between RESELLER and LICENSOR shall be effective upon execution by both parties. NOW, THEREFORE, the parties agree to the following changes for the mutual benefit of both parties. CHANGE NUMBER 1 Exhibit A, PRICING of the Agreement shall be replaced with Exhibit A, PRICING attached hereto. CHANGE NUMBER 2 In consideration of the renewal of Resale Agreement Number 999999-93-12 LICENSOR agrees to issue the credits and discounts in, and fulfill the other commitments as detailed in Exhibit B, DISCOUNTS/CREDITS. By accepting the discounts and credits listed in Exhibit B, RESELLER does not represent or guarantee the ordering of any level or amount of Services from LICENSOR or any peculiar status relative to other vendors. CHANGE NUMBER 3 Exhibit C, AUTHORIZED EQUIPMENT attached hereto shall be added to the Agreement. CONFIDENTIAL 2 CHANGE NUMBER 4 The following shall be added as Section 32: 32. AUTHORIZED EQUIPMENT (a) RESELLER and its Subscribers shall only utilize the Equipment listed in Exhibit C, AUTHORIZED EQUIPMENT in connection with LICENSOR's Services. LICENSOR may revise Exhibit C from time to time upon delivery of written notice to RESELLER at least one hundred eighty (180) days prior to the effective date of such revision. If LICENSOR amends Exhibit C in such a manner whereby previously authorized Equipment is no longer authorized for use on LICENSOR's Paging System, LICENSOR agrees at its sole cost and expense to provide substitute authorized Equipment in exchange for the previously authorized Equipment then utilized by RESELLER's Subscribers. (b) All pagers previously sold by LICENSOR to RESELLER are included in this Agreement, as they all still work on this network. CHANGE NUMBER 5 Exhibit D, GTE AFFILIATED ENTITIES attached hereto shall be added to the Agreement. CHANGE NUMBER 6 Exhibit E, REPORTS attached hereto shall be added to the Agreement and LICENSOR agrees to provide such reports to RESELLER. CHANGE NUMBER 7 The second line of Section 1. TERM shall be changed to read "thereafter until October 31, 2000 unless terminated or modified by..." CHANGE NUMBER 8 The following shall be added as Section 31. 31. SERVICE COMMITMENT * CHANGE NUMBER 9 Add the following to Section 6, LICENSOR RESPONSIBILITIES 2 CONFIDENTIAL 3 (d) LICENSOR agrees to provide the monthly reports described in Exhibit E, attached hereto, to RESELLER. (e) LICENSOR shall assume the role of system coordinator for all RESELLER'S terminals. This includes monitoring these terminals for alarms, notifying RESELLER of alarms, scheduling routine maintenance, software upgrades and hardware upgrades. (f) LICENSOR is responsible for keeping RESELLER informed of all necessary updates and maintenance to the degree that it does not affect the RESELLER. CHANGE NUMBER 10 Add the following to Section 7, RESELLER RESPONSIBILITIES (g) RESELLER is responsible for updating the contact list of people who LICENSOR is to contact if an alarm occurs or routine maintenance is required or upgrades become necessary. (h) RESELLER is responsible for purchasing software, hardware, and spare kits for each terminal owned by RESELLER. RESELLER agrees to reimburse LICENSOR at the rate of $100 per man hour (plus travel expenses) for all software and hardware upgrades and other maintenance that RESELLER approves LICENSOR to perform on their behalf. (i) RESELLER will handle emergency maintenance for service affecting outages on a case by case basis. CHANGE NUMBER 11 Add the following to Section 10. BILLING (b) LICENSOR shall provide to RESELLER an overcalls invoice by the 10th day of each month.* (c) LICENSOR shall provide to RESELLER a detailed billing statement for airtime services charge by the 15th day of each month.* (d) If the 15th day of the month falls on a weekend the statement will be delivered to RESELLER by 12:00 noon Central Standard Time on the next business day. Except as specifically modified, amended or supplemented herein, all terms and conditions of Resale Agreement Number 999999-93-12 and its Amendment One shall remain in full force and effect between the parties. 3 CONFIDENTIAL 4
RESELLER LICENSOR GTE COMMUNICATION SYSTEMS PAGEMART INCORPORATED CORPORATION /s/ KEITH HENDERSHOT /s/ DOUGLAS S. GLEN - --------------------------------------------- --------------------------------------------------- (Signature of Authorized Agent) (Signature of Officer) Keith Hendershot Douglas S. Glen - --------------------------------------------- --------------------------------------------------- (Printed Name of Officer) (Printed Name of Officer) Acting Group Manager - Contract Management Executive Vice President - --------------------------------------------- --------------------------------------------------- (Title) (Title) Date: 10-2-97 Date: 10-2-97 --------------------------------------- ---------------------------------------------
APPROVED AS TO FORM AND LEGALITY J.R. SEASTROM ---------------------------------- Attorney, GTE Telephone Operations Date: 09-30-97 ---------------------------- 4 CONFIDENTIAL EX-10.25 9 RESALE AGMT BETWEEN GTE MOBILE & PAGEMART 7/1/96 1 EXHIBIT 10.25 RESALE AGREEMENT BETWEEN GTE MOBILNET SERVICE CORP. AND PAGEMART, INC. 2 TABLE OF CONTENTS
PAGE 1. TERM 1 2. DEFINITIONS 1 3. LICENSE 2 4. INDEPENDENT PARTIES 2 5. SCOPE 2 6. LICENSOR RESPONSIBILITIES 3 7. RESELLER RESPONSIBILITIES 3 8. PUBLIC REGULATION 4 9. PRICING 4 10. BILLING 5 11. TERMS OF PAYMENT 5 12. SPECIAL PROGRAMS 5 13. PRECEDENCE OF DOCUMENTS 6 14. USE OF CONFIDENTIAL INFORMATION 6 15. PUBLICITY 7 16. COMPLIANCE WITH LAWS 7 17. FORCE MAJEURE 7 18. LIABILITY 8 19. ASSIGNMENT 9 20. TAXES 10 21. RECORDS 10 22. RIGHT OF ACCESS 10
i 3 23. TERMINATION 11 24. DISPUTE RESOLUTION 12 25. NOTICES 13 26. NONWAIVER 14 27. SEVERABILITY 14 28. SECTION HEADINGS 14 29. SURVIVAL OF OBLIGATIONS 14 30. CHOICE OF LAW 14 31. ENTIRE AGREEMENT 14
ii 4 RESALE AGREEMENT This Agreement is made as of the first day of July 1996, by and between PageMart, Inc., a Delaware corporation, with offices for the purpose of this Agreement located at 6688 North Central Expressway, Suite 800, Dallas, Texas 75206 (hereinafter referred to individually or collectively as "LICENSOR") and GTE Mobilnet Service Corp., a New York corporation with offices located at 245 Perimeter Center Parkway, Atlanta, GA 30346 (hereinafter referred to as "RESELLER"). WHEREAS, LICENSOR provides paging, voice messaging, and related messaging services (hereinafter referred to as "SERVICES"); and WHEREAS, RESELLER desires to contract with LICENSOR to resell such SERVICES and, in connection therewith, to receive blocks of Personal Identification Numbers (hereinafter referred to as "PINs") and Direct Inward Dialing numbers (hereinafter referred to as "DIDs") that provide individual access to LICENSOR's system and SERVICES for resale to members of the general public; THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties agree as follows: 1. TERM This Agreement shall be effective on July 1, 1996 and shall continue in effect thereafter until October 30, 1996 unless terminated or modified by either party in accordance with the provisions of this Agreement. Thereafter, this Agreement shall be automatically be renewed for consecutive 12 month periods unless terminated by RESELLER by written notice to LICENSOR not less than thirty (30) days prior to the expiration date. At the end of each twelve (12) month period either party shall have the option to review Agreement terms and adjust such terms as are mutually agreed upon by the parties. 2. DEFINITIONS (a) CAP Code - The numeric code that identifies and is unique to each pager placed in service on LICENSOR's Paging System (b) DID - A local telephone number assigned by LICENSOR to identify a specific pager on the LICENSOR's network. By dialing the DID, the respective pager is activated. (c) Equipment - Pagers and related message receiving devices. (d) GTE Tel Ops - GTE Telephone Operations Group. 5 (e) Paging Terminal - A paging central office switch that processes paging calls. (f) Paging System - A telecommunications network that provides paging and related messaging services throughout a specific geographic area. (g) PIN - Personal Identification Number. A specific number assigned by LICENSOR to identify a pager on the LICENSOR's network. By entering their PIN into LICENSOR's computer vial a touch-tone telephone, the respective pager is activated. (h) Subscriber - A person or entity that is the end user of the LICENSOR's Paging System. (i) Telephone Interconnect Charges - Those charges directly associated with acquiring direct dial paging telephone numbers from the local exchange carrier. 3. LICENSE (a) LICENSOR grants RESELLER a non-exclusive license to resell LICENSOR's SERVICES subject to the rules, regulations and decisions of the Federal Communications Commission (hereinafter referred to as "the FCC"). (b) RESELLER may, upon receipt of LICENSOR's prior written approval, be authorized by LICENSOR to license its own sub-agents or affiliates for the marketing, promotion and resale of LICENSOR's SERVICES, provided that RESELLER shall be responsible for the observance by its sub-agents, affiliates, or sub-licensees of the terms and conditions of the Agreement. 4. INDEPENDENT PARTIES Each party is an independent contractor. Except as provided in this Agreement, neither party shall have the right, power or authority to act or to create any obligation, express or implied, on behalf of the other party. All sales by RESELLER shall be in its own name and for its own account 5. SCOPE (a) This Agreement is non-exclusive and RESELLER is under no obligation to LICENSOR to resell any certain amount of SERVICES. (b) LICENSOR hereby agrees to provide SERVICES in an efficient, economic and timely fashion in accordance with generally accepted commercial and business practices. 2 6 6. LICENSOR RESPONSIBILITIES (a) LICENSOR shall provide RESELLER's Subscribers with access to its Paging System and shall use its good faith efforts to provide continuous network service in the geographical locations where LICENSOR is legally authorized and has the facilities to provide SERVICES. (b) The SERVICES provided by LICENSOR shall include but not be limited to: (1) Numeric display - as long as there is frequency space available, unlimited numeric display paging; and (2) Alpha-numeric - as long as there is frequency space available, unlimited alpha-numeric paging. (c) LICENSOR shall assign and coordinate all telephone and CAP code numbers in order to ensure the compatible initiation of SERVICES to Subscribers placed on LICENSOR's Paging System. 7. RESELLER RESPONSIBILITIES (a) RESELLER shall promote, solicit, market and take all reasonable actions, in the exercise of due diligence and good faith, to secure Subscribers for LICENSOR's Paging System. (b) RESELLER shall be solely responsible for providing all sales, Equipment and customer support services to its Subscribers. RESELLER further agrees that all EQUIPMENT provided to its Subscribers shall be compatible with the existing transmission system of LICENSOR. (c) RESELLER shall be solely responsible for all billings to and collections from its Subscribers, including but not limited to the sending of monthly bills, collection of amounts owed or past due, and the collection and return of all applicable taxes on such SERVICES or Equipment rentals. (d) RESELLER shall provide and mail all announcements or notices required to be mailed to its Subscribers as required by any regulatory agency. (e) RESELLER shall assign CAP codes, DIDs and PINs to its Subscribers only from the group of CAP codes, DIDs and PINs assigned to RESELLER by LICENSOR. RESELLER shall ensure that a given CAP code, DID or PIN is not assigned to more that one pager, provided that LICENSOR has not given RESELLER duplicate CAP codes, DIDs or PINs, which were then assigned in violation of this provision without the fault or knowledge of RESELLER. 3 7 (f) RESELLER shall maintain and keep in good working order all Equipment leased by RESELLER to its Subscribers pursuant to the terms of this Agreement, in accordance with all manufacturer's specifications and the provisions of the filed tariffs of LICENSOR. 8. PUBLIC REGULATION (a) It is understood that the ultimate control and responsibility for the standard and quality of SERVICES required under the provisions of and license issued by the FCC to LICENSOR shall be retained, rest and remain the prerogative and obligation solely of LICENSOR. No provision of this Agreement shall be construed as vesting in RESELLER any control whatsoever of the radio communication facilities and operations of LICENSOR. (b) This Agreement is subject to all of the terms and conditions of LICENSOR's outstanding authorizations from the FCC and the utility regulatory agencies in the states to which this Agreement pertains, as such tariffs and authorizations are presently in effect or as they may hereafter be revised. Nothing in this Agreement shall be construed so as to impair or diminish LICENSOR's control over the facilities of the applicable stations. (c) This Agreement shall be subject to the approval of the FCC and the local state regulatory agency, if such approval shall be required. (d) This Agreement shall be terminated, amended, revised, or supplemented immediately if required by the FCC or the local state regulatory agency. (e) The imposition by the FCC or local state regulatory agency of any amendments, revisions, deletions or supplements to this Agreement shall thereby relieve LICENSOR and RESELLER of any obligations or liabilities to the other resulting from the provisions of this Agreement which were ordered amended, revised, deleted or supplemented. 9. PRICING (a) RESELLER hereby agrees to pay LICENSOR the charges and fees for SERVICES specified in Exhibit A in accordance with the terms and conditions contained herein. (b) The charges and fees specified in Exhibit A shall commence at the time RESELLER activates each particular number in LICENSOR's Paging System. Such charges shall continue for each number for a minimum of thirty (30) days, and thereafter until the number in questions is canceled 4 8 or otherwise disconnected in accordance with the provisions herein. When a number is activated in the middle of a month, the applicable rate will be prorated to the first of the following month so that all subsequent bills will be tendered thereafter on a monthly basis. (c) * (d) * (e) Where allowable by the state regulating authority, the prices charged by RESELLER to its Subscribers for all SERVICES shall be determined solely by RESELLER. In states where tariff rates are required, RESELLER may operate under its own tariff or the tariff of LICENSOR. 10. BILLING LICENSOR shall provide RESELLER with a hard copy statement each month which identifies the number of DIDs or PINs billed at the applicable rates. At the reasonable request of RESELLER, LICENSOR shall also provide monthly billing in an electronic format. 11. TERMS OF PAYMENT Payment shall be due thirty (30) days after the date or the receipt of LICENSOR's invoice, whichever is later. 12. SPECIAL PROGRAMS Concurrently herewith, LICENSOR and RESELLER are entering into (i) a Representation Agreement, and (ii) a Trial Lease Program substantially in the forms attached hereto as Exhibit B and Exhibit C, respectively, and incorporated herein for all purposes. The Representation Agreement provides for compensation to RESELLER for the promotion of LICENSOR Products and SERVICES (as such terms are defined in the Representation Agreement). The Trial Lease Program provides for the lease to RESELLER of Products (as defined in the Trial Lease Program) from LICENSOR and the subsequent lease by RESELLER of such Products to RESELLER's Subscribers. 5 9 13. PRECEDENCE OF DOCUMENTS All orders for SERVICES placed during the term hereof shall be subject to and governed by the provisions contained herein. The terms and conditions of this Agreement shall control over any conflicting or inconsistent terms contained in any order placed with LICENSOR by RESELLER. Notwithstanding the foregoing, as to the subject matter there of the terms and conditions of the Representation Agreement or Trial Lease Program, as the case may be, shall control over any conflicting or inconsistent terms and conditions contained in this Agreement. 14. USE OF CONFIDENTIAL INFORMATION (a) Any specifications, drawings, sketches, models, samples, tools, computer programs, technical information, or confidential business information or data furnished by the parties to one another hereunder, if in writing and clearly marked as "confidential" at the time of disclosure, or if oral and designated as confidential at the time of disclosure as well as summarized in writing indicating the confidential nature of the same within twenty (20) days of disclosure (hereinafter called "Confidential Information") shall remain the property of the supplier of such Information. All copies so such Confidential Information in written, graphic or other tangible form shall be returned to the supplier upon request. (b) For the purposes of this Agreement, Confidential Information shall not include any information that: (1) was previously known to the recipient; (2) is subsequently received by the recipient free from any obligation to keep it confidential; (3) is independently developed by the receiving party; or (4) was or is subsequently made public by the supplier or a third party, without breach of any obligation of confidentiality. All Confidential Information shall be treated as confidential and not disclosed by the recipient, and shall be used by the recipient only in connection with fulfilling the obligations of the recipient that arise pursuant to this Agreement, unless the prior written consent of the supplier is obtained. Confidential Information shall only be distributed to those employees who have a need to know. (c) Each party shall treat the other's Confidential Information in accordance with a standard of care reasonably calculated to prevent inadvertent or 6 10 accidental disclosure. Nothing herein shall be construed as waiving the right of any party to require the other party to execute a written non-disclosure agreement, containing reasonable additional terms and conditions, prior to the supplying of particular Confidential Information from time to time. 15. PUBLICITY The parties agree to submit to one another for written approval all advertising, sales promotion, press releases and other publicity matters relating to the SERVICES furnished or the SERVICES performed by them pursuant to this Agreement whereby their respective names or marks are mentioned or language from which the connection of said names or marks therewith may be inferred or implied, and the parties further agree not to publish or use such advertising, sales promotions, press releases, or publicity matters without such prior written approval. Such approval shall not be unreasonably withheld or delayed by either party. 16. COMPLIANCE WITH LAWS The parties hereto shall comply with the provisions of all applicable federal, state, county and local laws, ordinances, regulations and codes (including procurement of required permits or certificates) in their respective performance hereunder, including, but not limited to, the standards promulgated under the Occupational Safety and Health Act, Executive Order 11246, as amended, relative to Equal Employment Opportunity, Section 503 of the Vocational Rehabilitation Act of 1973, as amended, and Section 402 of the Vietnam Era Veterans Readjustment Assistance Act of 1974 and all applicable laws, orders and regulations concerning immigrants and non-discrimination in the employment of minorities, females, veterans and the handicapped. Each party hereby agrees to indemnify the other party, and defend the same against, any claims, loss or damage sustained because of its noncompliance hereunder. 17. FORCE MAJEURE Neither LICENSOR nor RESELLER shall be responsible for any delay or failure in performance of any part of this Agreement to the extent that such delay or failure is caused by event beyond its control, which may include, but not be limited to, fire, flood, explosion, war strike, embargo, government requirement, civil or military authority, and acts of God ("Condition(s)"). If any such Condition(s) occurs, the party delayed or unable to perform shall promptly give notice to the other party and, if such Condition(s) remains at the end of thirty (30) days thereafter, the party affected by the other's delay or inability to perform may elect to terminate or suspend this Agreement or part thereof, and resume performance of this Agreement once the Condition(s) ceases, with an option in 7 11 the affected party to extend the period of this Agreement up to the length of time the Condition(s) endured. 18. LIABILITY (a) Notwithstanding anything to the contrary herein, each party shall indemnify and save harmless the other from any loss or damages (including reasonable attorney's fees) incurred by the other because of claims, suits, or demands based on personal injury or death or property damage or third party claims, suits or demands of any kind, to the extent such loss or damage is caused by or results from the negligent or willful acts or omissions of the other or its employees or agents. The indemnifying party shall receive the full opportunity and authority to assume the sole defense of and settlement of such suits. The indemnified party agrees to furnish to the indemnifying party upon request all information and reasonable assistance available to the indemnified party for defense against any such suit, claim, or demand. (b) LICENSOR makes no warranty, either express or implied concerning its facilities, products, or SERVICES, including, without limitation, warranties of merchantability or fitness for a particular purpose. RESELLER acknowledges that service interruptions in the telecommunications industry frequently are due to circumstances beyond a carrier's control and are difficult to assess as to cause or resulting damages. The parties agree that LICENSOR shall not be liable beyond the actual and direct loss arising out of any mistakes, omissions, interruptions, delays, errors, or defects in transmission of pages on LICENSOR's Paging System. However LICENSOR's liability shall in no event exceed an amount equivalent to the proportionate charge to RESELLER for the period of the disruption of SERVICES or the amount of five hundred dollars ($500), whichever is less. LICENSOR shall not be liable for any act or omission of any other entity furnishing SERVICES to RESELLER. Neither party shall be liable for any special, incidental or other consequential damage or losses, including without limitation lost profits, or for loss of stored, transmitted or recorded data, even if it has been advised of the possibility of such damages, nor shall either party be liable for any such damages due to the fault or negligence of the other party or its employees, agents, or representatives. (c) All work performed under this Agreement by any party shall be performed as an independent contractor and not as an agent of any other party. Persons furnished by the respective parties shall be solely the employees or agents of such parties, respectively, and shall be under the sole and exclusive direction of such parties. They shall not be considered employees of the other party for any purpose. Each party shall be 8 12 responsible for compliance with all laws, rules and regulations involving their respective employees or agents, including (but not limited to) employment of labor, hours of labor, health and safety, working conditions and payment of wages. Each party shall also be responsible, respectively, for payment of taxes, including federal, state, and municipal taxes, chargeable or assessed with respect to its employees or agents, such as social security, unemployment, workers' compensation, disability insurance and federal and state income tax withholding. (d) RESELLER and LICENSOR each agree to maintain during the term hereof all insurance and/or bonds required by law or this Agreement, including, but limited to (1) Workers' Compensation and related insurance as prescribed by applicable law; (2) employer's liability insurance with limits of at least $100,000 for each occurrence, and (3) comprehensive general liability insurance including products liability, and, if the use of motor vehicles is required, comprehensive motor vehicle liability insurance, each with limits of at least $500,000 for combined single limit for bodily injury, including death, and/or property damage. RESELLER and LICENSOR each shall cause the other to be included as an Additional Insured under their respective policies and RESELLER's and LICENSOR's appropriate coverage under such policies shall be primary. RESELLER and LICENSOR each shall furnish certificates or evidence of the foregoing insurance indicating the amount and nature of such coverage, the expiration date of each policy, and stating that no material change or cancellation of any such policy shall be effective unless thirty (30) days advanced written notice is given to the party named as an Additional Insured. Notwithstanding the above, LICENSOR and RESELLER shall each have the option, where permitted by law, to self-insure any or all of the foregoing risks. 19. ASSIGNMENT (a) Except as otherwise provided herein, the rights and obligations of the parties hereunder shall neither be assigned nor delegated without prior written consent of the other party, provided that any party may assign or delegate their respective rights and obligations hereunder, in whole or in part, to any parent, subsidiary or affiliate of RESELLER or LICENSOR that was such a parent, subsidiary or affiliate at the time of execution of this Agreement upon prior written notice to the other. Such assignment shall not diminish any rights or duties that LICENSOR or RESELLER may have had prior to the effective date of assignment. (b) The limitation on assignment does not apply to an assignment confined solely to monies due or to become due under this Agreement, provided RESELLER or LICENSOR is given thirty (30) days prior written notice of such assignment. An assignment of monies shall be void to the extent 9 13 that it attempts to impose upon RESELLER or LICENSOR obligations to the assignee in addition to the payment of such monies, or to preclude RESELLER or LICENSOR from dealing solely and directly with the other in all matters pertaining hereto, including negotiation of amendments or settlement of amounts due. If RESELLER or LICENSOR makes such an assignment, it is and shall remain responsible for payment hereunder. 20. TAXES RESELLER shall be liable for and shall reimburse LICENSOR for actual payments of any Retailers' Excise Taxes, state and local sales and use taxes, or any similar taxes as applicable, with respect to transactions under this Agreement. Taxes payable by RESELLER shall be separately stated in LICENSOR'S invoices and shall not be included in LICENSOR's prices. RESELLER shall not be liable for any tax for which a valid exemption certificate acceptable to the applicable state or local taxing authorities is furnished by RESELLER to LICENSOR. 21. RECORDS (a) LICENSOR shall maintain complete and accurate records of all amounts billable to and payments made by RESELLER hereunder, in accordance with generally accepted accounting practices. LICENSOR shall retain such records for a period of three (3) years from the date of rendering of SERVICES covered by this Agreement. LICENSOR agrees to provide supporting documentation concerning any disputed amount of invoice to RESELLER within thirty (30) days after RESELLER provides written notification of the dispute to LICENSOR. LICENSOR shall retain such records for three (3) years from date of invoice. (b) RESELLER's original Subscriber records shall be and remain the property of RESELLER. LICENSOR shall be entitled at LICENSOR's expense during normal business hours to make copies of such records directly relating to information verifying the number of Subscribers or compliance by RESELLER to the terms of this Agreement. 22. RIGHT OF ACCESS LICENSOR and RESELLER shall each permit reasonable access during normal working hours to its facilities in connection with work hereunder. No charge shall be made for such visits. It is agreed that reasonable prior notification shall be given when access is required. 10 14 23. TERMINATION (a) RESELLER may terminate this Agreement without cause, effective immediately, upon written notice to LICENSOR in the event RESELLER's resale activities are combined with the resale activities of GTE Tel Ops under the Resale Agreement between GTE Tel Ops and LICENSOR dated November 1, 1993 (Resale Combination). In the event of a Resale Combination, all of RESELLER's subscribers will be transferred to the account of GTE Tel Ops and the terms and conditions provided in the Resale Agreement dated November 1, 1993 shall thereafter govern. Termination shall not affect any order placed prior to the date of termination. (b) Either party may terminate this Agreement, effective immediately, without liability for said termination, upon written notice to the other party, if any of the following events occur: (1) The other files a voluntary petition in bankruptcy; (2) The other is adjudged bankrupt; (3) A court assumes jurisdiction of the assets of the other under a federal reorganization act; (4) A trustee or receiver is appointed by a court for all or a substantial portion of the assets of the other; (5) The other becomes insolvent or suspends its business; (6) The other makes and assignment of its assets for the benefits of its creditors, except as required in the ordinary course of business; (7) The identity of the other's business is materially changed by sale of its business, transfer of control of its outstanding stock, merger or otherwise. (c) Either party may immediately terminate this Agreement for a material breach or default of any of the terms, conditions or covenants of this Agreement by the other, provided that such termination may be made only following the expiration of a thirty (30) day period during which the other party has failed to cure such breach after having been given written notice of such breach. (d) In the event of a material breach of default by LICENSOR, provided that LICENSOR has failed to cure the same within thirty (30) days of its 11 15 receipt of RESELLER's written notice of default, or if said default cannot be cured within a thirty (30) day period,' LICENSOR has failed to commence and diligently pursue curing such a default, RESELLER shall be under no obligation to continue to provide LICENSOR's SERVICES to its Subscribers, and RESELLER shall have the right to assign those Subscribers to another paging service. 24. DISPUTE RESOLUTION (a) The parties desire to resolve disputes arising out of this Agreement without litigation. Accordingly, except for action seeking a temporary restraining order or injunction related to the purposes of this Agreement, or suit to compel compliance with this dispute resolution process, the parties agree to use the following alternative dispute resolution procedure as their sole remedy with respect to any controversy or claim arising out of or relating to this Agreement or its breach. (b) At the written request of a party, each party shall appoint a knowledgeable, responsible representative to meet and negotiate in good faith to resolve any dispute arising under this Agreement. The parties intend that these negotiations be conducted by non-lawyer, business representatives. The discussions shall be left to the discretion of the representatives. Upon agreement, the representatives may utilize other alternative dispute resolution procedures such as mediation to assist in the negotiations. Discussions and correspondence among the representatives for purposes of these negotiations shall be treated as confidential information developed for purposes of settlement, exempt from discovery and production, which shall not be admissible in the arbitration described below or in any lawsuit without the concurrence of all parties. Documents identified in or provided with such communications, which are not prepared for purposes of the negotiations, are not so exempted and may, if otherwise admissible, be admitted in evidence in the arbitration or lawsuit. (c) If the negotiations do not resolve the dispute within sixty (60) days of the initial written request, the dispute shall be submitted to binding arbitration by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. A party may demand such arbitration in accordance with the procedures set out in those rules. Discovery shall be controlled by the arbitrator and shall be permitted to the extent set out in this Section. Each party may submit in writing to a party, and that party shall so respond, to a maximum of any combination of thirty-five (35) (none of which may have subparts) of the following: interrogatories, demands to produce documents and requests for admission. Each party is also entitled to take the oral deposition of one (1) individual of another 12 16 party. Additional discovery may be permitted upon mutual agreement of the parties. The arbitration hearing shall be commenced with sixty (60) days of the demand for arbitration and the arbitration shall be held in Dallas, Texas. The arbitrator shall control the scheduling so as to process the matter expeditiously. The parties may submit written briefs. The arbitrator shall rule on the dispute by issuing a written opinion within thirty (30) days after the close of hearings. The times specified in this Section may be extended upon mutual agreement of the parties or by the arbitrator upon a showing of good cause. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. (d) Each party shall bear its own cost of these procedures. A party seeking discovery shall reimburse the responding party the cost of production of the documents (to include search time and reproduction time costs). The parties shall equally share the fees of the arbitration and the arbitrator. 25. NOTICES Any notice or demand given under the terms of this Agreement or pursuant to statute shall be in writing and shall be given or made by telegram, facsimile transmission, certified or registered mail, express mail or other overnight delivery service or hand delivery, proper postage or other charges paid and addressed or directed to the respective parties as follows: To RESELLER: GTE Mobilnet Corp. 245 Perimeter Center Parkway Atlanta, GA 30346 Attention: Director-Vertical Services To LICENSOR: PageMart 6688 North Central Expressway Suite 800 Dallas, Texas 75206 Attention: Vice President-Division General Manager Such notice or demand shall be deemed to have been given or made when actually received or seventy-two (72) hours after being sent, whichever occurs first. 13 17 The address for notice set out above may be changed at any time by giving thirty (30) days prior written notice in the manner above. 26. NONWAIVER Either party's failure to enforce any of the provisions of this Agreement and/or any purchase order, or to exercise any option hereunder, shall in no way construed as a waiver of such provisions, rights, or options, or in any way be deemed to affect the validity of this Agreement or any purchase order. 27. SEVERABILITY Should any part of this Agreement for any reason be declared invalid by order of any court or regulatory agency, such order shall not affect the validity of any remaining portion, which shall remain in force and effect as if this Agreement had been executed with the invalid portion eliminated, and it is hereby declared the intention of the parties that they would have executed the remain portion of this Agreement without including therein any such part or portion which may, for any reason be hereafter declared invalid. 28. SECTION HEADINGS The headings of the sections herein are inserted for convenience only and are not intended to affect the meaning or interpretation of this Agreement. 29. SURVIVAL OF OBLIGATIONS The respective obligations of LICENSOR and RESELLER under this Agreement which by their nature would continue beyond the termination, cancellation or expiration hereof, shall survive termination, cancellation or expiration hereof. 30. CHOICE OF LAW The construction, interpretation and performance of this Agreement shall be governed by and construed in accordance with the domestic laws of the state of Delaware. 31. ENTIRE AGREEMENT This Agreement and the exhibits hereto constitute the entire agreement between LICENSOR and RESELLER. No modifications shall be made this Agreement unless in writing and signed by appropriate representatives of the parties. 14 18 IN WITNESS WHEREOF, the parties hereto have executed this Agreement through their authorized corporate representatives. PAGEMART, INC. GTE MOBILNET SERVICE CORP. By: /s/ DOUG GLEN By: /s/ TERRY LEWIS ------------------------- ------------------------------------ Name: Doug Glen Name: Terry Lewis Title: Vice President, Title: Vice President, Strategic Alliances Product Management Attested By: /s/ M.C. HOPPE --------------------------------------- Name: M. C. Hoppe ---------------------------------- Vice President Title: Finance & Information Management ---------------------------------- 15 EX-11.1 10 COMPUTATION OF PER SHARE EARNINGS 3 MOS. 12/31/97 1 EXHIBIT 11.1 PAGEMART WIRELESS, INC. COMPUTATION OF PER SHARE EARNINGS (LOSS)
THREE MONTHS ENDED DECEMBER 31, 1997 -------------------------------------- NUMBER PERCENT EQUIVALENT OF SHARES OUTSTANDING SHARES --------- ----------- ------ COMMON STOCK From Founders' Stock 2,300,000 100.00% 2,300,000 Stock Options Exercised 731,072 98.10% 717,194 Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943 1994 Common Stock Offerings 11,242,857 100.00% 11,242,857 1995 Common Stock Offerings 4,323,874 100.00% 4,323,874 1996 Common Stock Offering 6,000,000 100.00% 6,000,000 Employee Stock Purchase Plan Shares Issued 75,891 77.24% 58,621 1997 Warrants Exercised 48,300 100.00% 48,300 ---------- ----------- 40,032,937 40,001,789 WEIGHTED AVERAGE SHARES OUTSTANDING 40,001,789 NET LOSS ($10,126,000) NET LOSS PER SHARE ($0.25) ===========
EX-11.2 11 COMP OF PER SHARE EARNINGS FOR 3 MO ENDED 12/31/96 1 EXHIBIT 11.2 PAGEMART WIRELESS, INC. COMPUTATION OF PER SHARE EARNINGS (LOSS)
THREE MONTHS ENDED DECEMBER 31, 1996 ---------------------------------------- NUMBER PERCENT EQUIVALENT OF SHARES OUTSTANDING SHARES --------- ----------- ------ COMMON STOCK From Founders' Stock 2,300,000 100.00% 2,300,000 Stock Options Exercised 595,983 93.47% 557,058 Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943 1994 Common Stock Offerings 11,242,857 100.00% 11,242,857 1995 Common Stock Offerings 4,323,874 100.00% 4,323,874 1996 Common Stock Offering 6,000,000 100.00% 6,000,000 Employee Stock Purchase Plan Shares Issued 31,275 1.09% 340 ---------- ----------- 39,804,932 39,735,072 WEIGHTED AVERAGE SHARES OUTSTANDING 39,735,072 NET LOSS ($12,865,000) NET LOSS PER SHARE ($0.32) ===========
EX-11.3 12 COMP OF PER SHARE EARNINGS FOR YEAR ENDED 12/31/97 1 EXHIBIT 11.3 PAGEMART WIRELESS, INC. COMPUTATION OF PER SHARE EARNINGS (LOSS)
YEAR ENDED DECEMBER 31, 1997 -------------------------------------- NUMBER PERCENT EQUIVALENT OF SHARES OUTSTANDING SHARES --------- ----------- ------ COMMON STOCK From Founders' Stock 2,300,000 100.00% 2,300,000 Stock Options Exercised 731,072 90.01% 658,012 Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943 1994 Common Stock Offerings 11,242,857 100.00% 11,242,857 1995 Common Stock Offerings 4,323,874 100.00% 4,323,874 1996 Common Stock Offering 6,000,000 100.00% 6,000,000 Employee Stock Purchase Plan Shares Issued 75,891 59.41% 45,087 1997 Warrants Exercised 48,300 84.33% 40,732 ----------- ----------- 40,032,937 39,921,505 WEIGHTED AVERAGE SHARES OUTSTANDING 39,921,505 NET LOSS ($43,887,000) NET LOSS PER SHARE ($1.10) ===========
EX-11.4 13 COMP OF PER SHARE EARNINGS FOR YEAR ENDED 12/31/96 1 EXHIBIT 11.4 PAGEMART WIRELESS, INC. COMPUTATION OF PER SHARE EARNINGS (LOSS)
YTD ENDED JUNE 13, 1996 -------------------------------------- NUMBER PERCENT EQUIVALENT OF SHARES OUTSTANDING SHARES --------- ----------- ------ COMMON STOCK From Founders' Stock 2,300,000 100.00% 2,300,000 Stock Options Exercised 537,414 99.47% 534,581 Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943 1994 Common Stock Offerings 11,242,857 100.00% 11,242,857 1995 Common Stock Offerings 4,323,874 100.00% 4,323,874 ---------- ----------- 33,715,088 33,712,255 Adjustments to outstanding shares: Add Exercises for 6/13/95 - 6/13/96 at 100% 2,833 Add Shares Issuable upon Exchange of Shares in PageMart Canada Holding 714,286 Add Weighted Average Grants Issued 6/13/95 - 6/13/96 261,869 ------- Total adjustments to outstanding shares: 978,988 ----------- Weighted Average Shares Outstanding (as adjusted) at 6/13/96 34,691,243 6/13/96 Shares Weighted at 165 days 15,639,495 JUNE 14 THROUGH DECEMBER 31, 1996 -------------------------------------------- NUMBER PERCENT EQUIVALENT OF SHARES OUTSTANDING SHARES --------- ----------- ------ COMMON STOCK From Founders' Stock 2,300,000 100.00% 2,300,000 Stock Options Exercised 595,983 93.82% 559,154 Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943 1994 Common Stock Offerings 11,242,857 100.00% 11,242,857 1995 Common Stock Offerings 4,323,874 100.00% 4,323,874 1996 Common Stock Offering 6,000,000 100.00% 6,000,000 Employee Stock Purchase Plan Shares Issued 31,275 0.50% 156 ---------- ----------- 39,804,932 39,736,984 Weighted Average Shares Outstanding at 12/31/96 39,736,984 12/31/96 Shares Weighted at 201 days 21,822,770 WEIGHTED AVERAGE OF SHARES OUTSTANDING at 6/13/96 and 12/31/96 37,462,265 NET LOSS ($48,598,000) NET LOSS PER SHARE ($1.30) ===========
EX-21.1 14 PAGEMART WIRELESS, INC. SUBSIDIARIES 1 EXHIBIT 21.1 PAGEMART WIRELESS, INC. Subsidiaries: Jurisdiction of Incorporation: PageMart, Inc. (merged into PageMart Wireless, Inc. Delaware on January 28, 1998) PageMart PCS, Inc. Delaware PageMart II, Inc. Delaware PageMart Operations, Inc. Delaware PageMart of California, Inc. Delaware PageMart of Virginia, Inc. Delaware PageMart International, Inc. Delaware Telephone North, Inc. Delaware EX-27.1 15 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S DECEMBER 31, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 8,337 0 68,564 7,170 5,359 84,133 213,115 76,388 361,876 104,973 289,344 0 0 4 (32,445) 361,876 70,871 277,778 86,175 86,175 194,194 0 38,499 (43,887) 0 (43,887) 0 0 0 (43,887) (1.10) (1.10)
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