<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 0-21924
METROCALL, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 54 - 1215634
- ----------------------------------- -------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
6677 RICHMOND HIGHWAY, ALEXANDRIA, VIRGINIA 22306
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 660-6677
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 ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [ X ] NO [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK AS OF THE LATEST PRACTICABLE DATE:
CLASS OUTSTANDING AT NOVEMBER 1, 1996
- ----------------------------------- -------------------------------------
COMMON STOCK, $.01 PAR VALUE 16,060,117
<PAGE> 2
METROCALL, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, December 31, 1995 and
September 30, 1996 3
Condensed Consolidated Statements of Operations for the three months ended
September 30, 1995 and 1996 4
Condensed Consolidated Statements of Operations for the nine months ended
September 30, 1995 and 1996 5
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1995 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 15
PART II. OTHER INFORMATION 21
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 23
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METROCALL, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Information)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
---------- ---------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 123,574 $ 10,243
Accounts receivable, less allowance for doubtful accounts of
$968 as of December 31, 1995 and $1,100 as of September 30, 1996 9,785 11,090
Prepaid expenses and other current assets 1,908 1,985
---------- ---------
Total current assets 135,267 23,318
---------- ---------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements 9,900 11,085
Furniture, office equipment and vehicles 12,794 21,967
Paging and plant equipment 103,427 141,677
Less - Accumulated depreciation and amortization (50,175) (69,280)
---------- ---------
75,946 105,449
---------- ---------
INTANGIBLE ASSETS, net of accumulated amortization of
approximately $8,875 as of December 31, 1995 and $16,956
was of September 30, 1996 129,085 257,533
EQUITY INVESTMENTS - 24,823
OTHER ASSETS 316 1,380
---------- ---------
$ 340,614 $ 412,503
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 252 $ 276
Accounts payable 9,390 19,234
Deferred revenues and subscriber deposits 1,950 3,008
Other current liabilities 7,666 13,482
---------- ---------
Total current liabilities 19,258 36,000
---------- ---------
CAPITAL LEASE OBLIGATIONS, net of current portion 2,849 3,747
CREDIT FACILITY AND OTHER LONG-TERM DEBT, net of current portion 954 67,900
SENIOR SUBORDINATED NOTES, due 2007 150,000 150,000
DEFERRED INCOME TAX LIABILITY 11,814 21,993
MINORITY INTEREST IN PARTNERSHIP 501 500
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; authorized
1,000,000 shares; none issued and outstanding - -
Common stock, par value $.01 per share; authorized 20,000,000 and 26,000,000
shares; 14,626,255 and 16,060,117 shares issued and outstanding
as of December 31, 1995 and September 30, 1996, respectively 146 161
Additional paid-in capital 201,956 212,066
Accumulated deficit (46,864) (79,864)
---------- ---------
155,238 132,363
---------- ---------
$ 340,614 $ 412,503
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
METROCALL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Information)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1995 1996
------------- ----------
<S> <C> <C>
REVENUES:
Service, rent and maintenance revenues $ 23,363 $30,624
Product sales 4,615 5,998
------------- ------------
Total revenues 27,978 36,622
Net book value of products sold (3,842) (4,986)
------------- ------------
24,136 31,636
------------- ------------
OPERATING EXPENSES:
Service, rent and maintenance expenses 6,650 9,799
Selling and marketing 3,523 6,006
General and administrative 6,335 7,661
Depreciation and amortization 8,349 15,288
------------- ------------
24,857 38,754
------------- ------------
Loss from operations (721) (7,118)
INTEREST EXPENSE (2,832) (5,196)
INTEREST AND OTHER INCOME 24 97
MINORITY INTEREST IN LOSS OF INVESTMENTS - (2,269)
------------- ------------
LOSS BEFORE INCOME TAXES (3,529) (14,486)
INCOME TAX BENEFIT 157 171
------------- ------------
Net loss $ (3,372) $ (14,315)
============= ============
NET LOSS PER COMMON SHARE $ (0.31) $ (0.94)
============= ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,793,634 15,161,923
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
METROCALL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Information)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1995 1996
------------- ------------
<S> <C> <C>
REVENUES:
Service, rent and maintenance revenues $ 68,867 $79,453
Product sales 12,547 19,155
------------- ------------
Total revenues 81,414 98,608
Net book value of products sold (10,593) (15,546)
------------- ------------
70,821 83,062
------------- ------------
OPERATING EXPENSES:
Service, rent and maintenance expenses 19,292 26,297
Selling and marketing 11,350 15,998
General and administrative 18,461 20,363
Depreciation and amortization 21,062 40,385
------------- ------------
70,165 103,043
------------- ------------
Income (loss) from operations 656 (19,981)
INTEREST EXPENSE (8,240) (13,596)
INTEREST AND OTHER INCOME 16 2,760
MINORITY INTEREST IN LOSS OF INVESTMENTS - (2,422)
------------- ------------
LOSS BEFORE INCOME TAXES (7,568) (33,239)
INCOME TAX BENEFIT 469 279
------------- ------------
Net loss $ (7,099) $ (32,960)
============= ============
NET LOSS PER COMMON SHARE $ (0.67) $ (2.23)
============= ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,668,220 14,806,114
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
METROCALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,099) $(32,960)
Adjustments to reconcile net loss to net cash provided
by operating activities-
Depreciation and amortization 21,062 40,385
Amortization of debt financing costs 373 480
Decrease in deferred income taxes (515) (503)
Write-off of deferred acquisition costs - 388
Minority interest in loss of investments - 2,422
Deferred debt financing costs (295) (4,496)
Loss on sale of assets 5 -
Cash provided by (used in) changes in assets and liabilities:
Accounts receivable (4,249) 80
Prepaid expenses and other current assets (224) 51
Accounts payable 2,554 9,846
Deferred revenues and subscriber deposits 795 (420)
Other current liabilities 363 2,581
----------- -----------
Net cash provided by operating activities 12,770 17,854
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in acquisitions, net of cash acquired - (29,440)
Proceeds from sale of assets 1,166 -
Purchases of property and equipment, net (24,910) (58,482)
Additions to intangibles (1,039) (67,584)
Equity investments - (27,245)
Cash escrow for Source One Wireless, Inc. - (1,000)
Cash distribution of Beacon Communications - (40)
Other 62 59
----------- -----------
Net cash used in investing activities (24,721) (183,732)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 106,978 110
Proceeds from long-term debt 13,000 52,700
Principal payments on long-term debt (194) (267)
Proceeds from exercise of common stock options 19 5
Decrease in minority interest in partnership (2) (1)
----------- -----------
Net cash provided by financing activities 119,801 52,547
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 107,850 (113,331)
CASH AND CASH EQUIVALENTS, beginning of period 2,773 123,574
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $110,623 $ 10,243
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. ORGANIZATION AND RISK FACTORS
Metrocall, Inc. (the "Company" or "Metrocall"), is a leading provider
of local, regional and nationwide paging and other wireless messaging services.
The Company's selling efforts are concentrated in 17 markets in five operating
regions: (i) the Northeast (Massachusetts through Delaware), (ii) the
Mid-Atlantic (Maryland and the Washington, D. C. metropolitan area), (iii) the
Southeast (Virginia through Florida), (iv) the Southwest (primarily Texas) and
(v) the West (primarily California, Nevada and Arizona). Through its
Nationwide Network, the Company provides coverage to over 1,000 cities
representing the top 100 Standard Metropolitan Statistical Areas.
On July 16, 1996, the Company acquired Parkway Paging, Inc. of Plano,
Texas ("Parkway"). On August 30, 1996, the Company acquired substantially all
the assets of Satellite Paging of Fairfield, New Jersey and Message Network of
Boca Raton, Florida (together, "Satellite"). The 1995 financial statements do
not include Parkway and Satellite since they were not affiliated with the
Company prior to the acquisition dates. The consolidated statements of
operations for the three and nine-month periods ended September 30, 1996,
include the results of operations of Parkway and Satellite since their
respective acquisition dates.
Risks and Other Important Factors
The Company sustained net losses of $2.2 million, $2.4 million, and
$20.1 million for the years ended December 31, 1993, 1994 and 1995,
respectively, and a loss of $33.0 million for the nine months ended September
30, 1996. The Company's loss from operations for the nine months ended
September 30, 1996 was $20.0 million. In addition, at September 30, 1996, the
Company has an accumulated deficit of $79.9 million, a deficit in net tangible
assets of approximately $125.2 million and a deficit in working capital of
$12.7 million. The Company's losses from operations and its net losses are
expected to continue for additional periods in the future. There can be no
assurance that the Company's operations will become profitable.
The Company's operations require the availability of substantial funds
to finance the maintenance and growth of its existing paging operations and
customer base, development and construction of future wireless communications
networks, expansion into new markets and the acquisition of other wireless
communication companies. At September 30, 1996, the Company had incurred
approximately $222 million in total indebtedness, and will assume or refinance
approximately $125 million of A+ Network indebtedness in connection with the
acquisition of A+ Network, Inc. (See Note 9). Amounts available under the
Company's credit facility are subject to certain financial covenants and other
restrictions such that as of September 30, 1996, no additional borrowings were
available to the Company under its credit facility. The Company's ability to
borrow additional amounts in the future is dependent on its ability to raise
additional equity capital (See Notes 7 and 13) and its ability to comply with
the provisions of its credit facility. There can be no assurance that
additional equity or debt financing will be available to the Company or that
the Company will be able to comply with the terms of its existing credit
facility in future periods.
The Company is also subject to certain additional risks and
uncertainties including changes in technology, business integration,
competition and regulation (See also Notes 3, 7, 9, 10 and 11).
7
<PAGE> 8
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
2. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and include, in
the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of interim period results.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
Company believes, however, that its disclosures are adequate to make the
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1995 Annual Report on
Form 10-K. The results of operations for the three- and nine-month periods
ended September 30, 1996, are not necessarily indicative of the results to be
expected for the full year.
3. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue under service, rental and maintenance
agreements with customers as the related services are performed. Sales of
equipment are recognized upon delivery.
Cash and Cash Equivalents
Cash and cash equivalents include short-term, highly liquid
investments purchased with original maturities of three months or less.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed
using the straight-line method over the following estimated useful lives.
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and leasehold improvements 10-31
Furniture and office equipment 5-10
Vehicles 3-5
Subscriber paging equipment 3-4
Transmission and plant equipment 5-12
</TABLE>
New pagers are depreciated using the half-year convention upon
acquisition. Depreciation expense recorded on new pagers in the three- and
nine-month periods ended September 30, 1996 was approximately $0.7 million and
$1.9 million, respectively. Betterments to acquired pagers are charged to
depreciation expense.
Long-Lived Assets
Long-lived assets and identifiable intangibles to be held and used are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount should be addressed. Impairment is measured by
comparing the book value to the estimated undiscounted future cash flows
expected to result from use of the assets and their eventual disposition. At
September 30, 1996, the market value of the Company's common stock was $6.375
per share and the net book value was $8.24 per share. However, the Company
has determined that as of September 30, 1996, there has been no permanent
impairment in the carrying value of long-lived assets (See Note 9).
8
<PAGE> 9
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets (continued)
Effective July 1, 1996, the Company changed the estimated useful lives
of certain intangibles acquired in 1994, including goodwill and regulatory
licenses issued by the Federal Communications Commission ("FCC") recorded in
the acquisitions of FirstPAGE USA, Inc. and MetroPaging, Inc., from 40 years to
15 years for goodwill and from 40 years to 25 years for FCC licenses. The
impact of these changes was to increase amortization expense for the three- and
nine-month periods ended September 30, 1996, by approximately $1.3 million.
Use of Estimates in the Preparation of Financial Statements
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.
4. NET LOSS PER COMMON SHARE
Net loss per common share for the three- and nine-month periods ended
September 30, 1995 and 1996, is based upon the weighted average number of
common equivalent shares outstanding during the period. The effect of
outstanding options on net loss per share for the periods is not included
because such options would be anti-dilutive.
5. ACQUISITIONS
Parkway Paging, Inc.
On July 16, 1996, the Company acquired all the outstanding common
stock of Parkway for cash and the assumption of certain long-term obligations.
The acquisition was financed through drawings on the Company's credit facility.
The acquisition was accounted for as a purchase. The purchase price has been
allocated on a preliminary basis as follows (in thousands).
<TABLE>
<S> <C>
Plant and equipment $ 1,606
Accounts receivable and other assets 1,063
Customers lists 2,783
FCC licenses & state certificates 13,914
Goodwill 20,688
Covenant not to compete 1
Liabilities assumed (5,174)
Direct acquisition costs (1,468)
Deferred income tax liability (10,681)
----------
$ 22,732
==========
</TABLE>
9
<PAGE> 10
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
5. ACQUISITIONS (CONTINUED)
Satellite Paging and Message Network
On August 30, 1996, the Company acquired substantially all the assets
of Satellite for cash, the assumption of certain liabilities and the issuance
of shares of the Company's common stock. The total number of shares to be
issued under the terms of the agreement has not been finalized and will
fluctuate based on the Company's stock price. As of September 30, 1996, the
Company issued 1,417,181 shares and owed an additional 130,070 shares. Due to
stock price fluctuations, the total number of shares to be issued increased to
1,961,942 shares, as of November 6, 1996. The cash paid in the acquisition was
financed through drawings on the Company's credit facility. The acquisition
was accounted for as a purchase, and is subject to adjustments as defined in
the acquisition agreement. The purchase price has been allocated on a
preliminary basis as follows (in thousands).
<TABLE>
<S> <C>
Plant and equipment $ 1,425
Accounts receivable and other assets 1,240
Customers lists 3,177
FCC licenses & state certificates 14,042
Goodwill 10,308
Liabilities assumed (12,925)
Direct acquisition costs (628)
----------
$ 16,639
==========
</TABLE>
The unaudited pro forma information presented below reflects the
acquisitions of Parkway and Satellite as if each had occurred on January 1,
1995. The results are not necessarily indicative of future operating results
or of what would have occurred had the acquisitions actually been consummated
on that date (in thousands, except per share data).
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Revenues $ 97,293 $ 112,227
Net loss before extraordinary item (10,771) (36,091)
Net loss (4,681) (36,091)
Net loss per common share before
extraordinary item $ (0.85) (2.15)
Net loss per common share (0.38) (2.15)
</TABLE>
6. EQUITY AND NOTES OFFERINGS
On September 27, 1995, the Company completed a public offering of 4.0
million shares of Metrocall common stock (the "Equity Offering") at $28.25 per
share. After underwriting discounts, commissions and other professional fees,
net proceeds from the Equity Offering were approximately $107.0 million.
On October 2, 1995, the Company completed a public offering of $150.0
million senior subordinated notes (the "Notes Offering"), bearing interest at
10.375% payable semi-annually on April 1 and October 1, due 2007. After
underwriting discounts, commissions and other professional fees, net proceeds
from the Notes Offering were approximately $145.1 million. Proceeds from the
Notes Offering were used to repay approximately $113.3 million outstanding
under the Company's then existing credit facility. In connection with this
repayment, the Company recognized an extraordinary charge of approximately $4.5
million in October 1995 to write off deferred debt financing and related costs.
10
<PAGE> 11
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
7. LONG-TERM LIABILITIES
New Credit Facility
On September 20, 1996, the Company entered into an agreement with The
Toronto-Dominion Bank and The First National Bank of Boston to amend and
restate the loan agreement governing the Company's existing credit facility.
Subject to certain conditions set forth in the new agreement, the Company may
borrow up to $350,000,000 under two loan facilities. The first facility
("Facility A") is a $225,000,000 reducing revolving credit facility and the
second ("Facility B") is a $125,000,000 reducing credit facility (together
Facility A and Facility B are referred to as the "New Credit Facility"). Up to
$100,000,000 under Facility A was available for borrowing; the remaining
$125,000,000 commitment under Facility A and all of the Facility B commitment
will become available only after completion of the Company's planned merger
with A+ Network, Inc. (See Note 9) (the "Merger Condition"), and the infusion
of at least $25,000,000 of equity (net of reasonable transaction costs) into
Metrocall (the "Equity Condition"). Amounts borrowed under Facility B may only
be used to refinance the 11 7/8% Senior Subordinated Notes due 2005 of A+
Network, Inc. If the Merger Condition and Equity Condition have not been
completed on or prior to December 16, 1996, the remaining $125,000,000
commitment under Facility A and the commitment under Facility B will terminate
automatically. The New Credit Facility has a term of eight years and is
secured by substantially all the assets of the Company. Required quarterly
principal repayments begin on March 31, 2000 and continue through December 31,
2004. At September 30, 1996, a total of $67,000,000 was outstanding under the
New Credit Facility.
The New Credit Facility contains various covenants that, among other
restrictions, require the Company to maintain certain financial ratios,
including total debt to annualized operating cash flow (not to exceed 6.6 to
1.0 through September 30, 1996, and declining thereafter), senior debt to
annualized operating cash flow, annualized operating cash flow to pro forma
debt service, total sources of cash to total uses of cash, and operating cash
flow to interest expense (in each case, as such terms are defined in the
agreement relating to the New Credit Facility). As a result, as of October 1,
1996, the Company was not entitled to draw any of the $33,000,000 remaining
available under Facility A. The New Credit Facility also requires the Company
to raise additional equity ($50,000,000 inclusive of proceeds raised as part of
the Equity Condition) if its ratio of cash flow to interest expense is less
than 2.0 to 1.0 for the quarter ended June 30, 1997. The covenants also limit
additional indebtedness and future mergers and acquisitions (other than the
pending merger and acquisition discussed in Notes 9 and 10) without the
approval of the lenders, and restrict the payment of cash dividends and other
stockholders distributions by Metrocall during the term of the New Credit
Facility. The New Credit Facility also prohibits certain changes in ownership
control of Metrocall, as defined, during the term of the New Credit Facility.
Under the New Credit Facility, the Company may designate all or any
portion of the borrowings outstanding as either a floating base rate advance or
a Eurodollar rate advance with an applicable margin that ranges from 0.0% to
1.750% for base rate advances and 0.75% to 2.750% for Eurodollar rate advances.
The predefined margins will be based upon the level of indebtedness
outstanding relative to annualized cash flow, as defined in the agreement
relating to the New Credit Facility. At September 30, 1996, the interest rate
on base rate advances was 10.0% and the interest rate on Eurodollar rate
advances was 8.2%. Commitment fees of 0.25% to 0.375% per year (depending on
the level of Metrocall's indebtedness outstanding to annualized cash flow) will
be charged on the average unused balance and will be charged to interest
expense as incurred. Under the New Credit Facility, Metrocall must obtain and
maintain interest rate protection on at least 50% of Metrocall's outstanding
debt; all fixed rate debt, including the 10 3/8% Senior Subordinated Notes due
2007, will count against the requirement.
11
<PAGE> 12
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
7. LONG-TERM LIABILITIES (CONTINUED)
New Credit Facility (continued)
The Company incurred loan origination fees and direct financing costs
in connection with the New Credit Facility of approximately $4.5 million which
will be amortized and charged to interest expense over the term of the New
Credit Facility. The Company will also incur additional loan origination fees
of approximately $1.6 million upon the initial advance under Facility B.
Capital Lease Obligations
On July 1, 1996, the Company entered into a lease agreement for
certain computer equipment totaling approximately $1.1 million. The lease
agreement requires quarterly rental payments of approximately $115,000 for a
period of three years. This lease agreement has been accounted for as a
capital lease for financial reporting purposes.
8. STOCK OPTION PLANS
On August 7, 1996, the Compensation Committee of the Metrocall Board
of Directors issued options to purchase 20,000 shares of the Company's common
stock. On September 18, 1996, the Compensation Committee changed the exercise
price of substantially all options outstanding to all current employees of
Metrocall as of that date to $7.9375 per share. At September 30, 1996, there
were a total of 1,235,513 options issued and outstanding with exercise prices
ranging from $7.9375 to $21.50 per share, which expire on dates ranging from
November 8, 2003 through August 7, 2008.
9. EQUITY INVESTMENTS
A+ Network, Inc.
On May 16, 1996, the Company entered into a definitive merger
agreement (the "A+ Agreement") with A+ Network, Inc. of Pensacola, Florida ("A+
Network"). Under the terms of the A+ Agreement, A+ Network will be merged
with and into the Company. Total consideration in the A+ Network merger is
expected to be $91.8 million cash paid pursuant to the tender offer discussed
below, assumption of $125 million of A+ Network indebtedness and the exchange
of approximately 9.0 million shares of Metrocall common stock. The
A+ Agreement provided for the commencement of a tender offer (the "Offer")
by the Company for 2,140,526 shares of A+ Network common stock. The Offer
commenced on May 22, 1996 and expired on June 24, 1996. Shareholders of A+
Network tendered approximately 5,362,482 shares of A+ Network common stock
pursuant to the Offer and the Company purchased 2,140,526 of such shares at
$21.10 per share, pursuant to the Offer. In addition, the Company purchased
2,210,217 shares of A+ Network common stock at $21.10 per share from certain
principal shareholders of A+ Network on June 25, 1996, pursuant to the A+
Agreement.
The Company has recorded an equity investment in A+ Network based on
the value of A+ Network's net assets as of September 30, 1996. In addition,
the Company has recorded a charge of approximately $2,211,000 and $2,364,000
for the three- and nine-month periods ended September 30, 1996, respectively,
representing the Company's share of A+ Network's net loss for the period the
Company owned the shares.
12
<PAGE> 13
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
9. EQUITY INVESTMENTS (CONTINUED)
A+ Network, Inc. (continued)
Pursuant to the terms of the A+ Agreement, the merger is required to
be consummated by November 16, 1996. In the event that the merger is not
consummated or otherwise amended, the Company may be required to sell its 40%
investment in A+ Network. As of September 30, 1996, the Company's investment
in A+ Network together with related goodwill is reflected in the Company's
financial statements at approximately $89.4 million which resulted from a cash
purchase price of $21.10 per share for approximately 4.4 million shares of A+
Network, net of the Company's share of A+ Network's net loss. The closing
market price of A+ Network common stock on November 11, 1996 was $6.75 per
share, or a decrease based upon market value of approximately $60.0 million.
Therefore, if the Company were required to sell this investment at current
market prices, the Company would likely realize a substantial loss upon
disposition, which has not been reflected in the financial statements (See Note
3).
Solo America
The Company acquired a 40% interest in Solo America, a national sales
and marketing distribution company. In its relationship with Solo America, the
Company has agreed to advance $1 million to Solo America, payable in three
installments, in exchange for Solo America's efforts to market the Company's
paging products and services. One installment of $333,333 was paid in July
1996. A second installment of $333,333 was paid in October 1996, and the final
installment is due in January 1997. The Company recorded a charge of
approximately $58,000 representing the Company's share of Solo America's net
loss in the three months ended September 30, 1996.
10. PENDING ACQUISITION AND TRANSACTIONS
Page America Group, Inc.
On April 22, 1996, the Company signed a definitive acquisition
agreement (the "Page America Agreement") with Page America Group, Inc. of
Hackensack, New Jersey ("Page America"). Under the terms of the Page America
Agreement, the Company will acquire substantially all of the assets of Page
America for up to approximately $78.5 million, of which $55 million will be
paid in cash and up to $23.5 million will be paid in the form of the Company's
common stock. The maximum number of shares of common stock to be exchanged
will be approximately 1.3 million. Consummation of the Page America
acquisition is subject to a number of conditions including, but not limited to,
receipt of all necessary regulatory approvals and approval by the Page America
stockholders. There can be no assurance that such approvals can be obtained.
In addition, the purchase price is subject to adjustment based on Page
America's ability to meet certain defined performance criteria. The pending
transaction, if consummated, will be accounted for as a purchase.
Offer and Solicitation Relating to A+ Network Senior Subordinated Notes
In connection with the A+ Network merger discussed in Note 9, on
October 9, 1996, Metrocall commenced a tender offer for all $125 million
principal amount of A+ Network's outstanding 11 7/8% Senior Subordinated Notes
due 2005 (the "A+ Notes") and solicitation of consents to amend the indenture
governing the A+ Notes to eliminate restrictive covenants and certain events of
default. Holders of the A+ Notes who validly consent and tender will receive
aggregate payments of $1,010, plus accrued and unpaid interest, for each $1,000
principal amount of A+ Notes. The Company intends to finance the offer and
solicitation through advances under the New Credit Facility.
Other Acquisitions
The Company incurred costs in negotiations to potentially acquire
other wireless telecommunications companies. The Company has ceased further
negotiations with these companies and, accordingly, recorded a charge to write
off deferred acquisition costs of approximately $0.4 million in the
accompanying statement of operations for the nine-month period ended September
30, 1996.
13
<PAGE> 14
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
11. CONTINGENCIES
The Company is subject to certain legal and regulatory matters in the
normal course of business. In the opinion of management, the outcome of such
assertions will not have a material adverse effect on the financial position or
the results of the operations of the Company.
In April 1996, the Company entered into an agreement to purchase
certain of the assets of Source One Wireless, Inc. ("Source One") and placed
$1 million cash in escrow. On June 26, 1996, the Company advised Source One
that Source One had failed to meet certain conditions to completion of the
transaction and terminated the agreement. On September 20, 1996, Source One
filed an action in the Circuit Court of Cook County, Illinois claiming that the
Company had breached the agreement and seeking specific performance of the
purchase agreement or unspecified damages in excess of $80 million. The
Company intends to vigorously defend the claims in this action and believes it
has meritorious defenses to this action.
The Company has received communications from a seller in connection
with an acquisition that occurred in 1994 asserting damages resulting from
alleged misrepresentations in connection with the acquisition. The seller, who
received shares of the Company's common stock as acquisition consideration, is
seeking to receive additional shares of common stock and participation on the
Company's board of directors, among other requests. To date, no claim has been
filed; however, if necessary, management will vigorously defend any legal
actions that might arise from such assertions.
12. SUPPLEMENTAL CASH FLOW INFORMATION
The Company made cash payments for interest of approximately $8.0
million and $9.7 million for the nine-month periods ended September 30, 1995
and 1996, respectively. The Company made cash payments for income taxes of
approximately $46,000 and $236,000 for the nine-month periods ended September
30, 1995 and 1996, respectively.
A capital lease obligation of approximately $1.1 million was incurred
when the Company entered into a lease for computer equipment. (See Note 7).
13. SUBSEQUENT EVENT
The Company is seeking to raise additional equity capital in order to
insure that it will remain in compliance with certain debt covenants after
completion of the A+ Network merger and to have borrowing capacity for
completion of the Page America transaction and other purposes. The Company is
in the final stages of negotiating the terms of an issuance of $40 million of
preferred stock. There can be no assurance that the Company will be successful
in completing these transactions or any other transaction. Equity issued in
the form of preferred stock would have preference as to dividends and
liquidating distributions over the common stock and may contain other terms
adversely affecting holders of the common stock.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
All statements contained herein that are not historical facts,
including but not limited to, statements regarding anticipated future capital
requirements, the Company's future development plans, the Company's ability to
obtain additional debt, equity or other financing, the Company's ability to
generate cash from operations and realize savings from existing operations,
possible growth in subscribers, the extent of the Company's nationwide network,
and future general and administrative expenses are based on current
expectations or assumptions. These statements are forward looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Actual results in the future could differ materially from those
described in the forward looking statements as a result of a variety of factors
including the Company's ability to realize historic internal growth rates, to
close and integrate acquisitions and to realize operating margin improvements.
Additional factors that may affect actual results are set out in detail in the
Company's registration statement of Form S-3 filed October 1, 1996, as amended.
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
condensed consolidated financial statements and notes thereto.
OVERVIEW
Metrocall is the fifth largest paging company in the United States
based on number of subscribers, with 1,405,933 pagers in service at September
30, 1996. In July and August, 1996, Metrocall completed three acquisitions
which added approximately 240,000 subscribers. Without taking into account
acquisitions during the period, the number of pagers in service grew at an
annualized growth rate of over 31% during the nine months ended September 30,
1996. Two additional acquisitions have been announced which, if completed,
will add more than 850,000 additional subscribers to its base of pagers in
service. The results of operations for the three- and nine-months ended
September 30, 1996, reflect the results of operations of acquired companies
since their acquisition dates.
The definitions below relate to management's discussion of the
Company's results of operations that follows.
Service, rent and maintenance revenues: include primarily
monthly, quarterly, semi-annually and annually billed
recurring revenue, generally not dependent on usage,
charged to subscribers for paging and related services such
as voice mail and pager repair and replacement.
Net revenues: include service, rent and maintenance
revenues and sales of customer owned and maintained
("COAM") pagers less net book value of pagers sold.
Service, rent and maintenance expenses: include costs
related to the management, operation and maintenance of the
Company's network systems and customer support centers.
Selling and marketing expenses: include salaries,
commissions and administrative costs for the Company's
sales force and related marketing and advertising expenses.
General and administrative expenses: include executive
management, accounting, office telephone, repairs and
maintenance, management information systems and employee
benefits.
The Company derives the majority of its revenues from fixed, periodic
(usually monthly) fees, generally not dependent on usage, charged to
subscribers for paging services. While a subscriber remains in the Company's
service, future operating results benefit from this recurring revenue stream
with minimal requirements for incremental selling expenses or other fixed
costs.
The Company's growth and expansion into new markets require
significant capital investment for the installation of paging equipment and
technical infrastructure. Additionally, the Company purchases pagers for that
portion of its subscriber base that leases pagers from the Company.
15
<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the
percentage of net revenues represented by certain items in the Company's
Condensed Consolidated Statements of Operations.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1995 1996 1995 1996
---------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Revenues:
Service, rent and maintenance 96.8 % 96.8 % 97.2 % 95.7 %
Product sales 19.1 19.0 17.7 23.1
Net book value of products sold (15.9) (15.8) (14.9) (18.8)
---------- ----------- --------- -------------
Net revenues 100.0 100.0 100.0 100.0
---------- ----------- --------- -------------
Operating expenses:
Service, rent and maintenance 27.6 31.0 27.2 31.7
Selling and marketing 14.6 19.0 16.0 19.3
General and administrative 26.2 24.2 26.1 24.5
Depreciation and amortization 34.6 48.3 29.8 48.6
---------- ----------- --------- -------------
(Loss) income from operations (3.0) (22.5) 0.9 (24.1)
Interest expense (11.7) (16.4) (11.6) (16.4)
Interest and other income (expense) 0.1 (6.9) - 0.4
Income tax benefit 0.6 0.6 0.7 0.4
Net loss (14.0) % (45.2) % (10.0) (39.7) %
OTHER DATA:
Units in service (end of period) 881,270 1,405,933 881,270 1,405,933
EBITDA (in thousands)(1) $ 7,268 $ 8,170 $ 21,718 $ 20,404
Ratio of EBITDA to net revenues(1) 31.6 % 25.8 30.7 % 24.6 %
Average Revenue Per Unit (APRU)(2) $ 9.05 $ 7.95 $ 9.39 $ 7.86
Operating Cost Per Unit(3) 6.40 6.09 6.69 6.20
</TABLE>
(1) The ratio of EBITDA (earnings before interest, taxes, depreciation and
amortization) to net revenues is calculated by dividing EBITDA by net
revenues. EBITDA should not be considered in isolation or as an
alternative to net income (loss), income (loss) from operations or any
other measure of performance under generally accepted accounting
principles. EBITDA is used by the Company for the purpose of analyzing its
operating performance, leverage and liquidity. The Company's credit
agreement contains various financial covenants based on "cash flow" as
defined therein, which approximates EBITDA. See "-- Liquidity and Capital
Resources" for discussion of capital requirements and commitments.
(2) ARPU (average monthly recurring revenue per unit) is calculated by
dividing (a) service, rent and maintenance revenues for the period by (b)
the average number of units in service for the period.
(3) Operating cost per unit is calculated by dividing (a) total operating
expenses less depreciation and amortization expense by (b) the average
number of units in service for the period.
Three Months ended September 30, 1996 Compared With 1995
Total revenues increased approximately $8.6 million from $28.0 million
for the three months ended September 30, 1995, (the "1995 quarter") to $36.6
million for the three months ended September 30, 1996 (the "1996 quarter").
Service, rent and maintenance revenues increased approximately $7.2 million
from $23.4 million in the 1995 quarter to $30.6 million in the 1996 quarter.
The increase is attributable to the growth in pagers in service from 881,270 at
September 30, 1995 to 1,405,933 at September 30, 1996, resulting from internal
growth and the acquisition of 240,000 combined subscribers from Parkway Paging,
Inc. ("Parkway") and Satellite Paging and Message Network (together,
"Satellite"). Monthly ARPU declined from $9.05 per unit in the 1995 quarter to
$7.95 per unit in the 1996 quarter due to the increase in the base of customers
serviced through indirect distribution channels. Product sales increased $1.4
million from $4.6 million in the 1995 quarter to $6.0 million in the 1996
quarter and decreased as a percentage of total revenues from 19.1% in the 1995
quarter to 19.0% in the 1996 quarter. The overall increase is due to a higher
volume of pager sales to resellers and customers from other indirect sales
channels.
16
<PAGE> 17
Net book value of products sold increased approximately $1.2 million
from $3.8 million in the 1995 quarter to $5.0 million in the 1996 quarter. Net
book value of products sold increased principally due to the increase in
product sales, partially offset by depreciation on pagers.
Overall, the Company experienced a decrease in average monthly
operating costs per unit in service from the 1995 quarter to the 1996 quarter.
Average monthly operating costs per unit decreased from $6.40 per unit for the
1995 quarter to $6.09 per unit for the 1996 quarter. Each operating expense is
discussed separately below.
Service, rent and maintenance expenses increased approximately $3.1
million from $6.7 million in the 1995 quarter to $9.8 million in the 1996
quarter, and increased as a percentage of net revenues from 27.6% in the 1995
quarter to 31.0% in the 1996 quarter. The overall increase in service, rent
and maintenance expense is attributable to the acquisitions of Parkway ($0.6
million) and Satellite ($0.2 million), as well as increased carrier line costs
paid to third party service providers ($1.1 million), increased personnel costs
($0.8 million), and increased rent expense related to the addition of
transmitters in the Company's Nationwide Network ($0.4 million). Average
monthly service, rent and maintenance expense per unit has decreased slightly
from $2.58 per unit in the 1995 quarter to $2.54 per unit in the 1996 quarter.
Assuming continued build-out of the Company's Nationwide Network, service, rent
and maintenance expenses may increase as a percentage of net revenues.
Selling and marketing expenses increased approximately $2.5 million
from $3.5 million in the 1995 quarter to $6.0 million in the 1996 quarter and
increased as a percentage of net revenues from 14.6% in the 1995 quarter to
19.0% in the 1996 quarter. The increase in selling and marketing expenses is
associated with the acquisitions of Parkway ($0.3 million) and Satellite ($0.1
million), and due to increased sales staff and related costs ($1.3 million),
increased advertising costs ($0.4 million), increased use of third party sales
and distribution groups ($0.2 million), and increased costs associated with
product promotions and other costs ($0.2 million). Average monthly selling and
marketing expense per unit increased from $1.37 in the 1995 quarter to $1.56 in
the 1996 quarter. Monthly selling and marketing expenses may increase as a
percentage of net revenues assuming the Company continues its subscriber growth
and net unit additions.
General and administrative expenses increased approximately $1.4
million from $6.3 million in the 1995 quarter to $7.7 million in the 1996
quarter, but decreased as a percentage of net revenues from 26.2% in the 1995
quarter to 24.2% in the 1996 quarter. The increase is due to the acquisitions
of Parkway ($0.2 million) and Satellite ($0.3 million), as well as increased
taxes and regulatory fees paid ($0.6 million), and other general corporate
expenses ($0.3 million). Average monthly general and administrative expense
per unit has decreased from $2.45 in the 1995 quarter to $1.99 in the 1996
quarter. General and administrative costs should remain constant as a percent
of revenue assuming the Company increases its total subscriber base.
Depreciation and amortization increased approximately $7.0 million
from $8.3 million in the 1995 quarter to $15.3 million in the 1996 quarter, and
increased as a percentage of net revenues from 34.6% in the 1995 quarter to
48.3% in the 1996 quarter. The increase in total depreciation and amortization
expense resulted from the change in the estimated useful lives of certain
intangible assets ($1.3 million), as well as depreciation expense on higher
levels of subscriber paging equipment ($3.0 million) and other plant equipment
($0.7 million), and amortization of goodwill acquired in connection with the
Company's equity investment in A+ Network, Inc. ($1.3 million), in addition to
amortization expense on intangible assets acquired from Parkway and Satellite
($0.5 million and $0.2 million, respectively).
Interest expense increased approximately $2.4 million, from $2.8
million in the 1995 quarter to $5.2 million in the 1996 quarter. Interest
expense increased due to higher average levels of debt resulting from
additional borrowings on the Company's credit facility, and as a result of the
Company's Notes Offering in October 1995 of $150.0 million of senior
subordinated notes at an interest rate of 10.375%.
Net loss increased approximately $10.9 million from $3.4 million in
the 1995 quarter to $14.3 million in the 1996 quarter.
EBITDA increased approximately $0.6 million from $7.6 million in the
1995 quarter to $8.2 million in the 1995 quarter. As a percentage of net
revenues, EBITDA decreased from 31.6% in the 1995 quarter to 25.8% in the 1996
quarter.
17
<PAGE> 18
Nine Months ended September 30, 1996 Compared With 1995
Total revenues increased approximately $17.2 million from $81.4
million for the nine months ended September 30, 1995, ("1995") to $98.6 million
for the nine months ended September 30, 1996 ("1996"). Service, rent and
maintenance revenues increased approximately $10.6 million in 1996 from $68.9
million in 1995 to $79.5 million in 1996. The increase is attributable to
greater service revenues due to the growth of pagers in service from 881,270 at
September 30, 1995, to 1,405,933 at September 30, 1996. Monthly ARPU declined
from $9.39 per unit in 1995 to $7.86 per unit in 1996 due to the increase in
the base of customers serviced through indirect distribution channels. Product
sales increased $6.7 million from $12.5 million in 1995 to $19.2 million in
1996 and increased as a percentage of total revenues from 17.7% in 1995 to
23.1% in 1996, due to a higher volume of sales to resellers and other indirect
sales channels.
Net book value of products sold increased approximately $4.9 million
from $10.6 million in 1995 to $15.5 million in 1996. Net book value of
products sold increased principally due to the increase in product sales,
partially offset by depreciation on pagers.
Overall, the Company experienced a decrease in average monthly
operating costs per unit in service from 1995 to 1996. Average monthly
operating cost per unit decreased from $6.69 per unit for 1995 to $6.20 per
unit for 1996. Each operating expense is discussed separately below.
Service, rent and maintenance expenses increased approximately $7.0
million from $19.3 million in 1995 to $26.3 million in 1996 and increased as a
percentage of net revenues from 27.2% in 1995 to 31.7% in 1996. The overall
increase in service, rent and maintenance expense is attributable to the
acquisitions of Parkway ($0.6 million) and Satellite ($0.2 million) and to
increased carrier line costs paid to third party service providers ($3.4
million), increased rent expense related to the addition of transmitters to the
Company's Nationwide Network ($1.1 million) and increased personnel costs ($1.7
million). Average monthly service, rent and maintenance expense per unit has
decreased from $2.63 per unit in 1995 to $2.60 per unit in 1996. Assuming
continued build-out of the Company's Nationwide Network, service, rent and
maintenance expenses may increase as a percentage of net revenues.
Selling and marketing expenses increased approximately $4.6 million
from $11.4 million in 1995 to $16.0 million in 1996 and increased as a
percentage of net revenues from 16.0% in 1995 to 19.3% in 1996. The increase in
selling and marketing expenses is associated with the acquisitions of Parkway
and Satellite ($0.3 million and $0.1 million, respectively), and due to
increased sales staff and related costs ($2.9 million), increased advertising
costs ($0.5 million), increased use of third party sales and distribution
groups ($0.2 million) and increased promotional and other costs ($0.6 million).
Average monthly selling and marketing expense per unit has increased from
$1.54 in 1995 to $1.58 in 1996. Selling and marketing expenses may increase
as a percentage of net revenues assuming the Company continues its subscriber
growth and net unit additions.
General and administrative expenses increased approximately $1.9
million from $18.5 million in 1995 compared to $20.4 million in 1996,
but decreased as a percentage of net revenues from 26.1% in 1995 to 24.5% in
1996. The overall increase is due to the acquisitions of Parkway ($0.2 million)
and Satellite ($0.3 million), and due to increased taxes and regulatory fees
paid ($0.8 million) and increased use of outside professional services firms
($0.6 million). Average monthly general and administrative expense per unit has
decreased from $2.52 in 1995 to $2.01 in 1996. General and administrative costs
should remain constant as a percent of revenue assuming the Company increases
its subscriber base.
Depreciation and amortization increased approximately $19.3 million
from $21.1 million in 1995 to $40.4 million in 1996, and increased as a
percentage of net revenues from 29.8% to 48.6% in 1995 and 1996,
respectively. The increase in total depreciation expense resulted from the
change in the estimated useful lives of certain intangible assets ($1.3
million), as well as increased depreciation expense on subscriber paging
equipment ($13.9 million) and other plant equipment ($1.9 million), amortization
of Goodwill acquired in connection with the Company's equity investment in A+
Network, Inc. ($1.5 million), and increased amortization expense on assets
acquired in the Parkway and Satellite acquisitions ($0.5 million and $0.2
million, respectively). Beginning in July 1995, the Company began recording all
purchases of new pagers as a component of subscriber paging equipment, resulting
in an increase to depreciation expense of approximately $0.7 million from $1.2
million in 1995 compared to $1.9 million in 1996.
18
<PAGE> 19
Interest expense increased approximately $5.4 million, from $8.2
million in 1995 to $13.6 million in 1996. Interest expense increased due to
higher average levels of debt resulting from additional borrowings on the
Company's credit facility, and as a result of the Company's Notes Offering in
October 1995 of $150.0 million of senior subordinated notes at an interest rate
of 10.375%.
Net loss increased $25.9 million in 1996 from approximately $7.1
million in 1995 to $33.0 million in 1996.
EBITDA decreased approximately $1.3 million from $21.7 million in 1995
to $20.4 million in 1996. As a percentage of net revenues, EBITDA decreased
from 30.7% in 1995 to 24.6% in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require the availability of substantial funds
to finance the maintenance and growth of its existing paging operations and
customer base, development and construction of future wireless communications
networks, expansion into new markets and the acquisition of other wireless
communications companies. Further cash requirements include debt service,
working capital and general corporate requirements.
The Company has financed its internal growth in 1996 through its
operating cash flow, the use of available cash and borrowings under its credit
facility. Net cash provided by operating activities increased from $12.8
million for the nine months ended September 30, 1995, to $17.9 million for the
nine months ended September 30, 1996.
Cash flows used in investing activities were primarily to fund
purchases of property and equipment and complete the acquisitions of Parkway
and Satellite. Capital expenditures were approximately $24.9 million and $58.5
million for the nine-month periods ended September 30, 1995 and 1996,
respectively. The Company experienced greater capital expenditure requirements
through September 30, 1996 due to increased pager placements and the build-out
of the Company's Nationwide Network. On July 16, 1996, the Company acquired
Parkway and on August 30, 1996, the Company acquired substantially all the
assets of Satellite. The acquisitions of Parkway and Satellite were financed
with cash payments, assumptions of long term obligations (refinanced at the
time of closing under the Company's credit facility) and the issuance of shares
of the Company's common stock. In addition to capital expenditures, the
Company paid approximately $91.8 million to purchase approximately 2,210,217
shares of common stock from certain principal shareholders of A+ Network, Inc.
and 2,140,526 shares from other shareholders in a tender offer.
Cash flows used in financing activities for the nine-month period
ended September 30, 1996, included payments on long-term debt of approximately
$267,000. Borrowings under the Company's credit facility increased by
approximately $67.0 million primarily for the acquisitions of Parkway and
Satellite, refinance assumed indebtedness and working capital.
At September 30, 1996, Metrocall had incurred approximately $222
million in total indebtedness, and will assume or refinance approximately $125
million of indebtedness in connection with the acquisition of A+ Network, Inc.
("A+ Network"). In addition, the Company expects to incur additional
indebtedness as a result of the acquisition of Page America (estimated to be
$55 million).
Metrocall has a New Credit Facility in the principal amount of $350
million and intends to use funds available under this facility to purchase
indebtedness of A+ Network that Metrocall will assume in the A+ Network merger
pursuant to the tender offer for such indebtedness discussed below, and to fund
future acquisitions or general corporate requirements. The Company may also
incur additional indebtedness (in the form of draws on the New Credit Facility
or otherwise) in connection with future acquisitions or for other purposes.
However, the ability to incur additional indebtedness (including draws on the
New Credit Facility) is subject to certain limitations in the agreements
relating to existing indebtedness and Metrocall currently may not incur
additional indebtedness. In particular, Metrocall cannot assume the
indebtedness of A+ Network in connection with the A+ Network merger unless
certain financial covenants are not exceeded after assumption of the
indebtedness. In order to be in compliance with these covenants after the A+
Network merger, reported earnings before interest, taxes, depreciation and
amortization ("EBITDA", as defined by the New Credit Facility) of Metrocall and
A+ Network must increase to a level that is sufficient to allow Metrocall to
assume the indebtedness of A+ Network, or the overall level of indebtedness that
would exist
19
<PAGE> 20
after the A+ Network merger must be reduced by raising additional equity
capital or other means. In addition, only $100 million of the $350 million
under the New Credit Facility is available (subject in any event to compliance
with certain financial ratios) until Metrocall raises at least $25 million in
additional equity capital, and this capital must be raised before Metrocall can
complete the acquisition of Page America. The New Credit Facility also
requires the Company to raise a further $25 million in equity capital if
Metrocall's ratio of cash flow to interest expense is less than 2.0 to 1 for
the quarter ended June 30, 1997.
The Company is seeking to raise additional equity capital in order to
insure that it will remain in compliance with certain debt covenants after
completion of the A+ Network merger and to have borrowing capacity for
completion of the Page America transaction and other purposes. Metrocall is in
the final stages of negotiating the terms of an issuance of $40 million of
preferred stock. There can be no assurance that the Company will be successful
in completing these transactions or any other transaction. Equity issued in
the form of preferred stock would have preference as to dividends and
liquidating distributions over the common stock and may contain other terms
adversely affecting holders of the common stock.
In connection with the A+ Network merger, on October 9, 1996,
Metrocall commenced a tender offer for all $125 million principal amount of A+
Network's outstanding 11 7/8% Senior Subordinated Notes due 2005 ("A+ Notes")
and solicitation of consents to amend the indenture governing the A+ Notes to
eliminate restrictive covenants and certain events of default. Holders of the
A+ Notes who validly consent and tender will receive aggregate payments of
$1,010, plus accrued and unpaid interest, for each $1,000 principal amount of
A+ Notes. The Company intends to finance the offer and solicitation through
advances under the New Credit Facility, which advances are conditional on the
Company issuing at least $25 million of new equity. The successful completion
of the tender offer is expected to enable Metrocall to reduce its interest
expense obligations after the A+ Network merger and, if all the A+ Notes are
tendered and accepted, simplify its capital structure. The successful
completion of the solicitation will provide Metrocall financial flexibility by
eliminating potentially overlapping or more restrictive covenants than those in
the indenture governing Metrocall's senior subordinated debt. The solicitation
of consents expired on November 5, 1996, and consents were received from
holders of approximately $121.5 million principal amount of A+ Network Notes.
The tender offer will expire on November 14, 1996, subject to extension by
Metrocall. As of November 12, 1996, A+ Notes with a principal amount of
approximately $121.5 million had been validly tendered and not withdrawn.
The ability of the Company to meet its debt service and other
obligations will be dependent upon the future performance of the Company and
its cash flows from operations, which will be subject to financial, business
and other factors, certain of which are beyond its control, such as prevailing
economic conditions. No assurance can be given that, in the event the Company
were to require additional financing, such additional financing would be
available on terms permitted by agreements relating to existing indebtedness or
otherwise satisfactory to the Company.
20
<PAGE> 21
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company, from time to time, is involved in lawsuits in the
normal course of business. The Company believes that its currently
pending lawsuits will not have a materially adverse effect on the
Company's financial position or results of operations.
In April 1996, the Company entered into an agreement to purchase
certain of the assets of Source One Wireless, Inc. ("Source One") and
placed $1 million cash in escrow. On June 26, 1996, the Company
advised Source One that Source One had failed to to meet certain
conditions to completion of the transaction and terminated the
agreement. On September 20, 1996, Source One filed an action in the
Circuit Court of Cook County, Illinois claiming that the Company had
breached the agreement and seeking specific performance of the
purchase agreement or unspecified damages in excess of $80 million.
The Company believes it has meritorious defenses to this action and
intends to vigorously defend the claims in this action.
The Company has received communications from a seller in
connection with an acquisition that occurred in 1994 asseting damages
resulting from alleged mis- representations in connection with the
acquisition. The seller, who received shares of common stock as
acquisition consideration, is seeking to receive additional shares of
common stock and a seat on the Company's board of directors among
other requests. Management plans to vigorously defend any legal
actions that might arise from such assertions.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
21
<PAGE> 22
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Metrocall, Inc., as amended. *
27 Financial Data Schedule. *
</TABLE>
- --------------------
* Exhibit filed herewith.
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K dated July 16, 1996 and filed with the
Securities and Exchange Commission on July 31, 1996, announcing the
completion of the acquisition of Parkway Paging, Inc. ("Parkway").
Current Report on Form 8-K dated July 16, 1996 and filed with the
Securities and Exchange Commission on August 13, 1996, updating the
Current Report filed on July 31, 1996 announcing the completion of
the acquisition of Parkway with financial statements and pro forma
financial information.
Current Report on Form 8-K dated August 30, 1996 and filed with the
Securities and Exchange Commission on September 13, 1996, updating
the Current Report filed on July 31, 1996 announcing the completion
of the acquisitions of Satellite Paging and Message Network.
Current Report on Form 8-K dated November 5, 1996 and filed with the
Securities and Exchange Commission on November 7, 1996, announcing
receipt of commitments for $25 million private equity placement.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 1996 METROCALL, INC.
/s/ Vincent D. Kelly
-------------------------
Vincent D. Kelly
Chief Financial Officer, Treasurer
and Vice President
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------ -------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Metrocall, Inc., as amended. *
27 Financial Data Schedule. *
</TABLE>
- --------------------
* Exhibit filed herewith.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
METROCALL, INC.
AS AMENDED
1. NAME.
The name of this corporation is Metrocall, Inc.
2. REGISTERED OFFICE AND AGENT.
The registered office of the Corporation shall be located at 32
Loockerman Square, Suite L-100, Dover, Delaware 19901 in the County of Kent.
The registered agent of the Corporation at such address be United States
Corporation Company.
3. PURPOSE AND POWERS.
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law. The Corporation shall have all power necessary or helpful to
engage in such acts and activities.
<PAGE> 2
4. CAPITAL STOCK.
4.1. AUTHORIZED SHARES.
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 34,500,000 shares, of which
1,000,000 shares shall be Preferred Stock, having a par value of $0.01 per
share ("Preferred Stock"), and 33,500,000 shall be classified as shares of
Common Stock, par value $0.01 per share ("Common Stock"). The Board of
Directors is expressly authorized to provide for the classification and
reclassification of any unissued shares of Preferred Stock or Common Stock and
the issuance thereof in one or more classes or series without the approval of
the stockholders of the Corporation.
4.2. COMMON STOCK.
(a) RELATIVE RIGHTS.
The Common Stock shall be subject to all of the rights, privileges,
preferences and priorities of the Preferred Stock as set forth in the
certificate of designations filed to establish the respective series of
Preferred Stock. Each share of Common Stock shall have the same relative rights
as and be identical in all respects to all the other shares of Common Stock.
(b) VOTING RIGHTS.
Each holder of shares of Common Stock shall be entitled to attend all
special and annual meetings of the stockholders of the Corporation and, share
for share and without regard to class, together with the holders of all other
classes of stock entitled to attend such meetings and to vote (except any class
or series of stock having special voting rights), to cast one vote for each
outstanding share of Common Stock so held upon any matter or thing (including,
without limitation, the election of one or more directors) properly considered
and acted upon by the stockholders, except as otherwise provided in this
Amended and Restated Certificate of Incorporation or by applicable law.
(c) DIVIDENDS.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of shares of any class of stock having preference over
the Common Stock as to the payment of dividends, the full amount of dividends
and of sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then the holders of
record of the Common Stock and any class or series of stock entitled to
participate therewith as to dividends, shall be entitled to receive dividends,
when, as, and if declared by the
2
<PAGE> 3
Board of Directors, out of any assets legally available for the payment of
dividends thereon.
(d) DISSOLUTIONS, LIQUIDATION, WINDING UP.
In the event of any discussion, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of record of the
Common Stock then outstanding, and all holders of any class or series of stock
entitled to participate therewith in whole or in part, as to distribution of
assets, shall become entitled to participate in the distribution of any assets
of the Corporation remaining after the Corporation shall have paid, or set
aside for payment, to the holders of any class of stock having preference over
the Common Stock in the event of dissolution, liquidation or winding up, the
full preferential amounts (if any) to which they are entitled, and shall have
paid or provided for payment of all debts and liabilities of the Corporation.
4.3. PREFERRED STOCK.
(a) ISSUANCE, DESIGNATIONS, POWER, ETC.
The Board of Directors expressly is authorized, subject to limitations
prescribed by the Delaware General Corporation Law and the provisions of this
Amended and Restated Certificate of Incorporation, to provide, by resolution
and by filing a certificate of designations pursuant to the Delaware General
Corporation Law, for the issuance from time to time of the shares of Preferred
Stock in one or more series, to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences and other rights of the shares of each such series and to fix the
qualifications, limitations and restrictions thereon, including, but without
limiting the generality of the foregoing, the following:
(i) the number of shares constituting that series and the
distinctive designation of that series;
(ii) the dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on shares
of that series;
(iii) whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of Directors
shall determine;
3
<PAGE> 4
(v) whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(vi) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(vii) the rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(viii) any other relative powers, preferences, and rights of
that series, and qualifications, limitations or restrictions on that series.
(b) DISSOLUTION, LIQUIDATION, WINDING UP.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of Preferred Stock
of each series shall be entitled to receive only such amount or amounts as
shall have been fixed by the certificate of designations or by the resolution
or resolutions of the Board of Directors providing for the issuance of such
series.
4.4. ADJUSTMENTS OF AUTHORIZED STOCK.
Except as provided to the contrary in the provisions establishing a
class or series of stock, the amount of the authorized stock of the Corporation
of any class or classes may be increased or decreased (but not below the number
then outstanding) by the affirmative vote of a majority of the directors then
in office, whether or not a quorum.
4.5. RESTRICTIONS ON FOREIGN OWNERSHIP OF SHARES.
(a) No shares of stock of any class or series outstanding at any time
shall be owned of record or beneficially by a person (as defined in Section
4.5(c) hereof) whose ownership thereof would constitute a violation of Section
310(a) or 310(b) of the Communications Act of 1934, as amended, or any similar
or successor federal statutes.
(b) The Corporation may, in its sole discretion, redeem any
outstanding shares of stock of any class or series which are owned in violation
of Section 4.5(a) hereof. Shares redeemed by the Corporation under this Section
4.5(b) may be redeemed for cash, property or rights, at the lesser of (i) the
fair market value at the
4
<PAGE> 5
time of the redemption or (ii) the holder's purchase price, provided the holder
purchased such shares within a year prior to the redemption. The Board of
Directors shall have sole discretion to determine whether shares are owned in
violation of Section 4.5(a) hereof, the fair market value of any shares to be
redeemed, and the value of any non-cash consideration to be provided for such
shares in any such redemption.
(c) For purposes of this Section 4.5, "person" shall mean an
individual, a partnership, a corporation, a trust, a joint venture, an
unincorporated organization, a government or any department or agency thereof
or any other legal entity.
5. BOARD OF DIRECTORS.
5.1. CLASSIFICATION.
Except as otherwise provided in this Amended and Restated Certificate
of Incorporation or a certificate of designations relating to the rights of the
holders of any class or series of Preferred Stock, voting separately by class
or series, to elect additional directors under specified circumstances, the
number of directors of the Corporation shall be as fixed from time to time by
or pursuant to the Bylaws of the Corporation. The directors, other than those
who may be elected by the holders of any class or series of Preferred Stock
voting separately by class or series, shall be classified, with respect to the
time for which they severally hold office, into three classes, Class I, Class II
and Class III, which shall be as nearly equal in number as possible, and shall
be adjusted from time to time in the manner specified in the Bylaws of the
Corporation to maintain such proportionality. Each initial director in Class I
shall hold office for a term expiring at the 1996 annual meeting of
stockholder, each initial director in Class II shall hold office initially for
a term expiring at the 1995 annual meeting of stockholders, and each initial
director in Class III shall hold office for a term expiring at the 1994 annual
meeting of stockholders. Notwithstanding the foregoing provisions of this
Section 5.1, each director shall serve until such director's successor is duly
elected and qualified or until such director's earlier death, resignation or
removal. At each annual meeting of stockholders, the successors to the class of
directors whose term expires at the meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election and until their successors have been duly
elected and qualified or until any such director's earlier death, resignation
or removal.
5.2. REMOVAL.
(a) Except as otherwise provided pursuant to the
provisions of this Amended and Restated Certificate of Incorporation or a
certificate of designations relating to the rights of the holders of any class
or series of Preferred Stock, voting separately by class or series, to elect
directors under specified
5
<PAGE> 6
circumstances, any director or directors may be removed from office at any
time, but only for cause (as defined in Section 5.2(b) hereof) and only by the
affirmative vote, at a special meeting of the stockholders called for such a
purpose, of not less than 66-2/3% of the total number of votes of the then
outstanding shares of stock of the Corporation entitled to vote generally in
the election of directors, voting together as a single class, but only if
notice of such proposal was contained in the notice of such meeting. At least
30 days prior to such special meeting of stockholders, written notice shall be
sent to the director or directors whose removal will be considered at such
meeting. Any vacancy in the Board of Directors resulting from any such removal
or otherwise shall be filled only by vote of a majority of the directors then
in office, although less than a quorum, and any directors so chosen shall hold
office until the next election of the class for which such directors shall have
been chosen and until their successors shall be elected and qualified or until
any such director's earlier death, resignation or removal.
(b) For purposes of this Section 5.2, "cause" shall mean (i)
conduct as a director of the Corporation or any subsidiary involving dishonesty
of a material nature or (ii) criminal conduct (other than minor infractions and
traffic violations) that relates to the performance of the director's duties as
a director of the Corporation or any subsidiary.
5.3. CHANGE OF AUTHORIZED NUMBER.
In the event of any increase or decrease in the authorized number of
directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes as nearly equal as
possible. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
5.4. DIRECTORS ELECTED BY HOLDERS OF PREFERRED STOCK.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Amendment and Restated Certificate of Incorporation or a
certificate of designations applicable thereto, and such directors so elected
shall not be divided into classes pursuant to this Section 5 unless expressly
provided by the certificate of designations.
5.5. LIMITATION OF LIABILITY.
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for any breach of fiduciary duty as a
director,
6
<PAGE> 7
provided that this provision shall not eliminate or limit the liability of a
director (a) for any breach of the director's duty of loyalty to the
Corporation or its stockholders; (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (c) for the
types of liability set forth in Section 174 of the Delaware General Corporation
Law; or (d) for any transaction from which the director received any improper
personal benefit. Any repeal or modification of this Section 5.5 by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification.
6. INDEMNIFICATION.
To the extent permitted by law, the Corporation shall fully indemnify
any person who was or is a party or is threatened to be made a party to 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 or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
To the extent permitted by law, the Corporation may fully indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reasons 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 an employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
The Corporation may advance expenses (including attorneys' fees)
incurred by a director or officer in advance of the final disposition of such
action, suit or proceeding upon the receipt of an undertaking by or on behalf
of the director or officer to repay such amount if it shall ultimately be
determined that such director or officer is not entitled to indemnification.
The Corporation may advance expenses (including attorneys' fees) incurred by an
employee or agent in advance of the final disposition of such action, suit or
proceeding upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
7
<PAGE> 8
7. ACTIONS BY STOCKHOLDERS.
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders, and may not be effected by any consent in writing by such
stockholders, unless such consent unanimous.
8. SPECIAL MEETINGS.
Special meetings of the stockholders may be called at any time but
only by (a) the chairman of the board of the Corporation, (b) a majority of the
directors in office, although less than a quorum, or (c) the holders of not
less than 35% of the total number of votes of the then outstanding shares of
stock of the Corporation entitled to vote generally in the election of the
directors, voting together as a single class.
9. CRITERIA FOR EVALUATING CERTAIN OFFERS.
The Board of Directors, when evaluating any offer of another party to
(a) make a tender or exchange offer for any equity security of the Corporation,
(b) merge or consolidate the Corporation with another institution, or (c)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, shall, in connection with the exercise of its
judgement, in determining what is in the best interests of the Corporation and
its stockholders, be authorized to give due consideration to any such factors
as the Board of Directors determines to be relevant, including, without
limitation:
(i) the interests of the stockholders of the Corporation;
(ii) whether the proposed transaction might violate federal or
state laws;
(iii) the consolidation being offered in the proposed transaction,
in relation to the then current market price for the outstanding capital stock
of the Corporation, the market price for the capital stock of the Corporation
over a period of years, the estimated price that might be achieved in a
negotiated sale of the Corporation as a whole or in part or through orderly
liquidation, the premiums over market price for the securities of other
corporations in similar transactions, current political, economic and other
factors bearing on securities prices and the Corporation's financial condition
and estimated future value as an independent entity; and
(iv) the social, legal and economic effects upon employees,
suppliers, subscribers and others having similar relationships with the
Corporation, and the communities in which the Corporation conducts its
business.
8
<PAGE> 9
In connection with any such evaluation, the Board of Directors is authorized to
conduct such investigations and engage in such legal proceedings as the Board
of Directors may determine.
10. ANTI-GREENMAIL.
Any direct or indirect purchase or other acquisition by the
Corporation of any capital stock of the Corporation from any Significant
Stockholder (as hereinafter defined) who has been the beneficial owner (as
hereinafter defined) of such capital stock for less than two years prior to the
date of such purchase or other acquisition shall, except as hereinafter
expressly provided, require the affirmative vote of the holders of at least a
majority of the total number of outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, excluding in calculating such affirmative vote and
the total number of outstanding shares all capital stock beneficially owned by
such Significant Stockholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required or the a lesser
percentage may be specified, by law, but no such affirmative vote shall be
required with respect to (a) any purchase or other acquisition of capital stock
of the Corporation made as part of a tender or exchange offer by the
Corporation to purchase capital stock of the Corporation on the same terms from
all holders of the same class of capital stock and complying with the
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, (b) any purchase of capital stock of the
Corporation which the Board of Directors shall determine to be necessary
pursuant to Section 4.5 of this Amended and Restated Certificate of
Incorporation, (c) any purchase or other acquisition of capital stock of the
Corporation on the same terms from all holders of such class of capital stock in
accordance with the terms and conditions of any stock option or employee
benefit plan of the Corporation, or (d) any purchase of capital stock of the
Corporation, where the Board of Directors has determined that the purchase
price per share of the capital stock does note exceed the fair market value of
the capital stock. Such fair market value shall be equal to the average closing
price or the mean of the bid and asked prices of a share of capital stock for
the 20 trading days immediately preceding the execution of a definitive
agreement to purchase the capital stock from a Significant Stockholder.
For purposes of this Section 10, "Significant Stockholder" shall mean
any person (other than the Corporation or any corporation of which a majority
of any class of capital stock of the Corporation is owned, directly or
indirectly, by the Corporation) that is the beneficial owner, directly or
indirectly, of five percent or more of the voting power of the outstanding
capital stock of the Corporation.
For purposes of this Section 10, "Beneficial Owner," when used with
respect to any capital stock of the Corporation, means any person that:
9
<PAGE> 10
(i) individually or with any of its Affiliates (as
hereinafter defined), beneficially owns capital stock directly or
indirectly;
(ii) individually or with any of its Affiliates, has (a)
the right to acquire capital stock (whether such right is exercisable
immediately or only after passage of time) pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise; (b) the
right to vote or direct the voting of capital stock pursuant to any
agreement, arrangement or understanding; or (c) the right to dispose
of or to direct the disposition of capital stock pursuant to any
agreement, arrangement or understanding; or
(iii) individually or with any of its Affiliates, has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of capital stock with any other person
that beneficially owns, or whose Affiliates beneficially own, directly
or indirectly, such shares of capital stock.
For purposes of this Section 10, "Affiliates" shall mean a person that
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, a specified person.
11. COMPROMISE OR ARRANGEMENT CLAUSE.
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
Section 291 of the Delaware General Corporation Law or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
Corporation under Section 279 of the Delaware General Corporation Law order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of the Corporation, as the case may be, and also on the
Corporation.
10
<PAGE> 11
12. AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or the Bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Amended and Restated Certificate of Incorporation or the Bylaws of the
Corporation), the affirmative vote of 66-2/3% of the total number of votes of
the then outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required to amend or repeal, or to adopt any provision inconsistent
with the purpose or intent of Sections 5, 7, 8, 9, and 10 hereof, and this
Section 12. Notice of any such proposed amendment, repeal or adoption shall be
contained in the notice of the meeting at which it is to be considered. Subject
to the provisions set forth herein, the Corporation reserves the right to
amend, alter, repeal or rescind any provision contained in this Amended and
Restated Certificate of Incorporation in the manner now or hereafter prescribed
by law.
13. AMENDMENT OF BYLAWS.
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors is expressly
authorized and empowered to adopt, amend and repeal the Bylaws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to amend or repeal Bylaws adopted by the Board of Directors as
provided for in this Amended and Restated Certificate of Incorporation or in
the Bylaws of the Corporation.
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,243
<SECURITIES> 0
<RECEIVABLES> 11,090
<ALLOWANCES> 1,100
<INVENTORY> 0
<CURRENT-ASSETS> 23,318
<PP&E> 174,729
<DEPRECIATION> 69,280
<TOTAL-ASSETS> 412,503
<CURRENT-LIABILITIES> 36,000
<BONDS> 221,923
0
0
<COMMON> 161
<OTHER-SE> 132,202
<TOTAL-LIABILITY-AND-EQUITY> 412,503
<SALES> 5,998
<TOTAL-REVENUES> 36,622
<CGS> 4,986
<TOTAL-COSTS> 23,466
<OTHER-EXPENSES> 15,288
<LOSS-PROVISION> 1,305
<INTEREST-EXPENSE> 5,196
<INCOME-PRETAX> (14,486)
<INCOME-TAX> 171
<INCOME-CONTINUING> (14,315)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,315)
<EPS-PRIMARY> (0.94)
<EPS-DILUTED> (0.94)
</TABLE>
