<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1996.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
METROCALL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4812 54-1215634
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
6677 RICHMOND HIGHWAY
ALEXANDRIA, VIRGINIA 22306
(703) 660-6677
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM L. COLLINS, III
CHIEF EXECUTIVE OFFICER
METROCALL, INC.
6677 RICHMOND HIGHWAY
ALEXANDRIA, VIRGINIA 22306
(703) 660-6677
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
With a copy to:
<TABLE>
<S> <C>
GEORGE P. STAMAS, ESQ. HOWARD HERNDON, ESQ.
WILMER, CUTLER & PICKERING WALLER LANSDEN DORTCH & DAVIS
2445 M STREET, N.W. 511 UNION STREET, SUITE 2100
WASHINGTON, D.C. 20037 NASHVILLE, TN 37219
(202) 663-6000 (615) 244-6380
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(1) PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per
share................................ 9,042,260 $13.625 $123,200,793 $42,483
- -----------------------------------------------------------------------------------------------------------
Variable Common Rights(2).............. 9,042,260 -- -- --
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(c) and 457(f)(1) solely for the purpose of
calculating the registration fee, based upon the average of the high and low
prices per share of A+ Network, Inc. common stock, par value $.01 per share,
on June 25, 1996, as reported on the Nasdaq Stock Market's National Market.
(2) In accordance with the requirements of Rule 457(f)(1), no separate value has
been allocated to the Variable Common Rights.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
METROCALL, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY FORM S-4
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM LOCATION IN PROSPECTUS
----------------------------------------- ---------------------------------------------
<S> <C> <C>
A. Information About the Transaction
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus........................
2. Inside Front and Outside Back Cover
Pages of Prospectus............... Inside Front Cover Page
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information....................... Summary; Risk Factors; The Meetings; The
Merger and Related Transactions (Ratio of
Earnings to Fixed Charges Not Applicable)
4. Terms of the Transaction.............. Summary; The Merger and Related Transactions;
The Merger Agreement and Terms of the
Merger; Comparative Rights of Metrocall
Stockholders and A+ Network Shareholders
5. Pro Forma Financial Information....... Summary; Pro Forma Condensed Combined
Financial Data
6. Material Contacts with the Company
Being Acquired.................... The Merger and Related Transactions
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters......... *
8. Interests of Named Experts and
Counsel........................... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities....................... *
B. Information About the Registrant
10. Information with Respect to S-3
Registrants....................... Available Information; Incorporation of
Certain Information by Reference; Summary;
Description of Metrocall Securities; Pro
Forma Condensed Combined Financial Data;
Recent Developments Regarding Metrocall;
Management of the Surviving Corporation
11. Incorporation of Certain Information
by Reference...................... *
12. Information with Respect to S-2 or
S-3 registrants................... *
13. Incorporation of Certain Information
by Reference...................... *
14. Information with Respect to
Registrants Other than S-2 or S-3
Registrants....................... *
C. Information About the Company Being
Acquired
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM LOCATION IN PROSPECTUS
----------------------------------------- ---------------------------------------------
<S> <C> <C>
15. Information with Respect to S-3
Companies......................... Available Information; Incorporation of
Certain Information by Reference; Summary;
Pro Forma Condensed Combined Financial
Data; Recent Developments Regarding A+
Network
16. Information with Respect to S-2 or
S-3 Companies..................... *
17. Information with Respect to Companies
Other than S-2 or S-3 Companies... *
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be
Solicited......................... Summary; Introductory Statement; The
Meetings; The Merger and Related Transactions
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange
Offer............................. *
</TABLE>
- ---------------
* Omitted as inapplicable.
<PAGE> 4
[METROCALL, INC. LETTERHEAD]
AUGUST [13], 1996
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders
(the "Metrocall Meeting") of Metrocall, Inc. ("Metrocall") to be held on
September 17, 1996 at the Ritz-Carlton, Pentagon City, 1250 South Hayes Street,
Arlington, Virginia at 10:00 a.m., local time. As described in the enclosed
Joint Proxy Statement/Prospectus, at the Metrocall Meeting, the stockholders of
Metrocall will be asked to consider and vote upon (i) the business combination
of A+ Network, Inc., a Tennessee corporation ("A+ Network"), and Metrocall
through the merger (the "Merger") of A+ Network with and into Metrocall, (ii) an
amendment (the "Charter Amendment") to the Amended and Restated Certificate of
Incorporation of Metrocall to increase the number of authorized shares of
Metrocall Common Stock by 7,500,000 shares, from 26,000,000 shares to 33,500,000
shares, and (iii) an amendment (the "Plan Amendment") to the Metrocall 1996
Stock Option Plan to increase the number of shares of Metrocall Common Stock
that may be issued thereunder by 1,000,000.
The Merger is subject to the terms and conditions of an Agreement and Plan
of Merger (the "Merger Agreement") dated May 16, 1996 between Metrocall and A+
Network. Upon consummation of the Merger, each outstanding share of the common
stock of A+ Network ("A+ Network Common Stock" or the "Shares"), other than
Shares owned by Metrocall or its subsidiaries, will be converted, without any
action on the part of the holder thereof, into the right to receive (i) the
number of newly issued shares of the common stock of Metrocall ( the "Metrocall
Shares" or the "Metrocall Common Stock") equal to the Conversion Ratio (as
defined in the Merger Agreement), (ii) the same number of indexed Variable
Common Rights ("VCRs" and, together with the Metrocall Shares, the "Metrocall
Securities"), plus (iii) cash in respect of fractional Metrocall Securities. The
shares of Metrocall Common Stock held by Metrocall stockholders prior to the
Merger will be unchanged by the Merger. It is expected that up to approximately
9,042,260 shares of Metrocall Common Stock (approximately % of the total
shares of Metrocall Common Stock expected to be issued and outstanding after the
Merger) will be issued to the shareholders of A+ Network in the Merger in
exchange for their shares of A+ Network Common Stock.
The accompanying Joint Proxy Statement/Prospectus provides a detailed
description of the Merger Agreement and information regarding other matters to
be considered at the Metrocall Meeting. A copy of the Merger Agreement is
attached to the Joint Proxy Statement/Prospectus as Exhibit A.
The Metrocall Board of Directors has carefully reviewed and considered the
terms and conditions of the proposed Merger. The Board of Directors (including
nonemployee directors) believes that the transaction is fair to Metrocall
stockholders, has unanimously (with one director absent) approved the Merger
Agreement and the Merger and recommended that stockholders vote FOR approval and
adoption of the Merger Agreement. The Metrocall Board of Directors also
recommends that stockholders vote FOR the Charter Amendment and FOR the Plan
Amendment.
Metrocall retained the investment banking firm of Wheat, First Securities,
Inc. ("Wheat, First") to render an opinion as to the fairness, from a financial
point of view, to Metrocall of the consideration to be paid for the A+ Network
Common Stock. Wheat, First has delivered to Metrocall's Board of Directors a
written opinion, dated May 14, 1996, to the effect that, as of such date and
based upon and subject to certain matters stated therein, taken together, the
consideration to be paid (i) to the holders of Shares pursuant to a completed
tender offer by Metrocall to purchase 2,140,526 Shares and (ii) to the holders
of the Shares
<PAGE> 5
pursuant to the Merger is fair to the holders of Metrocall Common Stock from a
financial point of view. A copy of Wheat, First's opinion is attached to the
Joint Proxy Statement/Prospectus as Exhibit B.
Your vote on these matters is very important. The Merger must be approved
and adopted by a majority of the issued and outstanding shares of Metrocall
Common Stock so a failure to vote is equivalent to a vote against the Merger. We
urge you to review carefully the enclosed materials and to return your proxy
promptly. Stockholders with questions regarding the Merger or other transactions
or matters described herein may contact Shirley B. White, Assistant Secretary of
Metrocall, at (703) 660-6677.
Whether or not you plan to attend the Metrocall Meeting, please sign and
promptly return your proxy card in the enclosed postage paid envelope. If you
attend the meeting, you may vote in person if you wish, even though you have
previously returned your proxy.
Sincerely,
Richard M. Johnston
Chairman of the Board
<PAGE> 6
A+ NETWORK, INC.
40 SOUTH PALAFOX STREET
PENSACOLA, FL 32501
August [13], 1996
Dear Fellow Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "A+ Network Meeting") of A+ Network, Inc. ("A+ Network") to be held on
Tuesday, September 17, 1996 at 1:00 p.m., local time, at the First American
Center auditorium, fifth floor, 300 Union Street, Nashville, Tennessee. Enclosed
are a Notice of the A+ Network Meeting, a Joint Proxy Statement/Prospectus and a
proxy card containing information about the matters to be acted upon.
At the A+ Network Meeting, you will be asked to consider and vote upon the
approval of the Agreement and Plan of Merger, dated as of May 16, 1996 (the
"Merger Agreement"), between A+ Network and Metrocall, Inc. ("Metrocall"). The
Merger Agreement provides for the merger (the "Merger") of A+ Network with and
into Metrocall with Metrocall being the surviving entity (the "Surviving
Corporation"). The Merger would be the final step in the business combination of
A+ Network and Metrocall. In the initial steps, Metrocall acquired 4,350,743
shares of A+ Network common stock for $21.10 per share pursuant to a cash tender
offer (the "Tender Offer") and pursuant to purchases from certain principal
shareholders of A+ Network in accordance with an agreement with such
shareholders (the "Shareholders' Agreement"), as a result of which Metrocall now
owns approximately % of A+ Network's outstanding capital stock. The Merger
is intended to qualify as a tax-free transaction under the Internal Revenue Code
of 1986, as amended. We urge you to read the enclosed Joint Proxy
Statement/Prospectus for a description of the federal income tax consequences of
the Merger.
In the Merger, each outstanding share of common stock, par value $.01 per
share, of A+ Network (the "A+ Network Common Stock"), other than shares of A+
Network Common Stock held by Metrocall or any of its subsidiaries (which will be
cancelled), will be converted into the right to receive (i) that number of
shares of common stock, par value $.01 per share, of Metrocall as the Surviving
Corporation (the "Metrocall Common Stock") equal to the Conversion Ratio (as
defined in the Merger Agreement) and (ii) the same number of indexed Variable
Common Rights ("VCRs" and together with the Metrocall Common Stock, the
"Metrocall Securities") having the terms described in the Merger Agreement.
Pursuant to the Merger Agreement, the Conversion Ratio will be determined by
dividing $21.10 by the average of the last reported bid prices for shares of
Metrocall Common Stock on the Nasdaq National Market for the 50 consecutive
trading days ending on the trading day which is five days prior to the effective
time of the Merger (the "Average Metrocall Share Price"), provided that the
Average Metrocall Share Price will not exceed $21.88 or be less than $17.90.
Holders of A+ Network Common Stock do not have rights of appraisal under
Tennessee law in connection with the Merger. A copy of the Merger Agreement is
attached as Exhibit A to the accompanying Joint Proxy Statement/Prospectus.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY (WITH ONE DIRECTOR ABSENT)
DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF A+ NETWORK
AND ITS SHAREHOLDERS AND HAS ADOPTED THE MERGER AGREEMENT AND APPROVED THE
MERGER. THE BOARD OF DIRECTORS HAS UNANIMOUSLY (WITH ONE DIRECTOR ABSENT)
RECOMMENDED THAT THE SHAREHOLDERS OF A+ NETWORK VOTE FOR THE APPROVAL OF THE
MERGER AGREEMENT.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached Joint Proxy
Statement/Prospectus, including the written opinion, dated May 15, 1996, of
Prudential Securities Incorporated, A+ Network's financial advisor, to the
effect that, as of such date and based upon and subject to certain matters
stated therein, the consideration to be received by holders of A+ Network Common
Stock pursuant to the Merger Agreement and the transactions contemplated
thereby, including the Tender Offer, was fair to such holders from a financial
point of view. The Joint Proxy Statement/Prospectus contains other important
information relating to the Merger, and you are encouraged to read the Joint
Proxy Statement/Prospectus carefully.
<PAGE> 7
The Merger will require the approval of the Federal Communications
Commission and state regulatory authorities, the approval of a majority of the
issued and outstanding shares of A+ Network Common Stock, the approval of the
shareholders of Metrocall and the satisfaction or waiver of other conditions as
described in the attached Joint Proxy Statement/Prospectus. Pursuant to
purchases under the Tender Offer and the Shareholders' Agreement, and rights
granted under the Shareholders' Agreement, Metrocall has the right, and has
agreed, to vote in excess of a majority of the shares of A+ Network Common Stock
to approve the Merger Agreement.
In view of the importance of the action to be taken at the A+ Network
Meeting, we urge you to read the enclosed material carefully and to complete,
sign and date the enclosed proxy card and return it promptly in the enclosed
prepaid envelope, whether or not you plan to attend the A+ Network Meeting. If
you attend the A+ Network Meeting in person, you may, if you wish, vote your
shares personally on all matters whether or not you have previously submitted a
proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely yours,
Charles A. Emling III
President and Chief Executive Officer
<PAGE> 8
[METROCALL, INC. LETTERHEAD]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 17, 1996
TO THE STOCKHOLDERS OF METROCALL, INC.:
A Special Meeting of the Stockholders of Metrocall, Inc. ("Metrocall") will
be held at the Ritz-Carlton, Pentagon City, located at 1250 South Hayes Street,
Arlington, Virginia, on September 17, 1996 at 10:00 a.m. local time to consider
and act upon the following proposals:
1. To approve and adopt an Agreement and Plan of Merger (the "Merger
Agreement") dated May 16, 1996, a copy of which is included as Exhibit A
to the Joint Proxy Statement/Prospectus accompanying this Notice,
pursuant to which (a) A+ Network, Inc. a Tennessee corporation ("A+
Network") will be merged with and into Metrocall, and (b) each share of
A+ Network common stock, par value $.01 per share ("A+ Network Common
Stock" or the "Shares"), outstanding immediately prior to the effective
time of the Merger, other than Shares owned by Metrocall or its
subsidiaries, will be converted into the right to receive (i) the number
of newly issued shares of Metrocall common stock, par value $.01 per
share (the "Metrocall Shares" or "Metrocall Common Stock") equal to the
Conversion Ratio (as defined in the Merger Agreement), (ii) the same
number of indexed Variable Common Rights ("VCRs" and, together with the
Metrocall Shares, the "Metrocall Securities"), plus (iii) cash in
respect of fractional Metrocall Securities, if any. The Merger must be
approved and adopted by a majority of the issued and outstanding shares
of Metrocall Common Stock.
2. To approve and adopt an amendment (the "Charter Amendment") to the
Amended and Restated Certificate of Incorporation of Metrocall to
increase the authorized Metrocall Common Stock by 7,500,000 shares, from
26,000,000 shares to 33,500,000 shares. The Charter Amendment must be
approved by a majority of the issued and outstanding shares of Metrocall
Common Stock.
3. To approve and adopt an amendment (the "Plan Amendment") to the
Metrocall 1996 Stock Option Plan to increase the number of shares of
Metrocall Common Stock that may be issued thereunder by 1,000,000.
Pursuant to Metrocall's Bylaws, the Board of Directors has fixed the close
of business on August 1, 1996 as the record date for the Special Meeting. Only
holders of Metrocall Common Stock of record at the close of business on that
date will be entitled to notice of and to vote at the Special Meeting or any
adjournments or postponements thereof.
By Order of the Board of Directors
--------------------------------------
Shirley B. White
Assistant Secretary
Alexandria, Virginia
August [13], 1996
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE. YOU MAY, IF YOU WISH,
REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
<PAGE> 9
A+ NETWORK, INC.
40 SOUTH PALAFOX STREET
PENSACOLA, FL 32501
NOTICE OF A+ NETWORK SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 17, 1996
TO THE SHAREHOLDERS OF A+ NETWORK, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of A+
Network, Inc., a Tennessee corporation ("A+ Network"), will be held on Tuesday,
September 17, 1996 at 1:00 p.m., local time, at the First American Center
auditorium, fifth floor, 300 Union Street, Nashville, Tennessee (the "A+ Network
Meeting") for the following purpose:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of May 16, 1996 (the "Merger Agreement"), between
A+ Network and Metrocall, Inc., a Delaware corporation ("Metrocall"),
providing for the merger (the "Merger") of A+ Network with and into
Metrocall, with Metrocall being the surviving entity (the "Surviving
Corporation") and pursuant to which each outstanding share of common stock,
par value $.01 per share, of A+ Network (the "A+ Network Common Stock")
will be converted into the right to receive (i) that number of shares of
common stock, par value $.01 per share, of the Surviving Corporation (the
"Metrocall Common Stock") equal to the Conversion Ratio (as defined in the
Merger Agreement) and (ii) the same number of indexed Variable Common
Rights (the "VCRs" and together with the Metrocall Common Stock, the
"Metrocall Securities") having the terms described in the Merger Agreement.
The Conversion Ratio will be based on the last reported bid prices for
shares of the Metrocall Common Stock on the Nasdaq National Market for the
50 consecutive trading days ending on the trading date that is five days
prior to the effective time of the Merger but in no event will be lower
than .96435 or higher than 1.17877. A copy of the Merger Agreement is
attached as Exhibit A to the accompanying Joint Proxy Statement/Prospectus.
Only holders of record of A+ Network Common Stock at the close of business
on , 1996 (the "A+ Network Record Date"), are entitled to notice of and
to vote at the A+ Network Meeting and any adjournments or postponements thereof.
The list of A+ Network shareholders entitled to vote at the A+ Network Meeting
will be available for examination for ten days prior to the A+ Network Meeting
at the offices of Waller Lansden Dortch & Davis, 511 Union Street, Suite 2100,
Nashville, Tennessee 37219.
All shareholders are cordially invited to attend the A+ Network Meeting. To
ensure your representation at the A+ Network Meeting, however, you are urged to
mark, sign and return the enclosed proxy card in the accompanying envelope,
whether or not you expect to attend the A+ Network Meeting. No postage is
required if mailed in the United States. Any A+ Network shareholder attending
the A+ Network Meeting may vote in person even if that shareholder has returned
a proxy card.
By order of the Board of Directors
Charles A. Emling III
President and Chief Executive Officer
August [13], 1996.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED
PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
PLEASE DO NOT SEND STOCK CERTIFICATES AT THIS TIME.
<PAGE> 10
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 26, 1996
METROCALL, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD SEPTEMBER 17, 1996
AND PROSPECTUS REGARDING THE ISSUANCE OF UP TO 9,042,260 SHARES OF
METROCALL COMMON STOCK AND INDEXED VARIABLE COMMON RIGHTS
----------------------------------------
A+ NETWORK, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD SEPTEMBER 17, 1996
----------------------------------------
This Joint Proxy Statement/Prospectus is being furnished to the stockholders
of Metrocall, Inc., a Delaware corporation ("Metrocall"), and to the
shareholders of A+ Network, Inc., a Tennessee corporation ("A+ Network"), and
relates to the Special Meeting of Stockholders of Metrocall (the "Metrocall
Meeting") to be held on September 17, 1996 and the Special Meeting of
Shareholders of A+ Network (the "A+ Network Meeting") to be held on September
17, 1996 (collectively, the "Stockholders Meetings"). At the respective
Stockholders Meetings, stockholders of Metrocall and of A+ Network,
respectively, will be asked to consider and act upon the Agreement and Plan of
Merger (the "Merger Agreement"), a copy of which is attached hereto as Exhibit
A. In addition, stockholders of Metrocall will be asked to vote to approve and
adopt an amendment (the "Charter Amendment") to the Amended and Restated
Certificate of Incorporation of Metrocall increasing the number of authorized
shares of Metrocall Common Stock by 7,500,000 shares, from 26,000,000 shares to
33,500,000 shares and an amendment (the "Plan Amendment") to the Metrocall 1996
Stock Option Plan to increase the number of shares of Metrocall Common Stock
that may be issued thereunder by 1,000,000.
Pursuant to the Merger Agreement, (i) A+ Network will be merged with and
into Metrocall (the "Merger") and (ii) each share of A+ Network common stock,
par value $.01 per share, together with the related share purchase rights ("A+
Network Common Stock" or the "Shares"), outstanding immediately prior to the
effective time of the Merger (the "Effective Time"), other than Shares owned by
Metrocall or its subsidiaries, will be converted into the right to receive (A)
that number of newly issued shares of the Metrocall Common Stock, par value $.01
per share, of Metrocall ("Metrocall Common Stock" or the "Metrocall Shares")
equal to the Conversion Ratio, (B) the same number of indexed Variable Common
Rights ("VCRs" and, together with the Metrocall Shares, the "Metrocall
Securities"), plus (C) cash in respect of fractional Metrocall Securities. The
Conversion Ratio will be determined by dividing $21.10 by the average of the
last bid prices for shares of Metrocall Common Stock on the Nasdaq National
Market (the "NNM") for the 50 consecutive trading days ending on the trading day
that is five days prior to the Effective Time of the Merger (the "Average
Metrocall Share Price"), except that if the Average Metrocall Share Price is
greater than $21.88 or less than $17.90, then the Conversion Ratio will be
.96435 or 1.17877, respectively.
Prior to the date of this Joint Proxy Statement/Prospectus, and pursuant to
the terms of the Merger Agreement, Metrocall purchased 2,140,526 Shares pursuant
to a tender offer dated May 22, 1996 to the holders of Shares (the "Offer") and
Metrocall purchased 2,210,217 additional Shares from certain shareholders of A+
Network pursuant to a Shareholders' Option and Sale Agreement dated May 16, 1996
(the "Shareholders' Agreement") among Metrocall and certain shareholders of A+
Network named therein. Metrocall has agreed to vote all of the foregoing shares
(which constitute approximately % of the issued and outstanding shares as of
the record date for the A+ Network Meeting) in favor of the Merger. In addition,
certain other shareholders holding approximately % of the issued and
outstanding Shares as of the record date for the A+ Network Meeting have also
agreed to vote in favor of the Merger.
------------------------
THE BOARDS OF DIRECTORS OF METROCALL AND A+ NETWORK RECOMMEND THAT STOCKHOLDERS
OF THEIR RESPECTIVE COMPANIES VOTE FOR APPROVAL OF THE MERGER AGREEMENT. THE
BOARD OF DIRECTORS OF METROCALL ALSO RECOMMENDS THAT STOCKHOLDERS OF
METROCALL VOTE FOR APPROVAL OF THE CHARTER AMENDMENT AND THE
PLAN AMENDMENT.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
SEE "RISK FACTORS," BEGINNING ON PAGE 15, FOR INFORMATION THAT SHOULD BE
CONSIDERED REGARDING THE SECURITIES OFFERED HEREBY.
------------------------
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to the stockholders of Metrocall and the shareholders of
A+ Network on or about August [13], 1996.
The date of this Joint Proxy Statement/Prospectus is August [13], 1996.
<PAGE> 11
AVAILABLE INFORMATION
Metrocall and A+ Network are both subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information may be inspected and copied at the offices of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and the Regional Offices of the Commission in Chicago, Illinois at
Northwestern Atrium Center, 500 W. Madison, Suite 1400, Chicago, Illinois 60661
and in New York, New York at 7 World Trade Center, Suite 1300, New York, New
York 10048. Such information may also be accessed on the internet at
http://www.sec.gov. Copies of such materials may be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
Metrocall has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), on Form S-4 with respect to the securities offered hereby.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Metrocall filed as part of the Registration Statement and does not contain all
of the information set forth in the Registration Statement and the exhibits
thereto, certain parts of which are omitted in accordance with the rules of the
Commission. Statements made in this Joint Proxy Statement/Prospectus as to the
contents of any contract, agreement, or other document referred to are not
necessarily complete; with respect to each such contract, agreement, or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be qualified in its entirety by such reference. The
Registration Statement and any amendments thereto, including exhibits filed as
part thereof, are available for inspection and copying at the Commission's
offices as described above. After the Merger, registration of the A+ Network
Common Stock under the Exchange Act will be terminated.
------------------------
Information in this Joint Proxy Statement/Prospectus regarding A+ Network
has been prepared and/or supplied by A+ Network or its representatives and
information regarding Metrocall has been prepared and/or supplied by Metrocall
or its representatives. Each of A+ Network and Metrocall has represented and
warranted to the other party in the Merger Agreement that none of such
information contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was made, in order to make such information not
misleading.
------------------------
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY METROCALL OR A+ NETWORK. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, NOR A
SOLICITATION OF AN OFFER TO BUY, METROCALL COMMON STOCK, NOR THE SOLICITATION OF
A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS NOR
ANY DISTRIBUTION OF METROCALL COMMON STOCK MADE UNDER THIS JOINT PROXY
STATEMENT/ PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF METROCALL OR A+ NETWORK OR IN THE
INFORMATION SET FORTH HEREIN SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
<PAGE> 12
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Metrocall incorporates herein by reference the following documents filed by
it with the Commission (File No. 0-21924) pursuant to the Exchange Act: (i) its
Annual Report on Form 10-K for the year ended December 31, 1995; (ii) its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; (iii) its
Proxy Statement for the Annual Meeting of Stockholders held on May 1, 1996; (iv)
its Current Reports on Form 8-K filed on May 21, 1996; and (v) its Schedule 13D
and Tender Offer Statement on Schedule 14D-1 of Metrocall filed on May 22, 1996
(as amended).
A+ Network incorporates herein by reference the following documents filed
by it with the Commission (File No. 0-22238 ) pursuant to the Exchange Act: (i)
its Annual Report on Form 10-K for the year ended December 31, 1995; (ii) its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; (iii) its
Current Reports on Form 8-K dated May 20, 1996 and June 24, 1996; (iv) its Proxy
Statement for the Annual Meeting of Shareholders held on May 29, 1996; and (v)
its Schedule 14D-9 filed on May 22, 1996.
All documents filed by Metrocall and A+ Network pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Joint
Proxy Statement/Prospectus and prior to the date of the Metrocall Meeting and
the A+ Network Meeting shall be deemed to be incorporated by reference in this
Joint Proxy Statement/Prospectus and to be part hereof from the date of filing
of such documents. All information appearing in this Joint Proxy
Statement/Prospectus is qualified in its entirety by the information and
financial statements (including notes thereto) appearing in the documents
incorporated by reference herein.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be modified or superseded, for purposes
of this Joint Proxy Statement/Prospectus, to the extent that a statement
contained herein or in any subsequently filed document that is deemed to be
incorporated herein modifies or supersedes any such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. METROCALL AND A+ NETWORK
HEREBY UNDERTAKE TO PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A COPY OF THIS JOINT PROXY STATEMENT/PROSPECTUS HAS
BEEN DELIVERED, ON WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY AND
ALL OF THE DOCUMENTS REFERRED TO ABOVE THAT HAVE BEEN OR MAY BE INCORPORATED
INTO THIS JOINT PROXY STATEMENT/PROSPECTUS BY REFERENCE, OTHER THAN EXHIBITS TO
SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
INTO SUCH DOCUMENTS). DOCUMENTS RELATING TO METROCALL ARE AVAILABLE UPON REQUEST
FROM METROCALL, INC., 6677 RICHMOND HIGHWAY, ALEXANDRIA, VIRGINIA 22306,
ATTENTION: SHIRLEY B. WHITE, ASSISTANT SECRETARY, TELEPHONE NUMBER 703-660-6677.
DOCUMENTS RELATING TO A+ NETWORK ARE AVAILABLE UPON REQUEST FROM A+ NETWORK,
INC., 40 SOUTH PALAFOX, PENSACOLA, FLORIDA 32501, ATTENTION: RANDY K. SCHULTZ,
VICE PRESIDENT OF FINANCE AND CHIEF FINANCIAL OFFICER, TELEPHONE NUMBER
904-438-1653. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE RECEIVED BY AUGUST , 1996.
<PAGE> 13
JOINT PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
SUMMARY............................................................................. 1
The Companies..................................................................... 1
The Stockholders' Meetings........................................................ 2
The Merger........................................................................ 3
Comparison of Stockholders' Rights................................................ 7
Regulatory Approvals.............................................................. 7
Market Prices and Dividends....................................................... 7
Summary Financial Information..................................................... 9
Other Proposals to be Presented at the Metrocall Meeting.......................... 14
RISK FACTORS........................................................................ 15
THE MEETINGS........................................................................ 20
Date, Time and Place of Meetings.................................................. 20
Purpose of the Meetings........................................................... 20
Record Date and Outstanding Shares................................................ 20
Voting and Revocation of Proxies.................................................. 20
Vote Required for Approval........................................................ 21
Solicitation of Proxies........................................................... 21
Other Matters..................................................................... 22
Appraisal Rights.................................................................. 22
THE MERGER AND RELATED TRANSACTIONS................................................. 22
Purchases Pursuant to the Offer and the Shareholders' Agreement................... 22
General Description of the Merger................................................. 22
Background of the Merger.......................................................... 22
Recommendation of the Board of Directors of Metrocall............................. 24
Metrocall's Reasons for the Merger................................................ 24
Opinion of Financial Advisor to Metrocall......................................... 25
Recommendation of the Board of Directors of A+ Network............................ 29
A+ Network's Reasons for the Merger............................................... 29
Opinion of Financial Advisor to A+ Network........................................ 30
Interests of Certain Persons in the Merger........................................ 34
Shareholders' Agreement........................................................... 35
Other Agreements.................................................................. 36
Certain Federal Income Tax Consequences........................................... 37
Accounting Treatment.............................................................. 38
Government and Regulatory Approvals............................................... 39
Restrictions on Resales by Affiliates............................................. 40
THE MERGER AGREEMENT AND TERMS OF THE MERGER........................................ 40
The Offer......................................................................... 40
Effective Time of the Merger...................................................... 40
Manner and Basis of Converting Shares............................................. 41
Treatment of Stock Options........................................................ 41
Employee Arrangements............................................................. 41
Indemnification................................................................... 42
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Warranties................42Conduct of Business Pending the Merger................ 42
Response to Other Offers.......................................................... 44
Repurchase Option................................................................. 45
Conditions to the Merger.......................................................... 46
Termination....................................................................... 47
Termination Fees.................................................................. 48
Amendment and Modification........................................................ 48
DESCRIPTION OF METROCALL SECURITIES................................................. 48
Metrocall Capital Stock........................................................... 48
Metrocall VCRs.................................................................... 50
COMPARATIVE RIGHTS OF METROCALL STOCKHOLDERS AND A+ NETWORK SHAREHOLDERS............ 53
PRO FORMA CONDENSED COMBINED FINANCIAL DATA......................................... 56
RECENT DEVELOPMENTS REGARDING METROCALL............................................. 63
MANAGEMENT OF THE SURVIVING CORPORATION............................................. 64
RECENT DEVELOPMENTS REGARDING A+ NETWORK............................................ 66
A+ NETWORK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................................................................... 67
AMENDMENT OF METROCALL CHARTER TO INCREASE THE NUMBER OF AUTHORIZED METROCALL
SHARES............................................................................ 73
AMENDMENT TO INCREASE THE NUMBER OF SHARES THAT MAY BE ISSUED UNDER THE 1996 STOCK
OPTION PLAN....................................................................... 74
LEGAL MATTERS....................................................................... 77
EXHIBIT A -- Agreement and Plan of Merger dated May 16, 1996 between Metrocall, Inc.
and A+ Network, Inc.
EXHIBIT B -- Opinion of Wheat, First Securities, Inc. dated May 14, 1996.
EXHIBIT C -- Opinion of Prudential Securities Incorporated dated May 15, 1996.
EXHIBIT D -- Amendment to the Amended and Restated Certificate of Incorporation of
Metrocall.
EXHIBIT E -- Amendment to the Metrocall 1996 Stock Option Plan.
</TABLE>
<PAGE> 15
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus and/or in the Exhibits attached hereto.
Certain capitalized terms used in this Summary are defined elsewhere in this
Joint Proxy Statement/Prospectus. Reference is made to, and this Summary is
qualified in its entirety by, the more detailed information contained in this
Joint Proxy Statement/Prospectus and the Exhibits attached hereto. Stockholders
of Metrocall and of A+ Network are urged to read carefully all of the
information contained in this Joint Proxy Statement/Prospectus and the Exhibits
attached hereto.
THE COMPANIES
METROCALL
Metrocall is currently the sixth largest paging company in the United
States, based on 1,009,548 pagers in service at March 31, 1996, providing local,
regional and nationwide paging and other wireless messaging services. Metrocall
currently operates regional and nationwide paging networks throughout the United
States and has historically concentrated its selling efforts in four operating
regions: (i) the Northeast (Massachusetts through Delaware); (ii) the
Mid-Atlantic (Maryland and the Washington, D.C. metropolitan area); (iii) the
Southeast (Virginia and Florida); and (iv) the West (California, Nevada and
Arizona). Through the Metrocall Nationwide Wireless Network, Metrocall can
provide paging services in approximately 864 U.S. cities which include the top
100 Standard Metropolitan Statistical Areas ("SMSAs").
Metrocall has announced four acquisitions which, when consummated, will add
approximately 470,000 subscribers to its base of pagers in service. Through
these acquisitions Metrocall will expand its operations into the Midwest,
Southwest and Southeast, while strengthening its existing customer base in the
Northeast. On a pro forma basis taking into account these acquisitions,
Metrocall believes it would be the fifth largest paging company in the United
States. On a combined basis (pro forma for all acquisitions), A+ Network and
Metrocall would service a total subscriber base consisting of approximately two
million units in service, and would constitute the fourth largest paging company
in the United States. Metrocall was organized as a Delaware corporation in
October 1982. Metrocall Common Stock is traded on the Nasdaq National Market
under the symbol "MCLL". Metrocall's principal executive offices are located at
6677 Richmond Highway, Alexandria, Virginia 22306 and its telephone number is
(703) 660-6677. Unless the context otherwise requires, all references to
Metrocall shall mean Metrocall prior to consummation of the Merger.
A+ NETWORK
A+ Network is a leading provider of paging services, operating primarily in
the southeastern United States. On October 24, 1995, Network Paging Corporation
("Network") was merged into A+ Communications Inc. (the "A+/Network Merger"),
resulting in an increase in the number of pagers and voicemail units in service
from approximately 248,000 to approximately 495,000. The name of the surviving
corporation was changed to A+ Network, Inc. At December 31, 1995, A+ Network had
529,450 pagers and voicemail units in service, serviced by a network of
approximately 485 transmitters located in Alabama, Florida, Georgia, Louisiana,
Mississippi, North Carolina, South Carolina, Tennessee and Texas. Through an
interconnected network (the "USA Network") of approximately 120 independent
local and regional paging companies (the "Network Affiliates") throughout the
United States, A+ Network augments its paging coverage in areas where direct
service through A+ Network's own transmission network facilities is not
available.
A+ Network is engaged in two principal business segments, mobile
communications services and telemessaging services. A+ Network's mobile
communications services business segment provides paging, voicemail and other
mobile communication services and equipment and represents several cellular
service providers for sale and distribution of cellular phones and services. A+
Network's telemessaging services business segment provides a variety of message
management services over the telephone to a diverse client base.
1
<PAGE> 16
A+ Network was incorporated under the laws of Tennessee in 1985 as A+
Communications Inc. Simultaneous with the A+/Network Merger, the name was
changed to A+ Network, Inc. A+ Network Common Stock is traded on the Nasdaq
National Market under the symbol "ACOM." A+ Network maintains executive offices
at 40 South Palafox Street, Pensacola, Florida 32501 where its telephone number
is (904) 438-1653 and at 2416 Hillsboro Road, Nashville, Tennessee 37212 where
its telephone number is (615) 385-4500.
SURVIVING CORPORATION
Unless otherwise stated, all references to the "Surviving Corporation"
shall mean Metrocall after consummation of the Merger.
THE STOCKHOLDERS' MEETINGS
METROCALL
The Metrocall Meeting will be held on September 17, 1996 at 10:00 a.m.
local time at the Ritz-Carlton, Pentagon City located at 1250 South Hayes
Street, Arlington, Virginia. Only holders of record of shares of Metrocall
Common Stock at the close of business on August 1, 1996 (the "Metrocall Record
Date") are entitled to notice of and to vote at the Metrocall Meeting.
At the Metrocall Meeting, stockholders will be asked to consider and vote
upon (i) a proposal to approve and adopt the Merger Agreement, which provides
for the merger of A+ Network with and into Metrocall, (ii) the Charter
Amendment, which provides for the increase in the authorized shares of Metrocall
Common Stock by 7,500,000 shares, from 26,000,000 shares to 33,500,000 shares,
and (iii) the Plan Amendment, which provides for the increase in the number of
shares of Metrocall Common Stock that may be issued under the Metrocall 1996
Stock Option Plan by 1,000,000 shares.
Each of the Merger Agreement and the Charter Amendment will be approved and
adopted if a majority of outstanding shares of Metrocall Common Stock entitled
to vote thereon vote in favor of the Merger Agreement and the Charter Amendment,
respectively. The Plan Amendment will be approved and adopted if a majority of
the shares present in person or by proxy at the Metrocall meeting vote in favor
of the Plan Amendment. Abstentions will be treated as shares that are present
and entitled to vote for purposes of determining the presence of a quorum and
with regard to a particular proposal will be equivalent to votes cast against
such proposal. Broker non-votes will be equivalent to votes cast against the
Merger Agreement and the Charter Amendment, but will not be counted for purposes
of the Plan Amendment. On the Metrocall Record Date, there were shares of
Metrocall Common Stock outstanding and entitled to vote, each of which will be
entitled to one vote on each matter to be acted upon or which may properly come
before the Metrocall Meeting. Of such shares, 5,048,046 shares (approximately
% of the shares entitled to vote at the Metrocall Meeting) were held by
persons who have agreed to vote in favor of the Merger Agreement.
A+ NETWORK
The A+ Network Meeting is to be held on September 17, 1996 at 1:00 p.m.
local time at the First American Center auditorium, fifth floor, 300 Union
Street, Nashville, Tennessee. Only holders of record of shares of A+ Network
Common Stock at the close of business on , 1996 (the "A+ Network
Record Date") are entitled to notice of and to vote at the A+ Network Meeting.
The purpose of the A+ Network Meeting is to consider and vote upon a
proposal to approve the Merger Agreement, which provides for the merger of A+
Network with and into Metrocall. If the Merger Agreement is approved, subject to
certain adjustments, each outstanding share of Common Stock and related rights
(other than Shares held by Metrocall or any of its subsidiaries, which will be
cancelled) will be converted into the right to receive: (i) that number of
shares of Metrocall Common Stock equal to the Conversion Ratio (as defined in
the Merger Agreement), (ii) the same number of indexed Variable Common Rights
("VCRs" and, together with the Metrocall Common Stock "Metrocall Securities"),
plus (iii) cash in respect of fractional Metrocall Securities, if any.
2
<PAGE> 17
The affirmative vote of a majority of the outstanding shares of A+ Network
Common Stock is required to adopt the Merger Agreement. Each share of A+ Network
Common Stock is entitled to one vote on each matter to be acted upon or which
may properly come before the A+ Network Meeting. On the A+ Network Record Date,
Metrocall owned 4,350,743 shares of A+ Network Common Stock representing
approximately 38.5% of the outstanding shares of A+ Network Common Stock.
Metrocall has agreed to vote all of its A+ Network Common Stock in favor of the
approval of the Merger Agreement. In addition, 3,315,326 shares (approximately
% of the shares entitled to vote at the A+ Network Meeting) were held by
certain shareholders who have agreed to vote in favor of the Merger Agreement.
THE MERGER
GENERAL
Upon consummation of the Merger, A+ Network will be merged with and into
Metrocall. Each share of A+ Network Common Stock outstanding immediately prior
to consummation of the Merger (other than Shares held by Metrocall or any of its
subsidiaries, which will be cancelled) will be converted, without any action on
the part of the holder thereof, into the right to receive: (i) that number of
shares of Metrocall Common Stock equal to the Conversion Ratio, (ii) the same
number of VCRs, plus (iii) cash in respect of fractional Metrocall Securities,
if any. The Conversion Ratio shall be determined by dividing $21.10 by the
average of the last bid prices for shares of Metrocall Common Stock on the
Nasdaq National Market (the "NNM") for the 50 consecutive trading days ending on
the trading day that is five days prior to the effective time of the Merger (the
"Average Metrocall Share Price"), except that if the Average Metrocall Share
Price is greater than $21.88 or less than $17.90, then the Conversion Ratio
shall be .96435 or 1.17877, respectively. Each VCR will entitle the holder to
receive the amount, not to exceed $5.00 per VCR (unless increased as described
below), by which the market value of Metrocall Shares determined as of the first
anniversary of the Effective Time (the "Maturity Date") is less than the "Target
Price" of $21.10 per share, adjusted downward, but not upward, based on changes
in an index composed of average closing bid prices of three other companies in
the paging industry. If Metrocall extends the Maturity Date by one year (the
"Extended Maturity Date"), the Target Price will increase to $25.10, adjusted as
previously described, and the maximum amount which the holder may receive will
be $7.00 per VCR. The market value of Metrocall Common Stock for this purpose
will be the median of the averages of the last bid price for the Metrocall
Common Stock on each trading day during each 20 trading-day period within the 60
trading days prior to the Maturity Date. In addition, if the last bid price of
the Metrocall Common Stock exceeds $21.10 on each day during any period of 50
consecutive calendar days after the Effective Time and before the Maturity Date,
or, if the Maturity Date is extended, $25.10 on each day during any period of 50
consecutive calendar days after the Maturity Date and before the Extended
Maturity Date, then the right to receive payments under the VCR will terminate.
Any amounts payable under the VCRs will be in cash, Metrocall Common Stock or
common stock equivalents, as determined by Metrocall. The terms of the VCRs are
described in "DESCRIPTION OF METROCALL SECURITIES -- Metrocall VCRs." Up to
9,042,260 shares of Metrocall Common Stock will be issued in the Merger, and
additional shares may be issued if Metrocall elects to make any payments
required under the VCRs in the form of shares of Metrocall Common Stock. The
Merger will become effective upon the later of the acceptance by the Secretary
of State of the State of Delaware or the Secretary of State of the State of
Tennessee of the filing of the Certificate of Merger, which is expected to be
executed by Metrocall and A+ Network and filed as soon as practicable following
approval of the Merger Agreement by the requisite vote of the Metrocall
stockholders and the A+ Network shareholders and satisfaction or waiver of the
other conditions set forth in the Merger Agreement.
At the Effective Time all shares of A+ Network Common Stock shall no longer
be outstanding and shall automatically be cancelled and retired and shall cease
to exist, and each holder of a certificate representing any shares of A+ Network
Common Stock shall cease to have any rights with respect thereto, except the
right to receive the shares of Metrocall Common Stock to be issued in exchange
therefor upon the surrender of such certificate.
3
<PAGE> 18
After the Effective Time, the exchange agent will deliver a letter of
transmittal and instructions to all holders of record of A+ Network Common Stock
for use in exchanging their A+ Network Common Stock certificates for Metrocall
Common Stock certificates.
HOLDERS OF A+ NETWORK COMMON STOCK SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES
FOR EXCHANGE UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL AND INSTRUCTIONS
FROM THE EXCHANGE AGENT.
Prior to the date of this Joint Proxy Statement/Prospectus, and pursuant to
the terms of the Merger Agreement, Metrocall purchased 2,140,526 Shares pursuant
to a tender offer dated May 22, 1996 to the holders of Shares (the "Offer") and
Metrocall purchased 2,210,217 additional Shares from certain shareholders of A+
Network pursuant to a Shareholders' Option and Sale Agreement dated May 16, 1996
(the "Shareholders' Agreement") among Metrocall and certain shareholders of A+
Network named therein.
Based upon the capitalization of Metrocall and A+ Network as of August 1,
1996 the shareholders of A+ Network immediately prior to consummation of the
Merger (other than Metrocall and its subsidiaries) are expected to receive
securities in the Merger representing between % and % of the outstanding
voting power of the Surviving Corporation following the Merger.
The shares of Metrocall Common Stock held by existing Metrocall
stockholders prior to the Merger will remain unchanged by the Merger.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Board of Directors of Metrocall (including the nonemployee directors)
unanimously (with one director absent) has approved the Merger Agreement and has
determined that the Merger is fair to, and in the best interests of, Metrocall
and its stockholders. The Board of Directors of Metrocall has unanimously (with
one member absent) recommended that the stockholders of Metrocall vote FOR the
approval and adoption of the Merger Agreement.
The Board of Directors of A+ Network (including the nonemployee directors)
unanimously (with one member absent) has approved the Merger Agreement and has
determined that the Merger is fair to, and in the best interests of, A+ Network
and its stockholders. The Board of Directors of A+ Network has unanimously (with
one member absent) recommended that the shareholders of A+ Network vote FOR the
approval of the Merger Agreement.
REASONS FOR THE MERGER
In reaching the determination that the Merger Agreement and the
transactions contemplated thereby are fair to and in the best interests of
Metrocall and its stockholders and A+ Network and its shareholders,
respectively, the Boards of Directors of Metrocall and A+ Network considered the
factors set forth under "THE MERGER AND RELATED TRANSACTIONS -- Metrocall's
Reasons for the Merger" and "-- A+ Network's Reasons for the Merger."
METROCALL'S FINANCIAL ADVISOR
Metrocall retained the investment banking firm of Wheat, First Securities,
Inc. ("Wheat, First") to render an opinion as to the fairness, from a financial
point of view, to Metrocall and the holders of Metrocall Common Stock of the
consideration to be paid for the A+ Network Common Stock. Wheat, First has
delivered to Metrocall's Board of Directors a written opinion, dated May 14,
1996, to the effect that, as of such date and based upon and subject to certain
matters stated therein, taken together, the consideration to be paid (i) to the
holders of Shares pursuant to the Offer and (ii) to the holders of the Shares
pursuant to the Merger is fair to Metrocall and the holders of Metrocall Common
Stock from a financial point of view. See "THE MERGER AND RELATED
TRANSACTIONS -- Opinion of Financial Advisor to Metrocall." A copy of Wheat,
First's opinion is attached hereto as Exhibit B.
4
<PAGE> 19
A+ NETWORK'S FINANCIAL ADVISOR
A+ Network retained Prudential Securities, Inc. ("Prudential Securities")
to render an opinion as to the fairness, from a financial point of view, to the
A+ Network shareholders of the consideration to be paid for the A+ Network
Common Stock. Prudential Securities has delivered to the A+ Network Board of
Directors a written opinion dated May 15, 1996, to the effect that, as of such
date and based upon and subject to certain matters stated therein, the
consideration to be received by holders of Shares (other than Metrocall and its
affiliates) pursuant to the Merger Agreement and the transactions contemplated
thereby was fair to such holders from a financial point of view. A copy of
Prudential Securities' opinion is attached hereto as Exhibit C.
PROHIBITION ON CERTAIN ACTIVITIES
The Merger Agreement generally provides that, prior to the Effective Time,
A+ Network will conduct its business in the ordinary course and Metrocall will
be subject to certain limitations, as discussed in this Joint Proxy
Statement/Prospectus in "THE MERGER AGREEMENT AND TERMS OF THE MERGER -- Conduct
of Business Pending the Merger." In particular, both Metrocall and A+ Network
have agreed that they will not solicit, encourage or participate in certain
transactions except with respect to an offer which meets certain conditions set
forth in the Merger Agreement. In addition, Metrocall is precluded from
exercising control over A+ Network and its facilities prior to receipt of
Federal Communications Commission ("FCC") approval.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of each party to effect the Merger are subject
to satisfaction or waiver of certain conditions set forth in the Merger
Agreement including, among others, (i) favorable votes with respect to the
Merger Agreement by the stockholders of Metrocall and A+ Network, (ii) the
absence of any statute, rule, order, decree or regulation of a governmental
entity, or injunction or other court order, that would prohibit the consummation
of the Merger, (iii) the approval for quotation of the shares of Metrocall
Common Stock issuable pursuant to the Merger Agreement on NNM, (iv) receipt of
all authorizations, consents and approvals necessary from the FCC and of any
other governmental entity necessary for consummation of the Merger, (v) the
continued accuracy of the representations and warranties made by each party in
the Merger Agreement, and (vi) the absence of any material adverse change in the
business, properties, assets, liabilities, financial condition, cash flows,
operations, licenses, franchises or results of operations of either party since
the date of the Merger Agreement, with certain allowable exceptions. See "THE
MERGER AGREEMENT AND TERMS OF THE MERGER -- Conditions to the Merger."
AMENDMENT AND TERMINATION
The Merger Agreement may be amended at any time before or after stockholder
approval and adoption of the Merger Agreement by an agreement in writing
executed by each party to the Merger Agreement, provided, however, that after
stockholder approval has been obtained, no amendment may be made which changes
the Conversion Ratio.
The Merger Agreement provides that it may be terminated prior to the
Effective Time, whether before or after shareholder approval, by the mutual
written consent of Metrocall and A+ Network. The Merger Agreement may also be
terminated prior to the Effective Time, whether before or after shareholder
approval, by either A+ Network or Metrocall upon the occurrence of certain
events, including the failure of the Merger to be consummated by November 16,
1996, other than by reason of default by the party attempting to terminate or by
reason of the failure to obtain a final order permitting the consummation of the
Merger from the FCC.
In addition, the Merger Agreement provides that if, prior to the Effective
Time, it is terminated by either Metrocall or A+ Network and certain
circumstances exist relating to the failure to recommend and/or approve the
Merger Agreement by the Board of Directors or stockholders of either Metrocall
or A+ Network, the party whose stockholders or directors failed to approve
and/or recommend the Merger Agreement will immediately pay to the other party a
termination fee equal to $10,000,000 in cash.
5
<PAGE> 20
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of Metrocall's and A+ Network's Boards
of Directors with respect to the Merger, stockholders should be aware that
certain members of the Board of Directors and management of A+ Network have
certain interests in the Merger that are in addition to the interests of
stockholders of A+ Network generally. Certain of such persons will enter into
employment and non-competition agreements that will become effective upon
consummation of the Merger and/or may be appointed to the Board of Directors of
Metrocall following the Merger. See "THE MERGER AND RELATED
TRANSACTIONS -- Interests of Certain Persons in the Merger."
BOARD OF DIRECTORS OF THE SURVIVING CORPORATION
The Board of Directors of the Surviving Corporation will have the same
membership as the Board of Directors of Metrocall prior to the Effective Time,
except that Steven D. Jacoby and Vincent D. Kelly have both agreed to resign as
directors and Ray D. Russenberger and Elliott H. Singer will both be appointed
directors. See "MANAGEMENT OF THE SURVIVING CORPORATION."
MANAGEMENT OF THE SURVIVING CORPORATION; EMPLOYMENT AGREEMENTS
The executive officers of Metrocall will be the executive officers of the
Surviving Corporation. In addition, pursuant to an Employment Agreement, Charles
A. Emling III, currently President and Chief Executive Officer of A+ Network,
has agreed, effective as of the Effective Time, to serve as President, Southeast
Region of the Surviving Corporation for a term of one year, subject to automatic
annual extension unless either party notifies the other that the contract should
be terminated and such notice is given at least 90 days before an anniversary of
the Effective Time. The Employment Agreement also provides Mr. Emling with
certain severance rights. The Employment Agreement will replace Mr. Emling's
current employment agreement with A+ Network. See "MANAGEMENT OF THE SURVIVING
CORPORATION."
ACCOUNTING TREATMENT
The Merger will be accounted for by Metrocall under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended. Under this method of accounting, the
purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated fair values at the Effective Time. Income of the
Surviving Corporation will not include income (or loss) of A+ Network prior to
the Effective Time. See "THE MERGER AND RELATED TRANSACTIONS -- Accounting
Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The A+ Network shareholders are not expected to recognize any gain or loss
as a result of their exchange of A+ Network Common Stock for Metrocall Common
Stock in the Merger. However, gain (but not loss) will be recognized to the
extent of the value of VCRs and cash in lieu of fractional VCRs (if any)
received in the Merger. Gain or loss will generally be recognized with respect
to cash received in lieu of fractional shares of Metrocall Common Stock (if any)
received in the Merger. For a more complete discussion of certain federal income
tax consequences to the A+ Network shareholders, see "THE MERGER AND RELATED
TRANSACTIONS -- Certain Federal Income Tax Matters." A+ Network shareholders are
urged to consult their own tax advisors.
FLUCTUATION IN MARKET PRICE
The value realized by A+ Network shareholders in the Merger and the value
assigned to intangible assets recorded in the purchase accounting for the
Surviving Corporation will depend upon the market price of Metrocall Common
Stock, which is subject to fluctuation. There can be no assurance that the
recent market prices of Metrocall Common Stock will be maintained until or after
the consummation of the Merger.
6
<PAGE> 21
COMPARISON OF STOCKHOLDERS' RIGHTS
See "COMPARATIVE RIGHTS OF METROCALL STOCKHOLDERS AND A+ NETWORK
SHAREHOLDERS" for a summary of the material differences between the rights of
holders of Metrocall Common Stock and of A+ Network Common Stock.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act") and the rules promulgated thereunder by the Federal Trade Commission
("FTC"), certain acquisition transactions, such as the Merger, may not be
consummated unless certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
certain waiting period requirements have been satisfied. On June 3, 1996 and May
24, 1996, respectively, A+ Network and Metrocall filed a Premerger Notification
and Report Form with the Antitrust Division and the FTC in connection with the
Merger. The waiting period for the Offer expired, and the waiting period for the
Merger terminated, on June 8, 1996.
A+ Network and the respective operating subsidiaries of A+ Network and
Metrocall are licensed by the FCC to provide paging services in the respective
geographic areas in which they have operations. The Communications Act of 1934
(the "Communications Act") requires prior FCC approval for the transfer of
actual or legal control of companies holding FCC authorizations. Metrocall has
filed applications seeking FCC approval to take control of A+ Network and its
operating subsidiaries. There can be no assurance that the FCC will grant such
approval or that, if granted, such FCC approval will be on a timely basis or on
terms and conditions acceptable to Metrocall, or that any such approval will not
be subject to administrative or judicial review.
MARKET PRICES AND DIVIDENDS
Each of the Metrocall Common Stock and the A+ Network Common Stock is
traded on the NNM. The following table sets forth the high and low closing sale
prices for the Metrocall Common Stock and the A+ Network Common Stock as
reported by the NNM for the periods indicated. The information does not include
certain transaction costs.
<TABLE>
<CAPTION>
METROCALL A+ NETWORK
COMMON STOCK COMMON STOCK
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1994
First Quarter................................................ $20 $16 $14 $ 9 1/2
Second Quarter............................................... 18 1/4 12 11 3/4 7 1/2
Third Quarter................................................ 17 3/4 12 1/2 13 3/4 9 1/4
Fourth Quarter............................................... 18 3/4 15 15 3/8 11 3/4
1995
First Quarter................................................ 18 14 1/2 14 3/4 12 1/4
Second Quarter............................................... 18 3/8 17 15 1/2 11 3/4
Third Quarter................................................ 29 18 16 1/4 12 1/4
Fourth Quarter............................................... 28 1/4 19 1/2 16 11 1/4
1996
First Quarter................................................ 21 1/4 16 1/2 12 1/2 10 1/4
Second Quarter...............................................
Third Quarter (through August )............................
</TABLE>
7
<PAGE> 22
On May 15, 1996 the last full trading day for Metrocall Common Stock and A+
Network Common Stock prior to the public announcement of the execution of the
Merger Agreement, the reported closing sale prices of Metrocall Common Stock and
of A+ Network Common Stock, as reported by the NNM, were $20 1/2 and $15 1/2 per
share, respectively. The closing prices of Metrocall Common Stock and of A+
Network Common Stock, as reported by NNM, on August , 1996 were $ and
$ per share, respectively. At August 1, 1996, there were approximately
shareholders of record of A+ Network Common Stock and
stockholders of record of Metrocall Common Stock. Because the market price of
Metrocall Common Stock is subject to fluctuation, the market value of the shares
of Metrocall Common Stock that holders of A+ Network Common Stock will receive
in the Merger may increase or decrease prior to the Merger. STOCKHOLDERS ARE
URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE METROCALL AND A+ NETWORK
COMMON STOCK.
Neither Metrocall nor A+ Network has paid any cash dividends on its common
stock (except for distributions by Metrocall prior to its initial public
offering), and the Board of Directors of each of Metrocall and A+ Network
currently do not anticipate paying cash dividends in the foreseeable future on
shares of their respective common stock. Following the Merger, any future
payment of dividends will be at the discretion of the Surviving Corporation's
Board of Directors and will depend upon the financial condition and capital
requirements of the Surviving Corporation as well as other factors that the
Surviving Corporation's Board of Directors may deem relevant. In addition,
certain covenants in Metrocall's bank credit agreement prohibit the payment of
dividends by Metrocall.
8
<PAGE> 23
SUMMARY FINANCIAL INFORMATION
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
METROCALL, INC.
(IN THOUSANDS, EXCEPT UNIT, PER UNIT AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1):
Service, rent and maintenance revenues......... $29,140 $30,996 $33,111 $49,716 $ 92,160 $22,109 $ 23,750
Product sales.................................. 4,101 4,196 4,549 8,139 18,699 3,688 6,189
------- ------- ------- ------- ------- ------- -------
Total revenues......................... 33,241 35,192 37,660 57,855 110,859 25,797 29,939
Net book value of products sold................ (3,319) (3,439) (4,130) (6,962) (15,527) (3,153) (4,650)
------- ------- ------- ------- ------- ------- -------
Net revenues........................... 29,922 31,753 33,530 50,893 95,332 22,644 25,289
Operating expenses before depreciation and
amortization(2).............................. 19,770 20,683 27,438 34,741 69,611 16,109 18,568
Depreciation and amortization.................. 6,695 6,594 6,525 13,829 31,504 5,769 11,491
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations.................. 3,457 4,476 (433) 2,323 (5,783) 766 (4,770)
Interest and other income (expense)............ 2,105 1,212 77 161 2,011 (17) 1,354
Interest expense............................... (4,101) (2,631) (1,331) (3,726) (12,533) (2,579) (4,209)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income tax benefit
(provision) and extraordinary item........... 1,461 3,057 (1,687) (1,242) (16,305) (1,830) (7,625)
Income tax benefit (provision)................. (12) (69) (59) 152 595 140 (64)
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary item........ 1,449 2,988 (1,746) (1,090) (15,710) (1,690) (7,689)
Extraordinary item(3).......................... -- -- (439) (1,309) (4,392) -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................ $ 1,449 $ 2,988 $(2,185) $(2,399) $(20,102) $(1,690) $ (7,689)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per common share:
Loss per common share before extraordinary
item....................................... $ (0.14) $ (1.34) $ (0.16) $ (0.53)
Extraordinary item, net of income tax
benefit.................................... (0.16) (0.38) -- --
------- ------- ------- -------
Net loss per common share.................... $ (0.30) $ (1.72) $ (0.16) $ (0.53)
======= ======= ======= =======
OPERATING AND OTHER DATA:
Units in service (end of period)............... 193,051 201,397 247,716 755,546 944,013 787,920 1,009,548
EBITDA(4)...................................... $10,152 $11,070 $10,923 $16,152 $ 27,771 $ 6,535 $ 6,721
EBITDA margin(5)............................... 33.9% 34.9% 32.6% 31.7% 29.1% 28.9% 26.6%
ARPU(6)........................................ $ 13.07 $ 13.10 $ 12.29 $ 10.53 $ 9.15 $ 9.55 $ 8.11
Average monthly operating expense per
unit(7)...................................... $ 8.87 $ 8.74 $ 8.39 $ 7.36 $ 6.71 $ 6.96 $ 6.34
Units in service per employee (end of
period)...................................... 692 730 716 1,007 1,047 1,018 1,188
Capital expenditures........................... $ 4,863 $ 3,918 $13,561 $19,091 $ 44,058 $ 8,727 $ 16,889
Cash dividends or distributions(8)............. $ -- $11,824 $14,115 $ -- $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 882 $ 1,700 $ 1,014 $ 2,773 $123,574 $115,150
Total assets................................... 56,429 26,180 33,857 200,580 340,614 337,294
Total long-term debt........................... 47,694 31,143 12,102 104,846 154,055 153,995
Total stockholders' equity (deficit)........... 2,929 (11,374) 13,729 68,136 155,238 147,549
</TABLE>
- ---------------
(1) 1994 includes the results of operations of acquired companies from their
respective acquisition dates.
(2) Includes the impact of non-recurring charges for the forgiveness of certain
shareholder notes receivable of approximately $4.8 million in 1993, and
severance and other compensation costs incurred as part of a management
reorganization charge of approximately $2.0 million in 1995.
(3) In 1993, 1994, and 1995 Metrocall refinanced balances outstanding under its
then existing credit facilities. As a result of these refinancings Metrocall
recorded extraordinary items of approximately $439,000, $1.3 million and
$4.4 million, respectively, representing charges to expense unamortized
deferred financing costs and other costs, net of any income tax benefits,
related to those credit facilities.
9
<PAGE> 24
(4) EBITDA (earnings before interest, taxes, depreciation and amortization) is a
standard measure of financial performance in the paging industry, but should
not be considered in isolation or as an alternative to net income (loss),
income (loss) from operations, cash flows from operating activities, or any
other measure of performance under generally accepted accounting principles
("GAAP"). EBITDA excludes non-recurring charges for the forgiveness of
certain shareholder notes receivable of approximately $4.8 million in 1993
and approximately $2.0 million incurred as part of a management
reorganization charge in 1995.
(5) EBITDA margin is calculated by dividing (a) EBITDA by (b) net revenues.
(6) ARPU (average monthly recurring revenue per unit) is calculated by dividing
(a) monthly service, rent and maintenance revenues for the period by (b) the
average number of units in service for the period.
(7) Average monthly operating expense per unit is calculated by dividing (a)
total operating expenses before depreciation and amortization for the period
by (b) the average number of units in service for the period. Operating
expenses exclude non-recurring charges for the forgiveness of certain
shareholder notes receivable of approximately $4.8 million in 1993 and
approximately $2.0 million incurred as part of a management reorganization
charge in 1995.
(8) Distributions made in 1992 and 1993 occurred while Metrocall was a
Subchapter S corporation.
10
<PAGE> 25
A+ NETWORK, INC.
(IN THOUSANDS, EXCEPT UNITS AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31,(2) MARCH 31,
------------------------------------------------------ ---------------------
1991 1992 1993 1994 1995 1995(2) 1996
------- ------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Mobile communications..................... $20,636 $20,131 $ 26,470 $ 37,899 $ 45,972 $ 10,049 $ 19,547
Telemessaging............................. 5,518 9,626 10,065 11,227 11,359 2,757 2,887
------- ------- ------- ------- ------- ------- -------
Total revenues...................... 26,154 29,757 36,535 49,126 57,331 12,806 22,434
Costs of equipment sales.................. (4,805) (2,965) (4,563) (9,065) (7,878) (2,086) (2,219)
------- ------- ------- ------- ------- ------- -------
21,349 26,792 31,972.. 40,061 49,453 10,720 20,215
Costs and expenses:
Operating expenses........................ 5,228 7,667 8,485 8,298 11,584 2,460 4,595
Depreciation and amortization............. 2,450 3,534 4,318 7,476 14,835 3,111 6,552
Selling................................... 4,200 5,751 7,064 11,072 10,936 2,733 3,601
General and administrative................ 7,876 11,392 12,568 16,743 21,566 4,693 7,680
Restructuring charges..................... -- -- -- -- 669 -- 396
------- ------- ------- ------- ------- ------- -------
Total costs and expenses............ 19,754 28,344 32,435 43,589 59,590 12,997 22,824
------- ------- ------- ------- ------- ------- -------
Operating income (loss)..................... 1,595 (1,552) (463) (3,528) (10,137) (2,277) (2,609)
Equity in loss of affiliate................. (27) (248) -- -- -- -- --
Interest expense, net....................... (480) (619) (817) (547) (3,708) (373) (3,106)
Income tax (expense) benefit................ (420) 665 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary item..... 668 (1,754) (1,280) (4,075) (13,845) (2,650) (5,715)
Extraordinary item.......................... -- -- (236) -- (607) -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)........................... $ 668 $(1,754) $ (1,516) $ (4,075) $(14,452) $ (2,650) $ (5,715)
======= ======= ======= ======= ======= ======= =======
Income (loss) before extraordinary item per
share..................................... $ .28 $ (.72) $ (.35) $ (.68) $ (2.03) $ (.44) $ (.56)
Extraordinary item per share................ -- -- (.07) -- (.09) -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) per share..................... $ .28 $ (.72) $ (.42) $ (.68) $ (2.12) $ (.44) $ (.56)
======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding......... 2,424 2,424 3,648 5,966 6,822 5,972 10,263
OTHER DATA:
Units in service (at period end)............ 70,280 91,961 126,976 216,199 529,450 228,733 569,841
EBITDA(1)................................... $ 4,045 $ 1,982 $ 3,855 $ 3,947 $ 5,367 $ 835 $ 4,339
Cash provided by operating activities....... 3,642 2,584 1,935 1,043 2,347 269 946
Capital expenditures........................ 2,972 8,432 7,302 19,098 12,396 1,815 7,668
Acquisition expenditures.................... 1,353 798 10,751 1,411 20,595 1,333 --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ MARCH 31,
1991 1992 1993 1994 1995(2) 1996
------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Current assets.............................. $ 3,624 $ 5,099 $ 14,559 $ 10,287 $ 71,933 $ 67,896
Total assets................................ 13,881 21,198 45,256 54,611 211,013 208,239
Total debt.................................. 5,555 12,403 2,721 15,158 124,101 124,114
Shareholders' equity........................ 3,814 2,060 36,052 32,225 69,464 63,749
</TABLE>
- ---------------
(1) EBITDA consists of operating income (loss) plus depreciation and
amortization. EBITDA is a financial measure commonly used in A+ Network's
industry and should not be construed as an alternative to operating income
(as determined in accordance with GAAP) as an indicator of operating
performance or as an alternative to cash flows from operating activities (as
determined in accordance with GAAP) or as a measure of liquidity. EBITDA is
also the primary financial measure by which A+ Network's covenants are
calculated under its bond indenture and bank loan agreements. EBITDA does
not represent funds available for dividends, reinvestment or other
discretionary activities. EBITDA excludes non-recurring charges of
approximately $669,000 and $396,000 in 1995 and the three months ended March
31, 1996, respectively, incurred in connection with the A+/Network Merger.
(2) Certain reclassifications have been made to conform to the presentation
utilized in A+ Network's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
11
<PAGE> 26
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following summary unaudited pro forma condensed combined statements of
operations data of Metrocall for the year ended December 31, 1995 and for the
three-month period ended March 31, 1996 give effect to the acquisition of A+
Network by Metrocall under the heading "Pro Forma Combined Company" and also
give effect to the acquisition of Parkway Paging, Inc. (the "Parkway
Acquisition"), Satellite Paging and Message Network (the "Satellite
Acquisition"), and Page America Group, Inc. (the "Page America Acquisition") by
Metrocall (the "Pending Acquisitions") under the heading "Pro Forma Combined
Company and Pending Acquisitions," in each case as though the acquisitions
occurred on January 1, 1995. See "RECENT DEVELOPMENTS REGARDING
METROCALL -- Recent and Pending Acquisitions" and "RECENT DEVELOPMENTS REGARDING
A+ NETWORK." The unaudited pro forma condensed combined balance sheet data under
the heading "Pro Forma Combined Company and Pending Acquisitions" give effect to
the acquisition of A+ Network and the Pending Acquisitions as if each of the
business combinations had occurred on March 31, 1996.
This information should be read in conjunction with the Unaudited Pro Forma
Condensed Combined Financial Data and the notes thereto included herein and the
Metrocall Consolidated Financial Statements and the A+ Network Consolidated
Financial Statements included herewith. The unaudited pro forma condensed
combined financial data do not purport to represent what the Surviving
Corporation's results of operations or financial position actually would have
been had such transactions and events occurred on the dates specified, or to
project the Surviving Corporation's results of operations or financial position
for any future period or date. The pro forma adjustments are based upon
available information and certain adjustments that management of Metrocall
believes are reasonable. In the opinion of management of Metrocall, all
adjustments have been made that are necessary to present fairly the unaudited
pro forma condensed combined financial data.
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND UNITS IN SERVICE)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PRO FORMA COMPANY AND
HISTORICAL PRO FORMA COMBINED PENDING
METROCALL A+ NETWORK(1) COMPANY ACQUISITIONS
--------- ------------- --------- ------------
<S> <C> <C> <C> <C>
CONDENSED COMBINED STATEMENTS OF OPERATIONS DATA:
Total revenues...................................... $ 110,859 $ 86,043 $196,902 $ 243,458
Operating expenses before depreciation and
amortization(2)................................... 69,611 62,630 132,241 164,726
Loss from operations................................ (5,783) (13,583) (43,880) (51,098)
Interest expense, net............................... (10,522) (14,589) (32,685) (36,767)
Benefit (provision) for income taxes................ 595 -- 8,385 9,299
Extraordinary item.................................. (4,392) (607) (4,999) 929
Net loss............................................ (20,102) (28,779) (73,179) (77,637)
Net loss per common share before extraordinary
item.............................................. $ (1.34) (2.75) (3.29) (3.68)
Net loss per common share........................... $ (1.72) $ (2.81) $ (3.53) $ (3.64)
Weighted average common shares outstanding.......... 11,668 10,228 20,727 21,364
OTHER DATA:
Units in service (end of period).................... 944,013 529,450 1,473,463 1,952,711
EBITDA(3)........................................... $ 27,771 $ 11,469 $ 39,240 $ 48,415
</TABLE>
- ---------------
(1) Gives effect to the A+/Network Merger as if the acquisition had occurred on
January 1, 1995. See "Unaudited Pro Forma Condensed Combined Financial Data"
and Note 2 of the A+ Network Consolidated Financial Statements included
herewith.
(2) Includes the impact of non-recurring charges for severance and other
compensation costs incurred as part of Metrocall's management reorganization
charge of approximately $2.0 million in 1995.
(3) EBITDA (earnings before interest, taxes, depreciation and amortization) is a
standard measure of financial performance in the paging industry, but should
not be considered in isolation or as an alternative to net income (loss),
income (loss) from operations, cash flows from operating activities, or any
other measure of performance under GAAP. EBITDA excludes nonrecurring
charges described in Note 2 above.
12
<PAGE> 27
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND UNITS IN SERVICE)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
HISTORICAL PRO FORMA COMPANY AND
----------------------- COMBINED PENDING
METROCALL A+ NETWORK COMPANY ACQUISITIONS
--------- ---------- --------- -----------
<S> <C> <C> <C> <C>
CONDENSED COMBINED STATEMENTS OF OPERATIONS DATA:
Total revenues................................. $ 29,939 $ 22,434 $ 52,373 $ 63,170
Operating expenses before depreciation and
amortization................................ 18,568 16,272 34,840 42,371
Loss from operations........................... (4,770) (2,609) (15,305) (16,974)
Interest and other expense, net................ (2,855) (3,106) (5,961) (6,964)
Benefit (provision) for income taxes........... (64) -- 2,603 2,815
Net loss....................................... (7,689) (5,715) (18,663) (21,123)
Net loss per common share...................... $ (0.53) $ (0.56) $ (0.79) $ (0.87)
Weighted average common shares outstanding..... 14,626 10,263 23,685 24,322
OTHER DATA:
Units in service (end of period)............... 1,009,548 569,841 1,579,389 2,057,280
EBITDA(1)...................................... $ 6,721 $ 4,339 $ 11,060 $ 13,396
CONDENSED COMBINED BALANCE SHEET DATA
(AS OF MARCH 31, 1996):
Working capital (deficit)...................... $ 102,378 $ 48,338 $ 42,963 $ (28,490)
Total assets................................... 337,294 208,239 799,175 874,563
Long-term obligations, net of current
portion..................................... 153,735 124,114 277,849 321,497
Total stockholders' equity(2).................. 147,549 63,749 337,793 349,258
</TABLE>
- ---------------
(1) EBITDA (earnings before interest, taxes, depreciation and amortization) is a
standard measure of financial performance in the paging industry, but should
not be considered in isolation or as an alternative to net income (loss),
income (loss) from operations, cash flows from operating activities, or any
other measure of performance under GAAP. For A+ Network and for the pro
forma data, EBITDA excludes nonrecurring charges of $396,000 incurred in
connection with the A+/Network Merger.
(2) The pro forma stockholders' equity assumes a per share price of $18.00 for
Metrocall Common Stock as of the closing date of each acquisition.
13
<PAGE> 28
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth certain historical per share data of
Metrocall and A+ Network and combined unaudited pro forma per share data after
giving effect to the Merger. This information should be read in conjunction with
the Pro Forma Condensed Combined Financial Data and the notes thereto included
herein and with the Metrocall Consolidated Financial Statements and the A+
Network Consolidated Financial Statements included herewith. The unaudited pro
forma per share data do not purport to represent what the Surviving
Corporation's results of operations or financial position actually would have
been had such transactions and events occurred on the dates specified, or to
project the Surviving Corporation's results of operations or financial position
for any future period or date.
<TABLE>
<CAPTION>
PRO FORMA
COMBINED COMPANY AND PENDING
PRO FORMA COMBINED COMPANY ACQUISITIONS(1)
-------------------------------- --------------------------------
HISTORICAL A+ NETWORK A+ NETWORK
------------------- EQUIVALENT(2) EQUIVALENT(2)
A+ SURVIVING ------------------ SURVIVING ------------------
METROCALL NETWORK CORPORATION HIGH LOW CORPORATION HIGH LOW
--------- ------- ----------- ------ ------ ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loss from continuing operations per
common share:
Three months ended
March 31, 1996................. $ (0.53) $(0.56) $ (0.79) $(0.93) $(0.76) $ (0.87) $(1.03) $(0.84)
Year ended December 31, 1995
(3)............................ (1.72) (2.81) (3.53) (4.16) (3.40) (3.64) (4.29) (3.51)
Book value per share:
March 31, 1996................... $ 10.09 $ 6.21 $ 14.26 $16.81 $13.75 14.36 $16.92 $13.85
</TABLE>
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(1) Reflects the pending acquisitions of Parkway Paging, Satellite Paging and
Page America by Metrocall.
(2) The A+ Network Equivalent is equal to the respective pro forma per share
amounts multiplied by the Conversion Ratio, which will in no event be higher
than 1.17877 or lower than 0.96435.
(3) Data for A+ Network gives effect to the A+/Network Merger on a pro forma
basis, assuming the merger occurred January 1, 1995. See "RECENT
DEVELOPMENTS REGARDING A+ NETWORK."
OTHER PROPOSALS TO BE PRESENTED AT THE METROCALL MEETING
In addition to approval and adoption of the Merger Agreement, the Metrocall
stockholders are also being asked to consider and vote upon the Amendment to the
Restated Certificate of Incorporation of Metrocall to increase the number of
authorized shares of Metrocall Common Stock by 7,500,000 shares, from 26,000,000
shares to 33,500,000 shares. See "AMENDMENT TO INCREASE THE NUMBER OF METROCALL
AUTHORIZED SHARES." The Metrocall stockholders are also being asked to consider
and vote on the Plan Amendment to increase the number of shares of Metrocall
Common Stock that may be issued under the Metrocall 1996 Stock Option Plan by
1,000,000. See "AMENDMENT TO INCREASE THE NUMBER OF OPTIONS TO PURCHASE SHARES
OF METROCALL COMMON STOCK UNDER THE 1996 STOCK OPTION PLAN."
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RISK FACTORS
In evaluating the proposed transaction, A+ Network and Metrocall
stockholders should carefully consider the following factors as well as the
other matters discussed in this Joint Proxy Statement/Prospectus.
SUBSTANTIAL INDEBTEDNESS AND FUTURE CAPITAL NEEDS
Metrocall currently has incurred approximately $154 million in
indebtedness, and will assume approximately $125 million of A+ Network
indebtedness in the Merger. In addition, Metrocall expects to incur additional
indebtedness as a result of Pending Acquisitions under definitive agreement
(estimated at $40 million if the Pending Acquisitions had been completed as of
March 31, 1996). Metrocall has received a commitment for a new credit facility
(the "New Credit Facility") in the principal amount of $350 million, and intends
to use funds available under this facility to fund the pending acquisitions. The
Surviving Corporation 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, subject to certain limitations in the
agreements relating to existing indebtedness. The amount of capital required
will depend upon a number of factors, including equipment costs, subscriber
growth, technological developments, marketing and sales expenses and competitive
conditions. Metrocall expects to generate sufficient cash flows from operations
to meet its debt service and other obligations. However, the ability of the
Surviving Corporation to meet its debt service and other obligations will be
dependent upon the future performance of the Surviving Corporation 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 Surviving
Corporation were to require additional financing, such additional financing
would be available on terms satisfactory to the Surviving Corporation. The
availability of additional acquisition financing cannot be assured, and,
depending on the terms of proposed acquisitions and financings, could be
restricted by agreements relating to existing indebtedness. See "RECENT
DEVELOPMENTS REGARDING METROCALL -- New Credit Facility."
CHALLENGES OF BUSINESS INTEGRATION
The Merger will require integration of each company's development,
administrative, finance, sales and marketing organizations, as well as the
integration of each company's communication technologies and the coordination of
their sales efforts. Further, both companies' customers will need to be
reassured that their paging services will continue uninterrupted. The diversion
of management attention and any difficulties encountered in the transition
process could have an adverse impact on the revenue and operating results of the
Surviving Corporation. Additionally, attempts to achieve economies of scale
through cost cutting and lay-offs of existing personnel may, at least in the
short term, have an adverse impact upon the Surviving Corporation's operations.
Metrocall and A+ Network believe that a key benefit to be realized from the
Merger will be the integration of their paging service coverage, which will
allow the Surviving Corporation to provide paging services in new markets. There
can be no assurance, however, that the Surviving Corporation will be able to
integrate such paging service coverage successfully. If the Surviving
Corporation is not successful in integrating such paging service coverage, the
business of the Surviving Corporation will be adversely affected.
Metrocall has implemented a strategy of acquiring other paging companies
and intends to continue to seek additional acquisition candidates. The process
of integrating acquired businesses into the Surviving Corporation's operations
may result in unforeseen difficulties and may require a disproportionate amount
of management's attention and the Surviving Corporation's resources.
No assurance can be given that additional suitable acquisition candidates
can be identified, financed and purchased on acceptable terms, or that future
acquisitions, if completed, will be successful. Metrocall also intends to
continue to pursue internal growth through expansion of its paging operations.
The Surviving Corporation's continued internal growth will depend, in part, upon
its ability to attract and retain skilled employees, and the ability of the
Surviving Corporation's officers and key employees to manage successfully rapid
growth and to implement appropriate management information systems and controls.
If the Surviving
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<PAGE> 30
Corporation were unable to attract and retain skilled employees, manage
successfully rapid growth and/or implement appropriate systems and controls, the
Surviving Corporation's operations could be adversely affected.
The paging industry is currently undergoing significant consolidation as
various participants seek to accomplish growth strategies similar to those of
Metrocall. Although Metrocall is not currently engaged in any negotiations with
respect to a business combination involving the acquisition of Metrocall and
intends to continue to pursue its own business strategy, an unsolicited proposal
to acquire the Surviving Corporation could cause a distraction of management of
the Surviving Corporation and impede the Surviving Corporation's ability to
accomplish its strategic goals and objectives and could cause significant
volatility in the price of the Metrocall Common Stock.
POSSIBLE IMPACT OF COMPETITION AND TECHNOLOGICAL CHANGE
The Surviving Corporation will face competition from other paging companies
in all markets in which it operates. The wireless communications industry is a
highly competitive industry, with price being the primary means of
differentiation among providers of numeric messaging services (which account for
the majority of the current revenues of both Metrocall and A+ Network).
Companies in the industry also compete on the basis of coverage area, enhanced
services, transmission quality, system reliability and customer service. Certain
of the Surviving Corporation's competitors, which include regional and national
paging companies, will possess greater financial, technical, marketing and other
resources than the Surviving Corporation. In addition, other entities offering
wireless two-way communications technology, including cellular telephone and
specialized mobile radio services, will also compete with the paging services
the Surviving Corporation provides. There can be no assurance that additional
competitors will not enter markets served by the Surviving Corporation or that
the Surviving Corporation will be able to compete successfully. In this regard,
certain long distance carriers have announced their intention to market paging
services jointly with other telecommunications services.
The wireless communications industry is characterized by rapid
technological change. Future technological advances in the wireless
communications industry could create new services or products competitive with
the paging and wireless messaging services provided or to be developed by the
Surviving Corporation. Recent and proposed regulatory changes by the FCC are
aimed at encouraging such new services and products.
In particular, in 1994, the FCC began auctioning licenses for new personal
communications services ("PCS"). The FCC's rules also provide for the private
use of PCS spectrum on an unlicensed basis. PCS will involve a network of small,
low-powered transceivers placed throughout a neighborhood, business complex,
community or metropolitan area to provide customers with mobile voice and data
communications. There are two types of PCS, narrowband and broadband. Narrowband
PCS is expected to provide enhanced or advanced paging and messaging
capabilities, such as "acknowledgment paging" or "talk-back" paging. Broadband
PCS is expected to provide new types of communications devices that will include
multi-functional portable phones and imaging devices, which may also have paging
and messaging capabilities. Both narrowband and broadband PCS are currently in
the developmental stage, and PCS systems may compete directly and indirectly
with the Surviving Corporation.
Moreover, changes in technology could lower the cost of competitive
services and products to a level where the Surviving Corporation's services and
products would become less competitive or to where the Surviving Corporation
would be required to reduce the prices of its services and products. There can
be no assurance that the Surviving Corporation will be able to develop or
introduce new services and products to remain competitive or that the Surviving
Corporation will not be adversely affected in the event of such technological
developments.
Technological change also may affect the value of the pagers owned by the
Surviving Corporation and leased to its subscribers. If the Surviving
Corporation's subscribers requested more technologically advanced pagers, the
Surviving Corporation could incur additional inventory costs and capital
expenditures if it were required to replace pagers leased to its subscribers
within a short period of time.
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<PAGE> 31
HISTORY OF NET LOSSES
Metrocall 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 $7.7 million for the three months ended March 31, 1996. No assurance
can be given that losses can be reversed in the future. In addition, at March
31, 1996, Metrocall's accumulated deficit was $54.6 million. Metrocall's net
losses have resulted primarily from substantial amortization of intangible
assets, depreciation of capital investments and interest expense. Metrocall's
business requires substantial funds for capital expenditures and acquisitions
that result in significant depreciation and amortization charges. Additionally,
substantial levels of borrowing, which will result in significant interest
expense, are expected to be outstanding in the foreseeable future. Accordingly,
net losses are expected to continue to be incurred in the future. There can be
no assurance that the Surviving Corporation will be able to operate profitably
at any time in the future.
SUBSCRIBER TURNOVER
The results of operations of paging service providers, such as Metrocall,
can be significantly affected by subscriber cancellations and by subscribers who
switch their service to other carriers. In order to realize net growth in
subscribers, disconnected subscribers must be replaced and new subscribers must
be added. The sales and marketing costs associated with attracting new
subscribers are substantial relative to the costs of providing service to
existing customers. Because Metrocall's business is characterized by high fixed
costs, disconnections directly and adversely affect operating cash flow. An
increase in its subscriber cancellation rate may adversely affect the Surviving
Corporation's results of operations.
POTENTIAL FOR CHANGE IN REGULATORY ENVIRONMENT
The Surviving Corporation's paging operations will be subject to regulation
by the FCC and, to a lesser extent, by various state regulatory agencies. There
can be no assurance that those agencies will not adopt regulations or take
actions that would have a material adverse effect on the business of the
Surviving Corporation. Changes in regulation of the Surviving Corporation's
paging business or the allocation of radio spectrum for services that compete
with the Surviving Corporation's business could adversely affect the Surviving
Corporation's results of operations. For example, the FCC is currently engaged
in a rule making proceeding whereby it proposes to issue paging licenses on a
wide-area basis by competitive bidding (i.e., auctions). Although Metrocall
believes that the proposed rule changes may simplify the Surviving Corporation's
regulatory compliance burdens, particularly regarding adding or relocating
transmitter sites, those rule changes may also increase the Surviving
Corporation's costs of obtaining paging licenses.
RISKS RELATED TO VCRS
As part of the Merger Consideration, shareholders of A+ Network will
receive indexed variable common rights ("VCRs") equal to the number of shares of
Metrocall Common Stock they receive in the Merger. The VCRs will entitle the
holders thereof to receive certain payments from Metrocall in the event that the
trading price of Metrocall Common Stock does not achieve certain target prices
as of the first anniversary of the Effective Time (subject to extension at
Metrocall's option for an additional year), adjusted downward, but not upward
based on an index of companies in the paging industry. See "DESCRIPTION OF
METROCALL SECURITIES -- Metrocall VCRs."
While the VCRs will be certificated and can trade separately from the
Metrocall Common Stock, Metrocall does not intend to seek to list the VCRs on
any exchange or NNM, and there can be no assurance that any public trading
market for the VCRs will develop or continue after the Merger.
No assurances can be given with respect to the price, if any, at which the
VCRs will trade after the Effective Time. The market value, if any of the VCRs
will be affected by the trading prices of Metrocall Common Stock during the
relevant valuation period, and will also be affected to the extent that the
index referred to above declines. Moreover, the market value of the VCRs after
the Effective Time may be discounted for time value inherent in the fact that
such payments will not be made, if at all, for one year after the Effective
Time, or two years if extended by Metrocall. In addition, if Metrocall Common
Stock trades
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<PAGE> 32
above the relevant target price during any consecutive 50-day period, the rights
of holders of VCRs will terminate and no payment will be made. Thus, the market
value may be also discounted by the inherent uncertainty as to whether any
payment will ultimately be made pursuant to the terms of the VCRs.
CONSEQUENCES IF NO TAX-FREE REORGANIZATION
Metrocall and A+ Network do not intend to seek an opinion of counsel or a
ruling from the Internal Revenue Service concerning the federal income tax
consequences of the Merger. No assurance can be given that the IRS will not
challenge the qualification of the Merger as a tax-free reorganization. If such
a challenge were sustained by a court, each shareholder at the time of the
Merger would recognize capital gain or loss measured by the difference between
the fair market value of all the consideration received in the Merger and the
shareholder's basis in the Shares exchanged in the Merger. See "THE MERGER AND
RELATED TRANSACTIONS -- Certain Federal Income Tax Consequences."
NO ANTICIPATED STOCKHOLDER DISTRIBUTIONS
It is not anticipated that the Surviving Corporation will pay cash
dividends in the foreseeable future. Certain covenants in Metrocall's bank
credit agreement prohibit the payment of dividends by Metrocall. See "RECENT
DEVELOPMENTS REGARDING METROCALL -- New Credit Facility."
RELIANCE ON KEY PERSONNEL
Both Metrocall and A+ Network are dependent upon the efforts and abilities
of a number of their current key management, sales, support and technical
personnel. The success of the Surviving Corporation will depend to a large
extent upon its ability to retain and continue to attract key employees. The
loss of certain of these employees or the Surviving Corporation's inability to
retain or attract key employees in the future could have an adverse affect upon
the Surviving Corporation's operations.
POSSIBLE VOLATILITY OF STOCK PRICE; SHARES ELIGIBLE FOR FUTURE SALE
The value realized by A+ Network shareholders in the Merger and the value
assigned to intangible assets recorded in the purchase accounting for the
Surviving Corporation will depend upon the market price of Metrocall Common
Stock, which is subject to fluctuation. Since the Metrocall Common Stock became
publicly traded in July 1993, the closing price has ranged from a low of $12 per
share to a high of $29 per share. The market price of the Metrocall Common Stock
may be volatile due to, among other things, technological innovations affecting
the paging industry, the Surviving Corporation's acquisition strategy and the
shares being registered pursuant to this registration statement. In addition,
Metrocall currently has effective registration statements with respect to
approximately 6.7 million shares of Metrocall Common Stock held by certain
stockholders of Metrocall. Metrocall also expects to issue additional shares of
Metrocall Common Stock in connection with Pending Acquisitions, with the amount
of such shares depending on purchase price adjustments under acquisition
agreements and the market price of Metrocall Common Stock at the time of the
purchase. Based on first quarter results of the companies to be acquired and
assuming a price of $18 per share for Metrocall Common Stock, the number of
additional shares would be approximately 630,000 shares. There can be no
assurance that any action taken by holders of these shares or other stockholders
would not have an adverse effect on the market price of the Metrocall Common
Stock.
CONCENTRATION OF OWNERSHIP
Immediately following the Effective Time, the Surviving Corporation's
executive officers, directors and their affiliates together will beneficially
own 36.4% of the outstanding shares of Metrocall Common Stock. As a result, such
persons, if they act together, will have the ability to substantially influence
the Surviving Corporation's direction and to determine the outcome of corporate
actions requiring stockholder approval. This concentration of ownership may have
the effect of delaying or preventing a change of control of the Surviving
Corporation.
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<PAGE> 33
ANTI-TAKEOVER AND OTHER PROVISIONS
The Surviving Corporation's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Third Amended and
Restated Bylaws (the "Bylaws") will include provisions that could operate to
delay, defer or prevent a change of control in the event of certain transactions
such as a tender offer, merger, or sale or transfer of substantially all of the
Surviving Corporation's assets. These provisions are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Surviving Corporation first
to negotiate with the Board of Directors of the Surviving Corporation. In
addition, the New Credit Facility will include, and indentures relating to notes
issued by Metrocall and assumed by Metrocall in the Merger include, certain
covenants limiting the ability of the Surviving Corporation to engage in certain
mergers and consolidations or transactions involving a change of control of the
Surviving Corporation.
The Certificate of Incorporation will authorize the Board of Directors,
when considering a tender offer, merger or acquisition proposal, to take into
account factors in addition to potential economic benefits to stockholders. In
addition, the Certificate of Incorporation will generally prohibit the Surviving
Corporation from purchasing any shares of the Surviving Corporation's stock from
any person, entity or group that beneficially owns five percent or more of the
Surviving Corporation's stock at a price exceeding the average closing price for
the 20 business days prior to the purchase date, unless a majority of the
Surviving Corporation's disinterested stockholders approve the transaction, or
as may be necessary to protect the Surviving Corporation's regulatory licenses.
The Surviving Corporation will be subject to the provisions of Section 203
of the Delaware General Corporation Law, as amended ("Section 203"). Under
Section 203, a resident domestic corporation may not engage in a business
combination with a person who owns (or within three years prior, did own) 15% or
more of the corporation's outstanding voting stock (an "interested stockholder")
for a period of three years after the date such person became an interested
stockholder, unless (i) prior to such date the board of directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder, (ii) upon consummation of the
transaction which resulted in such person becoming an interested stockholder,
the interested stockholder owned at least 85% of the corporation's voting stock
outstanding at the time the transaction commenced, or (iii) on or subsequent to
such date the business combination is approved by the board of directors and
authorized by the affirmative vote of holders of at least two-thirds of the
outstanding voting stock which is not owned by the interested stockholder.
POTENTIAL CONFLICTS OF INTEREST
Certain members of the Board of Directors and senior management of A+
Network have interests in the transactions contemplated under the Merger
Agreement that may present them with certain potential conflicts of interest.
Certain of such persons will enter into employment and non-competition
agreements with Metrocall that will become effective upon consummation of the
Merger and/or are to be appointed to the Metrocall Board of Directors effective
as of the Effective Time. The Board of Directors of each of Metrocall and A+
Network was aware of these potential conflicts at the time of its consideration
of the matters described under the captions "THE MERGER AND RELATED
TRANSACTIONS -- Recommendation of the Board of Directors of Metrocall,"
"-- Metrocall's Reasons for the Merger," "-- Recommendation of the Board of
Directors of A+ Network" and "-- A+ Network's Reasons for the Merger,"
respectively. A summary of these potential conflicts of interest and certain
agreements between Metrocall and A+ Network and certain members respective of
their Boards of Directors and senior managements is provided in "THE MERGER AND
RELATED TRANSACTIONS -- Interests of Certain Persons with Respect to the
Merger."
FORWARD LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Discussions containing such forward-looking statements may be
found in the material set forth under "THE MERGER AND RELATED
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<PAGE> 34
TRANSACTIONS -- Metrocall's Reasons for the Merger" and "RECENT DEVELOPMENTS
REGARDING A+ NETWORK" as well as within the Joint Proxy Statement/Prospectus
generally. In addition, when used in this Joint Proxy Statement/Prospectus, the
words "believes," "anticipates," "expects" and similar expressions are intended
to identify forward-looking statements. Such statements are subject to a number
of risks and uncertainties. Actual results in the future could differ materially
from those described in the forward-looking statements as a result of the risk
factors set forth above and the matters set forth in the Joint Proxy
Statement/Prospectus generally. Neither Metrocall, A+ Network nor the Surviving
Corporation undertake any obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
THE MEETINGS
DATE, TIME AND PLACE OF MEETINGS
The Metrocall Meeting will be held at 10:00 a.m., eastern time, on
September 17, 1996, at the Ritz-Carlton, Pentagon City, 1250 South Hayes Street,
Arlington, Virginia. The A+ Network Meeting will be held at 1:00 p.m., central
time, on September 17, 1996 at the First American Center auditorium, fifth
floor, 300 Union Street, Nashville, Tennessee.
PURPOSE OF THE MEETINGS
The purposes of the Metrocall Meeting are to consider and act upon the
following proposals (i) to approve and adopt the Merger Agreement, (ii) to
approve and adopt the Charter Amendment, which increases the authorized shares
of Metrocall Common Stock by 7,500,000 shares, from 26,000,000 shares to
33,500,000 shares and (iii) to approve and adopt the Plan Amendment, which
increases the number of shares that may be issued under the Metrocall 1996 Stock
Option Plan by 1,000,000.
The sole purpose of the A+ Network Meeting is to consider and act upon the
proposal to approve the Merger Agreement.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Metrocall Common Stock and holders of record of
A+ Network Common Stock at the close of business on the Metrocall Record Date
and the A+ Network Record Date, respectively, are entitled to notice of, and to
vote at, the Metrocall Meeting and the A+ Network Meeting, respectively.
On the Metrocall Record Date, there were holders of record of
Metrocall Common Stock with shares of Metrocall Common Stock issued
and outstanding. Each share of Metrocall Common Stock entitles the holder
thereof to one vote on each matter submitted for stockholder approval.
On the A+ Network Record Date, there were holders of record of A+
Network Common Stock with shares issued and outstanding. Each share of
A+ Network Common Stock entitles the holder thereof to one vote on each matter
submitted for shareholder approval.
VOTING AND REVOCATION OF PROXIES
All proxies in the enclosed forms of proxy card that are properly executed
and returned to Metrocall or A+ Network, as the case may be, prior to
commencement of voting at the applicable Stockholders Meeting will be voted at
the applicable Stockholders Meeting or any adjournments or postponements thereof
in accordance with the instructions thereon. All executed but unmarked Metrocall
and A+ Network proxies will be voted FOR approval and adoption of the Merger
Agreement and, in the case of Metrocall, FOR approval and adoption of the
Charter Amendment and FOR approval and adoption of the Plan Amendment. Any proxy
may be revoked by any stockholder who attends his or her applicable Stockholders
Meeting and gives notice of his or her intention to vote in person without
compliance with any other formalities. In addition, any Metrocall or A+ Network
stockholder may revoke a proxy at any time before it is voted by executing and
delivering a subsequent proxy or by delivering a written notice to the Secretary
of Metrocall or A+ Network, as applicable,
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<PAGE> 35
stating that the proxy is revoked. At each Stockholders Meeting, stockholder
votes will be tabulated by persons appointed by the respective Boards of
Directors to act as inspectors of election.
The managements of Metrocall and A+ Network do not know of any matters
other than those set forth herein that may come before the Stockholders
Meetings. If any other matters are properly presented to either Stockholders
Meeting for action, it is intended that the persons named in the applicable form
of proxy will vote in accordance with their best judgment on such matters.
VOTE REQUIRED FOR APPROVAL
Metrocall. The presence, in person or by proxy, of at least a majority of
the shares of Metrocall Common Stock outstanding on the Metrocall Record Date
( shares) is necessary to constitute a quorum at the Metrocall Meeting.
The affirmative vote of a majority of shares of Metrocall Common Stock
outstanding and entitled to vote at the Metrocall Meeting is necessary to
approve and adopt each of the Merger Agreement and the Charter Amendment. The
affirmative vote of a majority of shares voting at the Metrocall Meeting is
necessary to approve and adopt the Plan Amendment. Abstentions will be treated
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum and with regard to a particular proposal will be equivalent
to votes cast against such proposal. Broker non-votes will be equivalent to
votes cast against the Merger Agreement and the Charter Amendment, but will not
be counted for purposes of the Plan Amendment.
On the Metrocall Record Date, directors and executive officers of Metrocall
exercised voting control over an aggregate of shares of the
outstanding Metrocall Common Stock (approximately % of the shares entitled
to vote at the Metrocall Meeting). All directors and executive officers of
Metrocall owning shares of Metrocall Common Stock have indicated their intention
to vote their shares for approval of the Merger Agreement, the Charter Amendment
and the Plan Amendment.
A+ Network. The presence, in person or by proxy, of at least a majority of
the shares entitled to vote ( shares) is necessary to constitute a
quorum at the A+ Network Meeting, and the affirmative vote of the shareholders
of a majority of the outstanding shares is necessary for approval of the Merger
Agreement. Each share of A+ Network Common Stock is entitled to one vote.
Abstentions and broker non-votes will be treated as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the A+
Network Meeting, but will be equivalent to votes cast against the Merger.
On the A+ Network Record Date, directors and executive officers of A+
Network exercised voting control over an aggregate of shares of the
outstanding A+ Network Common Stock (approximately % of the shares entitled
to vote at the A+ Network Meeting). All directors and executive officers of A+
Network owning shares of A+ Network Common Stock have indicated their intention
to vote their shares for approval of the Merger Agreement and the Merger. On the
A+ Network Record Date, Metrocall owned 4,350,793 shares of A+ Network Common
Stock representing approximately % of the outstanding shares of A+ Network
Common Stock. See "THE MERGER AND RELATED TRANSACTIONS -- Background of the
Merger." Metrocall has agreed to vote all of its A+ Network Common Stock in
favor of the approval of the Merger Agreement.
SOLICITATION OF PROXIES
The expense of printing this Joint Proxy Statement/Prospectus and the
proxies solicited hereby, and any registration or filing fees incurred in
connection with the Registration Statement, this Joint Proxy
Statement/Prospectus and certain other filings, will be split equally by
Metrocall and A+ Network. In addition to the use of the mails, proxies may be
solicited by officers and directors and regular employees of Metrocall or A+
Network, without additional remuneration, by personal interviews, telephone,
telegraph or otherwise. Metrocall and A+ Network may also request brokerage
firms, nominees, custodians and fiduciaries to forward proxy materials to
beneficial owners of shares of Metrocall or A+ Network Common Stock, as the case
may be, and will provide reimbursement for the cost of forwarding the material
in accordance with customary charges. Metrocall and A+ Network have retained
Corporate Investor Communications at an estimated cost
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<PAGE> 36
of $ , plus reimbursement of expenses, to assist in its solicitation of
proxies from brokers, nominees, institutions and individuals.
OTHER MATTERS
At the date of this Joint Proxy Statement/Prospectus, the respective Boards
of Directors of Metrocall and A+ Network do not know of any business to be
presented at their respective meetings other than as set forth in the notices
accompanying this Joint Proxy Statement/Prospectus. If any other matter should
properly come before the either of the Stockholder Meeting, it is intended that
the shares represented by proxies will be voted with respect to such matters in
accordance with the judgment of the persons voting such proxies.
APPRAISAL RIGHTS
Under Delaware law, stockholders of Metrocall who dissent from the Merger
are not entitled to receive cash from Metrocall equal to the fair value of such
stockholders' shares of Metrocall Common Stock.
Under Tennessee law, shareholders of A+ Network who dissent from the Merger
are not entitled to receive cash from A+ Network equal to the fair value of such
shareholder's shares of A+ Network Common Stock since the A+ Network Common
Stock is traded on the NNM.
THE MERGER AND RELATED TRANSACTIONS
PURCHASES PURSUANT TO THE OFFER AND THE SHAREHOLDERS' AGREEMENT
Prior to the date of this Joint Proxy Statement/Prospectus, and pursuant to
the terms of the Merger Agreement, Metrocall purchased 2,140,526 Shares pursuant
to the Offer. Metrocall also purchased 2,210,217 additional Shares from certain
shareholders of A+ Network pursuant to the Shareholders' Agreement. Under the
terms of the Merger Agreement, Metrocall is required to vote all Shares acquired
by it pursuant to the Offer and the Shareholders' Agreement in favor of the
Merger.
GENERAL DESCRIPTION OF THE MERGER
Upon the terms and subject to the conditions contained in the Merger
Agreement, including the requisite votes of the stockholders of Metrocall and A+
Network in accordance with the relevant provisions of the Delaware General
Corporation Law (the "Delaware Law") and of the Tennessee Business Corporation
Act (the "Tennessee Law") and receipt of FCC approval, A+ Network will be merged
with and into Metrocall (the "Merger") and Metrocall will be the surviving
corporation (the "Surviving Corporation"). Upon the effective time of the Merger
(the "Effective Time"), each outstanding share of A+ Network Common Stock and
related rights (other than Shares held by Metrocall or any of its subsidiaries,
which will be cancelled) will be converted into the right to receive: (i) that
number of shares of Metrocall Common Stock equal to the Conversion Ratio, (ii)
the same number of VCRs, plus (iii) cash in respect of fractional Metrocall
Securities, if any. The Conversion Ratio shall be determined by dividing $21.10
by the average of the last bid prices for Metrocall Shares on the NNM for the 50
consecutive trading days ending on the trading day that is five days prior to
the Closing Date (the "Average Metrocall Share Price"), except that if the
Average Metrocall Share Price is greater than $21.88 or less than $17.90, then
the Conversion Ratio shall be .96435 or 1.17877, respectively. See " DESCRIPTION
OF METROCALL SECURITIES" for a description of the Metrocall Common Stock and the
VCRs.
BACKGROUND OF THE MERGER
Strategic business combinations and acquisitions have been a major
component of Metrocall's long term strategy since completion of its initial
public offering in July 1993. At that time, Metrocall actively began to seek out
acquisition candidates in the paging and wireless messaging industry with
operations either complementary to its own or which provide opportunities for
geographic expansion. In August and November 1994, Metrocall completed the
acquisitions of FirstPAGE USA, Inc. and MetroPaging, Inc. (formerly
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AllCity Paging, Inc.), respectively. In late September and early October 1995,
Metrocall completed a secondary equity offering and a senior subordinated notes
offering, respectively, with combined net proceeds of approximately $252
million, to fund expansion of its local, regional and nationwide transmission
networks and future acquisitions. To assist in the acquisition portion of its
strategy, Metrocall engaged financial advisors to provide it strategic advice
and assist in identifying and analyzing possible business combinations or
acquisitions. A+ Network was one company identified as a candidate for possible
merger or acquisition.
On or about November 16, 1995, representatives of A+ Network and Metrocall,
along with Metrocall's financial advisor, had an introductory meeting in
Chicago. Metrocall indicated at the meeting that it might be interested in
pursuing a business combination of the two companies. A+ Network responded that
consideration of such a transaction might be premature, since A+ Network had
only recently completed the merger of A+ Communications Inc. and Network.
Thereafter, the parties executed a confidentiality agreement, and, from time to
time, met and exchanged financial and business information. During this time, no
proposals regarding a transaction were made.
On March 14, 1996, the parties met in Atlanta, Georgia, with their
respective financial advisors. At that meeting, the parties began to explore the
terms of a possible business combination of the two companies. Thereafter, and
throughout April 1996, the parties conducted preliminary due diligence and from
time to time had discussions regarding the possible terms of a proposed
transaction.
On May 1, 1996, Metrocall's Board authorized its management and advisors to
proceed to negotiate a merger with A+ Network, subject to board approval. On May
6, 1996, the parties' senior management, including members of their respective
boards, and their professional advisors, met in New York City to discuss the
financial terms and structure of the possible combination. Beginning on May 8,
the parties and their advisors met in Washington, D.C. and began to negotiate
the terms of the Merger Agreement, the Shareholders' Agreement, and related
documents. The transaction as structured by the parties contemplated two steps.
First, Metrocall would acquire approximately 38.5% of the outstanding A+ Network
shares by means of a tender offer for A+ Network Common Stock and the
contemporaneous purchase of 2,210,217 shares from certain shareholders of A+
Network. Second, A+ Network shareholders (other than Metrocall) would receive
Metrocall Securities in the Merger. Metrocall conditioned its willingness to
enter into the transactions contemplated by the Merger Agreement upon certain
shareholders' (the "Principal Shareholders") entering into the Shareholders'
Agreement. Metrocall was unwilling to commence the Offer or to agree to the
Merger unless Metrocall received assurances from the Principal Shareholders that
would, as a practical matter, commit the Principal Shareholders to vote all of
their Shares for the Merger and, if necessary, to sell their Shares to Metrocall
to the extent legally permissible in circumstances where there was a competing
offer for A+ Network. A+ Network, for its part, conditioned its willingness to
enter into the proposed combination on receiving assurances that a substantial
block of stockholders of Metrocall would vote in favor of the Merger.
Accordingly, as described below, stockholders holding approximately 34.5% of the
outstanding Metrocall Shares have granted proxies to A+ Network to vote in favor
of the Merger. The negotiations leading up to the Merger Agreement also included
discussions about the structure and membership of the Surviving Corporation's
Board of Directors.
Metrocall's Board held telephonic board meetings on Monday, May 13, and
Tuesday, May 14, and approved the proposed Merger and related transactions,
subject to satisfactory finalization of the documents, on May 14. On May 14-15,
1996, A+ Network's Board held a telephonic board meeting to consider the
proposed business combination transaction with Metrocall. After hearing
presentations from A+ Network's management, counsel and financial advisor,
Prudential Securities, A+ Network's Board determined that the Offer and Merger
are fair to and in the best interests of A+ Network and its shareholders and
voted unanimously (with one director absent) to (i) adopt the Merger Agreement
pursuant to Section 48-21-104(a) of the Tennessee Business Corporation Act
("TBCA"), and resolved to submit the Merger Agreement for approval by the
shareholders, (ii) recommend the acceptance of the Offer by the shareholders,
(iii) approve the business combination contemplated by the Merger Agreement and
related documents in accordance with the provisions of Section 48-103-205 of the
Tennessee Business Combination Act, (iv) cause the transactions contemplated in
the Merger Agreement not to be a "takeover offer" as defined in Section
48-103-102(10)(B)(v) of the Tennessee Investor Protection Act, and (v) determine
that Metrocall would
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<PAGE> 38
not be deemed an "Acquiring Person" for the purpose of A+ Network's Rights Plan.
A+ Network's Board then authorized the appropriate officers of A+ Network to
finalize the documentation. The parties continued to negotiate final
documentation through May 15.
The parties executed definitive agreements effective May 16, 1996. The
agreements were announced on May 16, 1996.
The Offer was commenced on May 22, 1996. On June 25, 1996, Metrocall
accepted for payment 2,140,526 Shares and, on June 25, 1996, Metrocall
consummated the purchase of 2,210,217 Shares from the Principal Shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF METROCALL
The Board of Directors of Metrocall (including the nonemployee directors)
unanimously (with one director absent) approved the Merger Agreement and has
determined that the Merger is fair to, and in the best interests of, Metrocall
and its stockholders. The Board of Directors has unanimously (with one director
absent) recommended that the stockholders of Metrocall vote FOR the approval and
adoption of the Merger Agreement.
METROCALL'S REASONS FOR THE MERGER
In reaching its determination that the Merger Agreement and the
transactions contemplated thereby, including the Merger, are fair to and in the
best interests of Metrocall and its stockholders, the Board considered a number
of factors, which factors taken together supported such determination, including
without limitation the following:
1. The Board's knowledge of the business, operations, properties,
assets, financial condition and operating results of Metrocall.
2. The terms of the Merger Agreement and the Shareholders' Agreement,
including the consideration in the Merger, the terms of the VCRs, the
limitation on adjustment of the Conversion Ratio, protections in the Merger
Agreement and the Shareholders' Agreement designed to increase the
likelihood that the Merger would be completed and the provisions providing
for repurchase or an orderly distribution of Shares acquired in the Offer
in certain circumstances if the Merger is not completed.
3. The Board's review of recent transactions involving companies with
comparable businesses and the trading prices of the shares of such
companies that are publicly traded.
4. Historic market prices of the Common Stock of Metrocall and A+
Network.
5. Various financial factors of Metrocall and A+ Network, including
cash flow, operating performance and prospects of both companies.
6. Certain projections (described under "RECENT DEVELOPMENTS REGARDING
A+ NETWORK", below) of net revenues and earnings before interest, taxes,
depreciation and amortization provided by A+ Network.
7. Projections showing that the acquisition of A+ Network could result
in a per share implied equity value of the Surviving Corporation that would
be greater than the implied per share equity value of Metrocall on a
standalone basis for 1997, although the acquisition is expected to result
in a per share implied equity value of the Surviving Corporation (based on
expected results for the current year) that is less than the market price
of Metrocall shares as of the date the Board approved the Merger Agreement.
The per share implied equity values for the Surviving Corporation for both
the current year and for 1997, and for Metrocall on a standalone basis for
1997, were calculated as a multiple of projected EBITDA for Metrocall on a
standalone basis and for the Surviving Corporation (in each case, less
outstanding debt), and depend on assumptions regarding the multiple that
should be applied to EBITDA to reach an implied equity valuation. The
projected EBITDA for Metrocall and the Surviving Corporation depend on,
among other things, assumptions regarding growth rates in the number of
subscribers and the resulting revenue
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<PAGE> 39
of Metrocall and the Surviving Corporation, and the ability to integrate A+
Network's operations into the operations of Metrocall (including the
ability to realize cost savings). There can be no assurance that these
assumptions will be realized and actual results may vary materially and
adversely from those assumptions. Accordingly, there is no assurance that
per share implied equity value of the Surviving Corporation will exceed the
per share implied equity value of Metrocall on a standalone basis. See
"RISK FACTORS -- Forward Looking Statements."
8. The opinion of Wheat, First to the effect that, as of May 14, 1996
and based upon and subject to certain matters stated therein, taken
together, the consideration to be paid (i) to holder of Shares pursuant to
the Offer and (ii) to the holders of Shares pursuant to the Merger is fair
to the holders of Metrocall Common Stock from a financial point of view. A
copy of Wheat, First's opinion is attached hereto as Exhibit B, and
stockholders of Metrocall are encouraged to review the opinion in its
entirety.
9. The fact that the markets currently covered by A+ Network and
Metrocall are complementary and the Surviving Corporation will have a
significant subscriber base with a strong market presence in the
Mid-Atlantic and Southeast regions.
10. The economies of scale that the Board of Directors of Metrocall
believes the Surviving Corporation will realize in development,
administration, marketing and sales.
11. Certain business factors relating to A+ Network including its
personnel, FCC licenses, technical strengths and marketing distribution
channels.
12. The difficulties that may be encountered in merging the two
companies' organizations, managements, technology and facilities as well as
the potential loss of revenue that might result in the short term due to
uncertainty among customers and employees caused by the Merger.
13. Pending and recently completed acquisitions by A+ Network and the
financial and business factors relating to those companies.
14. The fact that the Merger would result in a change in the
membership of the Board of Directors of the Company, with two management
directors resigning as of the Effective Time of the Merger to be replaced
by two of the current directors (and significant stockholders) of A+
Network.
15. A+ Network's investment in PCS Development Corp., a developer of
narrow band, personal communications services and a licensee with
nationwide spectrum allocation.
The foregoing discussion of the information and factors considered by the
Board is not meant to be exhaustive, but is believed to include the material
factors considered by the Board. In reaching its determination, the Board took
the various factors into account collectively and the Board did not perform a
factor-by-factor analysis, nor did the Board consider whether any individual
factor was, on balance, positive or negative. In addition, different members of
the Board may have weighed such factors differently and considered other
factors.
OPINION OF FINANCIAL ADVISOR TO METROCALL
General
Metrocall retained Wheat, First to act as its financial advisor in
connection with its proposed acquisition transaction with A+ Network, and to
render an opinion to the Metrocall Board of Directors as to the fairness of the
Offer and the Merger, taken together, from a financial point of view, to
Metrocall and its stockholders.
Wheat, First is an investment banking firm engaged in, among other things,
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and valuations for estate, corporate and other purposes.
Wheat, First operates in the Mid-Atlantic states and is familiar with the paging
industry in general and with Metrocall and its business in particular.
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<PAGE> 40
On May 14, 1996, Wheat, First delivered to Metrocall's Board of Directors
its oral opinion (subsequently confirmed in writing) that, as of such date,
taken together, the consideration to be paid to the A+ Network shareholders
pursuant to the Merger was fair, from a financial point of view, to Metrocall.
Subsequent to delivering its opinion, Wheat, First reviewed the Merger Agreement
and noted that there were no changes from the most recent draft of the agreement
initially reviewed by Wheat, First that would affect its opinion.
The full text of Wheat, First's opinion, which sets forth certain
assumptions made, matters considered and limitations on review undertaken is
attached as Exhibit B to this Joint Proxy Statement/Prospectus, is incorporated
herein by reference, and should be read in its entirety in connection with this
Joint Proxy Statement/Prospectus. The summary of the opinion of Wheat, First set
forth in this Joint Proxy Statement/ Prospectus is qualified in its entirety by
reference to the opinion. Wheat, First's opinion is directed only to the
consideration to be paid pursuant to the Offer and the Merger and does not
constitute a recommendation to any stockholder of Metrocall as to how such
stockholder should vote on the Merger.
In arriving at its opinion, Wheat, First, among other things, (1) reviewed
the financial and other information contained in A+ Network's Annual Reports to
Shareholders and Annual Reports on Form 10-K for the fiscal years ended December
31, 1995, December 31, 1994 and December 31, 1993, and certain interim reports
to Shareholders and Quarterly Reports on Form 10-Q; (2) reviewed the financial
and other information contained in Metrocall's Annual Reports to Shareholders
and Annual Reports on Form 10-K for the fiscal years ended December 31, 1995,
December 31, 1994 and December 31, 1993, and certain interim reports to
Shareholders and Quarterly Reports on Form 10-Q; (3) reviewed the audited
consolidated balance sheet of Metrocall as of December 31, 1995, and the audited
consolidated statement of earnings, stockholders' equity, and cash flows for the
fiscal year then ended, together with the notes thereto; (4) conducted
discussions with members of senior management of A+ Network and Metrocall
concerning their respective business and prospects; (5) took into account
certain long-term strategic benefits expected to occur from the Merger, both
operational and financial, that were described to it by Metrocall and A+ Network
senior management; (6) reviewed certain publicly available information with
respect to historical market prices and trading activity for A+ Network Common
Stock and Metrocall Common Stock and for certain publicly traded companies which
it deemed relevant; (7) compared the results of operations of A+ Network and
Metrocall with those of certain publicly traded companies which it deemed
relevant; (8) compared the proposed financial terms of the Merger with the
financial terms of certain other mergers and acquisitions which it deemed to be
relevant; (9) performed a discounted cash flow analysis of A+ Network based upon
estimates of projected financial performance prepared by A+ Network and
Metrocall; (10) evaluated the pro forma financial impact of consummation of the
Merger Agreement on Metrocall; (11) reviewed other financial information
concerning the business and operations of A+ Network and Metrocall, including
certain internal financial analyses and forecasts for A+ Network and Metrocall
prepared by the senior management of each entity, as well as certain pro forma
financial analyses and forecasts for A+ Network and Metrocall prepared by the
senior management of each entity, as well as certain pro forma financial
projections for the Surviving Corporation prepared by the senior management of
Metrocall; (12) reviewed the Merger Agreement (including the Annexes thereto)
and the Shareholders' Agreement; and (13) reviewed such other financial studies
and analyses and performed such other investigations and took into account such
other matters as it deemed necessary.
In preparing its opinion, Wheat, First relied on the accuracy and
completeness of all information supplied or otherwise made available to it by A+
Network and Metrocall or publicly available, including the representations and
warranties of A+ Network and Metrocall included in the Merger Agreement, and has
not assumed responsibility for independent verification of any such information.
Wheat, First has not made an independent evaluation or appraisal of either A+
Network's assets or liabilities and has not been furnished with any such
evaluation or appraisal. With respect to the financial analyses, forecasts and
projections provided to Wheat, First by A+ Network and Metrocall, Wheat, First
has assumed that they were reasonably prepared on a basis reflecting
managements' current best estimates and judgment of A+ Network's and Metrocall's
future financial performance and that such analyses, forecasts and projections
will be realized in the amounts and in the time periods currently estimated by
such managements. Wheat, First's opinion is based on market, economic and other
conditions as they existed and could be evaluated as of the date of its
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<PAGE> 41
opinion. Events occurring after that date could materially affect the
assumptions and conclusions contained in Wheat, First's opinion. Wheat, First's
opinion does not address the relative merits of the Merger as compared to any
alternative business strategies that might exist for Metrocall, nor does it
address the effect of any other business combination in which Metrocall might
engage.
Summary of Analyses
The following is a summary of certain analyses performed by Wheat, First in
connection with rendering its opinion. At a meeting of the Board of Directors of
the Company on May 14, 1996, Wheat, First presented its analyses discussed
below.
Analysis of Selected Comparable Publicly-Traded Companies. Wheat, First
compared certain financial information for A+ Network with the corresponding
publicly available financial information of certain other comparable companies
(the "Comparable Companies Analysis"). Wheat, First compared A+ Network with a
group of seven companies: American Paging, Inc. ("American Paging"), Arch
Communications Group, Inc. ("Arch"), Metrocall, MobileMedia Corporation
("MobileMedia"), Mobile Telecommunication Technologies Corp. ("MTel"), Paging
Network, Inc. ("PageNet") and ProNet Inc. ("ProNet") (collectively, the
"Comparable Companies"). The information compared included, among other things,
(i) equity market valuation ("Equity Market Value"), (ii) Equity Market Value
plus long-term debt less cash and cash equivalents ("Enterprise Value"), (iii)
last twelve months earnings before interest, taxes, depreciation and
amortization ("LTM EBITDA"), (iv) the ratio of Enterprise Value to LTM EBITDA
("LTM EBITDA Multiple"), (v) projected 1996 earnings before interest, taxes,
depreciation and amortization ("Projected 1996 EBITDA"), (vi) the ratio of
Enterprise Value to Projected 1996 EBITDA ("Projected 1996 EBITDA Multiple"),
(vii) projected 1997 earnings before interest, taxes, depreciation and
amortization ("Projected 1997 EBITDA"), (viii) the ratio of Enterprise Value to
Projected 1997 EBITDA, ("Projected 1997 EBITDA Multiple"), (ix) number of paging
units in service ("Paging Units"), and (x) the ratio of Enterprise Value to
Paging Units ("Paging Units Multiple"). Collectively, the LTM EBITDA Multiple,
the Projected 1996 EBITDA Multiple, the Projected 1997 EBITDA Multiple and the
Paging Units Multiple are referred to as the "Comparable Company Multiples."
Wheat, First deemed certain comparable companies' information to be not
meaningful and excluded such information from its analysis to calculate
Comparable Company Multiples. Based on its Comparable Companies Analysis, Wheat,
First derived a range of LTM EBITDA Multiples from 11.3x to 19.7x, a range of
Projected 1996 EBITDA Multiples from 9.6x to 14.2x, a range of Projected 1997
EBITDA Multiples from 7.7x to 8.9x and a range of Paging Units Multiples from
$307 to $559.
Applying the appropriate Comparable Company Multiples to A+ Network's LTM
EBITDA, Projected 1996 EBITDA, Projected 1997 EBITDA and Paging Units yields a
range of A+ Network's Enterprise Values from $148 million to $340 million.
Analysis of Selected Comparable Acquisition Transactions (the "Comparable
Acquisitions Analysis"). Wheat, First reviewed the financial terms of 22 paging
industry transactions announced within the last three years. Wheat, First based
its Comparable Acquisitions Analysis on the financial terms of the eight
transactions which it deemed to be most similar in size and character to this
transaction (the "Comparable Acquisitions"), which were the following: A+
Communications/Network USA Paging, Arch/USA Mobile Communications,
Arch/Westlink, Metrocall/FirstPAGE, MobileMedia/Dial Page,
MobileMedia/MobileComm, ProNet/ Teletouch Communications, and USA Mobile
Communications/Premiere Page. Wheat, First reviewed and compared certain
financial information regarding the Comparable Acquisitions with A+ Network
including (i) equity valuation plus long-term debt less cash and cash
equivalents ("Transaction Value"), (ii) the latest quarter's annualized earnings
before interest, taxes, depreciation and amortization ("Run-Rate EBITDA"), (iii)
the ratio of Transaction Value to Run-Rate EBITDA ("EBITDA Transaction
Multiple"), (iv) Paging Units, and (v) the ratio of Transaction Value to Paging
Units ("Paging Units Transaction Multiple"). Collectively, the EBITDA and Paging
Units Transaction Multiples are referred to as the "Comparable Acquisition
Multiples." Based on its Comparable Acquisitions Analysis, Wheat, First derived
a range of EBITDA Transaction Multiples from 7.0x to 14.6x, and a range of
Paging Units Transaction Multiples from $379 to $776.
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Applying the appropriate Comparable Acquisition Multiples to A+ Network's
EBITDA and Paging Units yields a range of A+ Network Enterprise Values from $145
million to $442 million.
Discounted Cash Flow Analysis. Wheat, First calculated a range of A+
Network Enterprise Values by means of a discounted cash flow analysis based upon
the discounted present value of A+ Network's projected five-year stream of
unleveraged free cash flow and its projected fiscal year 2000 terminal value
which, in turn, were based on a range of multiples of A+ Network's projected
fiscal year 2000 earnings before interest, taxes, depreciation and amortization
("EBITDA"). In conducting this analysis, Wheat, First relied upon certain
financial projections provided by A+ Network and Metrocall and applied discount
rates ranging from 12% to 16% and multiples of fiscal year 2000 EBITDA ranging
from 9x to 11x. Based on this analysis, Wheat, First derived a range of A+
Network Enterprise Values from $308 million to $411 million.
The values derived from the Comparable Companies Analysis, the Comparable
Acquisitions Analysis and the Discounted Cash Flow Analysis, taken together,
range from $145 million to $442 million.
The summary set forth above outlines the principal elements of Wheat, First
analysis but does not purport to be a complete description of the analysis
conducted by Wheat, First or Wheat, First's presentations to the Board of
Directors of Metrocall. Wheat, First's analyses must be considered as a whole
and selecting portions of its analyses and the factors considered by Wheat,
First, without considering all factors and analyses considered by Wheat, First,
could create an incomplete view of the process underlying its opinion. No
company, transaction or business used in the comparable companies analyses as a
comparison is identical to Metrocall or A+ Network. Wheat, First did not assign
relative weights to its analyses described above in preparing its opinion. The
preparation of a fairness opinion is a complex process that is not purely
mathematical and is not necessarily susceptible to partial analysis or summary
description; rather, it involves complex considerations and judgments. In
performing its analyses, Wheat, First made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Metrocall and A+ Network. Any
estimates contained in the analyses performed by Wheat, First are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by Wheat, First's analyses.
In addition, analyses relating to equity values do not purport to be appraisals
or to reflect the prices at which such equity may actually be sold. Such
estimates are inherently subject to uncertainty.
Fee and Other Information
Wheat, First is acting as financial advisor to Metrocall in connection with
the Merger and related matters and acted as Dealer Manager in connection with
the Offer. In consideration of its services, Metrocall has agreed to pay Wheat,
First a transaction fee (the "Transaction Fee") equal to .5% of the aggregate
transaction consideration upon closing of the Merger. The Transaction Fee is
currently estimated to be approximately $1.6 million. Metrocall was obligated to
pay Wheat, First $100,000 upon execution of the definitive Merger Agreement (to
be credited against the Transaction Fee). Metrocall was also obligated to pay
Wheat, First an additional $250,000 as a result of the delivery of the Fairness
Opinion, and an additional $100,000 as compensation for its role as Dealer
Manager in the Offer. If within one year of the closing of the Offer, Metrocall
has acquired less than 50.1% of A+ Network's outstanding Common Stock, Metrocall
will pay Wheat, First a fee in the amount of 10% of any termination fee, topping
fee or expense reimbursement received by Metrocall from A+ Network. In addition,
Metrocall has agreed to reimburse Wheat, First for its out-of-pocket expenses
(including the fees and expenses of its counsel) and to indemnify it against
certain claims, losses and obligations, including certain liabilities under U.S.
federal securities law. Metrocall has also retained Daniels & Associates
("Daniels") as a financial advisor in connection with the Merger, and has agreed
to pay Daniels a fee equal to .75% of the aggregate transaction consideration
upon closing of the Merger.
Wheat, First has advised Metrocall that, in the ordinary course of
business, it may actively trade the equity securities of Metrocall for its own
account or for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities. Wheat, First has provided
investment banking services to Metrocall in the past and has received customary
fees for providing such services.
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RECOMMENDATION OF THE BOARD OF DIRECTORS OF A+ NETWORK
The Board of Directors of A+ Network (including the nonemployee directors)
unanimously (with one director absent) adopted the Merger Agreement and has
determined that the Merger is fair to, and in the best interests of, A+ Network
and its shareholders. The Board of Directors of A+ Network has unanimously (with
one director absent) recommended that the shareholders of A+ Network vote FOR
the approval of the Merger Agreement.
A+ NETWORK'S REASONS FOR THE MERGER
In reaching its conclusion and recommendation described above, the Board of
Directors of A+ Network considered the following factors:
1. The terms of the Merger Agreement.
2. The opinion of Prudential Securities to the effect that, as of May
15, 1996 and based upon and subject to certain matters stated therein, the
consideration to be received by the holders of Shares pursuant to the
Merger Agreement and the transactions contemplated thereby, including the
Offer, was fair to such holders from a financial point of view.
3. The fact that the Offer was not subject to a financing condition.
4. The fact that the Merger Agreement, which prohibits A+ Network, its
subsidiaries or its affiliates from initiating, soliciting or encouraging
any potential Acquisition Proposal (as defined below), does permit A+
Network (conditioned upon the execution of confidentiality agreements) to
furnish nonpublic information to allow access by and participate in
discussions and negotiations with any third party that has submitted a bona
fide and unsolicited Acquisition Proposal to A+ Network, provided that (i)
the Board of Directors, upon advice of counsel, determines that failure to
so act would constitute a breach of its fiduciary duties, (ii) the Board of
Directors determines that such Acquisition Proposal is economically
superior to the Offer and the Merger, and (iii) such Acquisition Proposal
is not subject to a financing condition.
5. The provisions of the Merger Agreement that require A+ Network to
pay Metrocall or Metrocall to pay A+ Network a termination fee of $10
million under certain circumstances as described herein under "THE MERGER
AGREEMENT AND TERMS OF THE MERGER -- Termination".
6. A+ Network's and Metrocall's financial condition, results of
operations, cash flows, competitive position and prospects.
7. The compatibility of the business and operating strategies of
Metrocall and A+ Network regarding, among other things, geographic areas,
services, planned expansion and distribution and the potential efficiencies
and synergies expected to be realized by combining the operations of A+
Network and Metrocall which may be expected to produce a favorable impact
on the long-term value of the Surviving Corporation's common stock and
enhance the competitive position of the combined entity.
8. The structure of the transaction, including (a) the fact that the
Offer and the Shareholders' Agreement permitted all shareholders to receive
cash for approximately 40% of their Shares, (b) the fact that the Merger
will allow A+ Network's shareholders to participate in the equity of the
Surviving Corporation, (c) the benefits and economic attributes of the VCRs
to be received by A+ Network's shareholders in the Merger and (d) the fact
that the Shareholders' Agreement and the Metrocall Stockholders Voting
Agreement (as defined below) may increase the likelihood that the Merger
will be effected.
9. Historical market prices with respect to the A+ Network Common
Stock and the shares of Metrocall Common Stock, particularly the fact that
the Offer and the Merger will enable the shareholders of A+ Network to
realize a significant premium over the price at which shares of A+ Network
Common Stock have traded in the past (including immediately prior to the
public announcement of the Offer).
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10. The intended treatment of the Merger as a "tax-free
reorganization" for federal income tax purposes.
11. The regulatory approvals required to consummate the Merger, and
the prospects for receiving all such approvals.
The Board of Directors of A+ Network did not assign relative weights to the
factors or determine that any factor was of particular importance. Rather, the
Board of Directors viewed their position and recommendations as being based on
the totality of the information presented to and considered by them.
OPINION OF A+ NETWORK'S FINANCIAL ADVISOR
General
Prudential Securities is an internationally recognized investment banking
firm engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions and for other purposes. The A+ Network Board of
Directors has engaged Prudential Securities as A+ Network's financial advisor in
connection with the Offer, the Merger and related matters because Prudential
Securities has substantial experience in providing investment banking services
to companies in the paging industry.
Prudential Securities delivered to the A+ Network Board of Directors its
written opinion to the effect that, as of May 15, 1996 and based upon and
subject to certain matters stated therein, the consideration to be received by
holders of A+ Network Common Stock pursuant to the Merger Agreement and the
transactions contemplated thereby, including the Offer, was fair to such holders
from a financial point of view (the "Prudential Securities Opinion").
No limitations were imposed by A+ Network on Prudential Securities with
respect to the investigations made or procedures followed by Prudential
Securities in rendering its opinion. A copy of the Prudential Securities
Opinion, which sets forth the assumptions made, matters considered and
limitations on the review undertaken by Prudential Securities, is attached
hereto as Exhibit C and is incorporated herein by reference. The following
summary of the Prudential Securities Opinion is qualified in its entirety by
reference to the full text of the opinion attached hereto as Exhibit C.
The Prudential Securities Opinion is directed only to the fairness, from a
financial point of view, to the holders of A+ Network Common Stock of the total
consideration to be received by holders of A+ Network Common Stock pursuant to
the Merger Agreement. The Prudential Securities Opinion does not address any
other aspect of the Merger and does not constitute a recommendation to any A+
Network stockholder as to how such stockholder should vote at the A+ Network
Meeting. The consideration to be paid was determined through negotiations
between A+ Network and Metrocall and was approved by the A+ Network Board of
Directors.
In conducting its analysis and arriving at its opinion, Prudential
Securities reviewed such materials and considered such financial and other
factors as it deemed appropriate under the circumstances, including among other
things: (i) a draft of the Merger Agreement dated May 15, 1996; (ii) certain
historical financial, operating and other data that were publicly available or
furnished to Prudential Securities regarding A+ Network and Metrocall; (iii)
certain information, including financial analyses and projections, relating to
the business, cash flows, assets and prospects of A+ Network provided by the
management of A+ Network; (iv) certain information, including financial analyses
and projections, relating to the business, cash flows, assets and prospects of
Metrocall based on information provided by the management of Metrocall and
developed by Prudential Securities in conjunction with the management of A+
Network; (v) the pro forma combined financial impact of consummation of the
Merger on A+ Network and Metrocall; (vi) the trading history of the common stock
of each of A+ Network and Metrocall; (vii) publicly available financial,
operating and stock market data for companies engaged in businesses that
Prudential Securities deemed comparable to A+ Network and Metrocall or otherwise
relevant to its inquiry; (viii) the financial terms of certain other recent
transactions; and (ix) such other factors as Prudential Securities deemed
appropriate. Prudential Securities met with senior officers of A+ Network and
Metrocall to discuss their judgments with
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<PAGE> 45
respect to the prospects for their respective businesses generally, as well as
their estimates of future financial performance, and such other matters as
Prudential Securities believed relevant to its inquiry.
In rendering its opinion, Prudential Securities assumed and relied upon the
accuracy and completeness of all of the financial and other information reviewed
by it for purposes of its opinion and did not attempt independently to verify
any such information. Prudential Securities neither made nor obtained any
independent appraisals of the properties, facilities or other assets of A+
Network or Metrocall. With respect to the operating and financial projections
provided to Prudential Securities by the managements of A+ Network and
Metrocall, and those developed by Prudential Securities in conjunction with the
management of A+ Network, Prudential Securities assumed that they represented
each respective management's best currently available estimate as to the future
operating and financial performance of A+ Network and Metrocall, respectively.
Prudential Securities assumed that the transactions contemplated by the Merger
Agreement would be consummated on the basis of the terms and provisions of the
draft dated May 15, 1996 of the Merger Agreement. The Prudential Securities
Opinion is based upon economic, market and financial conditions as they existed
and could be evaluated as of the date of the Prudential Securities Opinion.
Summary of Analyses
The following is a summary of the material analyses performed by Prudential
Securities in connection with rendering the Prudential Securities Opinion. At a
meeting of the A+ Network Board of Directors on May 14-15, 1996, Prudential
Securities presented its analyses discussed below.
Analysis of Selected Comparable Publicly-Traded Companies. Prudential
Securities compared certain financial information for A+ Network with the
corresponding publicly available financial information of certain other
comparable companies.
Prudential Securities compared A+ Network with a group of seven paging
companies: American Paging, Arch Communications, Metrocall, MobileMedia, Mobile
Telecommunications Technologies ("Mtel"), Paging Network and ProNet
(collectively, the "Comparable Companies"). Prudential Securities compared
enterprise value (market capitalization plus net debt) ("Enterprise Value") as a
multiple of latest quarter annualized earnings before interest, taxes,
depreciation and amortization ("LQA EBITDA") for each Comparable Company,
adjusted for other assets and closed and pending acquisitions. The analysis of
LQA EBITDA multiples for the Comparable Companies yielded implied per share
equity values for A+ Network and implied exchange ratios resulting from the
application of A+ Network's LQA EBITDA to such multiples.
The analysis of the Comparable Companies yielded a range of multiples of
Enterprise Value to LQA EBITDA of 10.5x to 15.4x with a mean of 13.0x and a
median of 12.9x. Prudential Securities then calculated implied equity values per
share and implied exchange ratios by applying these multiples to A+ Network's
LQA EBITDA. Based on this analysis, Prudential Securities derived a range of
implied equity values per share of which the low was $8.81, the high was $16.23,
the mean was $12.59 and the median was $12.44. Prudential Securities compared
these implied equity values per share to the cash price of $21.10 per share to
be paid for approximately 40% of all the shares of A+ Network Common Stock.
Prudential Securities also calculated a range of implied exchange ratios,
assuming completion of the Offer and assuming a $19.894 per share value for
Metrocall Common Stock, of which the low was 0.443, the high was 0.816, the mean
was 0.633 and the median was 0.625, compared to the assumed Conversion Ratio of
1.061.
Prudential Securities also calculated implied per share equity values and
implied exchange ratios after applying a 30% premium to such values. The 30%
premium approximates the median premium offered in a survey of 324
publicly-announced merger and acquisition transactions in 1995 over the stock
price of the "seller" five business days prior to the initial announcement of
such transactions. After applying this premium, Prudential Securities derived
(i) a range of implied equity values per share of which the low was $11.45, the
high was $21.10, the mean was $16.37 and the median was $16.18, and (ii) a range
of implied exchange ratios of which the low was 0.575, the high was 1.061, the
mean was 0.823 and the median was 0.813.
Analysis of Selected Comparable Acquisition Transactions. Prudential
Securities reviewed the financial terms of 53 acquisition transactions, 16 of
which Prudential Securities determined to be relevant principally
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<PAGE> 46
due to the size of the transaction: A+ Communications/Network USA Paging, Arch
Communications/ Becker Beeper, Arch Communications/USA Mobile Communications,
Arch Communications/Westlink Paging, Metrocall/First Page, Metrocall/Page
America, Metrocall/Parkway Paging, Metrocall/Satellite Paging, Metrocall/Source
One Wireless, Mtel/United States Paging, MobileMedia Communications/Dial Page,
MobileMedia/Metromedia, MobileMedia Communications/Mobilecom, ProNet/Teletouch,
USA Mobile Communications/Premiere Paging and Westlink Paging/Telecomm Systems.
The analysis of such 16 selected transactions yielded a range of Enterprise
Value to last twelve months earnings before interest, taxes, depreciation and
amortization ("LTM EBITDA") multiples of which the low was 7.1x, the high was
18.6x, the mean was 12.7x and the median was 11.8x. Prudential Securities then
calculated implied equity values per share and implied exchange ratios by
applying A+ Network's LTM EBITDA to the Enterprise Value to LTM EBITDA multiples
derived from its analysis and assuming a $19.894 per share value for shares of
Metrocall Common Stock. This analysis yielded (i) a range of implied equity
values per share of which the low was $2.69, the high was $18.56, the mean was
$10.42 and the median was $9.18, and (ii) a range of implied exchange ratios of
which the low was 0.135, the high was 0.933, the mean was 0.524 and the median
was 0.461.
Discounted Cash Flow Analysis. Prudential Securities calculated a range of
implied equity values by using a discounted cash flow analysis, which involved
discounting each company's projected five-year stream of unlevered free cash
flows and the projected fiscal year 2000 terminal value, which, in turn, was
based on a range of multiples of projected fiscal year 2000 earnings before
interest, taxes, depreciation and amortization ("EBITDA"). Prudential Securities
then calculated ranges of implied equity values per share by dividing the
implied equity values by each company's respective fully-diluted shares
outstanding. Prudential Securities then calculated a range of exchange ratios
based on such implied equity values per share for Metrocall and A+ Network. In
conducting this analysis, Prudential Securities relied upon certain financial
projections provided by A+ Network and Metrocall and applied discount rates
ranging from 12% to 16% and multiples of projected fiscal year 2000 EBITDA
ranging from 9x to 11x.
Based on this analysis, Prudential Securities derived a range of (i)
implied equity values per share of A+ Network of which the low was $19.23 and
the high was $29.08, and (ii) implied exchange ratios of which the low was 0.690
and the high was 0.715.
Incremental Discounted Cash Flow Analysis. Prudential Securities
calculated a range of implied exchange ratios by means of an incremental
discounted cash flow analysis. Prudential Securities calculated Metrocall's
implied equity value before reflecting the Merger and calculated Metrocall's
implied equity value after reflecting the Merger. Prudential Securities
attributed the difference between Metrocall's pre-Merger implied equity value
and its post-Merger equity value to be A+ Network's implied equity value.
Prudential Securities then calculated a range of exchange ratios by dividing A+
Network's implied equity value per share by Metrocall's pre-Merger implied
equity value per share. In conducting this analysis, Prudential Securities
relied upon certain financial projections provided by A+ Network and applied
discount rates ranging from 12% to 16% and multiples of terminal EBITDA ranging
from 9x to 11x.
Based on this analysis, Prudential Securities derived a range of implied
exchange ratios of which the low was 0.736 and the high was 0.849.
Relative Contribution Analysis. Prudential Securities analyzed the
contributions of A+ Network to the ending units in service, net revenues and
EBITDA of the combined company, after giving effect to the Merger, and compared
such contributions to the unlevered market value of A+ Network relative to the
unlevered market value of the combined company, after giving effect to the
Merger. Prudential Securities calculated the unlevered market value of the
combined company by adding the unlevered market value of Metrocall (its then
current market value of its then-outstanding Common Stock, plus net debt) to the
unlevered market value of A+ Network (the aggregate consideration payable
pursuant to the Merger Agreement with respect to its then-outstanding Common
Stock, plus net debt). In conducting this analysis, Prudential Securities relied
upon latest quarter annualized and projected 1996 and 1997 financial data
provided by A+ Network.
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<PAGE> 47
This analysis indicated that, based on all three performance measures of
ending units in service, net revenues and EBITDA, A+ Network was accorded a
higher valuation as a percentage of the combined company's unlevered market
value (38.4%) than its contributions to the three performance measures across
the three different time periods (which ranged from 24.5% to 35.6%).
Variable Common Rights. For purposes of the Prudential Securities Opinion,
the VCRs were not assigned any value and Prudential Securities did not
incorporate the hypothetical value of the VCRs in any of its financial analyses
presented to the Board of Directors of A+ Network.
The summary set forth above does not purport to be a complete description
of the analyses conducted by Prudential Securities or of Prudential Securities'
presentations to the A+ Network Board of Directors. Prudential Securities'
analyses must be considered as a whole and selecting portions of its analyses
and the factors considered by Prudential Securities, without considering all
factors and analyses considered by Prudential Securities, could create an
incomplete view of the process underlying its opinion. Prudential Securities did
not assign relative weights to its analyses described above in preparing its
opinion. The preparation of a fairness opinion is a complex process that is not
purely mathematical and is not necessarily amenable to partial analysis or
summary description; rather, it involves complex considerations and judgments.
In performing its analyses, Prudential Securities made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of A+ Network and Metrocall.
Any estimates contained in the analyses performed by Prudential Securities are
not necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by Prudential Securities'
analyses. In addition, analyses relating to equity values do not purport to be
appraisals or to reflect the prices at which such equity may actually be sold.
Because such estimates are inherently subject to uncertainty, neither A+ Network
nor Prudential Securities nor any other person assumes responsibility for their
accuracy.
Fee and Other Information
Pursuant to an engagement letter dated April 1, 1996, A+ Network has agreed
to pay Prudential Securities, in cash upon consummation of the Merger, a
transaction fee (the "Transaction Fee") equal to 0.75% of the "Consideration",
plus 2.0% of that portion of the Consideration received by A+ Network
shareholders in excess of $22.00 per share that is payable in respect of the
transactions contemplated by the Merger Agreement. "Consideration" means (i) the
total value of all cash paid in connection with the Offer, upon consummation of
the purchase of A+ Network Common Stock from the Principal Shareholders
(pursuant to the Shareholders' Agreement) and at the Effective Time, (ii) the
total value of the shares of Metrocall Common Stock and VCRs exchanged in
connection with the Merger, plus (iii) the amount of indebtedness of A+ Network
outstanding at the Effective Time. The Transaction Fee is currently estimated to
be approximately $2.9 million. A+ Network has previously paid Prudential
Securities fees and progress payments of $550,000, such amounts to be credited
against the Transaction Fee payable to Prudential Securities. A+ Network has
agreed that in the event A+ Network receives any form of breakup fee,
termination fee or topping fee, it will pay Prudential Securities an amount
equal to 25.0% of any such payment actually received by A+ Network. By letter
dated June 1, 1996, Prudential Securities has agreed to share 20% of the unpaid
portion of the Transaction Fee (or of any fee payable in respect of a breakup
fee, termination fee or topping fee) with Bear, Stearns & Co. Inc. ("Bear
Stearns"), as co-advisor beginning as of June 1, 1996. In addition, A+ Network
has agreed to reimburse Prudential Securities and Bear Stearns for their
out-of-pocket expenses (including the fees and expenses of counsel) and to
indemnify Prudential Securities and Bear Stearns against certain claims,
liabilities and expenses, including certain liabilities under U.S. federal
securities laws.
Prudential Securities and Bear Stearns have, in the past, provided
financial advisory and financing services to A+ Network and have received fees
for the rendering of such services. In addition, in the ordinary course of
business, Prudential Securities and Bear Stearns may actively trade A+ Network
Common Stock and Metrocall Common Stock for their own respective accounts and
for the accounts of customers and, accordingly, may at any time hold long or
short positions in such securities and certain accounts of their
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<PAGE> 48
respective customers hold such securities. Prudential Securities also provides
equity research regarding Metrocall, and Prudential Securities and Bear Stearns
also provide equity research regarding A+ Network.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Board of Directors and senior management of A+
Network have interests in the transactions contemplated under the Merger
Agreement that may present them with certain potential conflicts of interest.
The Board of Directors of each of Metrocall and A+ Network was aware of these
potential conflicts at the time of its consideration of the Merger. A summary of
these potential conflicts of interest and certain agreements between Metrocall
and A+ Network and certain members of A+ Network's Board of Directors and senior
management is provided below.
Non-Competition Agreements. Pursuant to Nondisclosure/No Conflict
Agreements, each of Ray D. Russenberger and Elliott H. Singer have agreed,
effective as of the Effective Time, in exchange for a payment of $325,000 per
year for three years (and the extension of certain fringe benefit programs to
them), to refrain from competing in the business of (for Singer) one-way or
two-way paging and of (for Russenberger) the paging, voicemail, telemessaging,
or cellular operations of Metrocall, and to refrain from disclosing confidential
information about A+ Network and Metrocall. The obligation not to compete will
continue only for so long as Messrs. Russenberger and Singer serve as members of
the Board of Directors of the Surviving Corporation, and the obligation of
nondisclosure continues indefinitely. Pursuant to the Nondisclosure/No Conflict
Agreements, Messrs. Russenberger and Singer have agreed to resign voluntarily
under the terms of their current employment agreements with A+ Network,
effective upon the consummation of the Merger.
Employment Agreement. Pursuant to an Employment Agreement, Charles A.
Emling III, currently President and Chief Executive Officer of A+ Network, has
agreed, effective as of the Effective Time, to serve as President, Southeast
Region of the Surviving Corporation, with salary of $200,000 per year (and
customary employee benefits). The term of the Employment Agreement will begin at
the Effective Time and run for one year, subject to automatic annual extension
unless either party notifies the other that the contract should be terminated
and such notice is given at least 90 days before the anniversary of the
Effective Time. If Mr. Emling is terminated without "cause" (as defined in the
Employment Agreement) or resigns with "good reason" (as defined therein), he
will be paid his then current salary for a period of one year after such
termination. Mr. Emling has agreed to refrain from competing, directly or
indirectly, with the Surviving Corporation and its affiliates, while employed
and for one year thereafter, in the one-way and two-way paging and telemessaging
business in any "market area" (where "market areas" are generally locations in
which A+ Network or its predecessors have conducted business and those in which
the Surviving Corporation conducts business during the term of the Employment
Agreement). During employment and for a year after, Mr. Emling will not solicit
away employees or customers of the Surviving Corporation. The Employment
Agreement will replace Mr. Emling's current employment agreement with A+
Network.
A+ Options. Each outstanding option (an "A+ Network Option") to purchase
A+ Network Common Stock granted pursuant to A+ Network's 1987 Stock Incentive
Plan, 1992 Key Employee Incentive Stock Plan, 1992 Non-Qualified Stock Option
Plan for Non-Employee Directors or the 1992 Employee Stock Purchase Plan
(collectively, the "A+ Network Option Plans") and certain options granted to a
former employee that has not or have not vested prior to the Effective Time will
become fully exercisable and vested as of the Effective Time of the Merger. Each
A+ Network Option that is not an "incentive stock option" under Section 422 of
the Code, shall, effective as of the Effective Time, at the option of the holder
thereof, either (i) be converted automatically into an option to purchase such
number of Metrocall Securities equal to the number of Shares subject to such A+
Network Option immediately prior to the Effective Time multiplied by the
Conversion Ratio, with the exercise price adjusted accordingly, but otherwise on
the same terms and conditions as were applicable under any applicable A+ Network
Option Plan and the underlying stock option agreement, or (ii) up to a maximum
of 40% of the Shares subject to A+ Network Options held by each option holder
(which percentage will be determined by such holder) shall be cancelled and the
holder shall be entitled to receive with respect to each such Share, a cash
payment equal to the amount per Share paid upon purchase of Shares pursuant to
the Offer less the exercise price relating to such Shares, with the remaining A+
Network Options converted as described pursuant to clause (i). A+ Network
Options that are incentive
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<PAGE> 49
stock options will be adjusted in accordance with Section 424(a) of the Code.
The Surviving Corporation will notify option holders regarding their rights
under A+ Network Option Plans as soon as practicable after the Effective Time.
Currently exercisable options may be exercised and the Shares received thereby
tendered into the Offer or be subject to exchange in the Merger.
The following table sets forth, as of May 16, 1996, with respect to the
directors and executive officers of A+ Network, (i) the number of shares of
Metrocall Common Stock subject to A+ Network Options converted automatically
into options to purchase Metrocall Securities that will be held by such officer
(assuming that no A+ Network Options are cashed out and assuming a Conversion
Ratio of 1.17877) and (ii) the average exercise price per share of Metrocall
Common Stock:
<TABLE>
<CAPTION>
SHARES OF METROCALL COMMON STOCK AVERAGE EXERCISE
NAME SUBJECT TO METROCALL ASSUMED OPTIONS PRICE PER SHARE
- ------------------------------------------------ ------------------------------------- -----------------
<S> <C> <C>
Elliott H. Singer............................... 235,754 $ 11.83
Charles A. Emling III........................... 29,469 $ 9.76
Randy K. Schultz................................ 58,939 $ 10.26
Charles R. Poole................................ 29,469 $ 9.76
Irby C. Simpkins, Jr. .......................... 3,660 $ 11.84
Brownlee O. Currey, Jr. ........................ 3,660 $ 11.84
Neil J. Weisman................................. 2,440 $ 10.88
Harvey N. Weiss................................. 3,660 $ 11.84
</TABLE>
SHAREHOLDERS' AGREEMENT
Contemporaneously with the Merger Agreement, Metrocall entered into a
Shareholders' Agreement with certain shareholders of A+ Network: Brownlee O.
Currey, Jr., Charles A. Emling III, Ray D. Russenberger, Irby C. Simpkins, Jr.,
Elliott H. Singer, Summit Investors II, L.P., and Summit Ventures III, L.P. (the
"Principal Shareholders"). The Principal Shareholders each granted Metrocall
certain rights with respect to the Shares owned by them (the "Owned Shares").
The Owned Shares subject to the Shareholders' Agreement aggregate 5,525,543
Shares representing approximately 53.8% of the Shares outstanding on the date of
the Merger Agreement. The relevant terms of the Shareholders' Agreement are as
follows.
Sale of Shares. Pursuant to the Shareholders' Agreement, each of the
Principal Shareholders sold to Metrocall upon completion of the Offer a number
of Shares equal to 40% of each of their Owned Shares (the "Cash Purchase
Shares") for a cash purchase price of $21.10 per Share. The Cash Purchase Shares
constituted 2,210,217 Shares or approximately 21.5% of the outstanding Shares as
of May 16, 1996.
Voting Agreement and Proxy. Pursuant to the Shareholders' Agreement, each
Principal Shareholder agreed during the term of the Shareholders' Agreement to
vote in favor of the transactions contemplated by the Merger Agreement and
against (i) any extraordinary corporate transaction, such as a merger, rights
offering, reorganization, recapitalization or liquidation involving A+ Network
or any of its subsidiaries, or (ii) any sale or transfer of a material amount of
assets of A+ Network or any of its subsidiaries or the issuance of any
securities of A+ Network or any subsidiary. The Shareholders' Agreement also
appointed Metrocall or its officers as each Principal Shareholder's proxy during
the Option Period (defined below) to vote all Owned Shares (other than Shares
purchased by Metrocall) as specified above. The proxy is exercisable only during
the Option Period.
Scenario I Option. Pursuant to the Shareholders' Agreement, each Principal
Shareholder granted Metrocall an irrevocable option (the "Scenario I Option") to
purchase all, but not less than all, of the Owned Shares (the "Scenario I Option
Shares") other than the Cash Purchase Shares previously purchased by Metrocall
and certain Owned Shares of Ray D. Russenberger which are subject to previous
options in favor of certain employees of A+ Network (the "RR Option Shares").
The Scenario I Option may be exercised by Metrocall following satisfaction
of certain conditions (defined below) for a period commencing upon the later to
occur of (i) 61 days after Metrocall has delivered evidence of financing
enabling A+ Network to finance an offer to repurchase A+ Network's 11 7/8%
Subordinated Notes in accordance with the terms of the change in control
provisions of the indenture governing such notes, and (ii) the receipt by
Metrocall of an FCC order approving the license transfer resulting from the
Merger, and
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ending on the earlier of six months after the closing of the purchase by
Metrocall of the Cash Purchase Shares or the termination of Shareholders'
Agreement in accordance with its terms (the "Option Period"). The exercise of
the Scenario I Option is conditioned on the approval of the Merger Agreement by
the shareholders of Metrocall and the absence of any material breach by
Metrocall of its obligations and agreements in the Merger Agreement.
The consideration to be paid to each Principal Shareholder upon exercise by
Metrocall of the Scenario I Option will equal: (i) such number of Metrocall
Shares equal to the Conversion Ratio as of the date of the closing of the
Scenario I Option, multiplied by the number of Scenario I Option Shares owned by
such shareholder, (ii) a number of VCRs to become effective upon the Effective
Time, in an amount equal to the number of Metrocall Shares to be received
pursuant to clause (i), plus cash, if any, for fractional Metrocall Securities
calculated pursuant to the formula in Section 2.3(f) of the Merger Agreement.
The consideration for the Scenario I Option Shares is subject to upward
adjustment such that Metrocall will pay each Principal Shareholder such
additional Metrocall Securities, together with cash for fractional Shares and
VCRs, as are necessary to provide each Principal Shareholder the same Merger
consideration per Share as all shareholders of A+ Network receive in the Merger.
The Shareholder's Agreement also granted Metrocall certain other rights
that would have applied only if the Offer had not been consummated (the
"Scenario II Option").
Other Provisions. The Shareholders' Agreement contains certain
representations and warranties, and restricts the Principal Shareholders'
ability to transfer or encumber the Owned Shares, including tendering into the
Offer or any other tender offer. The Shareholders' Agreement also provides for a
"shelf" registration of any Metrocall Securities received by the Principal
Shareholders pursuant to the Shareholders' Agreement that are not otherwise
registered in connection with the Merger.
Termination. The Shareholders' Agreement shall terminate on the earliest
of (i) the expiration of the Option Period, (ii) the purchase by Metrocall of
all Owned Shares (other than the RR Option Shares) pursuant to Shareholders'
Agreement, (iii) the agreement of the parties to the Shareholders' Agreement to
terminate the Shareholders' Agreement, (iv) consummation of the Merger, and (v)
termination of the Merger Agreement pursuant to its terms, and in any event the
Shareholders' Agreement shall terminate on March 16, 1997, except as to certain
provisions on expenses, fees, registration rights and indemnification which
shall survive termination of the Shareholders' Agreement.
OTHER AGREEMENTS
Metrocall Stockholders Voting Agreement. In connection with the execution
of the Merger Agreement, certain stockholders of Metrocall owning in the
aggregate approximately 34.5% of the outstanding common stock of Metrocall
executed an agreement (the "Metrocall Stockholders Voting Agreement") with A+
Network pursuant to which each such stockholder appointed A+ Network or its
officers, his or her proxy to vote all the Metrocall Shares then beneficially
owned by such stockholder (i) in favor of the transactions contemplated by the
Merger Agreement; and (ii) against any extraordinary corporate transaction, such
as a merger, rights offering, reorganization, recapitalization or liquidation
involving Metrocall or any of its subsidiaries, or the issuance of any
securities of Metrocall or any subsidiary, in each case, to the extent
prohibited by the Merger Agreement.
Agreement to Vote. In connection with the execution of the Merger
Agreement, Elliott H. Singer and Ray D. Russenberger, shareholders of A+ Network
who are expected to become stockholders of the Surviving Corporation at the
Effective Time, executed an agreement with Metrocall pursuant to which they are
obligated, provided that they are directors of the Surviving Corporation at the
time of election of directors at the first annual meeting of the Surviving
Corporation occurring after the date of the voting agreement, to vote all shares
of common stock of the Surviving Corporation they own at such time in favor of
election of Suzanne S. Brock as a director.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain Federal income tax consequences
of the Merger to holders of A+ Network Common Stock, A+ Network and Metrocall.
The discussion does not address all aspects of Federal income taxation that may
be relevant to particular A+ Network stockholders and may not be applicable to
stockholders who are not citizens or residents of the United States, or who will
acquire their Metrocall Common Stock pursuant to the exercise or termination of
employee stock options or otherwise as compensation, nor does the discussion
address the effect of any applicable foreign, state, local or other tax laws.
This discussion assumes that A+ Network stockholders hold their A+ Network
Common Stock as capital assets within the meaning of Section 1221 of the Code.
EACH A+ NETWORK STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
The Merger Agreement provides that it is the intention of the parties that
the Merger will qualify as a tax-free reorganization under Section 368(a)(1)(A)
of the Code. However, no opinion of counsel or IRS ruling is being obtained
concerning the tax effects of the Merger. Except where otherwise indicated, the
following summary assumes that the Merger will qualify as a tax-free
reorganization.
If the Merger is a tax-free reorganization, a shareholder will receive
Metrocall Shares without recognition of taxable gain or loss, but will be
potentially taxable on the receipt of VCRs and cash in lieu of fractional
Metrocall Securities. VCRs do not qualify as consideration that may be received
tax free in the Merger. A shareholder who owns Shares at the time of the Merger
will recognize gain to the extent of the lesser of (i) the "shareholder's gain"
(as defined below) and (ii) the fair market value of the VCRs and the amount of
any cash received in lieu of fractional VCRs (the VCRs and cash in lieu of
fractional VCRs are referred to herein as the "taxable merger consideration").
The "shareholder's gain" is the excess, if any, of (x) the fair market value of
the Metrocall Shares and the taxable merger consideration, over (y) the
shareholder's basis in his or her Shares exchanged in the Merger.
A holder of Shares who receives cash in lieu of a fractional Metrocall
Shares in the Merger will be treated as if the fractional share had been
distributed to such holder and then redeemed by the Surviving Corporation in
exchange for the cash distributed in lieu of the fractional Metrocall Shares. As
a result, such holder will generally recognize capital gain or loss with respect
to the deemed redemption of such fractional Metrocall Shares.
A shareholder's basis in the Metrocall Shares received in the Merger will
be equal to the shareholder's basis in the Shares exchanged in the Merger,
increased by the amount of any gain recognized in the Merger and reduced by the
amount of taxable merger consideration.
A shareholder's holding period for the Metrocall Shares received in the
Merger will include the shareholder's holding period for the Shares. See the
discussion below, however, concerning delay in beginning the holding period for
Metrocall Shares under certain circumstances with respect to the simultaneous
holding of VCRs.
Except in the case of a shareholder who owns more than a minimal interest
in Metrocall after the Merger, any gain from the receipt of taxable merger
consideration will be capital gain, and will be long-term capital gain if the
holding period for such Shares is greater than one year. See Rev. Rul. 76-385,
1976-2 C.B. 92. Subject to the same exception, the gain or loss from receipt of
cash in lieu of a fractional Metrocall Share will be capital gain or loss, and
will be long-term capital gain or loss if the holding period for the fractional
Metrocall Share, determined as described above, is greater than one year. If a
shareholder holds more than a minimal interest in Metrocall after the Merger,
the receipt of taxable merger consideration and cash in lieu of a fractional
Metrocall share may be dividend income or proceeds from the sale of a capital
asset depending on the applicability of Code Section 302. Shareholders are urged
to consult their tax advisors to determine whether they should be considered as
holding a minimal interest for this purpose and, if not, the proper
characterization of cash and VCRs received in the Merger.
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Tax Consequences of VCRs; Consequences of Straddle Treatment
VCRs do not qualify as consideration that may be received tax free in the
Merger. VCRs will be taken into account as taxable merger consideration in the
computation of gain and of the basis of Metrocall Shares, in the manner
described above under "Consequences of the Merger." VCRs are treated for federal
income tax purposes as cash settlement options to sell Metrocall stock. See
Revenue Ruling 88-31, 1988-1 C.B. 302. Gain or loss from the disposition, lapse,
or receipt of payments with respect to the VCRs will be capital gain or loss,
measured by the difference between the basis of the VCRs and the amount received
(if any) in the disposition, lapse, or payment; the recognition of loss may be
deferred under the "straddle" rules discussed below. The gain or loss will be
long-term capital gain or loss if the holding period for the VCR is greater than
one year. A shareholder's basis in a VCR will be its fair market value upon
issuance.
A shareholder who owns Metrocall Shares and VCRs will be treated as owning
a "straddle," as defined in section 1092(c)(1) of the Code, for each pair of one
Metrocall Share and one VCR (securities within such a pair are referred to
herein as "offsetting" securities). Under the rules applicable to straddles:
-- Any loss from one offsetting security may not be taken into account
except to the extent that the loss exceeds the unrecognized gain (if
any) from the other offsetting security as of the last day of the
taxable year;
-- Any loss so deferred may be carried into the succeeding taxable year,
and either taken into account or deferred under the same rules;
-- If the shareholder has held Shares for one year or less as of the date
of the Merger, the holding period for the Metrocall Shares received in
the Merger will not begin until the shareholder no longer holds
offsetting VCRs. The holding period for a VCR will not begin until the
shareholder no longer holds offsetting Metrocall Shares.
For example, if a shareholder has a loss from the disposition or expiration
of VCRs for which the holding period is one year or less, the loss will be a
short term capital loss that will be deferred until the following year, to the
extent of the shareholder's unrealized gain as of the last day of the year in
the corresponding number of Metrocall Shares held on such day. The loss will
again be deferred in succeeding years to the extent of the shareholder's
unrealized gain as of the last day of each succeeding year in the corresponding
number of Metrocall Shares held on such day. Gain on VCRs or Metrocall Shares
will not be deferred under the straddle rules.
Consequences if No Tax-Free Reorganization
Metrocall and A+ Network do not intend to seek an opinion of counsel or a
ruling from the Internal Revenue Service concerning the federal income tax
consequences of the Merger. No assurance can be given that the IRS will not
challenge the qualification of the Merger as a tax-free reorganization. If such
a challenge were sustained by a court, each shareholder at the time of the
Merger would recognize capital gain or loss measured by the difference between
the fair market value of all the consideration received in the Merger and the
shareholder's basis in the Shares exchanged in the Merger. Each shareholder's
holding period in any Metrocall Share or VCR received in the Merger would begin
on the later of the date of the Merger or the date on which the shareholder no
longer holds an offsetting security. The basis of the Metrocall Shares and VCRs
received in the Merger would be their respective fair market values on the date
of the Merger.
Any acquisition of Shares that does not occur by reason of the Merger,
including any acquisition from a Principal Shareholder pursuant to the exercise
of Metrocall's options to purchase Shares in certain circumstances, will be a
fully taxable disposition to the seller, even if the seller receives Metrocall
Shares in the acquisition.
ACCOUNTING TREATMENT
The Merger will be accounted for by Metrocall under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended. Under this method
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of accounting, the purchase price will be allocated to assets acquired and
liabilities assumed based on their estimated fair values at the Effective Time.
Income of the Surviving Corporation will not include income (or loss) of A+
Network prior to the Effective Time of the Merger.
GOVERNMENT AND REGULATORY APPROVALS
Antitrust. Under the HSR Act and the rules promulgated thereunder by the
FTC, certain acquisition transactions may not be consummated unless certain
information has been furnished to the FTC and the Antitrust Division and certain
waiting period requirements have been satisfied. A+ Network and Metrocall filed
on June 3, 1996 and May 24, 1996, respectively, with the Antitrust Division and
the FTC a Premerger Notification and Report Form, in connection with the Merger.
The waiting period for the Offer expired, and the waiting period for the Merger
terminated, on June 8, 1996.
FCC Approval. The construction, modification, operation, ownership and
acquisition of paging systems are subject to regulation by the FCC under the
Communications Act. The FCC has promulgated rules and regulations governing,
among other things, applications to construct and operate paging systems within
specified geographic areas, applications to transfer control of or assign paging
licenses, and technical and operational standards for the operation of paging
systems (such as construction deadlines, maximum power and antenna height, and
coordination with adjacent co-channel users). The present regulatory structure
governing paging companies is subject to revision in light of changes to the
Communications Act and pending FCC proposals that, if adopted, may increase
competition for subscribers to wireless communication services, increase
competition for access to certain underlying services and facilities (such as
telephone numbers) necessary for A+ Network and Metrocall to conduct their
business, and impose competitive bidding rules for mutually exclusive paging
applications.
The respective operating subsidiaries of A+ Network and Metrocall are
licensed by the FCC to provide paging services in the respective geographic
areas in which they have operations. The Communications Act requires prior FCC
approval for the transfer of actual or legal control of companies holding FCC
authorizations. The Communications Act requires that the FCC find that the
proposed acquisition or transfer would serve the public interest, convenience
and necessity as a prerequisite to granting its approval. The FCC may also
require that Metrocall or a transferee demonstrate that it possesses the
requisite legal and technical qualifications to operate the licensed facilities
in order for the transfer to be approved.
The Merger Agreement and the Shareholders' Agreement provide that (pending
completion of the Merger) Metrocall shall not assume, either directly or
indirectly, de jure control (50% or more of the votes) or de facto control
(control in practical effect) of A+ Network without the prior consent of the FCC
and any appropriate state authority. The prior approval of the FCC must be
obtained to consummate the Merger. Metrocall has filed applications seeking FCC
approval to take control of A+ Network. There can be no assurance that the FCC
will grant such approval or that, if granted, such FCC approval will be on a
timely basis or on terms and conditions acceptable to Metrocall, or that any
such approval will not be subject to administrative or judicial review. In the
event of a challenge by an adverse party, the termination date established in
the Merger Agreement may not allow time for regulatory approvals to be received,
or if received for the approvals to become final.
Under the Communications Act, the amount of capital stock that aliens or
their representatives may own or vote in an FCC-licensed company is generally
limited to 20% in the parent of such a company. Metrocall believes that it and
A+ Network currently meet this requirement. Should this restriction ever be
found to be violated, the FCC may revoke or refuse to grant or renew a license,
or refuse to approve the transfer of control of such license.
State Regulatory Approval. In addition to regulation by the FCC, certain
states impose various regulations on the common carrier paging operations of
Metrocall and A+ Network. Historically, regulation in some states required
Metrocall and A+ Network to obtain certain certificates of public convenience
and necessity before constructing, modifying or expanding paging facilities or
offering or abandoning paging services. Rates, terms and conditions under which
Metrocall or A+ Network provided service, or any changes to those rates, have
also been subject to state regulation. However, under the federal Budget
Reconciliation
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Act of 1993 (the "Budget Act"), as a general rule states are preempted from
exercising rate and entry regulation of carriers such as Metrocall and A+
Network which are deemed to be providing Commercial Mobile Radio Service
("CMRS"). States may, however, petition the FCC for authority to continue to
regulate CMRS rates, which petitions are to be evaluated by the FCC applying the
statutory criteria set forth in the Budget Act. In May 1995, the FCC rejected
such petitions by New York, Louisiana, Hawaii, Arizona, Ohio, California and
Connecticut. To date, the FCC has not granted any such petitions.
Some states regulating paging services have required the prior approval of
transactions that result in the assignment or transfer of control of a
certificated paging carrier, notwithstanding federal preemption. It is possible
that one or more states may continue to assert a right to review and approve the
Merger. In such event, Metrocall may choose to challenge such assertion, seek to
obtain such approval or take such other or further actions as it deems necessary
or advisable at the time. If any state were to claim a right to approve the
Merger, there is no assurance that any challenge to override or overturn that
claim would be successful or that any approval, if sought, would be granted or,
if granted, would be on a timely basis or on terms and conditions acceptable to
Metrocall.
RESTRICTIONS ON RESALES BY AFFILIATES
The Metrocall Common Stock issuable in the Merger has been registered under
the Securities Act, but this registration does not cover resales by stockholders
of A+ Network who are deemed to control or be under common control with A+
Network ("Affiliates"). Affiliates of A+ Network may not sell their shares of
Metrocall Common Stock acquired in the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares, or in
compliance with the resale provisions of Rule 145 promulgated under the
Securities Act or another applicable exemption from the registration
requirements of the Securities Act.
THE MERGER AGREEMENT AND TERMS OF THE MERGER
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is included as Exhibit A and is incorporated herein
by reference. This summary does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement. All stockholders are urged to
read the Merger Agreement in its entirety. Capitalized terms used herein and not
otherwise defined have the same meaning as in the Merger Agreement.
THE OFFER
The Merger Agreement provided for the commencement of a tender offer by
Metrocall for 2,140,526 Shares. The Offer commenced on May 22, 1996 and expired
on June 24, 1996 at 12:00 midnight, New York City time. Shareholders of A+
Network tendered approximately 5,362,482 Shares pursuant to the Offer and
Metrocall purchased 2,140,526 of such Shares pursuant to the Offer. In addition,
Metrocall purchased 2,210,217 Shares from the Principal Shareholders on June 25,
1996 pursuant to the Shareholders Agreement.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that, subject to the terms and conditions
thereof and the satisfaction or waiver of the other conditions to the Merger,
including FCC approval, and in accordance with the Delaware Law and the
Tennessee Law, A+ Network will be merged with and into Metrocall, the separate
existence of A+ Network will cease, and Metrocall will continue its existence as
the surviving corporation (the "Surviving Corporation"). The Effective Time of
the Merger will the date and time of the later of the filing of the articles of
merger, certificates of merger or other appropriate documents with (i) the
Secretary of State of the State of Delaware or (ii) the Secretary of State of
the State of Tennessee.
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MANNER AND BASIS OF CONVERTING SHARES
In the Merger, each outstanding Share (other than Shares held by Metrocall,
which will be cancelled) will be converted into the right to receive: (i) that
number of Metrocall Shares equal to the Conversion Ratio, (ii) the same number
of VCRs, plus (iii) cash in respect of fractional Metrocall Securities, if any.
The Conversion Ratio shall be determined by dividing $21.10 by the Average
Metrocall Share Price, except that if the Average Metrocall Share Price is
greater than $21.88 or less than $17.90, then the Conversion Ratio shall be
.96435 or 1.17877, respectively.
The Surviving Corporation will not issue fractional Metrocall Securities.
In lieu of any fractional Metrocall Securities, the holder of a Share converted
in the Merger will be entitled to receive a cash payment determined by
multiplying (i) $21.10 by (ii) the fractional Metrocall Security to which such
holder would be entitled.
The Merger Agreement provides that the Certificate of Incorporation and
By-Laws of Metrocall will become the Certificate of Incorporation and By-Laws of
the Surviving Corporation. In addition, under the Merger Agreement the directors
of Metrocall immediately prior to the Effective Time, which shall include
Elliott H. Singer and Ray D. Russenberger (who are currently directors of A+
Network), will become the directors of the Surviving Corporation following the
Merger as set forth in Annex B to the Merger Agreement, and the officers of
Metrocall immediately prior to the Effective Time will become the officers of
the Surviving Corporation following the Merger, in each case until their
successors are elected and qualified. Two of the current directors of Metrocall,
Steven D. Jacoby and Vincent D. Kelly, will resign as directors immediately
prior to the Effective Time.
TREATMENT OF STOCK OPTIONS
Each outstanding option (an "A+ Network Option") to purchase A+ Network
Common Stock granted pursuant to A+ Network's 1987 Stock Incentive Plan, 1992
Key Employee Incentive Stock Plan, 1992 Non-Qualified Stock Option Plan for
Non-Employee Directors or the 1992 Employee Stock Purchase Plan (collectively,
the "A+ Network Option Plans") and certain options granted to a former employee
that has not or have not vested prior to the Effective Time will become fully
exercisable and vested as of the Effective Time of the Merger. Each A+ Network
Option that is not an "incentive stock option" under Section 422 of the Code,
shall, at the option of the holder thereof, either (i) be converted
automatically into an option to purchase such number of Metrocall Securities
equal to the number of Shares subject to such A+ Network Option immediately
prior to the Effective Time multiplied by the Conversion Ratio, with the
exercise price adjusted accordingly, but otherwise on the same terms and
conditions as were applicable under any applicable A+ Network Option Plan and
the underlying stock option agreement, or (ii) up to a maximum of 40% of the
Shares subject to A+ Network Options held by each option holder (which
percentage will be determined by such holder) shall be cancelled and the holder
shall be entitled to receive with respect to each such Share, a cash payment
equal to the amount per Share paid upon purchase of Shares pursuant to the Offer
less the exercise price relating to such Shares, with the remaining A+ Network
Options converted as described pursuant to clause (i). A+ Network Options that
are incentive stock options will be adjusted in accordance with Section 424(a)
of the Code. The Surviving Corporation will notify option holders regarding
their rights under A+ Network Option Plans as soon as practicable after the
Effective Time. Currently exercisable options may be exercised and the Shares
received thereby exchanged in the Merger.
EMPLOYEE ARRANGEMENTS
The Merger Agreement provides that for a period of not less than three
years following the Effective Time of the Merger, Metrocall will use its best
efforts to maintain a Southeast/ Southwest regional operations center in
Pensacola, Florida, but such center may be closed in the event of a sale or
merger of Metrocall after the Effective Time. The Merger Agreement also provides
that A+ Network's current executive officers, managers, salespeople and staff
will continue to participate in A+ Network's benefit plans and employee
agreements as in effect on the date of the Merger Agreement until the Effective
Time. In addition, the Merger Agreement contains certain provisions with respect
to the integration, after the Effective Time, of A+
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Network's executive officers, managers, salespeople and staff into the
operations of Metrocall, including provisions for such employees' compensation,
bonuses, benefits and severance.
INDEMNIFICATION
The Merger Agreement provides that Metrocall shall, or shall cause the
Surviving Corporation to, from and after the Effective Time, to the fullest
extent permitted by the Delaware Law, A+ Network's Certificate of Incorporation,
Bylaws or indemnification agreements in effect on the date of the Merger
Agreement, including provisions relating to advancement of expenses incurred in
the defense of any action or suit, indemnify, defend and hold harmless all
persons who are on the date of the Merger Agreement, or have been at any time
prior to the date of the Merger Agreement, or who become prior to the Effective
Time, an officer, director, employee or agent of A+ Network or its subsidiaries,
or who are or were serving at the request of A+ Network or any of its
subsidiaries as a director, officer, employee or agent of another corporation,
partnership, trust, limited liability company or other business enterprise
(each, an "Indemnified Party") against all losses, claims, damages, liabilities,
costs and expenses, judgments, fines, losses and amounts paid in settlement in
connection with any actual or threatened claim, proceedings or investigations
that are based upon or arise out of such person's service as a director,
officer, employee or agent of A+ Network or any subsidiaries or the Merger
Agreement or any transactions contemplated thereby.
The Merger Agreement also provides for the preservation of all rights to
indemnification, advancement of expenses, exculpation, limitation of liability
and any and all similar rights now existing in favor of the employees, agents,
directors or officers of A+ Network and its subsidiaries under their respective
charters or by-laws, under indemnification agreements or otherwise, for six
years after the Effective Time, and for the Surviving Corporation to use all
reasonable efforts to maintain directors' and officers' liability insurance
maintained by A+ Network (or substantially similar coverage) for six years after
the Effective Time.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary representations and
warranties of the parties. A+ Network has represented that its Board of
Directors has (a) duly adopted and approved the Offer, the Merger Agreement and
the Merger, (b) determined that each of the Offer and the Merger is fair to and
in the best interests of its shareholders, (c) resolved to recommend acceptance
of the Offer by those shareholders of A+ Network who wish to receive cash for a
portion of their Shares, and (d) resolved to recommend approval of the Merger by
its shareholders. Metrocall has represented that its Board of Directors has
taken comparable actions as set forth in clauses (a), (b) and (d) above and has
represented that it has sufficient funds available to purchase Shares pursuant
to the Offer and to pay all fees and expenses related to the transactions
contemplated by the Merger Agreement and that, as of the date of Merger
Agreement, neither Metrocall nor any of its affiliates beneficially owned any
Shares. Each of A+ Network and Metrocall has made certain other representations
and warranties to the other regarding, among other things: (i) their respective
organization, subsidiaries and capitalization; (ii) their respective authority
to enter into and perform their respective obligations under the Merger
Agreement; (iii) the compliance of the transactions contemplated by the Merger
Agreement with their respective Certificates of Incorporation and By-laws,
certain agreements and applicable laws; (iv) the accuracy and completeness of
their respective Exchange Act filings with the Commission, including for A+
Network the Schedule 14D-9 filed in connection with the Offer and for Metrocall
the Schedule 14D-1 filed in connection with the Offer, as well as this Joint
Proxy Statement/Prospectus, (v) the absence of undisclosed liabilities, (vi) the
absence of material adverse changes in the condition, results of operations,
business and assets of each and their respective subsidiaries, taken as a whole,
since December 31, 1995; (vii) litigation; (viii) transactions with their
respective affiliates; (ix) environmental matters; (x) employee benefit plans
and contracts; (xi) taxes; and (xii) brokers' fees. The representations and
warranties contained in the Merger Agreement do not survive beyond the Effective
Time.
CONDUCT OF BUSINESS PENDING THE MERGER
Conduct of Business by A+ Network. The Merger Agreement provides that,
prior to the Effective Time, except (x) as otherwise contemplated therein, (y)
as agreed in writing by Metrocall or (z) for the
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consummation of pending acquisitions disclosed by A+ Network to Metrocall, (i)
the business of A+ Network and its subsidiaries shall be conducted only in, and
A+ Network and its subsidiaries will not take any action except in, the ordinary
and usual course of business and consistent with past practice, and A+ Network
and its subsidiaries will use all reasonable efforts, consistent with past
practice, to maintain and preserve their respective business organizations,
assets, employees and advantageous business relationships; (ii) A+ Network will
not, directly or indirectly, (A) sell, transfer or pledge or agree to sell,
transfer or pledge any Shares, preferred stock or capital stock of any of its
subsidiaries beneficially owned by it, or (B) split, combine or reclassify the
outstanding Shares, or any outstanding capital stock of any of the subsidiaries
of A+ Network; (iii) neither A+ Network nor any of its subsidiaries will (A)
amend its certificate of incorporation or bylaws, (B) issue, grant, sell,
pledge, dispose of or encumber any shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any shares of capital stock of any class of A+ Network or its
subsidiaries or any other ownership interests (including but not limited to
stock appreciation rights or phantom stock), other than Shares reserved for
issuance on the date of the Merger Agreement pursuant to the exercise of A+
Network Options outstanding on the date of the Merger Agreement, and options
automatically granted pursuant to the 1992 Non-Qualified Stock Option Plan for
Non-Employee Directors, (C) with the exception of existing liens in favor of A+
Network's bank lender, transfer, lease, license, sell, mortgage, pledge, dispose
of, or encumber any material assets other than in the ordinary and usual course
of business and consistent with past practice, (D) modify the terms of any
indebtedness or incur any indebtedness other than borrowings under existing
agreements, (E) incur any material liability, other than borrowings permitted by
clause (D) above of money under existing agreements or incurrence of other
liabilities in the ordinary and usual course of business and consistent with
past practice, or (F) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock; (iv) A+ Network will not declare, set aside
or pay any dividend or other distribution payable in cash, stock or property
with respect to its capital stock; (v) neither A+ Network nor any of its
subsidiaries shall modify, amend or terminate certain specified agreements or
waive, release or assign any material rights or claims, except in the ordinary
course of business and consistent with past practice; (vi) each of A+ Network
and its subsidiaries shall maintain in full force and effect such types and
amounts of insurance issued by insurers of recognized responsibility insuring it
with respect to its respective business and properties, in such amount and
against such losses and risk as is usually carried by persons engaged in the
same or similar business; (vii) neither A+ Network nor any of its subsidiaries
will (A) except for or on behalf of subsidiaries, assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person, (B) make any loans, advances
or capital contributions to, or investments in, any other person (other than to
subsidiaries of A+ Network pursuant to A+ Network's written obligations on the
date of the Merger Agreement), other than in the ordinary course of business and
consistent with past practice, or (C) enter into any commitment or transaction
with respect to any of the foregoing (including, but not limited to, any
borrowing, capital expenditure or purchase, sale or lease of assets); (viii)
neither A+ Network nor any of its subsidiaries will change any of the accounting
methods used by it unless required by generally accepted accounting principles;
(ix) neither A+ Network nor any of its subsidiaries will adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of A+ Network or any of
its subsidiaries (other than the Merger and transactions permitted by the Merger
Agreement); (x) neither A+ Network nor any of its subsidiaries will take, or
agree to take, any action that would result in any of the conditions set forth
in the Merger Agreement or to the Offer not being satisfied, unless A+ Network's
directors make a Fiduciary Determination (as defined below); (xi) neither A+
Network nor any of its subsidiaries will acquire (by merger, consolidation, or
acquisition of stock or assets or otherwise) any corporation, partnership or
other business organization or division of any such entity; provided, that A+
Network may engage in such a transaction if (A) A+ Network notifies Metrocall
prior to entering into any such transaction, (B) the purchase price for each
such transaction is payable only in cash and such price does not exceed
$5,000,000, and (C) the purchase price for each such transaction does not exceed
eight times annualized EBITDA for the most recently ended calendar quarter;
(xii) neither A+ Network nor any of its subsidiaries will increase the
compensation or fringe benefits of any of its directors, officers or employees,
except for increases in salary or wages of employees of A+ Network or its
subsidiaries who are not officers or directors of A+ Network in the ordinary
course of business and consistent with past practice and may not establish or
alter other employee benefit plans or employee agreements; (xiii) neither A+
Network nor any of
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its subsidiaries will make any material tax election or settle or compromise any
material federal, state, local or foreign tax liability except for settlements
that would not be material to A+ Network or do not otherwise materially impair
the business of A+ Network; (xiv) neither A+ Network nor any of its subsidiaries
will settle or compromise any pending or threatened suit, action or claim that
is material to the transactions contemplated by the Merger Agreement; (xv)
neither A+ Network nor any of its subsidiaries will pay, discharge or satisfy
any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities (A) reflected or reserved against in the financial
statements of A+ Network, (B) incurred in the ordinary course of business and
consistent with past practice, or (C) incurred in a manner not otherwise
prohibited under the Merger Agreement; (xvi) A+ Network shall not effect a
registration under the Securities Act with respect to Shares held by any person
and entity, other than the registration on a Registration Statement on Form S-8
of Shares to be issued pursuant to A+ Network Options and the registration of
Shares pursuant to registration rights agreements in effect on the date of the
Merger Agreement or pursuant to the Shareholders' Agreement; (xvii) neither A+
Network nor any of its subsidiaries will modify or amend any of the acquisitions
disclosed by it to Metrocall in any manner that would increase the consideration
payable pursuant to such transaction; and (xviii) neither A+ Network nor any of
its subsidiaries will authorize or enter into an agreement to do any of the
foregoing.
Conduct of Business by Metrocall. The Merger Agreement also provides that,
prior to the Effective Time, except (x) as contemplated by the Merger Agreement
or the Shareholders' Agreement, (y) as agreed in writing by A+ Network, or (z)
for the consummation of certain pending acquisitions disclosed by Metrocall to
A+ Network, (i) Metrocall will not (A) amend its certificate of incorporation or
by-laws, or (B) redeem, purchase or otherwise acquire directly or indirectly any
of its capital stock, provided, that Metrocall may amend its Certificate of
Incorporation to increase the number of authorized Metrocall Shares by 7,500,000
shares contemporaneously with approval of the Merger; (ii) Metrocall will not
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock; (iii) Metrocall will not,
directly or indirectly, split, combine or reclassify the outstanding Metrocall
Shares; (iv) with the exception of the existing liens in favor of Metrocall's
bank lenders, neither Metrocall nor any of its subsidiaries will issue, grant,
sell, pledge, dispose of or encumber any additional shares of, or securities
convertible into or exchangeable for, or options, warrants, calls, commitments
or rights of any kind to acquire, any shares of capital stock of any class of
Metrocall or its subsidiaries, other than (A) issuances of Metrocall Shares
reserved for issuance on the date of the Merger Agreement upon exercise of
employee stock options outstanding on the date of the Merger Agreement, (B)
issuance by Metrocall of Metrocall Shares or other Metrocall securities for the
fair market value thereof, and (C) the granting (and issuance of shares upon
exercise) of options pursuant to the existing option plans with an exercise
price equal to the fair market value thereof on the date of grant; (v) Metrocall
will not adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
Metrocall or any subsidiary; (vi) neither Metrocall nor any of its subsidiaries
will take, or agree to take, any action that would result in any of the
conditions set forth in the Merger Agreement or to the Offer not being
satisfied; (vii) neither Metrocall nor any of its subsidiaries will acquire (by
merger, consolidation, or acquisition of stock or assets or otherwise) any
corporation, partnership or other business organization or division of any such
entity, provided, that Metrocall may make acquisitions to the extent that they
(A) comply with the requirement that any issuance of Metrocall Shares must be
for fair market value, (B) do not involve businesses that would be considered
"significant subsidiaries" within the meaning of Rule 1-02(v) of Regulation S-X,
and (C) do not result in the issuance of more than 3,000,000 Metrocall Shares in
the aggregate; (viii) neither Metrocall nor any of its subsidiaries shall engage
in any business other than that conducted in the telecommunications industry;
and (ix) neither Metrocall nor any of its subsidiaries will authorize or enter
into an agreement to do any of the foregoing.
RESPONSE TO OTHER OFFERS
Pursuant to the Merger Agreement, each of Metrocall, A+ Network and their
respective affiliates are required to immediately cease all existing discussions
or negotiations, if any, with any parties (other than each other) conducted with
respect to any proposal relating to (i) a possible acquisition of Metrocall or
A+
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Network, as the case may be, whether by merger, purchase of all or substantially
all of the assets of Metrocall or A+ Network, as the case may be, or any similar
transaction, or (ii) a tender offer for more than 5% of the common stock of
Metrocall or A+ Network (excluding any transaction otherwise permitted by the
Merger Agreement) (any such proposal with respect to A+ Network being referred
to herein as an "A+ Network Acquisition Proposal" and with respect to either
Metrocall or A+ Network, an "Acquisition Proposal").
The Merger Agreement provides that each of Metrocall and A+ Network may
furnish information and access (in each case only in response to a request made
after the date of the Merger Agreement which was not encouraged, solicited or
initiated by Metrocall, A+ Network or their affiliates) pursuant to appropriate
confidentiality agreements, and may participate in discussions and negotiate
with such party concerning any Acquisition Proposal, but only if (i) with
respect to A+ Network, such party has submitted a written proposal to the Board
of Directors of A+ Network relating to any such transaction involving economic
consideration per share that such Board of Directors reasonably believes is
economically superior to the consideration to be paid pursuant to the Merger
Agreement and which does not include or contemplate any condition relating to
the obtaining of funds for such Acquisition Proposal, and (ii) with respect to
both A+ Network and Metrocall, such Board of Directors has made a Fiduciary
Determination. Each of Metrocall and A+ Network must provide A+ Network or
Metrocall, respectively, notice of and copies or summaries of all written or
oral Acquisition Proposals and will keep A+ Network or Metrocall, respectively,
advised of all such Acquisition Proposals.
Except as permitted by the Merger Agreement, neither Metrocall, A+ Network
nor any of their affiliates will, directly or indirectly, encourage, or solicit
submission of any inquiries, proposals or offers by; participate in or initiate
any discussions or negotiations with; disclose any information about A+ Network
or Metrocall, respectively, or their respective subsidiaries to, or otherwise
assist, facilitate or encourage, or enter into any agreement or understanding
with any third party in connection with any Acquisition Proposal. In addition,
the Board of Directors of each of Metrocall and A+ Network will not recommend
that the stockholders of Metrocall or A+ Network, respectively, tender their
shares in connection with any tender offer unless such Board of Directors makes
a Fiduciary Determination.
Neither Metrocall nor A+ Network will release any third party from, or
waive any provisions of, any confidentiality or standstill agreement unless its
Board of Directors makes a Fiduciary Determination.
A "Fiduciary Determination" means the directors constituting a majority of
all directors then in office of A+ Network or Metrocall, as the case may be,
reasonably determine in good faith, after consultation with and based upon the
advice of independent legal counsel, that the taking of action or the failure to
take action (or withdraw or modify any recommendation) would constitute a breach
of such directors' fiduciary duties to shareholders of A+ Network or Metrocall,
as the case may be, under applicable law.
REPURCHASE OPTION
The Merger Agreement contains certain provisions regarding repurchase or
disposition of Shares acquired by Metrocall in the event the Merger is not
consummated. As set forth below, these provisions include the right of A+
Network to repurchase Shares acquired by Metrocall in the Offer under certain
circumstances and Metrocall's right to require an orderly distribution of the
Shares acquired by Metrocall in other circumstances.
The Merger Agreement provides that in the event of an Interest Payment
Event (as defined below), A+ Network will have the right (which right may be
assigned) to repurchase all Shares purchased by Metrocall pursuant to the Offer
or the Shareholders' Agreement (the "Repurchase Shares") at a price per Share
equal to the price paid for such Shares plus an interest factor of 10.125% per
annum; provided that such repurchase shall not occur any earlier than six months
and one day after the Shares were acquired by Metrocall. In the event of a
Repurchase Event (as defined below) which is not an Interest Payment Event, A+
Network will have the right (which right may be assigned) to repurchase the
Repurchase Shares at a price per Share equal to the price paid for such Shares.
A+ Network's rights to repurchase the Repurchase Shares under either event
described in this paragraph is referred to herein as the "Repurchase Option."
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If (a) a Repurchase Event occurs and A+ Network has not elected to purchase
any Repurchase Shares as described above or (b) upon request by Metrocall within
90 days after termination of the Merger Agreement for (i) material breach of any
of its obligations by A+ Network, (ii) failure of A+ Network's shareholders to
approve the Merger, or (iii) withdrawal, modification or change by the Board of
Directors of A+ Network of its approval or recommendation of the Merger
Agreement, the Offer or the Merger, or failure by such Board of Directors to
recommend against an Acquisition Proposal, then A+ Network and Metrocall shall
cooperate in good faith to sell all of the Repurchase Shares in an orderly and
reasonably widespread distribution. (Clauses (ii) and (iii) above are
hereinafter referred to as an "A+ Network Termination Event.")
The Merger Agreement provides that in the event of a Repurchase Event and
until the earlier of one year after the occurrence of such event or the sale or
distribution of all Repurchase Shares, Metrocall agrees not to (a) acquire any
additional Shares or voting stock of A+ Network, (b) solicit proxies or
participate in a proxy contest or propose or advise any other entity to propose
any Acquisition Proposal, or (c) participate in a voting trust or act in concert
with any person for the purpose of holding any voting stock of A+ Network, and
agrees to vote the Repurchase Shares pro rata with the other shareholders of A+
Network with respect to all matters. Notwithstanding the foregoing, Metrocall
may (x) tender or exchange Repurchase Shares into any tender offer or
Acquisition Proposal recommended by the Board of Directors of A+ Network or (y)
pledge the Repurchase Shares pursuant to a bona fide pledge to secure
indebtedness of A+ Network or any of its subsidiaries, provided that such
Repurchase Shares will remain subject to the Repurchase Option.
A "Repurchase Event" shall occur automatically if (i) A+ Network is not in
material breach of any of its obligations under the Merger Agreement entitling
Metrocall to terminate the Merger Agreement, (ii) there has been no A+ Network
Termination Event, and (iii) the Merger Agreement has been terminated in
accordance with its terms.
An "Interest Payment Event" shall mean, in the case of a Repurchase Event,
the occurrence of any of the following (i) a final regulatory order by the FCC
or any state authority has been entered prohibiting the transfer of A+ Network's
licenses to Metrocall, (ii) the entry of a non-appealable final order by a court
of competent jurisdiction prohibiting the consummation of the Merger, or (iii)
November 16, 1996 (provided that, if at November 16, 1996 the sole reason the
Merger shall not have occurred is the failure to obtain a final regulatory order
permitting the consummation of the Merger from the FCC, such date shall be
February 16, 1997).
The foregoing rights will have no effect on shareholders of A+ Network if
the Merger is ultimately consummated, because they only apply in circumstances
where the Merger is not consummated and the Merger Agreement is terminated. If
the Merger is not consummated, a shareholder might be affected indirectly in the
case of a repurchase of Shares by A+ Network as a result of the effect of the
repurchase on A+ Network's balance sheet, or in the case of an orderly
distribution of the Shares if the distribution affected the trading price of A+
Network Shares.
CONDITIONS TO THE MERGER
Under the Merger Agreement, the respective obligations of Metrocall and A+
Network to effect the Merger are subject to the satisfaction on or prior to the
Closing Date of each of the following conditions: (i) the Merger Agreement has
been approved and adopted by the shareholders of A+ Network and Metrocall; (ii)
no statute, rule, order, decree or regulation has been enacted or promulgated by
any foreign or domestic governmental entity which prohibits the consummation of
the Merger and all foreign or domestic governmental consents, orders and
approvals required for the consummation of the Merger and all foreign or
domestic governmental consents, orders and approvals required for the
consummation of the Merger have been obtained and are in effect at the Effective
Time; (iii) there is no order or injunction of a court or other governmental
authority in effect precluding, restraining, enjoining or prohibiting
consummation of the Merger; (iv) an order permitting the Merger to be
consummated has been received from the FCC, and orders permitting the Merger to
be consummated has been received from requisite State Authorities; (v) the
expiration or early termination of any waiting period under the HSR Act has
occurred; (vi) the registration statement for Metrocall
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Securities to be issued in the Merger has been declared effective and no stop
order is in effect with respect thereto; and (vii) Metrocall Shares to be issued
in the Merger have been admitted for quotation on NNM.
The obligation of A+ Network to effect the Merger is subject to the
satisfaction on or prior to the Closing Date of the following additional
conditions: (i) Metrocall has performed and complied in all material respects
with all obligations and agreements under the Merger Agreement; (ii) the
representations and warranties of Metrocall contained in the Merger Agreement
were true and correct in all material respects at the time when made and shall
be true in all material respects on the Closing Date, except for representations
made as of a certain date and changes specifically permitted by the Merger
Agreement; (iii) except for the transactions contemplated by the Merger
Agreement and the Shareholders' Agreements, and except for matters which affect
generally the economy or the industry in which Metrocall and its subsidiaries
are engaged, as of the Closing Date, there has not occurred any change in the
business, properties, assets, liabilities, financial condition, cash flows,
operations, licenses, franchises or results of operations of Metrocall or its
subsidiaries which has a material adverse effect on Metrocall and its
subsidiaries, taken as a whole; (iv) receipt by A+ Network of a certificate from
Metrocall attesting to compliance with the conditions set forth in clauses (i),
(ii) and (iii) above; and (v) receipt by A+ Network of the opinion of
Metrocall's legal counsel with respect to the due authorization and issuance of
Metrocall Securities to be issued in the Merger.
The obligation of Metrocall to effect the Merger is subject to the
satisfaction on or prior to the Closing Date of the following additional
conditions; (i) A+ Network has performed or complied in all material respects
with all obligations and agreements under the Merger Agreement; (ii) the
representations and warranties of A+ Network contained in the Merger Agreement
were true and correct in all material respects at the time when made and shall
be true in all material respects on the Closing Date, except for representations
made as of a certain date and changes specifically permitted by the Merger
Agreement; (iii) except for the transactions contemplated by the Merger
Agreement and the Shareholders' Agreement, and except for matters which affect
generally the economy or the industry in which A+ Network and its subsidiaries
are engaged, as of the Closing Date, there has not occurred any change in the
business, properties, assets, liabilities, financial condition, cash flows,
operations, licenses, franchises or results of operations of A+ Network or its
subsidiaries which has a material adverse effect on A+ Network and its
subsidiaries, taken as a whole; and (iv) receipt by Metrocall of a certificate
from A+ Network attesting to compliance with the conditions set forth in clauses
(i), (ii) and (iii) above.
TERMINATION
The Merger Agreement provides that it may be terminated prior to the
Effective Time, whether before or after shareholder approval, by the mutual
written consent of Metrocall and A+ Network. The Merger Agreement may also be
terminated prior to the Effective Time, whether before or after shareholder
approval, by either A+ Network or Metrocall (i) if any governmental entity has
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and non-appealable; or (ii) if the Merger has not occurred by November 16,
1996, except that if at November 16, 1996, the sole reason the Merger has not
occurred is the failure to obtain a final order permitting the consummation of
the Merger from the FCC, Metrocall may extend this date to February 16, 1997.
The Merger Agreement may also be terminated prior to the Effective Time,
whether before or after shareholder approval, by A+ Network (i) if Metrocall has
failed to perform and comply in all material respects with all material
obligations and agreements under the Merger Agreement and the Shareholders'
Agreement (and such failure has not been cured); or (ii) if the Merger Agreement
and the transactions contemplated thereby shall not have been approved and
adopted by the requisite vote of the holders of the capital stock of Metrocall;
or (iii) if the Board of Directors of Metrocall shall have (A) withdrawn or
modified or changed in any manner adverse to A+ Network its approval or
recommendation of the Merger Agreement or the Merger or (B) shall have failed to
recommend against an Acquisition Proposal involving a tender offer or failed to
reject any other Acquisition Proposal within ten business days of receipt by the
Board of Director of Metrocall of such proposal or shall have executed an
agreement in principle or definitive agreement relating
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to an Acquisition Proposal or similar business combination with a person or
entity other than A+ Network (or the Board of Directors of Metrocall resolves to
do any of the foregoing).
The Merger Agreement may also be terminated prior to the Effective Time,
whether before or after shareholder approval, by Metrocall (i) if, prior to the
Effective Time, the Board of Directors of A+ Network has (A) withdrawn, or
modified or changed in any manner adverse to Metrocall its approval or
recommendation of the Merger Agreement or the Merger or (B) has failed to
recommend against an Acquisition Proposal involving a tender offer or failed to
reject any other Acquisition Proposal within ten business days of receipt by the
Board of Directors of A+ Network of such proposal or has executed an agreement
relating to an Acquisition Proposal with a person or entity other than Metrocall
(or the Board of Directors of A+ Network resolves to do any of the foregoing);
(ii) if A+ Network has failed to perform and comply in all material respects
with all material obligations and agreements under the Merger Agreement (and
such failure has not been cured); or (iii) if the Merger Agreement and
transactions contemplated thereby shall not have been adopted by the requisite
vote of the holders of the capital stock of A+ Network, provided that all Shares
then owned by Metrocall are voted in favor of the such proposal.
TERMINATION FEES
The Merger Agreement provides that if, prior to the Effective Time, it is
terminated by Metrocall and (i) the Board of Directors of A+ Network has (A)
withdrawn, modified or changed in any manner adverse to Metrocall its approval
or recommendation of the Merger Agreement or the Merger or (B) has failed to
recommend against an Acquisition Proposal involving a tender offer or failed to
reject any other Acquisition Proposal within ten business days of receipt by the
Board of Directors of A+ Network of such proposal or has executed an agreement
in principle (or similar agreement) or definitive agreement relating to an
Acquisition Proposal or similar business combination with a person or entity
other than Metrocall (or the Board of Directors of A+ Network resolves to do any
of the foregoing) or (ii) the Merger Agreement and the transactions contemplated
thereby have not been adopted by the requisite vote of the holders of the
capital stock of A+ Network and Metrocall has voted all Shares owned by it in
favor of the Merger, then A+ Network will immediately pay to Metrocall a
termination fee equal to $10,000,000 in cash.
The Merger Agreement also provides that if, prior to the Effective Time, it
is terminated by A+ Network and (i) the Board of Directors of Metrocall has (A)
withdrawn, modified or changed in any manner adverse to A+ Network its approval
or recommendation of the Merger Agreement or the Merger or (B) has failed to
recommend against an Acquisition Proposal involving a tender offer or failed to
reject any other Acquisition Proposal within ten business days of receipt by the
Board of Directors of Metrocall of such proposal or has executed an agreement in
principle (or similar agreement) or definitive agreement relating to an
Acquisition Proposal or similar business combination with a person or entity
other than A+ Network (or the Board of Directors of Metrocall resolves to do any
of the foregoing) or (ii) the Merger Agreement and the transactions contemplated
thereby have not been adopted by the requisite vote of the holders of the
capital stock of Metrocall, then Metrocall will immediately pay to A+ Network a
termination fee equal to $10,000,000 in cash.
AMENDMENT AND MODIFICATION
The Merger Agreement provides that the Merger Agreement may be amended or
modified, whether before or after any vote of the shareholders of A+ Network and
Metrocall, except that after the approval of the Merger Agreement by the
shareholders of A+ Network, no such amendment or modification may change the
Conversion Ratio.
DESCRIPTION OF METROCALL SECURITIES
METROCALL CAPITAL STOCK
The authorized capital stock of Metrocall consists of 26,000,000 shares of
Metrocall Common Stock and 1,000,000 shares of preferred stock, par value $0.01
per share (the "Metrocall Preferred Stock"). If the
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Charter Amendment is approved, the authorized capital stock of Metrocall will
consist of 33,500,000 shares of Metrocall Common Stock and 1,000,000 shares of
Metrocall Preferred Stock. As of June 30, 1996, there were 14,626,255 shares of
Metrocall Common Stock and no shares of Preferred Stock outstanding.
The holders of Metrocall Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Holders
of Metrocall Common Stock have no cumulative voting rights and, except as
described below, no preemptive, subscription, redemption, sinking fund or
conversion rights. Subject to preferences that may be applicable to any then
outstanding Metrocall Preferred Stock, holders of Metrocall Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Metrocall, holders of the Metrocall
Common Stock will be entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any then outstanding
Metrocall Preferred Stock.
Metrocall's Amended and Restated Certificate of Incorporation authorizes
its Board of Directors to issue, from time to time and without further
stockholder action, one or more series of Metrocall Preferred Stock, and to fix
the relative rights and preferences of the shares, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion
privileges. As of the date of this Joint Proxy Statement/Prospectus, the Board
of Directors has not authorized any series of Metrocall Preferred Stock, and
there are no agreements or understandings for the issuance of any shares of
Metrocall Preferred Stock. Because of its broad discretion with respect to the
creation and issuance of Metrocall Preferred Stock without stockholder approval,
Metrocall's Board of Directors could adversely affect the voting power of the
holders of Metrocall Common Stock and, by issuing shares of Metrocall Preferred
Stock with certain voting, conversion and/or redemption rights, could discourage
any attempt to obtain control of Metrocall.
Under the Communications Act, not more than 20% of Metrocall's capital
stock may be owned of record by other than United States citizens or entities.
Metrocall's Amended and Restated Certificate of Incorporation authorizes its
Board of Directors to redeem any of Metrocall's outstanding capital stock to the
extent necessary to prevent the loss or secure the reinstatement of any license
or franchise from any governmental agency. Such stock may be redeemed at the
lesser of (i) fair market value or (ii) such holder's purchase price (if the
stock was purchased within one year of such redemption). Other than redemption
where necessary to protect Metrocall's regulatory licenses, there are no
redemption or sinking fund provisions applicable to the Metrocall Common Stock.
Metrocall's Amended and Restated Certificate of Incorporation provides that
all actions taken by Metrocall stockholders must be taken at an annual or
special meeting of stockholders or by unanimous written consent. Metrocall's
Bylaws provide that special meetings of the stockholders may be called only by a
majority of the members of the Board of Directors, the Chairman or the holders
of not less than 35% of the voting stock of Metrocall. Stockholders are required
to comply with certain advance notice provisions with respect to any nominations
of candidates for election to Metrocall's Board of Directors or other proposals
submitted for stockholder vote. Metrocall's Amended and Restated Certificate of
Incorporation and Bylaws contain certain provisions requiring the affirmative
vote of the holders of at least two-thirds of the Metrocall Common Stock to
amend certain provisions of the Amended and Restated Certificate of
Incorporation and Bylaws.
Metrocall's Amended and Restated Certificate of Incorporation provides for
the division of the board of directors into three classes of directors serving
staggered three-year terms. The authorized number of directors may be changed
only by resolution of the Board of Directors, and directors may not be removed
without cause.
Provisions of Metrocall's Amended and Restated Certificate of Incorporation
and Bylaws could operate to delay, defer or prevent a change of control in the
event of certain transactions such as a tender offer, merger or sale or transfer
of substantially all of Metrocall's assets. These provisions, as described
below, are expected to discourage certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire control
of Metrocall first to negotiate with Metrocall. Metrocall believes that the
benefits of increased protection of Metrocall's potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure Metrocall outweigh the disadvantages of discouraging such
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proposals because, among other things, negotiating with respect to such
proposals could result in an improvement of their terms.
Metrocall is subject to the provisions of Section 203 of the Delaware Code
("Section 203"). Under Section 203, a resident domestic corporation may not
engage in a business combination with an interested stockholder for a period of
three years after the date such person became an interested stockholder, unless
(i) prior to such date the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which resulted
in such person becoming an interested stockholder, the interested stockholder
owned at least 85% of the corporation's voting stock outstanding at the time the
transaction commenced (excluding for purposes of determining the number of
shares outstanding those shares owned by (x) persons who are directors and
officers and (y) employee stock plans, in certain instances), or (iii) on or
subsequent to such date the business combination is approved by the board of
directors and authorized by the affirmative vote of at least two-thirds of the
outstanding voting stock which is not owned by the interested stockholder.
Section 203 defines the term "business combination" to encompass a wide variety
of transactions with or caused by an interested stockholder in which the
interested stockholder receives or could receive a benefit on other than a pro
rata basis with other stockholders, including certain mergers, consolidations,
asset sales, transfers and other transactions resulting in a beneficial interest
to the interested stockholder. "Interested stockholder" means a person who owns
(or within three years prior, did own) 15% or more of the corporation's
outstanding voting stock, and the affiliates and associates of such person.
Metrocall's Amended and Restated Certificate of Incorporation authorizes
its Board of Directors, when considering a tender offer, merger or acquisition
proposal, to take into account factors in addition to potential economic
benefits to stockholders, including, but not limited to, (i) a comparison of the
proposed consideration to be received by the stockholders in relation to the
then current market price of the capital stock, the estimated current value of
Metrocall in a freely negotiated transaction and the estimated future value of
Metrocall as an independent entity, and (ii) the impact of such a transaction on
the subscribers, suppliers and employees of Metrocall, and its effect on the
communities in which Metrocall operates.
Metrocall's Amended and Restated Certificate of Incorporation prohibits
Metrocall from purchasing any shares of Metrocall's stock from any person,
entity or group that beneficially owns five percent or more of Metrocall's stock
at a price exceeding the average closing price for the 20 business days prior to
the purchase date, unless a majority of Metrocall's disinterested stockholders
approve the transaction, or as may be necessary to protect Metrocall's
regulatory licenses. This restriction on purchases by Metrocall does not apply
to any offer to purchase shares of a class of Metrocall's stock which is made on
the same terms and conditions to all holders of that class of stock, to any
purchase of stock owned by such a five-percent stockholder occurring more than
two years after such stockholder's last acquisition of Metrocall's stock, to any
purchase of Metrocall's stock in accordance with the terms of any stock options
or employee benefit plan or to any purchase at prevailing market prices pursuant
to a stock purchase program.
METROCALL VCRS
As part of the Merger Consideration, shareholders of A+ Network will
receive indexed Variable Common Rights ("VCRs") equal to the number of shares of
Metrocall Common Stock they receive in the Merger. The principal terms of the
VCRs are as follows:
Payment at Maturity. Following the maturity of a VCR, the holder of such
VCR (the "VCR Holder") will have the right to receive the amount ("VCR Payment
Amount"), if any, by which the Target Price exceeds the greater of the Current
Market Value and the Minimum Price (each as defined below). The VCRs shall
mature on the Maturity Date unless otherwise extended to the Extended Maturity
Date (as defined below).
Maturity Date; Extended Maturity Date. The Maturity Date will be the date
that is the first anniversary of the Effective Time, provided, however, that
Metrocall, at its option, may extend the Maturity Date to the second anniversary
of the Effective Time (the "Extended Maturity Date"). Metrocall shall exercise
either such option to extend by publishing notice of such exercise in the Wall
Street Journal (Eastern Edition), or if
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the Wall Street Journal is not then published, such other newspaper with general
circulation in the City of New York, New York no later than one business day
preceding the Maturity Date, as the case may be.
Form of Payment. Metrocall, at its option, may pay the VCR Payment Amount
in (i) cash; (ii) that number of Metrocall Shares equal to the VCR Payment
Amount divided by the Current Market Value as defined below or (iii) common
stock equivalents having a fair market value (as determined by an independent
nationally recognized investment bank) equal to the VCR Payment Amount. Other
than in the case of interest on the Default Amount (as defined below), no
interest shall accrue on any VCR Payment Amount.
Target Price. "Target Price" means (i) at the Maturity Date, $21.10
reduced but not increased by the "Index Factor", as hereinafter defined, and
(ii) at the Extended Maturity Date, $25.10 reduced but not increased by the
Index Factor. In each case, such Target Prices shall be adjusted upon the
occurrence of any event described in the section entitled "Antidilution" set
forth below.
Current Market Value. "Current Market Value" means, with respect to the
Maturity Date and the Extended Maturity Date, the median of the averages of the
closing bid prices on the NNM (or such other exchange on which such shares are
then listed) of shares of Metrocall Common Stock during each 20 consecutive
trading day period that both begins and ends in the Valuation Period. "Valuation
Period" means the 60 trading day period immediately preceding (and including)
the Maturity Date or the Extended Maturity Date, as the case may be.
Minimum Price. "Minimum Price" means (i) at the Maturity Date, $16.10, and
(ii) at the Extended Maturity Date, $18.10. In each case, subject to adjustment
upon the occurrence of any event described in the section entitled
"Antidilution" set forth below.
Index Factor. An Index Factor shall be calculated based upon the ratio of
the relevant ending period stock prices for the Comparable Paging Company Index
(the Index Factor numerator) and the initial Comparable Paging Company Index
(the Index Factor denominator). The Comparable Paging Company Index shall
consist of the stocks of Arch Communications Group, Inc., MobilMedia
Communications, Inc., and ProNet, Inc., or each's successors. The initial
Comparable Paging Company Index shall be the median of the simple arithmetic
average of closing bid prices of the index group for the 20 trading days
preceding May 14, 1996. The ending period Comparable Company Paging Index shall
be the same median of the simple arithmetic average of closing bid prices of the
index group as measured in the identical fashion as Metrocall's closing bid
prices during the relevant Valuation Periods preceding the Maturity Date,
Extended Maturity Date, or Disposition Date, as the case may be. In each case,
such adjustments shall be made, as appropriate, for each company's stock prices
that is included in the Comparable Paging Company Index, upon the occurrence of
any event similar to that described in the "Antidilution" section below.
Early Termination. If the closing bid prices of the Metrocall Common Stock
exceed (i) $21.10 for any 50 calendar day period prior to the Maturity Date, or
(ii) $25.10 for any 50 calendar day period between the Maturity Date and the
Extended Maturity Date, then the VCRs shall immediately expire and be of no
further force and effect.
Disposition Payment. Following the consummation of (a) a merger,
consolidation or other business combination involving Metrocall as a result of
which no shares of Common Stock shall remain outstanding, (b) a sale, transfer
or other disposition, in one or a series of transactions, of all or
substantially all of the assets of Metrocall or (c) a reclassification of Common
Stock as any other capital stock of Metrocall or any other person (a
"Disposition") Metrocall shall pay to each VCR holder for each VCR held by such
VCR holder an amount, if any, by which the Discounted Target Price (as defined
below) exceeds the greater of the fair market value (as determined by an
independent nationally recognized investment banking firm) of the consideration,
if any, received by holders of Common Stock for each share of Common Stock held
by such holder as a result of such Disposition and the Minimum Price.
Acceleration Upon Event of Default. If an Event of Default (as defined
below) occurs and is continuing, either the rights agent for the VCRs (the
"Rights Agent") or VCR holders holding at least 25% of the outstanding VCRs, by
notice to Metrocall (and to the Rights Agent if given by VCR holders), may
declare the VCRs to be due and payable, and upon any such declaration, the
Default Amount shall become due and
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payable and, thereafter, shall bear interest at an interest rate of 12% per
annum until payment is made to the Rights Agent. "Default Amount" means the
amount, if any, by which the Discounted Target Price exceeds the Minimum Price.
"Event of Default", with respect to the VCRs, means any of the following which
shall have occurred and be continuing; (a) default in the payment of all or any
part of the amounts payable in respect of any of the VCRs as and when the same
shall become due and payable following the Maturity Date or the Extended
Maturity Date, the Disposition Payment Date or otherwise; (b) material default
in the performance, or material breach, of any material covenant or warranty of
Metrocall under the VCR Agreement, and continuance of such material default or
breach for a period of 98 days after written notice has been given to Metrocall
by the Rights Agent or to Metrocall and the Rights Agent by VCR holders holding
at least 25% of the outstanding VCRs; or (c) certain events of bankruptcy,
insolvency, reorganization or other similar events in respect of Metrocall.
Discounted Target Price. "Discounted Target Price" means (a) if a
Disposition or an Event of Default shall occur prior to the Maturity Date,
$21.10 reduced but not increased by the relevant Index Factor, discounted to the
Disposition Payment Date (as defined below) or the Default Payment Date (as
defined below), as the case may be, at a per annum rate of 8%; or (b) if a
Disposition or an Event of Default shall occur after the Maturity Date but prior
to the Extended Maturity Date, $25.10 reduced but not increased by the relevant
Index Factor discounted to the date of the Disposition Payment Date or Default
Payment Date, as the case may be, at a per annum rate of 8%. In each case, the
Discounted Target Price and the Minimum Price shall be adjusted upon the
occurrence of any event described in the section entitled "Antidilution" set
forth below. "Disposition Payment Date", with respect to a Disposition, means
the date established by Metrocall for payment of the amount due on the VCRs in
respect of such Disposition, which in no event shall be more than 38 days after
the date on which such Disposition was consummated. "Default Payment Date" means
the date on which the VCRs become due and payable upon the declaration thereof
following an Event of Default.
Antidilution. If Metrocall shall in any manner subdivide (by stock split,
stock dividend or otherwise) or combine (by reverse stock split or otherwise)
the number of outstanding shares of Common Stock, Metrocall shall
correspondingly subdivide or combine the VCRs and shall appropriately adjust the
Target Price, the Minimum Price and the Discounted Target Price.
Trading. None of Metrocall or any of its affiliates will be permitted to
trade in shares of Common Stock during the period commencing 18 trading days
before the Valuation Period and ending on the last day of the Valuation Period,
except with respect to employee benefit plans and other incentive compensation
arrangements.
VCR Agreement. The VCRs will be issued pursuant to a VCR Agreement between
Metrocall and the Rights Agent. Metrocall will use its reasonable best efforts
to cause the VCR Agreement to be qualified under the Trust Indenture Act of
1939, as amended.
Transferability. The VCRs will be certificated, will be freely tradeable
and will trade separately from Metrocall Common Stock. Metrocall does not intend
to seek to list the VCRs on any exchange or NNM, and there can be no assurance
that any public trading market for the VCRs will develop or continue after the
Merger.
Nature and Ranking of VCRs. The VCRs will be unsecured obligations of
Metrocall and will rank equally with all other unsecured obligations of
Metrocall.
Dividends. If any dividends are paid on the Metrocall Common Stock prior
to the Maturity Date or the Extended Maturity Date, as applicable, the holders
of the VCRs shall have no right to receive any such dividends.
52
<PAGE> 67
COMPARATIVE RIGHTS OF METROCALL STOCKHOLDERS
AND A+ NETWORK SHAREHOLDERS
If the Merger is approved, A+ Network shareholders, whose rights are
currently governed by Tennessee corporate law and the Amended and Restated
Charter and Amended and Restated Bylaws of A+ Network (the "A+ Network Charter"
and "A+ Network Bylaws," respectively), will become stockholders of Metrocall, a
Delaware corporation. Accordingly, immediately after the consummation of the
Merger, their rights will be governed by Delaware corporate law and the Amended
and Restated Certificate of Incorporation and Bylaws of Metrocall (the
"Metrocall Certificate" and "Metrocall Bylaws," respectively).
Certain differences in stockholder rights arise from differences in the A+
Network Charter and the A+ Network Bylaws and the Metrocall Certificate and the
Metrocall Bylaws as well as differences in the corporate laws of Tennessee and
Delaware. The following discussion is a summary of the significant differences
in stockholder rights, but is not intended to be a complete statement of all
differences and is qualified in its entirety by reference to the applicable
state laws and the respective corporate documents of A+ Network and Metrocall.
BOARD OF DIRECTORS
The Metrocall Bylaws provide for a variable number of directors between
three and 11, with the number currently fixed by the Board of Directors at nine.
The members of Metrocall's Board of Directors are divided into three classes,
with the three-year term of each class expiring in a different year.
The A+ Network Charter provides that the business affairs of A+ Network are
to be managed by a Board of Directors, consisting of not less than three nor
more than 25 persons as determined from time to time by the Board of Directors.
The number of directors of A+ Network is currently set at 10. The members of A+
Network's Board of Directors are divided into three classes, with the three-year
term of each class expiring in a different year.
REMOVAL OF DIRECTORS
Directors of Metrocall may be removed only for cause and only at a special
meeting called for such purpose and upon the vote of 66 2/3% of the total number
of votes of the then outstanding shares of stock of Metrocall entitled to vote
generally in the election of directors.
The A+ Network Charter allows a director of A+ Network to be removed
without cause only by the affirmative vote of the holders of 75% or more of the
outstanding shares entitled to vote. A director may be removed for cause by the
affirmative vote of a majority of the entire Board of Directors.
INDEMNIFICATION AND LIMITATIONS ON MANAGEMENT'S LIABILITY
Under Delaware law, a corporation has the power to indemnify any agent
against expenses, judgments, fines and settlements incurred in a proceeding,
other than an action by or in the right of the corporation, if the person acted
in good faith and in a manner that the person reasonably believed to be in the
best interests of the corporation or not opposed to the best interests of the
corporation, and, in the case of a criminal proceeding, had no reason to believe
the conduct of the persons was unlawful. In the case of an action by or in the
right of the corporation, the corporation has the power to indemnify any agent
against expenses incurred in defending or settling the action if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation; provided, however, that no
indemnification may be made when a person is adjudged liable to the corporation,
unless a court determines such person is entitled to indemnity for expenses, and
then such indemnification may be made only to the extent that such court shall
determine. Delaware law requires that to the extent an agent of a corporation is
successful on the merits or otherwise in defense of any third-party or
derivative proceeding, or in defense of any claim, or matter therein, the
corporation must indemnify the agent against expenses incurred in connection
therewith.
Under Delaware law, a corporation may adopt a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for
53
<PAGE> 68
breach of fiduciary duty as a director; provided, however, that such provision
may not eliminate or limit director monetary liability for: (i) breaches of the
director's duty of loyalty to the corporation or its stockholders; (ii) acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law; (iii) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (iv) transactions in which the director received
an improper personal benefit.
The Metrocall Certificate contains a provision mirroring the Delaware law
provisions described above.
The A+ Network Charter provides that directors of A+ Network shall not be
personally liable to A+ Network or its stockholders for monetary damages for any
breach of fiduciary duty by such director as a director. A director shall be
liable to the extent provided by applicable law for breach of the director's
duty of loyalty to A+ Network or its stockholders, for acts or omissions not in
good faith or which involve intentional misconduct, or for liability pursuant to
the Tennessee Business Corporation Act relating to unlawful distributions.
The A+ Network Charter provides that A+ Network will indemnify, and upon
request shall advance expenses to, any officer who was, or is a party to, or is
threatened to be made a party to, any action because such person is or was a
director or officer of A+ Network. This indemnification is subject to the
limitations stated above.
A+ Network has entered into indemnity agreements with its directors and
executive officers, providing for indemnification and advancement of expenses.
The indemnity agreements provide for certain limitations on indemnification
including the limitations stated above.
SHAREHOLDER PROPOSALS
Stockholders of Metrocall are required to comply with certain advance
notice provisions with respect to any nominations by stockholders of candidates
for election to Metrocall's Board of Directors or other proposals submitted by
stockholders for stockholder vote. Neither the A+ Network Charter nor the A+
Network Bylaws include similar requirements with respect to nomination by
shareholders of candidates for election to A+ Network's Board of Directors or
other proposals submitted by shareholders for shareholder vote.
RIGHTS OF STOCKHOLDERS TO CALL SPECIAL MEETINGS
Special meetings of stockholders of Metrocall may be called by either (a)
the chairman, (b) a majority of directors, or (c) stockholders holding not less
than 35% of the total number of votes of the then outstanding shares of stock of
Metrocall entitled to vote generally in the election of directors. Special
meetings of the stockholders of A+ Network may be called only by the A+ Network
Board of Directors or the holders of not less than 10% of all shares entitled to
vote at the meeting.
CHANGE OF CONTROL
Delaware law and the Metrocall Certificate contain provisions (described
under "RISK FACTORS -- Anti-Takeover and Other Provisions" and "DESCRIPTION OF
METROCALL SECURITIES -- Metrocall Capital Stock") that could operate to delay,
defer or prevent a change of control of the Surviving Corporation including
Delaware's business combination statute and provisions in the Metrocall
Certificate permitting the Board to consider factors in addition to potential
economic benefit to stockholders in connection with business combinations and
provisions limiting the repurchase of shares acquired by certain persons who
hold five percent or more of the capital stock of Metrocall. The Metrocall
Certificate also requires a two-thirds majority to amend these provisions of the
Metrocall Certificate.
The Tennessee Business Combination Act (the "Combination Act") provides
that any corporation to which the Combination Act applies, including A+ Network,
shall not engage in any "business combination", as defined in the Combination
Act, with an "interested stockholder" for a period of five years following the
date that such stockholder became an interested stockholder unless, prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder.
54
<PAGE> 69
"Interested stockholder" is defined in the Combination Act as any person
that is (a) the beneficial owner of 10% or more of the voting power of any class
or series of stock of the corporation or (b) is an affiliate and at any time
within the five-year period immediately prior to the date in question was the
beneficial owner of 10% or more of the voting power of any class or series of
stock of the corporation.
The Tennessee Control Share Acquisition Act (the "Acquisition Act")
prohibits certain stockholders from exercising in excess of 20% of the voting
power in a corporation acquired in a "control share acquisition", as defined in
the Acquisition Act, unless such voting rights have been previously approved by
the disinterested stockholders of the corporation. The Acquisition Act does not
apply to A+ Network presently, because A+ Network has not elected to be covered
by such act. No assurance can be given that such an election, which must be
expressed in the form of a charter or bylaw provision, will be made by A+
Network.
The Tennessee Greenmail Act prohibits A+ Network from purchasing or
agreeing to purchase any of its securities at a price in excess of fair market
value from a holder of 3% or more of any class of such securities who has
beneficially owned such securities for less than two years, unless such purchase
has been approved by the affirmative vote of a majority of the outstanding
shares of such class of voting stock issued by A+ Network or A+ Network makes an
offer of at least equal value per share to all holders of shares of such class.
The A+ Network Charter contains several provisions which make a change of
control of A+ Network difficult to accomplish without the approval of the Board
of Directors of A+ Network. The A+ Network Charter provides that the affirmative
vote of the holders of not less than 75% of the outstanding shares of voting
stock of A+ Network is required to approve a merger or consolidation of A+
Network with, or a sale or lease of all or substantially all of the assets of A+
Network to, any person or entity, unless the Board of Directors of A+ Network
recommends such transaction. Amendment of these and certain other provisions of
the A+ Charter require approval at least 75% of the voting stock, voting
together as a single class.
SHARE PURCHASE RIGHTS PLAN
In February 1995, the Board of Directors of A+ Network declared a dividend
distribution of one right (a "Right") for each share of A+ Network Common Stock.
Each Right entitles the holder to purchase from A+ Network one one-hundredth of
a share of Series A Junior Participating Preferred Stock at a price of $75 per
one one-hundredth of a share. Initially, the Rights will not be exercisable, but
will become exercisable upon the acquisition by any person of, or the
announcement of the intention of any person to commence a tender or exchange
offer upon the successful consummation of which such person would be the
beneficial owner of, 15% or more of the shares of A+ Network Common Stock then
outstanding, without the prior approval of A+ Network's Board of Directors. The
Rights are generally designed to deter coercive takeover tactics and to
encourage all persons interested in potentially acquiring control of A+ Network
to treat each stockholder on a fair and equal basis.
Metrocall does not currently have any similar plan in place.
LIMIT ON SHARE OWNERSHIP
Under the Communications Act, not more than 20% of Metrocall's capital
stock may be owned of record by other than United States citizens or entities.
The Metrocall Certificate authorizes the Board of Directors to redeem any of
Metrocall's capital stock to the extent necessary to prevent the loss or secure
the reinstatement of any license or franchise from any governmental agency. Such
stock may be redeemed at the lesser of (i) fair market value or (ii) such
holder's purchase price (if the stock was purchased within one year of such
redemption). The A+ Network Charter contains no such limitation on share
ownership.
55
<PAGE> 70
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(UNAUDITED)
The following unaudited pro forma condensed combined balance sheet under
the heading "Pro Forma Combined Company" gives effect to the acquisition of the
equity holdings of A+ Network for approximately 9,000,000 shares of Metrocall
Common Stock, an equal number of VCRs and cash of approximately $91.8 million,
excluding expected direct acquisition costs of approximately $8.4 million and
the assumption of $125 million of A+ Network debt as if the acquisition had
occurred on March 31, 1996. The unaudited pro forma condensed combined balance
sheet under the heading "Pro Forma Combined Company and Pending Acquisitions"
also gives effect to (a) the Parkway Acquisition for cash of approximately $24.6
million excluding expected direct acquisition costs of $500,000 and the
assumption of approximately $3.6 million in long-term obligations; (b) the
Satellite Acquisition for cash of approximately $25.4 million excluding expected
direct acquisition costs of approximately $600,000; and (c) the Page America
Acquisition for cash of approximately $55 million, approximately 630,000 shares
of Metrocall Common Stock and expected direct acquisition costs of approximately
$1.3 million as if each had occurred on March 31, 1996. Each of the Metrocall
Pending Acquisitions is subject to adjustment based upon the financial
performance prior to closing of the companies to be acquired. In the
accompanying pro forma statements, these adjustments are estimated based upon
respective financial performance for the three month period ended March 31,
1996. Accordingly, the actual cash and stock consideration to be issued by
Metrocall could differ. See "RECENT DEVELOPMENTS REGARDING METROCALL -- Recent
and Pending Acquisitions."
The unaudited pro forma condensed combined statements of operations for the
three month period ended March 31, 1996 and for the year ended December 31, 1995
give effect to (a) the Merger and the A+/Network Merger under the heading "Pro
Forma Combined Company" and (b) the Metrocall Pending Acquisitions under the
heading "Pro Forma Combined Company and Pending Acquisitions" as if each had
occurred on January 1, 1995.
Each of the pending acquisitions will be accounted for by the purchase
method of accounting. The purchase prices have been allocated on a preliminary
basis to the assets to be acquired based upon the estimated value of such
assets. The final allocation of intangible assets will be based upon appraised
values.
This information should be read in conjunction with the notes included
herein, and the Metrocall Consolidated Financial Statements, A+ Network
Consolidated Financial Statements, Parkway Financial Statements, Satellite
Financial Statements and Page America Financial Statements included herewith.
The unaudited pro forma condensed combined financial data do not purport to
represent what the Surviving Corporation's results of operations or financial
position actually would have been had such transactions and events occurred on
the dates specified, or to project the Surviving Corporation's results of
operations or financial position for any future period or date. The pro forma
adjustments are based upon available information and certain adjustments that
management of Metrocall believes are reasonable. In the opinion of management of
Metrocall, all adjustments have been made that are necessary to present the
unaudited pro forma condensed combined data.
56
<PAGE> 71
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL PRO FORMA ----------------------
---------------------- PRO FORMA COMBINED
METROCALL A+ NETWORK ADJUSTMENTS COMPANY PARKWAY(A) SATELLITE
--------- ---------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and short term
investments................................. $115,150 $ 48,930 $ (98,226)(B) $ 65,854 $ -- $ 1,012
Accounts receivable, net...................... 9,345 10,228 -- 19,573 902 537
Inventory..................................... -- 7,527 (7,527)(C) -- 920 513
Prepaid expenses and other current assets..... 1,750 1,211 -- 2,961 197 47
--------- ---------- ----------- --------- ---------- ---------
Total current assets.................... 126,245 67,896 (105,753) 88,388 2,019 2,109
Property and equipment, net..................... 82,955 51,332 7,527(C) 141,814 3,085 1,773
Intangibles, net................................ 127,802 89,011 351,868(D) 568,681 -- 49
Other assets.................................... 292 -- -- 292 86 51
--------- ---------- ----------- --------- ---------- ---------
Total Assets............................ $337,294 $208,239 $ 253,642 $799,175 $5,190 $ 3,982
========= =========== =========== ========== =========== =======
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Current maturities of long-term obligations... $ 260 $ -- $ -- $ 260 $2,478 $ 199
Accounts payable and accrued expenses......... 21,046 13,346 2,000(G) 36,392 199 613
Deferred revenues and subscriber deposits..... 2,561 6,212 -- 8,773 1,122 1,012
Other current liabilities..................... -- -- -- -- -- 597
--------- ---------- ----------- --------- ---------- ---------
Total current liabilities............... 23,867 19,558 2,000 45,425 3,799 2,421
Long-term obligations........................... 153,735 124,114 -- 277,849 1,170 11,272
Deferred income taxes........................... 11,642 818 125,147(J) 137,607 -- --
Minority interest............................... 501 -- -- 501 -- --
--------- ---------- ----------- --------- ---------- ---------
Total liabilities....................... 189,745 144,490 127,147 461,382 4,969 13,693
Total stockholders' equity...................... 147,549 63,749 126,495(K) 337,793 221 (9,711)
--------- ---------- ----------- --------- ---------- ---------
Total liabilities and stockholders' equity...... $337,294 $208,239 $ 253,642 $799,175 $5,190 $ 3,982
========= =========== =========== ========== =========== =======
<CAPTION>
PRO FORMA
COMBINED
COMPANY AND
PAGE PRO FORMA PENDING
AMERICA ADJUSTMENTS ACQUISITIONS
------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash, cash equivalents and short term
investments................................. $ -- $ (65,090)(B) $ 1,776
Accounts receivable, net...................... 852 -- 21,864
Inventory..................................... -- (1,433)(C) --
Prepaid expenses and other current assets..... 388 -- 3,593
------- ----------- -----------
Total current assets.................... 1,240 (66,523) 27,233
Property and equipment, net..................... 6,447 1,433(C) 154,552
Intangibles, net................................ 33,314 89,984(D) 692,028
Other assets.................................... 347 (26)(E) 750
------- ----------- -----------
Total Assets............................ $41,348 $ 24,868 $ 874,563
======= =========== ============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
Current liabilities:
Current maturities of long-term obligations... $ -- $ (2,677)(F) $ 260
Accounts payable and accrued expenses......... 3,219 2,382(G) 42,805
Deferred revenues and subscriber deposits..... 1,751 -- 12,658
Other current liabilities..................... -- (597)(H) --
------- ----------- -----------
Total current liabilities............... 4,970 (892) 55,723
Long-term obligations........................... -- 31,206(I) 321,497
Deferred income taxes........................... -- 9,977(J) 147,584
Minority interest............................... -- -- 501
------- ----------- -----------
Total liabilities....................... 4,970 40,291 525,305
Total stockholders' equity...................... 36,378 (15,423)(K) 349,258
------- ----------- -----------
Total liabilities and stockholders' equity...... $41,348 $ 24,868 $ 874,563
======= =========== ============
</TABLE>
See accompanying notes A-Q to this unaudited statement.
57
<PAGE> 72
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA ----------------------
HISTORICAL PRO FORMA PRO FORMA COMBINED
METROCALL A+ NETWORK(L) ADJUSTMENTS COMPANY PARKWAY(A) SATELLITE
--------- ------------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service, rent and maintenance revenue............ $ 92,160 $ 77,698 -- $169,858 $ 7,403 $10,723
Product sales.................................... 18,699 8,345 -- 27,044 2,344 1,369
--------- ------------- ----------- --------- ---------- ---------
Total revenues........................... 110,859 86,043 -- 196,902 9,747 12,092
Net book value of products sold.................. (15,527 ) (11,944) -- (27,471 ) (2,262) (1,557)
--------- ------------- ----------- --------- ---------- ---------
95,332 74,099 -- 169,431 7,485 10,535
Service, rent and maintenance expense............ 27,258 16,758 -- 44,016 2,330 3,918
Selling, marketing, general and administrative... 40,303 45,872 -- 86,175 3,655 4,281
Depreciation and amortization.................... 31,504 25,052 $ 24,514(M) 81,070 1,153 1,064
Other............................................ 2,050 -- -- 2,050 -- 404
--------- ------------- ----------- --------- ---------- ---------
Total operating expenses................. 101,115 87,682 24,514 213,311 7,138 9,667
--------- ------------- ----------- --------- ---------- ---------
(Loss) income from operations.................... (5,783 ) (13,583) (24,514) (43,880 ) 347 868
Interest expense and other, net.................. (10,522 ) (14,589) (7,574)(N) (32,685 ) (477) (740)
--------- ------------- ----------- --------- ---------- ---------
(Loss) income before taxes............... (16,305 ) (28,172) (32,088) (76,565 ) (130) 128
Benefit for taxes................................ 595 -- 7,790(P) 8,385 43 --
--------- ------------- ----------- --------- ---------- ---------
(Loss) income before extraordinary
item................................... (15,710 ) (28,172) (24,298) (68,180 ) (87) 128
Extraordinary item............................... (4,392 ) (607) -- (4,999 ) -- 5,928
--------- ------------- ----------- --------- ---------- ---------
Net (loss) income........................ $(20,102 ) $ (28,779) $ (24,298) $(73,179 ) $ (87) $ 6,056
========= =============== =========== ========== =========== =======
Net loss per common share before extraordinary
item........................................... $ (1.34 ) $ (3.29 )
Extraordinary item, net of income tax benefit.... (0.38 ) (0.24 )
--------- ---------
Net loss per share............................... $ (1.72 ) $ (3.53 )
--------- ---------
Shares used in computing net loss per share...... 11,668 20,727 (Q)
========= ==========
<CAPTION>
PRO FORMA
COMBINED
COMPANY AND
PAGE PRO FORMA PENDING
AMERICA ADJUSTMENTS ACQUISITIONS
------- ----------- -----------
<S> <C> <C> <C>
Service, rent and maintenance revenue............ $22,387 -- $ 210,371
Product sales.................................... 2,330 -- 33,087
------- ----------- -----------
Total revenues........................... 24,717 -- 243,458
Net book value of products sold.................. (1,481 ) -- (32,771)
------- ----------- -----------
23,236 -- 210,687
Service, rent and maintenance expense............ 5,538 -- 55,802
Selling, marketing, general and administrative... 12,359 -- 106,470
Depreciation and amortization.................... 6,747 7,025(M) 97,059
Other............................................ -- 2,454
------- ----------- -----------
Total operating expenses................. 24,644 7,025 261,785
------- ----------- -----------
(Loss) income from operations.................... (1,408 ) (7,025) (51,098)
Interest expense and other, net.................. (137 ) (2,728)(O) (36,767)
------- ----------- -----------
(Loss) income before taxes............... (1,545 ) (9,753) (87,865)
Benefit for taxes................................ -- 871(P) 9,299
------- ----------- -----------
(Loss) income before extraordinary
item................................... (1,545 ) (8,882) (78,566)
Extraordinary item............................... -- -- 929
------- ----------- -----------
Net (loss) income........................ $(1,545) $(8,882) $ (77,637)
======= =========== ============
Net loss per common share before extraordinary
item........................................... $ (3.68)
Extraordinary item, net of income tax benefit.... 0.04
-----------
Net loss per share............................... $ (3.64)
-----------
Shares used in computing net loss per share...... 21,364(Q)
============
</TABLE>
See accompanying notes A - Q to this unaudited statement.
58
<PAGE> 73
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL PRO FORMA ----------------------------------
----------------------- PRO FORMA COMBINED PAGE
METROCALL A+ NETWORK ADJUSTMENTS COMPANY PARKWAY(A) SATELLITE AMERICA
--------- ---------- ----------- --------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Service, rent and maintenance
revenue.......................... $23,750 $ 20,653 $ -- $ 44,403 $1,646 $ 2,591 $5,285
Product sales...................... 6,189 1,781 -- 7,970 486 279 510
--------- ---------- ----------- --------- ---------- --------- -------
Total revenues............. 29,939 22,434 -- 52,373 2,132 2,870 5,795
Net book value of products sold.... (4,650) (2,219) -- (6,869 ) (325) (261) (344)
--------- ---------- ----------- --------- ---------- --------- -------
25,289 20,215 -- 45,504 1,807 2,609 5,451
Service, rent and maintenance
expense.......................... 8,193 4,595 -- 12,788 583 959 1,439
Selling, marketing, general and
administrative................... 10,375 11,281 -- 21,656 755 919 2,876
Depreciation and amortization...... 11,491 6,552 7,926(M) 25,969 325 177 1,312
Other.............................. -- 396 -- 396 -- -- --
--------- ---------- ----------- --------- ---------- --------- -------
Total operating expenses... 30,059 22,824 7,926 60,809 1,663 2,055 5,627
--------- ---------- ----------- --------- ---------- --------- -------
(Loss) income from operations...... (4,770) (2,609) (7,926) (15,305 ) 144 554 (176)
Interest expense and other, net.... (2,855) (3,106) -- (5,961 ) (83) (303) (4)
--------- ---------- ----------- --------- ---------- --------- -------
Net income (loss) before
taxes.................... (7,625) (5,715) (7,926) (21,266 ) 61 251 (180)
(Provision) benefit for taxes...... (64) -- 2,667(P) 2,603 -- (6) --
--------- ---------- ----------- --------- ---------- --------- -------
Net income (loss).......... $(7,689) $ (5,715) $(5,259) $(18,663 ) $ 61 $ 245 $ (180)
========= =========== =========== ========== =========== ======= =======
Net loss per share................. $ (0.53) $ (0.79 )
========= ==========
Shares used in computing net loss
per share........................ 14,626 23,685 (Q)
========= ==========
<CAPTION>
PRO COMPANY AND
FORMA PENDING
ADJUSTMENTS ACQUISITIONS
----------- -----------
<S> <C> <C>
Service, rent and maintenance
revenue.......................... $ -- $ 53,925
Product sales...................... -- 9,245
----------- -----------
Total revenues............. -- 63,170
Net book value of products sold.... -- (7,799)
----------- -----------
-- 55,371
Service, rent and maintenance
expense.......................... -- 15,769
Selling, marketing, general and
administrative................... -- 26,206
Depreciation and amortization...... 2,191(M) 29,974
Other.............................. -- 396
----------- -----------
Total operating expenses... 2,191 72,345
----------- -----------
(Loss) income from operations...... (2,191) (16,974)
Interest expense and other, net.... (613)(O) (6,964)
----------- -----------
Net income (loss) before
taxes.................... (2,804) (23,938)
(Provision) benefit for taxes...... 218(P) 2,815
----------- -----------
Net income (loss).......... $(2,586) $ (21,123)
=========== ============
Net loss per share................. $ (0.87)
============
Shares used in computing net loss
per share........................ 24,322(Q)
============
</TABLE>
See accompanying notes A-Q to this unaudited statement.
59
<PAGE> 74
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
For all Pending Acquisitions involving Metrocall Common Stock, the pro
forma financial condensed combined statements assume a per share price of
$18.00. The purchase price ultimately will be based upon the trading price of
Common Stock on the closing date of each acquisition. The purchase prices and
allocations are subject to change, which may be material, based upon a variety
of factors including actual share prices at closing of each acquisition,
financial performance prior to closing of the companies to be acquired, and
asset appraisals.
(A) Historical Parkway financial statements are as of March 20, 1996, for the
11 week period ending March 20, 1996, and the year-ended December 31, 1995.
(B) Reflects estimated cash payments to A+ Network shareholders of
approximately $91.8 million pursuant to the Offer and the Shareholders'
Agreement and the payment of expected direct acquisition expenses of $6.4
million. Reflects estimated cash payments of $24.6 million, $25.4 million,
and $55.0 million, related to the Parkway, Satellite, and Page America
acquisitions, respectively, reduced by approximately $40 million in
anticipated additional borrowings under Metrocall's financing arrangements.
(C) Reflects the reclassification of pagers held for resale or future rental,
from inventory to furniture and equipment for A+ Network, Parkway, and
Satellite to conform accounting practices to those of Metrocall.
(D) Reflects fair values assigned to intangible assets acquired which consist
of the following (in thousands):
<TABLE>
<CAPTION>
A+ NETWORK PARKWAY SATELLITE PAGE AMERICA
---------- ------- --------- ------------
<S> <C> <C> <C> <C>
FCC License........................ $219,075 $17,460 $ 16,588 $ 45,311
Subscriber Lists................... 93,889 7,483 7,109 19,419
Non-compete........................ 1,950 -- -- --
Goodwill........................... 125,965 9,977 -- --
Less Historical Intangibles........ (89,011) -- (49) (33,314)
---------- ------- --------- ------------
$351,868 $34,920 $ 23,648 $ 31,416
========= ======= ======= ==========
</TABLE>
(E) Reflects primarily the deferred tax asset of Parkway for which no value has
been assigned in the pro forma statements.
(F) Reclassifies current maturities of long-term obligations to noncurrent
pursuant to the terms of Metrocall's financing arrangements.
(G) Reflects estimated accruals for costs of closing acquired duplicate
facilities, estimated severance for planned terminations of acquired
employees, and share registration rights.
(H) Reflects the elimination of other liabilities included on Satellite's
financial statements which are not assumed pursuant to the terms of the
acquisition agreement.
(I) Reflects estimated borrowings of $40 million required to finance the
Parkway, Satellite and Page America acquisitions less the $11.3 million of
Satellite long-term obligations not assumed plus the reclassification of
the current maturities of Parkway long-term obligations. Metrocall has
received commitments for the New Credit Facility. No provision for the
associated deferred financing costs has been recorded in the accompanying
pro forma statements.
(J) The A+ Network acquisition is structured as a tax free reorganization. The
Parkway Acquisition is structured as a stock purchase. The deferred income
tax liability represents the tax effect of the difference between the
amounts allocated to assets acquired and their tax basis.
(K) Reflects the shares of Metrocall Common Stock and VCRs expected to be
issued for acquisitions less historical equity amounts.
60
<PAGE> 75
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The accompanying statements under the heading "Pro Forma Combined Company"
include the expected issuance of approximately 1.26 million shares of
Metrocall Common Stock for pending acquisitions of A+ Network. Historical
financial statements for these acquisitions have not been included in the
accompanying pro forma statements as they are not significant.
(L) On October 24, 1995, A+ Network acquired Network in the A+/Network Merger
for approximately $12 million in cash, common stock valued at $50.8 million
and incurred related expenses of approximately $3.1 million. At the same
time, A+ Network sold $125,000,000 of 11 7/8% Senior Subordinated Notes due
2005 (the "Notes"). The acquisition was accounted for using the purchase
method. The following gives effect to the acquisition by A+ Network and the
sale of the Notes as if they had occurred on January 1, 1995. The unaudited
pro forma condensed financial data should be read in conjunction with A+
Network's historical consolidated financial statements and the consolidated
unaudited financial statements of Network and the notes thereto included
elsewhere herewith.
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO FORMA
A+ NETWORK NETWORK ADJUSTMENTS A+ NETWORK
---------- ------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service, rent and maintenance revenue.............. $ 53,308 $24,390 $ -- $ 77,698
Product sales...................................... 4,024 4,321 -- 8,345
---------- ------- ----------- ----------
Total revenues............................. 57,332 28,711 -- 86,043
Net book value of products sold.................... 7,878 4,066 -- 11,944
---------- ------- ----------- ----------
49,454 24,645 -- 74,099
Service, rent and maintenance expenses............. 11,584 5,533 (359)(1) 16,758
Selling, general and administrative................ 32,503 19,424 (38)(1) 45,872
(1,498)(1)
147(2)
(4,666)(3)
Depreciation and amortization...................... 14,835 3,026 7,191(4) 25,052
Reorganization..................................... 669 -- (669)(5) --
---------- ------- ----------- ----------
Total operating expenses................... 59,591 27,983 108 87,682
---------- ------- ----------- ----------
Loss from operations............................... (10,137) (3,338) (108) (13,583)
Interest expense, net.............................. (3,708) (760) (10,121)(6) (14,589)
---------- ------- ----------- ----------
Loss before income taxes and extraordinary item.... (13,845) (4,098) (10,229) (28,172)
Income taxes....................................... -- (707) 707(7) --
---------- ------- ----------- ----------
Loss before extraordinary item..................... (13,845) (4,805) (9,522) (28,172)
Extraordinary item................................. (607) -- -- (607)
---------- ------- ----------- ----------
Net loss........................................... $(14,452) $(4,805) $ (9,522) $(28,779)
=========== ======== =========== ===========
</TABLE>
----------------------
(1) Adjustment to eliminate specific operating and nonrecurring expenses
that would not have been incurred had the A+/Network Merger occurred
on January 1, 1995. Such savings are specifically identified as
follows (in thousands):
<TABLE>
<S> <C>
Reduction in long distance telephone charges................................ $ 267
Redundant paging terminals and related telephone expenses................... 92
Redundant yellow page advertising expense................................... 38
Salary costs of personnel not to be retained by A+/Network based on analysis
of A+/Network staffing requirements....................................... 1,498
------
Total............................................................... $1,895
======
</TABLE>
(2) Adjustment to provide for changes in compensation of certain
executive officers pertaining to employment contracts entered into at
the time the A+/Network Merger closed.
(3) Adjustment to eliminate compensation costs that would not have been
incurred had the A+/Network Merger occurred on January 1, 1995.
(4) To record amortization expense related to intangibles for the period
from January 1, 1995 to October 24, 1995 net of $304,000 in
historical amortization expense for intangibles recorded by Network
before the A+/Network Merger.
(5) To give effect to elimination of the non-recurring reorganization
expenses incurred by A+ Network as a result of the A+/Network Merger.
61
<PAGE> 76
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) Reflects interest expense on the Notes at 11 7/8% (plus amortization
of debt issuance costs of approximately $4.6 million and discount of
$907,500) net of interest expense ($5,270,000) applicable to all
existing long-term debt which was repaid with the proceeds from the
sale of the Notes.
(7) Adjustment to reverse the income tax provision applicable to Network,
as its taxable income would be offset by A+ Network's net operating
losses for income tax purposes had the A+/Network Merger occurred on
January 1, 1995.
(M) Reflects incremental depreciation and amortization based upon the
preliminary allocation of depreciable and amortizable assets and assumed
useful lives of 5 years for subscriber lists and 25 years for FCC licenses
and goodwill. The $1.9 million assigned to non-compete agreements in
conjunction with the A+ Network acquisition will be amortized over 3 years.
(N) Represents the estimated incremental interest at a rate of 8.25% that would
have been incurred assuming A+ Network was acquired on January 1, 1995.
(O) Represents the estimated incremental interest at a rate of 8.25% that would
have been incurred assuming that Parkway, Satellite and Page America were
acquired on January 1, 1995.
(P) Represents the tax benefit resulting from the amortization of acquired
intangibles for A+ Network and Parkway assuming an effective income tax
rate of 40%.
(Q) Includes the effect of shares of Metrocall Common Stock assumed to be
issued in the Merger and the Pending Acquisitions as if each had occurred
as of the beginning of the period.
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<PAGE> 77
RECENT DEVELOPMENTS REGARDING METROCALL
RECENT AND PENDING ACQUISITIONS
Reflected below is a summary of acquisitions by Metrocall that are
currently subject to binding agreements. Consummation of these pending
acquisitions is subject to a number of conditions including, but not limited to,
receipt of all necessary regulatory approvals. The purchase price of each
transaction is subject to adjustment based on each company's ability to meet
certain defined performance criteria.
Parkway Paging, Inc.
On February 26, 1996, Metrocall signed a definitive merger agreement (the
"Parkway Agreement") with Parkway Paging, Inc. of Plano, Texas ("Parkway") and
certain other parties listed therein whereby Parkway will become a wholly-owned
subsidiary of Metrocall. Under the terms of the Parkway Agreement, Metrocall
will acquire all of the stock of Parkway in exchange for consideration of $28
million, up to 51% of which may be issued in the form of Metrocall's common
stock at Parkway's election.
Satellite Paging and Message Network
On February 28, 1996, Metrocall signed a definitive acquisition agreement
(the "Acquisition Agreement") with Satellite Paging of Fairfield, New Jersey and
Message Network of Boca Raton, Florida. Under the terms of the Acquisition
Agreement, Metrocall will acquire all of the assets of Satellite Paging and
Message Network in exchange for $28 million cash.
Page America Group, Inc.
On April 22, 1996, Metrocall 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,
Metrocall will acquire substantially all of the assets of Page America in
exchange for $78.5 million, of which $55 million will be paid in cash and $23.5
million will be paid in the form of Metrocall's common stock.
NEW CREDIT FACILITY
Metrocall currently has a secured credit agreement with a group of lenders
for a $175 million credit facility (the "Existing Credit Facility") consisting
of a reducing revolving credit facility of $100 million and a revolving credit
and term loan facility of $75 million. The Existing Credit Facility is secured
by substantially all assets of Metrocall. The lenders under the Existing Credit
Facility have agreed to amend certain financial covenants until September 21,
1996. As a result, as of June 24, 1996 Metrocall had $175 million maximum
borrowing capacity under the Existing Credit Facility of which approximately
$63.9 million was available.
Metrocall has received commitments from The Toronto-Dominion Bank and The
First National Bank of Boston to enter into a $350 million reducing senior
secured credit facility (the "New Credit Facility"), which will replace the
Existing Credit Facility. The New Credit Facility will have a term of eight
years. Required quarterly principal repayments begin on March 31, 2000 and
continue through September 30, 2004.
Like the Existing Credit Facility, the New Credit Facility will contain
various covenants that, among other restrictions, require Metrocall to maintain
certain financial ratios, including total debt to annualized operating cash flow
(not to exceed 6.25 to 1.0 through March 31, 1997 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 will be
described in the agreement relating to the New Credit Facility). The covenants
will limit additional indebtedness and future mergers and acquisitions (other
than certain pre-approved acquisitions) without the approval of the lenders and
will restrict the payment of cash dividends and other stockholder distributions
by Metrocall during the term of the New Credit Facility. The New Credit Facility
will also prohibit certain changes in ownership control of Metrocall, as
defined, during the term of the New Credit Facility. The New Credit Facility
will restrict Metrocall from paying dividends.
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<PAGE> 78
Under the New Credit Facility, Metrocall will be able to designate all or
any portion of the borrowings outstanding as either a floating rate advance or a
Eurodollar rate advance with an applicable margin that ranges from 0.0% to
1.375% for base ("Prime") rate advances and 0.75% to 2.5% for Eurodollar rate
advances. The predefined margins will be based upon the level of indebtedness
outstanding relative to annualized cash flow, which will be defined in the
agreement relating to the New Credit Facility. 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 total outstanding debt within six months of the closing of the New
Credit Facility.
MANAGEMENT OF THE SURVIVING CORPORATION
It is anticipated that the directors and executive officers of the
Surviving Corporation will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- ---- --------------------------------------------------
<S> <C> <C>
Richard M. Johnston.............. 61 Chairman of the Board (term expires in 1999)
William L. Collins, III.......... 46 President, Chief Executive Officer and Director
(term expires in 1997)
Harry L. Brock, Jr............... 61 Director (term expires in 1999)
Ronald V. Aprahamian............. 49 Director (term expires in 1998)
Suzanne S. Brock................. 58 Director (term expires in 1997)
Francis A. Martin, III........... 53 Director (term expires in 1997)
Elliott H. Singer................ 55 Director (term expires in 1998)
Ray D. Russenberger.............. 41 Director (term expires in 1999)
Steven D. Jacoby................. 38 Chief Operating Officer and Vice President
Vincent D. Kelly................. 37 Chief Financial Officer, Treasurer and Vice
President
Charles A. Emling III............ 43 President, Southeast Region
</TABLE>
Messrs. Jacoby and Kelly are currently directors of Metrocall and have
agreed to resign as of the Effective Time. Metrocall has agreed in the Merger
Agreement to use its best efforts to cause Messrs. Singer and Russenberger to be
appointed to fill the vacancies created by such resignations.
Set forth below is certain biographical information regarding the directors
and executive officers of the Surviving Corporation.
Ronald V. Aprahamian has been a member of the Board of Directors of
Metrocall since June 1995. Mr. Aprahamian is Chairman and Chief Executive
Officer of The Compucare Company, a healthcare computer software services firm.
Mr. Aprahamian also serves as a Consulting Director for the Riggs National Bank
of Washington, D.C., and serves on the board of directors of Sunrise Assisted
Living, Inc.
Harry L. Brock, Jr. founded Metrocall and has served as Chairman of the
Board (through January 1996) and President (through August 1995) and a director
of Metrocall since 1982, and its predecessor companies since 1965. Mr. Brock was
a founding partner of Cellular One of Washington, one of the first operating
cellular systems. Mr. Brock is the husband of Suzanne S. Brock.
Richard M. Johnston has served as Chairman of the Board of Directors of
Metrocall since January 1996, and has been a member of the Board of Directors
since September 1994. Mr. Johnston has been Vice President for Investments of
The Hillman Company, an investment firm which is a greater than 5% beneficial
owner of Metrocall's Common Stock, since 1970.
Suzanne S. Brock has been a director of Metrocall since 1982 and was
Secretary (through May 1996) and Treasurer (through August 1995) of Metrocall.
Ms. Brock has been employed by Metrocall and its predecessor companies since
1965. Ms. Brock is the wife of Harry L. Brock, Jr.
William L. Collins III has been President and Chief Executive Officer of
Metrocall since January 1996 and has served as Director and Vice Chairman of the
Board since September 1994. From 1988 to 1994,
64
<PAGE> 79
Mr. Collins was the Chairman of the Board, Chief Executive Officer, President
and a director of FirstPAGE USA, Inc. and its predecessor companies. Mr. Collins
serves as Chairman of the Board of Directors of USA Telecommunications, Inc.
From 1977 to 1988, Mr. Collins was President of C&C, Inc. ("C&C"), a national
communications marketing and management company.
Francis A. Martin III has been a member of the Board of Directors of
Metrocall since November 1994. Mr. Martin is a principal of U.S. Media Group and
Chairman of the Board, President and Chief Executive officer of U.S. Media
Holdings, Inc., having previously served as President and Chief Executive
Officer of Chronicle Broadcasting Company, a publicly-held television
broadcasting company.
Ray D. Russenberger has been Vice Chairman of A+ Network since October 24,
1995, and previously served as Chairman of the Board and Chief Executive Officer
of Network since December 1988. From 1985 to 1990, he founded and was President
of Network Paging Corporation, a paging company he sold to Mobile Communications
Corporation of America, a wholly-owned subsidiary of BellSouth Corporation.
Elliott H. Singer has been Chairman of the Board since A+ Network's
formation in 1985, and also served as Chief Executive Officer of A+ Network from
1985 to January 15, 1996. Mr. Singer was the owner and chief executive officer
of A+ Network's predecessor entities, through which he had been engaged in the
telemessaging service business since 1974 and in the paging business since 1983.
Steven D. Jacoby has been Chief Operating Officer and Vice President of
Metrocall since September 1994. Mr. Jacoby joined Metrocall from FirstPAGE USA,
Inc. where he served as Chief Operating Officer, Vice President and Secretary
since 1988. Mr. Jacoby has been a director of Metrocall since September 1994.
Mr. Jacoby was a principal of C&C, a national communications marketing and
management company. Mr. Jacoby was Director of Operations for Vanguard Cellular
Systems, Inc. from 1985 to 1987.
Vincent D. Kelly has been the Chief Financial Officer and Vice President of
Metrocall since January 1989. Mr. Kelly has also served as Treasurer since
August 1995. Mr. Kelly also served dual roles as Chief Operating Officer and
Chief Financial Officer from February 1993 through August 31, 1994, when
Metrocall acquired FirstPAGE USA, Inc. Mr. Kelly has been a director of
Metrocall since 1990. Prior to joining Metrocall, Mr. Kelly was an accountant
with Bruner, Kane & McCarthy, Ltd., certified public accountants.
Charles A. Emling III has been President, Chief Operating Officer and a
director of A+ Network since October 24, 1995, and also became Chief Executive
Officer of A+ Network on January 15, 1996. Mr. Emling had previously been
President and a director of Network since 1989. Prior to such time, he was a
Vice President of First National Bank of Lafayette (Louisiana).
Certain stockholders of Metrocall holding approximately 40.4% of the issued
and outstanding shares of Metrocall Common Stock (prior to the Merger) are
parties to a voting agreement (the "Voting Agreement") pursuant to which the
stockholders agreed to vote for up to seven persons designated by various of the
stockholders to serve as directors of Metrocall. In connection with the adoption
of the Merger Agreement, these stockholders have agreed to amend the Voting
Agreement to provide for its termination effective as of the Effective Time, but
have agreed to vote in favor of the reelection of Ms. Brock when her term
expires at the next Metrocall annual meeting and in favor of the election of
Messrs. Singer and Russenberger to fill the vacancies created by the
resignations of Messrs. Jacoby and Kelly. Messrs. Singer and Russenberger have
separately agreed to vote shares of Metrocall Common Stock they hold at the next
Metrocall annual meeting in favor of the reelection of Ms. Brock.
Mr. Collins, Mr. Jacoby, and Mr. Kelly entered into new employment
contracts approved by the Compensation Committee and dated May 15, 1996. The new
contracts did not change the salary or benefits of any of those officers, except
that Metrocall will now be responsible for certain life insurance premiums
incurred by Mr. Collins. The term of employment for each of the officers was
extended to December 31, 1999 from December 31, 1996 (for Mr. Collins), August
31, 1998 (for Mr. Jacoby), and June 1, 1999 (for Mr. Kelly). In addition, Mr.
Collins' contract now includes a provision (similar to that in Messrs. Jacoby's
and Kelly's contracts) for automatic one-year extensions on anniversaries of May
15.
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<PAGE> 80
Each of Messrs. Collins', Jacoby's and Kelly's contracts provides that, if
the executive's employment is terminated without cause, if the executive
terminates the contract for good reason, or if the executive's employment is
terminated by reason of death or disability, Metrocall will pay the executive or
his estate the full base salary and benefits (in connection with termination
without cause or resignation for good reason) that would otherwise have been
paid to the executive during the remaining term of the agreement. Terminations
without cause or resignations for good reason would also require Metrocall to
pay the executive, at his election, the difference between the fair market value
of stock subject to options (including those otherwise unexercisable) and the
price he would have had to pay to exercise the options. If the executive
voluntarily terminates employment (other than for good reason), Metrocall will
pay the executive one year's base salary and benefits under the contract. The
reasons for resignation for good reason under the revised contracts include the
termination of any of the others for reasons other than cause, death, or
disability.
Messrs. Collins, Jacoby, and Kelly entered into separate change of control
agreements approved by the Compensation Committee as of May 15, 1996 to run
through December 31, 1999 (with automatic extensions). Changes of control are
defined as: (i) any action required to be reported pursuant to Item 6(e) of
Schedule 14A as a "change of control" (generally a 50% change in share ownership
but other changes may also qualify), (ii) any person's acquiring more than 25%
of the voting power of Metrocall voting stock, unless with the prior approval of
the Board, (iii) changes in Board membership such that during any two
consecutive years, Board members at the beginning constitute less than a
majority of the Board at the end (including as Board members at the beginning of
the period any directors added during the period with approval of two-thirds of
the Board), (iv) a merger or reorganization in which Metrocall does not survive
or in which the outstanding shares of Metrocall are converted into other shares
or securities (except through a reincorporation or setting up a holding
company); (v) a more than 50% turnover of voting power in a merger,
reorganization, or other similar transaction approved by stockholders, unless
75% of the Board carries over to the new entity; or (vi) any other event the
Board determines constitutes a change of control. A change of control is also
deemed to occur if the executive is removed at the request of a third party who
has taken steps to effect a change of control or the termination was otherwise
caused by a change of control. Under the change of control agreements,
executives would be entitled to payment of three times the sum of their salary
and most recent bonus within 30 days after termination of employment after a
change of control (other than termination for death, disability, or cause),
together with a payment of the option spread (as described above under
terminations of employment), paid health coverage for up to 18 months, and
certain other benefits. Payments would be grossed up, as necessary, to provide
that the executive receives his payments net of any excise taxes and any taxes
on the excise payment (but the executive would remain responsible for any income
taxes on the payment).
See "THE MERGER AND RELATED TRANSACTIONS -- Interests of Certain Persons in
the Merger" for a description of agreements with certain current directors and
officers of A+ Network.
RECENT DEVELOPMENTS REGARDING A+ NETWORK
A+/NETWORK MERGER
On October 24, 1995 A+ Network acquired Network and its wholly-owned
subsidiaries for approximately $12,000,000 in cash, 4,199,994 shares of
restricted unregistered common stock valued at $50,801,100 and incurred related
expenses of approximately $3,100,000. Concurrent with the merger of the two
companies, A+ Network changed its name to A+ Network, Inc., issued $125,000,000
of 11 7/8% Senior Subordinated Notes due 2005, redeemed existing preferred stock
of Network of $4,680,000 and retired existing indebtedness of Network and A+
Network of approximately $12,200,000 and $23,000,000, respectively. The
following table is based on information set forth in the A+ Network 10-K for the
fiscal year ended December 31, 1995 and presents a summary of the unaudited pro
forma consolidated results of operations as if the Network acquisition had
occurred on January 1, 1994, with pro forma adjustments to give effect to the
amortization of goodwill, the issuance of the 11 7/8% Senior Subordinated Notes
due 2005 (the "Notes") and certain other adjustments, together with related
income tax effects. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would
66
<PAGE> 81
have occurred had the acquisition and the issuance of the Notes been made at the
beginning of 1994 or of results which may occur in the future.
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Total revenues.......................................... $ 86,043,000 $ 77,651,000
Loss before income taxes................................ (28,172,000) (26,394,000)
Net loss................................................ (28,779,000) (26,394,000)
Loss per share.......................................... $ (2.81) $ (2.60)
</TABLE>
RECENT ACQUISITIONS
Page East, Inc.
On June 5, 1996, A+ Network acquired all of the outstanding stock of Page
East, Inc., a paging company serving eastern North Carolina. The purchase price
was $14.9 million and was paid in cash and in shares of A+ Network Common Stock.
High-Tech Paging Corporation
On May 20, 1996, A+ Network acquired the paging and telecommunications
assets of High-Tech Paging Corporation, a paging company providing paging
services in the state of Virginia and the Baltimore and Washington, D.C. areas.
The purchase price was $2.4 million and was paid in cash.
West Florida Communications, Inc.
On May 30, 1996, A+ Network acquired the paging and telecommunications
assets of West Florida Communications, Inc., a paging company providing paging
services from its Pensacola headquarters. The purchase price was $753,000 and
was paid in cash.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain items in the financial statements of A+ Network included herein
have been reclassified from the presentation set forth in A+ Network's annual
report on Form 10-K to conform to the presentation utilized in A+ Network's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. The
following discussion reflects this reclassification.
Results of Operations
Three Months Ended March 31, 1996 and 1995. Total revenues increased 75.2%
to $22.4 million in the three months ended March 31, 1996, as compared to $12.8
million for the same period in 1995. The revenue increase primarily reflected
increases in paging and voicemail units in service as described below. Net
revenues increased 88.6% to $20.2 million in the three months ended March 31,
1996, as compared to $10.7 million for the same period in 1995. Mobile
communication revenues increased 92.5% to $17.8 million in the three months
ended March 31, 1996, as compared to $9.2 million for the same period in 1995,
while telemessaging revenues increased 4.7% to $2.9 million. The growth in
mobile communication revenues reflected a 149.1% increase in paging and
voicemail units in service to 569,841 at March 31, 1996, as compared to 228,733
at March 31, 1995.
The gross margin on sales of pager equipment was $148,000 for the three
months ended March 31, 1996, as compared to $8,000 for the same period in 1995.
The negative margin on equipment sales decreased to $390,000 for the three
months ended March 31, 1996, as compared to $1.0 million for the same period in
1995. Due to competitive factors, cellular phones were sold at heavily
discounted prices or in many instances were given to customers through free
phone promotions resulting in negative gross margins on cellular equipment sales
of $538,000 and $1.0 million for the three months ended March 31, 1996 and March
31, 1995, respectively. However, it is customary to sell cellular phones at a
loss in order to earn the activation commission and expected monthly recurring
revenues from the cellular carrier.
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<PAGE> 82
Operating expenses increased 86.8% to $4.6 million (22.7% of net revenues)
during the three months ended March 31, 1996, from $2.5 million (22.9% of net
revenues) for the same period in 1995. The increase primarily reflects the
149.1% increase in paging and voicemail units in service at March 31, 1996, as
compared to March 31, 1995.
Selling expenses increased 31.8% to $3.6 million (17.8% of net revenues)
during the three months ended March 31, 1996 from $2.7 million (25.5% of net
revenues) for the same period in 1995. The increase is partially a result of the
additional sales and marketing costs associated with the 149.1% increase of
paging and voicemail units in service at March 31, 1996, as compared to March
31, 1995. Selling expenses declined as a percentage of net revenues primarily as
a result of lower advertising and commission costs.
General and administrative expenses increased 63.6% to $7.7 million (38.0%
of net revenues) during the three months ended March 31, 1996 from $4.7 million
(43.8% of net revenues) for the same period in 1995. The decline as a percentage
of net revenues is the result of a reduction in general and administrative
salaries and employee related costs related to the A+/Network Merger.
Depreciation and amortization expense increased 110.6% to $6.6 million
during the three months ended March 31, 1996, from $3.1 million for the same
period in 1995, which reflected increased depreciation and amortization expense
from equipment and intangible asset purchases and paging network equipment
acquired in the A+/Network Merger.
A+ Network experienced an operating loss of $2.6 million during the three
months ended March 31, 1996, as compared to an operating loss of $2.3 million
during the same period in 1995. The increased operating losses related primarily
to the increase in depreciation and amortization expense and a one-time
reorganization charge of $396,000, offset by a decline in other costs and
expenses (Operating, Selling and General and administrative) from 92.2% of net
revenues in the three months ended March 31, 1995 to 78.5% of net revenues in
the three months ended March 31, 1996.
Net interest expense was $3.1 million for the three months ended March 31,
1996, as compared to net interest expense of $373,000 for the same period in
1995. The increase in net interest expense was due to the increase of A+
Network's long-term debt from the issuance of its 11 7/8% Senior Subordinated
Notes due 2005 (the "Notes").
A+ Network experienced a net loss in the three months ended March 31, 1996
of $5.7 million, or $0.56 per share, as compared to a net loss of $2.6 million,
or $0.44 per share, during the same quarter in 1995.
Operating cash flow, or earnings before interest, income taxes,
depreciation and amortization (EBITDA), was $3.9 million in the three months
ended March 31, 1996, as compared to $835,000 during the same period last year.
Years Ended December 31, 1995 and 1994. Total revenues increased 16.7%
(90.0% of which or $7.4 million was a result of the A+/Network Merger) to $57.3
million in 1995, as compared to $49.1 million in 1994. The revenue increase
primarily reflected increases in paging and voicemail units in service as
described below. Net revenues increased 23.4% (69.6% of which or $6.5 million
was a result of the A+/Network Merger) to $49.5 in 1995, as compared to $40.1
million in 1994. Mobile communications revenues increased by 21.3% (91.5% of
which or $7.4 million was a result of the Merger) to $46.0 million, as compared
to $37.9 in 1994, and telemessaging revenues increased 1.2% to $11.4 million.
The increase in mobile communications revenues reflected a 32.2% increase (after
giving effect to the A+/Network Merger) in paging and voicemail units in service
during 1995. A+ Network expects the average revenues per pager unit to continue
to decrease in 1996.
The negative margin on sales of pager equipment was $822,000 for the year
ended December 31, 1995 as compared to a negative $667,000 for the year ended
December 31, 1994. The negative margin on total equipment sales was $3.9 million
for the year ended December 31, 1995 as compared to a negative $5.7 for the same
period in 1994. Due to competitive factors, cellular phones were sold at heavily
discounted prices or in many instances were given to customers through free
phone promotions resulting in a negative gross margin on cellular equipment
sales of $3.2 million for the year December 31, 1995 as compared to a negative
$5.3 million
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for the same period in 1994. However, it is customary to sell cellular phones at
a loss in order to earn the activation commission and expected monthly recurring
revenues from the cellular carrier. A+ Network has substantially decreased its
commitment of resources to cellular services, focusing more on mobile
communication services and sales.
Operating expenses increased 39.6% to $11.6 million (23.4% of net revenues)
in 1995, as compared to $8.3 million (20.7% of net revenues) in 1994; $1.3
million or 40.6% of the total increase was a result of the A+/Network Merger.
The remaining increase was incurred to support the $8.2 million increase in
total revenues for the year ended December 31, 1995, as compared to 1994.
Selling expenses decreased 1.2% or $200,000 to $10.9 million (22.1% of net
revenues) in 1995, as compared to $11.1 million (27.6% of net revenues) in 1994.
Had the A+/Network Merger not occurred, A+ Network's selling expenses would have
decreased approximately $1.6 million. This $1.6 million decrease is primarily a
result of the decrease in cellular commissions paid.
General and administrative expenses increased 28.8% to $21.6 million (43.6%
of net revenues) in 1995, as compared to $16.7 million (41.8% of net revenues)
in 1994; $1.7 million or 35.6% of the total increase in general and
administrative expenses was a result of the A+/Network Merger. A+ Network
intends to expand efforts to control increases in overhead expenses while
supporting revenue growth.
Depreciation and amortization increased 98.4% to $14.8 million in 1995, as
compared to $7.5 million in 1994. This increase reflected increased depreciation
and amortization from 1995 equipment and intangible asset purchases, paging
network equipment acquired in 1995 and 1994 from South Central Bell of $47.4
million (including the assets acquired in the A+/Network Merger), and goodwill
of $50.2 million acquired in the A+/Network Merger. In addition, a reduction of
the estimated depreciable lives of A+ Network-owned pagers and paging network
equipment acquired from South Central Bell increased depreciation expense. The
changes in estimated depreciable lives, which took effect October 1, 1994
resulted in an increase in A+ Network's depreciation expense of $3.1 million in
1995, as compared to 1994. As a result of the A+/Network Merger, depreciation
and amortization expenses increased $2.3 million or 31.8% of the total increase
in depreciation expense.
A+ Network experienced an operating loss of $10.1 million in 1995, as
compared to an operating loss of $3.5 million in 1994, primarily due to costs
associated with the A+/Network Merger and the acceleration of depreciation due
to the change in the estimated depreciable lives of the assets effective October
1, 1994. Net interest expense increased from $547,000 in 1994 to $3.2 million in
1995, due to the increase of A+ Network's long-term debt from the issuance of
the Notes.
A+ Network experienced a net loss of $14.5 million in 1995, as compared to
$4.1 million in 1994.
EBITDA was $4.7 million in 1995, as compared to $3.9 million in 1994. As a
result of the A+/Network Merger, EBITDA increased $2.1 million.
Years Ended December 31, 1994 and 1993. Total revenues increased 34.5% to
$49.1 million in 1994. The revenue increase primarily reflected increases in
paging and voicemail units in service as described below. Net revenues increased
25.3% to $40.1 million in 1994, as compared to $32.0 million in 1993. Mobile
communications revenues reflected a 70.3% increase in paging and voicemail units
in service during 1994, 49.9% of this increase in units in service being
attributable to the expansion markets.
The negative margin on pager equipment sales was $667,000 for the year
ended December 31, 1994, as compared to $102,000 in 1993. The negative margin on
equipment sales was $5.7 million for the year ended December 31, 1994 as
compared to a negative $2.2 million for the same period in 1993. Due to
competitive factors, cellular phones were sold at heavily discounted prices or
in many instances were given to customers through free phone promotions
resulting in a negative margin on cellular equipment sales of $5.3 million for
the year ended December 31, 1994 as compared to a negative $2.3 million for the
same period in 1993. However, it is customary to sell cellular phones at a loss
in order to earn the activation commission from the cellular carrier.
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Operating expenses decreased $186,000 to $8.3 million (20.7% of net
revenues) in 1994, as compared to $8.5 million in 1993 (26.5% of net revenues).
Operating expenses increased due to the initial cost incurred in the
centralization of paging operational functions, the construction and operation
of regional paging networks along the Gulf Coast and across the State of
Tennessee and expenses incurred to support the $12.6 million increase in total
revenues for the year ended December 31, 1994, as compared to December 31, 1993.
This increase was offset by a reduction of operating costs as a result of
acquiring the South Central Bell paging network equipment.
Selling expenses increased 56.7% to $11.1 million (27.6% of net revenues)
in 1994, as compared to $7.1 million (22.1% of net revenues) in 1993, due to
sales commissions and advertising incurred to achieve the 70.3% increase in
paging and voicemail units in service in 1994 and the 112.6% increase in
cellular phones activated in 1994 as compared to 1993.
General and administrative expenses increased 33.2% to $16.7 million (41.8%
of net revenues) in 1994, as compared to $12.6 million (39.3% of net revenues)
in 1993. The increase in general and administrative expenses as a percentage of
net revenues was primarily due to the initial cost incurred in centralization of
paging administrative functions.
Depreciation and amortization expense increased 73.1% to $7.5 million in
1994, as compared to $4.3 million in 1993, reflecting equipment purchases of
$19.1 million and the reduction in the estimated depreciable lives of pagers and
paging network equipment acquired from South Central Bell. The changes in
estimated depreciable lives, which took effect October 1, 1994, resulted in an
increase in A+ Network's depreciation expense of $948,000 for 1994 as compared
to 1993.
A+ Network experienced an operating loss of $3.5 million in 1994, as
compared to an operating loss of $463,000 in 1993, primarily due to selling
costs associated with a 70.3% increase in paging and voicemail units placed in
service during 1994 and the acceleration of depreciation due to the change in
the estimated depreciable lives of the assets effective October 1, 1994.
Net interest expense decreased to $547,000 in 1994, as compared to $816,000
in 1993, due to decreased average borrowings during 1994 as a result of the
initial public offering of Common Stock in August 1993.
A+ Network experienced a net loss of $4.1 million in 1994, as compared to a
net loss of $1.5 million in 1993, largely due to the construction and operation
of regional paging networks, aggressive paging and voicemail units placed in
service, and the acceleration of depreciation on pagers and paging network
equipment acquired from South Central Bell.
EBITDA increased $92,000 to $3.9 million in 1994. During 1994, EBITDA in
the expansion markets increased $1.2 million compared to 1993 while core market
EBITDA decreased $1.1 million over the same period. Core market EBITDA was
negatively impacted by the costs incurred for the construction and operation of
A+ Network's Gulf Coast and Tennessee regional paging networks and the
development of the engineering department to operate the regional networks along
with the networks acquired from South Central Bell. EBITDA was also negatively
impacted by the accelerated selling costs associated with the 70.3% increase in
paging and voicemail units in service during 1994.
Liquidity and Capital Resources
A+ Network's primary sources of capital have been cash flows from
operations, borrowings from its bank lenders, vendor financing, proceeds from A+
Network's initial public offering of Common Stock in August 1993 and proceeds
from the sale of the Notes in October 1995, further described below. Net cash
provided by operating activities was $1.9 million, $1.0 million and $2.6 million
for the years ended December 31, 1993, 1994 and 1995, respectively, and $946,000
for the three months ended March 31, 1996.
Cash provided by financing activities was $24.8 million, $11.9 million and
$92.2 million for the years ended December 31, 1993, 1994 and 1995,
respectively. No cash was provided by or used in financing activities for the
three months ended March 31, 1996. The primary source of cash in 1993 was
proceeds from the initial public offering of Common Stock. The primary source of
cash during 1994 was bank borrowings and
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borrowings to purchase pagers from Motorola under conditional sales contracts
which were repaid with a portion of the net proceeds from the sale of the Notes.
On October 24, 1995, A+ Network sold to the public $125.0 million principal
amount of its Notes. The Notes will mature on November 1, 2005, and the interest
on the Notes is payable semi-annually on May 1 and November 1 of each year,
commencing on May 1, 1996. The Notes will be redeemable by A+ Network in whole
or in part at any time on or after November 1, 2000 at certain designated
redemption prices plus interest accrued thereon to the redemption date. Upon a
change in control, A+ Network will be required to offer to purchase all
outstanding Notes at 101% of the principal amount thereof, plus interest accrued
and unpaid thereon, to the purchase date. The Notes are subordinated in right of
payment to all of A+ Network's existing and future senior debt, including any
indebtedness that may be incurred pursuant to the A+ Network New Credit Facility
(as defined below). Although A+ Network has no indebtedness outstanding which
would be subordinated to the Notes and currently has no plans to incur any such
subordinated indebtedness, the Notes will rank senior to any subordinated
indebtedness A+ Network may incur. The Indenture governing the Notes contains
customary affirmative and negative covenants.
Immediately following the sale of the Notes, Network was merged into A+
Network in a transaction accounted for as a purchase. The aggregate merger
consideration, including the redemption of preferred stock, was $16.7 million in
cash, which was provided from the net proceeds of $120.0 million from the sale
of the Notes, and 4,200,000 shares of Common Stock of A+ Network. Of the balance
of the approximately $103.3 million net proceeds from the sale of the Notes,
$35.2 million was used to retire outstanding debts of A+ Network and Network,
$14.7 million was used to purchase government securities securing the payment of
the first two interest payments on the Notes and $3.6 million was used to pay
the expenses of the A+/Network Merger, the sale of the Notes and the
establishment of the A+ Network New Credit Facility, as defined below. The
balance of approximately $49.8 million is to be used for general corporate
purposes, including possible acquisitions.
Also in connection with the A+/Network Merger, A+ Network entered into a
new credit facility with The First National Bank of Chicago ("First Chicago") to
provide the new credit facility of $25.0 million (the "A+ Network New Credit
Facility"). The $25.0 million facility is a secured two-year term loan, with
quarterly principal payments. The interest rate on the A+ Network New Credit
Facility is a base rate, plus a margin fluctuating with A+ Network's ratio of
total debt to net operating cash flow. Borrowings under the A+ Network New
Credit Facility are secured by a lien on all the assets of A+ Network, including
the stock of its subsidiaries, to the extent permissible under the rules of the
Federal Communications Commission. The loan documents contain customary
affirmative and negative covenants. In addition, A+ Network will be required to
maintain specified ratios of net operating cash flows to interest expense on
total debt, ratios of total debt to equity and other operating ratios. The
availability of borrowings under the A+ Network New Credit Facility will be
limited by certain of these ratios. Until it has achieved a substantial
improvement in its results of operations or completed a significant acquisition
of one or more other paging providers on favorable terms, A+ Network does not
anticipate being able to borrow under the A+ Network New Credit Facility.
A+ Network's paging operations require substantial capital investment to
procure pagers and paging network equipment to support its growth. By contrast,
A+ Network's telemessaging operations require substantially less capital
investment. Cash used in investing activities was $18.1 million, $21.5 million
and $82.6 million for the years ended December 31, 1993, 1994 and 1995,
respectively, and $12.0 million for the three months ended March 31, 1996. The
increase in 1995 as compared to 1994 was due to A+ Network's acquisition of
Network for a net cash consideration of $19.1 million and a net increase in
short-term investments of $42.6 million, purchased with a portion of the net
proceeds received from the sale of the Notes. In 1993, A+ Network purchased $9.9
million of certain paging assets from South Central Bell and purchased $7.3
million of equipment. In 1994, capital expenditures of $19.1 million were
primarily used to construct the Southeast Network and to purchase pagers. In
1995, A+ Network purchased $12.4 million of equipment, purchased $1.2 million of
certain paging assets of South Central Bell and put $5.0 million in escrow for
partial funding of the Page East acquisition. As of December 31, 1995, A+
Network had funded the remaining payment of $343,000 of the $2.5 million
commitment to the PCS Development Corporation ("PCSD"). This
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$2.5 million commitment represents a 6.72% interest in PCSD. A+ Network is not
required to provide any additional funding to PCSD.
Total capital expenditures during 1996 are expected to be approximately
$13.5 million, of which $11.0 million represents planned capital expenditures
for pagers and transmitters. These expenditures will be funded through the
operating cash flows or working capital. A+ Network's short-term investments
puts them in a strong position that will support their planned future
expenditures.
A+ Network has aggregate rental commitments under operating leases of $3.5
million, $3.1 million and $2.7 million during the years ended December 31, 1996,
1997 and 1998, respectively. Such rental commitments are expected to be funded
through operating cash flows.
In 1996, A+ Network acquired three paging companies for an aggregate
consideration of $18.1 million, paid in a combination of cash and shares of its
Common Stock, and also entered into agreements to purchase four additional
paging companies for an aggregate consideration of $14.6 million, payable in a
combination of cash and shares of its Common Stock. The four additional
acquisitions will be paid for with working capital, including remaining proceeds
from the sale of the Notes, and operating cash flows.
CERTAIN PROJECTIONS
During the course of discussions between Metrocall and A+ Network that led
to the execution of the Merger Agreement, A+ Network provided Metrocall with
certain non-public business and financial information about A+ Network including
projections of net revenue and earnings before interest, taxes, depreciation and
amortization ("EBITDA") for 1996 (on a pro forma basis, assuming that certain
acquisitions were completed as of January 1, 1996) and for 1997. Based on this
information Metrocall's Board of Directors considered the following projections
in connection with the Offer and the Merger.
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Net revenue....... $92,400,000 $110,800,000
EBITDA............ 23,910,000 30,910,000
</TABLE>
A+ Network does not as a matter of course make public any projections as to
future performance or earnings, and the projections set forth above are included
in this Joint Proxy Statement/Prospectus only because the information was
provided to Metrocall. The information provided to Metrocall was not prepared
with a view to public disclosure or compliance with published guidelines of the
Commission or the guidelines established by the American Institute of Certified
Public Accountants regarding projections. A+ Network's independent auditors have
not compiled, examined or performed any procedures with respect to the
projections set forth above or expressed any assurance of any kind on them or
their achievability and assumes no responsibility for them. Neither Metrocall
nor A+ Network, nor either of their financial advisors, assumes any
responsibility for the accuracy of these projections. While presented with
numerical specificity, these projections are based upon a variety of assumptions
relating to the business of A+ Network which may not be realized and are subject
to significant uncertainties and contingencies, all of which are difficult to
predict and many of which are beyond the control of A+ Network. These
assumptions include, without limitation, A+ Network's ability to continue to
realize historical internal growth rates, to close and integrate acquisitions
that are currently in various stages of negotiation and to realize operating
margin improvements. Although A+ Network believes that the assumptions
underlying the projections are reasonable, any of the assumptions could be
inaccurate and the uncertainties and contingencies referred to above may arise.
Therefore there can be no assurance that the projections will prove to be
accurate. In light of the significant uncertainties inherent in the projections
included herein, the inclusion of such information should not be regarded as a
representation by A+ Network, Metrocall or any other person that the objectives
and plans of A+ Network will be achieved. There can be no assurance that the
projections will be realized, and actual results may vary materially and
adversely from those shown. The projections constitute forward-looking
statements within the meaning of Section 27A of the Securities Act, and Section
21E of the Exchange Act, and are intended to be covered by the safe harbors
created thereby. See "RISK FACTORS -- Forward Looking Statements."
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AMENDMENT OF METROCALL CHARTER TO INCREASE THE NUMBER
OF AUTHORIZED METROCALL SHARES
The Board of Directors of Metrocall has determined that it is advisable to
increase the authorized number of shares of Metrocall Common Stock by 7,500,000
shares, from 26,000,000 shares to 33,500,000 shares and has voted to recommend
that the stockholders approve and adopt the Charter Amendment to effect the
proposed increase. Adoption of the Charter Amendment is not necessary to
complete, and is not a condition to completion of, the Merger.
APPROVAL BY THE STOCKHOLDERS OF THE PROPOSED INCREASE IN AUTHORIZED COMMON
STOCK WILL CONSTITUTE ADOPTION OF THE AMENDMENT.
As of August 1, 1996, shares of Metrocall Common Stock were
issued and outstanding or reserved for issuance pursuant to Metrocall's existing
stock option and purchase plans. Metrocall anticipates that up to approximately
8,173,749 additional shares of Metrocall Common Stock will be issued in the
Merger, leaving shares available for future issuance. As many as
additional shares may be issued in connection with other Pending Acquisitions.
The Board of Directors believes it to be in the best interests of Metrocall
to authorize additional shares of Metrocall Common Stock to provide flexibility
for corporate action in the future. In addition, management believes that the
availability of additional authorized shares for issuance from time to time in
the Board's discretion in connection with possible future financings, investment
opportunities, acquisitions of other companies, stock splits, dividends or
option grants or for other corporate purposes is desirable in order to avoid
repeated separate amendments to the Metrocall Certificate and the delay and
expense incurred in holding meetings of stockholders to approve such amendments.
The Charter Amendment will also ensure that sufficient shares are available in
the event that the Surviving Corporation elects to make any payment on the VCRs
in Metrocall Common Stock.
No further authorization by vote of the stockholders will be solicited for
the issuance of the additional shares of Metrocall Common Stock proposed to be
authorized, except as might be required by law, regulatory authorities or rules
of the NNM or any stock exchange on which Metrocall's shares may then be listed.
The stockholders of Metrocall do not have any preemptive right to purchase or
subscribe for any part of any new or additional issuance of Metrocall's
securities. Further issuances of Metrocall Common Stock by Metrocall may be
dilutive to its stockholders.
The affirmative vote of a majority of the Metrocall Common Stock
outstanding and entitled to vote as of the record date is required to approve
the amendment to the Metrocall Certificate. The Board of Directors considers
this amendment to be advisable and in the best interests of Metrocall and its
stockholders and recommends that such stockholders vote FOR approval and
adoption of the Charter Amendment.
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AMENDMENT TO INCREASE THE NUMBER OF SHARES THAT MAY BE ISSUED
UNDER THE 1996 STOCK OPTION PLAN
The Board of Directors proposes that the stockholders of Metrocall approve
the First Amendment (the "Plan Amendment") to the Metrocall, Inc. 1996 Stock
Option Plan (the "1996 Stock Option Plan" or the "Plan"). The Plan Amendment,
attached hereto as Exhibit E, increases the number of shares of Common Stock
authorized for issuance under the Plan from 1,000,000 to 2,000,000 to provide
sufficient stock to honor options granted by A+ Network and that will be
converted into options to acquire Metrocall Common Stock as a result of the
Merger, and for other appropriate grants. See "THE MERGER AGREEMENT AND TERMS OF
THE MERGER -- Treatment of Stock Options." The following summary description of
the 1996 Stock Option Plan is qualified in its entirety by reference to the full
text of the 1996 Stock Option Plan.
GENERAL
Purpose. The 1996 Stock Option Plan offers eligible employees and
non-employee directors the opportunity to purchase shares of Metrocall Common
Stock. The Plan is intended to encourage employees and non-employee directors to
acquire an equity interest in Metrocall, which thereby will create a stronger
incentive to expend maximum effort for the growth and success of Metrocall and
its subsidiaries. Funds received by Metrocall under the Plan may be used for any
general corporate purpose.
Eligibility. All employees of Metrocall and certain subsidiaries and those
nonemployee directors who have never been employees of Metrocall and its
subsidiaries ("Eligible Directors") are eligible to participate in the 1996
Stock Option Plan. As of August 1, 1996, there were approximately employees
and two directors eligible to receive grants under this Plan.
Shares Available Under the 1996 Stock Option Plan. If the stockholders of
Metrocall approve the Plan Amendment, the 1996 Stock Option Plan will authorize
the issuance of up to 2,000,000 shares of Metrocall Common Stock. The number of
shares issuable under the Plan will be adjusted for stock dividends, stock
splits, reclassifications and other changes affecting Metrocall's Common Stock.
If any option granted under the 1996 Stock Option Plan expires or terminates
prior to exercise in full, the shares subject to that option shall be available
for future grants under the Plan. The maximum number of shares that may be
acquired under the Plan by any individual is 750,000 shares, subject to
adjustment for stock dividends, stock splits, reclassifications, corporate
transactions or other changes affecting Metrocall Common Stock. Because the Plan
provides for discretionary grants of options, the specific amounts to be granted
to particular persons cannot be determined in advance.
Administration. The 1996 Stock Option Plan is administered by the
Compensation Committee of the Board of Directors (the "Committee"). The
Committee will have the sole authority and discretion to select employees to
participate in the Plan, to grant options to employees under the Plan, to
specify the terms and conditions of options granted to employees (within the
limitations of the Plan) and to otherwise interpret and construe the terms of
the Plan and any agreements governing options granted under the Plan. The
Committee has no discretion over the options granted to Eligible Directors.
OPTIONS GRANTED UNDER THE PLAN
General. All options granted under the Plan will be evidenced by a written
agreement setting forth the terms and conditions governing the option. The
Committee has broad discretion to determine the timing, amount, exercisability
and other terms and conditions of options granted to employees, but shall have
no discretion over the terms and conditions of options granted to Eligible
Directors. No options granted under the Plan are assignable or transferable,
other than by will or in accordance with the laws of descent and distribution.
Options Granted to Employees. Both incentive stock options and
non-statutory stock options are available for employees under the 1996 Stock
Option Plan. For incentive stock options, the option price shall be not less
than the fair market value of a share of Metrocall Common Stock on the date the
option is granted. However, if the employee receiving the option is a more than
10% owner of Metrocall Common Stock, the option price
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<PAGE> 89
shall not be less than the greater of par value or 110% of the fair market value
of a share of Metrocall Common Stock on the date the option is granted. For
non-statutory options, the option price shall be not less than the par value of
the Metrocall Common Stock. The closing price of a share of Metrocall Common
Stock, as reported on NNM on August , 1996 was $ .
Options Granted to Directors. All options granted to Eligible Directors
shall be non-statutory options. On the effective date of the Plan, all Eligible
Directors were granted an initial option to purchase 10,000 shares of Metrocall
Common Stock. Thereafter, every Eligible Director will be granted an initial
option to purchase 10,000 shares of Metrocall Common Stock at the time such
Eligible Director commences service on the Board of Directors. Subsequently,
each Eligible Director who received an initial grant of an option shall receive
an additional option to purchase 1,000 shares of Metrocall Common Stock on each
anniversary of the initial option, provided that the director continues to be an
Eligible Director on each anniversary date. Options granted to Eligible
Directors shall become fully vested six months after the date of grant. The
exercise price for options granted to Eligible Directors shall be the fair
market value of the Metrocall Common Stock on the date the option is granted or
the date of shareholder approval of the Plan, if later.
Exercise. Options granted under the 1996 Stock Option Plan to employees or
Eligible Directors may be exercised by delivery to the Committee of a written
notice of exercise. The notice must specify the number of shares being exercised
and must be accompanied by payment in full of the option price for the shares
being exercised (unless the optionee's written notice of exercise directs that
the stock certificates for the shares issued upon the exercise be delivered to a
licensed broker acceptable to Metrocall as the agent for the optionee and at the
time the stock certificates are delivered to the broker, the broker tenders to
Metrocall cash or cash equivalents acceptable to Metrocall equal to the exercise
price).
The option price may be paid as permitted by the option agreement, (a) in
cash or certified check; (b) by tendering shares of Metrocall Common Stock that
the optionee has held for at least 6 months or acquired under an option granted
not less than 6 months prior and that shall be valued at the fair market value
on the date of exercise; or (c) any combination of these methods. An optionee
shall not have any of the rights of a stockholder until payment in full for the
shares is received and a stock certificate is issued. In addition, with respect
to options granted to employees, options may be exercised by any other method
that the Committee prescribes.
For options granted to employees, the Committee may prescribe in the option
agreement that the optionee may elect to satisfy any federal, state or local
withholding tax requirements by directing Metrocall to apply shares of Metrocall
Common Stock to which the optionee is entitled as a result of the exercise of
the option in order to satisfy such withholding requirements.
Termination of Service. The Committee has discretion to fix the period in
which options granted to employees may be exercised after termination of
employment. Vested options granted to Eligible Directors remain exercisable for
the remaining term of the option (see "Term of Options," below).
Term of Options. Each option granted under the Plan will terminate no later
than 10 years after the date the option is granted. However, options intended to
be incentive stock options granted to employees under the Plan will expire no
later than 5 years after the date of the grant if the option is granted to an
employee who owns (or is deemed to own) more than 10% of the outstanding
Metrocall Common Stock.
AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors may amend or terminate the 1996 Stock Option Plan at
any time and from time to time, provided however, that no amendment shall,
without the approval of a majority of the stockholders of Metrocall (a)
materially change the eligibility requirements for receiving options under the
Plan; (b) increase the aggregate number of shares of Metrocall Common Stock that
may be issued pursuant to the Plan; or (c) materially increase the benefits
provided under the Plan. The Plan will terminate no later than 10 years after
its effective date. To the extent necessary to comply with Rule 16b-3 of the
Securities Exchange Act of 1934, the 1996 Stock Option Plan provisions governing
options granted to Eligible Directors may not be
75
<PAGE> 90
amended more than once every six months, other than to comport with changes in
the Internal Revenue Code (the "Code") or the Employee Retirement Income
Security Act of 1974 or the regulations thereunder.
TAX CONSEQUENCES
The following is a general summary of the federal income tax treatment of
incentive stock options and non-qualified stock options that have been or will
be granted under the 1996 Stock Option Plan based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code") and regulations
promulgated thereunder.
Incentive Stock Options. Incentive stock options granted to employees under
the 1996 Stock Option Plan are intended to meet the requirements of Code section
422. No tax consequences result from the grant of the option. If an option
holder acquires stock upon the exercise, no income will be recognized by the
option holder for ordinary income tax purposes (although the difference between
the option exercise price and the fair market value of the stock subject to the
option may result in alternative minimum tax liability to the option holder) and
Metrocall will be allowed no deduction as a result of the exercise, if the
following conditions are met: (a) at all times during the period beginning with
the date of the granting of the option and ending on the day three months before
the date of such exercise, the option holder is an employee of Metrocall or of a
subsidiary; and (b) the option holder makes no disposition of the stock within
two years from the date the option is granted nor within one year after the
stock is transferred to the option holder. In the event of a sale of such stock
by the option holder after compliance with these conditions, any gain realized
over the price paid for stock will ordinarily be treated as long-term capital
gain, and any loss will be treated as a long-term capital loss, in the year of
the sale.
If the option holder fails to comply with the employment or holding period
requirements discussed above, the option holder will recognize ordinary income
in an amount equal to the lesser of (i) the difference between the fair market
value of the Metrocall Common Stock received upon exercise and the option
exercise price or (ii) the excess of the amount realized upon such disposition
over the exercise price. If the option holder is treated as having received
ordinary income because of his failure to comply with either condition above, an
equivalent deduction will be allowed to Metrocall in the same year.
Nonqualified Stock Options. No tax consequences result from the grant of a
nonqualified stock option. An option holder who exercises a non-qualified stock
option with cash generally will realize compensation taxable as ordinary income
in an amount equal to the difference between the fair market value of the option
shares on the date of exercise and the option exercise price, and Metrocall will
be entitled to a deduction from income in the same amount. The option holder's
basis in such shares will be the fair market value of the shares on the date
exercised, and when the shares are disposed of, capital gain or loss, either
long-term or short-term, will be recognized depending on the holding period of
the shares.
STOCKHOLDER APPROVAL
Approval of the Plan Amendment will require the affirmative vote of the
holders of a majority of the shares of Metrocall Common Stock present in person
or by proxy at the Metrocall Meeting. For purposes of determining the number of
shares present or represented, abstentions will be counted (and will, therefore,
be equivalent to a vote against), but broker non-votes will not be counted.
Failure of the stockholders to approve the Plan Amendment will cause the
Amendment to be of no force and effect.
76
<PAGE> 91
NEW PLAN BENEFITS
The following benefits have been awarded under the 1996 Stock Option Plan:
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF SHARES
------------------------------------------------------------- ----------------
<S> <C>
William L. Collins, III, President
and Chief Executive Officer................................ 0
Vincent D. Kelly, Chief Financial
Officer, Treasurer, and Vice President..................... 0
Steven D. Jacoby, Chief Operating
Officer and Vice President................................. 0
Executive Group.............................................. 0
Non-Executive Director Group................................. 20,000
Non-Executive Officer Employee Group......................... 140,000
</TABLE>
Additional benefits to be awarded under the Plan have not been determined
at this time.
The Board of Directors recommends that you vote FOR the approval and
adoption of the Plan Amendment.
LEGAL MATTERS
The validity of the Metrocall Common Stock to be issued in connection with
the Merger will be passed upon by Wilmer, Cutler & Pickering, Washington, D.C.
Certain legal issues of the Merger will be passed upon for Metrocall by Wilmer,
Cutler & Pickering, Washington, D.C. and for A+ Network by Waller Lansden Dortch
& Davis, Nashville, Tennessee.
77
<PAGE> 92
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
-----------
<S> <C>
METROCALL, INC.
Report of Arthur Andersen LLP, Independent Public Accountants................... F-3
Consolidated Balance Sheets, December 31, 1994, 1995 and March 31, 1996......... F-4
Consolidated Statements of Operations for the Three Years Ended December 31,
1993, 1994 and 1995 and for the Three Months Ended March 31, 1995 and 1996.... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Three Years
Ended December 31, 1993, 1994 and 1995 and the Three Months Ended March 31,
1996.......................................................................... F-6
Consolidated Statements of Cash Flows for the Three Years Ended December 31,
1993, 1994 and 1995 and for the Three Months Ended March 31, 1995 and 1996.... F-7
Notes to Consolidated Financial Statements...................................... F-8
A+ NETWORK, INC.
Independent Auditors' Report.................................................... F-25
Consolidated Balance Sheets, December 31, 1994, 1995 and March 31, 1996
(Unaudited)................................................................... F-26
Consolidated Statements of Operations Years Ended December 31, 1993, 1994 and
1995 and Three Months Ended March 31, 1995 and 1996 (Unaudited)............... F-27
Consolidated Statements of Stockholders' Equity (Deficit) Years Ended December
31, 1993, 1994 and 1995 and Three Months Ended March 31, 1996 (Unaudited)..... F-28
Consolidated Statements of Cash Flows Years Ended December 31, 1993, 1994 and
1995 and Three Months Ended March 31, 1995 and 1996 (Unaudited)............... F-29
Notes to Consolidated Financial Statements...................................... F-30
NETWORK PAGING CORPORATION
Report of Price Waterhouse LLP, Independent Certified Public Accountants........ F-42
Consolidated Balance Sheets, December 31, 1993 and 1994......................... F-43
Consolidated Statements of Operations for the Two Years Ended December 31, 1993
and 1994...................................................................... F-44
Consolidated Statements of Shareholders' Equity (Deficit) for the Two Years
Ended December 31, 1993 and 1994.............................................. F-45
Consolidated Statements of Cash Flows for the Two Years Ended December 31, 1993
and 1994...................................................................... F-46
Notes to Consolidated Financial Statements...................................... F-47
Unaudited Consolidated Statements of Operations Periods Ended October 31, 1994
and October 24, 1995.......................................................... F-56
Unaudited Consolidated Statements of Shareholders' Equity Periods Ended October
31, 1994 and October 24, 1995................................................. F-57
Unaudited Consolidated Statements of Cash Flows Periods Ended October 31, 1994
and October 24, 1995.......................................................... F-58
Notes to Unaudited Consolidated Financial Statements............................ F-59
PARKWAY PAGING, INC.
Report of Hutton, Patterson & Company, Independent Public Accountants........... F-60
Balance Sheets, December 31, 1994, 1995 and March 20, 1996...................... F-61
Statements of Income and Retained (Deficit) Earnings for the Years Ended
December 31, 1995, 1994 and 1993 and the Quarters Ended March 20, 1995 and
1996.......................................................................... F-62
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993
and the Quarters Ended March 20, 1995 and 1996................................ F-63
Notes to Financial Statements................................................... F-64
O.R. ESTMAN, INC. AND DANA PAGING, INC. DBA SATELLITE PAGING
Report of Arthur Andersen LLP, Independent Public Accountants................... F-72
Combined Balance Sheets, December 31, 1995 and March 31, 1996................... F-73
</TABLE>
F-1
<PAGE> 93
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Combined Statements of Operations and Accumulated Deficit for the Year Ended
December 31, 1995 and the Three-Month Periods Ended March 31, 1995 and 1996... F-74
Combined Statements of Cash Flows for the Year Ended December 31, 1995 and the
Three-Month Periods Ended March 31, 1995 and 1996............................. F-75
Notes to Combined Financial Statements.......................................... F-76
PAGE AMERICA GROUP, INC.
Report of Ernst & Young, LLP, Independent Auditors.............................. F-81
Statements of Net Assets, December 31, 1994 and 1995 and March 31, 1996......... F-82
Statements of Operations and Net Assets for the Three Years Ended December 31,
1993, 1994 and 1995 and for the Three Months Ended March 31, 1995 and 1996.... F-83
Statements of Cash Flows for the Three Years Ended December 31, 1993, 1994 and
1995 and for the Three Months Ended March 31, 1995 and 1996................... F-84
Notes to Financial Statements................................................... F-85
</TABLE>
F-2
<PAGE> 94
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metrocall, Inc.:
We have audited the accompanying consolidated balance sheets of Metrocall,
Inc. and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metrocall, Inc. and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington D.C.,
February 8, 1996 (except with respect
to the matters discussed in Note 13 as
to which the date is February 28, 1996)
F-3
<PAGE> 95
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:...........................................
Cash and cash equivalents............................... $ 2,773 $123,574 $ 115,150
Accounts receivable, less allowance for doubtful
accounts of $1,150, $968 and $892 as of December 31,
1994 and 1995, and March 31, 1996 respectively....... 6,231 9,785 9,345
Prepaid expenses and other current assets............... 838 1,908 1,750
-------- -------- -----------
Total current assets............................ 9,842 135,267 126,245
-------- -------- -----------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements.............. 9,667 9,900 10,003
Furniture, office equipment and vehicles................ 6,998 12,794 14,189
Paging and plant equipment.............................. 78,463 103,427 113,972
Less -- Accumulated depreciation and amortization....... (36,927) (50,175) (55,209)
-------- -------- -----------
58,201 75,946 82,955
-------- -------- -----------
INTANGIBLE ASSETS, net of accumulated amortization of
approximately $11,466, $8,875 and $10,450 as of December
31, 1994 and 1995, and March 31, 1996, respectively..... 131,962 129,085 127,802
OTHER ASSETS.............................................. 575 316 292
-------- -------- -----------
TOTAL ASSETS.............................................. $200,580 $340,614 $ 337,294
======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.................... $ 443 $ 252 $ 260
Accounts payable........................................ 7,340 9,390 9,651
Deferred revenues and subscriber deposits............... 3,408 1,950 2,561
Other current liabilities............................... 3,928 7,666 11,395
-------- -------- -----------
Total current liabilities....................... 15,119 19,258 23,867
-------- -------- -----------
CAPITAL LEASE OBLIGATION, less current maturities......... 3,057 2,849 2,799
LONG-TERM DEBT, less current maturities................... 101,346 150,954 150,936
DEFERRED INCOME TAX LIABILITY............................. 12,500 11,814 11,642
MINORITY INTEREST IN PARTNERSHIP.......................... 422 501 501
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 1,000,000
shares authorized; none issued and outstanding....... -- -- --
Common stock, par value $.01 per share; 20,000,000
shares authorized; 10,610,673, 14,626,255 and
14,626,255 shares issued and outstanding as of
December 31, 1994 and 1995 and March 31, 1996,
respectively......................................... 106 146 146
Additional paid-in capital.............................. 94,792 201,956 201,956
Accumulated deficit..................................... (26,762) (46,864) (54,553)
-------- -------- -----------
68,136 155,238 147,549
-------- -------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $200,580 $340,614 $ 337,294
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 96
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Service, rent and maintenance............................ $ 33,111 $ 49,716 $ 92,160 $ 22,109 $ 23,750
Product sales............................................ 4,549 8,139 18,699 3,688 6,189
--------- --------- ---------- ---------- ----------
Total revenues.................................... 37,660 57,855 110,859 25,797 29,939
Net book value of products sold.......................... (4,130) (6,962) (15,527) (3,153) (4,650)
--------- --------- ---------- ---------- ----------
33,530 50,893 95,332 22,644 25,289
OPERATING EXPENSES:
Service, rent and maintenance............................ 9,559 14,014 27,258 6,297 8,193
Selling and marketing.................................... 4,945 7,412 15,656 3,963 4,593
General and administrative............................... 8,103 13,315 24,647 5,849 5,782
Depreciation and amortization............................ 6,525 13,829 31,504 5,769 11,491
Management reorganization charge (Note 3)................ -- -- 2,050 -- --
Forgiveness of stockholder notes receivable (Note 8)..... 4,831 -- -- -- --
--------- --------- ---------- ---------- ----------
33,963 48,570 101,115 21,878 30,059
--------- --------- ---------- ---------- ----------
(Loss) income from operations..................... (433) 2,323 (5,783) 766 (4,770)
INTEREST AND OTHER INCOME (EXPENSE)........................ 77 161 2,011 (17) 1,354
INTEREST EXPENSE........................................... (1,331) (3,726) (12,533) (2,579) (4,209)
--------- --------- ---------- ---------- ----------
LOSS BEFORE INCOME TAX (PROVISION) BENEFIT AND
EXTRAORDINARY ITEM....................................... (1,687) (1,242) (16,305) (1,830) (7,625)
INCOME TAX (PROVISION) BENEFIT............................. (59) 152 595 140 (64)
--------- --------- ---------- ---------- ----------
NET LOSS BEFORE EXTRAORDINARY ITEM......................... (1,746) (1,090) (15,710) (1,690) (7,689)
EXTRAORDINARY ITEM: Write-off of unamortized debt financing
costs, net of income tax benefit of $0, $36 and $0 for
the years ended December 31, 1993, 1994 and 1995,
respectively (Note 7).................................... (439) (1,309) (4,392) -- --
--------- --------- ---------- ---------- ----------
Net loss.......................................... $ (2,185) $ (2,399) $ (20,102) $ (1,690) $ (7,689)
========= ========= ========== ========== ==========
NET LOSS PER COMMON SHARE:
Loss per common share before extraordinary item............ $ (0.14) $ (1.34) $ (0.16) $ (0.53)
Extraordinary item, net of income tax benefit.............. (0.16) (0.38) -- --
--------- ---------- ---------- ----------
NET LOSS PER COMMON SHARE.................................. $ (0.30) $ (1.72) $ (0.16) $ (0.53)
--------- ---------- ---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................. 8,127,679 11,668,140 10,602,148 14,626,255
========= ========== ========== ==========
PRO FORMA NET LOSS DATA (UNAUDITED):
Loss before benefit for income taxes and extraordinary
item, as reported...................................... $ (1,687)
Pro forma income tax benefit............................. 673
---------
Pro forma net loss before extraordinary item............. (1,014)
Extraordinary item, net of income tax benefit of $175.... (264)
---------
PRO FORMA NET LOSS....................................... $ (1,278)
=========
PRO FORMA NET LOSS PER COMMON SHARE DATA (UNAUDITED):
Pro forma net loss per common share before extraordinary
item................................................... $ (0.11)
Extraordinary item, net of pro forma income tax
benefit................................................ (0.04)
---------
PRO FORMA NET LOSS PER COMMON SHARE........................ $ (0.15)
=========
PRO FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING....... 6,597,209
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 97
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
ADDITIONAL RECEIVABLE
PREFERRED COMMON PAID-IN ACCUMULATED FROM
STOCK STOCK CAPITAL DEFICIT STOCKHOLDERS TOTAL
--------- ------ ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992................ $ -- $ 40 $ 1,480 $ (8,063) $ (4,831) $(11,374)
Distributions to Subchapter S
stockholders:
Federal and state income taxes
payable.............................. -- -- -- (2,568) -- (2,568)
Previously undistributed Subchapter S
earnings............................. -- -- -- (11,547) -- (11,547)
Forgiveness of notes receivable from
stockholders (Note 8)................ -- -- -- -- 4,831 4,831
Net proceeds from initial public
offering (including underwriters'
options exercised) (Note 8).......... -- 31 36,541 -- -- 36,572
Net loss................................ -- -- -- (2,185) -- (2,185)
--------- ------ ---------- ----------- ------------ --------
BALANCE, December 31, 1993................ -- 71 38,021 (24,363) -- 13,729
Shares issued in acquisition of
FirstPAGE (Note 4)................... -- 29 45,161 -- -- 45,190
Shares issued in acquisition of
MetroPaging (Note 4)................. -- 6 11,610 -- -- 11,616
Net loss................................ -- -- -- (2,399) -- (2,399)
--------- ------ ---------- ----------- ------------ --------
BALANCE, December 31, 1994................ -- 106 94,792 (26,762) -- 68,136
MetroPaging acquisition purchase price
adjustment (Note 4).................. -- -- (105) -- -- (105)
Exercise of stock options............... -- -- 46 -- -- 46
Net proceeds from public offering (Note
8)................................... -- 40 106,938 -- -- 106,978
Compensation on amendment of stock
options in management reorganization
(Note 3)............................. -- -- 285 -- -- 285
Net loss................................ -- -- -- (20,102) -- (20,102)
--------- ------ ---------- ----------- ------------ --------
BALANCE, December 31, 1995................ 146 201,956 (46,864) -- 155,238
Net loss (unaudited).................... -- -- -- (7,689) -- (7,689)
--------- ------ ---------- ----------- ------------ --------
BALANCE, March 31, 1996 (unaudited)....... $ -- $146 $ 201,956 $ (54,553) -- $147,549
======= ====== ======== ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 98
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $ (2,185) $ (2,399) $(20,102) $(1,690) $ (7,689)
Adjustments to reconcile net loss to net cash
provided by operating activities --
Depreciation and amortization................... 6,525 13,829 31,504 5,769 11,491
Compensation on amendment of stock options in
management reorganization..................... -- -- 285 -- --
Amortization of debt financing costs............ 73 296 595 82 72
Decrease in deferred income taxes............... -- (200) (686) (172) (172)
Interest expense in excess of lease payment..... -- 27 -- -- --
Loss on sale of equipment....................... -- 19 3 -- --
Forgiveness of stockholder notes receivable
(Note 8)...................................... 4,831 -- -- -- --
Extraordinary item: Write-off of unamortized
debt financing costs (Note 7)................. 439 1,309 4,392 -- --
Cash provided by (used in) changes in current
assets and liabilities, net of effects from
acquisitions:
Accounts receivable............................. (791) (1,721) (3,554) (61) 440
Prepaid expenses and other current assets....... 469 (236) (1,070) 86 158
Accounts payable................................ 2,307 652 2,050 322 261
Deferred revenues............................... 224 448 (736) 179 611
Subscriber deposits............................. (227) (357) (722) -- --
Other current liabilities....................... (736) 129 3,738 268 3,729
-------- -------- -------- ------- --------
Net cash provided by operating
activities............................... 10,929 11,796 15,697 4,783 8,901
-------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net.......... (13,561) (19,091) (44,058) (8,727) (16,889)
Additions to intangibles.......................... (162) (641) (3,592) (226) (400)
Cash acquired in acquisitions, net of costs
incurred (Note 4)............................... -- 497 -- -- --
Payment received on related-party notes
receivable...................................... 94 -- -- -- --
Net distributions from partnership investments.... 31 -- -- -- --
Proceeds from sale of equipment................... -- -- 1,166 -- --
Other............................................. -- 8 259 35 24
-------- -------- -------- ------- --------
Net cash used in investing activities...... (13,598) (19,227) (46,225) (8,918) (17,265)
-------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from public offering of common
stock........................................... 36,572 -- 106,978 -- --
Proceeds from long-term debt...................... 10,500 24,781 163,000 6,000 --
Principal payments on long-term debt.............. (29,540) (12,788) (113,790) (48) (60)
Proceeds from exercise of common stock options.... -- -- 46 -- --
Deferred debt financing costs..................... (1,479) (2,879) (4,984) -- --
Distributions to Subchapter S stockholders........ (14,115) -- -- -- --
Increase (decrease) in minority interest in
partnership..................................... 45 76 79 (2) --
-------- -------- -------- ------- --------
Net cash provided by (used in) financing
activities............................... 1,983 9,190 151,329 5,950 (60)
-------- -------- -------- ------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS....................................... (686) 1,759 120,801 1,815 (8,424)
CASH AND CASH EQUIVALENTS, beginning of period...... 1,700 1,014 2,773 2,773 123,574
-------- -------- -------- ------- --------
CASH AND CASH EQUIVALENTS, end of period............ $ 1,014 $ 2,773 $123,574 $ 4,588 $115,150
========= ========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 99
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION
Metrocall, Inc. ("Metrocall"), provides local and regional paging services
in the Northeast, Mid-Atlantic and Southeast regions and in California, Nevada
and Arizona. In the East, Metrocall's coverage extends from Southern Florida
through the Carolinas to the Tidewater, Richmond and Roanoke areas of Virginia
through Washington, D.C., Baltimore, Philadelphia, and Atlantic City to New York
City and Boston. In the West, Metrocall's coverage extends from Southern
California, Central California, greater San Francisco and Sacramento through
Reno, Las Vegas and Phoenix. Metrocall also provides nationwide wireless
communications to pagers, data terminals, personal computers and personal
digital assistants throughout the top 100 Standard Metropolitan Statistical
Areas representing approximately 860 U.S. cities through the Metrocall
Nationwide Wireless Network.
On August 31, and November 29, 1994, Metrocall acquired FirstPAGE USA, Inc.
("FirstPAGE") and MetroPaging Inc. ("MetroPaging", formerly AllCity Paging,
Inc.), respectively, which are now wholly-owned subsidiaries of Metrocall.
FirstPAGE provides paging services in the Mid-Atlantic and Northeast regions of
the United States. MetroPaging provides paging services throughout California
including San Francisco, Los Angeles and San Diego. On April 28, 1995, FirstPAGE
and MetroPaging were merged into Metrocall and those entities were dissolved.
The 1993 consolidated financial statements do not include FirstPAGE and
MetroPaging since they were not affiliated with Metrocall prior to the
acquisition dates. The consolidated statement of operations for the year ended
December 31, 1994, includes the results of operations of FirstPAGE and
MetroPaging since their respective acquisition dates.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
In addition to Metrocall, the accompanying consolidated financial
statements include the accounts of Metrocall's 61% interest in Beacon Peak
Associates Ltd. ("Beacon Peak"), Metrocall's 20% interest in Beacon
Communications Associates ("Beacon Communications"), and Metrocall of Virginia,
Inc. and Metrocall, USA, Inc., nonoperating wholly-owned subsidiaries which hold
certain of the Company's regulatory licenses used by the Federal Communications
Commission (the "FCC"). The companies are collectively referred to herein as the
"Company".
Beacon Communications owns the building which is the Company's
headquarters. Since Beacon Communications' debt related to the building is
guaranteed by the Company's lease (expiring 2008) and because the Company has
made the only substantive investments in Beacon Communications, the accounts of
Beacon Communications have been consolidated in the accompanying financial
statements. In 2008, the Company and Beacon Communications could agree upon
alternate arrangements that could result in an accounting treatment other than
consolidation. Beacon Peak owns land, adjacent to the Beacon Communications
building, which is valued at cost.
The minority interest in Beacon Peak is $422,000, $501,000 and $501,000 as
of December 31, 1994 and 1995, and March 31, 1996 respectively. Beacon
Communications has a partnership deficit as of December 31, 1994 and 1995, and
March 31, 1996 respectively, and accordingly, the minority interest is not
recognized in the accompanying consolidated financial statements.
All significant intercompany transactions have been eliminated in
consolidation.
F-8
<PAGE> 100
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Interim Financial Information
The unaudited consolidated financial statements as of March 31, 1996 and
for the three months ended March 31, 1996 and 1995 include, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the Company's consolidated financial position,
results of operations and cash flows. Operating results for the three months
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996.
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.
Revenue Recognition
The Company recognizes revenue under service, rental and maintenance
agreements with customers as the related services are performed. The Company
leases (as lessor) radio pagers under operating leases. Substantially all the
leases are on a month-to-month basis. Advance billings for services are deferred
and recognized as revenue when earned. 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................................................ 3-5
Transmission and plant equipment........................................... 5-12
</TABLE>
The net book value of lost pagers is charged to depreciation expense.
Beginning in July 1995, the Company began recording and depreciating all
new pagers as a component of subscriber paging equipment. The effect of this
change was to increase depreciation expense in 1995 by approximately $2.7
million. Amounts classified as inventories in the prior year's financial
statements have been reclassified to conform with the current year's
presentation.
Purchases of property and equipment in the accompanying consolidated
statements of cash flows are reflected net of net book value of products sold to
approximate the net addition to subscriber equipment.
F-9
<PAGE> 101
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company currently purchases a significant amount of its subscriber
paging equipment from one supplier. Although there are other manufacturers of
similar subscriber paging equipment, the inability of this supplier to provide
equipment required by the Company could result in a decrease of pager placements
and decline in sales, which could adversely affect operating results.
Intangible Assets
Intangible assets, net of accumulated amortization, consist of the
following (dollars in thousands).
<TABLE>
<CAPTION>
DECEMBER 31, AMORTIZATION
-------------------- MARCH 31, PERIOD IN
1994 1995 1996 YEARS
-------- -------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
State certificates and FCC licenses............ $ 66,679 $ 65,095 $ 64,677 5-40
Goodwill....................................... 44,794 43,754 43,462 25-40
Customer lists................................. 17,034 13,886 13,100 5-6
Debt financing costs........................... 2,989 4,937 4,868 1-12
Other.......................................... 466 1,413 1,695 5-12
-------- -------- -----------
$131,962 $129,085 $ 127,802
======== ======== =========
</TABLE>
During 1995, the Company wrote off certain fully amortized intangible
assets with an original cost of approximately $8.8 million.
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 carrying value to the estimated undiscounted future cash flows
expected to result from use of the assets and their eventual disposition. The
Company determined that as of December 31, 1994 and 1995, and March 31, 1996
there had been no impairment in the carrying value of long-lived assets.
The Company's estimates of anticipated gross revenues, the remaining
estimated useful lives of tangible and intangible assets, or both could be
reduced significantly in the near term due to changes in technology, regulation
or competitive pressures in any of the Company's individual markets. As a
result, the carrying amount of long-lived assets and intangibles including
goodwill could be reduced materially in the near term.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Effective January 1, 1987, with the consent of its stockholders, the
Company elected to be an S corporation under the Internal Revenue Code (the
"IRC") and became a cash basis taxpayer. In 1993, upon completion of an initial
public offering of common stock (the "Offering", see Note 8), the Company no
longer qualified as an S corporation and became subject to corporate income
taxes. Accordingly, the accompanying consolidated statement of operations for
the year ended December 31, 1993, includes a pro forma adjustment for income tax
benefit, which would have been recorded had the Company been subject to Federal
and state corporate income taxes based on the tax laws in effect during the
period (see Note 10).
F-10
<PAGE> 102
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Net Loss Per Common Share
Net loss per common share for the years ended December 31, 1994 and 1995
and the three months ended March 31, 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 years
ended December 31, 1994 and 1995 and the three months ended March 31, 1995 and
1996 is not included because such options would be antidilutive.
Pro forma net loss per common share has been computed by dividing pro forma
net loss, after adjustment for applicable interest expense, by the pro forma
weighted-average number of common shares outstanding. The pro forma
weighted-average shares outstanding has been adjusted for the number of shares
related to the forgiveness of notes receivable on shares granted to certain
officers of the Company effected upon the completion of the Offering, plus the
estimated number of shares that the Company would need to issue to pay
distributions of Subchapter S earnings to the pre-Offering stockholders (see
Note 8), and to repay a portion of borrowings under the Company's then existing
credit agreement (see Note 6).
Pursuant to the requirements of the Securities and Exchange Commission,
common stock issued by the Company during the 12 months immediately preceding
the Offering has been included in the calculation of the shares used in
computing pro forma net loss per common share as if such shares had been
outstanding the entire period for periods prior to the Offering.
Reclassifications
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the current year's presentation.
3. MANAGEMENT REORGANIZATION
In January 1996, the Company completed a management reorganization. Under
the reorganization, the Company's Chairman of the Board was replaced and the
Company's Chief Executive Officer resigned. Severance and other separation costs
for the former Chairman and former Chief Executive Officer have been accrued and
recorded as a management reorganization charge in the accompanying consolidated
financial statements as of and for the year ended December 31, 1995.
Additionally, certain non-sales employees were terminated and related severance
costs have been included in the management reorganization charge. Severance
costs include approximately $285,000 of compensation expense recognized upon
amending option agreements with certain former employees and the Company's
former Chief Executive Officer to increase vesting and exercise periods.
4. ACQUISITIONS
FirstPAGE USA, Inc.
On August 31, 1994, the Company acquired 100% of the outstanding common
stock of FirstPAGE by means of a merger of FPGE Acquisition Corp., Inc.,
formerly a wholly-owned subsidiary of Metrocall formed to effect the FirstPAGE
merger, with and into FirstPAGE, leaving FirstPAGE a wholly-owned subsidiary of
the Company. The acquisition was financed through the issuance of 2,869,190
shares of the Company's common stock and options to purchase 47,387 shares of
the Company's common stock and an assumption of
F-11
<PAGE> 103
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
4. ACQUISITIONS -- (CONTINUED)
substantially all liabilities of FirstPAGE. The acquisition was accounted for as
a purchase. The purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Plant and equipment............................................ $ 18,258
Accounts receivable and other assets........................... 4,795
Customer lists................................................. 11,779
FCC licenses and state certificates............................ 54,836
Goodwill....................................................... 34,142
Liabilities assumed............................................ (64,813)
Direct acquisition costs....................................... (2,607)
Deferred income tax liability.................................. (11,200)
--------
$ 45,190
========
</TABLE>
MetroPaging Inc. (formerly AllCity Paging, Inc.)
On November 29, 1994, the Company acquired 100% of the outstanding common
stock of MetroPaging by means of a merger of ACPI Acquisition Corporation,
formerly a wholly-owned subsidiary of Metrocall formed to effect the MetroPaging
merger, with and into MetroPaging, leaving MetroPaging a wholly-owned subsidiary
of the Company. The acquisition was financed through the issuance of 630,645
shares of the Company's common stock and an assumption of substantially all
liabilities of MetroPaging. The acquisition was accounted for as a purchase. The
purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Plant and equipment............................................ $ 4,614
Accounts receivable and other assets........................... 1,646
Customer lists................................................. 6,006
FCC licenses and state certificates............................ 11,863
Goodwill....................................................... 10,242
Liabilities assumed............................................ (20,173)
Direct acquisition costs....................................... (1,193)
Deferred income tax liability.................................. (1,500)
--------
$ 11,505
========
</TABLE>
In May 1995, the total number of shares of Metrocall common stock issued to
MetroPaging stockholders was adjusted, reducing the total purchase price by
approximately $105,000. This adjustment reduced goodwill recorded as a result of
the acquisition.
The unaudited pro forma information presented below reflects the
acquisitions of FirstPAGE and MetroPaging as if each had occurred on January 1,
1993. The results are not necessarily indicative of future
F-12
<PAGE> 104
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
4. ACQUISITIONS -- (CONTINUED)
operating results or of what would have occurred had the acquisitions actually
been consummated at that date (in thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1993 1994
-------- --------
<S> <C> <C>
Total Revenues............................................... $ 80,471 $ 98,368
Net loss before extraordinary item........................... (10,873) (13,192)
Net loss..................................................... (11,137) (14,501)
Net loss per common share before extraordinary item.......... (1.08) (1.24)
Net loss per common share.................................... (1.10) (1.36)
</TABLE>
5. OTHER CURRENT LIABILITIES
The amounts included in other current liabilities are as follows (in
thousands).
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued severance, payroll and payroll taxes......... $1,623 $2,763 $ 1,592
Accrued interest payable............................. 898 3,893 7,785
Accrued insurance claims............................. 292 300 300
Accrued state and local taxes........................ 181 220 323
Other................................................ 951 490 1,395
------ ------ -----------
$3,928 $7,666 $11,395
====== ====== =========
</TABLE>
F-13
<PAGE> 105
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. LONG-TERM LIABILITIES
Long-Term Debt
Long-term debt consists of the following (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Senior Subordinated Notes, bearing interest at
10 3/8%, Notes due in 2007......................... $ -- $150,000 $ 150,000
Credit agreement, interest at a floating rate,
defined below, with principal payments beginning
December 1997...................................... 100,320 -- --
Industrial development revenue note, interest at 70%
of prime rate plus 1/2% (6.5% and 6.5%,
respectively), principal of $6 plus interest,
payable monthly to December 2008, secured by the
Company's headquarters building.................... 1,098 1,026 1,008
Promissory note payable to bank, interest payable
monthly at prime rate plus 1.5% (10.0% and 10.0%
respectively), $216 principal payable annually to
November 1995, secured by land..................... 216 -- --
-------- -------- -----------
101,634 151,026 151,008
Less -- Current portion.............................. 288 72 72
-------- -------- -----------
Long-term portion.................................... $101,346 $150,954 $ 150,936
======== ======== =========
</TABLE>
Senior Subordinated Notes
On October 2, 1995, the Company completed a public offering of $150.0
million Senior Subordinated Notes (the "Notes"), due 2007, bearing interest at
10.375% per annum, payable semi-annually on April 1 and October 1, commencing
April 1, 1996. The Notes are general unsecured obligations subordinated in right
to the Company's existing long-term debt and other senior obligations, as
defined. After underwriting discounts, commissions and other professional fees,
net proceeds from the Notes were approximately $145.0 million. Proceeds were
used to repay approximately $113.3 million outstanding under the Company's then
existing credit facility.
The Company incurred total loan origination fees and other direct financing
costs of approximately $5.0 million which will be recognized as interest expense
over the term of the Notes. Debt financing costs are included in intangible
assets in the accompanying consolidated balance sheet as of December 31, 1995.
The Notes contain various covenants that, among other restrictions, limit
the ability of the Company to incur other indebtedness, pay dividends, engage in
certain transactions with affiliates, sell assets and engage in mergers and
consolidations except under certain circumstances.
F-14
<PAGE> 106
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. LONG-TERM LIABILITIES -- (CONTINUED)
The Notes may be redeemed at the Company's option after October 1, 2000.
The following redemption prices are applicable to any optional redemption of the
Notes by the Company during the 12-month period beginning on October 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEARS PERCENTAGE
----------------------------------------------------------------- ----------
<S> <C>
2000............................................................. 105.188%
2001............................................................. 103.458%
2002............................................................. 101.729%
2003 and thereafter.............................................. 100.000%
</TABLE>
In the event of a change in control of the Company, as defined, each holder
of the Notes will have the right, at such holder's option, to require the
Company to purchase that holder's Notes at a purchase price equal to 101% of the
principal amount thereof, plus any accrued and unpaid interest to the date of
purchase.
Capital Lease Obligation
In April 1994, the Company entered into a lease agreement (the "Lease
Agreement") for additional office space. The Lease Agreement required initial
minimum annual rents of $450,000. The Lease Agreement continues for an initial
period of 10 years and may be renewed for two additional five-year periods. In
connection with the Lease Agreement, the Company entered into an Option and
Purchase Agreement (the "Purchase Agreement"), which gives the Company an option
to acquire a 51% interest in the property housing the newly acquired office
space, discussed above. The Company may exercise the option from January 2,
1995, through December 31, 1997. At the time the option is exercised, the
Company, along with the owners of the remaining 49% interest in the property,
will contribute the property to a limited partnership for which the Company will
serve as general partner and receive a 51% equity interest. When, if ever, the
Company exercises the purchase option to the Purchase Agreement, the purchase
price will be approximately $2.9 million.
Aggregate maturities of long-term debt and capital lease obligation as of
December 31, 1995, are as follows (in thousands).
<TABLE>
<CAPTION>
LONG-TERM CAPITAL LEASE
DEBT OBLIGATION
--------- -------------
<S> <C> <C>
1996.................................................. $ 72 $ 180
1997.................................................. 72 213
1998.................................................. 72 250
1999.................................................. 72 291
2000.................................................. 72 336
Thereafter............................................ 150,666 1,759
--------- -------------
$151,026 $ 3,029
======== ==========
</TABLE>
Existing Credit Facility
On August 31, 1994, the Company entered into a secured credit agreement
(the "Agreement", as amended) with a group of lenders (the "Lenders") for $175.0
million consisting of a seven-year $100.0 million reducing revolver and a
seven-year $75.0 million revolving credit and term loan (collectively, the
"Facility"). Borrowings under the Facility were used to refinance existing
indebtedness (under its former
F-15
<PAGE> 107
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. LONG-TERM LIABILITIES -- (CONTINUED)
credit agreement, discussed below) and finance the acquisitions of FirstPAGE and
MetroPaging (see Notes 4 and 11), as well as capital expenditures and general
corporate requirements. Amounts outstanding under the Facility are secured by
substantially all assets of the Company and are subject to required quarterly
principal repayments beginning December 31, 1997, and continuing through
September 30, 2001.
Upon completion of the Notes Offering, discussed above, the Company repaid
all amounts outstanding under the Facility and terminated the interest rate swap
agreements. Accordingly, upon repayment, the Company recorded an extraordinary
charge to write-off existing unamortized debt financing costs and breakage fees
associated with the termination of two interest rate swap agreements of $4.4
million.
The Agreement contains various covenants that, among other restrictions,
require the Company to maintain certain financial ratios, as defined, including
total leverage ratio, 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. The covenants limit additional indebtedness and future mergers and
acquisitions without the approval of the Lenders and restrict the payment of
cash dividends and other stockholder distributions by the Company during the
term of the Agreement. The Agreement also prohibits a change in ownership
control of the Company, as defined, during the term of the Agreement.
Under the Agreement, the Company may designate all or any portion of the
borrowings outstanding as either a floating rate advance or a Eurodollar rate
advance. The portion designated as a floating rate advance bears interest at the
lending agent's base rate plus a predefined margin ranging from 0.0% to 1.375%.
The portion designated as a Eurodollar rate advance bears interest at the London
Interbank Offered Rate ("LIBOR") plus a predefined margin ranging from 0.875% to
2.375%. The predefined margins are based upon the level of indebtedness
outstanding relative to annualized cash flow, as defined by the Agreement.
Commitment fees of 0.250% to 0.375% per annum are charged on the average
unused balance based on the leverage ratio, as defined in the Agreement, and are
charged to interest expense as incurred.
The weighted-average balances outstanding under all credit facilities
outstanding for the years ended December 31, 1993, 1994 and 1995, and the three
months ended March 31, 1995 and 1996 were approximately $21,037,000,
$35,818,000, $108,222,000, $102,331,000 and $0 respectively. The highest
outstanding borrowings under these facilities for the years ended December 31,
1993, 1994 and 1995, and the three months ended March 31, 1995 and 1996 were
approximately $30,200,000, $100,320,000, $113,320,000, $106,320,000 and $0
respectively. For the years ended December 31, 1993, 1994 and 1995, and the
three months ended March 31, 1995 and 1996 interest expense relating to these
facilities was approximately $1,220,000, $3,458,000, $7,630,000, $2,315,000 and
$0 respectively, at weighted-average interest rates of 5.3%, 9.7%, 7.0%, 9.4%,
and 0.0% respectively. The effective interest rates as of December 31, 1994 and
1995 and the three months ended March 31, 1995 and 1996 were 8.8%, 8.5%, 8.85%
and 0.0% respectively.
Former Credit Facility
In November 1993, the Company entered into a revolving credit agreement
("Credit Facility") with a group of banks. The Credit Facility provided for an
$85.0 million secured seven-year revolving credit facility. Borrowings under the
Credit Facility were used to refinance balances outstanding under the Bridge
Loan discussed below. On August 31, 1994, the balances outstanding under the
Credit Facility ($12.5 million) were refinanced with the Facility discussed
above.
The Company incurred loan origination fees and direct financing costs in
connection with the revolving credit agreement. In connection with the repayment
of indebtedness outstanding under its then existing credit
F-16
<PAGE> 108
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. LONG-TERM LIABILITIES -- (CONTINUED)
facility, the Company recognized an extraordinary charge to write-off existing
unamortized debt financing costs, net of income tax benefit of $36,000, of
approximately $1.3 million in 1994.
Bridge Loan
In July 1993, the Company entered into a credit facility with certain of
its lenders which provided for a $15.0 million unsecured line of credit
originally due in January 1995. In November 1993, balances outstanding under
this arrangement were refinanced with proceeds from the Credit Facility
discussed above.
Prior Credit Facility
During 1992, the Company entered into a revolving credit agreement with a
consortium of banks which allowed the Company to borrow funds, up to a maximum
of $35.0 million. Upon completion of the Offering (see Note 8), the Company
refinanced the balance outstanding under this credit facility and recognized an
extraordinary charge to expense existing unamortized debt financing costs of
$439,000 in 1993. Balances outstanding under this facility were repaid with
proceeds from the Offering and the Bridge Loan discussed above.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Senior Subordinated Notes................... $150,000 $159,773 $150,000 $147,375
Industrial development revenue note......... 1,026 1,093 1,008 990
</TABLE>
The carrying amounts reported in the Company's consolidated balance sheet
for cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximate fair values due to the short maturity of those
instruments. The fair value of the Senior Subordinated Notes is based on market
quotes as of the dates indicated. The fair value of the industrial development
revenue note is based on the Company's incremental borrowing rate.
8. STOCKHOLDERS' EQUITY
Common Stock
On September 27, 1995, the Company completed a secondary public offering of
4.0 million shares of the Company's common stock (the "Secondary Offering"), at
$28.25 per share. After underwriting discounts, commissions and other
professional fees, net proceeds from the Secondary Offering were approximately
$107.0 million.
Because the Company holds licenses from the FCC, no more than 20 percent of
the Company's common stock may, in the aggregate, be owned directly or
indirectly, or voted by a foreign government, a foreign corporation, or resident
of a foreign country. The Company's amended and restated certificate of
incorporation permits the redemption of the Company's common stock from
stockholders, where necessary, to protect the Company's regulatory licenses.
Such stock may be redeemed at fair market value or if the stock was
F-17
<PAGE> 109
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY -- (CONTINUED)
purchased within one year of such redemption, at the lesser of fair market value
or such holder's purchase price.
Initial Public Offering and Distributions to Stockholders
In August 1993, the Company completed an initial public offering of
3,105,000 shares of its common stock at a price of $13.00 per share. After
underwriting discounts, commissions and other professional fees, net proceeds
from the Offering were approximately $36.6 million. In connection with the
Offering, the Company terminated its S corporation election and made
distributions to the pre-Offering stockholders of its undistributed Subchapter S
earnings in the amount of approximately $11.5 million in July 1993.
In connection with the Offering, discussed above, the Company amended and
restated its certificate of incorporation to change the par value of its common
stock from $1.00 to $0.01 per share and increased the number of authorized
shares of common stock from 50,000 to 20,000,000 shares. In addition, the
Company effected a 400-for-one common stock split. All share and per share
amounts for all prior periods presented have been retroactively adjusted to give
effect to this split.
Stock Rights Granted
During 1989 and 1992, the Company issued a total of 412,000 shares of
common stock to certain officers for nonrecourse notes. The notes were
originally due in 2009 and 2012 and provided for interest at 7.08% and 7.93%,
respectively. Since the notes were secured only by the common stock, the stock
and related notes were accounted for similar to stock options for financial
reporting purposes (except that common stock and notes receivable were included
in stockholders' equity). Upon completion of the Offering, the stockholders'
notes receivable totaling $4,831,000 were forgiven, which resulted in the
recognition of compensation expense in the Company's consolidated statement of
operations for the year ended December 31, 1993.
Stock Option Plans
In 1993, the Company adopted a Stock Option Plan (the "Plan"). Under the
Plan, as amended, options to purchase up to an aggregate of 975,000 shares of
common stock were reserved for grants to key employees of the Company. The Plan
limits the maximum number of shares which may be granted to any person eligible
under the Plan to 325,000. All options have been issued with exercise prices
equal to the fair market value at date of grant. All options granted under the
Plan become fully vested and exercisable on the second anniversary of the date
of grant. Through March 31, 1996, and pursuant to the Plan, the Company has
issued options to purchase 973,000 shares at prices ranging from $13.00 to
$20.25 per common share, the fair market values at the grant dates, excluding
options to purchase 27,958 shares of Metrocall common stock with an exercise
price of $1.035 per share issued in the acquisition of FirstPAGE USA, Inc., in
August 1994. Options to purchase an additional 160,000 shares of Metrocall
common stock were granted under a proposed stock option plan which was ratified
by the Company's stockholders on May 1, 1996.
In 1993, the Company also adopted a Directors Stock Option Plan (the
"Directors Plan"). Under the Directors Plan, options to purchase up to an
aggregate of 25,000 shares of common stock are available for grants to directors
of the Company who are neither officers nor employees of the Company ("Eligible
Director"). Through March 31, 1996, and pursuant to the Directors Plan, options
have been issued to purchase 10,000 shares of the Company's common stock at per
share prices ranging from $13.00 to $22.125, the fair market values at the grant
dates. Options issued under the Directors Plan vest fully on the six-month
anniversary of the date of grant. Each Eligible Director will also be granted an
option to purchase 1,000 shares
F-18
<PAGE> 110
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY -- (CONTINUED)
of common stock on the first and second anniversaries of the grant date of the
initial option if the director continues to be an Eligible Director on each of
such anniversary dates. During the three months ended March 31, 1996, the Board
of Directors authorized the issuance of an option to purchase 1,000 shares of
Metrocall common stock exercisable at $20.00 per share.
In connection with the merger of Metrocall and FirstPAGE, Metrocall
exchanged options to purchase 47,387 shares of Metrocall common stock with
former FirstPAGE option holders. These options are fully vested and exercisable
and have an exercise price of $1.035 per common share.
Pursuant to the option plans discussed above, the Board of Directors has
approved the issuance of the following common stock options.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------- MARCH 31,
1993 1994 1995 1996
-------------- -------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding, beginning of
period...................... -- 316,500 529,387 798,958
Granted..................... 316,500 170,500 303,500 265,000
Canceled.................... -- (5,000) (12,500) (72,000)
Issued in FirstPAGE
acquisition (see Note
3)....................... -- 47,387 -- --
Exercised................... -- -- (21,429) --
-------------- -------------- --------------- ---------------
Outstanding, end of period.... 316,500 529,387 798,958 1,009,958
============= ============= ============== ==============
Options exercisable........... -- 50,387 339,958 339,958
============= ============= ============== ==============
Option price range -- Options
outstanding................. $13.00 - $19.50 $1.035 - $19.50 $1.035 - $22.125 $1.035 - $22.125
Option price range -- Options
exercisable................. -- $1.035 - $18.25 $1.035 - $19.50 $1.035 - $19.50
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Legal and Regulatory Matters
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 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.
The Company is subject to 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 effect on the financial position or the results of the
operations of the Company.
Leases
The Company has various leasing arrangements (as lessee) for office space
and communications equipment sites. Rental expense related to operating leases
was approximately $1,920,000, $2,627,000, $4,818,000, $1,289,000 and $1,797,000
for the years ended December 31, 1993, 1994 and 1995, and the three months ended
March 31, 1995 and 1996, respectively.
F-19
<PAGE> 111
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Minimum rental payments as of December 31, 1995, required under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year are as follows (in thousands).
<TABLE>
<S> <C>
1996........................ $ 4,964
1997........................ 3,428
1998........................ 2,317
1999........................ 1,554
2000........................ 1,045
Thereafter.................. 1,201
-------
$14,509
=======
</TABLE>
Rent expense for lease agreements between the Company and related parties
for office space, tower sites and transmission systems, excluding consolidated
entities, was approximately $128,000, $215,000, $359,000, $69,000 and $88,000
for the years ended December 31, 1993, 1994 and 1995, and the three months ended
March 31, 1995 and 1996, respectively.
Profit Sharing Plan and Retirement Benefits
In 1995, the Company adopted the Metrocall, Inc. Savings and Retirement
Plan (the "Plan") a combination employee savings plan and discretionary profit
sharing plan which covers substantially all full-time employees. The Plan
qualifies under section 401(k) of the IRC. Under the Plan, participating
employees may elect to voluntarily contribute on a pre-tax basis between 1% and
15% of their salary up to the annual maximum established by the IRC. The Company
has agreed to match 25% of the employee's contribution, up to 3% of each
participant's gross salary. Contributions made by the Company vest 20% per year
beginning on the second anniversary of the participant's employment. Profit
sharing contributions are discretionary. The Company's expense for contributions
under this Plan and the Company's previous profit sharing plan, recorded in the
accompanying consolidated statements of operations were $150,000, $200,000,
$93,000, $125,000 and $25,000 for the years ended December 31, 1993, 1994 and
1995, and the three months ended March 31, 1995 and 1996, respectively.
10. INCOME TAXES
As of December 31, 1995, the Company had net operating loss and investment
tax credit carryforwards of approximately $67,801,000 and $1,135,000,
respectively, which expire in the years 1999 through 2010. The benefits of these
carryforwards may be limited in the future due to significant changes in the
ownership of the Company. Net operating loss carryforwards may be used to offset
up to 90 percent of the Company's alternative minimum taxable income. The
provision for alternative minimum tax will be allowed as a credit carryover
against regular tax in the future in the event regular tax exceeds alternative
minimum tax expense.
Under the provisions of SFAS No. 109, the tax effect of the net operating
loss and investment tax credit carryforwards, together with net temporary
differences, represents a net deferred tax asset for which management has
reserved 100% due to the uncertainty of future taxable income. These
carryforwards will be benefited for financial reporting purposes when utilized
to offset future taxable income.
F-20
<PAGE> 112
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
10. INCOME TAXES -- (CONTINUED)
The components of net deferred tax assets (liabilities) were as follows as
of December 31, 1994 and 1995 (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.............................. $ 120 $ 386
Management reorganization.................................... -- 590
New pagers on hand........................................... 302 633
Other........................................................ 562 572
Net operating loss carryforwards............................. 6,434 27,055
-------- --------
Total deferred tax assets............................ 7,418 29,236
-------- --------
Deferred tax liabilities:
Basis differences attributable to purchase accounting........ (12,500) (11,814)
Depreciation and amortization expense........................ (1,974) (5,288)
Other........................................................ (39) (388)
-------- --------
Total deferred tax liabilities....................... (14,513) (17,490)
-------- --------
Net deferred tax asset (liability)............................. (7,095) 11,746
Less: Valuation allowance...................................... (5,405) (23,560)
-------- --------
$(12,500) $(11,814)
======== ========
</TABLE>
The income tax benefit for the years ended December 31, 1994 and 1995, is
primarily the result of the amortization of the basis differences attributable
to purchase accounting and is comprised of the following (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1994 1995
---- ----
<S> <C> <C>
Income tax (provision) benefit
Current --
Federal...................................... $(35) $(36)
State........................................ (13) (55)
Deferred........................................ 200 686
---- ----
$152 $595
==== ====
</TABLE>
F-21
<PAGE> 113
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
10. INCOME TAXES -- (CONTINUED)
The benefit for income taxes for the years ended December 31, 1994 and
1995, results in effective rates which differ from the Federal statutory rate as
follows.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1995
----- -----
<S> <C> <C>
Statutory Federal income tax rate................ 35.0% 35.0%
Effect of graduated rates........................ (1.0) (1.0)
State income taxes, net of Federal tax benefit... 2.8 2.8
Net operating losses for which no tax benefit is
currently available............................ (12.5) (30.6)
Permanent differences............................ (12.1) (2.6)
----- -----
12.2% 3.6%
===== =====
</TABLE>
Following the completion of the Offering, the Company became subject to
Federal and state income taxes. The unaudited pro forma information below has
been determined based upon the provisions of SFAS No. 109. This information
reflects the income tax benefit that the Company would have incurred if it had
been subject to Federal and state income taxes for the year ended December 31,
1993 (in thousands).
<TABLE>
<S> <C>
Income tax benefit
Current --
Federal................................................. $528
State................................................... 158
Deferred................................................... (13)
----
$673
====
</TABLE>
11. CASH FLOW INFORMATION
Supplemental Disclosure of Cash Flow Information
The Company made cash payments for interest of $1,471,000, $2,576,000,
$9,538,000, $2,419,000 and $317,000 for the years ended December 31, 1993, 1994
and 1995 and the three months ended March 31, 1995 and 1996, respectively. The
Company made cash payments for income taxes of $116,000, $48,000, $55,000,
$32,000 and $0 for the years ended December 31, 1993, 1994 and 1995, and the
three months ended March 31, 1995 and 1996 respectively.
Supplemental Disclosure of Noncash Investing and Financing Activities
On August 31, 1994 and November 29, 1994, the Company completed its
acquisitions of FirstPAGE and MetroPaging, respectively, through the issuance of
2,869,190 and 636,483 shares of common stock, respectively, and an assumption of
substantially all indebtedness of FirstPAGE and MetroPaging. Common stock issued
in connection with the acquisitions was valued at approximately $56.8 million
and liabilities assumed totaled approximately $84.7 million before consideration
of deferred income tax liabilities. In May 1995, the total number of shares of
Metrocall common stock issued to MetroPaging's stockholders was adjusted to
630,645 reducing the total purchase price by approximately $105,000. The
weighted average common shares outstanding for the year ended December 31, 1995
reflects this adjustment.
F-22
<PAGE> 114
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
11. CASH FLOW INFORMATION -- (CONTINUED)
Because the acquisitions were structured as tax free reorganizations, the
Company recorded total deferred income tax liabilities of approximately $12.7
million as additions to goodwill in the allocation of the total purchase prices.
A capital lease obligation of $3,185,000 was incurred when the Company
entered into a lease for new office space (see Note 7).
12. INTERIM FINANCIAL DATA
The following table of quarterly financial data has been prepared from the
financial records of the Company, without audit, and reflects all adjustments
which are, in the opinion of management, necessary for a fair presentation of
the results of operations for the interim periods presented.
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------ ------------------ ------------------ -------------------
1994 1995 1994 1995 1994 1995 1994 1995
------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $10,165 $25,796 $11,018 $27,640 $14,331 $27,978 $22,341 $ 29,445
Income (loss) from
operations................ $ 906 $ 766 $ 848 $ 612 $ 1,280 $ (721) $ (711) $ (6,440)
Net income (loss) before
extraordinary item........ $ 590 $(1,690) $ 568 $(2,038) $ 525 $(3,370) $(2,773) $ (8,612)
Net income (loss)........... $ 590 $(1,690) $ 568 $(2,038) $ (784) $(3,370) $(2,773) $(13,004)
Net income (loss) per common
share before extraordinary
item...................... $ 0.08 $ (0.16) $ 0.08 $ (0.19) $ 0.06 $ (0.31) $ (0.27) $ (0.59)
Net income (loss) per common
share..................... $ 0.08 $ (0.16) $ 0.08 $ (0.19) $ (0.10) $ (0.31) $ (0.27) $ (0.89)
</TABLE>
The loss from operations in the quarter ended December 31, 1995, includes a
charge of $2,050,000 for management reorganization charge described in Note 3.
Net loss for the three months ended September 30, 1994 and December 31, 1995,
includes extraordinary charges, net of applicable tax benefit, for the write-off
of deferred financing costs discussed in Note 7, of $1,309,000 ($0.16 per share)
and $4,392,000 ($0.30 per share), respectively.
13. SUBSEQUENT EVENTS
The Company continuously pursues opportunities to acquire businesses and
investments in wireless companies. Reflected below is a summary of binding
agreements to acquire businesses which remain pending. Consummation of these
pending acquisitions is subject to a number of conditions including, but not
limited to, receipt of all necessary regulatory approvals. There can be no
assurance that such approval can be obtained. In addition, the purchase prices
of each transaction is subject to adjustment based on each company's ability to
meet certain defined performance criteria. The pending transactions, if
consummated, will be accounted for as purchases.
Consummation of these pending acquisitions may subject the Company to
additional risks and uncertainties including challenges of business integration,
substantial indebtedness and needs for future capital. See "Risk Factors" in the
"prospectus" for further discussion.
Parkway Paging, Inc.
On February 26, 1996, the Company signed a definitive merger agreement (the
"Parkway Agreement") with Parkway Paging, Inc. of Plano, Texas ("Parkway") and
certain other parties listed therein whereby Parkway will become a wholly-owned
subsidiary of the Company. Under the terms of the Parkway
F-23
<PAGE> 115
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
13. SUBSEQUENT EVENTS -- (CONTINUED)
Agreement, the Company will acquire all of the stock of Parkway in exchange for
consideration of $28 million, up to 51% of which may be issued in the form of
the Company's common stock at Parkway's election.
Satellite Paging and Message Network
On February 28, 1996, the Company signed a definitive acquisition agreement
(the "Satellite Agreement") with Satellite Paging of Fairfield, New Jersey and
Message Network of Boca Raton, Florida (together, "Satellite"). Under the terms
of the Satellite Agreement, the Company will acquire all of the assets of
Satellite in exchange for $28 million cash.
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 in exchange
for $78.5 million, of which $55 million will be paid in cash and $23.5 million
will be paid in the form of the Company's common stock.
A+ Network, Inc.
On May 16, 1996, the Company signed a definitive merger agreement (the "A+
Network Agreement") with A+ Network, Inc. ("A+ Network") of Pensacola, Florida.
Under the terms of the agreement, the Company will purchase 40% of the
outstanding common stock of A+ Network for cash at $21.10 per share. In
addition, the Company will exchange its shares for those of A+ Network and
assume certain A+ Network indebtedness. The A+ Network Agreement is subject to
the receipt of all necessary regulatory approvals.
F-24
<PAGE> 116
INDEPENDENT AUDITORS' REPORT
Stockholders
A+ Network, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of A+ Network,
Inc. (formerly A+ Communications Inc.) and subsidiaries as of December 31, 1994
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of A+ Network,
Inc. and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
February 28, 1996
F-25
<PAGE> 117
A+ NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Notes 1, 2 and 13)...... $ 254,880 $ 12,500,438 $ 1,437,138
Short term investments (Notes 1, 3, 8 and 13)...... -- 43,151,125 47,492,512
Accounts receivable -- trade (net of allowance for
doubtful accounts of $278,531, $518,267 and
$810,149) (Notes 1, 2 and 13)................... 6,168,108 10,721,052 10,228,282
Inventory (Notes 1 and 2).......................... 2,486,729 4,164,077 7,527,039
Prepaid expenses (Note 2).......................... 827,882 732,275 1,037,523
Other current assets (Note 2)...................... 549,447 663,536 173,524
----------- ------------ ------------
Total current assets....................... 10,287,046 71,932,503 67,896,018
EQUIPMENT AND FIXTURES -- Net (Notes 1, 2, 4
and 6)............................................. 33,359,489 48,325,727 51,331,501
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
ACQUIRED -- Net (Notes 1, 2, 5 and 6).............. -- 49,608,772 48,771,479
INTANGIBLE AND OTHER ASSETS -- Net (Notes 1, 2, 5 and
6)................................................. 10,964,610 41,145,669 40,239,671
----------- ------------ ------------
TOTAL................................................ $54,611,145 $211,012,671 $208,238,669
========== =========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable (Note 13)......................... $ 2,934,020 $ 4,927,517 $ 2,052,817
Accrued payroll related costs...................... 782,901 1,911,730 3,177,516
Accrued liabilities (Notes 1 and 14)............... 729,617 4,011,615 8,115,742
Deferred revenue and customer deposits (Note 7).... 2,781,817 5,778,147 6,211,525
Current maturities of long-term debt (Notes 8 and
13)............................................. 835,293 -- --
----------- ------------ ------------
Total current liabilities.................. 8,063,648 16,629,009 19,557,600
LONG-TERM DEBT (Notes 8 and 13)...................... 14,322,383 124,101,373 124,113,705
DEFERRED TAXES (Note 9).............................. -- 818,243 818,243
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY: (Notes 1, 11 and 12)
Preferred stock -- $.01 par value; 1,000,000 shares
authorized in 1994 and 1,500,000 shares
authorized in 1995 and the three months ended
March 31, 1996, respectively; issued and
outstanding, none............................... -- -- --
Common stock -- $.01 par value; 15,000,000 shares
authorized in 1994 and 30,000,000 shares
authorized in 1995 and the three months ended
March 31, 1996, respectively; 5,971,816 shares
issued in 1994 and 10,263,255 shares issued and
outstanding in 1995 and the three months ended
March 31, 1996.................................. 59,718 102,633 102,633
Additional paid-in capital......................... 38,936,524 90,584,065 90,584,065
Accumulated deficit................................ (6,771,128) (21,222,652) (26,937,577)
----------- ------------ ------------
Total stockholders' equity................. 32,225,114 69,464,046 63,749,121
----------- ------------ ------------
TOTAL................................................ $54,611,145 $211,012,671 $208,238,669
========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE> 118
A+ NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES: (Note 1)
Mobile communication services........ $24,090,104 $34,507,051 $ 41,948,002 $ 9,226,793 $17,765,980
Equipment sales...................... 2,379,631 3,392,075 4,024,345 821,744 1,780,977
Telemessaging services............... 10,064,980 11,226,952 11,359,426 2,756,994 2,886,729
----------- ----------- ------------ ----------- -----------
Total revenues............... 36,534,715 49,126,078 57,331,773 12,805,531 22,433,686
Cost of equipment sales.............. (4,563,438) (9,065,548) (7,878,474) (2,085,638) (2,218,712)
----------- ----------- ------------ ----------- -----------
31,971,277 40,060,530 49,453,299 10,719,893 20,214,974
COSTS AND EXPENSES:
Operating expenses -- exclusive of
depreciation and amortization..... 8,484,520 8,298,498 11,584,092 2,459,462 4,594,737
Depreciation and amortization
(Notes 1, 2, 4, 5 and 6).......... 4,318,298 7,475,503 14,834,510 3,111,384 6,552,288
Selling.............................. 7,063,740 11,071,843 10,936,670 2,732,726 3,600,777
General and administrative........... 12,568,046 16,742,814 21,565,970 4,693,111 7,680,323
Restructuring charges (Note 14)...... -- -- 669,406 -- 395,815
----------- ----------- ------------ ----------- -----------
32,434,604 43,588,658 59,590,648 12,996,683 22,823,940
----------- ----------- ------------ ----------- -----------
OPERATING LOSS......................... (463,327) (3,528,128) (10,137,349) (2,276,790) (2,608,966)
INTEREST EXPENSE....................... (914,770) (623,291) (4,334,229) (373,164) (3,671,305)
INTEREST INCOME........................ 98,388 76,464 626,762 -- 565,346
----------- ----------- ------------ ----------- -----------
(816,382) (546,827) (3,707,467) (373,164) (3,105,959)
----------- ----------- ------------ ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM......... (1,279,709) (4,074,955) (13,844,816) (2,649,954) (5,714,925)
EXTRAORDINARY ITEM (Note 8)............ (236,241) -- (606,708) -- --
----------- ----------- ------------ ----------- -----------
NET LOSS............................... $(1,515,950) $(4,074,955) $(14,451,524) $(2,649,954) $(5,714,925)
========== ========== =========== ========== ==========
LOSS PER SHARE: (Note 1)
Loss before extraordinary item....... $ (0.35) $ (0.68) $ (2.03) $ (0.44) $ (0.56)
Extraordinary item................... (0.07) -- (0.09) -- --
----------- ----------- ------------ ----------- -----------
Net loss per share........... $ (0.42) $ (0.68) $ (2.12) $ (0.44) $ (0.56)
========== ========== =========== ========== ==========
AVERAGE NUMBER OF SHARES OUTSTANDING
(in thousands)
(Notes 1 and 11)..................... 3,648 5,966 6,822 5,972 10,263
========== ========== =========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE> 119
A+ NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993.................. 2,424,200 $ 24,242 $ 3,215,938 $ (1,180,223) $ 2,059,957
Sale of common stock.................... 3,540,103 35,401 35,472,497 -- 35,507,898
Net loss................................ -- -- -- (1,515,950) (1,515,950)
---------- -------- ----------- ------------ -----------
BALANCE, December 31, 1993................ 5,964,303 59,643 38,688,435 (2,696,173) 36,051,905
Exercise of stock options............... 7,513 75 62,639 -- 62,714
Stock options compensation.............. -- -- 185,450 -- 185,450
Net loss................................ -- -- -- (4,074,955) (4,074,955)
---------- -------- ----------- ------------ -----------
BALANCE, December 31, 1994................ 5,971,816 59,718 38,936,524 (6,771,128) 32,225,114
Exercise of stock options............... 91,445 915 888,441 -- 889,356
Issuance of common stock................ 4,199,994 42,000 50,759,100 -- 50,801,100
Net loss................................ -- -- -- (14,451,524) (14,451,524)
---------- -------- ----------- ------------ -----------
BALANCE, December 31, 1995................ 10,263,255 102,633 90,584,065 (21,222,652) 69,464,046
Net loss (unaudited).................... -- -- -- (5,714,925) (5,714,925)
---------- -------- ----------- ------------ -----------
BALANCE, March 31, 1996 (unaudited)....... 10,263,255 $102,633 $90,584,065 $(26,937,577) $63,749,121
========= ======== ========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE> 120
A+ NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- ---------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.......................................... $ (1,515,950) $ (4,074,955) $(14,451,524) $(2,649,954) $ (5,714,925)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation and amortization................... 4,318,298 7,475,503 14,834,510 3,111,384 6,552,288
Provision for losses on accounts receivable..... 437,478 628,953 2,308,165 266,088 1,075,400
Write-off of loan origination fees.............. 311,241 -- 606,708 -- --
Interest accrued on short-term investments...... -- -- (538,020) -- --
Stock options compensation...................... -- 185,450 -- -- --
Amortization of debt discount................... -- -- -- -- 12,332
Changes in assets and liabilities, net of
acquisition of business:
Increase in accounts receivable................. (1,155,565) (2,748,757) (2,556,224) (117,282) (582,630)
(Increase) decrease in inventory................ (209,569) (1,618,266) 416,737 1,030,127 (3,362,962)
(Increase) decrease in prepaid expenses......... (596,995) (72,913) 194,200 (161,354) (305,248)
Decrease (increase) in other current assets..... 268,839 (477,357) 438,991 (4,147) 490,012
Decrease (increase) in other assets............. 248,094 -- 53,138 -- (146,404)
(Decrease) increase in accounts payable......... (640,679) 974,708 (2,448,732) (1,884,982) (2,874,700)
Increase in accrued payroll related costs....... 252,969 152,622 1,128,829 234,648 1,265,786
Increase (decrease) in accrued liabilities...... 81,605 (1,155) 1,684,732 (224,704) 4,104,127
Increase in deferred revenue and customer
deposits...................................... 135,383 618,856 890,352 669,657 433,378
------------ ------------ ------------ ----------- ------------
Net cash provided by operating
activities............................... 1,935,149 1,042,689 2,561,862 269,481 946,454
INVESTING ACTIVITIES:
Acquisition of business........................... -- -- (19,064,152) -- --
Purchase of short-term investments................ -- -- (55,571,616) -- (4,341,387)
Proceeds from sale of available-for-sale
investments..................................... -- -- 12,958,511 -- --
Purchase of South Central Bell paging assets...... (9,923,753) -- (1,232,062) (1,232,061) --
Purchase of equipment............................. (7,302,116) (19,097,901) (12,396,229) (1,814,989) (7,668,367)
Investments in consortium and other............... -- (974,007) (6,744,600) -- --
Payment for intangible assets..................... (827,311) (1,411,033) (513,381) (101,243) --
------------ ------------ ------------ ----------- ------------
Net cash used in investing activities...... (18,053,180) (21,482,941) (82,563,529) (3,148,293) (12,009,754)
FINANCING ACTIVITIES:
Proceeds of long-term debt........................ 3,295,664 13,329,000 133,092,500 8,875,000 --
Repayment of long-term debt....................... (13,862,152) (892,484) (36,348,623) (5,699,829) --
Proceeds from sale of common stock................ 35,507,898 62,714 889,356 -- --
Payment of loan costs............................. (214,996) (619,584) (5,386,008) -- --
------------ ------------ ------------ ----------- ------------
Net cash provided by financing
activities............................... 24,726,414 11,879,646 92,247,225 3,175,171 --
------------ ------------ ------------ ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 8,608,383 (8,560,606) 12,245,558 296,359 (11,063,300)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........ 207,103 8,815,486 254,880 254,880 12,500,438
------------ ------------ ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR.............. $ 8,815,486 $ 254,880 $ 12,500,438 $ 551,239 $ 1,437,138
============= ============= ============= ============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest............ $ 828,000 $ 490,000 $ 1,639,000 $ 350,074 $ --
============= ============= ============= ============ =============
Cash paid during the year for income taxes........ -- $ -- $ -- $ -- $ --
============= ============= ============= ============ =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Common stock issued in connection with acquisition
of business..................................... $ -- $ -- $ 50,801,100 $ -- $ --
============= ============= ============= ============ =============
Accounts payable converted to long-term debt...... $ 885,000 $ -- $ -- $ -- $ --
============= ============= ============= ============ =============
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE> 121
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
THE CONSOLIDATED FINANCIAL STATEMENTS include the accounts of A+ Network,
Inc. (formerly A+ Communications Inc.) and its wholly-owned subsidiaries (the
"Company"). All significant intercompany transactions and balances have been
eliminated in consolidation.
THE COMPANY is engaged in two principal business segments, Mobile Network
Services and Telemessaging Services. The Company's Mobile Network Services
business segment provides paging, voice mail and other mobile communication
services and equipment and represents several cellular service providers for the
sale and distribution of cellular phones and services. In providing paging and
cellular services, paging and cellular equipment is frequently provided as part
of the total service/product package sold to the customer. The Company's
Telemessaging Services business segment provides a variety of message management
services over the telephone to a diverse client base. The Company's diversified
customer base provides for a lack of concentration of credit risk.
CASH AND CASH EQUIVALENTS consist of highly liquid investments which are
unrestricted as to withdrawal or use and with original maturities of less than
three months when purchased.
SHORT-TERM INSTRUMENTS are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities, which requires investments to be
classified in three categories: held-to-maturity securities, trading securities,
or available-for-sale securities (See Note 3).
EQUIPMENT AND FIXTURES are recorded at cost. Depreciation is provided for
financial statement purposes principally on the straight-line method over the
estimated useful lives of the related assets.
INVENTORY, which consists of pagers and cellular mobile radios, purchased
for resale, is stated at lower of cost or market. Cost for cellular mobile
radios is determined on a first-in, first-out basis and pager cost is determined
by the average cost method.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED is being amortized
over 15 years utilizing the straight-line method. The amount reported is net of
accumulated amortization of $628,823 at December 31, 1995.
INTANGIBLE ASSETS are being amortized, generally utilizing the
straight-line method, over the period of the related asset as set forth in Note
5. The deferred preoperating costs consist of costs directly attributable to
entering a new geographic market and are expensed over twelve months beginning
when operations commence in that market. Loan costs are amortized to interest
expense utilizing the effective interest method over the life of the related
debt.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS. The Financial
Accounting Standards Board has issued SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which will be effective for fiscal years beginning after December 15, 1995. SFAS
No. 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company periodically assesses the recoverability of
intangibles and other long-lived assets utilizing the undiscounted cash flows
estimated to be received over the life of the related assets. Based on such
analyses, management believes that the application of SFAS No. 121 will not
materially affect the carrying value of such assets at December 31, 1995.
ACCOUNTING FOR STOCK-BASED COMPENSATION. In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based
Compensation, which will be effective for the Company beginning January 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply
F-30
<PAGE> 122
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
APB Opinion No. 25, which recognizes compensation cost based on the intrinsic
value of the equity instrument awarded. The Company will continue to apply APB
Opinion No. 25 to its stock-based compensation awards to employees and will
disclose the required pro forma effect of compensation cost under SFAS No. 123
on net income and earnings per share.
REVENUE is recognized as services are provided or as the product is
delivered to the customers. Billings to customers for services in advance of
providing such services are deferred and recognized as revenue when earned.
LOSS PER SHARE has been computed utilizing the weighted average number of
shares of common stock outstanding for the period. Stock options have been
excluded from the computation of net loss per share as their inclusion would
have had an antidilutive effect.
INCOME TAXES are accounted for in accordance with SFAS No. 109 for all
years presented.
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.
CERTAIN RECLASSIFICATIONS have been made to the 1993, 1994 and 1995
components to conform with presentation utilized in the three months ended March
31, 1995 and 1996.
UNAUDITED INTERIM INFORMATION. The unaudited interim consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for a fair
presentation of the financial position and results of operations. The results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for a full year.
2. ACQUISITIONS
On October 24, 1995, the Company acquired Network Paging Corporation and
its wholly-owned subsidiaries ("Network") for approximately $12,000,000 in cash,
4,199,994 shares of restricted unregistered common stock valued at $50,801,100
and incurred related expenses of approximately $3,100,000. Liabilities assumed
in the merger included an additional $500,000 of merger expenses incurred by
Network. Concurrent with the merger of the two companies, the Company changed
its name to A+ Network, Inc., issued $125,000,000 of 11 7/8% Senior Subordinated
Notes due 2005 (see Note 8), redeemed existing preferred stock of Network of
$4,680,000 and retired existing indebtedness of Network and the Company of
approximately $12,200,000 and $23,000,000, respectively. The acquisition was
accounted for using the purchase method; accordingly, the purchase price has
been allocated to the assets purchased and the liabilities assumed of the
acquired entities based upon their estimated fair value at the date of
acquisition. The excess of purchase price over the estimated fair value of the
net assets acquired ("goodwill" of $50,237,595) is being amortized on a
straight-line basis over 15 years. Network's results of operations have been
included in the Consolidated Statements of Operations from the date of
acquisition.
F-31
<PAGE> 123
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Current assets................................................ $ 7,802,095
Equipment and fixtures........................................ 14,327,677
Customer accounts and other intangibles....................... 19,404,000
Goodwill...................................................... 50,237,595
Liabilities assumed........................................... (21,154,663)
------------
$ 70,616,704
===========
</TABLE>
The following table presents a summary of the unaudited pro forma
consolidated results of operations as if the Network acquisition had occurred on
January 1, 1994, with pro forma adjustments to give effect to the amortization
of goodwill, the issuance of the 11 7/8% Senior Subordinated Notes due 2005 (the
"Notes") and certain other adjustments, together with related income tax
effects. These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have occurred had the acquisition and the issuance of the Notes
been made at the beginning of 1994 or of results which may occur in the future.
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Total revenues................................... $ 77,651,000 $ 86,043,000
Loss before income taxes......................... (26,394,000) (28,172,000)
Net loss......................................... (26,394,000) (28,779,000)
Loss per share................................... $ (2.60) $ (2.81)
</TABLE>
During 1994 and 1995, the Company acquired various telemessaging services
for $1,290,000 and $172,000, respectively. These acquisitions have been
accounted for as purchases and are included in the accompanying financial
statements from the dates of acquisition. The purchase price was assigned to the
fair value of the assets acquired, as follows:
<TABLE>
<CAPTION>
1994 1995
---------- --------
<S> <C> <C>
Covenants not to compete.............................. $ 641,000 $ 20,000
Customer accounts..................................... 649,000 152,000
---------- --------
$1,290,000 $172,000
========= ========
</TABLE>
Pro forma consolidated results of operations for 1994 and 1995 giving
effect to these acquisitions as if they had taken place on January 1, 1994 would
not be significantly different than those reported.
3. SHORT-TERM INVESTMENTS
Short-term investments include U.S. Government securities and commercial
paper. The Company has classified its investment securities into
held-to-maturity and available-for-sale categories under SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. The U.S.
Government securities (consisting of issues of the U.S. Treasury and other
Government agencies) with a carrying value of $14,686,419 are pledged as
security for payment of the first two scheduled interest payments due on the
Notes (See Note 8) and are classified as held-to-maturity. The balance of the
investment securities consisting of commercial paper are classified as
available-for-sale. Securities classified as held-to-maturity are reported at
amortized cost and available-for-sale securities are reported at fair value
which at December 31, 1995 approximates amortized cost.
F-32
<PAGE> 124
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SHORT-TERM INVESTMENTS -- (CONTINUED)
Investment securities at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
----------------- -------------------
<S> <C> <C>
U.S. Treasury and other Government agencies... $14,686,419 $ --
Commercial paper.............................. -- 28,464,706
----------------- -------------------
$14,686,419 $28,464,706
============ =============
</TABLE>
The Company's proceeds and gross realized gains from the sale of
available-for-sale securities were $12,958,511 and $93,061 in 1995. Investment
securities at December 31, 1995 mature at various times throughout 1996.
4. EQUIPMENT AND FIXTURES
Equipment and fixtures at December 31 consist of the following:
<TABLE>
<CAPTION>
LIVES
(YEARS) 1994 1995
-------- ------------ ------------
<S> <C> <C> <C>
Pagers and telemessaging equipment............... 4-5 $ 34,233,592 $ 50,562,502
Paging network equipment......................... 2-10 12,112,176 23,808,080
Furniture, fixtures and other equipment.......... 3-5 8,519,297 14,751,056
------------ ------------
54,865,065 89,121,638
Less accumulated depreciation and amortization... (21,505,576) (40,795,911)
------------ ------------
$ 33,359,489 $ 48,325,727
=========== ===========
</TABLE>
During the fourth quarter of 1994, the Company, in response to
announcements of new technology and other plans, revised the estimated remaining
useful lives of its pagers to more closely reflect expected remaining lives.
Estimated depreciable lives of pagers were reduced from seven to four years.
Additionally, during the fourth quarter of 1994, as the Company firmed up its
plans to upgrade the paging network equipment acquired from South Central Bell
(See Note 5), it changed the depreciable lives of such equipment from ten years
to approximately two years. The effect of these changes in estimated depreciable
lives resulted in an increase in the Company's depreciation expense and net loss
of $942,476 or $.16 per common share for 1994.
F-33
<PAGE> 125
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE AND OTHER ASSETS
Intangible and other assets at December 31 consist of the following:
<TABLE>
<CAPTION>
AMORTIZATION
1994 1995 PERIOD
----------- ----------- ----------------------
<S> <C> <C> <C>
Licenses and operating authorities..... $ 8,351,540 $ 9,706,017 Principally 40 years
Covenants not to compete............... 1,231,599 1,051,144 3 years
Customer accounts...................... 849,043 19,882,637 1 to 9 years
Loan costs............................. 659,131 5,095,550 3 to 10 years
Other.................................. 180,168 518,716 3 years
----------- -----------
11,271,481 36,254,064
Less accumulated amortization.......... (1,280,879) (2,804,838)
----------- -----------
9,990,602 33,449,226
Investments............................ 974,008 7,696,443
----------- -----------
$10,964,610 $41,145,669
========== ==========
</TABLE>
The Company has entered into an agreement to purchase all of the common
stock of Page East, Inc., a paging company in North Carolina. Included in
investments in 1995 is $5,000,000, representing an escrow deposit as required by
the purchase agreement. Final closing of the purchase is subject to certain
conditions including the transfer of FCC licenses.
Additionally, the Company has invested $2.5 million in a consortium formed
to purchase licenses for regional narrow band paging frequencies.
6. PURCHASE OF TRANSMISSION EQUIPMENT AND LICENSES
In 1995, the Company purchased the South Central Bell paging assets in the
state of Louisiana for approximately $1,232,000. In 1993, the Company purchased
the South Central Bell paging networks in Mississippi and the tangible assets
employed in the South Central Bell paging networks in Tennessee and Alabama, at
an aggregate cost of approximately $9,924,000, of which $2,716,000 related to
Tennessee was placed in escrow. South Central Bell agreed to transfer its
operating authorities in Tennessee and Alabama to the Company upon obtaining the
required state approvals. During 1994, the required regulatory approvals were
obtained. As a result, the Company received operating authority for Tennessee
and Alabama and the $2,716,000 escrow balance was released. Allocation of the
purchase price for the transactions was recorded as follows:
<TABLE>
<S> <C>
Paging network equipment....................................... $ 1,930,000
Licenses and operating authorities............................. 9,226,000
-----------
$11,156,000
==========
</TABLE>
7. DEFERRED REVENUES
Customers are generally billed by the Company a month in advance of
providing the service. Deferred revenue related to such billings totaled
$1,753,000 and $4,674,000 at December 31, 1994 and 1995, respectively.
F-34
<PAGE> 126
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1994 1995
----------- ------------
<S> <C> <C>
11 7/8% Senior Subordinated Notes due 2005, net of
unamortized discount of $898,627........................ $ -- $124,101,373
Bank loans................................................ 13,329,000 --
Notes payable to vendor................................... 1,828,676 --
----------- ------------
15,157,676 124,101,373
Less current maturities.............................. (835,293) --
----------- ------------
$14,322,383 $124,101,373
========== ===========
</TABLE>
On October 24, 1995, the Company issued $125 million of 11 7/8% Senior
Subordinated Notes due 2005, priced at 99.274% to yield approximately 11.8%.
Interest on the Notes is payable semi-annually in May and November. The Notes
required the Company to purchase a portfolio of securities, initially consisting
of U.S. government securities ("Pledged Securities") which are pledged as
security for payment of the first two scheduled interest payments due on the
Notes. Amounts so pledged at December 31, 1995 were $14,686,419. The Notes are
subordinated in right of payment to all of the Company's existing and future
Senior Debt as defined in the Indenture governing the Notes. Such Indenture also
contains certain covenants, including, but not limited to, covenants with
limitations and restrictions on the following: (i) the incurrence of additional
indebtedness; (ii) restricted payments; (iii) asset dispositions; (iv) liens;
(v) sale and leaseback transactions; (vi) prohibition of dividends; (vii)
prohibition of dividend and other payment restrictions affecting certain
subsidiaries; (viii) consolidation, merger or sale of assets; (ix) investments;
(x) incurrence of indebtedness ranking senior to the Notes and junior to any
Senior Debt; and (xi) transactions with related parties. Additionally, the Notes
are redeemable at the option of the Company, in whole or in part, at any time on
or after November 1, 2000 at redemption prices set forth in the Indenture. The
Company used the net proceeds to retire all other outstanding debt, to finance
the acquisition of Network and to purchase the Pledged Securities. The balance
is available for general corporate purposes, including possible future
acquisitions.
Also in connection with the acquisition of Network, the Company entered
into an agreement with the First National Bank of Chicago to provide a $25
million credit facility (the "Credit Facility"). The Credit Facility agreed upon
is to be a secured two-year term loan, principal payable in quarterly
installments commencing December 31, 1997 and bearing an interest rate which is
computed at a base rate plus a margin fluctuating with the Company's ratio of
total debt to net operating cash flow. Borrowings under the Credit Facility
would be secured by a lien on all assets of the Company, including the stock of
its subsidiaries, to the extent permissible under the rules of the Federal
Communications Commission. The loan documents contain certain affirmative and
negative covenants, and include the maintenance of specified ratios, by the
Company, of net operating cash flows to interest expense on total debt, ratios
of total debt to equity and others. Additionally, the availability of borrowings
under the Credit Facility are limited by certain of these ratios. Until the
Company has achieved a substantial improvement in its results of operations or
completed a significant acquisition of one or more other paging providers on
favorable terms, management does not anticipate being able to borrow under the
Credit Facility. There were no amounts outstanding or available under the Credit
Facility at December 31, 1995.
The Company incurred extraordinary charges in 1993 and 1995 of $236,000 and
$606,708, respectively, or $.07 and $.09 per share, respectively, to write off
loan origination fees associated with debt retired from the proceeds of the
issuance of the Notes and its initial public offering, respectively.
Long-term debt outstanding at December 31, 1995 matures in 2005.
F-35
<PAGE> 127
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The provision for income taxes varies from the amount computed by applying
the federal statutory rate of 34% for the reasons summarized below:
<TABLE>
<CAPTION>
1993 1994 1995
--------- ----------- -----------
<S> <C> <C> <C>
Tax based on statutory rate..................... $(515,000) $(1,385,000) $(4,914,000)
State income taxes, net of federal income tax
benefit.................................... (37,000) (161,000) (538,000)
Amortization of goodwill...................... -- -- 214,000
Valuation allowance........................... 563,000 1,688,000 5,358,000
Other......................................... (11,000) (142,000) (120,000)
--------- ----------- -----------
$ -- $ -- $ --
========= ========== ==========
</TABLE>
Deferred tax balances at December 31, 1994 and 1995 are attributable to the
following temporary differences:
<TABLE>
<CAPTION>
1994 1995
--------------------------- ---------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net operating loss carryforwards........... $ 5,296,000 $ -- $ 9,338,000 $ --
Purchase accounting........................ -- -- -- 7,012,000
Alternative minimum and investment tax
credit carryforwards..................... 155,000 -- 96,000 --
Stock compensation......................... -- -- 2,280,000 --
Accelerated tax depreciation and
amortization............................. -- 2,876,000 -- 3,007,000
Other...................................... -- 149,000 619,000 --
Valuation allowance........................ (2,426,000) -- (3,132,000) --
----------- ------------ ----------- ------------
$ 3,025,000 $ 3,025,000 $ 9,201,000 $ 10,019,000
========== ========= ========== ==========
</TABLE>
At December 31, 1995, the Company has approximately $25,000,000 of net
operating loss carryforwards for federal tax purposes and $96,000 of alternative
minimum and investment tax credit carryforwards available to offset future
federal income taxes. The majority of these amounts expire in the years 2008
through 2010.
10. COMMITMENTS AND CONTINGENCIES
On August 2, 1995, the Company was named as one of several defendants in
Contact Communications, Inc. and ProNet Inc. vs. Page East, Inc., C.T, Spruill,
Network USA Paging Corp. and A+ Communications, Inc., which is pending in the
U.S. District Court for the Eastern District of Texas. Motions have been filed
by all defendants to transfer the action to the U.S. District Court for the
Eastern District of North Carolina. The suit alleges that the Company tortiously
interfered (by entering into a letter of intent to acquire Page East, Inc.) with
an alleged contract between the plaintiffs and Page East, Inc. and the sole
shareholder of Page East, Inc., which would have provided for the acquisition of
Page East, Inc. by the plaintiffs. The plaintiffs seek unspecified damages. The
Company intends to vigorously defend against this suit. The Company believes
that it has meritorious defenses and that the ultimate outcome of such action
will not have a material adverse effect on the financial condition of the
Company.
Additionally, there are other various legal actions, proceedings and claims
pending or which may be instituted against the Company. Litigation is subject to
many uncertainties and it is reasonably possible that some of such legal
actions, proceedings or claims could be decided unfavorably to the Company.
Although the ultimate liability with respect to these matters cannot be
ascertained, management of the Company believes that any resulting liability
will not materially affect the Company's financial position at December 31,
1995.
F-36
<PAGE> 128
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The Company has entered into lease agreements principally for office and
transmitting sites with lease terms ranging from one month to eight years and
expiring on various dates through 2001. In most cases, the Company expects that
in the normal course of business, leases will be renewed or replaced by other
leases. Total rent expense was $1,308,000, $2,666,000, and $3,446,000 in 1993,
1994, and 1995. The leases generally provide for payment of taxes and other
related expenses.
The Company leases office and warehouse space from a company owned by an
officer and director of the Company. The annual rental commitment under these
leases is approximately $393,000. Rental expense under these leases was
approximately $51,000 in 1995. The Company believes the terms of these leases
are at least as favorable as those that could be obtained from a non-affiliated
party.
Aggregate rental commitments under noncancelable operating leases as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1996......................................................... $ 3,509,957
1997......................................................... 3,096,460
1998......................................................... 2,674,877
1999......................................................... 1,740,018
2000......................................................... 1,365,116
Thereafter................................................... 721,700
-----------
$13,108,128
==========
</TABLE>
11. STOCKHOLDERS' EQUITY
On August 24, 1993, the Company and certain stockholders of the Company
sold an aggregate of 3,700,000 shares of common stock (3,200,000 shares from the
Company) in a public offering at a price of $11 per share. On September 22,
1993, pursuant to the underwriters exercise of their over-allotment options, an
additional 555,000 shares were sold to the public, of which 340,103 shares were
offered by the Company. Net proceeds to the Company from the sales amounted to
approximately $35.5 million. Approximately $9.9 million of the net proceeds were
used to acquire the South Central Bell paging assets in Alabama, Tennessee and
Mississippi.
In February 1995, the Company adopted a Shareholder's Rights Plan ("Plan")
that calls for a distribution of one preferred stock purchase right for each
outstanding share of common stock of the Company and the Board of Directors of
the Company declared a dividend distribution of such rights payable as of March
10, 1995 to shareholders of record as of that date. Each Right entitles the
registered holder to purchase from the Company one one-hundredth ( 1/100) of a
share of preferred stock of the Company, designated as Series A Junior
Participating Preferred Stock ("Junior Preferred"), at an exercise price of $75
per one-hundredth of a share under certain circumstances as described below.
Each share of the Junior Preferred, if issued, would bear a dividend rate of 100
times the aggregate amount per share of any dividend declared on the common
stock and an aggregate amount per share equal to the amount per share of any
dividend declared on any other class or series of junior stock. Each share of
Junior Preferred would entitle the holder to 100 votes on all matters submitted
to a vote of the stockholders of the Company. Such shares provide for a
liquidation preference of the greater of $100 per share or an aggregate amount
per share equal to 100 times the aggregate amount to be distributed per share to
holders of common stock and are not subject to redemption. In connection with
the Plan, the Board of Directors reserved 500,000 shares of preferred stock
designated as Junior Preferred. At December 31, 1995, no preferred stock was
outstanding.
F-37
<PAGE> 129
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCKHOLDERS' EQUITY -- (CONTINUED)
The Rights become exercisable only in the event that a person or group
acquires 15 percent or more of the Company's common stock or announces a tender
offer or exchange offer which would result in the ownership by such person or
group of 15 percent or more of the Company's common stock without prior approval
of the Company's Board of Directors. The Plan also provides that if the Company
is acquired in a merger or business combination after a person or group has
acquired 15 percent of the Company's common stock, the holder of a right would
be entitled to purchase, at the exercise price, shares of the acquiring company
or surviving company having a market value twice the exercise price. The Company
may also exchange each Right for a share of its common stock at any time after a
person or group acquires 15 percent or more of the Company's common stock. The
Board of Directors may redeem the Rights for $.01 per right until a person or
group acquires 15 percent or more of the Company's common stock. The Plan
expires in ten years.
12. STOCK OPTIONS
Under the Company's Employee Stock Incentive Plans the Compensation
Committee of the Board of Directors has authority to grant stock options and
stock appreciation rights. The stock options may be incentive or non-qualified
stock options, however all of the stock options granted to date are
non-qualified stock options. Non-qualified stock options are granted at not less
than 80% of the fair market value as of the date of grant under the Company's
1987 Stock Incentive Plan and not less than 50% of the fair market value as of
the date of grant under the Company's 1992 Stock Incentive Plan. Awards are
exercisable subject to terms and conditions as determined by the Compensation
Committee with no term to exceed ten years after the date of grant.
The Company's 1993 Non-Qualified Stock Option Plan for non-employee
directors provides for the granting of up to 34,500 shares of stock to
non-employee directors of the Company. This plan provides for the grant of
options to purchase 1,035 shares to each such director following the
effectiveness of a public offering and each year thereafter, as long as shares
remain available under the Plan. The options granted shall be at market price on
date of grant, exercisable one year from date of grant and expire ten years from
date of grant. Under the Plan, options for 5,175, 6,210 and 4,140 shares were
granted at $16.25, $11.25 and $14.38 per share during 1993, 1994 and 1995,
respectively.
The Company also has available an approved Employee Stock Purchase Plan
which provides for stock sales of up to 69,000 shares. As of December 31, 1995,
no shares had been issued under this plan.
F-38
<PAGE> 130
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK OPTIONS -- (CONTINUED)
Stock option activity for the 1987 and 1992 Employee Stock Incentive Plans
occurring during 1993, 1994 and 1995 was as follows:
<TABLE>
<CAPTION>
OPTION PRICE
OPTIONS SARS PER SHARE
-------- ------- -----------------
<S> <C> <C> <C>
Balance, December 31, 1992...................... 21,474 10,726
Granted....................................... 240,708 55,352 $10.23 to $17.50
-------- -------
Balance, December 31, 1993...................... 262,182 66,078
Granted....................................... 361,394 -- $4.35 to $14.75
Exercised..................................... (7,513) (3,756) $6.52 to $10.23
Canceled...................................... (146,563) (62,322) $4.35 to $10.23
-------- -------
Balance, December 31, 1994...................... 469,500 --
Granted....................................... 191,008 -- $13.50
Exercised..................................... (91,445) -- $4.35 to $13.25
Canceled...................................... (160,528) -- $10.23 to $14.75
-------- -------
Balance, December 31, 1995...................... 408,535 --
======== =======
</TABLE>
In February 1994, the Company's Board of Directors canceled 120,000 options
at $17.50 per share that had been granted to certain of the Company's employees
and granted them 120,000 options at $13.25 per share. The cancellation occurred
because the incentive purpose of the options had been significantly reduced by a
large negative spread between the then current market price and the exercise
price. The $13.25 option price assigned to the reissued options was the market
value of the Company's stock on the grant date of the options, and no
compensation expense has been recorded as a result of the transaction.
The options granted in 1994 include 54,044 options issued on October 6,
1994 as replacements for SARs canceled on that date. These options were issued
with the same vesting schedules and exercise prices as the SARs that they
replaced.
Outstanding stock options at December 31, 1995 have exercise prices ranging
from $10.23 to $14.75 per share. Of the options outstanding at December 31,
1995, approximately 133,200 were available for exercise.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted SFAS No. 107, Disclosures
About Fair Value of Financial Instruments, which requires certain disclosures
concerning the estimated fair value of financial instruments. The estimated fair
value amounts have been determined based on the Company's assessment of
available market information and appropriate valuation methodologies. The
estimates presented are not necessarily indicative of amounts the Company could
realize in a current market exchange.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ ------------
<S> <C> <C>
Short-term investments:
Held-to-maturity....................................... $ 14,686,419 $ 14,720,247
Available-for-sale..................................... 28,464,706 28,469,454
Long-term debt........................................... 124,111,945 126,875,000
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments.
F-39
<PAGE> 131
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
Cash and cash equivalents, accounts receivable, and accounts payable: The
carrying value approximates the fair value due to the short maturity of these
instruments.
Short-term investments: The estimated fair value of short-term investments
is based upon quoted market prices for those or similar investments.
Long-term debt: The fair value of the Company's long-term debt is estimated
based on quoted market prices.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
14. RESTRUCTURING CHARGES
In the fourth quarter of 1995, the Company recorded restructuring charges
of $669,406. Included in the charges are the costs of employee separations and
expected costs of facility consolidations, asset retirements and related costs.
Approximately $650,000 of these charges are included in accrued liabilities at
December 31, 1995.
15. BUSINESS SEGMENT INFORMATION
A description of the Company's business segments is included in Note 1 to
the consolidated financial statements. Information with respect to such segments
is as follows:
<TABLE>
<CAPTION>
OPERATING DEPRECIATION
PROFIT TOTAL CAPITAL AND
REVENUES (LOSS) ASSETS EXPENDITURES AMORTIZATION
----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1993
Mobile communications....... $26,838,380 $ 1,235,000 $ 30,506,768 $ 6,620,370 $ 2,878,642
Telemessaging............... 10,064,980 819,725 4,234,660 536,133 1,254,114
Corporate................... -- (2,518,052) 9,514,961 145,613 185,542
----------- ------------ ------------ ------------- -------------
$36,903,360 $ (463,327) $ 44,256,389 $ 7,302,116 $ 4,318,298
========== =========== =========== ========== ==========
December 31, 1994
Mobile communications....... $38,659,496 $ (245,960) $ 46,759,094 $ 17,633,555 $ 5,670,029
Telemessaging............... 11,226,952 438,759 5,380,536 987,884 1,484,954
Corporate................... -- (3,720,927) 2,471,515 476,462 320,520
----------- ------------ ------------ ------------- -------------
$49,886,448 $ (3,528,128) $ 54,611,145 $ 19,097,901 $ 7,475,503
========== =========== =========== ========== ==========
December 31, 1995
Mobile communications....... $47,082,514 $ (4,511,166) $142,637,533 $ 11,992,677 $ 12,554,867
Telemessaging............... 11,359,426 (377,206) 3,901,498 245,077 1,739,535
Corporate................... -- (5,248,977) 64,473,640 158,475 540,108
----------- ------------ ------------ ------------- -------------
$58,441,940 $(10,137,349) $211,012,671 $ 12,396,229 $ 14,834,510
========== =========== =========== ========== ==========
</TABLE>
F-40
<PAGE> 132
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SUBSEQUENT EVENT, NOTE TO MARCH 31, 1996 FINANCIAL STATEMENTS
On May 16, 1996, the Company entered into an agreement and plan of merger
with Metrocall, Inc. whereby, subject to the process and approvals contemplated
in the agreement, the Company will merge with Metrocall, Inc.
F-41
<PAGE> 133
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Network Paging Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Network Paging Corporation and its subsidiary at December 31, 1994
and 1993, and the results of their operations and their cash flows for the two
years ended December 31, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 8, on August 2, 1995, the Company was named as one of
several defendants in a lawsuit. The plaintiffs seek unspecified damages. Legal
counsel is unable to form an opinion as to the ultimate outcome of this
litigation. The Company believes it has meritorious defenses, although no
assurance can be given to that effect. The ultimate outcome of this litigation
cannot be presently determined. Accordingly, no provision for any liability that
may result upon the outcome of this litigation has been made in these financial
statements.
PRICE WATERHOUSE LLP
Tampa, Florida
February 3, 1995, except as to the first
paragraph of Note 8 for which the date
is August 31, 1995
F-42
<PAGE> 134
NETWORK PAGING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 486,585 $ 563,312
Trade receivables, net of allowance for doubtful accounts of
$300,000 and $560,000, respectively............................. 2,148,665 3,733,179
Inventories........................................................ 155,462 1,483,035
Prepaid expenses................................................... 196,133 248,480
Other receivables.................................................. 113,685 147,223
----------- -----------
Total current assets....................................... 3,100,530 6,175,229
Property and equipment, net.......................................... 9,385,084 11,484,443
Note receivable from related party................................... 586,798 --
Other assets, net.................................................... 35,765 780,731
----------- -----------
Total assets............................................... $13,108,177 $18,440,403
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion..................................... $ 3,147,339 $ 900,000
Accounts payable................................................... 1,292,698 1,771,233
Advanced billings.................................................. 892,712 1,463,357
Accrued expenses................................................... 437,609 609,052
Income taxes payable............................................... -- 53,000
----------- -----------
Total current liabilities.................................. 5,770,358 4,796,642
Notes payable, less current portion.................................. 6,079,871 9,973,420
Notes payable to shareholder......................................... 712,933 --
Deferred taxes....................................................... -- 898,000
----------- -----------
Total liabilities.......................................... 12,563,162 15,668,062
----------- -----------
Commitments and contingencies (Note 8)
Mandatorily redeemable preferred stock, Series A, $.01 par value,
3,000,000 shares authorized, issued and outstanding................ -- 3,000,000
Note receivable -- shareholder....................................... -- (3,000,000)
Mandatorily redeemable preferred stock, Series B, $.01 par value,
4,000,000 shares authorized, issued and outstanding................ -- 4,119,949
Mandatorily redeemable convertible preferred stock, Series C, $.01
par value, 678,000 shares authorized, 677,849 shares issued and
outstanding........................................................ -- 2,059,975
----------- -----------
-- 6,179,924
----------- -----------
Shareholders' equity (deficit):
Common stock, no par value; 1,000 and 0 shares authorized, issued
and outstanding, respectively................................... 286,976 --
Common stock, $.01 par value; 0 and 13,000,000 shares authorized,
respectively; 0 and 2,040,000 shares issued and outstanding,
respectively.................................................... -- 20,400
Additional paid-in capital......................................... -- 522,962
Accumulated equity (deficit)....................................... 258,039 (3,950,945)
----------- -----------
Total shareholders' equity (deficit)....................... 545,015 (3,407,583)
----------- -----------
Total liabilities and shareholders' equity................. $13,108,177 $18,440,403
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE> 135
NETWORK PAGING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1993 1994
----------- -----------
<S> <C> <C>
Revenues:
Pager lease and access fees................................... $13,821,722 $20,623,189
Product sales................................................. 4,070,377 7,829,759
Other income.................................................. 94,110 72,676
---------- -----------
Total revenues............................................. 17,986,209 28,525,624
Cost of products sold........................................... 3,666,084 6,801,285
---------- -----------
14,320,125 21,724,339
Expenses:
Operating..................................................... 2,959,085 4,456,541
Selling and marketing......................................... 4,767,661 6,778,711
General and administrative.................................... 3,459,189 5,442,634
Reorganization bonuses (Note 10).............................. -- 634,809
Depreciation and amortization................................. 1,914,578 2,949,417
---------- -----------
Operating income................................................ 1,219,612 1,462,227
Interest income................................................. 7,847 204,331
Interest expense................................................ 942,614 1,244,716
---------- -----------
Income before taxes............................................. 284,845 421,842
Provision for income taxes -- 1994.............................. -- 151,000
Provision for income taxes resulting from conversion to C
Corporation status (Note 7)................................... -- 800,000
---------- -----------
Net income (loss)............................................... 284,845 (529,158)
Pro forma provision for income taxes (unaudited)................ 108,000 --
Preferred stock dividend requirement............................ -- (423,440)
---------- -----------
Pro forma net income (loss) applicable to common shareholders
(unaudited)................................................... $ 176,845 $ (952,598)
========== ===========
Pro forma income (loss) per share (unaudited):
Primary....................................................... $ .09 $ (.47)
========== ===========
Fully diluted................................................. $ .09 $ (.47)
========== ===========
Weighted shares outstanding (Note 1):
Primary....................................................... 2,040,000 2,040,000
========== ===========
Fully diluted................................................. 2,040,000 2,040,000
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE> 136
NETWORK PAGING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
$.01
NO PAR PAR ADDITIONAL ACCUMULATED
COMMON COMMON PAID-IN EQUITY
STOCK STOCK CAPITAL (DEFICIT)
--------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1992............... $ 286,976 -- -- $ (26,806)
Net income................................. -- -- -- 284,845
--------- ------- -------- -----------
Balance at December 31, 1993............... 286,976 -- -- 258,039
Net income (loss) prior to conversion to C
Corp. (January 1, 1994 through March 31,
1994).................................... -- -- $ (1,653) --
Constructive distribution of S Corporation
retained earnings........................ -- -- 258,039 (258,039)
Common stock retired....................... (286,976) -- -- --
--------- ------- -------- -----------
Balance at April 1, 1994................... -- -- 256,386 --
Common stock issued........................ -- $20,400 266,576 --
Issuance of Series A redeemable preferred
stock.................................... -- -- -- (3,000,000)
Dividends on preferred stock............... -- -- -- (423,440)
Net loss subsequent to conversion to C
Corporation (April 1, 1994 through
December 31, 1994)....................... -- -- -- (527,505)
--------- ------- -------- -----------
Balance at December 31, 1994............... $ -- $20,400 $ 522,962 $(3,950,945)
========= ======= ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-45
<PAGE> 137
NETWORK PAGING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................... $ 284,845 $ (529,158)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation......................................................... 1,909,778 2,879,321
(Gain) loss on sale of property and equipment........................ 18,501 38,878
Provision for bad debts.............................................. 735,067 960,091
(Increase) decrease in operating assets
Trade receivables.................................................. (1,622,229) (2,544,604)
Inventories........................................................ 77,896 (1,327,573)
Prepaid expenses................................................... (69,375) (52,347)
Other receivables.................................................. (41,881) (33,538)
Other assets, net.................................................. 83,696 (469,966)
Increase in operating liabilities
Accounts payable................................................... 818,220 478,535
Advanced billings.................................................. 329,447 570,645
Accrued expenses................................................... 43,895 171,443
Income taxes payable............................................... -- 53,000
Deferred taxes..................................................... -- 898,000
----------- -----------
Net cash provided by operating activities....................... 2,567,860 1,092,727
----------- -----------
Cash flows from investing activities:
Capital expenditures................................................... (5,383,584) (5,763,738)
Proceeds from sale of property and
equipment............................................................ 456,561 746,178
Deposit on pending acquisition......................................... -- (275,000)
----------- -----------
Net cash used in investing activities........................... (4,927,023) (5,292,560)
----------- -----------
Cash flows from financing activities:
Decrease in notes receivable........................................... -- 893,384
Increase in notes receivable........................................... (586,798) (3,306,586)
Proceeds from notes payable............................................ 7,211,976 19,944,636
Proceeds from notes payable to shareholder............................. 1,468,054 70,000
Reductions in notes payable............................................ (3,737,462) (18,298,425)
Reductions in notes payable to shareholder............................. (1,649,440) (782,933)
Proceeds from preferred stock Series B, net of issuance costs of
$61,969.............................................................. -- 3,938,031
Proceeds from preferred stock Series C, net of issuance costs of
$30,984.............................................................. -- 1,969,016
Dividends on preferred stock........................................... -- (150,563)
----------- -----------
Net cash provided by financing activities....................... 2,706,330 4,276,560
----------- -----------
Net increase in cash and cash equivalents................................ 347,167 76,727
Cash and cash equivalents at beginning of year........................... 139,418 486,585
----------- -----------
Cash and cash equivalents at end of year................................. $ 486,585 $ 563,312
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest................................. $ 952,393 $ 1,149,617
=========== ===========
Cash paid during the year for taxes.................................... $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<PAGE> 138
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Background
Florida Network USA, Inc. ("Network USA"), a wholly owned subsidiary of
Network Paging Corporation ("Network"), was established in 1989, as a private
carrier paging company. Network has the ability to provide regional, corridor,
statewide or nationwide services to more than 6,000 American cities by linking
its paging system with those of independent paging companies ("Affiliates").
Network also provides its Affiliates with other services including pagers,
equipment, marketing, and training assistance.
Reorganization
In April 1994, Network USA signed an agreement with an investment group to
obtain a cash infusion of $6 million in exchange for $6 million of 10%
promissory notes which were exchangeable, in certain circumstances, for an
aggregate of 4 million shares of Series B redeemable preferred stock and 677,849
shares of Series C redeemable convertible preferred stock, as described below.
In connection with this cash infusion, Network USA amended and restated its
articles of incorporation, effective April 1, 1994, to authorize the issuance of
13 million shares of common stock (par value of $.01 per share) and 7.678
million shares of preferred stock (par value of $.01 per share) which resulted
in the change of its S Corporation status to C Corporation status. The preferred
stock consists of 3 million shares of Series A redeemable preferred stock,
bearing a cumulative annual dividend of 7.25%, redeemable at $1 per share; 4
million shares of Series B redeemable preferred stock, bearing a cumulative
annual dividend of 10%, redeemable at $1 per share; and 678,000 shares of Series
C redeemable convertible preferred stock, convertible at the option of the
holder into a minimum of 15%, increasing to 21% (dependent on the date of
conversion and the occurrence of specified events), of Network USA's then
outstanding common stock (see further description of shares issued, redemption
and conversion options at Note 11). Concurrent with the change in corporate
structure, Network USA effected a recapitalization by issuing 2.04 million
shares of common stock and 3 million shares of Series A redeemable preferred
stock in exchange for all previously outstanding common stock. As a result of
this change in Network USA's corporate status, the retained earnings and the
current year net loss, through the effective date of the change, was
reclassified to additional paid-in capital. The retained earnings balance at
December 31, 1994 represents earnings and dividends under the current corporate
status only.
Concurrent with the receipt of the funds referred to above, Network USA
loaned the common stock shareholder $3 million in the form of a note receivable
bearing a 7% interest rate, interest due monthly and the total balance due in
April 2001.
In July 1994, Network USA's sole shareholder and the investment group
formed a holding company, Network Paging Corporation, and merged Network USA
into a wholly-owned subsidiary of Network Paging Corporation. Concurrent with
this restructuring, the $6 million promissory notes were exchanged for the
Series B redeemable preferred stock and C redeemable convertible preferred stock
referred to above.
Trade Receivables -- Allowance for Doubtful Accounts
Trade receivables are reflected net of an allowance for doubtful accounts.
The allowance for doubtful accounts is established through a provision for bad
debts. Receivables are charged against the allowance for doubtful accounts when
management believes that collection is unlikely.
Concentrations of credit risk with respect to trade accounts receivable are
generally diversified due to the large number of customers comprising Network's
customer base and their dispersion among various industries and geographic
areas.
F-47
<PAGE> 139
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are stated at lower of cost or market, with cost determined by
specific identification. Inventories consist of new and used pagers held for
resale.
Property and Equipment
Property and equipment are carried at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The cost of leasehold improvements is
amortized using the straight-line method over the term of the lease. When assets
are retired or otherwise disposed of, the cost and related accumulated
depreciation and amortization are removed from the accounts and any resulting
gain or loss is reflected in income for the period. The cost of maintenance and
repairs is charged to expense as incurred; significant renewals and betterments
are capitalized.
Other Assets
Other assets consists primarily of deferred financing costs and money on
deposit. Money on deposit relates primarily to the pending acquisition of Call
Comm, Inc. and Telecommunications Associates, Inc. (see further discussion at
Note 8). Deferred financing costs will be amortized on a straightline basis over
their anticipated useful lives, which range from three to four years.
Revenue Recognition
Revenues from leased pagers and paging services principally are billed in
advance of services being provided. Such advance billings for these services are
deferred and recognized as revenue when earned. Affiliate access fees are
recognized on the accrual basis as the related services are performed. Revenues
from the sale of pagers are recognized on the accrual basis when title passes
from Network to the customer.
Income Taxes
As described above, Network changed its tax status to C Corporation status
in April 1994. Prior to April 1994, Network had elected to be taxed as an S
Corporation under the provisions of Section 1362 of the Internal Revenue Code.
Under those provisions, the shareholder included Network's income or loss in his
individual income tax return. A provision for income taxes has been recognized
for the difference in the reported tax basis and book basis of assets and
liabilities as a result of the change in Network's tax status and for the eight
month period ended December 31, 1994, and is reflected in these consolidated
financial statements.
Fair Value of Financial Instruments
The carrying amount for cash, short-term investments, accounts receivable,
accounts payable, accrued expenses and notes payable are a reasonable estimate
of their fair value.
Cash Flows
For the purpose of the statements of cash flows, cash equivalents include
highly liquid investments with original maturities of three months or less.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
F-48
<PAGE> 140
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share
Earnings per share is computed by dividing net income (loss) by the
weighted average number of common and common share equivalents outstanding.
2. OTHER RECEIVABLES
Other receivables consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
-------- --------
<S> <C> <C>
Loans to employees............................................. $ 61,951 $ 61,185
Loans to officers.............................................. 28,362 125
Receivables from related parties............................... -- 67,611
Other.......................................................... 23,372 18,302
-------- --------
$113,685 $147,223
======== ========
</TABLE>
3. PROPERTY AND EQUIPMENT
Major classifications of property and equipment and related assets' lives
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
USEFUL LIFE (YEARS) 1993 1994
------------------- ----------- -----------
<S> <C> <C>
Pagers held for lease................... 4 $ 6,532,560 $ 6,825,579
Transmittal equipment................... 7 4,202,379 5,836,327
Furniture, fixtures and equipment....... 5-7 1,517,746 3,494,150
Vehicles................................ 5 142,144 273,232
Equipment on loan to Affiliates......... 5 86,916 156,162
Leasehold improvements.................. 7 25,586 27,334
----------- -----------
12,507,331 16,612,784
Less accumulated depreciation and amortization............... 3,710,060 5,995,152
----------- -----------
8,797,271 10,617,632
Construction in progress..................................... 383,173
Satellite dishes and transmitters not yet placed in
service.................................................... 587,813 483,638
----------- -----------
$ 9,385,084 $11,484,443
=========== ===========
</TABLE>
In 1993, pagers and transmittal equipment with a cost of $8,990,974 were
pledged as collateral for loans. At December 31, 1994, all assets, 100% of the
stock of Network USA, and 100% of the stock of all of its future subsidiaries
are pledged as collateral on the reducing revolving credit facility. On December
31, 1993 and 1994, total accumulated depreciation related to pagers held for
lease amounted to $2,037,021 and $3,219,725, respectively.
F-49
<PAGE> 141
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
------- --------
<S> <C> <C>
Financing costs, net of amortization of $57,062................. -- $418,292
Money on deposit................................................ $35,765 313,312
Other........................................................... -- 49,127
------- --------
$35,765 $780,731
======= ========
</TABLE>
5. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
-------- --------
<S> <C> <C>
Sales and use tax.............................................. $126,401 $246,328
Accrued bonuses and commissions................................ 127,497 132,101
Accrued interest............................................... 71,572 154,175
Other.......................................................... 112,139 76,448
-------- --------
$437,609 $609,052
======== ========
</TABLE>
6. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1994
---------- -----------
<S> <C> <C>
Borrowings under $12 million reducing revolving credit
facility................................................. -- $10,873,420
Notes payable to a commercial finance company due at
various dates through November 1998 and interest rates
from 10% to 12%, monthly installments vary in relation to
debt outstanding, secured by pagers or transmittal
equipment................................................ $8,216,995 --
Notes payable to commercial finance company, interest at
10% to 12.5%, monthly installments of $21,075 plus
interest through January 1999, secured by transmitters... 773,980 --
Other notes payable to banks, secured by fixed assets...... 124,689 --
Capital lease obligation with finance company, monthly
installments of $5,744, interest ranging from 5.32% to
11.75%, secured by pagers................................ 111,546 --
---------- ----------
9,227,210 10,873,420
Less notes payables, current portion....................... 3,147,339 900,000
---------- ----------
$6,079,871 $ 9,973,420
========== ==========
</TABLE>
Following are maturities of long-term debt for each of the next five years:
<TABLE>
<S> <C>
1995............................................................ $ 900,000
1996............................................................ 2,400,000
1997............................................................ 3,000,000
1998............................................................ 3,600,000
1999............................................................ 973,420
------------
$ 10,873,420
==========
</TABLE>
F-50
<PAGE> 142
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1994, Network entered into a $12 million reducing revolving credit
facility with a commercial bank. The level of available funds under this credit
facility will be reduced on a quarterly basis, commencing June 30, 1995. The
interest rate is tied to the bank's prime plus a specified percentage ranging
from .5% to 2% with such percentage being based on Network's leverage ratio (the
bank's prime rate and Network's interest rate were 8.5% and 10%, respectively,
at December 31, 1994). The final principal payment on this credit facility is
due June 30, 1999.
The credit facility also requires payment of a commitment fee on the
available funds balance at the rate of .5% per annum payable on a quarterly
basis. Borrowings are secured by all assets and 100% of the stock of Network
USA. Network incurred loan origination fees and direct financing costs
aggregating $316,165, which have been capitalized and are to be recognized as
interest expense over the life of the loan.
The credit facility agreement requires maintenance of certain specified
financial and operating covenants which prohibit incurrence of additional debt,
without approval by the bank, and restrict payment of cash dividends on common
stock during the term of the credit facility.
As of December 31, 1994, Network was eligible to borrow all of the
$1,126,580 remaining on the credit facility. Principal repayments based on the
amount outstanding at December 31, 1994, are $900,000 in 1995, $2.4 million in
1996, $3 million in 1997, $3.6 million in 1998, and $973,420 in 1999.
In September 1994, Network entered into an interest rate agreement which
provides a ceiling on interest costs with respect to $6 million of Network's $12
million credit facility in the event the bank's prime rate exceeds 9.75%.
Starting in June 1995, the dollar amount on which the interest rate agreement is
applicable decreases from $6 million to $3.225 million incrementally, on a
quarterly basis, through September 1997 when the agreement terminates. The
$109,000 cost of this agreement has been capitalized and included in other
assets and is being amortized over the three year life of the agreement.
7. INCOME TAXES
In connection with the reorganization in April 1994 (see Note 1), Network
changed from S Corporation status to C Corporation status for income tax
purposes. A provision for income taxes has been recognized for the difference in
the reported tax basis and book basis of assets and liabilities as a result of
the change from S Corporation status to C Corporation status for the eight month
period of operations ended December 31, 1994, as follows:
<TABLE>
<S> <C>
Current:
Federal......................................................... $ 47,000
State........................................................... 6,000
Deferred.......................................................... 898,000
---------
$ 951,000
========
</TABLE>
The provision for income taxes at December 31, 1994, shown above, varied
from the statutory federal income tax rates for those periods as follows:
<TABLE>
<S> <C>
Federal income tax rate...................................................... 34.0%
State income taxes, net of federal tax benefit............................... 1.0
Non-deductible items......................................................... 1.8
Deferred taxes recognized on change from S Corporation to C Corporation
status..................................................................... 187.8
-----
Effective tax rate........................................................... 224.6%
=====
</TABLE>
F-51
<PAGE> 143
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes shown on the balance sheet are comprised of the following:
<TABLE>
<CAPTION>
APRIL 1, DECEMBER 31,
1994 1994
-------- ------------
<S> <C> <C>
Deferred tax assets -- current:
Allowance for bad debts.................................. $ 67,504 $ 166,000
Other.................................................... 12,456 12,000
-------- ------------
Total............................................ $ 79,960 $ 178,000
======== ==========
Deferred tax liability -- non-current:
Depreciation............................................. $854,544 $1,076,000
-------- ------------
Total............................................ $854,544 $1,076,000
======== ==========
</TABLE>
The pro forma provision for income taxes for December 31, 1993 was
determined based on the statutory federal income tax rates for those periods.
8. COMMITMENTS AND CONTINGENCIES
Litigation
On August 2, 1995, Network was named as one of several defendants in a suit
filed in the District Court of Collin County, Texas, by Contact Communications,
Inc. and ProNet Inc., which alleges that Network and other named defendants
tortiously interfered with an alleged contract between the plaintiffs, Page East
and the sole shareholder of Page East which would have provided for the
acquisition of Page East by the plaintiffs. The plaintiffs seek unspecified
damages. Network believes they have meritorious defenses and will vigorously
defend against this suit.
Capital Lease Obligations
At December 31, 1993, Network was the lessee of pagers and other equipment
under capital leases expiring at various dates from 1994 to 1998. Capital lease
obligations of $14,064 were incurred during 1993. In July 1994, upon entering
into the $12 million reducing revolving credit facility, these leases were paid
off in full. The cost of these pagers and equipment amounted to $169,149, and
related depreciation expense amounted to $40,670 and $42,287 at December 31,
1993 and 1994, respectively.
The assets and liabilities under capital leases are recorded at the lower
of the present value of the minimum lease payments or the fair value of the
assets. The assets are depreciated over the lower of their related lease terms
or their estimated productive lives. Depreciation of assets under capital leases
is included in depreciation expense.
Interest rates on capitalized leases during 1993 varied from 5.32% to
11.75% and were imputed based on the lower of Network's incremental borrowing
rate at the inception of each lease or the lessor's implicit rate of return.
Operating Lease Obligations
Network leases a building and a warehouse which are owned by a related
party (see Note 9) under operating leases, which expire in 1998, with monthly
payments of $25,320. These leases require payment of insurance and maintenance
costs in addition to rental payments.
Network also leases various transmittal sites and equipment under operating
leases which are cancelable upon 30 or 90 days notice. These leases require
payment of taxes, insurance and maintenance costs in addition to rental
payments.
F-52
<PAGE> 144
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rental expense under all operating leases was $858,560 and $1,740,149
in 1993 and 1994, respectively.
The operating leases for the building and warehouse space are not
considered month to month leases. Future lease obligations under these leases as
of December 31, 1994 are $303,840 in 1995; $303,840 in 1996; $303,840 in 1997;
and $282,840 in 1998.
Pending Acquisition
On December 1, 1994, Network began operating Call Comm, Inc., a paging
company, and Telecommunications Associates, Inc., a licensing company, under a
management agreement. Under the terms of the agreement, Network is performing
all operations aspects of these entities and has recorded related revenues and
costs of sales for the month of December.
Pending FCC approval, Network plans to acquire certain licenses and fixed
assets of Call Comm, Inc., and Telecommunications Associates, Inc. The total
purchase price will be $875,000, consisting of $200,000 cash and issuance of
promissory notes in the aggregate amount of $600,000, bearing interest at the
rate of 7.75% per annum. At December 31, 1994, Network has recorded money on
deposit in the amount of $275,000 which represents cash paid to the owners of
Call Comm, Inc., and Telecommunications Associates, Inc., as earnest money for
this pending acquisition. The excess of cost over fair value of tangible assets
included in this acquisition will be allocated to licenses and a covenant not to
compete and will be amortized on a straight-line basis over the respective
assets' anticipated useful lives, which range from three to four years.
9. RELATED PARTIES
Shareholder
Network has one common stock shareholder who advanced working capital funds
to Network. The amount due to the shareholder for such advances was $712,933 at
December 31, 1993. These advances were repaid by Network in full in 1994. In
April 1994, Network issued 3 million shares of Series A redeemable preferred
stock to the common stock shareholder, bearing a cumulative annual dividend of
7.25%, redeemable at $1 per share. Simultaneously, Network advanced the
shareholder $3 million in the form of a 7% note receivable, interest due
monthly, with the principal due in full in April 2001.
In December 1993, Network sold the building which houses its corporate
operations to Network Paging Corporation of Tennessee ("NPC") which is 100%
owned by the sole shareholder of Network USA. The sale transaction was recorded
at the net book value as originally recorded on Network's financial statements
which approximated fair market value at the time of the transaction. Upon sale
of the building, NPC assumed the underlying debt and issued Network a 9% note
receivable which had a balance of $586,798 at December 31, 1993. As of December
31, 1993, Network was the guarantor for NPC on a line of credit secured by the
building which houses Network's headquarters. The outstanding balance on the
line of credit was approximately $1.6 million as of December 31, 1993.
Subsequent to 1993, NPC converted the line of credit into a note agreement which
released Network as guarantor. Network currently leases its corporate offices
from NPC at a rate which approximates fair market value (see Note 8).
In connection with the reorganization discussed in Note 1, the shareholder
granted Network an option to acquire his 50% interest in Alabama Network USA,
Inc., a corporation formed by the shareholder and a third party to own and
operate transmission facilities in Birmingham and Tuscaloosa, Alabama. The
option provides that Network can acquire the shareholder's interest at the cost
of approximately $75,000 until 2001.
F-53
<PAGE> 145
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee and Officer Loans
Other receivables on Network's balance sheet include employee and officer
loans of $90,313 and $61,310 at December 31, 1993 and 1994, respectively.
Affiliates
Network has equipment with an original cost of $156,162 on loan to certain
paging Affiliates throughout the country. Depreciation is being recorded in
accordance with Network's standard policy.
Major Supplier
Network purchases the majority of its pagers from Motorola.
10. EMPLOYEE BENEFITS AND COMPENSATION
Employee Benefit Plan
During 1992, Network began sponsoring a defined contribution pension plan
that covers all employees. The plan allows employees to make voluntary
contributions. Network's contribution is based on a percentage of those
voluntary contributions. The amount of pension expense was $28,632 and $50,445
in 1993 and 1994, respectively.
Reorganization Bonuses
As a result of the successful reorganization and recapitalization of
Network in April 1994, the Board of Directors elected to grant discretionary
bonuses to key management personnel in the amount of $634,809, which were
distributed during 1994.
11. SHAREHOLDERS' EQUITY
Common Stock
In connection with the reorganization (Note 1), Network performed a
recapitalization by issuing 2.04 million shares of common stock and 3 million
shares of Series A redeemable preferred stock (as described below), in exchange
for all of the previously outstanding common stock. Under the terms of the
reorganization, Network may not declare and pay, or set aside funds for the
payment of, any dividends related to any common stock or any preferred stock
junior to the preferred stock discussed below.
Preferred Stock
Series A redeemable preferred stock provides an annual dividend of 7.25% of
the original purchase price payable quarterly and has liquidating preference
over common stock. As a result of the recapitalization referred to above, the
Series A redeemable preferred stock is recorded at its redemption value of $3
million and has been reflected as a reduction to retained earnings.
Series B redeemable preferred stock and Series C redeemable convertible
preferred stock, recorded at their fair market values of $4 million and $2
million less associated issuance costs of $61,969 and $30,984, respectively,
provide an annual dividend of 10% of the original purchase price and have
liquidating preference, at a rate of $1 and $2.95 per share for Series B
redeemable preferred stock and Series C redeemable convertible preferred stock,
respectively, over Series A redeemable preferred stock and common stock. The
issuance costs related to the Series B redeemable preferred stock and Series C
redeemable convertible preferred stock are being accreted over the period until
mandatory redemption. Series C redeemable convertible preferred stock carries
voting rights equivalent to the anticipated number of common shares, on an if
converted basis, and if still outstanding, becomes mandatorily convertible to
common stock on April 30,
F-54
<PAGE> 146
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2001. Upon any conversion of the Series C redeemable convertible preferred
stock, all accumulated and unpaid dividends shall be forgiven. Network has the
option of redeeming all, but not less than all, of the outstanding preferred
stock at its liquidation price upon the closing of a public offering (which
meets certain parameters) of Network's common stock. Upon certain conditions,
the holders of any class of preferred stock may request redemption of its stock,
commencing no sooner than April 1998.
Dividends on the Series A redeemable preferred stock in the amount of
$150,563 were distributed in December 1994; dividends on the Series B redeemable
preferred stock and Series C redeemable convertible preferred stock in the
amount of $181,918 and $90,959, respectively, have been accrued and included in
the redemption value of such series of preferred stock at December 31, 1994.
Stock Option Plan
In December 1993, Network established a Stock Option Plan which provides
for the granting of non-qualified and incentive stock options, as defined by the
Internal Revenue Code, to key employees of Network at prices which represent
fair market value at dates of grant. Under the Plan, options may be granted to
employees to purchase a maximum of 510,000 shares of common stock, as available.
Options granted under the Plan expire in ten years from the date of grant and
become exercisable at such dates and prices as are determined by Network's Board
of Directors. In December 1993, 435,000 shares with an option price of $3.73 per
share were granted and are outstanding at December 31, 1994. These options
become exercisable in four annual increments beginning in July 1995. No
compensation expense has been recorded in connection with the options
outstanding under this Plan.
12. SUBSEQUENT EVENTS (UNAUDITED)
On July 26, 1995, Network entered into a letter of intent with respect to
the proposed acquisition of Page East, Inc. ("Page East"), a Network Affiliate
headquartered in Windsor, North Carolina. Page East has entered into a
definitive agreement to acquire the assets of Coastal Carolina Communications,
Inc. ("Coastal"). At June 30, 1995, Page East and Coastal combined had
approximately 18,500 paging and voicemail subscriber units in service.
Under the terms of the letter of intent among Network, Page East and the
stockholders of Page East, the parties agree that Network is to acquire all of
the outstanding stock of Page East for a purchase price of $10.9 million,
subject to upward adjustment based upon a multiple of combined cash flows of
Page East and Coastal for the year ending December 31, 1995. The obligations of
Network under the letter of intent are subject to satisfactory due diligence
review and the absence of material adverse changes in the operations or
condition of Page East. The obligations of all parties are subject to the
negotiation of definitive agreements and to required regulatory approvals.
The letter of intent provides that in the event Network fails to execute
definite agreements prior to October 26, 1995 for any reason other than material
adverse findings during its due diligence review, it must pay the stockholders
of Page East liquidated damages of $1.0 million, as specified in the letter of
intent. The letter of intent also provides that if the stockholders of Page East
(i) fail to execute definitive agreements prior to October 26, 1995, or
otherwise fail to consummate the transaction over the objection of Network and
(ii) agree, prior to January 26, 1997, to sell the stock or assets of Page East
to any third party, Network will be entitled to liquidated damages of $1.0
million, as specified in the letter of intent.
F-55
<PAGE> 147
NETWORK PAGING CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED OCTOBER 31, 1994 AND OCTOBER 24, 1995
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 24,
1994 1995
------------ ------------
<S> <C> <C>
Revenues:
Mobile communication services................................. $ 16,643,329 $ 24,389,961
Equipment sales............................................... 6,029,098 4,321,145
---------- -----------
Total revenues............................................. 22,672,427 28,711,106
Cost of equipment sales......................................... 4,961,072 4,066,026
---------- -----------
17,711,355 24,645,080
Costs and expenses:
Operating expenses -- exclusive of depreciation and
amortization............................................... 3,803,257 5,533,275
Depreciation and amortization................................. 2,372,283 3,025,420
Selling....................................................... 4,898,896 7,401,218
General and administrative.................................... 5,253,112 12,022,929
Reorganization bonuses........................................ 634,809 --
---------- -----------
16,962,357 27,982,842
---------- -----------
Operating income (loss)......................................... 748,998 (3,337,762)
Interest expense................................................ (1,051,772) (935,918)
Interest income................................................. 168,038 175,623
---------- -----------
(883,734) (760,295)
---------- -----------
Loss before income taxes........................................ (134,736) (4,098,057)
Income tax benefit (expense).................................... 51,334 (706,500)
Provision for income taxes resulting from conversion to C
Corporation status............................................ (800,000) --
---------- -----------
Net loss........................................................ $ (883,402) $ (4,804,557)
========== ===========
Loss per common share:
Primary....................................................... $ (0.43) $ (2.16)
========== ===========
Fully diluted................................................. $ (0.43) $ (2.16)
========== ===========
Weighted shares outstanding:
Primary....................................................... 2,040,000 2,229,159
========== ===========
Fully diluted................................................. 2,040,000 2,229,159
========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-56
<PAGE> 148
NETWORK PAGING CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
PERIOD ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
NO PAR $.01 PAR ADDITIONAL ACCUMULATED
COMMON COMMON PAID-IN EQUITY
STOCK STOCK CAPITAL (DEFICIT) TOTAL
-------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993............ $286,976 $ -- $ -- $ 258,039 $ 545,015
Net loss prior to conversion to C
Corp. (January 1, 1994 through March
31, 1994)........................... -- -- (1,653) -- (1,653)
Constructive distribution of S
Corporation retained earnings....... -- -- 258,039 (258,039) --
Common stock retired.................. (286,976) -- -- -- (286,976)
-------- -------- ---------- ----------- -----------
-- -- 256,386 -- 256,386
Common stock issued................... -- 20,400 266,576 -- 286,976
Issuance of Series A redeemable
preferred stock..................... -- -- -- (3,000,000) (3,000,000)
Net loss subsequent to conversion to C
Corporation (April 1, 1994 through
October 31, 1994)................... -- -- -- (883,402) (883,402)
-------- -------- ---------- ----------- -----------
Balance, October 31, 1994............. $ -- $ 20,400 $ 522,962 $(3,883,402) $(3,340,040)
======== ======= ======== ========== ==========
</TABLE>
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
PERIOD ENDED OCTOBER 24, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- TREASURY PAID-IN ACCUMULATED
SHARES AMOUNT STOCK CAPITAL DEFICIT TOTAL
--------- ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995...... 2,040,000 $20,400 $ -- $ 522,962 $(3,950,945) $(3,407,583)
Issuance of common stock...... 417,500 4,175 -- -- -- 4,175
Repurchase of common stock.... -- -- (145,950) -- -- (145,950)
Stock compensation............ -- -- -- 4,017,395 -- 4,017,395
Net loss...................... -- -- -- -- (4,804,557) (4,804,557)
--------- ------- -------- ----------- ----------- -----------
Balance, October 24, 1995..... 2,457,500 $24,575 $(145,950) $4,540,357 $(8,755,502) $(4,336,520)
========= ======= ======== =========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-57
<PAGE> 149
NETWORK PAGING CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIODS ENDED OCTOBER 31, 1994 AND OCTOBER 24, 1995
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 24,
1994 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ (134,736) $ (4,804,557)
Depreciation and amortization.................................... 2,337,106 3,025,420
Provision for lost and damaged pagers............................ -- 135,571
Provision for bad debts.......................................... 710,091 1,311,903
Gain on sale of asset............................................ 32,398 --
Stock compensation............................................... -- 4,017,395
(Increase) decrease in operating assets:
Trade receivables............................................. (1,762,627) (1,638,220)
Inventories................................................... (2,191,268) (725,321)
Other receivables............................................. (111,669) (405,857)
Prepaid expenses.............................................. (83,443) 149,886
Other assets.................................................. (749,190) (1,029,135)
Increase (decrease) in operating liabilities:
Accounts payable.............................................. 1,584,223 2,670,996
Advance billings.............................................. 516,651 642,621
Accrued liabilities........................................... 204,594 1,289,587
Provision for income taxes.................................... -- 591,212
Deferred taxes................................................ -- (898,000)
----------- -----------
Net cash provided by operating activities................ 352,130 4,333,501
----------- -----------
Cash flows from investing activities:
Capital expenditures............................................. (4,885,213) (7,072,351)
Proceeds from sale of fixed assets............................... 621,815 1,292,093
----------- -----------
Net cash used in investing activities.................... (4,263,398) (5,780,258)
----------- -----------
Cash flows from financing activities:
Issuance of note receivable...................................... (3,306,586) --
Decrease in notes receivable..................................... 893,384 --
Proceeds from notes payable...................................... 18,661,488 1,397,388
Payments on notes payable........................................ (18,296,355) (150,000)
Proceeds from notes payable to shareholder....................... 70,000 --
Payments on notes payable to shareholder......................... (782,933) --
Issuance of common stock......................................... 286,976 4,175
Repurchase of common stock....................................... -- (145,950)
Proceeds from preferred stock Series B, net of issuance cost..... 3,938,031 352,755
Proceeds from preferred stock Series C, net of issuance cost..... 1,969,016 176,529
----------- -----------
Net cash provided by financing activities................ 3,433,021 1,634,897
----------- -----------
Net (decrease) increase in cash.................................... (478,247) 188,140
Cash at January 1, 1994 and January 1, 1995, respectively.......... 486,585 563,312
----------- -----------
Cash at October 31, 1994 and October 24, 1995, respectively........ $ 8,338 $ 751,452
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-58
<PAGE> 150
NETWORK PAGING CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 24, 1995
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Network
Paging Corporation (the "Company" or "Network") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments consisting of normal recurring accruals
considered necessary for a fair presentation have been included. Operating
results for the period ended October 24, 1995 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1995.
These unaudited consolidated financial statements, footnote disclosures and
other information should be read in conjunction with the consolidated financial
statements and the notes thereto in the Company's annual financial statements.
F-59
<PAGE> 151
[HUTTON, PATTERSON & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Parkway Paging, Inc.
Plano, Texas
We have audited the balance sheets of Parkway Paging, Inc. as of December
31, 1995 and 1994, and the related statements of income and retained (deficit)
earnings and cash flows for the years ended December 31, 1995, 1994 and 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parkway Paging, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years ended December 31, 1995, 1994 and 1993, in conformity with
generally accepted accounting principles.
Hutton, Patterson & Company
February 13, 1996
(except for Note M, as to
which the date is June 18, 1996)
Dallas, Texas
F-60
<PAGE> 152
PARKWAY PAGING, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994 AND MARCH 20, 1996 AND 1995
<TABLE>
<CAPTION>
UNAUDITED
(NOTE M)
-----------------------
MARCH 20, MARCH 20,
1995 1994 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash (Note A)......................................................... $ 7,103 $ 516,984 $ (17,233) $ 659,055
Accounts receivable (Note A).......................................... 628,473 511,094 877,522 685,124
Inventory (Note A).................................................... 403,879 704,530 920,640 427,536
Notes receivable, current (Notes B & J)............................... 9,920 22,032 10,120 19,276
Other receivables..................................................... 35,885 14,125 23,937 500
Prepaid taxes (Note I)................................................ 56,477 122,818 56,477 122,818
Deferred income tax asset (Note I).................................... 105,722 66,605 105,722 66,605
Prepaid expenses...................................................... 631 31,821 24,987 --
---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS........................................... 1,248,090 1,990,009 2,002,172 1,980,914
---------- ---------- ---------- ----------
PAGERS HELD FOR LEASE OR SALE (net of accumulated depreciation of
$292,203 and $440,511 at December 31, 1995 and 1994, respectively)
(Notes A, F & G)...................................................... 257,349 180,956 245,579 161,725
---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT (net of accumulated depreciation) (Notes A, C, F
& G).................................................................. 3,078,019 2,515,488 2,839,069 2,621,602
OTHER ASSETS
Long-term notes receivable (Notes B & J).............................. 57,613 67,023 54,497 64,617
Deferred income tax asset (Note I).................................... 17,102 13,078 17,102 13,078
Other (Note D)........................................................ 18,748 36,284 14,114 32,050
---------- ---------- ---------- ----------
TOTAL OTHER ASSETS............................................. 93,463 116,385 85,713 109,745
---------- ---------- ---------- ----------
$4,676,921 $4,802,838 $5,172,533 $4,873,986
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable...................................................... $ 77,573 $ 313,811 96,213 59,942
Deferred revenue (Note A)............................................. 706,473 761,335 1,122,301 870,038
Accrued and other liabilities (Note E)................................ 92,738 107,804 85,521 29,636
Current maturities of notes payable (Note G).......................... 256,351 183,199 240,363 23,793
Current maturities of obligations under capital leases (Note F)....... 2,149,708 1,544,712 2,237,240 1,439,996
---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES...................................... 3,282,843 2,910,861 3,781,638 2,423,405
---------- ---------- ---------- ----------
LONG-TERM DEBT
Notes payable (Note G)................................................ 419,943 236,109 366,345 606,707
Obligations under capital leases (Note F)............................. 813,288 1,407,689 803,216 1,301,259
---------- ---------- ---------- ----------
TOTAL LONG-TERM DEBT........................................... 1,233,231 1,643,798 1,169,561 1,907,966
---------- ---------- ---------- ----------
TOTAL LIABILITIES.............................................. 4,516,074 4,554,659 4,951,199 4,331,371
---------- ---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes H, K and L)........................ -- -- -- --
STOCKHOLDERS' EQUITY (Note L)
Common stock (10,000,000 shares authorized, 24,398 shares issued and
outstanding, $1.00 par)............................................. 24,398 24,398 24,398 24,398
Additional paid-in capital............................................ 364,602 364,602 364,602 364,602
Retained (deficit) earnings........................................... (228,153) (140,821) (167,666) 153,615
---------- ---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY..................................... 160,847 248,179 221,334 542,615
---------- ---------- ---------- ----------
$4,676,921 $4,802,838 $5,172,533 $4,873,986
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE> 153
PARKWAY PAGING, INC.
STATEMENTS OF INCOME AND RETAINED (DEFICIT) EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND THE QUARTERS ENDED MARCH 20, 1996 AND 1995
<TABLE>
<CAPTION>
UNAUDITED
(NOTE M)
---------------------------
MARCH 20, MARCH 20,
1995 1994 1993 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Service, rent and maintenance revenues...... $ 7,403,225 $ 5,218,774 $ 4,216,416 $ 1,646,473 $ 1,556,958
Product sales............................... 2,344,026 1,909,991 1,433,461 485,570 391,780
----------- ----------- ----------- ----------- -----------
9,747,251 7,128,765 5,649,877 2,132,043 1,948,738
Cost of products sold (Note A).............. (2,261,776) (1,892,906) (1,265,761) (324,750) (377,989)
----------- ----------- ----------- ----------- -----------
7,485,475 5,235,859 4,384,116 1,807,293 1,570,749
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Service, rent and maintenance............... 2,329,764 1,674,627 1,068,198 583,453 428,477
Selling..................................... 1,113,808 712,554 412,138 221,066 242,887
General and administrative.................. 2,541,642 1,710,251 1,422,447 534,179 353,109
Depreciation and amortization............... 1,153,896 929,069 899,433 325,116 199,947
----------- ----------- ----------- ----------- -----------
7,139,110 5,026,501 3,802,216 1,663,814 1,224,420
----------- ----------- ----------- ----------- -----------
INCOME FROM OPERATIONS........................ 346,365 209,358 581,900 143,479 346,329
----------- ----------- ----------- ----------- -----------
OTHER
(Loss) gain on disposal (Note A)............ (71,683) (65,748) -- 7,000 --
Interest expense (net of interest income of
$9,278, $15,591 and $9,923 at December 31,
1995, 1994 and 1993, respectively......... (405,155) (359,299) (332,166) (89,992) (51,894)
----------- ----------- ----------- ----------- -----------
(476,838) (425,047) (332,166) (82,992) (51,894)
----------- ----------- ----------- ----------- -----------
NET (LOSS) INCOME BEFORE BENEFIT (PROVISION)
FOR FEDERAL INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.... (130,473) (215,689) 249,734 60,487 294,435
BENEFIT (PROVISION) FOR FEDERAL INCOME TAXES
(Note I).................................... 43,141 69,297 (78,025) -- --
----------- ----------- ----------- ----------- -----------
NET (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE.............. (87,332) (146,392) 171,709 60,487 294,435
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (Note I).......................... -- -- 51,996 -- --
----------- ----------- ----------- ----------- -----------
NET (LOSS) INCOME............................. (87,332) (146,392) 223,705 60,487 294,435
RETAINED (DEFICIT) EARNINGS, beginning........ (140,821) 5,571 (218,134) (228,153) (140,821)
----------- ----------- ----------- ----------- -----------
RETAINED (DEFICIT) EARNINGS, ending........... $ (228,153) $ (140,821) $ 5,571 $ (167,666) $ 153,615
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE> 154
PARKWAY PAGING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND THE QUARTERS ENDED MARCH 20, 1996 AND 1995
<TABLE>
<CAPTION>
UNAUDITED
(NOTE M)
-----------------------
MARCH 20, MARCH 20,
1995 1994 1993 1996 1995
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income................................. $ (87,332) $(146,392) $ 223,705 60,487 294,435
Adjustments to reconcile net (loss) income to net
cash provided by operating activities
Depreciation and amortization................... 1,153,896 929,069 899,433 325,116 199,948
Deferred federal income tax credit.............. (43,141) (69,297) (10,385) -- --
Loss (gain) disposal............................ 71,683 65,748 -- (7,000) --
Changes in assets and liabilities
(Increase) decrease in accounts receivable.... (117,379) 21,090 (457,525) (249,049) (174,030)
Decrease (increase) in inventory.............. 300,651 (496,661) (170,169) (516,761) 276,994
Increase in other receivables................. (21,760) (10,036) (4,089) 11,948 13,625
Decrease (increase) in prepaid taxes.......... 66,341 (43,600) (79,218) -- --
Decrease (increase) in prepaid expenses....... 31,190 (31,821) -- (24,356) 31,821
(Increase) decrease in pagers held for lease
or sale (Note A)............................ (145,073) 51,454 13,729 193 19,231
(Increase) decrease in deposits............... (1,001) (1,600) 5,102 -- (401)
(Decrease) increase in accounts payable....... (236,238) 236,733 41,597 18,640 (253,869)
(Decrease) increase in deferred revenue....... (54,862) 340,250 367,480 415,828 108,703
(Decrease) increase in accrued and other
liabilities................................. (15,066) 14,745 39,036 (7,217) (78,168)
----------- ----------- ----------- ----------- -----------
Net cash flows provided by operating activities... 901,909 859,682 868,696 27,829 438,289
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Receipts on notes receivable...................... 21,522 25,875 15,425 2,916 5,162
Purchases of property and equipment............... (1,325,894) (782,849) (272,445) (69,955) (301,429)
Proceeds on sale of fixed assets.................. 20,000 -- -- 7,000 --
----------- ----------- ----------- ----------- -----------
Net cash flows used in investing activities....... (1,284,372) (756,974) (257,020) (60,039) (296,265)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Additional obligations under capital leases for
inventory....................................... 1,693,215 2,071,434 1,315,616 787,415 44,169
Payments on obligations under capital leases...... (2,077,619) (1,637,112) (1,466,779) (709,955) (255,315)
Proceeds from bank loans.......................... 511,475 -- -- -- --
Payments on notes payable......................... (254,489) (281,302) (270,186) (69,586) 211,193
----------- ----------- ----------- ----------- -----------
Net cash flows (used in) provided by financing
activities...................................... (127,418) 153,020 (421,349) 7,874 47
----------- ----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH..................... (509,881) 255,728 190,327 (24,336) 142,071
CASH, beginning..................................... 516,984 261,256 70,929 7,103 516,984
----------- ----------- ----------- ----------- -----------
CASH, ending........................................ $ 7,103 $ 516,984 $ 261,256 $ (17,233) $ 659,055
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest........................................ $ 417,258 $ 378,351 $ 334,307 $ 91,176 $ 54,526
----------- ----------- ----------- ----------- -----------
Income taxes.................................... $ -- $ 43,600 $ 115,632 $ -- $ --
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Acquisitions of pagers held for lease or sale
and property and equipment through capital
leases (Note F)............................... $ 395,000 $ 237,498 $ 767,574 $ 787,415 $ 44,169
=========== =========== =========== =========== ===========
Acquisitions of property and equipment through
notes payable (Notes G & J)................... $ -- $ -- $ 53,300 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE> 155
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Parkway Paging, Inc. (the Company) was formed on May 7, 1991, and
incorporated in the state of Texas. Operations began on October 1, 1991. The
Company was formed for the purpose of providing air time, leasing, wholesale and
retail sales of pagers and pager repairs and service in the Dallas-Fort Worth
Metroplex. During the year ended December 31, 1993, the Company expanded its
services to include long distance and additional voice messaging services. The
Company also purchased a tandem telephone switch which enabled the addition of
the long distance service and will allow the Company to expand into the cellular
telephone market and Local Exchange Carrier (LEC) billing.
As discussed below, the Company acquired operations through an acquisition
and merger of related companies. Parkway Communications, Inc. was formed in 1983
and has served the cellular, specialized mobile radio (SMR) and paging markets
since its inception. In 1989, Parkway Communications, Inc. leased its assets to
Parkway Paging I, Ltd. Prior to the merger, as described below, Parkway
Communications, Inc. sold its cellular and SMR business to concentrate on the
paging industry.
The Company purchased the assets of Parkway Paging I, Ltd. (a partnership)
through the issuance of 19,200 shares of common stock and the assumption of
liabilities on October 1, 1991. The assets purchased were recorded at their
estimated fair value at October 1, 1991, under the purchase method of accounting
in accordance with generally accepted accounting principals. The value of the
liabilities assumed and stock issued exceeded the estimated fair value of the
assets by $71,665. This excess was recorded as goodwill.
On October 1, 1991, the Company also affected a merger with Parkway
Communications, Inc. and Business Paging, Inc. through the exchange of stock.
The stockholders of Parkway Communications, Inc. and Business Paging, Inc.
received 4,800 shares of stock in the Company in exchange for their stock in
these two corporations. The assets, liabilities and equity of Parkway
Communications, Inc. and Business Paging, Inc. were recorded at the book value
as stated in the financial statements of these two corporations at September 30,
1991, under the pooling of interests method as prescribed under generally
accepted accounting principals.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance are
charged to expense as incurred. Upon retirement of equipment, the cost and the
related accumulated depreciation are removed from
F-64
<PAGE> 156
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
the accounts. Depreciation and amortization are computed using straight-line and
accelerated methods based on the following estimated useful lives:
<TABLE>
<S> <C>
Broadcast equipment.................................... 3 to 15 years
Pagers held for lease or sale.......................... 3 years
Alpha dispatch equipment............................... 5 years
Pager repair equipment................................. 7 years
Office equipment....................................... 3 to 10 years
Leaseholds............................................. 7 to 39 years
Automobiles............................................ 5 years
</TABLE>
Reserve for Doubtful Accounts
The Company's policy is to expense accounts receivable of doubtful
collectibility after 75 days. Therefore, no reserve is provided.
Inventory
Inventory consists of pagers specifically purchased for resale and pager
parts utilized for repair of damaged pagers. Inventory is stated at the lower of
cost or market; cost being determined principally by use of the average-cost
method.
Pagers Held for Lease or Sale
The Company purchases specific brands of pagers which are primarily leased
to customers. These pagers are capitalized and depreciated in accordance with
the Company's depreciation policies as described above. Although the majority of
these pagers are leased, some are sold. Upon the sale of pagers, the cost of
pagers and the related accumulated depreciation are removed from the accounts
and the net book value is charged to costs of products sold. The proceeds on the
sales of such pagers is included in product sales. The cost of pagers sold is
removed from pagers held for lease or sale on a last-in-first-out basis. During
the year ended December 31, 1994, the Company recorded the disposal of obsolete,
missing and fully depreciated pagers. The loss on disposal totalled $65,748.
During the year ended December 31, 1995, additional disposals were recorded
resulting in a loss of $73,979.
Intangible Assets
Intangible assets consist of organization costs and goodwill. A portion of
the goodwill is attributable to the purchase of Parkway Paging I, Ltd. as
discussed previously. The remainder resulted from Parkway Communications, Inc.
transactions and was transferred to the Company during the merger. All
intangible assets are amortized over five years on a straight-line basis.
Deferred Revenue
Certain customers of the Company pay for services in advance. These advance
payments are deferred and recognized as revenue when earned. During the year
ended December 31, 1993, the Company purchased a new billing system which allows
the Company to bill on the 20th of each month for the subsequent month's
services. The Company records these advance billings as deferred revenue when
billed and recognizes them as revenue in the month for which the services are to
be provided. Advance payments for service are not refundable.
F-65
<PAGE> 157
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Cash
The Company maintains operating cash accounts with a financial institution
in excess of federally insured limits. The amount that would be at risk in the
event the institution is unable to continue business was $270,451 at December
31, 1995.
NOTE B -- NOTES RECEIVABLE
Notes receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Procom, Inc., receivable in monthly installments of
$1,365, including interest at 13%, final payment due
9/17/95................................................ $ -- $12,872
Abner, Inc., receivable in monthly installments of
$1,244, including interest at 8%, final payment due
7/11/01 (Note J)....................................... 67,533 76,183
------- -------
67,533 89,055
Current portion.......................................... 9,920 22,032
------- -------
$57,613 $67,023
======= =======
</TABLE>
These notes receivable were acquired as a result of the business
combinations described in NOTE A. Both arose in the ordinary course of business.
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Broadcast equipment......................................... $5,379,692 $4,069,529
Alpha dispatch equipment.................................... 41,398 73,502
Pager repair equipment...................................... 89,681 73,080
Office equipment............................................ 505,520 414,772
Leaseholds.................................................. 243,201 140,859
Automobiles................................................. 13,615 2,042
---------- ----------
6,273,107 4,773,784
Less accumulated depreciation and amortization............ 3,195,088 2,258,296
---------- ----------
$3,078,019 $2,515,488
========== ==========
</TABLE>
F-66
<PAGE> 158
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- OTHER ASSETS
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Goodwill......................................................... $88,765 $88,765
Less accumulated amortization.................................... 75,447 57,697
------- -------
13,318 31,068
------- -------
Organization costs............................................... 3,927 3,927
Less accumulated amortization.................................... 3,207 2,421
------- -------
720 1,506
------- -------
Deposits......................................................... 4,710 3,710
------- -------
$18,748 $36,284
======= =======
</TABLE>
NOTE E -- ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
Sales tax payable............................................... $34,193 $ 57,222
Interest payable................................................ 15,321 18,146
Payroll taxes payable........................................... 3,659 8,602
Accrued payroll................................................. 36,091 21,624
Customer deposits held.......................................... 586 850
Excise/use tax payable.......................................... 2,888 1,360
------- --------
$92,738 $107,804
======= ========
</TABLE>
NOTE F -- OBLIGATIONS UNDER CAPITAL LEASES
The Company is obligated under various capital leases which were incurred
in the acquisition of pagers and other property and equipment. The following is
a schedule, by years, of future minimum lease payments under capital leases with
the present value of the net minimum lease payments:
<TABLE>
<S> <C>
1996............................................................. $2,346,744
1997............................................................. 639,409
1998............................................................. 183,297
1999............................................................. 66,296
2000............................................................. 49,790
----------
Net minimum lease payments....................................... 3,285,536
Less amount representing interest................................ 322,540
----------
Present value of net minimum lease payments...................... 2,962,966
Less current portion............................................. 2,149,708
----------
$ 813,288
=========
</TABLE>
F-67
<PAGE> 159
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- OBLIGATIONS UNDER CAPITAL LEASES -- (CONTINUED)
The Company held the following assets under capital leases at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Pagers...................................................... $ 375,953 $ 256,751
Broadcast equipment......................................... 1,274,329 1,085,592
Pager repair equipment...................................... 14,608 14,608
---------- ----------
1,664,890 1,356,951
Less accumulated depreciation............................... 1,016,323 697,431
---------- ----------
$ 648,567 $ 659,520
========== ==========
</TABLE>
In addition, the Company assumed capital leases related to pagers and
broadcast equipment acquired in the business combinations described in Note A.
Consequently, specific assets acquired subject to capital leases were not
identified. The net book value of pagers and broadcast equipment acquired in the
business combinations was $170,767 and $268,611 at December 31, 1995 and 1994,
respectively. All assets acquired under capital leases are presented in the
accompanying balance sheet as property and equipment and pagers held for lease
or sale.
NOTE G -- NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Note payable due in monthly installments of $2,917 through
6/6/97, with a final payment of $2,938 due on 7/6/97, plus
interest at 8.75%, secured by equipment and stockholder's
certificates of deposit and stock............................ $55,417 $87,500
Note payable due in monthly installments of $937 through
6/6/95, with a final payment of $879 due on 7/6/95, plus
interest at 8.75%, secured by equipment and stockholder's
certificates of deposit and stock............................ -- 5,560
Note payable due in monthly installments of $6,667 through
6/6/95, with a final payment of $6,715 due on 7/6/95, plus
interest at 8.75%, secured by equipment and stockholder's
certificates of deposit and stock............................ -- 40,000
Note payable due in monthly installments of $4,924 through
1/15/00, with a final payment of $4,968 due 2/15/00, plus
interest at 10.5%, secured by equipment and stockholder's
certificate of deposit and stock............................. 246,229 --
Note payable due in monthly installments of $3,600 through
3/15/00, with a final payment of $3,632 due 4/15/00, plus
interest at 10.5%, secured by equipment and stockholder's
certificate of deposit and stock............................. 187,200 --
Note payable due in monthly installments of $3,333 through
6/17/97, plus interest at 7.25%, secured by stockholder's
certificates
of deposit................................................... 60,134 100,134
Note payable, Shareholder, due in monthly installments of
$2,084, including interest at 12%, maturing 6/26/97 (NOTE J),
unsecured.................................................... 38,973 53,786
</TABLE>
F-68
<PAGE> 160
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
NOTE G -- NOTES PAYABLE -- (CONTINUED)
Note payable, Shareholder, due in monthly installments of
$1,335, including interest at 12%, maturing 9/17/95 (Note J),
unsecured.................................................... -- 11,433
Note payable, Shareholder, due in monthly installments of
$2,224, including interest at 12%, maturing 11/21/97 (Note
J),
unsecured.................................................... 45,014 65,418
Note payable, Shareholder, due in monthly installments of
$1,112, including interest at 12%, maturing 12/27/97 (Note
J),
unsecured.................................................... 26,074 33,486
Note payable, Shareholders, due in five annual installments
beginning 1/1/94, including interest at 10% (Note J),
unsecured.................................................... 17,253 21,991
--------- ---------
676,294 419,308
Less current maturities........................................ 256,351 183,199
--------- ---------
$419,943 $236,109
======== ========
</TABLE>
Maturities of notes payable over the next five years are as follows:
<TABLE>
<S> <C>
1996.............................................. $256,351
1997.............................................. 193,322
1998.............................................. 108,602
1999.............................................. 102,295
2000.............................................. 15,724
--------
$676,294
========
</TABLE>
The Company established a line of credit during the year ended December 31,
1995, providing for maximum borrowings of $300,000. Interest is due at the
bank's stated prime plus 1%. The line of credit is guaranteed by certain
shareholders who are officers of the Company. At December 31, 1995, there were
no draws on the line of credit.
NOTE H -- COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancellable
operating leases. At December 31, 1995, the Company was obligated under these
leases as follows:
<TABLE>
<S> <C>
1996.............................................. $315,664
1997.............................................. 223,435
1998.............................................. 166,249
1999.............................................. 85,485
2000.............................................. 32,573
Thereafter........................................ --
--------
$823,406
========
</TABLE>
Rental expense under operating leases was $543,433, $358,312 and $279,427
for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company purchases pagers from three major suppliers. A significant
portion are purchased from NEC (Note J). However, due to competition and
technological advances, management believes that the
F-69
<PAGE> 161
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
failure of any of these suppliers to perform on future purchase agreements would
have no materially adverse effect on the Company.
NOTE I -- FEDERAL INCOME TAXES
Effective January 1, 1993, the Company adopted Financial Accounting
Standard No. 109. The cumulative effect of the adoption was the recognition of a
deferred tax asset in the amount of $51,996 which resulted from net operating
losses available to offset taxable income. The related deferred tax credit is
included in net income for the year ended December 31, 1993. The utilization of
these net operating losses resulted in a reduction of the deferred tax asset
during 1993. The temporary differences giving rise to the deferred tax asset
consist of net operating losses and limitations on the deductibility of goodwill
for tax purposes. For book purposes, goodwill is amortized over five years, for
tax purposes, goodwill is amortized over fifteen years.
The Company acquired $235,394 of net operating losses available to offset
future tax liabilities in the merger with Business Paging, Inc. (Note A). A
portion of these losses was utilized in 1991 and 1992. During the year ended
December 31, 1993, the Company used the remaining $118,531 of net operating
losses acquired.
The deferred tax asset consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Current-net operating loss.............................. $105,722 $66,605
Noncurrent-goodwill amortization........................ 17,102 13,078
-------- -------
$122,824 $79,683
======== =======
</TABLE>
No valuation allowance has been provided because based upon the weight of
available evidence it is more likely than not that the deferred tax asset will
be realized.
The benefit (provision) for federal income taxes at December 31, consists
of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Taxes currently payable...................... $ -- $ -- $(82,642)
Deferred
Cumulative effect of adoption of SFAS
109..................................... -- -- (51,996)
Goodwill amortization...................... 4,024 2,692 10,385
Net operating loss......................... 39,117 66,605 46,228
------- ------- --------
$43,141 $69,297 $(78,025)
======= ======= ========
</TABLE>
The Company made estimated tax payments of $43,600 during the year ended
December 31, 1994, and had alternative minimum tax credits from December 31,
1992 and 1993, of $26,779 and $29,698, respectively. In addition, overpayments
of $22,851 for the year ended December 31, 1993, were applied to 1994 taxes. Due
to a net operating loss of $197,193 for federal income tax purposes, there were
no federal income taxes due at December 31, 1994. This resulted in an
overpayment of $122,818. Of this balance, $56,477 represented alternative
minimum tax credits which may be applied against regular tax in future years
when regular tax exceeds alternative minimum tax. These credits may be carried
forward indefinitely. These credits remain available at December 31, 1995. The
Company has net operating losses available to offset future taxable income of
$310,949 which begin to expire in 2009. Due to the significant change in
ownership subsequent to year end (NOTE L), the availability of these net
operating losses is severely limited by the Internal Revenue Code. The extent of
the limitation has not been determined.
F-70
<PAGE> 162
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- RELATED PARTY TRANSACTIONS
The Company has notes payable to Ray Windle and Windle & Windle,
shareholders, as described in Note G. At December 31, 1994, the Company owed Ray
Windle and Windle & Windle $119,204 and $44,919, respectively. At December 31,
1995, the balances were $83,987 and $26,074, respectively. The Company also has
a note payable to a group of shareholders as described in Note G. The balance at
December 31, 1995 and 1994, was $17,253 and $21,991, respectively. All loans
from shareholders relate to the acquisition of property and equipment and the
business acquisitions described in Note A.
George Bush, president of the Company, owned a building which was leased to
the Company. Rent of $56,292 was paid to George Bush during 1993. During the
year ended December 31, 1994, Mr. Bush sold the building to another entity, 1200
Commerce, which is owned by various shareholders of the Company. Rent of $23,455
was paid to George Bush during 1994. For the years ended December 31, 1995 and
1994, rent of $83,890 and $36,764 was paid to 1200 Commerce.
Shareholders of the Company own 100% of Abner, Inc. The Company paid Abner,
Inc. $74,280 in rental for radio towers during 1995. Rental of $68,280 was paid
to Abner, Inc. for each of the years ended December 31, 1994 and 1993. In
addition, the Company held a note receivable from Abner, Inc. in the amount of
$67,533 and $76,183 at December 31, 1995 and 1994, respectively, as discussed in
Note B.
Several shareholders of the Company are officers of NEC. During the years
ended December 31, 1995, 1994 and 1993, the Company purchased pagers and parts
from NEC totalling approximately $1,852,748, $1,906,000 and $987,000,
respectively. In addition, the Company owed NEC $2,039,690 and $1,786,676 for
obligations under capital leases at December 31, 1995 and 1994, respectively.
The Company also sells pagers to an agent who is a director of the Company.
During the year ended December 31, 1995 and 1994, total sales to this agent were
$630,809 and $345,335, respectively. Sales in prior years were insignificant.
NOTE K -- RETIREMENT PLAN
Effective September 1, 1995, the Company adopted a 401(k) Pension and
Profit Sharing Plan (the Plan) covering substantially all of its employees.
Under the provisions of the Plan, employees may contribute up to 10% of their
gross wages. The Company may make discretionary contributions to the Plan, but
has elected not to do so for the year ended December 31, 1995.
NOTE L -- SUBSEQUENT EVENT
Subsequent to December 31, 1995, the Company entered into an agreement of
merger with Metrocall, Inc. and PPI Acquisition Corp. The agreement provides
that as of the date of closing, all issued and outstanding shares of the Company
common stock shall be converted in the aggregate into the right to receive cash
and shares of Metrocall, Inc. common stock. The purchase price includes payment
of a liability equivalent to 5% of the net proceeds of the merger, as calculated
by the Board of Directors of the Company, to certain officers of the Company.
NOTE M -- UNAUDITED FINANCIAL STATEMENTS
The balance sheets of Parkway Paging, Inc. as of March 20, 1996 and 1995,
and the related statements of income and retained earnings and cash flow for the
quarters then ended have been prepared by the Company without audit.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the quarters ended March 20, 1996 and 1995, are
not necessarily indicative of the results that may be expected for the full
year.
F-71
<PAGE> 163
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
O.R. Estman, Inc. and Dana Paging, Inc.:
We have audited the accompanying combined balance sheet of O.R. Estman,
Inc. and Dana Paging, Inc. (the "Companies") as of December 31, 1995, and the
related combined statement of operations and accumulated deficit and cash flows
for the year then ended. These financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Companies as of December
31, 1995, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
ROSELAND, NEW JERSEY
APRIL 24, 1996
F-72
<PAGE> 164
O.R. ESTMAN, INC. AND DANA PAGING, INC.
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND MARCH 31, 1996
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2)........................ $ 848,985 $ 712,077
Restricted cash (Note 2).................................. 300,000 300,000
Accounts receivable, less allowance for doubtful accounts
of $97,511 and $50,538 as of December 31, 1995 and
March 31, 1996, respectively........................... 470,069 453,184
Receivables, other........................................ 82,803 83,518
Inventories (Note 2)...................................... 429,276 513,437
Prepaid expenses and other current assets................. 30,337 46,766
------------ ------------
Total current assets.............................. 2,161,470 2,108,982
------------ ------------
FURNITURE AND EQUIPMENT, at cost (Note 2):
Paging equipment.......................................... 1,987,280 1,873,940
Transmission equipment.................................... 2,897,302 2,986,699
Furniture and office equipment............................ 1,095,823 1,111,827
------------ ------------
5,980,405 5,972,466
Less -- Accumulated depreciation.......................... (4,190,490) (4,199,572)
------------ ------------
Furniture and equipment, net...................... 1,789,915 1,772,894
------------ ------------
OTHER ASSETS (Note 3)....................................... 93,681 99,797
------------ ------------
Total assets...................................... $ 4,045,066 $ 3,981,673
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4)............. $ 307,774 $ 199,117
Deferred revenue (Note 2)................................. 1,006,601 1,011,904
Accounts payable and accrued expenses..................... 740,549 612,807
Taxes payable............................................. 48,426 0
Other liabilities (Note 6)................................ 625,184 596,458
------------ ------------
Total current liabilities......................... 2,728,534 2,420,286
------------ ------------
LONG-TERM DEBT (Note 4)..................................... 11,272,235 11,272,235
------------ ------------
Total liabilities................................. 14,000,769 13,692,521
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' DEFICIT (Note 4):
Common stock, no par value; 4,000 shares authorized; 1,222
shares issued and outstanding as of December 31, 1995
and March 31, 1996, respectively....................... 9,215,475 9,215,475
Additional paid-in capital................................ 23,240 23,240
Accumulated deficit....................................... (19,194,418) (18,949,563)
------------ ------------
Total stockholders' deficit....................... (9,955,703) (9,710,848)
------------ ------------
Total liabilities and stockholders' deficit....... $ 4,045,066 $ 3,981,673
============ ============
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-73
<PAGE> 165
O.R. ESTMAN, INC. AND DANA PAGING, INC.
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
MARCH 31
DECEMBER 31, -----------------------------
1995 1996 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Services, rent and maintenance revenue......... $ 10,722,832 $ 2,590,829 $ 2,654,009
Product sales.................................. 1,369,475 279,268 310,814
------------ ------------ ------------
Total revenues......................... 12,092,307 2,870,097 2,964,823
------------ ------------ ------------
OPERATING EXPENSES:
Services, rent and maintenance................. 3,917,891 959,235 972,728
Cost of products sold.......................... 1,556,650 261,332 347,094
Selling, general and administrative expenses... 4,280,770 919,302 1,145,143
Depreciation and amortization (Note 2)......... 1,064,254 176,859 380,026
------------ ------------ ------------
Total expenses......................... 10,819,565 2,316,728 2,844,991
------------ ------------ ------------
Income from operations................. 1,272,742 553,369 119,832
OTHER INCOME (EXPENSE):
Interest income................................ 35,290 7,948 25,992
Interest expense (Note 4)...................... (737,605) (263,237) (11,103)
Other expense.................................. (38,013) (48,102) 0
------------ ------------ ------------
Income before reorganization and
extraordinary item................... 532,414 249,978 134,721
REORGANIZATION ITEMS (Note 1) -- Professional
fees........................................... 403,745 5,123 404,217
------------ ------------ ------------
Income (loss) before extraordinary
item................................. 128,669 244,855 (269,497)
EXTRAORDINARY ITEM (Note 4) -- Forgiveness of
debt........................................... 5,927,778 0 0
------------ ------------ ------------
Net income (loss)...................... 6,056,447 244,855 (269,497)
ACCUMULATED DEFICIT, beginning of period......... (25,250,865) (19,194,418) (25,250,865)
------------ ------------ ------------
ACCUMULATED DEFICIT, end of period............... $(19,194,418) $(18,949,563) $(25,520,362)
============ ============ ============
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-74
<PAGE> 166
O.R. ESTMAN, INC. AND DANA PAGING, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, -------------------------
1995 1996 1995
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $ 6,056,447 $ 244,855 $ (269,497)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities --
Depreciation and amortization.................... 1,064,254 176,859 380,026
Forgiveness of debt.............................. (5,576,071) 0 0
Changes in assets and liabilities
Decrease in accounts receivables, net.......... 441,816 16,885 202,745
(Increase) decrease in inventories............. 126,852 (84,161) 26,932
Increase in prepaid expenses and other current
assets...................................... (17,067) (16,429) (25,724)
(Increase) decrease in receivables, other...... 3,152 (715) (296)
(Increase) decrease in other assets............ 81,493 (6,116) 3,462
Increase (decrease) in deferred revenue........ (368,889) 5,303 283,621
Increase (decrease) in accounts payable and
accrued expenses............................ (799,116) (127,742) 190,731
Decrease in taxes payable...................... (466,786) (48,426) (129,892)
Decrease in due to stockholders................ (117,773) 0 0
Decrease in other liabilities.................. (354,278) (28,726) (78,815)
---------- ---------- ----------
Net cash provided by operating activities... 74,034 131,587 583,293
CASH FLOWS FROM INVESTING ACTIVITIES -- Purchases of
property, plant and equipment, net.................. (807,465) (159,838) (523,333)
CASH FLOWS FROM FINANCING ACTIVITIES --
Net (repayments) borrowings of long-term debt....... (741,167) (108,657) 29,454
---------- ---------- ----------
Net increase (decrease) in cash............. (1,474,598) (136,908) 89,414
CASH AND CASH EQUIVALENTS, beginning of period........ 2,623,583 1,148,985 2,623,583
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period.............. $ 1,148,985 $1,012,077 $2,712,997
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for
Interest......................................... $ 648,305 $ 228,673 $ 0
Taxes............................................ 10,403 72,993 6,786
========== ========== ==========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-75
<PAGE> 167
O.R. ESTMAN, INC. AND DANA PAGING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
The combined financial statements include accounts of O. R. Estman, Inc.
("Estman"), a New Jersey corporation and Dana Paging, Inc. ("Dana"), a Florida
corporation (jointly, the "Companies") which are under common control. The
Companies are principally engaged in the business of selling pagers and
providing wireless paging and messaging services. The Companies serve various
regions of New Jersey, New York, Connecticut and Florida. The Companies do
business as Satellite Paging, Message Network, Area Paging, Connect-A-Beep and
Comm Center.
On December 30, 1993, the Companies filed voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code with the United States
Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). The
cases were administratively consolidated by the Bankruptcy Court.
On April 24, 1995, a Plan of Reorganization (the "Plan") was confirmed by
the Bankruptcy Court and unanimously approved by all classes. In accordance with
bankruptcy law, the Plan became effective on May 24, 1995, 30 days after its
confirmation (the "effective date"). The Plan provided for a 60-day extension
from the effective date of the Plan to accept or reject the executory contracts
for Estman's Fairfield, New Jersey facility and Dana's Inverness, Florida sales
office. These executory contracts were rejected.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 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.
Principles Of Combined Statements
All significant balances between Estman and Dana have been eliminated in
the combination.
Cash And Cash Equivalents
For purposes of cash flows, the Companies consider investments with a
maturity less than three months to be cash equivalents.
Restricted Cash
At December 31, 1995 certificates of deposit in the amount of $300,000 were
assigned to a bank as security for a letter of credit issued on behalf of Dana.
The assignment expires in July 1996.
Inventories
Inventories are stated at the lower of cost (specific identification
method) or market, and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Pagers.............................................. $368,720 $ 453,337
Parts and accessories............................... 60,556 60,100
-------- --------
$429,276 $ 513,437
======== ========
</TABLE>
F-76
<PAGE> 168
O.R. ESTMAN, INC. AND DANA PAGING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Furniture And Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line method based on the following estimated useful lives:
<TABLE>
<S> <C>
Pagers........................................................... 3 years
Furniture and fixtures........................................... 5-7 years
</TABLE>
Income Taxes
Dana has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions Dana is not subject to Federal
corporate taxes, the stockholders are taxed on their proportionate share of
Dana's taxable income. Estman has elected to be taxed as a C Corporation for
Federal income tax purposes.
Revenue Recognition
The Companies recognize revenue under service, rental and maintenance
agreements with customers as the related services are performed. Advance
billings for services are deferred and recognized as revenue when earned. The
Companies lease certain pagers under a quarterly, semiannual and yearly basis.
Sales of pagers are recognized upon delivery.
(3) OTHER ASSETS
Other assets include intangibles, net of accumulated amortization, and are
composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Security deposits and other assets.................. $ 50,568 $51,092
Customer lists...................................... 43,113 48,705
------- -------
$ 93,681 $99,797
======= =======
</TABLE>
The cost of acquired customer lists was being amortized over five years on
a straight-line basis.
(4) LONG-TERM DEBT AND LIABILITIES
Long-term debt consists of the following as of December 31, 1995:
<TABLE>
<S> <C>
Motorola notes payable (a)...................................... $11,000,000
Promissory note payable (b)..................................... 205,675
Prepetition priority tax claims payable (c)..................... 360,809
Other........................................................... 13,525
-----------
11,580,009
Less -- Current maturities...................................... 307,774
-----------
$11,272,235
===========
</TABLE>
(a) In connection with the Plan, on December 9, 1994, the Companies
executed a debt restructuring plan and agreement, as amended (the "Motorola
Restructuring Document"), with Motorola, Inc. ("Motorola") the largest secured
creditor of the Companies. Such debt totaled approximately $26,800,000. The
Motorola Restructuring Document provided that on the effective date, among other
things, (a) Dana paid the sum of $181,818 and issued a note for $2,000,000 to
Motorola (b) Estman paid the sum of $818,182, issued a
F-77
<PAGE> 169
O.R. ESTMAN, INC. AND DANA PAGING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
note for $9,000,000, and issued 20% of its common stock of Estman to Motorola in
exchange for $9,200,000 of indebtedness subject to compromise (c) Motorola
forgave approximately $5,576,000 of Dana's prepetition debt. In addition, the
Motorola notes are secured by a first priority lien on substantially all of the
assets of the Companies, are guaranteed by the Companies' stockholders, and are
secured by 100% of the common stock of Dana and the 80% of the common stock of
Estman not owned by Motorola after the Plan's effective date. The Motorola notes
require interest payments on a monthly basis at 9.09%. The principal is due
30 months from the effective date of the Plan.
Pursuant to the Motorola Restructuring Document, the Companies'
stockholders entered into a Stockholder Agreement (the "Agreement") with
Motorola. The Agreement includes, among other things, terms for Companies'
stockholders to purchase Motorola's 20% interest in Estman, as defined.
(b) The promissory note payable bears interest at 9% and is payable in
monthly payments of principal and interest of $18,337 maturing in December 1996.
(c) The prepetition priority tax claims are payable to the State of Florida
Department of Revenue. Monthly payments of $6,327 bearing interest at 10% will
be made through 2002.
Aggregate principal payments subsequent to December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996............................................................ $ 307,774
1997............................................................ 11,051,201
1998............................................................ 56,570
1999............................................................ 62,495
2000............................................................ 69,038
Thereafter...................................................... 32,931
</TABLE>
<TABLE>
<CAPTION>
BEFORE AFTER
REORGANIZATION REORGANIZATION
------------------ -----------------
DANA ESTMAN DANA ESTMAN
------ ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Paid at consummation................... $ 0 $ 0 $ 182 $ 818
Motorola note.......................... 7,758 19,028 2,000 9,000
Common stock........................... 3 3 3 9,213
Debt forgiveness....................... 0 0 5,576 0
</TABLE>
On January 1, 1995, an officer of the Companies exercised all of his stock
options, pursuant to each Companies qualified stock option plan, at an exercise
price of $0 which resulted in the issuance of an additional 22 shares of common
stock of Estman and Dana.
Each Companies common stock capitalization before and after the
reorganization is shown below:
<TABLE>
<CAPTION>
BEFORE AFTER
REORGANIZATION REORGANIZATION
--------------- ---------------
DANA ESTMAN DANA ESTMAN
---- ------ ---- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Bertram Wachtel............................. 100 100 100 360
Edward Davalos.............................. 100 100 100 360
Kevan Bloomgren............................. 0 0 22 80
Motorola, Inc............................... 0 0 0 200
--- --- --- -----
200 200 222 1,000
=== === === =====
</TABLE>
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" (SOP 90-7), requires certain
disclosures for companies emerging from Chapter 11. Accordingly, under
F-78
<PAGE> 170
O.R. ESTMAN, INC. AND DANA PAGING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SOP 90-7, the Companies have stated their liabilities at the value of the
amounts to be paid and have reflected the forgiveness of debt as an
extraordinary item.
(5) INCOME TAXES
The Companies have approximately $15,700,000 of net operating loss
carryforwards at December 31, 1995 which expire at various times through 2010.
The Companies adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). In accordance with SFAS 109, the
Companies have a deferred tax asset of $5,300,000 and a corresponding valuation
allowance because of the uncertainty of the realization of this asset.
(6) COMMITMENTS AND CONTINGENCIES
On March 12, 1991, Estman and Tel-Air Communications, Inc. ("Tel-Air")
entered into a contract ("Tel-Air Agreement") which provided for the sale of
substantially all of Tel-Air's assets to Estman. In November 1991, Estman filed
suit against Tel-Air seeking specific performance under the Tel-Air Agreement or
recovery of damages resulting from Tel-Air's breach.
On September 23, 1992, Estman was awarded a partial summary judgment
against Tel-Air in the amount of $574,488. On February 21, 1996, the Court also
granted Estman specific performance under the Tel-Air Agreement. On March 28,
1996, the Court further ordered Tel-Air to fully disclose to Estman all
information with respect to its operations and financial position so that Estman
might complete its due diligence associated with the transaction. Management
believes Tel-Air and its owners violated the terms of an injunction issued on
January 30, 1992 which proscribes, among other things, that Tel-Air not sell its
assets outside of the ordinary course of business, refinance its debt, or place
any additional liens on its assets. Estman is taking action to have the Court
unwind the violative transactions, and determine the final adjusted purchase
price. At December 31, 1995, Estman had a reserve of approximately $342,000 for
estimated remaining legal fees associated with the case. This amount is included
in other liabilities in accompanying combined balance sheets. Estman's
management believes that the remaining expenses to be incurred in connection
with the Tel-Air suit will not exceed this established reserve.
Estman and various employees were defendants in a suit filed by a former
employee alleging a claim of harassment and gender discrimination. The plaintiff
was noticed as a creditor in the Chapter 11 proceedings and did not file a proof
of claim by the bar date, accordingly, Estman was dismissed as a party to the
suit. Although not legally bound to pay for employees council, Estman has and
continues to pay council on behalf of the employee defendants. Accordingly,
Estman has reserved approximately $238,500 for potential legal fees to protect
the interest of its employees. This amount is reflected in other liabilities in
the accompanying combined balance sheet at December 31, 1995.
The Companies have operating leases for offices and officers' cars which
expire on various dates through 2000. In most cases, the Companies expect that
in the normal course of business leases will be renewed or replaced by other
leases.
Minimum annual rental commitments (exclusive of taxes, maintenance, etc.)
under all noncancellable operating leases at December 31, 1995 are as follows --
<TABLE>
<S> <C>
1996........................................ $330,027
1997........................................ 124,333
1998........................................ 9,921
1999........................................ 8,753
2000........................................ 6,565
</TABLE>
F-79
<PAGE> 171
O.R. ESTMAN, INC. AND DANA PAGING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense charged to operations for the year ended December 31,
1995 and the three-month periods ended March 31, 1995 and 1996 (unaudited) was
$322,225, $79,712 and $68,149, respectively.
(7) SUBSEQUENT EVENT
On February 28, 1996, the shareholders of the Companies entered into an
agreement to sell essentially all of the Companies' operating assets to
MetroCall, Inc. The sale is conditioned upon assignment of the Companies'
Federal Communications Commission ("FCC") licenses to MetroCall. As of April 24,
1996, all of the Companies' private carrier licenses had been assigned to
MetroCall and the assignment of the Companies' common carrier licenses are
pending before the FCC. Terms of the agreement specify a $28,000,000 cash
purchase price, subject to certain adjustments.
F-80
<PAGE> 172
REPORT OF INDEPENDENT AUDITORS
Boards of Directors
Metrocall, Inc.
Page America Group, Inc.
We have audited the accompanying Statements of Net Assets of Page America
Group, Inc. (New York and Chicago Operations) as of December 31, 1995 and
December 31, 1994, and the related statements of operations and net assets and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Page America Group, Inc.
(New York and Chicago Operations) at December 31, 1995 and December 31, 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared on a going concern
basis. Page America Group, Inc. (the "Parent") has incurred substantial losses
in recent years which has significantly weakened its financial condition. At
December 31, 1995 the Parent's current liabilities exceeded its current assets
by $52 million. This working capital deficiency includes borrowings of $48
million, of which $33 million relates to a credit facility with certain banks
which is secured by substantially all of the assets of the New York and Chicago
operations. The Parent intends to satisfy its obligations with proceeds it
expects to receive from the planned sale of the New York and Chicago Operations
pursuant to the Purchase Agreement described in Note B. If this transaction is
not completed as planned, there would be substantial doubt about the ability of
the Parent and the New York and Chicago Operations to continue as going
concerns. This matter, and management's plans with respect thereto, is more
fully discussed in Note A. The accompanying financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result if the transaction described in Note B is not completed as planned.
ERNST & YOUNG LLP
Hackensack, New Jersey
June 17, 1996
F-81
<PAGE> 173
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
STATEMENTS OF NET ASSETS
($ IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------
1996 1995 1994
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Accounts receivable, net of allowance for doubtful
accounts of $285, $277, and $282....................... $ 852 $ 1,017 $ 1,345
Prepaid expenses and other current assets................. 388 442 460
--------- -------- --------
Total current assets.............................. 1,240 1,459 1,805
EQUIPMENT, less accumulated depreciation and amortization... 6,447 6,662 7,385
OTHER ASSETS:
Certificates of authority, net of accumulated amortization
of $3,367, $3,216, and $2,616.......................... 20,817 20,968 21,391
Customer lists, net of accumulated amortization of $8,145,
$7,992, and $7,150..................................... 3,623 3,776 4,618
Other intangibles, net of accumulated amortization of
$3,256, $3,184, and $2,882............................. 8,874 8,945 9,725
Deposits and other non-current assets..................... 347 400 832
--------- -------- --------
33,661 34,089 36,566
--------- -------- --------
$41,348 $42,210 $45,756
========= ========= =========
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,564 $ 1,982 $ 3,948
Accrued expenses and other liabilities.................... 1,655 1,413 890
Customer deposits......................................... 284 299 359
Deferred revenue.......................................... 1,467 1,242 1,066
--------- -------- --------
Total current liabilities......................... 4,970 4,936 6,263
NET ASSETS.................................................. 36,378 37,274 39,493
--------- -------- --------
$41,348 $42,210 $45,756
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-82
<PAGE> 174
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
STATEMENTS OF OPERATIONS AND NET ASSETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- -------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service revenues......................... $ 5,285 $ 5,817 $22,387 $24,919 $26,586
Sales revenues........................... 510 613 2,330 3,453 3,648
------- ------- ------- ------- -------
Total revenues................. 5,795 6,430 24,717 28,372 30,234
OPERATING EXPENSES:
Cost of service........................ 530 484 2,031 1,963 1,837
Cost of sales.......................... 344 343 1,481 2,189 2,412
Selling................................ 1,103 1,269 5,017 5,104 4,879
General and administrative............. 1,773 1,627 7,342 7,891 8,686
Technical.............................. 909 869 3,507 3,325 3,340
Depreciation of equipment and
amortization of deferred warranty
costs............................... 928 1,079 4,458 5,131 6,868
Amortization and write-off of
intangibles and other assets........ 384 573 2,289 2,748 2,987
------- ------- ------- ------- -------
5,971 6,244 26,125 28,351 31,009
------- ------- ------- ------- -------
Operating (loss) profit................ (176) 186 (1,408) 21 (775)
OTHER INCOME (EXPENSES):
Gain (loss) on disposal of assets...... 63 369 (53)
Other.................................. (4) (84) (200) (301) (683)
------- ------- ------- ------- -------
(4) (84) (137) 68 (736)
------- ------- ------- ------- -------
NET (LOSS) INCOME........................ $ (180) $ 102 $(1,545) $ 89 $(1,511)
NET DISTRIBUTIONS (TO) FROM PARENT....... (716) 140 (674) (4,679) (4,066)
NET ASSETS AT BEGINNING OF PERIOD........ 37,274 39,493 39,493 44,083 49,660
------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD.............. $36,378 $39,735 $37,274 $39,493 $44,083
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-83
<PAGE> 175
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------ -------------------------------
1996 1995 1995 1994 1993
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income....................... $ (180) $ 102 $(1,545) $ 89 $(1,511)
Adjustments to reconcile net loss to net
cash provided by operating
activities:
Depreciation and amortization........ 1,312 1,652 6,747 7,879 9,855
Provision for losses on accounts
receivable......................... 200 548 1,373 1,130
Provision for lost pagers............ 45 67 249 263 688
Net book value of pagers sold........ 304 463 1,416 2,162 2,352
Loss (gain) on disposal of assets.... (63) (369) 53
Other................................ 16 56 -- -- --
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable...................... 130 453 (353) (749) (810)
Decrease (increase) in prepaid
expenses and other current
assets.......................... 54 (307) 18 (214) 453
(Decrease) increase in accounts
payable......................... (418) (624) (1,966) 577 (2,445)
Increase (decrease) in accrued
expenses........................ 242 (363) 523 (312) 376
------ ------- ------- ------- -------
Total adjustments............... 1,885 1,397 7,119 10,610 11,652
------ ------- ------- ------- -------
Net cash provided by operating
activities.................... 1,705 1,499 5,574 10,699 10,141
------ ------- ------- ------- -------
INVESTING ACTIVITIES:
Capital expenditures.................... (989) (1,459) (5,044) (5,828) (5,759)
Licensing costs......................... -- (188) (177) (594) (362)
Net proceeds from disposal of
equipment............................ -- 8 321 402 46
------ ------- ------- ------- -------
Net cash used in investing
activities.................... (989) (1,639) (4,900) (6,020) (6,075)
------ ------- ------- ------- -------
FINANCING ACTIVITY -- Net distributions
(to) from parent........................ $ (716) $ 140 $ (674) $(4,679) $(4,066)
====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-84
<PAGE> 176
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION -- The accompanying
financial statements include those accounts related to radio paging operations
in the New York and Chicago metropolitan areas (the "Companies") of Page America
Group, Inc. (the "Parent"). These entities are the subject of an Asset Purchase
Agreement dated April 22, 1996 under which the Parent and its subsidiaries have
agreed to sell substantially all of the Companies assets and businesses to
Metrocall, Inc. Accordingly, accounts related to the Parent's financing and
capital structure and the operations of other businesses (primarily paging
operations in other geographic areas that were sold on or prior to July 28,
1995) have been excluded from these financial statements.
The Companies market and provide over-the-air messaging information,
products and services as radio common carriers ("RCC") under licenses from the
Federal Communications Commission. The Companies' diversified customer base
provides for a lack of concentration of credit risk.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
EQUIPMENT -- Equipment is stated at cost less accumulated depreciation and
amortization and includes pagers held for sale or lease. Depreciation is
computed by the declining balance method for pager equipment and the
straight-line method for all other equipment in amounts sufficient to allocate
the cost of depreciable assets to operations over their estimated useful lives.
Leasehold improvements are amortized over the shorter of the life of the
respective lease or service life of the improvement. Cost of sales and service
does not include depreciation expense, which is presented separately in the
accompanying statements of operations.
CERTIFICATES OF AUTHORITY -- The costs of certificates of authority related
to the conduct of RCC operations are amortized on a straight-line basis
principally over periods of 40 years.
CUSTOMER LISTS -- Customer lists generally consist of a portion of the cost
of business acquisitions assigned to the value of customer accounts and are
amortized on a straight-line basis over the estimated lives of those customers
which range up to fourteen years.
OTHER INTANGIBLES -- Other intangibles include the excess of the purchase
price over the fair market value of the net assets acquired and are amortized on
a straight-line basis principally over 40 year periods. Management routinely
evaluates the carrying value of all intangibles for impairment.
FINANCIAL CONDITION OF PARENT -- The accompanying financial statements have
been prepared on a going concern basis. The Parent has incurred substantial
losses in recent years which has significantly weakened its financial condition.
At December 31, 1995 the Parent's current liabilities exceeded its current
assets by $52 million. This working capital deficiency includes outstanding
borrowings of $33 million related to a credit facility with certain banks which
is secured by substantially all of the assets of the Companies and $15 million
related to subordinated notes. In 1995, as a result of non-compliance by the
Parent with certain covenants of the credit facility, the terms were modified to
accelerate the final maturity to December 29, 1995 and the subordinated notes
were modified to provide for a final maturity of six months thereafter. The
credit facility was not repaid at maturity causing the credit facility and the
subordinated notes to then be in default. On April 26, 1996, the terms of the
credit facility were modified to provide for an extended maturity date of the
earlier of November 30, 1996 or completion of the sale of substantially all of
the Parent's business and assets to Metrocall, Inc., pursuant to the agreement
described further in Note B. As of June 17, 1996 the Parent remains in default
under the credit facility with respect to the delivery of certain financial
statements in 1996.
F-85
<PAGE> 177
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Parent intends to satisfy its obligations with proceeds it expects to
receive from the planned transaction with Metrocall, Inc. If this transaction is
not completed as planned, there would be substantial doubt about the ability of
the Parent and the Companies to continue as going concerns. The accompanying
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result in the transaction with
Metrocall, Inc. is not completed as planned.
INTERIM FINANCIAL STATEMENTS -- The accompanying unaudited interim
financial statements as of March 31, 1996 and for each of the three month
periods ended March 31, 1996 and 1995 include all adjustments which, in the
opinion of management, are necessary for a fair presentation of the Companies'
financial position and results of operations and cash flows for the periods
presented. All such adjustments are of a normal recurring nature. The results of
the Companies' operations for the three months ended March 31, 1996 and 1995 are
not necessarily indicative of the results of operations for a full fiscal year.
NOTE B -- ASSET PURCHASE AGREEMENT WITH METROCALL
On April 22, 1996 the Parent and certain of its subsidiaries entered into
an agreement to sell substantially all of their remaining business and assets to
Metrocall, Inc. The transaction has been approved by the Boards of Directors of
the Parent and Metrocall. The assets to be sold consist of the Parent's radio
paging operations in the New York and Chicago metropolitan areas.
The agreement provides for a sales price, subject to adjustment as
discussed below, of $78.5 million, $55 million of which is payable in cash and
the balance is payable in shares of Metrocall common stock. Cash proceeds
totaling $4 million will be placed in escrow for up to 18 months. The number of
shares of Metrocall common stock to be received by the Parent will be based on
the average price of Metrocall common stock during the 20 days preceding the
closing. The purchase price is subject to downward adjustment if the actual
operating results of the New York and Chicago operations during the three-month
period prior to closing are below certain specified levels.
Completion of the transaction is subject to approval by the Parent's
stockholders at a special meeting to be held, approval by the Federal
Communications Commission, compliance with the Hart-Scott Rodino Antitrust
Improvements Act and satisfaction of other customary conditions.
F-86
<PAGE> 178
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE C -- BALANCE SHEET CLASSIFICATIONS ($ IN THOUSANDS)
Equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Pagers............................................ $ 8,066 $ 8,164 $ 10,378
Radio common carrier equipment.................... 13,097 12,914 12,571
Office equipment.................................. 3,950 3,946 3,810
Leasehold improvements............................ 614 614 509
Building and land................................. 64 64 64
-------- -------- --------
25,791 25,702 27,332
-------- -------- --------
Less accumulated depreciation and amortization.... (19,344) (19,040) (19,947)
-------- -------- --------
$ 6,447 $ 6,662 $ 7,385
======== ======== ========
</TABLE>
Accrued expenses and other liabilities comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------
1996 1995 1994
----------- ------ ----
(UNAUDITED)
<S> <C> <C> <C>
Salaries............................................... $ 77 $ 228 $ 67
Bonuses................................................ 154 115 49
Professional services.................................. 69 95 0
Commissions............................................ 34 23 15
Taxes.................................................. 1,137 873 614
Other.................................................. 184 79 145
------ ------ ----
$ 1,655 $1,413 $890
====== ====== ====
</TABLE>
NOTE D -- NET ASSETS
A reconciliation of Page America Group, Inc. consolidated equity to net
assets included in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Page America Group, Inc. consolidated equity (deficit):
Series One Convertible Preferred Stock, 10% cumulative,
$.01 par value, authorized 310,000 shares; issued and
outstanding 286,361, 286,361 and 288,881 shares;
liquidation value -- $105, $105, and $100 per
share................................................ $ 30,068 $ 30,068 $ 28,888
----------- -------- --------
Common stock -- $.10 par value,
authorized -- 100,000,000 shares; issued and
outstanding 8,052,305, 8,052,305 and 7,101,868
shares............................................... 805 805 710
Paid-in capital......................................... 52,850 52,850 49,830
Accumulated deficit..................................... (97,516) (94,945) (78,989)
----------- -------- --------
Total Page America Group, Inc. Consolidated Equity
(Deficit)............................................... (13,793) (11,222) 439
Less: Assets and (Liabilities) which are not part of the
New York and Chicago Operations:
Cash and cash equivalents............................... 573 751 1,082
Net assets of radio paging operations in other
geographic areas..................................... 18,212
Debt.................................................... (49,372) (48,735) (57,991)
Other assets and liabilities -- net..................... (1,372) (512) (357)
----------- -------- --------
Net Assets of New York and Chicago Operations............. $ 36,378 $ 37,274 $ 39,493
----------- -------- --------
</TABLE>
F-87
<PAGE> 179
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE E -- INCOME TAXES
The Companies join in the filing of a consolidated federal income tax
return with the Parent. No tax sharing agreement exists with the Parent and,
accordingly, the Companies have provided for taxes based upon a separate return
basis. Due to significant tax losses generated by the Companies during the years
ended December 31, 1993, 1994, and 1995, no income taxes have been provided.
As required, the Companies are accounting for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes", which prescribes an asset and
liability method of accounting for income taxes. Under SFAS No. 109, deferred
tax assets are to be recognized unless it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Net deferred tax assets of $611,000, $925,000 and $1,250,000 at December
31, 1995, 1994, and 1993, respectively, consisting primarily of non-currently
deductible amortization, depreciation, bad debt reserves and commission expense
have been offset in full by a valuation allowance. The Companies' valuation
allowance decreased by approximately $314,000 and $325,000 as of December 31,
1995 and 1994, respectively and increased by approximately $448,000 as of
December 31, 1993. The changes in net deferred tax assets and the corresponding
valuation allowance were due principally to increases and decreases in
amortization and depreciation of intangibles.
NOTE F -- CONTINGENCIES
The Parent and its subsidiaries are involved in various lawsuits and
proceedings arising in the normal course of business. In the opinion of
management, the ultimate outcome of these lawsuits and proceedings will not have
a material effect on the financial position, results of operations or cash flows
of the Companies.
NOTE H -- TRANSACTIONS WITH PARENT
Page America Group, Inc. provides the Companies with marketing,
administrative and employee benefits services. Amounts charged for such services
(approximately $533,000 and $537,000 for the three month periods ended March 31,
1996 and 1995, respectively (unaudited), and $2,588,000, $2,123,000, and
$2,435,000 for the years ended December 31, 1995, 1994, and 1993, respectively)
are included in selling, general and administrative expenses and are allocated
based upon the total pager units in service. It is not practicable to determine
the amount of the above expenses that would have been incurred had the Companies
operated as unaffiliated entities. However, in the opinion of management, the
above allocation method is reasonable.
The Parent sponsors a 401(K) plan covering substantially all employees,
including those of the Companies. Employees who have completed ninety days of
service are eligible to participate. Under the provisions of the plan, employees
may contribute 1% to 4% of compensation on an after-tax basis and also defer
additional amounts of compensation in 1% increments on a pre-tax basis, subject
to limits established by the Internal Revenue Code. The Parent matches 100% of
each participant's after-tax contributions and 25% of each participant's pre-tax
contributions. The Companies total cost of the plan amounted to $21,000 and
$12,000 for the three month periods ended March 31, 1996 and 1995, respectively
(unaudited), and $59,000, $112,000, and $141,000 for the years ended December
31, 1995, 1994, and 1993, respectively, relating to these matching
contributions.
The assets of the Companies serve as security under the Parent's lending
agreements. No amount for interest charged under these agreements has been
allocated to the Companies' operations. Interest expense on a consolidated basis
for the Parent was $1,644,000 and $1,610,000 for the three month periods ended
F-88
<PAGE> 180
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE H -- TRANSACTIONS WITH PARENT -- (CONTINUED)
March 31, 1996 and 1995 respectively (unaudited), and $6,263,000, $5,102,000,
and $4,032,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Substantially all cash transactions are executed on a consolidated basis by
the Parent. Accordingly, the Companies do not maintain separate cash balances
attributable to their operations.
NOTE I -- RENTALS
Rental expense was approximately $669,000 and $831,000, for the three month
periods ended March 31, 1996 and 1995, respectively (unaudited), and
approximately $2,546,000, $2,439,000, and $2,351,000 for the years ended
December 31, 1995, 1994, and 1993, respectively.
Future minimum annual payments (in thousands) under non-cancelable
operating leases for office space and transmitter sites, as of December 31,
1995, are as follows:
<TABLE>
<S> <C>
1996................................................................ $1,145
1997................................................................ 823
1998................................................................ 664
1999................................................................ 546
2000................................................................ 432
Thereafter.......................................................... 1,576
------
$5,186
======
</TABLE>
Certain leases are subject to increases in taxes, operating and other
expenses.
F-89
<PAGE> 181
EXHIBIT A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
METROCALL, INC.
AND
A+ NETWORK, INC.
MAY 16, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 182
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE OFFER AND MERGER
SECTION 1.1 The Offer................................................................ 1
SECTION 1.2 AN Actions............................................................... 3
SECTION 1.3 The Merger............................................................... 4
SECTION 1.4 Effective Time........................................................... 4
SECTION 1.5 Certificate of Incorporation and By-Laws................................. 4
SECTION 1.6 Directors and Officers of Surviving Corporation.......................... 4
ARTICLE II
CONVERSION OF SHARES; EXCHANGE PROCEDURES
SECTION 2.1 Conversion of Shares..................................................... 5
SECTION 2.2 Certain Definitions...................................................... 5
SECTION 2.3 Exchange of Certificates................................................. 5
SECTION 2.4 AN Option Plans.......................................................... 6
SECTION 2.5 AN Subordinated Notes.................................................... 7
SECTION 2.6 Cash Election Merger..................................................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AN
SECTION 3.1 Organization............................................................. 9
SECTION 3.2 Capitalization........................................................... 9
SECTION 3.3 Authorization; Validity of Agreement; AN Action.......................... 10
SECTION 3.4 Consents and Approvals; No Violations; Licenses.......................... 11
SECTION 3.5 SEC Reports and Financial Statements..................................... 12
SECTION 3.6 No Undisclosed Liabilities............................................... 12
SECTION 3.7 Absence of Certain Changes............................................... 12
SECTION 3.8 Employee Benefit Plans; ERISA; Labor..................................... 12
SECTION 3.9 Litigation............................................................... 14
SECTION 3.10 No Default; Compliance with Applicable Laws.............................. 14
SECTION 3.11 Taxes.................................................................... 14
SECTION 3.12 Environmental Matters.................................................... 15
SECTION 3.13 Insurance................................................................ 15
SECTION 3.14 Offer Documents; Proxy Statement; Registration Statement; Other
Information............................................................ 15
SECTION 3.15 Transactions with Affiliates............................................. 16
SECTION 3.16 Brokers.................................................................. 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MC
SECTION 4.1 Organization............................................................. 16
SECTION 4.2 Capitalization........................................................... 16
SECTION 4.3 Authorization; Validity of Agreement; MC Action.......................... 17
SECTION 4.4 Consents and Approvals; No Violations; Licenses.......................... 18
SECTION 4.5 SEC Reports and Financial Statements..................................... 18
SECTION 4.6 No Undisclosed Liabilities............................................... 19
SECTION 4.7 Absence of Certain Changes............................................... 19
</TABLE>
i
<PAGE> 183
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 4.8 Employee Benefit Plans; ERISA; Labor..................................... 19
SECTION 4.9 Litigation............................................................... 20
SECTION 4.10 No Default; Compliance with Applicable Laws.............................. 21
SECTION 4.11 Taxes.................................................................... 21
SECTION 4.12 Environmental Matters.................................................... 21
SECTION 4.13 Insurance................................................................ 21
SECTION 4.14 Offer Documents; Proxy Statement; Registration Statement; Other
Information............................................................ 21
SECTION 4.15 Transactions with Affiliates............................................. 22
SECTION 4.16 Financing................................................................ 22
SECTION 4.17 Share Ownership.......................................................... 22
SECTION 4.18 Brokers.................................................................. 22
ARTICLE V
COVENANTS
SECTION 5.1 Interim Operations of AN and MC.......................................... 22
SECTION 5.2 Stockholder Approval; Meetings; Etc...................................... 25
SECTION 5.3 Proxy Statement, Registration Statement, Etc............................. 25
SECTION 5.4 Compliance with the Securities Act....................................... 26
SECTION 5.5 Nasdaq Listing........................................................... 27
SECTION 5.6 Approvals and Consents; Cooperation...................................... 27
SECTION 5.7 Access to Information.................................................... 28
SECTION 5.8 Employee Benefits and Relocation Matters................................. 28
SECTION 5.9 No Solicitation by AN.................................................... 28
SECTION 5.10 No Solicitation by MC.................................................... 29
SECTION 5.11 Brokers or Finders....................................................... 30
SECTION 5.12 Publicity................................................................ 30
SECTION 5.13 Notification of Certain Matters.......................................... 30
SECTION 5.14 Directors' and Officers' Insurance and Indemnification................... 30
SECTION 5.15 Expenses................................................................. 31
SECTION 5.16 Repurchase Option........................................................ 31
SECTION 5.17 Fair Price Statute....................................................... 33
SECTION 5.18 Further Assurances....................................................... 33
ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation To Effect the Merger............... 34
SECTION 6.2 Conditions to Obligations of AN to Effect the Merger..................... 34
SECTION 6.3 Conditions to Obligations of MC to Effect the Merger..................... 35
ARTICLE VII
TERMINATION
SECTION 7.1 Termination.............................................................. 35
SECTION 7.2 Termination Fee.......................................................... 37
SECTION 7.3 Effect of Termination.................................................... 37
</TABLE>
ii
<PAGE> 184
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Amendment and Modification............................................... 37
SECTION 8.2 Nonsurvival of Representations and Warranties............................ 37
SECTION 8.3 Notices.................................................................. 37
SECTION 8.4 Headings................................................................. 38
SECTION 8.5 Interpretation........................................................... 38
SECTION 8.6 Counterparts............................................................. 38
SECTION 8.7 Entire Agreement; Third Party Beneficiaries.............................. 38
SECTION 8.8 Governing Law............................................................ 39
SECTION 8.9 Assignment............................................................... 39
SECTION 8.10 Further Assurances....................................................... 39
ANNEXES
Annex A -- Conditions to the Offer
Annex B -- Directors of the Surviving Corporation
Annex C -- Terms of VCRs
Annex D -- Employment and Employee Benefits
SCHEDULES
AN:
Schedule 3.1 -- Subsidiaries of AN
Schedule 3.2 -- AN Capitalization; AN Pending Transactions
Schedule 3.4(a) -- AN Consents and Approvals
Schedule 3.4(c) -- AN FCC Authorizations
Schedule 3.6 -- Undisclosed Liabilities
Schedule 3.7 -- Certain Changes
Schedule 3.8 -- Employee Benefit Plans
Schedule 3.9 -- Litigation
Schedule 3.11 -- Taxes
Schedule 3.15 -- Transactions with Affiliates
Schedule 5.1(a) -- Permitted Activities by AN
MC:
Schedule 4.1 -- Subsidiaries of MC
Schedule 4.2 -- MC Capitalization; Commitments Regarding MC Securities
Schedule 4.4 -- MC Consents and Approvals
Schedule 4.6 -- Undisclosed Liabilities
Schedule 4.7 -- Certain Changes
Schedule 4.8 -- Employee Benefit Plans
Schedule 4.9 -- Litigation
Schedule 4.11 -- Taxes
Schedule 4.15 -- Transactions with Affiliates
Schedule 5.1(b) -- Permitted Activities by MC
</TABLE>
iii
<PAGE> 185
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
A+ Network............................................................................. 11
Affiliates............................................................................. 26
AN..................................................................................... 1
AN Benefit Plans....................................................................... 12
AN Certificates........................................................................ 5
AN Comfort Letter...................................................................... 26
AN Employee Agreements................................................................. 12
AN ERISA Affiliate..................................................................... 12
AN Fairness Opinion.................................................................... 4
AN Financial Advisor................................................................... 4
AN Financial Statements................................................................ 12
AN Material Agreements................................................................. 11
AN Option.............................................................................. 6
AN Option Plans........................................................................ 7
AN Pending Transactions................................................................ 9
AN SEC Documents....................................................................... 12
AN State Certificates.................................................................. 11
AN Termination Fee Event............................................................... 32
Average Parent Share Price............................................................. 5
CERCLA................................................................................. 15
Claim.................................................................................. 31
Closing................................................................................ 4
Closing Date........................................................................... 4
Code................................................................................... 1
Combination Act........................................................................ 1
Communications Act..................................................................... 11
Confidentiality Agreement.............................................................. 28
Conversion Ratio....................................................................... 5
D&O Insurance.......................................................................... 31
DGCL................................................................................... 1
Effective Time......................................................................... 4
Election contest....................................................................... 32
Environmental Law...................................................................... 15
ERISA.................................................................................. 12
Exchange Act........................................................................... 2
Exchange Agent......................................................................... 5
FCC.................................................................................... 11
Final Regulatory Order................................................................. 32
Fully diluted basis.................................................................... 10
GAAP................................................................................... 12
Governmental Entity.................................................................... 11
HSR Act................................................................................ 11
Indemnified Party...................................................................... 30
Interest Payment Event................................................................. 32
IRS.................................................................................... 12
Junior Preferred....................................................................... 11
Material Adverse Effect................................................................ 11
Materials of Environmental Concern..................................................... 15
MC..................................................................................... 1
MC Benefit Plans....................................................................... 19
MC Employee Agreements................................................................. 19
MC ERISA Affiliate..................................................................... 19
</TABLE>
iv
<PAGE> 186
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MC Fairness Opinion.................................................................... 3
MC Financial Advisor................................................................... 3
MC Financial Statements................................................................ 19
MC Licenses............................................................................ 18
MC Material Agreements................................................................. 18
MC Options............................................................................. 17
MC Pending Transactions................................................................ 17
MC SEC Documents....................................................................... 18
MC Shares.............................................................................. 3
MC Voting Agreement.................................................................... 1
Meeting................................................................................ 25
Merger................................................................................. 1
Merger Agreement....................................................................... A-1
Merger Consideration................................................................... 5
Merger Documents....................................................................... 4
Minimum Condition...................................................................... 2
Notes.................................................................................. 7
Offer.................................................................................. 1,2
Offer Documents........................................................................ 2
Offer Price............................................................................ 2
Offer to Purchase...................................................................... 2
Parent Pending Transactions............................................................ 17
Participant............................................................................ 32
Proposal............................................................................... 25
Proxy Statement........................................................................ 15
Registration Statement................................................................. 15
Regulatory Filings..................................................................... 27
Repurchase Event....................................................................... 31
Repurchase Period...................................................................... 32
Repurchase Shares...................................................................... 32
Rights................................................................................. 1
Rights Plan............................................................................ 1
SAS 49................................................................................. 26
Schedule 14D-1......................................................................... 2
Schedule 14D-9......................................................................... 3
SEC.................................................................................... 2
Securities Act......................................................................... 11
Shareholders' Agreement................................................................ 1
Shares................................................................................. 1
Solicitation........................................................................... 32
State Authority........................................................................ 11
Subsidiary............................................................................. 9
Surviving Corporation.................................................................. 4
Tax Return............................................................................. 14
Taxes.................................................................................. 14
TBCA................................................................................... 1
TIPA................................................................................... 1
VCRs................................................................................... 5
Voting Debt............................................................................ 10
Voting Stock........................................................................... 32
</TABLE>
v
<PAGE> 187
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 16, 1996, between METROCALL,
INC., a Delaware corporation ("MC"), and A+ NETWORK, Inc., a Tennessee
corporation ("AN").
WHEREAS, the Boards of Directors of MC and AN have approved, and deemed it
advisable and in the best interests of their respective stockholders to
consummate, a combination of their respective businesses upon the terms and
subject to the conditions set forth herein;
WHEREAS, it is intended that the business combination be accomplished by MC
commencing a cash tender offer (the "Offer") for certain issued and outstanding
shares of common stock of AN, $.01 par value (the "Shares"), together with the
related share purchase rights (the "Rights") issued pursuant to the Rights
Agreement dated February 16, 1995 by and between AN and First Union National
Bank of North Carolina, as Rights Agent (the "Rights Plan"), to be followed by a
merger of AN with and into MC (the "Merger");
WHEREAS, to satisfy a condition to MC entering into this Agreement and
incurring the obligations set forth herein, concurrently with the execution and
delivery of this Agreement, certain shareholders of AN have entered into a
Shareholders' Option and Sale Agreement (the "Shareholders' Agreement") with MC
pursuant to which such shareholders have agreed, on the terms and subject to the
conditions thereof, to sell certain of their Shares to MC, to vote certain of
their Shares and to grant MC an option to purchase certain of such Shares;
WHEREAS, to satisfy a condition of AN's entering into this Agreement and
incurring the obligations set forth herein, concurrently with the execution and
delivery of this Agreement, certain stockholders of MC have entered into a
voting agreement (the "MC Voting Agreement") granting AN a proxy with respect to
the voting of their MC Shares (as defined below);
WHEREAS, the Board of Directors of AN has (i) adopted this Agreement
pursuant to Section 48-21-104(a) of the Tennessee Business Corporation Act (the
"TBCA"), resolved to submit this Agreement for approval by the holders of the
Shares pursuant to Section 48-21-104(b) of the TBCA, and resolved to recommend
acceptance of the Offer by the holders of the Shares, (ii) duly approved the
business combination contemplated by this Agreement, the Shareholders' Agreement
and the MC Voting Agreement in accordance with the provisions of Section
48-103-205 of the Tennessee Business Combination Act (the "Combination Act"),
(iii) caused the transactions contemplated hereby not to be a "take over offer"
as defined in Section 48-103-102(10)(B)(v) of the Tennessee Investor Protection
Act ("TIPA"), and (iv) determined that MC will not be deemed an "Acquiring
Person" for the purposes of the Rights Plan.
WHEREAS, the Board of Directors of MC has (i) adopted this Agreement,
resolved to submit this Agreement for approval by the stockholders of MC
pursuant to Section 252 of the Delaware General Corporation Law ("DGCL"), and
resolved to recommend that all stockholders of MC approve and adopt this
Agreement and the Merger, and (ii) duly approved the business combination
contemplated by this Agreement, the Shareholders' Agreement and the MC Voting
Agreement so as to render inapplicable thereto the provisions of Section 203 of
the DGCL; and
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger provided for herein shall qualify as a reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code"), and this Agreement is intended
to be and is adopted as a plan of reorganization within the meaning of Section
368 of the Code;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
SECTION 1.1 The Offer. (a) As promptly as practicable (but in no event
later than five business days after the public announcement of the execution of
this Agreement), MC shall commence (within the meaning
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<PAGE> 188
of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the
Exchange Act)), an offer (the Offer) to purchase for cash 2,140,526 Shares,
together with the Rights, at a price of $21.10 per Share, net to the seller in
cash (such price, or such higher price per Share as may be paid in the Offer,
being referred to herein as the "Offer Price" (provided that MC shall not be
required to increase the Offer Price)), subject to there being validly tendered
in accordance with the terms of the Offer and not withdrawn prior to the
expiration of the Offer 2,140,526 Shares and related Rights (the "Minimum
Condition") and to the other conditions set forth in Annex A hereto. Except as
otherwise provided herein, MC shall, on the terms and subject to the prior
satisfaction or waiver of the conditions of the Offer, accept for payment and
pay for Shares tendered as soon as such actions are permitted under applicable
law. The Offer shall be made by means of an offer to purchase (the "Offer to
Purchase") containing the terms set forth in this Agreement, the Minimum
Condition and the other conditions set forth in Annex A hereto. MC shall not
amend or waive the Minimum Condition and shall not decrease the Offer Price or
decrease the Minimum Condition or amend any other material condition of the
Offer in any manner adverse to the holders of the Shares without the prior
written consent of AN (such consent to be authorized by the Board of Directors
of AN or a duly authorized committee thereof). Notwithstanding the foregoing,
(i) if on the expiration date of the Offer (A) there exists an AN Acquisition
Proposal (as defined in Section 5.9(a)) involving a tender offer, MC may extend
the Offer to a date that is two business days after the date the position of AN
with respect to the tender offer is first published or sent pursuant to Rule
14e-2 under the Exchange Act, or (B) there exists an AN Acquisition Proposal
other than a tender offer, MC may extend the Offer to a date that is two
business days after the first date on which AN's failure to reject such AN
Acquisition Proposal would permit MC to terminate this Agreement pursuant to
Section 7.1(d)(v) hereof, (ii) in circumstances other than those covered by the
preceding clause (i), MC may extend the Offer for such period of time, not to
exceed 20 business days in the aggregate, as is reasonably expected to be
necessary in order to satisfy the Minimum Condition or the other conditions set
forth in Annex A hereto, and (iii) the Offer Price may be increased in good
faith and the Offer may be extended to the extent required by law in connection
with such increase, in each case without the consent of AN. It is agreed the
conditions set forth in Annex A hereto are for the benefit of MC and may be
asserted by MC regardless of the circumstances giving rise to any such condition
(including any action or inaction by MC not inconsistent with the terms hereof)
or, except with respect to the Minimum Condition set forth above, may be waived
(but not amended) by MC, in whole or in part at any time and from time to time,
in its sole discretion.
(b) As soon as practicable on the date the Offer is commenced, MC shall
file with the United States Securities and Exchange Commission (the "SEC") a
Tender Offer Statement on Schedule 14D-1 with respect to the Offer (together
with all amendments and supplements thereto and including the exhibits thereto,
the "Schedule 14D-1"). The Schedule 14D-1 will include, as exhibits, the Offer
to Purchase and a form of letter of transmittal and summary advertisement
(collectively, together with any amendments and supplements thereto, the "Offer
Documents"). The Offer Documents will contain (or shall be amended in a timely
manner to contain) all information which is required to be included therein in
accordance with the Exchange Act and the rules and regulations thereunder and
any other applicable law, and shall conform in all material respects with the
requirements of the Exchange Act and any other applicable law; provided,
however, that no agreement or representation is hereby made or shall be made by
MC with respect to information supplied or approved by AN in writing expressly
for inclusion in the Offer Documents. MC agrees to take all steps necessary to
cause the Offer Documents to be filed with the SEC and to be disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. Each of MC, on the one hand, and AN, on the other hand,
agrees to promptly correct any information provided by it for use in the Offer
Documents if and to the extent that it shall have become false and misleading in
any material respect, and MC further agrees to take all steps necessary to cause
the Offer Documents as so corrected to be filed with the SEC and to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws. AN and its counsel shall be given the
opportunity to review the Schedule 14D-1 and any amendments thereto before any
of them are filed with the SEC. In addition, MC agrees to provide to AN and its
counsel, in written form and promptly after receipt, any comments or other
communications that MC or its counsel may receive from time to time from the SEC
or its staff with respect to the Offer Documents.
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<PAGE> 189
(c) MC hereby approves of and consents to the Offer and represents and
warrants that the Board of Directors of MC, at a meeting duly called and held,
has, with the affirmative vote of at least a majority of the members of the
Board of Directors of MC, (i) determined that this Agreement, the MC Voting
Agreement, and the transactions contemplated hereby (which shall include the
Offer, the Merger, and the Shareholders' Agreement) are fair to and in the best
interests of the holders of shares of MC's common stock, $.01 par value (the "MC
Shares"), (ii) adopted this Agreement and resolved to submit this Agreement for
approval by the stockholders of MC pursuant to Section 252 of the DGCL, and
(iii) approved this Agreement and the transactions contemplated hereby, such
determination and approval constituting approval hereof for purposes of Section
203 of the DGCL.
(d) MC has received the written opinion of Wheat, First Securities, Inc.
(the "MC Financial Advisor"), dated on or before the date of this Agreement, to
the effect that, as of such date, the consideration to be paid (i) to the
holders of Shares pursuant to the Offer, and (ii) to the holders of Shares
pursuant to the Merger, taken together, is fair to the holders of MC Shares from
a financial point of view (the "MC Fairness Opinion"). MC has delivered to AN a
copy of the MC Fairness Opinion, together with MC Financial Advisor's written
consent to the inclusion of or reference to the MC Fairness Opinion (in a form
and substance satisfactory to MC Financial Advisor) in the Offer Documents, the
Schedule 14D-9 and the Registration Statement (as defined below).
SECTION 1.2 AN Actions. (a) AN hereby approves of and consents to the
Offer and represents and warrants that the Board of Directors of AN, at a
meeting duly called and held, has, with the affirmative vote of at least a
majority of the members of the Board of Directors of AN, (i) determined that
this Agreement and the transactions contemplated hereby (which shall include the
Offer, the Merger and the Shareholders' Agreement) are fair to and in the best
interests of the holders of Shares, (ii) approved this Agreement and the
transactions contemplated hereby, such determination and approval constituting
approval thereof for purposes of Section 48-103-205 of the Combination Act and
such that MC is not an "Acquiring Person" under the Rights Plan, (iii) adopted
this Agreement pursuant to Section 48-21-104(a) of the TBCA and resolved to
submit the Agreement for approval by the holders of the Shares pursuant to
Section 28-21-104(b), and (iv) resolved to recommend that the shareholders of AN
who desire to receive cash for their Shares (or a portion thereof) accept the
Offer and tender their Shares thereunder to MC and that all shareholders of AN
approve and adopt this Agreement and the Merger, which recommendation shall
comply with Section 48-103-102(10)(B) of TIPA; provided, that such
recommendations may be withdrawn, modified or amended upon a determination of
the Board of Directors made in accordance with Section 5.9(f).
(b) Concurrently with the commencement of the Offer, AN shall file with the
SEC a Solicitation/ Recommendation Statement on Schedule 14D-9 (together with
all amendments and supplements thereto and including the exhibits thereto, the
"Schedule 14D-9") which shall, subject to a determination of the Board of
Directors made in accordance with Section 5.9(f), contain the recommendation
referred to in clause (iii) of Section 1.2(a) hereof. The Schedule 14D-9 will
contain (or be amended in a timely manner to contain) all information which is
required to be included therein in accordance with the Exchange Act and the
rules and regulations thereunder and any other applicable law, and shall conform
in all material respects with the requirements of the Exchange Act and any other
applicable law; provided, however, that no agreement or representation is hereby
made or shall be made by AN with respect to information supplied or approved by
MC in writing expressly for inclusion in the Schedule 14D-9. AN further agrees
to take all steps necessary to cause the Schedule 14D-9 to be filed with the SEC
and to be disseminated to holders of Shares, in each case as and to the extent
required by applicable federal securities laws. Each of AN, on the one hand, and
MC, on the other hand, agrees to promptly correct any information such party has
previously provided for use in the Schedule 14D-9, if and to the extent that
such information shall have become false and misleading in any material respect,
and AN further agrees to take all steps necessary to cause the Schedule 14D-9
(as so corrected) to be filed with the SEC and to be disseminated to holders of
Shares, in each case as and to the extent required by applicable federal
securities laws. MC and its counsel shall be given the opportunity to review the
Schedule 14D-9 and any amendments thereto before any of them are filed with the
SEC. In addition, AN agrees to provide MC and its counsel, promptly after
receipt and in written form, with any
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<PAGE> 190
comments or other communications that AN or its counsel may receive from time to
time from the SEC or its staff with respect to the Schedule 14D-9.
(c) In connection with the Offer, AN will promptly furnish or cause to be
furnished to MC mailing labels containing the names and addresses of the record
holders of the Shares as of a recent date and of those persons becoming record
holders subsequent to such date and, to the extent known, a list of the
beneficial owners of the Shares as of a recent date, together with copies of all
security positions listings and all other information in AN's possession or
control regarding the beneficial owners of the Shares, and shall furnish MC with
such information and assistance as MC or its agents may reasonably request in
communicating the Offer to the shareholders of AN. From and after the date of
this Agreement, all such information concerning AN's record and, to the extent
known, beneficial holders shall be made available to MC. Except for such steps
as are necessary to disseminate the Offer Documents or consummate the Merger, MC
shall hold in confidence the information contained in any of such labels and
lists and the additional information referred to in the preceding sentence, will
use such information only in connection with the Offer and the Merger, and, if
this Agreement is terminated, will deliver or cause to be delivered to AN all
copies of such information then in its possession or the possession of its
agents or representatives.
(d) AN has received the written opinion of Prudential Securities
Incorporated (the "AN Financial Advisor"), dated on or before the date of this
Agreement, to the effect that, as of such date, the consideration to be received
by holders of Shares (other than MC and its affiliates) pursuant to the Offer
and Merger, taken together, is fair to such holders from a financial point of
view (the "AN Fairness Opinion"). AN has delivered to MC a copy of the AN
Fairness Opinion, together with AN Financial Advisor's written consent to the
inclusion of or reference to the AN Fairness Opinion (in a form and substance
satisfactory to AN Financial Advisor) in the Offer Documents, the Schedule 14D-9
and the Registration Statement.
SECTION 1.3 The Merger. Upon the terms and subject to the conditions set
forth in Article VI hereof, and in accordance with the DGCL and the TBCA, AN
shall be merged with and into MC. The closing (the "Closing") of the Merger
shall take place as promptly as practicable but in no event later than the date
that is two business days after satisfaction or waiver of the conditions set
forth in Article VI (other than those relating to documents to be delivered at
the Closing). The Closing will be held at such time and at such place as the
parties hereto may agree. The date on which the Closing occurs is hereinafter
referred to as the "Closing Date." Following the Merger, the separate corporate
existence of AN will cease, and MC shall continue as the surviving corporation
(the "Surviving Corporation") and shall succeed to and assume all of the rights
and obligations of AN.
SECTION 1.4 Effective Time. Upon the Closing, the parties hereto shall
cause the Merger to be consummated by filing with the Secretary of State of the
State of Delaware and the Secretary of State of the State of Tennessee articles
of merger, certificates of merger or other appropriate documents (in any such
case, the "Merger Documents") in such form as is required by, and executed in
accordance with, this Agreement and the relevant provisions of the TBCA and the
DGCL (the date and time of the later of such filings being referred to herein as
the "Effective Time"). The Merger shall have the effects set forth in Section
48-21-108 of the TBCA and the Section 252 of DGCL.
SECTION 1.5 Certificate of Incorporation and By-Laws. The Certificate of
Incorporation and By-Laws of MC, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation and By-Laws of the Surviving
Corporation.
SECTION 1.6 Directors and Officers of Surviving Corporation. (a) The
directors of MC immediately prior to the Effective Time shall be the directors
of the Surviving Corporation at the Effective Time.
(b) The officers of MC shall be the officers of the Surviving Corporation
and shall hold their office from the Effective Time until they resign or their
earlier death or removal.
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<PAGE> 191
ARTICLE II
CONVERSION OF SHARES; EXCHANGE PROCEDURES
SECTION 2.1 Conversion of Shares. (a) Each Share, together with the
related Rights, issued and outstanding immediately prior to the Effective Time
(other than Shares held by MC or any Subsidiary (as defined in Section 3.1) of
MC) shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to receive (i) such number of duly
authorized, validly issued, fully paid and nonassessable MC Shares equal to the
Conversion Ratio (as defined in Section 2.2), and (ii) a number of rights to
receive amounts to be determined in accordance with, and which rights are
evidenced by, Variable Common Rights having the terms described in Annex C
hereto ("VCRs") in an amount equal to the number of MC Shares to be received
pursuant to clause (i); plus (iii) cash, if any, for fractional MC Shares and
VCRs pursuant to Section 2.3(f) hereof (collectively, the "Merger
Consideration").
(b) Each Share (i) held in the treasury of AN or any Subsidiary of AN and
(ii) held by MC or any Subsidiary of MC immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be cancelled and retired and cease to exist and no Merger Consideration
shall be issued in respect thereof.
SECTION 2.2 Certain Definitions.
"Average MC Share Price" shall mean the average of the last reported
bid price per MC Share on the Nasdaq National Market for the 50 consecutive
trading days ending on the trading day that is five trading days prior to
the Closing Date, provided that the Average MC Share Price shall not exceed
$21.88 or be less than $17.90.
"Conversion Ratio" shall mean the number determined by dividing $21.10
by the Average MC Share Price and rounding the result to the nearest
1/100,000 of a share. In the event that, between the date of this Agreement
and the Effective Time, the number of issued and outstanding Shares or MC
Shares shall have been changed into a different number of shares or a
different class of shares as a result of a stock split, reverse stock
split, stock dividend, spinoff, extraordinary dividend, recapitalization,
reclassification or other similar transaction with a record date within
such period, the Conversion Ratio shall be appropriately adjusted. The
Conversion Ratio shall also be adjusted by multiplying such Ratio at the
Effective Time by a fraction, (a) the numerator of which is the sum of (i)
Scheduled Shares (as defined below) plus (ii) any Shares with respect to
which MC consents to the issuance pursuant to Section 5.1(a) ("Total
Permitted Shares"), and (b) the denominator of which is the sum of (i) all
Shares issued and outstanding at the Effective Time plus (ii) all Shares
that would be issuable by AN pursuant to or in connection with pending
acquisition or AN Options, provided, that no adjustment shall be made if
the resulting fraction is equal to 1.00 or more.
SECTION 2.3 Exchange of Certificates. (a) Prior to the Effective Time, AN
and MC shall appoint First Union National Bank of North Carolina (or any other
commercial bank or trust company, which shall be reasonably acceptable to AN and
MC) to act as exchange agent (the "Exchange Agent") to effect the exchange of
certificates representing the Shares as set forth in Section 2.1 hereof
(collectively, the "AN Certificates") for the Merger Consideration. The
Surviving Corporation shall make available, or shall cause to be made available,
to the Exchange Agent for the benefit of the holders of Shares for exchange in
accordance with this Article II, certificates representing MC Shares and VCRs
issuable pursuant to Section 2.1 and funds in amounts necessary to make any cash
payments pursuant to Section 2.3(f).
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause the Exchange Agent to mail to each person who was, at the Effective Time,
a holder of record of a AN Certificate (i) a letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to an AN
Certificate shall pass, upon (and only upon) proper delivery to, and receipt of
such AN Certificate by, the Exchange Agent, and which shall be in such form and
have such other provisions as the Surviving Corporation may reasonably specify,
and (ii) instructions for use in effecting the surrender of such AN Certificate
in exchange for a certificate representing MC Shares such holder is entitled to
pursuant to this Article II. Upon surrender of an AN Certificate, together with
such letter of transmittal duly completed and validly executed in
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<PAGE> 192
accordance with the instructions thereto, and such other documents as may be
required pursuant to such instructions, the holder of such AN Certificate shall
be entitled to receive in exchange therefor, after the Effective Time, (i) a
certificate representing that number of MC Shares to which such holder of Shares
shall have become entitled pursuant to the provisions of this Article II, (ii) a
certificate representing that number of VCRs to which such holder of Shares
shall have become entitled pursuant to the provisions of this Article II, and
(iii) if applicable, a check representing the amount of cash to which such
holder of Shares shall have become entitled pursuant to the provisions of
Section 2.3(f), and the AN Certificate so surrendered shall forthwith be
canceled. All payments in respect of Shares which are made in accordance with
the terms hereof shall be deemed to have been made in full satisfaction of all
rights pertaining to such Shares.
(c) No dividends or other distributions declared with respect to Shares and
payable to the holders of record thereof after the Effective Time shall be paid
to the holder of any unsurrendered AN Certificate until the holder thereof shall
surrender such AN Certificate in accordance with Section 2.3(b) hereof. Subject
to the effect, if any, of applicable law, after the subsequent surrender and
exchange of an AN Certificate, the record holder thereof shall be entitled to
receive any such dividends or other distributions, without any interest thereon,
which theretofore have become payable with respect to MC Shares, into which the
Shares represented by such AN Certificate have been converted.
(d) If any portion of the Merger Consideration (whether a certificate
representing MC Shares, a certificate representing VCRs or a check representing
cash payment pursuant to Section 2.3(f)) is to be issued or paid in a name other
than that in which the AN Certificate surrendered in exchange therefor is
registered, it shall be a condition to the issuance thereof that the AN
Certificate so surrendered shall be properly endorsed (or accompanied by an
appropriate instrument of transfer) and otherwise in proper form for transfer,
and that the person requesting such exchange shall pay to the Exchange Agent in
advance any transfer or other taxes required by reason of the issuance of a
certificate representing MC Shares, a certificate representing VCRs or a check
representing the cash payment pursuant to Section 2.3(f) in any name other than
that of the registered holder of the AN Certificate surrendered, or required for
any other reason, or shall establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable.
(e) On and after the Effective Time: the stock transfer books of AN shall
be closed and there shall be no further registration of transfers of the Shares
which were outstanding immediately prior to the Effective Time; the AN
Certificates representing Shares (and the Rights) shall cease to have any rights
with respect to such Shares (or Rights) except as otherwise provided for herein
or by applicable law; and the MC Shares and VCRs into which Shares have been
converted pursuant to Section 2.1 hereof shall be deemed outstanding (subject to
Section 2.3(c)) notwithstanding the failure of the holders thereof to surrender
and exchange AN Certificates as specified herein.
(f) No certificates or scrip representing fractional MC Shares or VCRs
shall be issued upon the surrender for exchange of AN Certificates, no dividend,
distribution or other payment with respect to MC Shares or VCRs shall be payable
on or with respect to any fractional MC Share or VCR and such fractional MC
Share shall not entitle the owner thereof to vote or to any other rights of a
shareholder or creditor of AN. In lieu of any such fractional MC Share or
fractional VCR, the Surviving Corporation shall pay to each shareholder of AN
who otherwise would be entitled to receive a fractional MC Share and a
fractional VCR an amount in cash determined by (i) dividing $21.10 by the
Conversion Ratio and (ii) multiplying the result by the fractional MC Share
interest to which such holder would otherwise be entitled.
(g) At any time following six (6) months after the Effective Time, the
Surviving Corporation may terminate its agreement with the Exchange Agent, and
thereafter holders of AN Certificates shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat or other similar laws) only
as general creditors thereof with respect to the consideration payable upon due
surrender of their AN Certificates pursuant to the provisions of this Article
II. Notwithstanding the foregoing, neither the Surviving Corporation nor the
Exchange Agent shall be liable to any holder of a AN Certificate for
consideration delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
SECTION 2.4 AN Option Plans. (a) Each outstanding option to purchase
Shares (each, a "AN Option") granted pursuant to AN's 1987 Employee Stock
Incentive Plan, 1992 Employee Stock Incentive
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Plan, 1992 Non-Qualified Stock Option Plan or the Employee Stock Purchase Plan
(collectively, the "AN Option Plans"), or to Dan Hiller which are described in
Schedule 3.2, and which have not vested prior to the Effective Time, shall
become fully exercisable and vested as of the Effective Time.
(b) Effective as of the Effective Time, at the option of the holder
thereof, either (i) each AN Option then outstanding and not exercised shall be
converted automatically into an option to purchase such number of MC Shares and
VCRs equal to the number of Shares subject to such AN Option immediately prior
to the Effective Time multiplied by the Conversion Ratio, with the exercise
price adjusted accordingly, but otherwise on the same terms and conditions as
were applicable under the applicable AN Option Plan and the underlying stock
option agreement or (ii) up to a maximum of 40% of the Shares subject to AN
Options held by each holder, such percentage to be determined by such holder,
shall be cancelled and the holder thereof shall be entitled to receive, with
respect to each such Share subject to such AN Option, the Offer Price on the
Closing Date net to the holder in cash, less the aggregate unpaid exercise price
relating to the exercise of such AN Options, and the remaining AN Options held
by such holder shall be converted as described in clause (i) of this sentence.
(c) Notwithstanding the foregoing provisions, in the case of any option to
which Code Section 421 applies, the option price, the number of shares subject
to such option, and the terms and conditions of exercise of such option shall be
determined in order to comply with Code Section 424(a). As soon as practicable
after the Effective Time, the Surviving Corporation shall deliver to the holders
of AN Options appropriate notices setting forth such holders' rights pursuant to
AN Option Plans and each underlying stock option agreement.
SECTION 2.5 AN Subordinated Notes. After the Effective Time, MC will
comply with applicable terms of the Indenture for AN's 11 7/8% Senior
Subordinated Notes due 2005 (the "Notes") including, if required, offering to
repurchase the Notes or causing them to be assumed by the Surviving Corporation.
In the event MC elects to exercise the Scenario I Option (as defined in the
Shareholders Agreement), MC shall provide an irrevocable letter of credit (from
a bank and containing terms reasonably acceptable to AN) permitting AN to draw
sufficient funds for AN to honor the "Change in Control" provisions under the
11 7/8% Senior Subordinated Notes due 2005, dated as of October 25, 1995 (the
"Indenture") and to permit the Holders (as defined in the Indenture) to sell
such Holder's Notes to AN, in whole or in part, at a purchase price in cash
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase; provided that MC may substitute for the
letter of credit a firm financing commitment satisfactory to AN, in its sole
discretion, permitting MC to borrow sufficient funds for AN to honor the
obligations set forth above. In such event, MC shall provide AN all funds
required to satisfy the "Change in Control" obligations under the Indenture
prior to the last date AN is permitted to make payments to the Holders of the
Notes to be purchased thereunder. If MC provides such funds to AN, upon the
purchase of Notes pursuant to the Change in Control obligations, AN will issue
to MC negotiable promissory notes in the respective principal amounts of the
funds provided by MC, each of which shall bear interest and otherwise have terms
and provisions identical as nearly as possible to the Notes so purchased,
including the terms and provisions of the Indenture under which such Notes were
issued.
SECTION 2.6 Cash Election Merger. In the event of, and subject to, the
purchase by MC of Shares pursuant to the Mandatory Option in accordance with
Section 3.3.3 of the Shareholders' Agreement, then, notwithstanding any other
provision of this Agreement to the contrary, each Share, together with the
related Rights, issued and outstanding immediately prior to the Effective Time,
other than Shares held by MC or any Subsidiary of MC (the "Non-MC Shares"),
shall, by virtue of the Merger and without any action on the part of any holder
thereof, be converted into the right to receive cash, on the one hand, and MC
Shares and VCRs (collectively, the "Alternative Merger Consideration"), on the
other, in accordance with the following terms and procedures:
(a) Each person who, at the Effective Time, is a record holder of
Non-MC Shares shall have the right to submit an Election Form (as defined
below) specifying the number of Shares that such person desires to have
converted into the right to receive cash equal to $21.10 (a "Cash
Election") or the number of MC Shares and VCRs equal, in each case, to the
Conversion Ratio (the "Stock Election").
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(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of the Shares
immediately prior to the Effective Time (A) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title
to the AN Certificates shall pass, only upon delivery of such AN
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as MC shall specify), (B) instructions for use in
effecting the surrender of the AN Certificates in exchange for the
Alternative Merger Consideration, and (C) an election form (the "Election
Form") providing for such holders to make the Cash Election and/or the
Stock Election.
(c) Any Cash Election or Stock Election shall have been validly made
only if the Exchange Agent shall have received by 5:00 p.m. New York, New
York time on a date (the "Election Deadline") to be mutually agreed upon by
MC and AN prior to the Effective Time, an Election Form properly completed
and executed (with the signature or signatures thereof guaranteed to the
extent required by the Election Form) by such holder accompanied by such
holder's AN Certificates, or by an appropriate guarantee of delivery of
such AN Certificates. Any holder of Shares who has made an election by
submitting an Election Form to the Exchange Agent may at any time prior to
the Election Deadline change such holder's election by submitting a revised
Election Form, properly completed and signed, that is received by the
Exchange Act prior to the Election Deadline. In the event that any holder
of Shares shall not have submitted an Election Form or if the Election Form
is not in proper form, such holder will be deemed to have elected to have
made a Cash Election for 40% of such holder's Shares, and a Stock Election
for 60% of such holder's Shares. Promptly following the Election Deadline,
the Exchange Agent shall examine the Election Forms and determine the
aggregate number of Shares that have made, or are deemed to have made, the
Cash Election (the "Requested Cash Amount") and the aggregate number of
Shares that have made the Stock Election (the "Requested Stock Amount").
(d) In the event that the Requested Cash Amount exceeds 40% of the
aggregate Non-MC Shares ("Cash Cap"): (i) each holder who submitted or is
deemed to have submitted a Cash Election shall have the right to receive
(i) $21.10 per Share for that number of Shares, or fractions thereof, equal
to the number specified or deemed to be specified in the Cash Election,
multiplied times a fraction, the numerator of which is the Cash Cap and the
denominator of which is the Requested Cash Amount; and (ii) with respect to
all other Shares, including Shares not converted into cash pursuant to
clause (i) and Shares as to which the holder has submitted or is deemed to
have submitted a Stock Election, the holder shall have the right to receive
for each such share (A) a number of MC Shares equal to the Conversion
Ratio, (B) a number of VCRs equal to the number of MC Shares to be received
pursuant to clause (A), plus (C) cash, if any, for fractional MC Shares and
VCRs pursuant to Section 2.3(f).
(e) In the event that the Requested Stock Amount exceeds 60% of the
aggregate Non-MC Shares ("Stock Cap"): (i) each holder who submitted or is
deemed to have submitted a Stock Election shall have the right to receive
for each Share subject to a Stock Election (A) that number of MC Shares
equal in each case, to the Conversion Ratio, multiplied by a fraction, the
numerator of which is the Stock Cap and the denominator of which is the
Requested Stock Amount, (B) a number of VCRs equal to the number of MC
Shares to be received pursuant to clause (A), plus (C) cash for fractional
shares calculated pursuant to Section 2.3(f); and (ii) with respect to all
other Shares, including Shares not converted into MC Shares and VCRs
pursuant to clause (i) and Shares as to which the holder has submitted or
is deemed to have submitted a Cash Election, or fractions thereof, the
holder shall have the right to receive $21.10 in cash per Share.
(f) Promptly after the Effective Time, (i) MC shall deposit (or cause
to be deposited) with the Exchange Agent, for the benefit of the holders of
the Shares, for exchange in accordance with this Section 2.6, cash in the
amount sufficient to pay the aggregate cash portion of the Alternative
Merger Consideration, and (ii) MC shall deposit (or cause to be deposited)
with the Exchange Agent, for the benefit of the holders of the Shares,
certificates representing the MC Shares and VCRs for exchange in accordance
with this Section 2.6.
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(g) Except as expressly provided herein, the conversion of Shares and
exchange for Alternative Merger Consideration, including without limitation
the treatment of unexercised AN Options, shall be governed by the
provisions of this Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AN
AN represents and warrants to MC as follows:
SECTION 3.1 Organization. (a) Except as set forth on Schedule 3.1, each
of AN and its Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as now being conducted, except where the failure to be so organized, existing
and in good standing or to have such power, authority, and governmental
approvals would not have a Material Adverse Effect on AN and its Subsidiaries
taken as a whole. As used in this Agreement, the word "Subsidiary" means, with
respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which at least a majority of the securities
or other interests having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its Subsidiaries, or
by such party and one or more of its Subsidiaries. As used in this Agreement,
any reference to "Material Adverse Effect" on or with respect to any entity (or
group of entities taken as a whole) means any event, change or effect that is
materially adverse to the consolidated financial condition, businesses, results
of operations or cash flows of such entity (or, if used with respect thereto, of
such group of entities taken as a whole). AN and each of its Subsidiaries is
duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified or licensed and in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect on AN and its Subsidiaries, taken as a whole, or prevent AN from
consummating any of the transactions contemplated hereby.
(b) AN has heretofore made available to MC a complete and correct copy of
the Charter and By-Laws or other organizational documents of AN and the
organizational documents of each of its Subsidiaries, as currently in effect.
Each such document is in full force and effect and no other organizational
documents are applicable to or binding upon AN or any Subsidiary.
(c) Schedule 3.1 identifies all the Subsidiaries of AN.
SECTION 3.2 Capitalization. (a) The authorized capital stock of AN
consists of 30,000,000 shares of common stock and 1,500,000 shares of preferred
stock, par value $.01 per share, of which 500,000 shares have been reserved and
designated as Series A Junior Participating Preferred Stock ("Junior
Preferred"). Schedule 3.2 sets forth (i) the number of issued and outstanding
Shares as of the date hereof; (ii) the number of Shares that would be issuable
by AN upon the exercise of all unexpired AN Options granted pursuant to AN
Option Plans, including the name of each holder of AN Options, the number of AN
Options held by such holder, and the date of grant, date of vesting, and
exercise price for all such AN Options of AN; (iii) all Shares that would be
issuable by AN pursuant to or in connection with each of the acquisition
agreements or transactions identified in Schedule 3.2 (the "AN Pending
Transactions"); and (iv) all other Shares issuable to any person pursuant to any
existing options, warrants, calls, preemptive (or similar) rights, subscriptions
or other rights, agreements, arrangements or commitments of any character,
except pursuant to the Rights (collectively, the "Scheduled Shares"). As of the
date hereof, no shares of preferred stock, including any Junior Preferred, are
issued and outstanding or held in the treasury of AN, and no Shares are held in
the treasury of AN. AN has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue shares of AN's capital stock
which may be issued pursuant to AN Options. The Shares subject to the
Shareholders' Agreement, together with the Shares acquired by MC in the Offer
(assuming the Minimum Condition is not waived or reduced) do, and at all times
prior to the earlier of exercise or expiration of the
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options granted pursuant to the Shareholders' Agreement will, represent at least
a majority of the Shares on a fully diluted basis. For purposes of this
Agreement, "fully diluted basis" shall mean, at any time, the number of Shares
that would be outstanding assuming the exercise of all outstanding options and
other rights to acquire Shares (other than pursuant to the Rights) or other
securities convertible into Shares (including any Shares to be issued pursuant
to any AN Pending Transaction), and the conversion of all securities convertible
into Shares. All the outstanding shares of AN's capital stock are, and all
shares which may be issued pursuant to the exercise of AN Options, when issued
in accordance with the respective terms thereof will be, duly authorized,
validly issued, fully paid and non-assessable and free of any preemptive (or
similar) rights. There are no bonds, debentures, notes or other indebtedness
having general voting rights (or convertible into securities having such rights)
("Voting Debt") of AN or any of its Subsidiaries issued and outstanding. Except
as set forth in Schedule 3.2 and for the Rights, as of the date hereof, (i)
there are no shares of capital stock of AN authorized, issued or outstanding,
(ii) there are no existing options, warrants, calls, preemptive (or similar)
rights, subscriptions or other rights, agreements, arrangements or commitments
of any character, relating to the issued or unissued capital stock of AN or any
of its Subsidiaries, obligating AN or any of its Subsidiaries to issue, transfer
or sell or cause to be issued, transferred or sold any shares of capital stock
or Voting Debt of, or other equity interest in, AN or any of its Subsidiaries or
securities convertible into or exchangeable for such shares or equity interest
or obligations of AN or any of its Subsidiaries, and (iii) other than as
contemplated herein, there are no outstanding contractual obligations of AN or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any Shares,
or capital stock of AN or any Subsidiary or affiliate of AN.
(b) All of the outstanding shares of capital stock of each of AN's
Subsidiaries are beneficially owned by AN, directly or indirectly, free and
clear of all security interests, liens, claims, pledges, agreements, limitations
on voting rights, charges or other encumbrances of any nature whatsoever, other
than liens in favor of First National Bank of Chicago.
(c) There are no voting trusts or other agreements or understandings to
which AN or any of its Subsidiaries is a party with respect to the voting of the
capital stock of AN or any of its Subsidiaries. Other than as contemplated
herein, none of AN or its Subsidiaries is required to redeem, repurchase or
otherwise acquire shares of capital stock of AN, or any of its Subsidiaries,
respectively, as a result of the transactions contemplated by this Agreement.
SECTION 3.3 Authorization; Validity of Agreement; AN Action. (a) AN has
full corporate power and authority to execute and deliver this Agreement and the
MC Voting Agreement and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by AN of this Agreement and the
MC Voting Agreement, and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by the Board of Directors of AN and
no other corporate action on the part of AN is necessary to authorize the
execution and delivery by AN of this Agreement and the MC Voting Agreement and
the consummation by it of the transactions contemplated hereby and thereby
(other than, with respect to the Merger, the approval of this Agreement by the
affirmative vote of the holders of a majority of the outstanding Shares). This
Agreement and the MC Voting Agreement have been duly executed and delivered by
AN and (assuming due and valid authorization, execution and delivery hereof by
the other parties hereto and thereto) are valid and binding obligations of AN
enforceable against AN in accordance with their terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect, affecting
creditors' rights generally, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(b) The Board of Directors of AN also has approved the transactions
contemplated by this Agreement, the MC Voting Agreement and the Shareholders'
Agreement so as to render inapplicable thereto the provisions of Section
48-103-206 of the Combination Act and to cause such transactions to fail to meet
the definition of "takeover offer" as defined in Section 46-103-102(10)(B)(v) of
TIPA, and so that MC and the stockholder parties to the MC Voting Agreement will
not be deemed an "Acquiring Person" for purposes of the Rights.
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SECTION 3.4 Consents and Approvals; No Violations; Licenses. (a) Neither
the execution, delivery or performance of this Agreement or the MC Voting
Agreement by AN nor the consummation by AN of the transactions contemplated
hereby or thereby nor compliance by AN with any of the provisions hereof or
thereof will (i) conflict with or result in any breach of any provision of the
Charter or By-Laws or other organizational documents of AN or of any of its
Subsidiaries, (ii) require on the part of AN any filing with, or permit,
authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency (a "Governmental Entity") except for (A) filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the Federal Communication
Commission ("FCC"), the Communications Act of 1934, as amended (the
"Communications Act"), state public utility or public service laws, the
Securities Act of 1933, as amended (the "Securities Act"), the DGCL, the TBCA,
state or foreign laws relating to takeovers, state securities or blue sky laws,
and the laws of other states in which AN is qualified to do or is doing
business, or (B) where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings, individually or in the aggregate,
would not have a Material Adverse Effect on AN and its Subsidiaries, taken as a
whole, or prevent AN from consummating the transactions contemplated hereby,
(iii) except as disclosed on Schedule 3.4(a), result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which AN or any of its Subsidiaries is a party or by which any of them or any
of their properties or assets may be bound and which has been included as an
exhibit to AN's Annual Report on Form 10-K for the fiscal year ended December
31, 1995 (the "AN Material Agreements") or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to AN, any of its
Subsidiaries or any of their properties or assets, excluding from the foregoing
clauses (iii) and (iv) such violations, breaches or defaults which would not,
individually or in the aggregate, have a Material Adverse Effect on AN and its
Subsidiaries, taken as a whole, or prevent AN from consummating the transactions
contemplated hereby.
(b) AN or one of its Subsidiaries holds all licenses, permits,
certificates, franchises, ordinances, registrations, or other rights,
applications and authorizations filed with, granted or issued by, or entered by
any Governmental Entity, including without limitation, the FCC, or any state or
local regulatory authorities or any state or local public service commission or
public utility commission asserting jurisdiction over the radio facilities used
in AN's business (each, a "State Authority"), that are required for the conduct
of their businesses as now being conducted, except for those the absence of
which would not individually or in the aggregate have a Material Adverse Effect
on AN and its Subsidiaries taken as a whole (collectively, "AN Licenses") and,
provided, that no representation is made with respect to such matters on behalf
of any third-parties who are part of the "A+ Network". The AN Licenses are
valid, in full force and effect, and the terms of said AN Licenses are not
subject to any restrictions or conditions that materially limit or would
materially limit the operations of the business of AN or any of its Subsidiaries
as presently conducted, other than restrictions or conditions generally
applicable to licenses of that type. The AN Licenses granted, issued or entered
by the FCC are subject to the Communications Act. There are no proceedings
pending or, to the best knowledge of AN, complaints or petitions by others, or
threatened proceedings, before the FCC or any other Governmental Entity relating
to the business or operations of AN or any of its Subsidiaries or The AN
Licenses, and there are no facts or conditions that reasonably could be expected
to constitute grounds for the FCC to revoke, terminate, suspend, deny, annul, or
impose conditions on any renewal of any AN Licenses, that would, individually or
in the aggregate, have a Material Adverse Effect on AN and its Subsidiaries,
taken as a whole, or prevent AN from consummating the transactions contemplated
hereby or to impose any fines, forfeitures or other penalties on AN or its
Subsidiaries that would, individually or in the aggregate, have a Material
Adverse Effect on AN and its Subsidiaries, taken as a whole.
(c) Schedule 3.4(c) contains a true and complete list of each FCC permit
and FCC license issued in the name of AN, or any of its Subsidiaries as of May
9, 1996. Schedule 3.4(c) also contains a true and complete list of all licenses,
certificates, consents, permits, approvals and authorizations pending before or
issued by any State Authority (the "AN State Certificates").
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SECTION 3.5 SEC Reports and Financial Statements. AN and its Subsidiaries
have filed with the SEC all forms, reports, schedules, statements, and other
documents required to be filed by them with the SEC (as such documents have been
amended since the time of their filing, collectively, the "AN SEC Documents"),
and have filed all exhibits required to be filed with AN SEC Documents. As of
their respective dates or, if amended, as of the date of the last such
amendment, AN SEC Documents, including, without limitation, any financial
statements or schedules included therein, complied in all material respects with
the applicable requirements of the Securities Act and the Exchange Act, and did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of AN's Subsidiaries is required to file any forms, reports or
other documents with the SEC pursuant to Section 12 or 15 of the Exchange Act.
The financial statements of AN included in AN's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 (including the related notes thereto)
and for the quarter ended March 31, 1996, copies of which have been provided to
MC (together, the "AN Financial Statements"), have been prepared from, and are
in accordance with, the books and records of AN and its consolidated
Subsidiaries, comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto and
subject, in the case of unaudited interim financial statements, to normal
year-end adjustments), and fairly present the consolidated financial position
and the consolidated results of operations and cash flows of AN and its
consolidated Subsidiaries as at the dates thereof or for the periods presented
therein.
SECTION 3.6 No Undisclosed Liabilities. Except (i) as disclosed in AN SEC
Documents, (ii) as set forth in Schedule 3.6, (iii) AN Pending Transactions, and
(iv) for liabilities incurred in the ordinary course of business and consistent
with past practice, and liabilities incurred in connection with the consummation
of the transactions contemplated hereby (none of which, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on AN and its
Subsidiaries, taken as a whole), since December 31, 1995, neither AN nor any of
its Subsidiaries has incurred any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) which would be required by
GAAP to be reflected on a consolidated balance sheet of AN and its Subsidiaries
(including the notes thereto), and, which individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on AN and its Subsidiaries,
taken as a whole.
SECTION 3.7 Absence of Certain Changes. Except as contemplated by this
Agreement, for AN Pending Transactions, or as disclosed in the AN SEC Documents
or in Schedule 3.7 hereto, since December 31, 1995, (i) AN and its Subsidiaries
have conducted their respective businesses only in the ordinary course of
business and consistent with past practice, (ii) there has not been any change
in the business, properties, assets, liabilities, financial condition, cash
flows, operations, licenses, franchises or results of operations of AN or its
Subsidiaries which has had a Material Adverse Effect on AN and its Subsidiaries,
taken as a whole, and (iii) there has not been any action taken by AN or its
Subsidiaries of a type described in clauses (ii) through (xvii) of Section
5.1(a).
SECTION 3.8 Employee Benefit Plans; ERISA; Labor. (a) Schedule 3.8 hereto
sets forth (i) a list of all employee benefit plans (including but not limited
to plans described in section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), maintained by AN, any of its Subsidiaries or
any trade or business, whether or not incorporated (an "AN ERISA Affiliate"),
which together with AN would be deemed a "single employer" within the meaning of
section 4001(b)(1) of ERISA ("AN Benefit Plans") and (ii) all employment,
retention, and severance agreements with employees of AN and its Subsidiaries
("AN Employee Agreements"). True and complete copies of all current AN Benefit
Plans and Employee Agreements have been provided to MC by AN.
(b) With respect to each AN Benefit Plan: (i) if intended to qualify under
section 401(a) or 401(k) of the Code, such plan has received a determination
letter from the Internal Revenue Service ("IRS") stating that it so qualifies
and that its trust is exempt from taxation under section 501(a) of the Code, no
such determination letter has been revoked and no such revocation has been
threatened, nothing has occurred that could reasonably be expected to cause the
relevant AN Benefit Plan to lose such qualification or exemption;
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(ii) such plan has been administered in all material respects in accordance with
its terms and applicable law, including state and federal securities laws; (iii)
no breaches of fiduciary duty by AN, or, to AN's knowledge, by any other person,
have occurred that might reasonably be expected to give rise to material
liability on the part of AN or any AN ERISA Affiliate; (iv) no disputes are
pending, or, to the knowledge of AN, threatened that might reasonably be
expected to give rise to material liability on the part of AN or any AN ERISA
Affiliate; (v) no prohibited transaction (within the meaning of Section 406 of
ERISA) has occurred that might reasonably be expected to give rise to material
liability on the part of AN or any AN ERISA Affiliate; (vi) all contributions
required to be made to such plan as of the date hereof (taking into account any
extensions for the making of such contributions) have been made in full; (vii)
to AN's knowledge, no AN Benefit Plans are presently under audit or examination
(nor has notice been received of a potential audit or examination) by the IRS,
Department of Labor, or any other governmental agency or entity, and no matters
are pending with respect to any AN Benefit Plan under the IRS's Voluntary
Compliance Resolution program, its Closing Agreement Program, or other similar
programs; and (viii) all monies withheld from employee paychecks with respect to
Benefit Plans have been transferred to the appropriate plan in accordance with
the terms of such plan.
(c) No AN Benefit Plan is a "multiemployer pension plan," as defined in
section 3(37) of ERISA, nor is any AN Benefit Plan a plan described in section
4063(a) of ERISA. No AN Benefit Plan is or has been subject to Title IV of
ERISA.
(d) No liability under Title IV of ERISA has been incurred by AN or any AN
ERISA Affiliate (whether direct, indirect, actual, or contingent, and including,
without limitation, withdrawal liability to a multiemployer plan), and no
condition exists that presents a material risk to AN or any AN ERISA Affiliate
of incurring a material liability under such Title. No AN Benefit Plan has
incurred an accumulated funding deficiency, as defined in section 302 of ERISA
or section 312 of the Code, whether or not waived.
(e) With respect to each AN Benefit Plan that is a "welfare plan" (as
defined in section 3(1) of ERISA), no such plan provides medical or death
benefits with respect to current or former employees of AN or any of its
Subsidiaries beyond their termination of employment (other than to the extent
required by applicable law). All group health plans of AN and AN ERISA
Affiliates have been operated in material compliance with the requirements of
Section 4980B (and its predecessor) and 5000 of the Code, and AN and AN ERISA
Affiliates have provided to individuals entitled thereto all required notices
and coverage pursuant to Section 4980B, except to the extent that failure to
provide such notice or coverage is not reasonably likely to result, individually
or in the aggregate, in a Material Adverse Effect on AN and its Subsidiaries,
taken as a whole.
(f) No AN Benefit Plan, plan documentation or agreement, summary plan
description or other written communication distributed generally to employees of
AN or its Subsidiaries by its terms prohibits the amendment or termination of
any such AN Benefit Plan.
(g) As of the date hereof, except for AN Employee Agreements and AN Option
Plans, AN and its Subsidiaries are not parties to any (i) agreement with any
director, executive officer or other key employee of AN or its Subsidiaries (A)
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving AN or its Subsidiaries
of the nature of any of the transactions contemplated by this Agreement, (B)
providing any term of employment or compensation guarantee or (C) providing
severance benefits or other benefits after the termination of employment of such
director, executive officer or key employee; (ii) agreement, plan or arrangement
under which any person may receive payments from AN or its Subsidiaries that may
be subject to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding AN or its Subsidiaries, including
without limitation any stock option plan, stock appreciation right plan,
restricted stock plan, stock purchase plan, severance benefit plan or employee
benefit plan, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
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(h) As of the date hereof, no collective bargaining agreement is binding
and in force against AN or its Subsidiaries or is currently under negotiation,
and no current employees of AN or its Subsidiaries are represented by any labor
union. As of the date hereof, to AN's knowledge, no labor representation effort
exists with respect to AN or its Subsidiaries.
SECTION 3.9 Litigation. Schedule 3.9 hereto sets forth each suit, action
or proceeding pending (as to which AN has received notice), or, to the knowledge
of AN, threatened against AN, any of its Subsidiaries, or any of their
properties or assets on the date hereof. Except as set forth on Schedule 3.9,
none of the foregoing, individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect on AN and its Subsidiaries, taken as a whole, if
resolved adversely to AN or its Subsidiaries. As of the date hereof, neither AN
nor any of its Subsidiaries, nor any of their respective properties, is subject
to any order, writ, judgment, injunction, decree, determination or award having,
or which would have, a Material Adverse Effect on AN and its Subsidiaries, taken
as a whole, or which would prevent AN from consummating the transactions
contemplated hereby.
SECTION 3.10 No Default; Compliance with Applicable Laws. Neither AN nor
any of its Subsidiaries is in default or violation in any material respect of
any term, condition or provision of (i) its respective Charter or By-laws or
other organizational documents, (ii) any AN Material Agreement or (iii) any
federal, state, local or foreign statute, law, ordinance, rule, regulation,
judgment, decree, order, concession, grant, franchise, permit or license or
other governmental authorization or approval applicable to AN or any of its
Subsidiaries or by which they or their respective assets may be bound (other
than matters addressed in Sections 3.4, 3.8, 3.9, 3.11, and 3.12), excluding
from the foregoing clauses (ii) and (iii), defaults or violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on AN and its Subsidiaries, taken as a whole, or prevent AN from
consummating the transactions contemplated hereby.
SECTION 3.11 Taxes. Except as set forth on Schedule 3.11:
(a) AN and its Subsidiaries have (i) duly and timely filed (or there
has been filed on their behalf) with the appropriate governmental
authorities all Tax Returns (as hereinafter defined) required to be filed
by them on or prior to the date hereof, other than those Tax Returns for
which extensions for filing have been obtained in a timely manner, and such
Tax Returns are true, correct and complete in all material respects, and
(ii) duly paid in full all Taxes (as hereinafter defined) shown to be due
on such Tax Returns or have provided adequate reserves in their financial
statements for any Taxes that have not been paid. There are no liens on any
of the assets of AN or any of its Subsidiaries that arose in connection
with any delinquency in paying any tax.
(b) As of the date hereof, there are no ongoing federal, state, local
or foreign audits or examinations of any Tax Return of AN or its
Subsidiaries.
(c) As of the date hereof, there are no outstanding requests,
agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes or deficiencies
against AN or any of its Subsidiaries (excluding extensions for filings
that have been timely obtained), and no power of attorney granted by either
AN or any of its Subsidiaries with respect to any Taxes is currently in
force.
(d) Neither AN nor any of its Subsidiaries is a party to any agreement
providing for the allocation or sharing of Taxes.
(e) "Taxes" shall mean any and all taxes, charges, fees, levies or
other assessments, including, without limitation, income, gross receipts,
excise, real or personal property, sales, withholding, social security,
occupation, use, service, service use, license, net worth, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the
Internal Revenue Service or any taxing authority (whether domestic or
foreign including, without limitation, any state, county, local or foreign
government or any subdivision or taxing agency thereof (including a United
States possession)), whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest
whether paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes,
charges, fees, levies or other assessments. "Tax Return" shall mean any
report,
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return, document, declaration or other information or filing required to be
supplied to any taxing authority or jurisdiction (foreign or domestic) with
respect to Taxes.
SECTION 3.12 Environmental Matters. (a) AN and its Subsidiaries have
complied in all respects with all applicable Environmental Laws (as defined
below), except to the extent that any failure to comply is not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on AN and
its Subsidiaries, taken as a whole. There is no pending or, to the knowledge of
AN, threatened, civil or criminal litigation, written notice or violation,
formal administrative proceeding or investigation, inquiry or information
request by any Governmental Entity relating to any Environmental Law involving
AN or any of its Subsidiaries or any of their properties. For purposes of this
Agreement, "Environmental Law" means any foreign, federal, state or local law,
statute, rule or regulation or the common law relating to the environment or
occupational health and safety, including without limitation any statute,
regulation or order pertaining to (i) treatment, storage, disposal, generation
or transportation of industrial, toxic or hazardous substances or solid or
hazardous waste; (ii) air, water and noise pollution; (iii) groundwater and soil
contamination; (iv) the release or threatened release into the environment of
industrial, toxic or hazardous substances, or solid or hazardous waste,
including without limitation emissions, discharges, injections, spills, escapes
or dumping of pollutants, contaminants or chemicals; (v) the protection of
wildlife, marine sanctuaries and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels and containers;
(vii) underground and other storage tanks or vessels, abandoned, disposed or
discarded barrels, containers and other closed receptacles; (viii) health and
safety of employees and other persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or oil or petroleum products or solid or hazardous waste. As used above, the
terms "release" and "environment" shall have the meaning set forth in the
federal Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA").
(b) With the exception of releases that are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on AN and its
Subsidiaries, taken as a whole, there have been no releases of any Materials of
Environmental Concern (as defined below) into the environment by AN or any of
its Subsidiaries, or, to the knowledge of AN, by any other party at any parcel
of real property or any facility formerly or currently owned, operated or
controlled by AN or any of its Subsidiaries. For purposes of this Agreement,
"Materials of Environmental Concern" means any chemicals, pollutants or
contaminants, hazardous substances (as such term is defined under CERCLA), solid
wastes and hazardous wastes (as such terms are defined under the federal
Resource Conservation and Recovery Act), toxic materials, oil or petroleum and
petroleum products, or any other material subject to regulation under any
Environmental Law.
SECTION 3.13 Insurance. AN and the Subsidiaries maintain adequate
insurance with respect to the their respective businesses and are in compliance
with all material requirements and provisions thereof.
SECTION 3.14 Offer Documents; Proxy Statement; Registration Statement;
Other Information. The information with respect to AN, its officers and
directors and its Subsidiaries (i) to be contained in the Schedule 14D-9, (ii)
supplied in writing by AN for inclusion in the Offer Documents, (iii) to be
contained in the definitive joint Proxy Statement to be furnished to the
respective shareholders of AN and the stockholders of MC pursuant to Section 5.2
and which will form a part of MC's Registration Statement on Form S-4 (the
"Registration Statement") to be filed with the SEC and will constitute a
prospectus of MC with respect to the MC Shares to be issued in the Merger (the
"Proxy Statement"), and (iv) to be contained in the Registration Statement will
not, on the respective dates on which (A) the Schedule 14D-9, the Offer
Documents or any amendment or supplement thereto are filed with the SEC (in the
case of each respective document), (B) the Proxy Statement is first mailed to
shareholders of AN and MC or on the date of the stockholders' meetings referred
to in Section 5.2 (in the case of the Proxy Statement), (C) the Registration
Statement becomes effective (in the case of the Registration Statement), and (D)
in the case of the Proxy Statement and the Registration Statement, as such Proxy
Statement or Registration Statement is then amended or supplemented, at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, or necessary to correct any statement made by AN in any
earlier filing with the SEC or any amendment thereto or any earlier
communication made by AN
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(including the Proxy Statement) to shareholders of AN with respect to the
Merger. When the Proxy Statement or any amendment or supplement thereto shall be
mailed, and at the time of each meeting and at the Effective Time, the Proxy
Statement will comply as to form with all applicable laws including the
provisions of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder. If at any time prior to the Effective Time
any event with respect to AN, its officers and directors and its Subsidiaries
should occur which is or should be described in an amendment of, or a supplement
to, the Proxy Statement or the Registration Statement, AN shall promptly so
inform MC and such event shall be so described in an amendment or supplement to
the Proxy Statement and such information in such amendment or supplement will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or necessary to correct any statement made by AN in any earlier
filing with the SEC of such Proxy Statement, or any amendment or supplement
thereto, or any earlier communication to shareholders of AN with respect to the
Merger.
SECTION 3.15 Transactions with Affiliates. Except as set forth in the AN
SEC Documents or on Schedule 3.15, since December 31, 1995, neither AN nor any
of its Subsidiaries has entered into any transaction with any current director
or officer of AN or any Subsidiary or any transaction which would be subject to
proxy statement disclosure under the Exchange Act pursuant to the requirements
of Item 404 of Regulation S-K.
SECTION 3.16 Brokers. Other than the AN Financial Advisor, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission from AN in connection with the transactions contemplated by this
Agreement. AN has informed MC of the compensation to be paid by AN to the AN
Financial Advisor.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MC
MC represents and warrants to AN as follows:
SECTION 4.1 Organization. (a) Each of MC and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority, and governmental approvals would not have a Material Adverse
Effect on MC and its Subsidiaries taken as a whole. MC and each of its
Subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not, individually or in the aggregate, have a Material
Adverse Effect on MC and its Subsidiaries, taken as a whole, or prevent MC from
consummating any of the transactions contemplated hereby.
(b) MC has heretofore made available to AN a complete and correct copy of
the Certificate of Incorporation and By-Laws or other organizational documents
of MC and the organizational documents of each of its Subsidiaries, as currently
in effect. Each such document is in full force and effect and no other
organizational documents are applicable to or binding upon MC or any Subsidiary.
(c) Schedule 4.1 identifies all the Subsidiaries of MC.
(d) At the time of issuance, (i) the MC Shares and VCRs issued pursuant to
the Merger or the Shareholders' Agreement will be duly authorized and validly
issued, and the MC Shares will be fully paid and nonassessable and not subject
to preemptive (or similar) rights; and (ii) the VCRs will represent unsecured
obligations of MC ranking pari passu with all other general obligations of MC.
SECTION 4.2 Capitalization. (a) The authorized capital stock of MC
consists of 26,000,000 shares of common stock and 1,000,000 shares of preferred
stock, par value $.01 per share. Schedule 4.2 sets forth the
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(i) the number of issued and outstanding MC Shares as of the date hereof; (ii)
the number of MC Shares that would be issuable by MC upon the exercise of all
unexpired options to purchase MC Shares ("MC Options"), and date of vesting
thereof, (iii) all MC Shares that would be issuable by MC pursuant to or in
connection with each of the acquisition agreements or transactions identified in
Schedule 4.2 (the "MC Pending Transactions"); and (iv) all other MC Shares
issuable to any person pursuant to any existing options, warrants, calls,
preemptive (or similar) rights, subscriptions or other rights, agreements,
arrangements or commitments of any character. As of the date hereof, no shares
of preferred stock are issued and outstanding or held in the treasury of MC, and
no MC Shares are held in the treasury of MC. MC has taken all necessary
corporate and other action to authorize and reserve and to permit it to issue MC
Shares which may be issued pursuant to MC Options or the transactions
contemplated hereby. There is no Voting Debt of MC or any of its Subsidiaries
issued and outstanding. Except as set forth in Schedule 4.2, as of the date
hereof, (i) there are no shares of capital stock of MC authorized, issued or
outstanding, (ii) there are no existing options, warrants, calls, preemptive (or
similar) rights, subscriptions or other rights, agreements, arrangements or
commitments of any character, relating to the issued or unissued capital stock
of MC or any of its Subsidiaries, obligating MC or any of its Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, MC or any of its
Subsidiaries or securities convertible into or exchangeable for such shares or
equity interest or obligations of MC or any of its Subsidiaries, and (iii) there
are no outstanding contractual obligations of MC or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any MC Shares, or capital stock of MC or
any Subsidiary or affiliate of MC.
(b) All of the outstanding shares of capital stock of each of MC's
Subsidiaries are beneficially owned by MC, directly or indirectly, free and
clear of all security interests, liens, claims, pledges, agreements, limitations
on voting rights, charges or other encumbrances of any nature whatsoever, other
than liens in favor of Toronto Dominion Bank or First National Bank of Boston.
(c) Except for (i) the Voting Agreement dated August 31, 1994, as amended,
which has been terminated effective at the Effective Time, and (ii) the Brock
Voting Agreement dated May 15, 1996, there are no voting trusts or other
agreements or understandings to which MC or any of its Subsidiaries is a party
with respect to the voting of the capital stock of MC or any of its
Subsidiaries. None of MC or its Subsidiaries is required to redeem, repurchase
or otherwise acquire shares of capital stock of MC, or any of its Subsidiaries,
respectively, as a result of the transactions contemplated by this Agreement.
SECTION 4.3 Authorization; Validity of Agreement; MC Action. (a) MC has
full corporate power and authority to execute and deliver this Agreement and the
Shareholders' Agreement and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance by MC of this Agreement and
the Shareholders' Agreement, and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of MC and no other corporate action on the part of MC is necessary to
authorize the execution and delivery by MC of this Agreement and the
Shareholders' Agreement and the consummation by it of the transactions
contemplated hereby and thereby (other than, with respect to the Merger, the
adoption of this Agreement by the affirmative vote of the holders of a majority
of the outstanding MC Shares). This Agreement and the Shareholders' Agreement
have been duly executed and delivered by MC and (assuming due and valid
authorization, execution and delivery hereof by the other parties hereto and
thereto) are valid and binding obligations of MC enforceable against MC in
accordance with their terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws, now or hereafter in effect, affecting creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(b) The Board of Directors of MC also has approved the transactions
contemplated by this Agreement, the Shareholders' Agreement and the MC Voting
Agreement so as to render inapplicable thereto the provisions of Section 203 of
the DGCL.
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SECTION 4.4 Consents and Approvals; No Violations; Licenses. (a) Neither
the execution, delivery or performance of this Agreement or the Shareholders'
Agreement by MC nor the consummation by MC of the transactions contemplated
hereby or thereby nor compliance by MC with any of the provisions hereof or
thereof will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or By-Laws or other organizational documents of MC
or of any of its Subsidiaries, (ii) require on the part of MC any filing with,
or permit, authorization, consent or approval of, any Governmental Entity except
for (A) filings, permits, authorizations, consents and approvals as may be
required under, and other applicable requirements of, the Exchange Act, the HSR
Act, the FCC, the Communications Act, state public utility or public service
laws, the Securities Act, the DGCL, the TBCA, state or foreign laws relating to
takeovers, state securities or blue sky laws, and the laws of other states in
which MC is qualified to do or is doing business, or (B) where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings, individually or in the aggregate, would not have a Material Adverse
Effect on MC and its Subsidiaries, taken as a whole, or prevent MC from
consummating the transactions contemplated hereby, (iii) except as disclosed on
Schedule 4.4, result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which MC or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound and which has been included as an exhibit to MC's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 (the "MC
Material Agreements") or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to MC, any of its Subsidiaries or any of
their properties or assets, excluding from the foregoing clauses (iii) and (iv)
such violations, breaches or defaults which would not, individually or in the
aggregate, have a Material Adverse Effect on MC and its Subsidiaries, taken as a
whole, or prevent MC from consummating the transactions contemplated hereby.
(b) MC or one of its Subsidiaries holds all licenses, permits,
certificates, franchises, ordinances, registrations, or other rights,
applications and authorizations filed with, granted or issued by, or entered by
any Governmental Entity, including without limitation, the FCC, or any State
Authority, that are required for the conduct of their businesses as now being
conducted, except for those the absence of which would not individually or in
the aggregate have a Material Adverse Effect on MC and its Subsidiaries, taken
as a whole (collectively, "MC Licenses"). The MC Licenses are valid, in full
force and effect, and the terms of said MC Licenses are not subject to any
restrictions or conditions that materially limit or would materially limit the
operations of the business of MC or any of its Subsidiaries as presently
conducted, other than restrictions or conditions generally applicable to
licenses of that type. The MC Licenses granted, issued or entered by the FCC are
subject to the Communications Act. There are no proceedings pending or, to the
best knowledge of MC, complaints or petitions by others, or threatened
proceedings, before the FCC or any other Governmental Entity relating to the
business or operations of MC or any of its Subsidiaries or the MC Licenses, and
there are no facts or conditions that reasonably could be expected to constitute
grounds for the FCC to revoke, terminate, suspend, deny, annul, or impose
conditions on any renewal of any MC Licenses, that would, individually or in the
aggregate, have a Material Adverse Effect on MC and its Subsidiaries, taken as a
whole, or prevent MC from consummating the transactions contemplated hereby or
to impose any fines, forfeitures or other penalties on MC or its Subsidiaries
that would, individually or in the aggregate, have a Material Adverse Effect on
MC and its Subsidiaries, taken as a whole.
SECTION 4.5 SEC Reports and Financial Statements. MC and its Subsidiaries
have filed with the SEC all forms, reports, schedules, statements, and other
documents required to be filed by them with the SEC (as such documents have been
amended since the time of their filing, collectively, the "MC SEC Documents"),
and have filed all exhibits required to be filed with MC SEC Documents. As of
their respective dates or, if amended, as of the date of the last such
amendment, MC SEC Documents, including, without limitation, any financial
statements or schedules included therein, complied in all material respects with
the applicable requirements of the Securities Act and the Exchange Act, and did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of MC's Subsidiaries is required to file any forms, reports or
other documents with the SEC pursuant to Section 12 or 15 of the Exchange Act.
The financial statements of MC included in MC's Annual Report on Form 10-K for
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the fiscal year ended December 31, 1995 (including the related notes thereto)
and for the quarter ended March 31, 1996, copies of which have been furnished to
AN (together, the "MC Financial Statements"), have been prepared from, and are
in accordance with, the books and records of MC and its consolidated
Subsidiaries, comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto and subject, in the case of unaudited interim financial
statements, to normal year-end adjustments), and fairly present the consolidated
financial position and the consolidated results of operations and cash flows of
MC and its consolidated Subsidiaries as at the dates thereof or for the periods
presented therein.
SECTION 4.6 No Undisclosed Liabilities. Except (i) as disclosed in MC SEC
Documents, (ii) set forth in Schedule 4.6, (iii) MC Pending Transactions, and
(iv) for liabilities incurred in the ordinary course of business and consistent
with past practice, and liabilities incurred in connection with the consummation
of the transactions contemplated hereby (none of which, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on MC and its
Subsidiaries, taken as a whole), since December 31, 1995, neither MC nor any of
its Subsidiaries has incurred any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) which would be required by
GAAP to be reflected on a consolidated balance sheet of MC and its Subsidiaries
(including the notes thereto), and which individually or in which the aggregate,
is reasonably likely to have a Material Adverse Effect on MC and its
Subsidiaries, taken as a whole.
SECTION 4.7 Absence of Certain Changes. Except as contemplated by this
Agreement, for MC Pending Transactions, or as disclosed in MC SEC Documents or
in Schedule 4.7 hereto, since December 31, 1995, (i) MC and its Subsidiaries
have conducted their respective businesses only in the ordinary course of
business and consistent with past practice, (ii) there has not been any change
in the business, properties, assets, liabilities, financial condition, cash
flows, operations, licenses, franchises or results of operations of MC or its
Subsidiaries which has had a Material Adverse Effect on MC and its Subsidiaries,
taken as a whole, and (iii) there has not been any action taken by MC or its
Subsidiaries of a type described in clauses (i) through (ix) of Section 5.1(b).
SECTION 4.8 Employee Benefit Plans; ERISA; Labor. (a) Schedule 4.8 hereto
sets forth (i) a list of all employee benefit plans (including but not limited
to plans described in section 3(3) of ERISA), maintained by MC, any of its
Subsidiaries or any trade or business, whether or not incorporated (a "MC ERISA
Affiliate"), which together with MC would be deemed a "single employer" within
the meaning of section 4001(b)(1) of ERISA ("MC Benefit Plans") and (ii) all
employment, retention, and severance agreements with employees of MC and its
Subsidiaries ("MC Employee Agreements"). True and complete copies of all current
MC Benefit Plans and MC Employee Agreements have been made available to AN.
(b) With respect to each MC Benefit Plan: (i) if intended to qualify under
section 401(a) or 401(k) of the Code, such plan has received a determination
letter from the IRS stating that it so qualifies and that its trust is exempt
from taxation under section 501(a) of the Code, no such determination letter has
been revoked and no such revocation has been threatened, nothing has occurred
that could reasonably be expected to cause the relevant MC Benefit Plan to lose
such qualification or exemption; (ii) such plan has been administered in all
material respects in accordance with its terms and applicable law, including
state and federal securities laws; (iii) no breaches of fiduciary duty by MC,
or, to MC's knowledge, by any other person have occurred that might reasonably
be expected to give rise to material liability on the part of MC or any MC ERISA
Affiliate; (iv) no disputes are pending, or, to the knowledge of MC, threatened
that might reasonably be expected to give rise to material liability on the part
of MC or any MC ERISA Affiliate; (v) no prohibited transaction (within the
meaning of Section 406 of ERISA) has occurred that might reasonably be expected
to give rise to material liability on the part of MC or any MC ERISA Affiliate;
(vi) all contributions required to be made to such plan as of the date hereof
(taking into account any extensions for the making of such contributions) have
been made in full; (vii) to MC's knowledge, no MC Benefit Plans are presently
under audit or examination (nor has notice been received of a potential audit or
examination) by the IRS, Department of Labor, or any other governmental agency
or entity, and no matters are pending with respect to any Benefit Plan under the
IRS's Voluntary Compliance Resolution program, its Closing Agreement Program,
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or other similar programs; and (viii) all monies withheld with respect to MC
Benefit Plans have been transferred to the appropriate plan in accordance with
the terms of such plan.
(c) No MC Benefit Plan is a "multiemployer pension plan," as defined in
section 3(37) of ERISA, nor is any MC Benefit Plan a plan described in section
4063(a) of ERISA. No MC Benefit Plan is or has been subject to Title IV of
ERISA.
(d) No liability under Title IV of ERISA has been incurred by MC or any MC
ERISA Affiliate (whether direct, indirect, actual, or contingent, and including,
without limitation, withdrawal liability to a multiemployer plan), and no
condition exists that presents a material risk to MC or any MC ERISA Affiliate
of incurring a material liability under such Title. No MC Benefit Plan has
incurred an accumulated funding deficiency, as defined in section 302 of ERISA
or section 312 of the Code, whether or not waived.
(e) With respect to each MC Benefit Plan that is a "welfare plan" (as
defined in section 3(1) of ERISA), no such plan provides medical or death
benefits with respect to current or former employees of MC or any of its
Subsidiaries beyond their termination of employment (other than to the extent
required by applicable law). All group health plans of MC and MC ERISA
Affiliates have been operated in material compliance with the requirements of
Section 4980B (and its predecessor) and 5000 of the Code, and MC and MC ERISA
Affiliates have provided, or will have provided prior to the Effective Date, to
individuals entitled thereto all required notices and coverage pursuant to
Section 4980B, except to the extent that failure to provide such notice or
coverage is not reasonably likely to result, individually or in the aggregate,
in a Material Adverse Effect on MC and its Subsidiaries, taken as a whole.
(f) No MC Benefit Plan, plan documentation or agreement, summary plan
description or other written communication distributed generally to employees of
MC or its Subsidiaries by its terms prohibits the amendment or termination of
any such Benefit Plan.
(g) As of the date hereof, except for MC Employee Agreements or as
described in MC SEC Documents, MC and its Subsidiaries are not parties to any
(i) agreement with any director, executive officer or other key employee of MC
or its Subsidiaries (A) the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving MC
or its Subsidiaries of the nature of any of the transactions contemplated by
this Agreement, (B) providing any term of employment or compensation guarantee
or (C) providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee; (ii) agreement,
plan or arrangement under which any person may receive payments from MC or its
Subsidiaries that may be subject to the tax imposed by Section 4999 of the Code
or included in the determination of such person's "parachute payment" under
Section 280G of the Code; and (iii) agreement or plan binding MC or its
Subsidiaries, including without limitation any stock option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan, severance
benefit plan or employee benefit plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
(h) As of the date hereof, no collective bargaining agreement is binding
and in force against MC or its Subsidiaries or is currently under negotiation,
and no current employees of MC or its Subsidiaries are represented by any labor
union. As of the date hereof, to MC's knowledge, no labor representation effort
exists with respect to MC or its Subsidiaries.
SECTION 4.9 Litigation. Schedule 4.9 hereto sets forth each suit, action
or proceeding pending (as to which MC has received notice), or, to the knowledge
of MC, threatened against MC, any of its Subsidiaries, or their properties or
assets on the date hereof. Except as set forth on Schedule 4.9 hereto, none of
the foregoing, individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on MC and its Subsidiaries, taken as a whole, if
resolved adversely to MC or its Subsidiaries. As of the date hereof, neither MC
nor any of its Subsidiaries, nor any of their respective properties, is subject
to any order, writ, judgment, injunction, decree, determination or award having,
or which would have, a Material Adverse Effect on MC
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and its Subsidiaries, taken as a whole, or which would prevent MC from
consummating the transactions contemplated hereby.
SECTION 4.10 No Default; Compliance with Applicable Laws. Neither MC nor
any of its Subsidiaries is in default or violation in any material respect of
any term, condition or provision of (i) its respective Certificate of
Incorporation or By-laws or other organizational documents, (ii) any MC Material
Agreement or (iii) any federal, state, local or foreign statute, law, ordinance,
rule, regulation, judgment, decree, order, concession, grant, franchise, permit
or license or other governmental authorization or approval applicable to MC or
any of its Subsidiaries or by which they or their respective assets may be bound
(other than matters addressed in Sections 4.4, 4.8, 4.9, 4.10, 4.11, and 4.12),
excluding from the foregoing clauses (ii) and (iii), defaults or violations
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on MC and its Subsidiaries, taken as a whole, or prevent
MC from consummating the transactions contemplated hereby.
SECTION 4.11 Taxes. Except as set forth on Schedule 4.11:
(a) MC and its Subsidiaries have (i) duly and timely filed (or there
has been filed on their behalf) with the appropriate governmental
authorities all Tax Returns (as hereinafter defined) required to be filed
by them on or prior to the date hereof, other than those Tax Returns for
which extensions for filing have been obtained in a timely manner, and such
Tax Returns are true, correct and complete in all material respects, and
(ii) duly paid in full all Taxes (as hereinafter defined) shown to be due
on such Tax Returns or have provided adequate reserves in their financial
statements for any Taxes that have not been paid. There are no liens on any
of the assets of MC or any of its Subsidiaries that arose in connection
with any delinquency in paying any Tax.
(b) As of the date hereof, there are no ongoing federal, state, local
or foreign audits or examinations of any Tax Return of MC or its
Subsidiaries.
(c) As of the date hereof, there are no outstanding requests,
agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes or deficiencies
against MC or any of its Subsidiaries (excluding extensions for filings
that have been timely obtained), and no power of attorney granted by either
MC or any of its Subsidiaries with respect to any Taxes is currently in
force.
(d) Neither MC nor any of its Subsidiaries is a party to any agreement
providing for the allocation or sharing of Taxes.
SECTION 4.12 Environmental Matters. (a) MC and its Subsidiaries have
complied in all material respects with all applicable Environmental Laws, except
to the extent that any failure to comply is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on MC and its
Subsidiaries, taken as a whole. There is no pending or, to the knowledge of MC,
threatened, civil or criminal litigation, written notice or violation, formal
administrative proceeding or investigation, inquiry or information request by
any Governmental Entity relating to any Environmental Law involving MC or any of
its Subsidiaries or any of their properties.
(b) With the exception of releases that are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on MC and its
Subsidiaries, taken as a whole, there have been no releases of any Materials of
Environmental Concern into the environment by MC or any of its Subsidiaries, or,
to the knowledge of MC, by any other party at any parcel of real property or any
facility formerly or currently owned, operated or controlled by MC or any of its
Subsidiaries.
SECTION 4.13 Insurance. MC and the Subsidiaries maintain adequate
insurance with respect to the their respective businesses and are in compliance
with all material requirements and provisions thereof.
SECTION 4.14 Offer Documents; Proxy Statement; Registration Statement;
Other Information. The information with respect to MC, its officers and
directors and its Subsidiaries (i) to be contained in the Offer Documents, (ii)
to be contained in the Proxy Statement; and (iii) to be contained in the
Registration Statement will not, on the respective dates on which (A) the Offer
Documents or any amendment or
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supplement thereto are filed with the SEC (in the case of each respective
document), (B) the Proxy Statement is first mailed to shareholders of AN and the
stockholders of MC or on the date of the stockholders' meetings referred to in
Section 5.2 (in the case of the Proxy Statement), (C) the Registration Statement
becomes effective (in the case thereof), and (D) in the case of the Proxy
Statement and the Registration Statement, as such Proxy Statement or
Registration Statement is then amended or supplemented, at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or necessary to correct any statement made by MC in any earlier
filing with the SEC of such Registration Statement or any amendment thereto
(including the Proxy Statement). When the Registration Statement or any
post-effective amendment thereto shall become effective and when the Proxy
Statement or any amendment or supplement thereto shall be mailed, and at the
time of each meeting and at the Effective Time, the Proxy Statement will comply
as to form with all applicable laws including the provisions of the Securities
Act and the Exchange Act and the rules and regulations promulgated thereunder.
If at any time prior to the Effective Time any event with respect to MC, its
officers and directors and its Subsidiaries should occur which is or should be
described in an amendment of, or a supplement to, the Proxy Statement or the
Registration Statement, MC shall promptly so inform AN and such event shall be
so described in an amendment or supplement to the Registration Statements and
such information in such amendment or supplement will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or necessary to
correct any statement made by MC in any earlier filing with the SEC of such
Registration Statement, or any amendment or supplement thereto, or any earlier
communication to stockholders of MC with respect to the Merger.
SECTION 4.15 Transactions with Affiliates. Except as set forth in MC SEC
Documents or on Schedule 4.15, since December 31, 1995, neither MC nor any of
its Subsidiaries has entered into any transaction with any current director or
officer of MC or any Subsidiary or any transaction which would be subject to
proxy statement disclosure under the Exchange Act pursuant to the requirements
of Item 404 of Regulation S-K.
SECTION 4.16 Financing. MC has sufficient funds available (through
existing credit arrangements or otherwise) to purchase Shares pursuant to the
Offer and to pay all fees and expenses related to the transactions contemplated
by this Agreement.
SECTION 4.17 Share Ownership. As of the date hereof, neither MC nor any
of its affiliates beneficially owns any Shares.
SECTION 4.18 Brokers. Other than the MC Financial Advisor and Daniels &
Associates, L.P., no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission from MC in connection with the
transactions contemplated by this Agreement. MC has informed AN of the
compensation to be paid by MC to the MC Financial Advisor and Daniels &
Associates, L.P.
ARTICLE V
COVENANTS
SECTION 5.1 Interim Operations of AN and MC. (a) AN covenants and agrees
that, except (w) as contemplated by this Agreement, (x) as set forth in Schedule
5.1(a) or Annex D, (y) as agreed in writing by MC, or (z) as contemplated by the
AN Pending Transactions, after the date hereof and prior the Effective Time:
(i) the business of AN and its Subsidiaries shall be conducted only
in, and AN and its Subsidiaries shall not take any action except in, the
ordinary and usual course of business and consistent with past practice,
and AN and its Subsidiaries shall use all reasonable efforts, consistent
with past practice, to maintain and preserve their business organizations,
assets, employees and advantageous business relations;
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(ii) AN will not, directly or indirectly, (A) sell, transfer or pledge
or agree to sell, transfer or pledge any Shares, preferred stock or capital
stock of any of its Subsidiaries beneficially owned by it, either directly
or indirectly; or (B) split, combine or reclassify the outstanding Shares
or any outstanding capital stock of any of the Subsidiaries of AN;
(iii) neither AN nor any of its Subsidiaries shall: (A) amend its
Charter or by-laws; (B) issue, grant, sell, pledge, dispose of or encumber
any shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of AN or its Subsidiaries or any other
ownership interests (including but not limited to stock appreciation rights
or phantom stock), other than Shares reserved for issuance on the date
hereof pursuant to the exercise of AN Options outstanding on the date
hereof and options automatically granted pursuant to the 1992 Non-Qualified
Stock Option Plan; (C) with the exception of the existing liens in favor of
First National Bank of Chicago, transfer, lease, license, sell, mortgage,
pledge, dispose of, or encumber any material assets other than in the
ordinary and usual course of business and consistent with past practice;
(D) incur any indebtedness other than borrowings under existing agreements
or modify the terms of any indebtedness; (E) incur any material liability,
other than borrowings permitted by clause (D) above of money under existing
agreements or incurrence of other liabilities in the ordinary and usual
course of business and consistent with past practice; or (F) redeem,
purchase or otherwise acquire directly or indirectly any of its capital
stock;
(iv) AN will not declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock;
(v) neither AN nor any of its Subsidiaries shall modify, amend or
terminate any AN Material Agreements or waive, release or assign any
material rights or claims, except in the ordinary course of business and
consistent with past practice;
(vi) each of AN and its Subsidiaries shall maintain in full force and
effect such types and amounts of insurance issued by insurers of recognized
responsibility insuring it with respect to its respective business and
properties, in such amount and against such losses and risks as is usually
carried by persons engaged in the same or similar businesses;
(vii) neither AN nor any of its Subsidiaries shall; (A) except for or
on behalf of Subsidiaries, assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person; (B) make any loans, advances or capital
contributions to, or investments in, any other person (other than to
Subsidiaries of AN pursuant to AN's written obligations on the date
hereof), other than in the ordinary course of business and consistent with
past practice; or (C) enter into any commitment or transactions with
respect to any of the foregoing (including, but not limited to, any
borrowing, capital expenditure or purchase, sale or lease of assets);
(viii) neither AN nor any of its Subsidiaries shall change any of the
accounting methods used by it unless required by GAAP;
(ix) except as permitted by Section 5.1(a)(xi), neither AN nor any of
its Subsidiaries will adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of AN or any of its Subsidiaries (other than the
Merger);
(x) neither AN nor any of its Subsidiaries will take, or agree to take
any action that would result in any of the conditions set forth herein or
in Annex A not being satisfied, unless the Board of Directors of AN makes a
determination in accordance with Section 5.9(f) below;
(xi) neither AN nor any of its Subsidiaries will acquire (by merger,
consolidation, or acquisition of stock or assets or otherwise) any
corporation, partnership or other business organization or division of any
such entity; provided, however, that AN may engage in such a transaction if
(i) AN notifies MC prior to entering into any such transaction, (ii) the
purchase price for each such transaction is payable only in cash and such
price does not exceed $5,000,000, and (iii) the purchase price for each
such transaction does not exceed eight times annualized EBITDA for the most
recent calendar quarter ended.
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(xii) neither AN nor any of its Subsidiaries will increase the
compensation or fringe benefits of any of its directors, officers or
employees, except for increases in compensation of employees of AN or its
Subsidiaries who are not executive officers or directors of AN in the
ordinary course of business and consistent with past practice, or grant any
severance or termination pay not currently required to be paid under
existing severance plans to, or enter into any employment, consulting or
severance agreement with, any present or former director, officer or other
employee of AN or any of its Subsidiaries, or establish, adopt, enter into
or amend or terminate any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any directors,
officers or employees, other than employment of non-executive officers in
the ordinary course of business and consistent with past practice;
(xiii) neither AN nor any of its Subsidiaries will make any material
tax election or settle or compromise any material federal, state, local or
foreign tax liability except for settlements that would not be material to
AN or do not otherwise materially impair the business of AN;
(xiv) neither AN nor any of its Subsidiaries will settle or compromise
any pending or threatened suit, action or claim, which settlement or
compromise is material or which relates to the transactions contemplated
hereby;
(xv) neither AN nor any of its Subsidiaries will pay, discharge or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business and consistent
with past practice of liabilities (A) reflected or reserved against in the
financial statements of AN, (B) incurred in the ordinary course of business
and consistent with the past practice or (C) incurred in a manner not
otherwise prohibited under this Section 5.1(a);
(xvi) AN shall not effect a registration under the Securities Act with
respect to Shares held by any person and entity, other than the
registration on a Registration Statement on Form S-8 of Shares to be issued
pursuant to AN Options and the registration of Shares pursuant to
registration rights agreements in effect on the date hereof or pursuant to
the Shareholders' Agreement;
(xvii) neither AN nor any of its Subsidiaries will modify or amend any
AN Pending Transaction in any manner that would increase the consideration
payable pursuant to such transaction; and
(xviii) neither AN nor any of its Subsidiaries will authorize or enter
into an agreement to do any of the foregoing.
(b) MC covenants and agrees that except (w) as contemplated by this
Agreement or the Shareholders' Agreement, (x) as set forth in Schedule 5.1(b),
(y) as agreed in writing by AN, or (z) as contemplated by any MC Pending
Transactions, after the date hereof and prior to the Effective Time:
(i) MC will not (A) amend its Certificate of Incorporation or By-Laws;
or (B) redeem, purchase or otherwise acquire directly or indirectly any of
its capital stock, provided, that the Board of Directors of MC may adopt a
resolution to amend MC's Certificate of Incorporation to increase the
number of authorized MC Shares by 7,500,000, and if the Board of Directors
of MC declares that such amendment is advisable, the Board may submit such
resolution for a vote of the stockholders at the Meeting, and if such
amendment is approved at the Meeting, MC may so amend its Certificate of
Incorporation;
(ii) MC will not declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock;
(iii) MC will not, directly or indirectly, split, combine or
reclassify the outstanding MC Shares;
(iv) with the exception of the existing liens in favor of Toronto
Dominion Bank and the First National Bank of Boston, neither MC nor any of
its Subsidiaries will issue, sell, pledge, dispose of or encumber any
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares
of capital stock of any class of MC or its
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Subsidiaries, other than (A) issuances of MC Shares reserved for issuance
on the date hereof upon exercise of MC Options outstanding on the date
hereof, (B) issuances by MC of MC Shares or other securities for the fair
market value of such MC Shares or other securities at the time of such
issuance, provided, that the issuance of MC Shares pursuant to an
acquisition agreement with a third party on terms negotiated on an arms'
length basis or the issuance of other securities convertible into MC Shares
to an unaffiliated third party on terms negotiated on an arms' length basis
shall be deemed for purposes hereof the issuance of MC Shares at the fair
market value of such MC Shares, and (C) the granting (and issuance of MC
Shares upon exercise) of options pursuant to MC's director and employee
stock option plans as in effect on the date hereof, with exercise prices
equal to the fair market value of MC Shares on the date of grant.
(v) MC will not adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of MC or any of its Subsidiaries;
(vi) neither MC nor any of its Subsidiaries will take, or agree to
take, any action that would result in any of the conditions set forth
herein or in Annex A not being satisfied;
(vii) neither MC nor any of its Subsidiaries will consummate any
acquisitions (by merger, consolidation, or acquisition of stock or assets
or otherwise), other than MC Pending Transactions; provided, that MC may
make acquisitions to the extent that they (A) comply with the requirements
of Section 5.1(b)(iv)(B), (B) do not involve businesses that would be
considered "significant subsidiaries" within the meaning of Rule 1-02(v) of
Regulation S-X, and (C) do not result in the issuance of more than
3,000,000 MC Shares in the aggregate;
(viii) neither MC nor any of its Subsidiaries shall engage in any
business other than that conducted in the telecommunications industry; and
(ix) neither MC nor any of its Subsidiaries will authorize or enter
into an agreement to do any of the foregoing.
SECTION 5.2 Stockholder Approval; Meetings; Etc. (a) Subject to the
fiduciary duties of AN's Board of Directors and MC's Board of Directors under
applicable law, as the case may be, each of AN and MC will take all action
necessary in accordance with applicable law, the rules of Nasdaq, this Agreement
and AN's or MC's, as the case may be, Charter and By-Laws to convene a meeting
of its stockholders (each, a "Meeting") as promptly as practicable after
consummation of the Offer to consider and vote upon a proposal to adopt this
Agreement (the "Proposal"). Subject to a determination of the respective Board
of Directors of AN and MC made in accordance with Section 5.9(f), each of AN and
MC will (i) recommend that their respective stockholders vote in favor of the
Proposal and (ii) use their respective best efforts to cause to be solicited
proxies from stockholders of AN or MC, as the case may be, to be voted at their
Meetings in favor of the Proposal and to take all other actions necessary or
advisable to secure the vote or consent of stockholders required to effect the
Merger. MC agrees to vote all Shares purchased in the Offer or pursuant to the
Shareholders' Agreement in favor of the Proposal. In addition, AN shall present
a resolution to be approved by the affirmative vote of the outstanding Shares as
required by Section 48-103-503(a) of the Tennessee Greenmail Act in order to
exempt the transactions contemplated by Section 5.16 from the provisions
thereof.
(b) MC shall use its best efforts to cause, immediately prior to the
Effective Time, Ray M. Russenberger and Elliott H. Singer to be appointed to the
Board of Directors of the Surviving Corporation, to serve in the classes set
forth on Annex B.
(c) MC agrees to use its reasonable best efforts to take the actions
described in Section 3.3.2 and 3.3.3 of the Shareholders' Agreement.
SECTION 5.3 Proxy Statement, Registration Statement, Etc. (a) AN and MC
shall promptly after consummation of the Offer prepare and file with the SEC
under the Exchange Act, and shall use their best efforts to have cleared by the
SEC and shall thereafter promptly mail to their stockholders, the Proxy
Statement for the Meetings, which shall also constitute the prospectus included
in the Registration Statement to be filed by MC pursuant to Section 5.3(b)
hereof. The Proxy Statement shall be mailed to stockholders of
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each of AN and MC, as the case may be, at least 20 business days in advance of
the date of its Meeting. MC shall furnish AN, and AN shall furnish MC, with all
information and shall take such other action as AN or MC, as the case may be,
may reasonably request in connection with the Proxy Statement. Subject to a
determination of the respective Board of Directors of AN and MC made in
accordance with Section 5.9(f), the Proxy Statement shall contain the
recommendation of each Board of Directors that stockholders of AN and MC, as the
case may be, approve and adopt the Proposal.
(b) MC shall promptly after consummation of the Offer prepare and file with
the SEC under the Securities Act the Registration Statement with respect to MC
Shares and the VCRs to be issued in the Merger and shall use its best efforts to
have the Registration Statement declared effective by the SEC as promptly as
practicable. MC shall also take any action required to be taken under state blue
sky or other securities laws in connection with the issuance of MC Shares and
the VCRs in the Merger, including qualification under the Trust Indenture Act
with respect to the VCRs. AN shall furnish MC with all information and shall
take such other action as MC may reasonably request in connection with any such
action.
(c) AN and MC shall notify one another of the receipt of the comments of
the SEC and of any requests by the SEC for amendments or supplements to the
Proxy Statement or the Registration Statement or for additional information, and
shall promptly supply one another with copies of all correspondence between any
of them (or their representatives) and the SEC (or its staff) with respect
thereto. If, at any time prior to either Meeting, any event should occur
relating to or affecting AN, MC, or their respective officers or directors,
which event should be described in an amendment or supplement to the Proxy
Statement or the Registration Statement, the parties shall promptly inform one
another and shall cooperate in promptly preparing, filing and clearing with the
SEC and, if required by applicable securities laws, mailing to AN's or MC's
stockholders, as the case may be, such amendment or supplement.
(d) Notwithstanding anything to the contrary in this Agreement, AN shall
have no obligation to mail the Proxy Statement to its shareholders unless and
until AN shall have received a "comfort letter" from Deloitte and Touche LLP,
the independent auditors of MC, in the form, scope and content contemplated by
Statement of Auditing Standards No. 49 issued by the American Institute of
Certified Public Accountants, Inc. ("SAS 49"), relating to financial statements
and other financial data with respect to MC and its consolidated Subsidiaries
included or incorporated by reference in the Proxy Statement and such other
matters as may be reasonably required by AN, and based upon procedures carried
out to a specified date not earlier than five days prior to the date thereof.
(e) Notwithstanding anything to the contrary contained in this Agreement,
MC shall not mail the Proxy Statement to its stockholders unless and until the
Registration Statement has been declared effective under the Securities Act, and
MC shall have no obligations to mail the Proxy Statement to its stockholders
unless and until MC shall have received a "comfort letter" from Arthur Andersen
LLP, the independent auditors of AN, in the form, scope, and content
contemplated by SAS 49, relating to the financial statements and other financial
data with respect to AN and its consolidated Subsidiaries included or
incorporated by reference in the Proxy Statement and such other matters as may
be reasonably required by MC, and based upon procedures carried out to a
specified date not earlier than five days prior to the date thereof.
SECTION 5.4 Compliance with the Securities Act. (a) Prior to the
Effective Time, AN shall cause to be delivered to MC a list identifying all
persons who are, at the time of the Meeting, considered by AN to be "affiliates"
of AN for purposes of Rule 145 under the Securities Act (the "Affiliates").
(b) AN shall use reasonable efforts to cause each person who is identified
as an affiliate of AN to deliver to MC on or prior to the Effective Time a
written agreement, in such form as may be agreed to by the parties, that such
person will not offer to sell, sell or otherwise dispose of any of MC Shares
issued to such person in connection with the Merger, except pursuant to an
effective registration statement or in compliance with Rule 145 or pursuant to
an exemption from the registration requirements of the Securities Act. The
Surviving Corporation shall be entitled to place appropriate legends on the
certificates evidencing MC Shares to be received by such affiliates pursuant to
the terms of this Agreement, and to issue appropriate stop transfer instructions
to the transfer agent for MC Shares, to the effect that MC Shares received or to
be received by
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such affiliate pursuant to the terms of this Agreement may only be sold,
transferred or otherwise conveyed, and the holder thereof may only reduce his
interest in or risks relating to such shares pursuant to an effective
registration statement under the Securities Act or in accordance with the
provisions of paragraph (d) of Rule 145 or pursuant to an exemption provided
from registration under the Securities Act. The foregoing restrictions on the
transferability of MC Shares shall apply to all purported sales, transfers and
other conveyances of the shares received or to be received by such affiliate
pursuant to the Merger and to all purported reductions in the interest in or
risks relating to such MC Shares.
SECTION 5.5 Nasdaq Listing. MC shall use all reasonable efforts to cause
MC Shares to be admitted for quotation on the Nasdaq National Market System.
SECTION 5.6 Approvals and Consents; Cooperation. (a) Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by the
Offer and this Agreement, and to cooperate with each of the other parties hereto
in connection with the foregoing, including using all reasonable efforts: (i) to
obtain all necessary waivers, consents and approvals from other parties to loan
agreements, leases and other contracts; (ii) to obtain all necessary consents,
approvals and authorizations as are required to be obtained under any federal,
state or foreign laws or regulations; (iii) to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby; (iv) to effect all necessary
registrations and filings, including, but not limited to, filings under the HSR
Act and Communications Act and submissions of information requested by
Governmental Entities; and (v) to fulfill all conditions to this Agreement. Each
of AN and MC further covenants and agrees that, prior to the exercise by MC of
its right to terminate the Offer under paragraphs (c) or (d) of Annex A hereto,
each of AN and MC shall use its respective best efforts (which shall not be
construed to require the payment of any money to a third party (other than legal
counsel) or the divestiture of any business or assets) to prevent, with respect
to a threatened or pending preliminary or permanent injunction or the other
order, decree or ruling or statute, rule, regulation or executive order
specified in such paragraphs, the entry, enactment or promulgation thereof, as
the case may be. For purposes of the foregoing, the obligation of MC to use
"best efforts" or "reasonable efforts" to obtain waivers, consents and approvals
to loan agreements, leases and other contracts shall not include any obligation
to agree to a modification of the terms of such documents, except as expressly
contemplated hereby or to make any monetary payment in consideration of such
waiver, consent or approval.
(b) AN and MC shall take all reasonable actions necessary to file as soon
as practicable notifications under the HSR Act and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission and the
Antitrust Division of the Department of Justice for additional information or
documentation and to respond as promptly as practicable to all inquiries and
requests received from any State Attorney General or other Governmental Entity
in connection with antitrust matters.
(c) Within fifteen business days of the date of this Agreement, or as soon
thereafter as practicable, MC and AN shall prepare and make all filings (the
"Regulatory Filings") required to be made with the FCC pursuant to the
Communications Act and with any State Authority as are required to permit the
consummation of the Merger and shall thereafter promptly make any additional or
supplemental submissions required or requested by the FCC and any such State
Authority. With respect to the Regulatory Filings, counsel to AN shall be
responsible for preparing, with the advice and consent of counsel to MC, the
transferor's portion of the submissions with respect to the AN Licenses, and
counsel to MC shall be responsible for preparing, with the advice and consent of
counsel to AN, the transferee's portion of such submissions. Counsel to AN shall
also be responsible for preparing, with the advice and consent of counsel to MC,
any pro forma transfer applications with respect to the AN Licenses that are
required to permit the Merger. All filing fees associated with the preparation
and filing of Regulatory Filings pursuant to this Section 5.6(c) shall be shared
equally by MC and AN. Each party shall bear its own counsel fees in connection
with the Regulatory Filings.
(d) Notwithstanding any provision of this Agreement or the Shareholders'
Agreement to the contrary, MC shall not assume, either directly or indirectly,
de jure or de facto control of AN without the prior consent of the FCC and any
State Authority of competent jurisdiction. Nothing contained herein shall,
without the
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prior consent of the FCC and any State Authority of competent jurisdiction, give
MC any control or responsibility for (i) AN's facilities, including without
limitation control of use of the facilities; (ii) daily operations; (iii) policy
decisions, including preparing and filing applications with the FCC; (iv)
employment, supervision and dismissal of personnel; or (v) payment of financing
obligations, including expenses arising out of operations. Without the prior
consent of the FCC and any State Authority of competent jurisdiction, MC shall
not receive any monies and profits derived from the operation of the AN
facilities.
SECTION 5.7 Access to Information. Upon reasonable notice, each of AN and
MC shall (and shall cause each of its Subsidiaries to) afford to the officers,
employees, accountants, counsel, financing sources and other representatives of
MC or AN, as the case may be, access, during normal business hours during the
period prior to the Effective Time, to all its officers, employees, properties,
facilities, books, contracts, commitments and records and, during such period,
each of AN and MC shall (and shall cause each of its Subsidiaries to) furnish
promptly to MC or AN, as the case may be (a) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of federal securities laws and (b) all other
information concerning its business, properties and personnel as MC or AN, as
the case may be, may reasonably request. Each of MC and AN will hold any such
information which is nonpublic in confidence in accordance with the provisions
of the Confidentiality Agreement between AN and MC, dated on or about November
22, 1995 (the "Confidentiality Agreement"). No investigation pursuant to this
Section 5.7 shall affect any representations or warranties of the parties herein
or the conditions to the obligations of the parties hereto. Without limiting the
foregoing, prior to the earlier of the Effective Time or the termination of the
Agreement, each party shall have the right to have no more than two (2)
representatives, who shall be directors or members of senior management of such
party, attend regular or special meetings of the Board of Directors of the other
party; provided, that such representatives may not attend any portion of any
meeting concerning this Agreement or the transactions contemplated hereby. Each
party will give reasonable notice to the other of such meetings, and the party's
representatives may be present by telephone.
SECTION 5.8 Employee Benefits and Relocation Matters. (a) MC agrees to
use its reasonable best efforts to maintain a southeast/southwest regional
operations center in Pensacola, Florida for a period not less than three years
from the Effective Time, provided that such operations center may be closed in
the event of a consolidation or merger of MC or a sale of substantially all of
the assets of MC or of a majority of MC's common stock outstanding after the
Effective Time.
(b) The parties' agreement with respect to certain employment matters is
set forth in Annex D hereto.
SECTION 5.9 No Solicitation by AN. (a) AN, its affiliates and their
respective officers, directors, employees, representatives and agents shall
immediately cease all existing discussions or negotiations, if any, with any
parties (other than MC) conducted heretofore with respect to any AN Acquisition
Proposal. For purposes of this Agreement, "AN Acquisition Proposal" shall mean
any proposal relating to (i) a possible acquisition of AN, whether by way of
merger, purchase of all or substantially all of the assets of AN, or any similar
transaction, or (ii) a tender offer for more than 5% of the Shares (excluding
any AN Pending Transaction or any other transactions permitted by Section
5.1(a)).
(b) AN may, directly or indirectly, furnish information and access, in each
case only in response to a request for such information or access, to any person
made after the date hereof which was not encouraged, solicited or initiated by
AN or any of its affiliates or any of their respective officers, directors,
employees, representatives, financial advisors or agents after the date hereof,
pursuant to appropriate confidentiality agreements, and may participate in
discussions and negotiate with such party concerning any AN Acquisition
Proposal, but only if (i) such party has submitted a written proposal to the
Board of Directors of AN relating to any such transaction involving economic
consideration per Share that the Board of Directors of AN reasonably believes is
economically superior to the consideration to be paid hereunder and which does
not include or contemplate any condition relating to the obtaining of funds for
such AN Acquisition Proposal and (ii) the Board of Directors of AN has made a
determination in accordance with Section 5.9(f). AN shall notify MC immediately
if any written or oral AN Acquisition Proposal is made and shall keep MC
promptly
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advised of all written or oral AN Acquisition Proposals, provide a copy of any
written AN Acquisition Proposal and provide in writing the terms of all oral AN
Acquisition Proposals.
(c) Except as set forth in this Section 5.9, neither AN or any of its
affiliates, nor any of their respective officers, directors, employees,
representatives, financial advisors or agents, shall, directly or indirectly,
encourage or solicit submission of any inquiries, proposals or offers by;
participate in or initiate any discussions or negotiations with; disclose any
information about AN or its Subsidiaries to, or otherwise assist, facilitate or
encourage, or enter into any agreement or understanding with any corporation,
partnership, person or other entity or group (other than MC, any affiliate or
associate of MC or any designees of MC) in connection with any AN Acquisition
Proposal; provided that the Board of Directors of AN shall not recommend that
the shareholders of AN tender their Shares in connection with any tender offer
unless the Board of Directors of AN makes a determination in accordance with
Section 5.9(f).
(d) AN agrees not to release any third party from, or waive any provisions
of, any confidentiality or standstill agreement to which AN is a party, unless
the Board of Directors of AN makes a determination in accordance with Section
5.9(f). AN will use all reasonable efforts to have all copies of all nonpublic
information it or AN Financial Advisor has distributed to other potential
purchasers returned to it as soon as possible after the date hereof.
(e) Nothing contained in this Section 5.9 shall prohibit AN or its Board of
Directors from taking and disclosing to AN's shareholders a position with
respect to a tender or exchange offer by a third party pursuant to Rules 14d-9
and 14e-2 promulgated under the Exchange Act or from making such disclosure to
AN's shareholders or otherwise if the Board of Directors makes a determination
in accordance with Section 5.9(f).
(f) For purposes of this Agreement, any determination of directors made in
accordance with this Section 5.9(f) shall mean that directors constituting a
majority of all directors then in office of AN shall reasonably determine in
good faith, after consultation with and based upon the advice of independent
legal counsel, that the taking of action or the failure to take action (or to
withdraw or modify a recommendation) would constitute a breach of such
directors' fiduciary duties to stockholders of AN under applicable law.
SECTION 5.10 No Solicitation by MC. (a) MC, its affiliates and their
respective officers, directors, employees, representatives and agents shall
immediately cease all existing discussions or negotiations, if any, with any
parties (other than AN) conducted heretofore with respect to any MC Acquisition
Proposal. For purposes of this Agreement, "MC Acquisition Proposal" shall mean
any proposal relating to (i) a possible acquisition of MC, whether by way of
merger, purchase of all or substantially all of the assets of MC, or any similar
transaction, or (ii) a tender offer for more than 5% of the MC Shares (excluding
any MC Pending Transactions or any other transactions permitted by Section
5.1(b)).
(b) MC may, directly or indirectly, furnish information and access, in each
case only in response to a request for such information or access, to any person
made after the date hereof which was not encouraged, solicited or initiated by
MC or any of its affiliates or any of their respective officers, directors,
employees, representatives, financial advisors or agents after the date hereof,
pursuant to appropriate confidentiality agreements, and may participate in
discussions and negotiate with such party concerning any MC Acquisition
Proposal, but only if the Board of Directors of MC has made a determination in
accordance with Section 5.10(f). MC shall notify AN immediately if any written
or oral MC Acquisition Proposal is made and shall keep AN promptly advised of
all written or oral MC Acquisition Proposals, provide a copy of any written MC
Acquisition Proposal and provide in writing the terms of all oral MC Acquisition
Proposals.
(c) Except as set forth in this Section 5.10, neither MC or any of its
affiliates, nor any of their respective officers, directors, employees,
representatives, financial advisors or agents, shall, directly or indirectly,
encourage or solicit submission of any inquiries proposals, or offers by;
participate in or initiate any discussions or negotiations with, or disclose any
information about MC or any Subsidiaries to, or otherwise assist, facilitate, or
encourage, or enter into any agreement or understanding with, any corporation,
partnership, person or other entity or group (other than AN, any affiliate or
associate of AN or any designees of AN) in connection with any MC Acquisition
Proposal; provided that the Board of Directors of MC shall not
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recommend that the stockholders of MC tender their MC Shares in connection with
any tender offer unless the Board of Directors of MC makes a determination in
accordance with Section 5.10(f).
(d) MC agrees not to release any third party from, or waive any provisions
of, any confidentiality or standstill agreement to which MC is a party, unless
the Board of Directors of MC makes a determination in accordance with Section
5.10(f). MC will use all reasonable efforts to have all copies of all nonpublic
information it or MC Financial Advisor has distributed to other potential
companies returned to it as soon as possible after the date hereof.
(e) Nothing contained in this Section 5.10 shall prohibit MC or its Board
of Directors from taking and disclosing to MC's stockholders a position with
respect to a tender or exchange offer by a third party pursuant to Rules 14d-9
and 14e-2 promulgated under the Exchange Act or from making such disclosure to
MC's stockholders or otherwise if the Board of Directors makes a determination
in accordance with Section 5.10(f).
(f) For purposes of this Agreement, any determination of directors made in
accordance with this Section 5.10(f) shall mean that directors constituting a
majority of all directors then in office shall reasonably determine in good
faith, after consultation with and based upon the advice of independent legal
counsel, that the taking of action or the failure to take action (or to withdraw
or modify a recommendation) would constitute a breach of such directors'
fiduciary duties to stockholders of MC under applicable law.
SECTION 5.11 Brokers or Finders. Each of MC and AN represents, as to
itself, its Subsidiaries and its affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
brokers' or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement except the AN
Financial Advisor, whose fees and expenses will be paid by AN in accordance with
its agreement with such firm, and the MC Financial Advisor and Daniels &
Associates L.P., whose fees and expenses will be paid by MC in accordance with
MC's agreement with such firms. Each of MC and AN agrees to indemnify and hold
the other harmless from and against any and all claims, liabilities or
obligations with respect to any other fees, commissions or expenses asserted by
any person on the basis of any act or statement alleged to have been made by
such party or its affiliates.
SECTION 5.12 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release acceptable to MC and
AN. Thereafter, so long as this Agreement is in effect, neither AN, MC nor any
of their respective affiliates shall issue or cause the publication of any press
release or other announcement with respect to the Merger, this Agreement or the
other transactions contemplated hereby without the prior consultation of the
other party, except as may be required by law or by the rules of Nasdaq.
SECTION 5.13 Notification of Certain Matters. AN shall give prompt notice
to MC and MC shall give prompt notice to AN of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate at or prior to the Effective Time and (ii) any failure of AN or MC,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, provided, however,
that the delivery of any notice pursuant to this Section 5.13 (a) is not
required until an executive officer of AN or MC, as the case may be, has actual
knowledge of the circumstance requiring such notice and (b) shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 5.14 Directors' and Officers' Insurance and Indemnification.
(a) From and after the Effective Time, MC shall, or shall cause the
Surviving Corporation, to the fullest extent permitted under applicable
law, AN's Charter, By-Laws or indemnification agreements in effect on the
date hereof, including provisions relating to advancement of expenses
incurred in the defense of any action or suit, to indemnify, defend and
hold harmless all persons who are now, or have been at any time prior to
the date hereof, or who become prior to the Effective Time, an officer,
director, employee or agent of AN or any of its Subsidiaries, or who are or
were serving at the request of AN or any of its Subsidiaries as a director,
officer, employee or agent of another corporation, partnership, trust,
limited liability company or other business enterprise (each, an
"Indemnified Party"), against all losses, claims, damages, liabilities,
costs and expenses (including attorney's fees and expenses) judgments,
fines, losses, and amounts paid in settlement in connection with any actual
or threatened action, suit, claim,
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proceeding or investigation (each a "Claim") to the extent that any such
Claim is based on, or arises out of, (i) the fact that such person is or
was a director, officer, employee or agent of AN or any of its
Subsidiaries; or (ii) this Agreement, or any of the transactions
contemplated hereby or thereby, in each case to the extent that any such
Claim pertains to any matter or fact arising, existing, or occurring prior
to or at the Effective Time, regardless of whether such Claim is asserted
or claimed prior to, at or after the Effective Time. Without limiting the
foregoing, in the event that any Claim is brought against an Indemnified
Party (whether arising before or after the Effective Time), the Indemnified
Party may retain counsel satisfactory to them, and MC (or prior to the
Effective Time, AN) shall advance the fees and expenses of such counsel for
the Indemnified Party in accordance with Section 12(a) of Article 12 of the
Charter of AN in effect on the date hereof.
(b) MC and AN agree that the Surviving Corporation's Certificate of
Incorporation shall contain provisions no less favorable with respect to
rights to indemnification and limitations on liability provided in AN's
Charter and By-Laws as in effect as of the date hereof, for a period of six
(6) years from the Effective Time to the extent such rights are consistent
with the DGCL; provided, that, in the event any claim or claims are
asserted or made within such six (6) year period, all rights to
indemnification in respect of any such claim or claims shall continue until
disposition of any and all such claims; provided further, that any
determination required to be made with respect to whether an Indemnified
Party's conduct complies with the standards set forth under applicable law,
MC's Certificate of Incorporation or By-Laws or such agreements, as the
case may be, shall be made by independent legal counsel selected by MC and
reasonably acceptable to the Indemnified Party and; provided further, that
nothing in this Section 5.14 shall impair any rights or obligations of any
present or former directors or officers of AN.
(c) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation
or merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, and in each such case, to the
extent necessary to effectuate the purposes of this Section 5.14, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation shall succeed to the obligations set forth in this Section 5.14
and none of the actions described in clauses (i) or (ii) shall be taken
until such provision is made.
(d) MC or the Surviving Corporation shall use all reasonable efforts
to maintain AN's existing officers' and directors' liability insurance
policy ("D&O Insurance") for a period of not less than six (6) years after
the Effective Date; provided, (i) that MC may substitute therefor policies
of substantially similar coverage and amounts containing terms no less
advantageous to such former directors or officers; and (ii) if the existing
D&O Insurance expires or is canceled during such period, MC or the
Surviving Corporation will use reasonable efforts to obtain substantially
similar D&O Insurance to the extent available.
SECTION 5.15 Expenses. Except as otherwise provided in the penultimate
sentence of Section 5.6(c) and in Section 7.2, whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expense, except that the filing fee for the Proxy Statement or Registration
Statement, and all expenses incurred in connection with the printing and mailing
of the Proxy Statement and prospectus included in the Registration Statement
shall be borne one-half by AN and one-half by MC. The payment of costs and
expenses by MC or AN shall not reduce any consideration paid in the Merger.
Notwithstanding the foregoing, the costs and expenses incurred in connection
with the Shareholders' Agreement will be paid in accordance with the terms of
such Agreements.
SECTION 5.16 Repurchase Option. (a) For the purposes of this Section
5.16:
A "Repurchase Event" shall occur automatically if (i) either (A) the
Offer has been consummated or (B) a Scenario II Trigger Event (as defined
in the Shareholders' Agreement) shall have occurred, (ii) AN is not in
material breach of any of its obligations under this Agreement entitling MC
to terminate this Agreement, (iii) there has been no AN Termination Fee
Event (as hereinafter defined) and (iv) this Agreement has been terminated
in accordance with its terms.
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"Interest Payment Event" shall mean, in the case of a Repurchase
Event, the occurrence of any of the following (i) a Final Regulatory Order
(as hereinafter defined) by the FCC or any State Authority has been entered
prohibiting the transfer of the AN Licenses to MC; (ii) the entry of a
non-appealable final order by a court of competent jurisdiction prohibiting
the consummation of the Merger, or (iii) November 16, 1996 (provided that,
if at November 16, 1996 the sole reason the Merger shall not have occurred
is the failure to obtain a Final Regulatory Order permitting the
consummation of the Merger from the FCC, such date shall be February 16,
1997).
"AN Termination Fee Event" shall mean the termination of this
Agreement in accordance with its terms solely pursuant to Sections
7.1(d)(iv) or (v).
"Regulatory Order" shall mean an action taken or order issued by the
FCC with respect to the AN Licenses as to which (i) no request for stay by
the FCC of the action or order is pending, no such stay is in effect, and,
if any deadline for filing any such request is designated by statute or
regulation, it has passed; and (ii) with respect to an action taken or
order issued by the FCC granting consent to the Merger, such consent shall
be without material adverse conditions, other than conditions that have
been agreed to by AN and MC or that are routine conditions with respect to
transfers of this nature. A "Final Regulatory Order" shall mean a
Regulatory Order as to which (i) no petition for rehearing or
reconsideration of the action or order is pending before the FCC and the
time for filing any such petition has passed; and (ii) the FCC does not
have the action or order under reconsideration on its own motion and the
time for such reconsideration has passed.
"Repurchase Period" shall mean the period commencing upon the
occurrence of the Repurchase Event and ending on the earlier of (i) the
first anniversary of a Repurchase Event and (ii) the sale or distribution
of all Repurchase Shares.
"Repurchase Shares" means all Shares purchased by MC and/or its
affiliates pursuant to the Offer, the Shareholders' Agreement or otherwise.
"Voting Stock" means the Shares or any other shares of the capital
stock of AN having the ordinary power to vote in the election of directors.
(b) In the event of a Repurchase Event and during the Repurchase Period,
(i) MC shall not (A) acquire any additional Shares or other Voting Stock other
than pursuant to any stock dividend, stock split or similar event, (B) solicit
proxies with respect to Voting Stock of AN or be a "participant" in an "election
contest" or "solicitation" (as such terms are used in Regulation 14A under the
Exchange Act) with respect to Voting Stock of AN, (C) deposit any Voting Stock
of AN or the Repurchase Shares into a voting trust, (D) propose or advise any
other entity to propose any MC Acquisition Proposal, or (E) act in concert with
any person for the purpose of holding any Voting Stock of AN; and (ii) the
Repurchase Shares may only be voted pro rata with the Shares voted by all other
shareholders of AN (excluding MC and its affiliates) with respect to all
matters. Notwithstanding the foregoing, (x) MC may sell, transfer or otherwise
dispose of any Shares 90 days after the termination of this Agreement if this
Agreement is terminated solely pursuant to Section 7.1(d)(v), (y) MC may tender
or exchange Repurchase Shares into any tender offer or AN Acquisition Proposal
with respect to which the Board of Directors of AN has recommended to AN's
shareholders that they accept such tender offer or AN Acquisition Proposal and
tender or exchange their Shares pursuant to such tender offer or AN Acquisition
Proposal (provided that to the extent the Repurchase Shares are not purchased or
exchanged pursuant to such tender offer or AN Acquisition Proposal under this
clause (y), such Repurchase Shares shall remain subject to the provisions of
this Section 5.16), and (z) MC may pledge the Repurchase Shares pursuant to a
bona fide pledge to secure indebtedness of MC or any of its Subsidiaries,
provided, that such Repurchase Shares will remain subject to the provisions of
this Section 5.16.
(c) In the event of an Interest Payment Event, AN shall have the right
during the period ending 90 days after the Repurchase Event either to (i)
repurchase all the Repurchase Shares or (ii) designate a third party to purchase
the Repurchase Shares, which third party shall repurchase such Repurchase
Shares, in each case at a price per Share equal to (x) with respect to the
Repurchase Shares purchased pursuant to the Offer, the Offer Price plus an
interest factor of 10.125% per annum commencing on the date of the consummation
of the
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Offer and ending on the date of such purchase of the Repurchase Shares and (y)
with respect to the Repurchase Shares purchased pursuant to the Shareholders'
Agreement, cash equal to the price paid therefor (such price with respect to
consideration consisting of MC Shares to be equal to the Average MC Share Price
used in determining the consideration paid therefor) plus an interest factor of
10.125% per annum commencing on the date any such cash was paid and ending on
the date of such purchase; provided, that in the event of such an election, the
repurchase shall not occur any earlier than six months and one day after the
Shares were acquired by MC.
(d) In the event of any Repurchase Event which is not an Interest Payment
Event, AN shall have the right during the period ending 90 days after the
Repurchase Event either to (i) repurchase all the Repurchase Shares or (ii)
designate a third party to purchase the Repurchase Shares, which third party
shall repurchase such Repurchase Shares, in each case at a price per Share equal
to (x) with respect to the Repurchase Shares purchased pursuant to the Offer,
the Offer Price and (y) with respect to the Repurchase Shares purchased pursuant
to the Shareholders' Agreement, the price paid therefor (such price with respect
to consideration consisting of MC Shares to be equal to the Average MC Share
Price used in determining the consideration paid therefor).
(e) (i) If a Repurchase Event occurs and AN has not elected to purchase any
Repurchase Shares pursuant to paragraph (c) or (d), as applicable, or (ii) upon
request by MC given within 90 days after this Agreement has been terminated due
to an AN Termination Fee Event or solely pursuant to Section 7.1(d)(iii), then
AN and MC shall cooperate in good faith to sell all of the Repurchase Shares in
an orderly and reasonably widespread distribution, subject to the following:
(a) In the event of an underwritten public offering, AN shall be
entitled to select the lead underwriter, which shall be reasonably
acceptable to MC, and MC shall be entitled to select one or more
co-managing underwriters, which shall be reasonably acceptable to AN.
(b) All sales shall be made at market prices or, in the case of an
underwritten public offering, the price at which such underwriter
reasonably determines. MC shall bear all expenses incurred in connection
with such sales, including underwriter's discounts, commissions and
expenses, except for AN's legal fees, accounting fees and other expenses,
which shall be borne in all cases by AN.
(f) Notwithstanding the provisions of Section 7.3 hereof, the provisions of
this Section 5.16 shall survive any termination of this Agreement.
SECTION 5.17 Fair Price Statute. If any "fair price" or "control share
acquisition" or "anti-takeover" statute, or other similar statute or regulations
or any state "blue sky" statute shall become applicable to the transactions
contemplated hereby or by the Shareholders' Agreement, AN and the members of the
Board of Directors of AN shall grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby and thereby may be
consummated as promptly as practicable on the terms contemplated hereby and
thereby, and otherwise act to minimize the effects of such statute or regulation
on the transactions contemplated hereby or thereby.
SECTION 5.18 Further Assurances. Each party hereto shall take all such
actions and execute all such documents and instruments that are reasonably
requested by the other party to carry out the intent of the parties under this
Agreement, and in particular, AN shall take all such actions necessary to obtain
the release, or assignment to MC's lenders, of all liens in favor of First
National Bank of Chicago prior to the Effective Time, including executing and
delivering for filing appropriate UCC-3 statements and other necessary documents
for release or assignment of such liens.
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ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions:
(a) Purchase of Shares in Offer. MC shall have purchased Shares
pursuant to the Offer or pursuant to the Shareholders' Agreement;
(b) Stockholder/Shareholder Approval. This Agreement shall have been
approved and adopted by the requisite vote of the holders of capital stock
of MC and AN in accordance with the DGCL and TBCA and the respective
Certificates of Incorporation/Charters and By-Laws of MC and AN;
(c) Statutes; Consents. No statute, rule, order, decree or regulation
shall have been enacted or promulgated by any Government Entity preventing
the Merger or the consummation of the transactions contemplated hereby, and
all orders and approvals from Governmental Entities required for the
consummation of the Merger and the transactions contemplated hereby shall
have been obtained and shall be in effect at the Effective Time;
(d) Injunctions. There shall be no order or injunction of a foreign
or United States federal or state court or other governmental authority of
competent jurisdiction in effect precluding, restraining, enjoining or
prohibiting consummation of the Merger;
(e) Regulatory Approval. A Regulatory Order permitting the Merger to
be consummated shall have been received from the FCC (or at the election of
MC, approval shall have been received from the FCC), and Regulatory Orders
permitting the Merger to be consummated shall have been received from any
requisite State Authorities;
(f) HSR Act. The expiration or early termination of any waiting
period under the HSR Act shall have occurred;
(g) Registration Statement. The Registration Statement for MC Shares
and VCRs, and the Trust Indenture Act qualification for VCRs, shall have
been declared effective and no stop order with respect thereto shall be in
effect at the Effective Time; and
(h) Nasdaq Listing. The MC Shares to be issued in the Merger shall
have been admitted for quotation on the Nasdaq National Market System.
SECTION 6.2 Conditions to Obligations of AN to Effect the Merger. The
obligation of AN to effect the Merger shall be subject to the satisfaction on or
prior to the Closing Date of the following additional conditions:
(a) MC shall have performed and complied in all material respects with
all obligations and agreements required to be performed and complied with
by it under this Agreement at or prior to the Effective Time;
(b) The representations and warranties of MC contained in this
Agreement shall have been true and correct in all material respects at the
time when made, and (except for representations made as of a certain date)
shall be deemed made again on the Closing Date and shall be true in all
material respects as of such date, except for changes specifically
permitted by this Agreement;
(c) Except for the transactions contemplated by this Agreement, and
except for matters which affect generally the economy or the industry in
which MC and its Subsidiaries are engaged, as of the Closing Date, there
shall not have occurred any change in the business, properties, assets,
liabilities, financial conditions, cash flows, operations, licenses,
franchises or results of operations of MC or its Subsidiaries which has a
Material Adverse Effect on MC and its Subsidiaries, taken as a whole;
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<PAGE> 221
(d) AN shall have received a certificate from MC, signed on behalf of
MC by the Chief Executive Officer or Chief Financial Officer of MC, dated
the Closing Date, to the effect that the conditions set forth in paragraph
(a), (b) and (c) above have been satisfied; and
(e) AN shall have received the opinion of Wilmer, Cutler & Pickering,
dated the Closing Date and in a form reasonably acceptable to AN, to the
effect that MC Shares and VCRs to be issued in the Merger have been duly
authorized, and when issued in accordance with this Agreement will be
validly issued, and with respect to MC Shares, fully paid and nonassessable
and no holder of any MC Shares outstanding as of such date has any
preemptive or other rights to subscribe for MC Shares pursuant to the DGCL,
the Certificate of Incorporation or pursuant to agreements of MC set forth
on a schedule to such opinion, which MC will have certified to such counsel
as representing all agreements which contain preemptive right or rights to
subscribe for MC Shares.
SECTION 6.3 Conditions to Obligations of MC to Effect the Merger. The
obligation of MC to effect the Merger shall be subject to the satisfaction on or
prior to the Closing Date of the following additional conditions:
(a) AN shall have performed or complied in all material respects with
all obligations and agreements required to be performed or complied with by
it under this Agreement at or prior to the Effective Time;
(b) The representations and warranties of AN contained in this
Agreement shall have been true and correct in all material respects at the
time when made, and (except for representations made as of a certain date)
shall be deemed made again on the Closing Date and shall be true in all
material respects as of such date, except for changes specifically
permitted by this Agreement;
(c) Except for the transactions contemplated by this Agreement and the
Shareholders' Agreement, and except for matters which affect generally the
economy or the industry in which AN and its Subsidiaries are engaged, as of
the Closing Date, there shall not have occurred any change in business,
properties, assets, liabilities, financial condition, cash flows,
operations, licenses, franchises or results of operations of AN or its
Subsidiaries which has a material adverse effect on AN and its Subsidiaries
taken as a whole;
(d) MC shall have received a certificate from AN, signed on behalf of
AN by the Chief Executive Officer or Chief Financial Officer of AN, dated
the Closing Date, to the effect that the conditions set forth in paragraph
(a), (b) and (c) above have been satisfied.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Merger contemplated
herein may be abandoned at any time prior to the Effective Time, whether before
or after stockholder approval thereof:
(a) By the mutual written consent of MC and AN.
(b) By either AN or MC:
(i) If any Governmental Entity shall have issued an order, decree
or ruling or taken any other action (which order, decree or other action
the parties hereto shall use their reasonably efforts to lift), in each
case permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and non-appealable; or
(ii) If the Merger shall not have occurred by November 15, 1996,
provided, that if at November 16, 1996, the sole reason the Merger shall
not have occurred is the failure to obtain a Final Regulatory Order
permitting the consummation of the Merger from the FCC, MC may extend
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the date in this clause (ii) to February 16, 1997, provided, further,
that the foregoing date may be extended for an additional 60 days at
MC's option following an event described in Section 3.3.2 or 3.3.3 of
the Shareholders' Agreement if necessary to allow time for the Meeting,
provided, further, that notwithstanding the foregoing, the right to
terminate this Agreement under this Section 7.1(b)(ii) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before November 16, 1996 (or February 16, 1997, as
the case may be).
(c) By AN:
(i) if MC shall have terminated the Offer, or the Offer shall have
expired, without MC purchasing any Shares pursuant thereto; provided
that AN may not terminate this Agreement pursuant to this Section
7.1(c)(i) if AN is in material breach of any of its covenants or
agreements in this Agreement;
(ii) if, due to an occurrence that, if occurring after the
commencement of the Offer, would result in a failure to satisfy any of
the conditions set forth in Annex A hereto, MC or any of its affiliates
shall have failed to commence the Offer on or prior to five business
days following the date of the initial public announcement of the Offer;
provided, that AN may not terminate this Agreement pursuant to this
Section 7.1(c)(ii) if AN is in material breach of any of its covenants
or agreements in this Agreement;
(iii) if MC shall have failed to perform and comply in all material
respects with all material obligations and agreements required to be
performed and complied with by it under this Agreement or the
Shareholders' Agreement, which failure to perform shall not have been
cured prior to the expiration of thirty (30) days following notice of
such failure;
(iv) if the Proposal shall not have been approved and adopted by
the requisite vote of the holders of capital stock of MC in accordance
with the DGCL and the Certificate of Incorporation and By-Laws of MC at
a Meeting held for that purpose (including any adjournment thereof); or
(v) if the Board of Directors of MC shall have (A) withdrawn or
modified or changed in any manner adverse to AN its approval or
recommendation of this Agreement, the Offer or the Merger or (B) shall
have failed to recommend against a MC Acquisition Proposal involving a
tender offer or failed to reject any other MC Acquisition Proposal
within ten business days of receipt by the Board of Directors of MC of
such proposal or shall have executed an agreement in principle (or
similar agreement) or definitive agreement relating to a MC Acquisition
Proposal or similar business combination with a person or entity other
than AN (or the Board of Directors of MC resolves to do any of the
foregoing).
(d) By MC:
(i) if MC shall have terminated the Offer, or the Offer shall have
expired without MC purchasing any Shares thereunder, provided, that MC
may not terminate this Agreement pursuant to this Section 7.1(d)(i) if
it has failed to purchase Shares in the Offer in violation of the
material terms hereof or thereof;
(ii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex A hereto, MC or any of its affiliates
shall have failed to commence the Offer on or prior to five business
days following the date of the initial public announcement of the Offer,
provided that MC may not terminate this Agreement pursuant to this
Section 7.1(d)(ii) if MC is in material breach of any of its covenants
or agreements in this Agreement or the Shareholders' Agreement;
(iii) if AN or any of its Subsidiaries shall have failed to perform
and comply in all material respects with all material obligations and
agreements required to be performed and complied with by them under this
Agreement which failure to perform shall not have been cured prior to
the expiration of thirty (30) days following notice of each failure;
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<PAGE> 223
(iv) if the Proposal shall not have been adopted by the requisite
vote of the holders of capital stock of AN in accordance with the TBCA
and the Charter and By-Laws of AN at a Meeting held for that purpose
(including any adjournment thereof); provided, that all Shares then
owned by MC are voted in favor of the Proposal; or
(v) if the Board of Directors of AN shall have (A) withdrawn or
modified or changed, in any manner adverse to MC, its approval or
recommendation of this Agreement, the Offer or the Merger or (B) shall
have failed to recommend against an AN Acquisition Proposal involving a
tender offer or failed to reject any other AN Acquisition Proposal
within ten business days of receipt by the Board of Directors of AN of
such proposal or shall have executed an agreement in principle (or
similar agreement) or definitive agreement relating to an AN Acquisition
Proposal or similar business combination with a person or entity other
than MC (or the Board of Directors of AN resolves to do any of the
foregoing) and MC shall not have exercised its right to purchase Shares
under the Shareholders' Agreement.
SECTION 7.2 Termination Fee. (a) If this Agreement is terminated pursuant
to Section 7.1(c)(iv) or (c)(v), then MC will immediately pay to AN a
termination fee equal to $10,000,000 in cash.
(b) If this Agreement is terminated pursuant to Section 7.1(d)(iv) or
(d)(v), then AN will immediately pay to MC a termination fee equal to
$10,000,000 in cash.
(c) The agreement contained in Section 7.2 is an integral part of the
transactions contemplated by this Agreement and constitutes liquidated damages
in the event of a termination under the Sections specified herein and not a
penalty.
SECTION 7.3 Effect of Termination. In the event of the termination of
this Agreement as provided in Section 7.1, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement (except for the
provisions of Sections 5.15, 5.16 and 7.2, which shall survive such termination)
shall forthwith become null and void and, subject to the provisions of Section
7.2, there shall be no liability on the part of MC or AN except for fraud or for
material breach of this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the shareholders of AN contemplated hereby,
by written agreement of the parties hereto, at any time prior to the Closing
Date with respect to any of the terms contained herein; provided, however, that
after the approval of this Agreement by the shareholders of AN, no such
amendment, modification or supplement shall reduce or change the Conversion
Ratio.
SECTION 8.2 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time.
SECTION 8.3 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or sent by an overnight courier service,
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such as Federal Express, to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) If to MC to:
Metrocall, Inc.
6910 Richmond Highway
Alexandria, Virginia 22306
Attention: Vincent D. Kelly
Telecopy No.: (703) 768-9625
with a copy (which shall not constitute notice) to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas and Thomas W. White
Telecopy No.: (202) 663-6363
and
(b) if to AN, to:
A+ Network, Inc.
40 South Palafox Street
Pensacola, Florida 32501
Attention: Chuck Emling
Telecopy No.: (904) 432-9208
with a copy (which shall not constitute notice) to:
Waller Lansden Dortch & Davis
511 Union Street
Suite 2100
Nashville, TN 37219
Attention: Ralph W. Davis
Telecopy No: (615) 244-6804
SECTION 8.4 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.5 Interpretation. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include," "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation." As used in this Agreement, the term "affiliate(s)" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act.
SECTION 8.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which have been considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
SECTION 8.7 Entire Agreement; Third Party Beneficiaries. This Agreement,
the Shareholders' Agreement, the MC Voting Agreement and the Confidentiality
Agreement (including the documents and the instruments referred herein and
therein): (a) constitute the entire agreement and supersede all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) are not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder, except that Article II
and Section 5.14 shall confer on the third parties contemplated thereby the
benefits thereof.
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SECTION 8.8 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without giving effect to
the principles of conflicts of law thereof.
SECTION 8.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties; provided, that MC may assign its rights hereunder
to a direct or indirect wholly-owned subsidiary, so long as MC remains liable
for its obligations hereunder. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
SECTION 8.10 Further Assurances. The parties agree to execute such
further instruments and documents as shall reasonably be necessary to carry out
the transactions contemplated by this Agreement, including, without limitation,
to file any notices, or to obtain any consents appropriate to carry out the
transactions contemplated by this Agreement.
[The remainder of this page is intentionally left blank.]
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<PAGE> 226
IN WITNESS WHEREOF, MC and AN have caused this Agreement to be signed by
their respective officers thereunto duly authorized as of the date first written
above.
METROCALL, INC.
By: /s/ VINCENT D. KELLY
------------------------------------
Name: Vincent D. Kelly
Title: Vice President and
Chief Financial Officer
A+ NETWORK, INC.
By: /s/ CHARLES A. EMLING III
------------------------------------
Name: Charles A. Emling III
Title: President and Chief Executive
Officer
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<PAGE> 227
ANNEX A
TO EXHIBIT A
CONDITIONS TO THE OFFER
The capitalized terms used in this Annex A have the meaning set forth in
the attached Agreement, except that the term "Merger Agreement" shall be deemed
to refer to the attached Agreement.
Notwithstanding any other provisions of the Offer, and in addition to (and
not in limitation of) MC's rights to extend and amend the Offer at any time in
its sole discretion (subject to the provisions of the Merger Agreement), MC
shall not be required to accept for payment or, subject to any applicable rules
and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred above, the payment for, any tendered
Shares, and may amend the Offer consistent with the terms of the Merger
Agreement or terminate the Offer if (i) any applicable waiting period under the
HSR Act has not expired or terminated prior to the expiration of the Offer, (ii)
the Minimum Condition has not been satisfied, or (iii) at any time on or after
May 16, 1996 and before the time of acceptance of Shares for payment pursuant to
the Offer, any of the following events shall occur:
(a) the affirmative vote of the holders of more than a majority of the
outstanding Shares is required to consummate the Merger or MC is not
entitled to vote its Shares, including any Shares acquired pursuant to the
Shareholders' Agreement for the Merger;
(b) any change shall have occurred in the business, properties,
assets, liabilities, capitalization, stockholder's equity, financial
condition, cash flows, operations, licenses, franchises or results of
operations of AN or its Subsidiaries which has a Material Adverse Effect on
AN and its Subsidiaries taken as a whole, except for matters which affect
generally the economy or industry in which AN and its Subsidiaries are
engaged;
(c) (I) there shall have been instituted or pending any, or there is
threatened any, action, proceeding, application or counterclaim by any
government or governmental authority or agency, or by AN or an affiliate of
AN, which (i) challenges or seeks to challenge the acquisition by MC (or
any affiliate of MC) of the Shares, restrain or prohibit the making or
consummation of the Offer or the Merger, prohibits the performance by MC of
the Offer, the Merger, the Shareholders' Agreement or any agreements
contemplated thereby, or seeks to obtain any material damages directly or
indirectly relating to the transactions contemplated by the Offer, the
Merger, or Shareholders' Agreement, (ii) seeks to make the purchase of, or
payment for, some or all of the Shares pursuant to the Offer or the Merger
or Shareholders' Agreement illegal or results in a material delay in the
ability of MC to accept for payment or pay for some or all of the Shares,
(iii) seeks to prohibit or limit the ownership or operation by MC (or any
affiliate of MC) of all or any material portion of the business or assets
of AN and its Subsidiaries or of MC and its affiliates or to compel MC (or
any affiliate of MC) to dispose of or to hold separately all or any
material portion of the business or assets of MC or any of its affiliates
or of AN or any of its Subsidiaries or seeks to impose any material
limitation on the ability of MC, or any other affiliate of MC, to conduct
AN's or any of its Subsidiary's business or own such assets, (iv) seeks to
impose or confirm material limitations on the ability of MC (or any
affiliate of MC) to acquire or hold or to exercise full rights of ownership
of the Shares, including but not limited to, the right to vote the Shares
purchased by them on all matters properly presented to the stockholders of
AN, or (v) seeks to require divestiture by MC of any of its Subsidiaries or
affiliates of all or any of the Shares, or (II) there shall have been
instituted any action, proceeding, application or counterclaim by any
person (other than a Governmental Entity or AN, or an affiliate of AN),
before any court or governmental regulatory or administrative agency,
authority or tribunal, with respect to the matters set forth in subsections
(i)-(v) above, which has resulted in the issuance of a temporary
restraining order ("TRO"), preliminary injunction or permanent injunction
enjoining the Merger, this Agreement or the transactions contemplated
hereby if such TRO, preliminary injunction or permanent injunction has not
been removed or rescinded within 20 business days after the original
expiration date of the Offer;
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<PAGE> 228
(d) there shall be any action taken, or any statute, rule, regulation
shall be enacted, promulgated, entered, enforced or deemed applicable to,
or any order shall be entered or enforced with respect to, the Offer, the
Merger or the Shareholders' Agreement by any government, governmental
authority or court, domestic, foreign or supranational, other than the
routine application to the Offer, the Merger or other subsequent business
combination of waiting periods under the HSR Act or approval of license
transfers under the Communications Act or by state regulatory agencies that
is reasonably likely to, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of subsection (c)(I)
above;
(e) the representations and warranties of AN set forth in the Merger
Agreement shall not have been true and correct in all material respects on
the date of the Merger Agreement or shall not be true and correct as of the
date of consummation of the Offer as though made on or as of such date or
AN shall have breached or failed to perform or comply with any obligation,
agreement or covenant required by the Merger Agreement to be performed or
complied with by it except, in such cases, (i) for changes specifically
permitted by the Merger Agreement and (ii) those representations and
warranties that address matters only as of a particular date which are true
and correct as of such date;
(f) the Merger Agreement shall have been terminated in accordance with
its terms;
(g) (i) it shall have been publicly disclosed that any person, entity
or "group" (as defined in Section 13(d)(3) of the Exchange Act), other than
MC, shall have acquired beneficial ownership (determined pursuant to Rule
13d-3 promulgated under the Exchange Act) of more than 25% of any class or
series of capital stock of AN (including the Shares) through the
acquisition of stock, formation of a group or otherwise, other than any
person or group existing on the date hereof which beneficially owns more
than 25% of any class or series of capital stock of AN, or (ii) AN shall
have entered into or announced its intention to enter into a definitive
agreement or agreement in principle with any person with respect to an AN
Acquisition Proposal or similar business combination.
(h) AN's Board of Directors shall have withdrawn, or modified or
changed in any manner adverse to MC (including by amendment of the Schedule
14D-9) its recommendation of the Offer, the Merger Agreement, or the
Merger, or recommended an AN Acquisition Proposal, or shall have resolved
to do any of the foregoing; or
(i) any party to the Shareholders' Agreement other than MC shall have
breached or failed to perform, in each case in any material respect, any of
its agreements under such agreement or any of the representations and
warranties of any such party set forth in such agreement shall not be true
in any material respect, in each case, when made or at any time prior to
the consummation of the Offer as if made at and as of such time, or the
Shareholders' Agreement shall have been invalidated or terminated with
respect to any Shares subject thereto;
which in the reasonable judgment of MC, in any such case, and regardless of the
circumstances giving rise to such conditions, makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment or payments.
The foregoing conditions are for the sole benefit of MC and may be asserted
by MC regardless of any circumstances giving rise to any condition and may be
waived by MC, in whole or in part at any time and from time to time in the sole
discretion of MC. The failure by MC (or any affiliate of MC) at any time to
exercise any of the foregoing rights will not be deemed a waiver of any right
and each right will be deemed an ongoing right which may be asserted at any time
and from time to time.
A-2
<PAGE> 229
ANNEX B
TO EXHIBIT A
DIRECTORS OF THE SURVIVING CORPORATION
The following sets forth the membership, by class, of the Board of
Directors of the Surviving Corporation.
<TABLE>
<CAPTION>
Class of 1997 Class of 1998 Class of 1999
<S> <C> <C>
S. Brock E. Singer H. Brock
W. Collins R. Aprahamian R. Johnston
F. Martin To be determined R. Russenberger
</TABLE>
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<PAGE> 230
ANNEX C
TO EXHIBIT A
PRINCIPAL TERMS OF INDEXED VARIABLE COMMON RIGHTS ("VCRS")
ISSUER..................... Metrocall, Inc. ("MC")
PAYMENT AT MATURITY........ Following the maturity of a VCR, the holder of such
VCR (the "VCR Holder") shall have the right to
receive the amount, if any, by which the Target
Price exceeds the greater of the Current Market
Value and the Minimum Price (each as defined
below). The VCRs shall mature on the Maturity Date
unless otherwise extended to the Extended Maturity
Date (as defined below).
FORM OF PAYMENT............ MC, at its option, may pay any amount due under the
terms of the VCRs to the VCR Holders in cash or MC
Common Stock valued based on the Current Market
Value as defined below or common stock equivalents
at fair market value (as determined by an
independent nationally recognized investment bank).
TARGET PRICE............... "Target Price" means (i) at the Maturity Date,
$21.10 reduced but not increased by the "Index
Factor", as hereinafter defined, and (ii) at the
Extended Maturity Date, $25.10 reduced but not
increased by the Index Factor. In each case, such
Target Prices shall be adjusted upon the occurrence
of any event described in the Section entitled
"Antidilution" set forth below.
CURRENT MARKET VALUE....... "Current Market Value" means with respect to the
Maturity Date and the Extended Maturity Date, the
median of the averages of the closing bid prices on
the Nasdaq NMS (or such other exchange on which
such shares are then listed) of shares of MC's
Common Stock, par value $.01 per share (the "Common
Stock"), during each 20 consecutive trading day
period that both begins and ends in the Valuation
Period. "Valuation Period" means the 60 trading day
period immediately preceding (and including) the
Maturity Date or the Extended Maturity Date, as the
case may be.
MINIMUM PRICE.............. "Minimum Price" means (i) at the Maturity Date,
$16.10, and (ii) at the Extended Maturity Date,
$18.10. In each case, subject to adjustment upon
the occurrence of any event described in the
Section entitled "Antidilution" set forth below.
INDEX FACTOR............... An Index Factor shall be calculated based upon the
ratio of the relevant ending period stock prices
for the Comparable Paging Company Index (the Index
Factor numerator) and the initial Comparable Paging
Company Index (the Index Factor denominator). The
Comparable Paging Company Index shall consist of
the stocks of ARCH COMMUNICATIONS GROUP, INC.,
MOBILMEDIA COMMUNICATIONS, INC., AND PRONET, INC.,
or each's successors. The initial Comparable Paging
Company Index shall be the median of the simple
arithmetic average of closing bid prices of the
index group for the 20 trading days preceding May
14, 1996. The ending period Comparable Company
Paging Index shall be the same median of the simple
arithmetic average of closing bid prices of the
index group as measured in the identical fashion as
MC's closing bid prices during the relevant
Valuation Periods preceding the Maturity Date,
Extended Maturity Date, or Disposition Date, as the
case may be. In
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each case, such adjustments shall be made, as
appropriate, for each company's stock prices that
is included in the Comparable Paging Company Index,
upon the occurrence of any event similar to that
described in the "Antidilution" section below.
EARLY TERMINATION.......... If the closing bid prices of the Common Stock
exceeds (i) $21.10 for any 50 calendar day period
prior to the Maturity Date, or (ii) $25.10 for any
50 calendar day period between the Maturity Date
and the Extended Maturity Date, then the VCRs shall
immediately expire and be of no further force and
effect.
MATURITY DATE; EXTENSION
THEREOF.................. "Maturity Date" means the first anniversary of the
effective time (the "Effective Time") of the merger
between MC and A+ Network, Inc. ("AN") (the
"Merger"); provided, however, that MC, at its
option, may extend the Maturity Date to the second
anniversary of the Effective Time (the "Extended
Maturity Date"). MC shall exercise either such
option to extend by publishing notice of such
exercise in the Wall Street Journal (Eastern
Edition), or if the Wall Street Journal is not then
published, such other newspaper with general
circulation in the City of New York, New York no
later than one business day preceding the Maturity
Date, as the case may be.
NO INTEREST................ Other than in the case of interest on the Default
Amount (as defined below), no interest shall accrue
on any amounts payable to the VCR Holders pursuant
to the terms of VCRs.
DISPOSITION PAYMENT........ Following the consummation of a Disposition (as
defined below), MC shall pay to each VCR Holder for
each VCR held by such VCR Holder an amount, if any,
by which the Discounted Target Price (as defined
below) exceeds the greater of (a) the fair market
value (as determined by an independent nationally
recognized investment banking firm) of the
consideration, if any, received by holders of
Common Stock for each share of Common Stock held by
such holder as a result of such Disposition and (b)
the Minimum Price.
DISPOSITION EVENT.......... "Disposition" means (a) a merger, consolidation or
other business combination involving MC as a result
of which no shares of Common Stock shall remain
outstanding, (b) a sale, transfer or other
disposition, in one or a series of transactions, of
all or substantially all of the assets of MC or (c)
a reclassification of Common Stock as any other
capital stock of MC or any other person.
ACCELERATION UPON EVENT OF
DEFAULT.................. If an Event of Default (as defined below) occurs
and is continuing, either the bank or trust company
acting as the trustee (the "Trustee") or VCR
Holders holding at least 25% of the outstanding
VCRs, by notice to MC (and to the Trustee if given
by VCR Holders), may declare the VCRs to be due and
payable, and upon any such declaration, the Default
Amount shall become due and payable and,
thereafter, shall bear interest at an interest rate
of 12% per annum until payment is made to the
Trustee. "Default Amount" means the amount, if any,
by which the Discounted Target Price exceeds the
Minimum Price.
DISCOUNTED TARGET PRICE.... "Discounted Target Price" means (a) if a
Disposition or an Event of Default shall occur
prior to the Maturity Date, $21.10 reduced but not
increased by the relevant Index Factor, discounted
to the Disposition
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Payment Date (as defined below) or the Default
Payment Date (as defined below), as the case may
be, at a per annum rate of 8%; or (b) if a
Disposition or an Event of Default shall occur
after the Maturity Date but prior to the Extended
Maturity Date, $25.10 reduced but not increased by
the relevant Index Factor discounted to the date of
the Disposition Payment Date or Default Payment
Date, as the case may be, at a per annum rate of
8%. In each case, the Discounted Target Price and
the Minimum Price shall be adjusted upon the
occurrence of any event described in the Section
entitled "Antidilution" set forth below.
"Disposition Payment Date", with respect to a
Disposition, means the date established by MC for
payment of the amount due on the VCRs in respect of
such Disposition, which in no event shall be more
than 38 days after the date on which such
Disposition was consummated. "Default Payment Date"
means the date on which the VCRs become due and
payable upon the declaration thereof following an
Event of Default.
EVENTS OF DEFAULT.......... "Event of Default", with respect to the VCRs, means
any of the following which shall have occurred and
be continuing; (a) default in the payment of all or
any part of the amounts payable in respect of any
of the VCRs as and when the same shall become due
and payable following the Maturity Date or the
Extended Maturity Date, the Disposition Payment
Date or otherwise; (b) material default in the
performance, or material breach, of any material
covenant or warranty of MC,and continuance of such
material default or breach for a period of 98 days
after written notice has been given to MC by the
Trustee or to MC and the Trustee by VCR Holders
holding at least 25% of the outstanding VCRs; or
(c) certain events of bankruptcy, insolvency,
reorganization or other similar events in respect
of MC.
ANTIDILUTION............... If MC shall in any manner subdivide (by stock
split, stock dividend or otherwise) or combine (by
reverse stock split or otherwise) the number of
outstanding shares of Common Stock, MC shall
correspondingly subdivide or combine the VCRs and
shall appropriately adjust the Target Price, the
Minimum Price and the Discounted Target Price.
TRADING.................... None of MC or any of its affiliates shall trade in
shares of Common Stock during the period commencing
18 trading days before the Valuation Period and
ending on the last day of the Valuation Period,
except with respect to employee benefit plans and
other incentive compensation arrangements.
VCR AGREEMENT.............. The VCRs will be issued pursuant to a VCR Agreement
between MC and the Trustee. MC shall use its
reasonable best efforts to cause the VCR Agreement
to be qualified under the Trust Indenture Act of
1939, as amended.
REGISTRATION............... The VCRs will be issued in registered form.
NATURE AND RANKING OF
VCRS....................... The VCRs are unsecured obligations of MC and will
rank equally with all other unsecured obligations
of MC.
DIVIDENDS.................. If any dividends are paid on the MC Common Stock
prior to the Maturity Date or the Extended Maturity
Date, as applicable, the holders of the VCRs shall
have no right to receive any such dividends.
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ANNEX D
TO EXHIBIT A
EMPLOYMENT AND EMPLOYEE BENEFITS COVENANTS
The capitalized terms used in this Annex D have the meaning set forth in
the attached Agreement, except that the term "Merger Agreement" shall be deemed
to refer to the attached Agreement.
(a) Charles A. Emling, III ("Emling"), AN's executive officers,
managers, salespeople, and staff will continue to participate in the AN
Benefit Plans and AN Employee Agreements as in effect on the date of the
Merger Agreement until the Effective Time.
(b) AN will use its best efforts to cause Ray D. Russenberger and
Elliot H. Singer to enter into non-compete agreements with MC that will
take effect at the Effective Time.
(c) MC will review compensation arrangements and bonus plans in its
normal budgeting cycle, with the expectation of transitioning current AN
employees to the MC compensation arrangements and bonus plans as of the
later of the Effective Time and January 1, 1997.
(d) Emling will cooperate with the officers of MC and Tom Matthews in
identifying employees whose services will not be required by the Surviving
Corporation. Employees who are terminated after the date hereof and before
the Effective Time will be provided with severance, less any applicable
withholding and social security taxes, equal to the lesser of (i) one (1)
month's salary (at the level in effect on the date hereof) for each full
year employed by AN to a maximum of six months' pay and (ii) the severance
payable under the AN Benefit Plans as of the date hereof.
(e) AN shall provide all notices, if any, required by the Worker
Adjustment and Retraining Notification Act with respect to actions taken
before the Effective Time.
(f) Certain existing one-year employment contract will be revised in
accordance with the employment contract entered into with Emling as of the
date hereof (to take effect at the Effective Time). MC currently
contemplates that these arrangements will cover Poole, Schultz, Goldstein,
and Smith.
(g) AN will review the performance of Goldstein and Schultz at their
customary anniversary date (summer 96) for both salary increases and
bonuses based on 1996 performance.
(h) MC agrees to employ all or substantially all of AN employees who
are legally on payroll on the Effective Date and to enroll them in the MC
Benefit Plans in accordance with the terms of such plans. The employees so
hired will be at-will employees of MC.
(i) MC is under no obligation to provide or continue any MC Benefit
Plan or arrangement or any other plan or arrangement before or after the
Effective Time and may amend or terminate any such plan or arrangement in
whole or in part, and may modify any provision thereof, including any
provision dealing with eligibility, levels or types of benefits,
deductibles, or co-payment obligations, or any other right, feature, or
characteristic.
(j) AN agrees that it will take appropriate steps to ensure that the
AN 401(k) plan meets any ERISA requirements applicable with respect to
participating in the Tender Offer and the Merger. In particular, AN will
take the appropriate steps to ensure that the trustee(s) of the AN 401(k)
Plan meet their obligations with respect to the Shares held in that plan.
The parties hereto agree that no employee or former employee of AN (or its
predecessors) or beneficiary or dependent thereof, whether hired before or after
the date hereof, shall have any third-party beneficiary rights under this Annex
D.
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<PAGE> 234
EXHIBIT B
[WHEAT FIRST BUTCHER SINGER LETTERHEAD]
May 14, 1996
CONFIDENTIAL
The Board of Directors
Metrocall, Inc.
6677 Richmond Highway
Alexandria, Virginia 22306
Members of the Board:
It is our understanding that Metrocall, Inc. ("Metrocall") and A+ Network,
Inc. ("A+ Network") have entered into an Agreement and Plan of Merger (the
"Agreement") which provides for the acquisition pursuant to a tender offer (the
"Offer") by Metrocall of up to 2,140,526 shares of common stock, par value $.01
per share, of A+ Network (the "A+ Network Common Stock"), at a price of $21.10
per share, in cash, subject to there being tendered in the Offer, and not
withdrawn, 2,140,526 shares of A+ Network Common Stock. Simultaneously with the
closing of the Offer, Metrocall will purchase for cash from the principal
shareholders of A+ Network the number of shares of A+ Network Common Stock
provided for in the A+ Shareholders' Option and Sale Agreement (the
"Shareholders Agreement"), to be followed by a merger of A+ Network with and
into Metrocall (the "Merger"). In the Merger, each shares of A+ Network Common
Stock issued and outstanding at the Effective Time will be converted into the
right to receive (a) the number of shares of common stock, par value $.01 per
share, of Metrocall (the "Metrocall Common Stock") determined by dividing $21.10
by the average of the last reported closing price per Metrocall share for the 50
consecutive trading days ending on the trading day that is five trading days
prior to the transaction closing date (the "Average Share Price"), provided that
the Average Share Price shall not exceed $21.88 or be less than $17.90, and
rounding the result to the nearest 1/100,000 of a share; plus (b) Indexed
Variable Common Rights issued by Metrocall ("VCRs") in an amount equal to the
number of shares to be received pursuant to clause (a) which, as more fully
described in the Agreement, entitles the holder to consideration in certain
circumstances in the form of cash or shares of Metrocall Common Stock, the form
of which consideration may be determined by Metrocall (the Metrocall Common
Stock and VCRs to be issued in the Merger being collectively referred to as the
"Merger Consideration"). The terms set forth in the preceding two sentences are
referred to in this letter as the "Financial Terms of the Acquisition."
Wheat, First Securities, Inc. ("Wheat"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. In the ordinary course of our business as a broker-dealer, we
may, from time to time, have a long or short position in, and buy or sell, debt
or equity securities of Metrocall or A+ Network for our own account or for the
accounts of our customers. Wheat has acted as financial advisor to the Board of
Directors of Metrocall in connection with this transaction and will receive a
fee for such services. Wheat will also receive a fee from Metrocall for
rendering this opinion.
In arriving at the Opinion, we, among other things:
(1) reviewed the financial and other information contained in A+
Network's Annual Reports to Shareholders and Annual Reports on Form 10-K
for the fiscal years ended December 31, 1995, December 31, 1994, and
December 31, 1993, and certain interim reports to Shareholders and
Quarterly Reports on Form 10-Q;
(2) reviewed the financial and other information contained in
Metrocall's Annual Reports to Shareholders and Annual Reports on Form 10-K
for the fiscal years ended December 31, 1995,
B-1
<PAGE> 235
December 31, 1994 and December 31, 1993, and certain interim reports to
Shareholders and Quarterly Reports on Form 10-Q;
(3) reviewed the audited consolidated balance sheet of Metrocall as of
December 31, 1995, and the audited consolidated statement of earnings,
stockholders' equity, and cash flows for the fiscal year then ended,
together with the notes thereto;
(4) conducted discussions with members of senior management of A+
Network and Metrocall concerning their respective business and prospects;
(5) took into account certain long-term strategic benefits expected to
occur from the Acquisition, both operational and financial, that were
described to us by Metrocall and A+ Network senior management;
(6) reviewed certain publicly available information with respect to
historical market prices and trading activity for A+ Network Common Stock
and Metrocall Common Stock and for certain publicly traded companies which
we deemed relevant;
(7) compared the results of operations of A+ Network and Metrocall
with those of certain publicly traded companies which we deemed relevant;
(8) compared the proposed Financial Terms of the Acquisition with the
financial terms of certain other mergers and acquisitions which we deemed
to be relevant;
(9) performed a discounted cash flow analysis of A+ Network based upon
estimates of projected financial performance prepared by A+ Network and
Metrocall;
(10) evaluated the pro forma financial impact of consummation of the
Agreement on Metrocall;
(11) reviewed other financial information concerning the business and
operations of A+ Network and Metrocall, including certain internal
financial analyses and forecasts for A+ Network and Metrocall prepared by
the senior management of each entity, as well as certain pro forma
financial projections for the combined company prepared by the senior
management of Metrocall;
(12) reviewed the Agreement (including the Annexes thereto) and the
Shareholders Agreement; and
(13) reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all information supplied or otherwise made available to us by
Metrocall and A+ Network, and we have not assumed any responsibility for
independent verification of such information or any independent valuation or
appraisal of any of the assets of Metrocall or A+ Network. We have relied upon
the management of Metrocall and A+ Network as to the reasonableness and
achievability of their financial and operational forecasts and projections, and
the assumptions and bases therefor, provided to us, and we have assumed that
such forecasts and projections reflect the best currently available estimates
and judgements of such management and that such forecasts and projections will
be realized in the amounts and in the time periods currently estimated by such
management. This opinion does not address the Financial Terms of the Acquisition
in the Offer and in the Merger independent of each other. We express no opinion
as to what the value of the Merger Consideration actually will be when issued to
A+ Network shareholders pursuant to the Merger or the price at which the
Metrocall Common Stock or the VCRs will trade subsequent to the Merger. Our
opinion is necessarily based upon market, economic and other conditions as they
exist and can be evaluated on the date hereof and the information made available
to us through the date hereof. Our opinion, in any event, is directed only to
the fairness, from a financial point of view, of the Financial Terms of the
Acquisition and does not constitute a recommendation to any shareholder as to
how such shareholder should vote with respect to the Merger. Our opinion does
not address the relative merits of the Merger as compared to any alternative
business strategies that might exist for Metrocall, nor does it address the
effect of any other business combination in which Metrocall might engage.
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<PAGE> 236
Our advisory services and the opinion expressed herein are provided solely
for the use of Metrocall's Board of Directors in evaluation the Merger and are
not on behalf of, and are not intended to confer rights or rememdies upon A+
Network, any stockholder or Metrocall or A+ Network or any person other than
Metrocall's Board of Directors. It is understood that this opinion letter is for
the information on the Board of Directors of Metrocall and, without our prior
written consent, is not to be quoted or referred to, in whole or in part, in
connection with the offering or sale of securities, nor shall this letter be
used for any other purpose, but may be referred to in, and filed as an exhibit
to, the Tender Offer Statement on Schedule 14D-1 and any amendments thereto to
be filed by Metrocall with the Securities and Exchange Commission in connection
with the Merger and the respective proxy statement of A+ Network and the proxy
statement/prospectus of Metrocall relating to the Merger and any Registration
Statement of which any such proxy statement or proxy statement/prospectus forms
a part.
On the basis of, and subject to the foregoing, we are of the opinion that
as of the date hereof the Financial Terms of the Acquisition are fair, from a
financial point of view, to Metrocall and to its shareholders.
Very truly yours,
WHEAT, FIRST SECURITIES, INC.
By: /s/ Wayne L. Hunter
---------------------
Managing Director
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<PAGE> 237
EXHIBIT C
[PRUDENTIAL SECURITIES LOGO]
May 15, 1996
The Board of Directors
A+ Network, Inc.
2416 Hillsboro Road
Nashville, TN 37212
Attention: Elliott H. Singer
Chairman of the Board
Dear Sirs:
We understand that A+ Network, Inc. ("A+ Network"), a Tennessee
corporation, and Metrocall, Inc. ("Metrocall"), a Delaware corporation, propose
to enter into an Agreement and Plan of Merger (the "Agreement"). Pursuant to the
Agreement, Metrocall shall offer to purchase up to approximately 2.1 million
shares of the issued and outstanding voting common stock, par value $0.01 per
share, of A+ Network (the "Shares"), together with the related Rights (as
defined in the Agreement), at a price of $21.10 per Share (or such higher price
as is paid pursuant to the tender offer, the "Cash Consideration") net to the
seller in cash (the "Tender Offer"). In addition, subject to the consummation of
the Tender Offer, Metrocall shall purchase approximately 2.2 million Shares,
together with the related Rights, at the Cash Consideration, from certain A+
Network insiders, such purchases to close promptly following the closing of the
Tender Offer. Also pursuant to the Agreement: (i) following the consummation of
the Tender Offer and the satisfaction of certain conditions, A+ Network shall be
merged with and into Metrocall (the "Merger"); and (ii) each Share outstanding
immediately prior to the effective time of the Merger (other than Shares held by
Metrocall or any subsidiary thereof), together with the related Rights, shall be
converted into the right to receive (a) approximately 1.179 newly issued shares
of common stock, par value $0.01 per share, of Metrocall (the "Purchaser
Shares") if the Average Purchaser Share Price (as defined in the Agreement) is
$17.90 or less, (b) approximately 0.964 Purchaser Shares if the Average
Purchaser Share Price is $21.88 or greater, or (c) Purchaser Shares equal to the
quotient of $21.10 divided by the Average Purchaser Share Price, if the Average
Purchaser Share Price is greater than $17.90 but less than $21.88. Further
pursuant to the Agreement, for each Purchaser Share issued pursuant to the
Agreement, one variable common right ("VCR") shall also be issued, having the
terms set forth in the Agreement. The Cash Consideration, the Purchaser Shares
and the VCRs are collectively referred to herein as the "Consideration"; such
Consideration may be paid at different times and in a different manner if the
Tender Offer is terminated under certain circumstances.
Prudential Securities Incorporated ("Prudential Securities") has been
requested by the Board of Directors of A+ Network to provide its opinion as to
whether the Consideration to be received by the holders of the Shares is fair
from a financial point of view.
In conducting our analysis and arriving at the opinion set forth below, we
have reviewed such materials and considered such financial and other factors as
we deemed appropriate under the circumstances, including among others, the
following: (i) a draft dated May 15, 1996 of the Agreement; (ii) certain
historical financial, operating and other data that were publicly available or
that were furnished to us regarding A+ Network and Metrocall; (iii) certain
information, including financial analyses and projections, relating to the
business, cash flows, assets and prospects of A+ Network provided by the
management of A+ Network; (iv) certain information, including financial analyses
and projections, relating to the business, cash flows, assets and prospects of
Metrocall based on information provided by the management of Metrocall and
developed by us in conjunction with the management of A+ Network; (v) the pro
forma combined financial impact of the consummation of the Merger on A+ Network
and Metrocall; (vi) the trading history of the common stock of each of A+
Network and Metrocall; (vii) publicly available financial, operating and stock
market data for companies engaged in businesses that we deemed comparable to A+
Network and Metrocall or otherwise
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<PAGE> 238
relevant to our inquiry; (viii) the financial terms of certain other recent
transactions; and (ix) such other factors as we deemed appropriate. We have met
with senior officers of A+ Network and Metrocall to discuss their judgments with
respect to the prospects for their respective businesses generally, as well as
their estimates of future financial performance, and such other matters as we
believed relevant to our inquiry.
In connection with our review and analysis and in arriving at our opinion,
we have assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to us or publicly available and have
not attempted independently to verify any such information. We have neither made
nor obtained any independent appraisals of the properties, facilities or other
assets of A+ Network or Metrocall. With respect to the operating and financial
projections which were provided by the managements of A+ Network and Metrocall,
and those developed by us in conjunction with the management of A+ Network, we
have assumed that they represent each respective management's best currently
available estimate as to the future operating and financial performance of A+
Network and Metrocall, respectively. In addition, we have assumed that all the
transactions contemplated by the Agreement will be consummated on the basis of
the terms and provisions of the draft dated May 15, 1996 of the Agreement. Our
opinion is necessarily based on economic, financial and market conditions as
they exist and can be evaluated on the date hereof.
Prudential Securities has provided financial advisory and financing
services to A+ Network in the past, for which we have received fees. As you are
aware, we have been retained by A+ Network to act as its financial advisor in
connection with the Merger and will receive fees for such services. The majority
of such fees are contingent upon consummation of the transactions contemplated
by the Agreement. In addition, Prudential Securities provides equity research on
A+ Network and Metrocall. Further, in the ordinary course of business, we may
trade the securities of A+ Network and of Metrocall for our own account and for
the accounts of customers, and, accordingly, at any time we may hold a long or
short position in such securities, and certain accounts of our customers hold
such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Consideration to be received pursuant to the Agreement is
fair, from a financial point of view, to the holders of the Shares of A+
Network.
This letter and the opinion stated herein is for the use of the Board of
Directors of A+ Network, and except as set forth in our engagement letter with
A+ Network, dated April 1, 1996, may not be reproduced, summarized, excerpted
from or otherwise publicly referred to or disclosed in any manner, without our
prior written consent.
Our advisory services and the opinion expressed herein are provided for the
use of the Board of Directors of A+ Network in its evaluation of the Tender
Offer and the Merger, and our opinion is not intended to be, and does not,
constitute a recommendation to any stockholder of A+ Network as to how such
stockholder should vote at the stockholders' meeting held in connection with the
Merger.
Very truly yours,
/s/ Prudential Securities
Incorporated
PRUDENTIAL SECURITIES INCORPORATED
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<PAGE> 239
EXHIBIT D
PROPOSED AMENDMENT TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
(CHARTER AMENDMENT)
The proposed amendment to Section 4.1 of the Company's Amended and Restated
Certificate of Incorporation that would be effective if the Charter Amendment is
approved by the stockholders are underlined and in bold type and the proposed
deletions are in brackets and italicized type.
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 [27,000,000] shares, of which
1,000,000 shares shall be Preferred Stock, having a par value of $0.01 per share
(the "Preferred Stock"), and 33,500,000 [26,000,000] 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.
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<PAGE> 240
EXHIBIT E
FIRST AMENDMENT TO THE
1996 METROCALL STOCK OPTION PLAN
THIS FIRST AMENDMENT TO THE 1996 METROCALL STOCK OPTION PLAN("Amendment") is
hereby adopted on this day of , 1996 by the Board of
Directors (the "Board") of Metrocall, Inc. ("Metrocall").
WHEREAS, the stockholders of Metrocall approved the 1996 Metrocall Stock
Option Plan (the "Plan") on May 1, 1996, which provided for the issuance of
options to purchase up to 1,000,000 shares of Metrocall's Common Stock;
WHEREAS, the Plan provides that the Board may amend the Plan;
WHEREAS, the Board has approved the pending merger with A+ Network,
pursuant to which Metrocall has agreed to assume certain options granted by A+
Network;
WHEREAS, the Board deems it appropriate to amend the Plan to authorize
issuance of shares of Common Stock sufficient to assume the A+ Network options
and to reserve some additional shares for option grants;
WHEREAS, the Board, pursuant to the Unanimous Consent of Directors dated
, 1996 has directed that this Amendment be adopted.
NOW, THEREFORE, pursuant to the foregoing recitals, the Plan is hereby
amended as follows:
Section 3 of the Plan is amended by replacing the first paragraph
of that section with the following paragraph:
The stock that may be issued pursuant to Options shall
be shares of common stock of the Corporation (the
"Stock"), which shares may be treasury shares or
authorized but unissued shares. The number of shares of
Stock that may be issued under the Plan shall not
exceed in the aggregate 2,000,000 shares of Stock,
which number of shares is subject to adjustment as
provided in Section 12. If any Option expires,
terminates or is terminated for any reason prior to
exercise in full, the shares of Stock that were subject
to the unexercised portion of such Option shall be
available immediately for future grants of Options
under the Plan.
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<PAGE> 241
PROXY
A+ NETWORK, INC.
SPECIAL MEETING OF STOCKHOLDERS
SEPTEMBER 17, 1996
The undersigned hereby appoints Charles A. Emling III or Randy K. Schultz,
or either of them, with power of substitution, as proxies to vote all stock of
A+ Network, Inc. (the "Company") owned by the undersigned at the Special Meeting
of Stockholders to be held at the First American Center Auditorium, Fifth Floor,
300 Union Street, Nashville, Tennessee at 1:00 p.m. on September 17, 1996, and
any adjournment thereof, on the following matter as indicated below.
To approve an Agreement and Plan of Merger, dated as of May 16, 1996, which
provides for a merger of A+ Network, Inc. with and into Metrocall, Inc.,
with Metrocall, Inc. being the surviving corporation.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE PROPOSITION STATED ABOVE.
Please sign exactly as your name appears on this Proxy Card. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated: _________, 1996
------------------------------
Signature of Stockholder
------------------------------
Signature if held jointly
Please mark, sign, date and
return the Proxy Card promptly
using the enclosed envelope.
<PAGE> 242
METROCALL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder hereby constitutes and appoints the Proxy
Committee comprised of Vincent D. Kelly and Steven D. Jacoby the true and lawful
agent and proxy with full power of substitution, to represent the undersigned at
the Special Meeting of Stockholders of Metrocall, Inc. to be held at the
Ritz-Carlton, Pentagon City, 1250 South Hayes Street, Arlington, Virginia on
September 17, 1996, at 10:00 a.m., local time, and at any adjournments thereof,
on all matters coming before said meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES,
SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS RECOMMENDATIONS. THE PROXY COMMITTEE
CANNOT VOTE YOUR SHARE(S) UNLESS YOU SIGN AND RETURN THIS CARD.
The undersigned shareholder may revoke this proxy at any time before it is
voted by delivering to the Assistant Secretary of Metrocall either a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
appearing at the Special Meeting and voting in person.
SEE REVERSE
SIDE
- --------
PLEASE MARK YOUR
X VOTES AS IN THIS 6615
EXAMPLE.
- --------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL PROPOSALS.
1. Approval and adoption of the Agreement and Plan of Merger
FOR / / AGAINST / / ABSTAIN / /
2. Approval and adoption of an amendment to Amended and Restated Certificate
of Incorporation increasing the number of authorized shares of Common
Stock from 26,000,000 to 33,500,000.
FOR / / AGAINST / / ABSTAIN / /
3. Approval and adoption of an amendment to the Metrocall 1996 Stock Option
Plan increasing the number of shares that may be issued thereunder by
1,000,000.
FOR / / AGAINST / / ABSTAIN / /
4. In its discretion, the Proxy Committee is authorized to vote such other
business as may properly come before the meeting or any adjournment
thereof.
NOTE: Please sign exactly as name appears hereon. Only one signature is
required in the case of jointly owned stock. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as
such.
--------------------------------------
I PLAN TO ATTEND THE MEETING / / --------------------------------------
SIGNATURE(S) DATE
METROCALL, INC.
Special Meeting of Stockholders
September 17, 1996
Ritz-Carlton, Pentagon City
1250 South Hayes Street
Arlington, Virginia
<PAGE> 243
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporate Law ("DGCL") empowers a
Delaware corporation to indemnify any person who was or is, or is threatened to
be made, a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation) by reason of the fact that
such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe his conduct was
unlawful. A Delaware corporation may indemnify such persons against expenses
(including attorneys' fees) in actions brought by or in the right of the
corporation to procure a judgment in its favor under the same conditions, except
that no indemnification is permitted in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless and to the extent the Court of Chancery of the State of Delaware or the
court in which such action or suit was brought shall determine upon application
that, in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the Court of Chancery or
other such court shall deem proper. To the extent such person has been
successful on the merits or otherwise in defense of any action referred to
above, or in defense of any claim, issue or matter therein, the corporation must
indemnify such person against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith. The indemnification
and advancement of expenses provided for in, or granted pursuant to, Section 145
is not exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 145 also provides that a corporation may maintain insurance against
liabilities for which indemnification is not expressly provided by the statute.
Section 6 of the Metrocall Amended and Restated Certificate of
Incorporation provides for indemnification of the directors, officers, employees
and agents of Metrocall to the full extent currently permitted by the DGCL.
In addition, the Metrocall Amended and Restated Certificate of
Incorporation, as permitted by Section 102(b) of the DGCL, limits directors'
liability to Metrocall and its stockholders by eliminating liability in damages
for breach of fiduciary duty. Section 5.5 of the Metrocall Amended and Restated
Certificate of Incorporation provides that neither Metrocall nor its
stockholders may recover damages from Metrocall directors for breach of their
fiduciary duties in the performance of their duties as directors of Metrocall.
As limited by Section 102(b), this provision cannot, however, have the effect of
indemnifying any director of Metrocall in the case of liability (i) for a breach
of the director's duty of loyalty, (ii) for acts of omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL or (iv) for any transactions for which the
director derived an improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<S> <C> <C>
2.1 Agreement and Plan of Reorganization dated as of May 16, 1996, between
Metrocall, and A+ Network, Inc.(a)
</TABLE>
II-1
<PAGE> 244
<TABLE>
<S> <C> <C>
2.2 Shareholders' Option and Sale Agreement dated as of May 16, 1996 between
Metrocall, Inc. and certain shareholders of A+ Network, Inc. listed
therein.(a)
2.3 Metrocall Stockholders Voting Agreement dated as of May 16, 1996 between A+
Network, Inc. and certain stockholders of Metrocall, Inc. listed therein.(a)
2.4 Agreement dated May 16, 1996 among Metrocall, Inc. and Ray D. Russenberger
and Elliott H. Singer regarding voting for director.(a)
3.1 Amended and Restated Certificate of Incorporation of Metrocall, Inc.+
3.2 Third Amended and Restated Bylaws of Metrocall, Inc.(b)
4.1 Specimen Certificate representing the Metrocall, Inc. Common Stock.(c)
4.2 Rights Agreement between Metrocall, Inc. and the Variable Common Rights
Agent, including Form of Certificate representing Variable Common Rights of
Metrocall, Inc.+
5 Opinion of Wilmer, Cutler and Pickering as to the legality of the securities
being registered.+
10.1 Employment Agreement between Metrocall and Vincent D. Kelly.+
10.2 Employment Agreement between Metrocall and William L. Collins, III.+
10.3 Employment Agreement between Metrocall and Steven D. Jacoby.+
10.4 Agreement and Plan of Merger entered into effective the 26th day of April
between A+ Network, Inc. ("ACOM"), a Louisiana corporation to be formed as a
wholly-owned subsidiary of ACOM, Radio and Communications Consultants, Inc.,
Advanced Cellular Telephone, Inc., Leroy Faith, Sr. and Eddie Ray Faith,
DeWayne Faith and Leroy Faith Jr.*
10.5 Asset Purchase Agreement by and among Page America Group, Inc., Page America
of New York, Inc., Page America of Illinois, Inc., Page America
Communications of Indiana, Inc., Page America of Pennsylvania, Inc., and
Metrocall, Inc. dated as of April 22, 1996.(d)
10.6 Non-disclosure/No Conflict Agreement dated May 16, 1996 between Metrocall,
Inc. and Ray D. Russenberger.(a)
10.7 Non-disclosure/No Conflict Agreement dated May 16, 1996 between Metrocall,
Inc. and Elliott H. Singer.(a)
10.8 Employment Agreement dated May 16, 1996 between Metrocall, Inc. and Charles
A. Emling III.(a)
13.1 Metrocall's Annual Report on Form 10-K for the year ended December 31,
1995.+
13.2 Metrocall's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996.*
23.1 Consent of Wilmer, Cutler & Pickering (included in Exhibit 5).+
23.2 Consent of Arthur Andersen LLP, as independent public accountants for
Metrocall, Inc.*
23.3 Consent of Arthur Andersen LLP, as independent public accountants for O.R.
Estman, Inc. and Dana Paging, Inc. dba Satellite Paging.*
23.4 Consent of Hutton, Patterson & Company, as independent public accountants
for Parkway Paging, Inc.*
23.5 Consent of Deloitte & Touche LLP, as independent public accountants for A+
Network, Inc.*
23.6 Consent of Price Waterhouse LLP, as independent public accountants for
Network Paging Corporation.*
23.7 Consent of Ernst & Young LLP, as independent public accountants for Page
America Group, Inc.*
23.8 Consent of Ray D. Russenberger to be named as a director in the Joint Proxy
Statement/ Prospectus.*
23.9 Consent of Elliott H. Singer to be named as a director in the Joint Proxy
Statement/ Prospectus.*
24 Power of Attorney (included in signature pages of this Registration
Statement)*
</TABLE>
II-2
<PAGE> 245
<TABLE>
<S> <C> <C>
(b) No financial statement schedules are required to be filed herewith pursuant to Item
21(b) of this Form.
(c) The exhibits required pursuant to Item 21(c) of this Form are furnished as part of the
Joint Proxy Statement/Prospectus
</TABLE>
- ---------------
* Exhibit filed herewith.
+ Exhibit to be filed by amendment.
(a) Incorporated by reference to Metrocall, Inc.'s Tender Offer Statement on
Schedule 14D-1, filed with the Commission on May 22, 1996.
(b) Incorporated by reference to Metrocall's Registration Statement on Form
S-1, as amended (File No. 33-96042) filed with the Commission on September
27, 1995.
(c) Incorporated by reference to Metrocall's Registration Statement on Form
S-1, as amended (File No. 33-63886), filed with the Commission on July 12,
1993.
(d) Incorporated by reference to Metrocall's Statement on Schedule 13D, filed
with the Commission on May 2, 1996.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 246
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ALEXANDRIA, COMMONWEALTH
OF VIRGINIA, ON JUNE 23, 1996.
METROCALL, INC.
By: /S/ WILLIAM L. COLLINS, III
------------------------------------
Name: William L. Collins, III
Title: President and CEO
POWER OF ATTORNEY
We, the undersigned officers and directors of Metrocall, Inc. hereby
severally constitute and appoint William L. Collins III and Vincent D. Kelly,
and each of them singly, to sign for us and in our names in the capacities
indicated below, the Registration Statement filed herewith and any and all
amendments to said Registration Statement (including post-effective amendments),
and generally to do all such things in our names and in our capacities as
officers and directors to enable Metrocall, Inc. to comply with the provisions
of the Securities Act of 1933, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Registration Statement
and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- -------------------------------------- -------------------------------------- --------------
<C> <C> <S>
/S/ WILLIAM L. COLLINS, III President, Chief Executive Officer and June 23, 1996
- -------------------------------------- Director (Principal Executive Officer)
WILLIAM L. COLLINS, III
Vice President, Chief Financial June 26, 1996
/S/ VINCENT D. KELLY Officer
- -------------------------------------- and Director (Principal Financial
VINCENT D. KELLY and Accounting Officer)
/S/ RICHARD M. JOHNSTON Chairman of the Board June 24, 1996
- --------------------------------------
RICHARD M. JOHNSTON
/S/ RONALD V. APRAHAMIAN Director June 26, 1996
- --------------------------------------
RONALD V. APRAHAMIAN
Director
- --------------------------------------
HARRY L. BROCK, JR.
/S/ SUZANNE S. BROCK Director June 25, 1996
- --------------------------------------
SUZANNE S. BROCK
/S/ FRANCIS A. MARTIN, III Director June 24, 1996
- --------------------------------------
FRANCIS A. MARTIN, III
/S/ STEVEN D. JACOBY Chief Operating Officer and Director June 23, 1996
- --------------------------------------
STEVEN D. JACOBY
</TABLE>
II-4
<PAGE> 247
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------ ---------------------------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization dated as of May 16, 1996,
between Metrocall, and A+ Network, Inc.(a)
2.2 Shareholders' Option and Sale Agreement dated as of May 16, 1996
between Metrocall, Inc. and certain shareholders of A+ Network, Inc.
listed therein.(a)
2.3 Metrocall Stockholders Voting Agreement dated as of May 16, 1996
between A+ Network, Inc. and certain stockholders of Metrocall, Inc.
listed therein.(a)
2.4 Agreement dated May 16, 1996 among Metrocall, Inc. and Ray D.
Russenberger and Elliott H. Singer regarding voting for director.(a)
3.1 Amended and Restated Certificate of Incorporation of Metrocall, Inc.+
3.2 Third Amended and Restated Bylaws of Metrocall, Inc.(b)
4.1 Specimen Certificate representing the Metrocall, Inc. Common
Stock.(c)
4.2 Rights Agreement between Metrocall, Inc. and the Variable Common
Rights Agent, including Form of Certificate representing Variable
Common Rights of Metrocall, Inc.+
5 Opinion of Wilmer, Cutler and Pickering as to the legality of the
securities being registered.+
10.1 Employment Agreement between Metrocall and Vincent D. Kelly.+
10.2 Employment Agreement between Metrocall and William L. Collins, III.+
10.3 Employment Agreement between Metrocall and Steven D. Jacoby.+
10.4 Agreement and Plan of Merger entered into effective the 26th day of
April between A+ Network, Inc. ("ACOM"), a Louisiana corporation to
be formed as a wholly-owned subsidiary of ACOM, Radio and
Communications Consultants, Inc., Advanced Cellular Telephone, Inc.,
Leroy Faith, Sr. and Eddie Ray Faith, DeWayne Faith and Leroy Faith
Jr.*
10.5 Asset Purchase Agreement by and among Page America Group, Inc., Page
America of New York, Inc., Page America of Illinois, Inc., Page
America Communications of Indiana, Inc., Page America of
Pennsylvania, Inc., and Metrocall, Inc. dated as of April 22,
1996.(d)
10.6 Non-disclosure/No Conflict Agreement dated May 16, 1996 between
Metrocall, Inc. and Ray D. Russenberger.(a)
10.7 Non-disclosure/No Conflict Agreement dated May 16, 1996 between
Metrocall, Inc. and Elliott H. Singer.(a)
10.8 Employment Agreement dated May 16, 1996 between Metrocall, Inc. and
Charles A. Emling III.(a)
13.1 Metrocall's Annual Report on Form 10-K for the year ended December
31, 1995.+
13.2 Metrocall's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996.*
23.1 Consent of Wilmer, Cutler & Pickering (included in Exhibit 5).+
23.2 Consent of Arthur Andersen LLP, as independent public accountants for
Metrocall, Inc.*
23.3 Consent of Arthur Andersen LLP, as independent public accountants for
O.R. Estman, Inc. and Dana Paging, Inc. dba Satellite Paging.*
23.4 Consent of Hutton, Patterson & Company, as independent public
accountants for Parkway Paging, Inc.*
23.5 Consent of Deloitte & Touche LLP, as independent public accountants
for A+ Network, Inc.*
</TABLE>
<PAGE> 248
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------ ---------------------------------------------------------------------
<C> <S> <C>
23.6 Consent of Price Waterhouse LLP, as independent public accountants
for Network Paging Corporation.*
23.7 Consent of Ernst & Young LLP, as independent public accountants for
Page America Group, Inc.*
23.8 Consent of Ray D. Russenberger to be named as a director in the Joint
Proxy Statement/Prospectus.*
23.9 Consent of Elliott H. Singer to be named as a director in the Joint
Proxy Statement/Prospectus.*
24 Power of Attorney (included in signature pages of this Registration
Statement)*
</TABLE>
(b) No financial statement schedules are required to be filed herewith pursuant
to Item 21(b) of this Form.
(c) The exhibits required pursuant to Item 21(c) of this Form are furnished as
part of the Joint Proxy Statement/Prospectus
- ---------------
* Exhibit filed herewith.
+ Exhibit to be filed by amendment.
(a) Incorporated by reference to Metrocall, Inc.'s Tender Offer Statement on
Schedule 14D-1, filed with the Commission on May 22, 1996.
(b) Incorporated by reference to Metrocall's Registration Statement on Form
S-1, as amended (File No. 33-96042) filed with the Commission on September
27, 1995.
(c) Incorporated by reference to Metrocall's Registration Statement on Form
S-1, as amended (File No. 33-63886), filed with the Commission on July 12,
1993.
(d) Incorporated by reference to Metrocall's Statement on Schedule 13D, filed
with the Commission on May 2, 1996.
<PAGE> 1
AGREEMENT & PLAN OF MERGER
THIS AGREEMENT & PLAN OF MERGER is made and entered into effective the
26th day of April, 1996, by and between, A+ NETWORK, INC., a Tennessee
corporation (hereinafter referred to as "ACOM"), a Louisiana corporation to be
formed as a wholly-owned subsidiary of ACOM (hereinafter referred to as "Merger
Sub"), RADIO AND COMMUNICATIONS CONSULTANTS, INC., a Louisiana corporation
(hereinafter referred to as "RCC"), ADVANCED CELLULAR TELEPHONE, INC., a
Louisiana corporation (hereinafter referred to as "ACT"), LEROY FAITH, SR.,
and EDDIE RAY FAITH, (hereinafter collectively referred to as "RCC
Shareholders"), DONALD DEWAYNE FAITH and LEROY FAITH, JR., (hereinafter
collectively referred to as "ACT Shareholders"). RCC and ACT are collectively
referred to herein as "Target". The RCC Shareholders and ACT Shareholders are
collectively referred to herein as "Seller Shareholders" or "Faith".
WITNESSETH:
WHEREAS, the Seller Shareholders own all of the outstanding shares of
capital stock of Target; and
WHEREAS, Target owns and operates businesses which provide paging,
cellular telephone, and related communication services in and around Shreveport
and Monroe, Louisiana, and Texarkana, Texas, and other areas which businesses
are hereinafter referred to as the "Business"; and
WHEREAS, the Board(s) of Directors of Target has (have) determined it
is in the best interests of their stockholders to consummate the business
combination transaction provided for herein in which Target will, subject to
the terms and conditions set forth herein, merge with and into Merger Sub (the
"Merger"); and
WHEREAS, the parties hereto desire to set forth the terms and
conditions of an agreement among and between them whereby Target shall merge
into Merger Sub so that Merger Sub shall acquire ownership and control of all
of the assets and Business of Target, all in a transaction intended to qualify
as a tax free statutory merger or other reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended and applicable
state law; and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements, and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree
as follows:
<PAGE> 2
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
Agreement, in accordance with the provisions of applicable state law, at the
Effective Time (as defined in Section 1.2 hereof), Target shall merge with and
into Merger Sub. Merger Sub shall be the surviving corporation (hereinafter
sometimes called the "Surviving Corporation") in the Merger, and shall continue
its corporate existence under the laws of the State of Louisiana. The name of
the Surviving Corporation shall be the name of Merger Sub immediately prior to
the Merger. Upon consummation of the Merger, the separate corporate existence
of Target shall terminate.
1.2 Effective Time. The Merger shall become effective as set
forth in the articles of merger (the "Articles of Merger") which shall be filed
with the applicable state agencies on the Closing Date (as defined in Section
4.1 hereof). The term "Effective Time" shall be the date and time when the
Merger becomes effective, as set forth in the Articles of Merger.
1.3 Effects of the Merger. At and after the Effective Time, the
Merger shall have the effects set forth in applicable state law.
1.4 Conversion of Common Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of any Seller Shareholder,
each share of the common stock of Target issued and outstanding immediately
prior to Effective Time (the "Target Common Stock") shall, by virtue of this
Agreement and without any action on the part of the holder thereof, be
converted into the right to receive the Per Share Consideration (as defined and
specified in detail in Section 2.1 hereof) without any interest on the cash
portion thereof. All of the shares of Target Common Stock so converted shall
no longer be outstanding and shall automatically be canceled and shall cease to
exist, and each certificate (each a "Certificate") previously representing any
such shares of Target Common Stock shall thereafter only represent the right to
receive the Per Share Consideration.
1.5 Merger Sub Common Stock. The shares of Merger Sub common
stock issued and outstanding immediately prior to the Effective Time shall be
unaffected by the Merger and at and after the Effective Time such shares shall
remain issued and outstanding.
1.6 Articles of Incorporation: By-Laws. At the Effective Time,
the Articles of Incorporation and By-Laws of the Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
and By-Laws of the Surviving Corporation.
2
<PAGE> 3
1.7 Directors and Officers. The directors and officers of Merger
Sub immediately prior to the Effective Time shall be the directors and officers
of the Surviving Corporation, each to hold office in accordance with the
Articles of Incorporation and By-Laws of the Surviving Corporation until their
respective successors are duly elected or appointed and qualified.
ARTICLE II
CONSIDERATION
2.1 Calculation of Per Share Consideration. In consideration of
the tender and conversion of the Target Common Stock by the Seller
Shareholders, ACOM shall pay to Seller Shareholders the total, maximum,
aggregate consideration of Three Million Dollars ($3,000,000.00), less all
amounts paid to acquire the covenants of non-competition referenced in Article
V herein, less unpaid debts of Target as of the date hereof as specified in
Schedule 2.1 hereof attached and incorporated by reference (the
"Consideration"). The Consideration shall be adjusted downward, but not
upward, by: (1) the amount of Two Hundred Seventy-Two Dollars and seventy-three
cents ($272.73) multiplied by the difference between 11,000 and the number of
Qualified Subscribers (hereinafter defined) as of the Closing Date; and (2) the
amount of $333,333.33 multiplied by the difference between $9.00 and average
revenue per unit ("ARPU") as hereinafter defined, as of the Closing Date (the
"Adjusted Consideration"). If the Adjusted Consideration is less than
$2,600,000.00 and if ACOM is unwilling to pay at least $2,600,000.00 in
consideration to the Seller Shareholders for consummation of the transactions
described herein, Seller Shareholders, RCC, and ACT shall have the right upon
30 days written notice to ACOM to terminate this Agreement. In the event of
such termination the Seller Shareholders shall pay to ACOM the sum of $15,000
as reimbursement for ACOM's out of pocket expenses incurred in pursuing this
transaction, including legal fees. The Per Share Consideration to be paid for
each share of Target Common Stock shall be equal to the number of shares of
validly issued, fully paid and nonassessable common stock of ACOM $.01 par
value ("ACOM Common Stock"), equal to the Conversion Ratio (for purposes of
this Agreement, the Conversion Ratio means a fraction, the numerator of which
is the dollar value of the Adjusted Consideration, and the denominator of which
is the average of the reported daily closing sales prices for a share of ACOM
Common Stock (after any adjustment in accordance with Section 2.2 below) on the
National Market List of the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") for the ten (10) consecutive trading days
immediately preceding the date hereof, or for the ten (10) consecutive trading
days immediately preceding the Closing Date, whichever is less, which
Conversion Ratio is set forth on the Certificate of Conversion Ratio (attached
hereto as Exhibit A), divided by the number of issued and
3
<PAGE> 4
outstanding shares of Target Common Stock as of the Closing Date (the "Stock
Consideration"). The Adjusted Consideration shall be paid fifteen percent
(15%) to the ACT Shareholders and eighty-five percent (85%) to the RCC
Shareholders.
2.2 Anti-dilution. The number and kind of shares comprising the
Stock Consideration shall be subject to adjustment from time to time prior to
the Closing Date as follows:
(a) If ACOM shall take any of the following actions after the date
hereof:
(i) pay a dividend in its capital stock to the holders of
ACOM Common Stock;
(ii) subdivide the outstanding shares of the ACOM Common
Stock;
(iii) combine the outstanding shares of the ACOM Common
Stock into a smaller number of shares; or
(iv) issue by reclassification of the shares of the ACOM
Common Stock (including any such reclassification in
connection with a consolidation or merger in which
ACOM is the continuing corporation) any shares of its
capital stock;
then, if the record date for such action (in the case of an action
taken under clause (i) above) or the effective time for such action (in the
case of actions taken under clauses (ii), (iii) or (iv) above) is prior to the
Closing Date, the number and kind of shares composing the Stock Consideration
shall be proportionally adjusted so that the Stock Consideration shall consist
of the number and kind of shares of capital stock and/or other property of ACOM
that a record holder of any given number of shares of ACOM Common Stock (or
such other amount or type of stock as the Stock Consideration shall have been
adjusted previously pursuant to the provision of this Section 2.2) immediately
prior to the happening of such event would own and/or be entitled to receive
after the happening of such event. An adjustment made pursuant to this clause
(i) shall become effective retroactively to immediately after the record date
in the case of a dividend payable in capital stock of ACOM, and shall become
effective immediately after the effective time in the case of a subdivision,
combination or reclassification.
(b) If at any time prior to the Closing Date ACOM shall be a party
to any transaction (including, without limitation, a merger, consolidation,
sale of all or substantially all of its
4
<PAGE> 5
assets, liquidation or recapitalization of the ACOM Common Stock) in which the
previously outstanding ACOM Common Stock shall be changed into or exchanged for
different securities of ACOM (other than any change or exchange by reason of
which an adjustment is made under the clause (a) above) or for the common stock
or other securities of another corporation or interests in a non-corporate
entity, or if at any time interests in a non-corporate entity or other party
are distributed to the holders of ACOM Common Stock (whether by means of any
extraordinary dividend, spinoff of assets or otherwise), the Stock
Consideration shall thereafter consist of the securities and/or other property
that a record holder of any given number of ACOM Common Stock (or such other
amount or type stock as the Stock Consideration shall have been adjusted
previously pursuant to the provision of this Section 2.2) immediately prior to
the happening of such event would own and/or be entitled to receive after the
happening of such event (taking into account fractional interests to the
nearest one-hundredth of a share, and for the purposes of the foregoing,
considering such fractional interests as outstanding fractional shares).
2.3 Qualified Subscribers/ARPU. For purposes of this Agreement,
a Qualified Subscriber is a paging service customer of Target who is purchasing
paging services from Target as of Closing Date, who does not have an unpaid
invoice aged longer than 60 days as of said date, and who has been billed and
paid for such paging services for at least two (2) normal monthly billing
cycles as of said date (with it being understood that normal monthly billing
cycles shall include those customers represented by the allocation of any
prepayments across the period for which such prepayments are made and after
making any other appropriate adjustments for customers who are normally billed
and who normally pay for services less frequently than monthly), provided,
however, that a single customer with multiple pagers shall be counted for each
of said multiple pagers which otherwise qualify, and provided further that
those customers of Target listed on Schedule 2.3 attached hereto shall be
deemed Qualified Subscribers. For purposes of this Agreement, ARPU is
calculated as follows: the sum of all current (aged less than 30 days) amounts
billed for recurring paging services to Qualified Subscribers as defined above
in the last billing cycle completed prior to Closing Date (after appropriate
allocations and adjustments for those Qualified Subscribers who are normally
billed and who normally pay for services less frequently than monthly as
defined above), divided by the number of Qualified Subscribers so billed.
2.4 Payment Terms. The Shareholders shall receive the
Consideration as follows:
(a) The Stock Consideration shall be delivered to the Seller
Shareholders at the Closing, less the Escrow Securities as
5
<PAGE> 6
provided in Section 2.7 hereof.
2.5 Guarantee. Notwithstanding the foregoing, ACOM shall and
hereby does guarantee to the Seller Shareholders, that the Gross Proceeds as
hereinafter defined shall not be less than the value of the Adjusted
Consideration. "Gross Proceeds" is defined as all proceeds, whether cash or
otherwise, which the Seller Shareholders in the aggregate (i) actually receive
from sales, transfers, or exchanges of the Stock Consideration or (ii) could
have received from such sales, transfers, or exchanges as are authorized by
rules promulgated under the Securities Act of 1933, as amended ("Act"). Should
the Gross Proceeds be less than the Adjusted Consideration, the Seller
Shareholders shall be entitled to receive the shortfall from ACOM, payable at
ACOM's election, in the form of cash, additional Stock Consideration, or any
combination thereof. For this purpose, the value of a share of ACOM Common
Stock shall be equal to the average of the reported daily closing sales prices
for a share of ACOM Common Stock (after any adjustment and in accordance with
paragraph 2.2 above) on the NASDAQ for the ten (10) consecutive trading days
immediately preceding the delivery of such additional Stock Consideration. The
aforesaid Guarantee shall expire and ACOM shall be released from all
obligations thereunder on the second anniversary of the Closing Date.
2.6 Legend; Registration Rights.
(a) Unless the securities delivered to the Seller
Shareholders in satisfaction of the Stock Consideration shall have otherwise
been lawfully registered with the SEC and listed for trading on NASDAQ, then
transfer of such securities (the "Restricted Securities") shall be subject to
compliance with the requirements of SEC Rule 144 as determined by legal counsel
for ACOM and certificates evidencing the Restricted Securities shall bear a
legend substantially similar to the following:
The shares of stock represented by this certificate have been
acquired directly from the issue without being registered
under the Securities Act of 1933, as amended ("Act") or the
securities laws of any state or other jurisdiction, and are
restricted securities as that term is defined under Rule 144
promulgated under the Act. These shares may not be sold,
transferred, pledged, hypothecated, or otherwise disposed of
in any manner (a "Transfer") unless they are (i) registered
under the Act and the securities laws of all applicable states
and other jurisdictions, or (ii) unless the request for
Transfer is accompanied by a favorable opinion of legal
counsel satisfactory to the issuer, stating that such Transfer
will not result in a violation
6
<PAGE> 7
of such laws.
(b) Unless the securities delivered to the Seller
Shareholders in satisfaction of the Stock Consideration shall have otherwise
been lawfully registered with the SEC and listed for trading on NASDAQ, ACOM
shall file, within sixty (60) days of the Closing Date hereof, and shall
thereafter exert its best efforts to have declared effective, all within six
(6) months following the Closing Date, a registration statement or statements,
or similar documents with the SEC and with appropriate state agencies, all as
may be determined to be appropriate by ACOM, so as to enable the Seller
Shareholders to freely sell the Restricted Securities in their entirety. ACOM
will use its best efforts to keep such registration effective until the Stock
Consideration can be sold without registration under the provisions of Rule 144
promulgated under the Act. Notwithstanding anything herein to the contrary,
all sales of the Stock Consideration by the Seller Shareholders shall be
subject to the volume transfer restrictions set forth in Section (e)(1) (and
other applicable sections) of Rule 144 promulgated under the Act. All sales of
the Stock Consideration, whether registered or not, shall be subject to the
volume transfer restrictions set forth in Section (e)(1) (and other applicable
sections) of Rule 144 promulgated under the Act.
2.7 Escrow. An escrow in the amount of Ten percent (10%) of the
Adjusted Consideration shall be created at Closing from a portion of the Stock
Consideration due and payable at Closing Date. The securities representing
said escrow (the "Escrow Securities") shall be evidenced by a separate
certificate or certificates along with stock powers related to said
certificates executed in blank by the Seller Shareholders. The Escrow
Securities shall be retained by counsel to ACOM, as Escrow Agent under the
Escrow Agreement substantially in the form attached hereto as Exhibit B. The
Escrow Securities, inclusive of adjustments pursuant to Section 2.2 and
dividends payable with respect thereto, shall be held by Escrow Agent subject
to the terms and conditions of this Agreement and the Escrow Agreement. The
Escrow shall remain in force for a period of one year following the Closing
Date. Upon the first anniversary date of the Closing Date or the earlier
termination of the Escrow, the Escrow Securities, exclusive of such Escrow
Securities as shall be reasonably necessary to satisfy any then pending claim,
shall be immediately delivered to the Seller Shareholders. ACOM shall reflect
on its stock ledger that the Seller Shareholders, or such of them as Seller
Shareholders may designate, are the registered owners of the Escrow Securities.
ACOM shall permit the registered owners of the Escrow Securities, or their
proxy holders, to exercise all voting rights with respect thereto.
2.8 Assumption of Debts. On the Management Date, ACOM shall
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assume and pay as and when due in accordance with their terms and as normally
amortized, all debts specified in Schedule 2.1 hereof. Any and all outstanding
balances of said debts as of the Closing Date shall be satisfied and paid in
full by ACOM on the Closing Date. Any amounts paid by ACOM (other than
interest or other normal carrying charges), in satisfaction of said debts
shall be promptly refunded to ACOM, without interest, in the event of any
termination of this Agreement, or in the event of any failure to close the
transactions contemplated hereby.
ARTICLE III
COVENANTS
3.1. Prior to Closing.
(a) During the period from the date of this Agreement and
continuing until the Closing Date, except as expressly contemplated or
permitted by this Agreement or with the prior written consent of ACOM, Target
shall carry on its Business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and consistent with
prudent business practice.
(b) The Seller Shareholders shall cause Target to use best
efforts to (i) preserve its Business, (ii) keep available to itself and ACOM the
present services of its employees, and (iii) preserve for itself and ACOM the
existing subscribers of the Business and the goodwill of its subscribers and
others with whom Target have business relationships.
(c) During the period from the date of this Agreement and
continuing until the Closing Date, except as expressly contemplated or
permitted by this Agreement or with the prior written consent of ACOM, Target
shall not: increase the compensation payable to any officer or employees;
amend, modify, or terminate any of its articles of incorporation, bylaws,
employee benefit plans, contracts, leases, or licenses; forgive, satisfy or
retire, in whole or in part any debt, liability, or obligation of any party to
Target except in the ordinary course of business; issue any additional shares
of stock or securities convertible into shares of stock or options, warrants,
or other commitments for the issuance of shares of stock or retire, redeem, or
otherwise repurchase any Shares; dispose of or acquire any assets or incur any
new liabilities or become a party to any new contracts, except in the ordinary
course of business; declare or make any bonus, dividend, or fringe benefits
payments to the Seller Shareholders or employees; change existing paging and
communication systems, equipment, or infrastructure; make any expenditure or
incur any new debt or obligation in any single instance in excess of $1,000.00
without the consent of ACOM other than expenses in the ordinary
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course of business; modify or alter current business practices, including
accounting practices; create or incur any mortgage, lien, security interest, or
other charge or encumbrance of any nature on or with respect to any of the
assets of Target, or their Business; make any loan, advance or investment,
except in the ordinary course of business; or do any other act likely to result
in a material adverse change in the financial condition, business operations,
prosect of future business, or value of Target or its Business.
(d) The parties hereto have agreed to execute and deliver that
certain Management Agreement substantially in the form attached hereto as
Exhibit C, which Management Agreement shall have an effective date as of June
3, 1996, (the "Management Date" or the "Assumption Date"). The Management
Agreement shall remain in force until Closing Date or its earlier termination
in accordance with the terms thereof. Effective 12:01 a.m., of the Management
Date, ACOM or Merger Sub shall assume management and operational control of the
Business pursuant to the terms of the Management Agreement. The Management
Agreement shall provide as follows:
(i) All accounts receivable of the Business earned or collected
after the Management Date including but not limited to all revenues
from the Century Cellular Contract shall be for the sole and exclusive
benefit and account of Merger Sub and the Seller Shareholders and
Target shall never have nor claim any interest therein. All
accounts payable incurred by Target from the Business including but
not limited to those from the Century Cellular Contract (provided said
accounts payable are incurred in the ordinary course of business and
do not constitute capital expenditures) after the aforesaid Management
Date shall be the sole and exclusive obligation of Merger Sub.
(ii) Any accounts payable not incurred in the ordinary course of
business or capital expenditures which are incurred or are properly
allocable to periods of time before Management Date shall be the
obligation of and shall be paid by the Seller Shareholders.
Notwithstanding the provisions of Section 3.1(c), any financial
institution account balances of Target as of the date hereof shall be
for the sole and exclusive benefit and account of the Seller
Shareholders, and may be distributed to the Seller Shareholders and
neither ACOM nor Merger Sub shall have nor claim any interest therein.
(e) Effective the Management Date, the Seller Shareholders shall
cause the Century Cellular Contract to be
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assigned to RCC.
3.2 Post-Closing. After the Management Date, Seller Shareholders
and Target shall participate in and cooperate with ACOM and Merger Sub in the
preparation, execution, delivery, and filing of applications for license
transfers, license terminations or cancellations, management agreements,
leases, transfer documents, and any other documents or instruments requested
from time to time and shall further take such other actions as may be requested
from time to time for the delivery and transfer of the Business, its assets,
and licenses to Merger Sub, or to any other person or entity as ACOM may direct
in full and complete compliance with FCC and other state and federal rules and
regulations applicable to the Business as such compliance may be determined by
ACOM.
3.3 Exhibits. Within 10 days after the date hereof, the parties
shall negotiate in good faith to reach agreement on the form of the Exhibit
Documents which are referenced herein but which are not attached hereto as of
the date of execution hereof and said Exhibits shall form and be a part of this
Agreement.
ARTICLE IV
CLOSING
4.1 Place and Time. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at (a) the offices of
counsel to ACOM at 10:00 a.m., on the first day which is the last business day
of the month in which the satisfaction or, where permissible, waiver, of the
conditions set forth at Section 4.2 of this Agreement occurs, or (b) such other
time, place and/or date (after the satisfaction or waiver of such conditions)
as the parties may agree to in writing. The date on which the Closing shall
take place is herein referred to as the "Closing Date."
4.2 Conditions to Closing.
(a) Mutual conditions.
(i) The parties shall have obtained all necessary
shareholder approvals, ACOM board of directors
approval, consents, approvals, permits and licenses
from the FCC (including final approval from the FCC
as defined by applicable FCC rules and regulations)
and other third parties from whom consent must be
obtained in order to consummate the transactions
contemplated hereby. If FCC approval is not
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obtained by December 31, 1996, ACOM or the Seller
Shareholders shall have the right to terminate this
Agreement upon 30 days notice to the other party.
(ii) No order, stay, judgment, or decree shall have been
issued by any court restraining or prohibiting, and
no action, suit, or proceeding shall have been
commenced by any governmental authority or other
third party seeking to restrain or prohibit the
consummation of the transactions contemplated by this
Agreement.
(iii) The parties shall have reached agreement on the form
of the Exhibits as referenced in Section 3.3 hereof.
(b) Conditions to ACOM's Obligations.
(i) All representations and warranties made by Target and
Seller Shareholders to ACOM and Merger Sub within
this Agreement and Target's Disclosure Schedule and
Financial Statements referenced in Article VI hereof
shall be determined to be true and accurate as of the
dates when made and as of the Closing Date; ACOM
shall have received a certificate signed by an
officer on behalf of Target to such effect; and ACOM
and Merger Sub shall have approved or accepted the
Schedules and the information contained therein.
(ii) There shall have been no change in or effect on
Target or its Business since the date of the last
Financial Statement that is materially adverse to the
Business.
(iii) All of the obligations of the Seller Shareholders and
Target to be performed hereunder prior to Closing
Date shall be performed and complied with in all
material respects and ACOM shall have received a
certificate signed on behalf of Target by an officer
thereof and by the Seller Shareholders to such
effect.
(c) Conditions to Target's Obligations.
(i) The representations and warranties of ACOM set
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forth in this Agreement shall be true and correct in
all respects as of the date of this Agreement and as
of the Closing Date, as though made on and as of the
Closing Date, and Target shall have received a
certificate signed on behalf of ACOM by an officer of
ACOM to such effect.
(ii) ACOM and Merger Sub shall have performed in all
material respects all obligations required to be
performed by it under this Agreement at or prior to
the Closing Date and Target shall have received a
certificate signed on behalf of ACOM by an officer of
ACOM to such effect.
4.3 Target's Transactions at the Closing. At the Closing:
(1) the Seller Shareholders shall deliver and surrender to Merger
Sub all certificates representing Target Common Stock, free
and clear of liens, claims, and encumbrances of every kind and
nature;
(2) Seller Shareholders shall execute and deliver to Target,
Merger Sub or other entity as ACOM may direct, the Bill of
Sale, Assignment of FCC Licenses (or if ACOM determines it to
be appropriate, termination forms or other similar documents),
Assignment of Accounts Receivable, Assignment of Contracts,
and General Assignment and Transfer of Title substantially in
the form attached as composite Exhibit D, incorporated by
reference for the purpose of ensuring that all Business assets
are titled in Target for merger into Merger Sub.
(3) Seller Shareholders and others as determined by ACOM shall
execute and deliver the Covenant Not to Compete substantially
in the form attached as Exhibit E, incorporated by reference.
(4) Legal counsel for Seller Shareholders and Target shall deliver
to ACOM and Merger Sub an opinion in form and substance
reasonably acceptable to ACOM encompassing the organization,
power, and authority of Target and Seller Shareholders, FCC
regulatory compliance and status of FCC Licenses, and the
execution, delivery, and enforceability of all documents
executed and delivered by them in connection with the closing
of the transactions contemplated by this Agreement.
(5) Target shall execute and deliver the Articles of Merger and
Director And Shareholder Resolutions substantially in
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the form attached as Exhibit F incorporated by reference.
(6) Seller Shareholders shall cause the contract with Century
Cellular to be formally assigned in full to Target effective
the Management Date.
(7) Target and Seller Shareholders shall execute and deliver to
ACOM such other documents and take such other and further
additional actions for the benefit of ACOM and Merger Sub as
may be reasonably necessary to consummate the transactions
contemplated hereby.
4.4 ACOM's Transactions at the Closing. At the Closing:
(1) ACOM shall deliver to Seller Shareholders and the Escrow Agent
the Consideration described in Article II hereof.
(2) Legal counsel for ACOM and Merger Sub shall deliver to Seller
Shareholders an opinion in form and substance reasonably
acceptable to Seller Shareholders encompassing the
organization, power, and authority of ACOM and Merger Sub, and
the execution, delivery, and enforceability of all documents
executed and delivered by them in connection with the closing
of the transactions contemplated by this Agreement.
(3) Merger Sub shall execute and deliver the aforesaid Articles of
Merger and Director And Shareholder Resolutions substantially
in the form attached as Exhibit F incorporated by reference.
(4) ACOM and Merger Sub shall execute and deliver to Seller
Shareholders such other documents and shall take any and all
further or additional actions as may be reasonably necessary
to consummate the transactions contemplated hereby.
4.5 Interdependence. The transfer and deliveries described in
this Article IV and all transactions contemplated hereby are mutually
interdependent and regarded as occurring simultaneously as of the close of
business on the Closing Date; and unless waived no such transfer, delivery or
other transaction shall become effective unless and until all other transfers,
deliveries, and other transactions provided for herein have also been
consummated.
ARTICLE V
RELATED MATTERS
5.1 Further Assurances. The parties agree that each will execute
and deliver to the others any and all other documents,
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further conveyances, assignments, or other written assurances, and shall take
such further actions in addition to those expressly provided for in this
Agreement that may be reasonably necessary or appropriate to carry out this
Agreement and the transactions contemplated hereby, whether at or after the
Management Date. The Seller Shareholders and Target further agree that at any
time and from time to time after the Management Date, they will execute and
deliver to ACOM, Merger Sub, or their designee such further conveyances,
assignments, or other written assurances, and take such further actions, as
ACOM or Merger Sub may reasonably request to document ACOM or Merger Sub's
title to the Business and Business assets all in order to secure to Merger Sub
the benefit of the Business.
5.2 Covenant(s) Not to Compete. At Closing Date, Seller Shareholders
and other parties to be identified by ACOM shall execute and deliver a Covenant
Not to Compete with ACOM or with Merger Sub, directly or indirectly, in any
paging, narrowband PCS, long distance telephone, cellular telephone, voicemail,
radio communication, or any other similar communications business for a period
of 3 years following the Closing Date within the Continental United States,
including Alaska and Hawaii. Notwithstanding the foregoing, Seller
Shareholders shall be permitted to continue engaging in their present tower
business and two-way radio communications business, private in-house paging
business, paging system repair and maintenance business, retail cellular
telephone business provided said cellular business is conducted solely as a
reseller of ACOM, does not produce recurring revenue and does not involve
paging other than in-house paging, and all business activities authorized and
required by those agreements with Motorola attached or otherwise described as
Schedule 5.2, hereby incorporated by reference ("MSS Service"), provided said
MSS Service is conducted solely as a Motorola Service Station under said
agreement(s). Seller Shareholders acknowledge and agree that the MSS Service
activities authorized by reference to the aforesaid unlocated 1960 agreement
with Motorola shall not be more expansive than the aforesaid agreement with
Motorola dated 1992. If the parties are able to negotiate and enter into a
separate re-seller or affiliate agreement, the activities of the Seller
Shareholders under said agreement shall not be in violation of the aforesaid
covenant. The form of said Covenant Not to Compete shall be substantially
similar to Exhibit E attached and incorporated by reference.
5.3 Access to Properties and Records. Between the date of this
Agreement and the Closing Date, the Seller Shareholders and Target will (i)
provide ACOM and its accountants, counsel, and other representatives, full
access, during reasonable business hours, to any and all premises, properties,
contracts, commitments, books, records, and other information (including Tax
Returns filed
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and those in preparation) relating to said corporation and its Business, and
will cause its officers and employees to furnish to ACOM and its authorized
representatives any and all financial, technical and operating data and other
information, as ACOM and such representatives may from time to time reasonably
request; and (ii) deliver to ACOM the Schedules and true and correct copies of
all documents referred to in the Schedules.
5.4 Agreement Regarding Confidentiality. The Seller Shareholders,
Target, and ACOM agree that this Agreement shall remain confidential and they
will not, except as required by law whether before or after the Closing Date,
disclose to any person or entity any term of this Agreement, trade secret,
business strategies or plans, finances, costs, marketing plans, or any other
information relating to them, the Business, ACOM, this agreement or the
transactions described herein that was not, prior to such disclosure, a matter
of public knowledge. The parties specifically acknowledge and agree that all
public announcements regarding this Agreement, ACOM, Target, shall be within
the exclusive control and sole and absolute discretion of ACOM.
5.5 Consents. The parties hereto agree to use best efforts to
obtain all permits, approvals, authorizations, and consents of all third
parties necessary (i) for the consummation of the transactions contemplated
hereby, or (ii) for the conduct, ownership, or operation of the Business by
Merger Sub after the Assumption Date.
5.6 Disclosures. Within ninety (90) days of the date hereof,
Seller Shareholders and Target shall prepare and deliver to ACOM the disclosure
schedules referenced in Article 6 below (collectively "Schedules"), and said
Schedules shall form and be a part of this Agreement. Seller Shareholders and
Target covenant and agree to amend and update said Schedules from time to time
in order to make said Schedules complete, accurate, and not misleading.
5.7 Employment. For a period of one year from the Management
Date, Eddie Ray Faith shall continue his employment with the Business at his
current base salary of $55,000.00 per annum. Within sixty (60) days after said
one year term, ACOM or Merger Sub shall pay the following bonus compensation to
Eddie Ray Faith subject to the performance by him of the conditions set forth:
(i) Collections Bonus: If the average collections
percentage for the Business for the four month period preceding cessation of
employment is ninety-five percent (95%) or higher, all as determined by the
accounting staff of ACOM, employee shall receive a $25,000.00 bonus; if said
percentage is ninety-two percent (92%) or higher, employee shall receive a
bonus of
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$12,500.00;
(ii) Subscriber Bonus: If the number of Qualified Subscribers as of
the cessation of employment, and determined in a manner consistent with Section
2.3 hereof is 14,300 or higher, all as determined by the accounting staff of
ACOM, employee shall receive a $25,000.00 bonus; if the number of Qualified
Subscribers is 13,640 or higher, employee shall receive a bonus of $12,500.00;
(iii) EBITDA Bonus: If EBITDA as of the date of cessation of
employment equals or exceeds thirty percent (30%) of net revenues, all as
determined by the accounting staff of ACOM, employee shall be entitled to a
bonus of $25,000.00; if said percentage is twenty-seven percent (27%) or
higher, employee shall receive a bonus of $12,500.00. For this purpose EBITDA
is defined as the Business's earnings before interest, taxes, depreciation, and
amortization, (excluding any extraordinary gains or losses, gains or losses
from the sale of assets outside of the ordinary course of business, general and
administrative expenses allocated by ACOM to the Business in excess of such
actual expenses as may be incurred by the Business, and revenues and expenses
not from paging or other related telecommunication operations), for the three
(3) calendar month period completed immediately preceding the date of cessation
of employment as calculated by ACOM's accountants in accordance with generally
accepted accounting principles, consistently applied.
The parties covenant and agree to execute and deliver an employment
agreement at Closing Date substantially similar to the form attached as Exhibit
G incorporated by reference, setting forth in greater detail the aforesaid
terms and other relevant terms and conditions.
5.8 Billing. Until such time as customers of the Business have
been converted to ACOM's billing system, the Seller Shareholders shall cause
Shreveport Communications Service, Inc., a Louisiana corporation ("Shreveport
Communications") to continue providing such billing services in exchange for a
flat fee of $300.00 per calendar month.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
All of the Seller Shareholders and Target jointly and severally hereby
represent and warrant the following to ACOM and Merger Sub and agree as
follows:
6.1 Capitalization; Ownership of Shares; and Capacity to Sell. The
authorized capital stock of RCC consists of 1,000 shares of
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common stock, par value zero (0) per share, of which 135 shares are issued and
outstanding. The authorized capital stock of ACT consists of 100,000 shares
of common stock, par value zero (0) per share, of which 500 shares are issued
and outstanding. All of the aforesaid Shares are duly authorized and issued,
fully paid, and non-assessable. The Seller Shareholders will prior to Closing
Date own beneficially and of record all of the issued and outstanding shares of
Target. The Seller Shareholders have the full legal right, power, and
authority to convey, assign, and transfer the shares and the shares are free
and clear of all liens, claims, charges, encumbrances, and restrictions of
every kind and nature. There are no authorized or outstanding subscriptions,
options, warrants, or other rights of any kind to acquire securities of any
kind in Target.
6.2 Corporate Organization and Authorization. Target (i) is duly
organized, validly existing, and in good standing under the laws of the State
of Louisiana; (ii) has all requisite corporate power and authority as well as
necessary licenses, permits, and authorizations to own, operate, and lease its
properties and to carry on the Business as now being conducted; (iii) is
qualified to do business in all jurisdictions where the Business is currently
conducted and in which such qualification is required by law; and (iv) has been
duly authorized by its shareholders and board of directors to enter into this
Agreement and to consummate the transactions contemplated hereby.
6.3 Absence of Conflicts. Neither the execution and delivery by
Target or Seller Shareholders of this Agreement, nor the consummation by them
of the transactions contemplated hereby, nor compliance by them with any of the
provisions hereof will (i) conflict with or result in a breach of any provision
of the articles of incorporation or bylaws of either corporation; (ii) violate
any order, writ, injunction, decree, judgment, ruling, law, rule or regulation
of any court or governmental authority, applicable to the corporation or the
Seller Shareholders; or (iii) violate or conflict with, result in a breach of,
constitute a default under, require consents from any other party to, result in
a right of termination or cancellation of, result in acceleration of any right,
or create any lien under, any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, lease, contract, agreement, or other instrument or
commitment or obligation to which the Seller Shareholders and/or Target are or
were a party or by which any of their respective properties are bound.
6.4 No Violation. Neither the Seller Shareholders nor Target are
in violation of, or, to the best of their knowledge under investigation with
respect to violation of any statute, rule, regulation, or law, or any order,
judgment, injunction, or decree,
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of any court or governmental authority relating to the Business.
6.5 Financial Statements. Target has previously furnished ACOM
copies of compiled, unaudited, consolidated financial statements of Target,
including a statement of income and a balance sheet for the fiscal year ended
December 31, 1995 (the "Financial Statements"). The Financial Statements (as
of the dates thereof and for the periods covered thereby and including the
notes thereto) were prepared in accordance with generally accepted accounting
principles ("GAAP"), subject to any exceptions as to consistency specified
therein or as may be indicated in the notes thereto. The Financial Statements
are in accordance with the books and records of Target, which books and records
are complete and correct and have been maintained in accordance with good
business practices. The Financial Statements accurately depict Target's
financial and business condition and there have been no material adverse
changes in Target's operations, financial or business condition since the dates
of the most recent Financial Statement. Target and the Seller Shareholders
shall cooperate with ACOM's auditors after the Management Date in preparing
audited financial statements of Target for the aforesaid period and for such
other periods as ACOM may request. The cost of such audits shall be borne by
ACOM. ACOM shall be deemed the owner of such audited financial statements.
6.6 Absence of Undisclosed Liabilities; Ordinary Trade
Liabilities. As of the Assumption Date there are no material liabilities,
obligations, commitments or contingencies binding on Target except for
liabilities reflected in the Financial Statements and except for ordinary and
normal trade liabilities incurred in the ordinary course of business consistent
with past practices ("Trade Liabilities"). Trade Liabilities are paid current
(as defined below) as of the Assumption Date. Trade Liabilities shall be
deemed paid current if and only if the current amounts and all past due and
delinquent amounts are paid in full on or before the due dates shown on the
invoices or in the documents which reflect such liabilities or if no due date
is shown on invoices, within 10 days of the invoice dates, all as of the
Assumption Date. All liabilities, obligations, commitments or debts of Target
other than Trade Liabilities are disclosed in Schedule 6.6.
6.7 Absence of Certain Changes. From and after the date of
execution of this Agreement, Target has operated the Business in the manner
described in Section 3.1 hereof and there has not been any change in or effect
on the Business that is materially adverse to the Business properties,
earnings, prospects, or condition (financial or otherwise).
6.8 Legal Proceedings. There are no claims, actions, suits,
inquiries, investigations, or other proceedings pending or, to the
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best knowledge of the Seller Shareholders, overtly threatened relating to the
Seller Shareholders and/or Target before any court or governmental body, nor to
the best knowledge of the Seller Shareholders is there any reasonable basis for
any such proceedings.
6.9 Title to Properties, and Related Matters. Schedule 6.9 sets
forth an accurate and reasonably detailed listing of the machinery, equipment,
inventory, vehicles, paging and telecommunication units and equipment in
service, paging and telecommunication units and equipment in inventory,
receivers, transmitters, station equipment, assets, and other items of tangible
personal property owned or leased by Target and used in the Business,
indicating in each case whether owned or leased. Target has good, valid, and
marketable title to all of its Business assets and properties free and clear of
all liens, claims, and encumbrances of every kind and nature. Target owns all
of the properties, assets, and rights which are currently used to carry on the
Business as currently conducted and said assets are sufficient to carry on the
Business as currently conducted. Said Business assets include the tangible
assets described in Schedule 6.9 as well as all intangible assets of the
Business including but not limited to contracts for paging and
telecommunication services, existing customers and subscribers, customer
records, customer lists, accounts receivable, goodwill, business records,
business licenses (including FCC), authorizations, permits, certificates,
pending applications for such or similar licenses, work in progress, contracts,
tower leases, leases, reseller agreements, affiliate agreements, paging systems
and networks, copyrights, marketing materials, prepayments and deposits,
warranties on any of the above, insurance policies, and all other assets used
or useful in connection with the Business as a going concern.
6.10 Taxes and Tax Returns. For purposes of this Agreement: (i)
the term "Taxes" shall mean all taxes, charges, fees, levies, or other
assessments, including, without limitation, income, gross receipt, excise,
property, sales, use, license, payroll, and franchise taxes, imposed by the
United States, or any state or local government or subdivision or agency
thereof; and such term shall include any interest and penalties or additions to
tax; and (ii) the term "Tax Return" shall mean any report, return, or other
document or information required to be supplied to a taxing authority in
connection with Taxes. Neither Target nor its Business is subject to any
outstanding Liens with respect to Taxes.
All Tax Returns required to be filed by or on behalf of Target with
respect to all periods ended prior to the Assumption Date have been duly filed
with the appropriate authorities and such Tax Returns are accurate in all
material respects. All Taxes (including estimated tax payments) required to be
shown on such Tax
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Returns or claimed to be due from Target or with respect to the Business have
been paid or reflected as a liability on the Financial Statements. All
deficiencies asserted as a result of Tax audits have been paid or finally
settled and no issue has been raised in any such audit which reasonably could
be expected to result in a proposed deficiency for any other period not so
audited. To the best of Seller Shareholders' knowledge, no state of facts
exists which would constitute grounds for the assessment of any Tax liability
with respect to the periods which have not been audited by the Internal Revenue
Service or by other appropriate governmental authorities. There are no
outstanding agreements or waivers extending the statutory period of
limitations, applicable to any Tax Return for any period.
Seller Shareholders acknowledge and agree that all Tax Returns
required to be filed by or on behalf of Target with respect to all periods
through the Assumption Date and the obligation to pay Taxes for such periods
shall be the sole responsibility of the Seller Shareholders. The parties
acknowledge and agree that they will cooperate with one another in order to
properly and consistently report the transactions contemplated by this
Agreement on their respective Tax Returns.
6.11 Contracts. Schedule 6.11 lists and briefly describes all
contracts binding upon Target and material to its Business including contracts,
agreements, instruments, arrangements, understandings, leases (including tower
leases), and rental agreements, whether written or oral to which it is a party
("Contracts"). All Contracts are valid, binding, and in full force and effect.
To the best of the Seller Shareholders knowledge, no party is in breach or
material violation of any Contract, nor of any applicable statute, rule,
regulation, law, or decree including but not limited to those of the FCC and of
the FAA.
6.12 Personnel. Schedule 6.12 sets forth a list of all material
plans, contracts, agreements, programs, and policies relating to employment,
compensation, employee benefits and other personnel matters, including those
with respect to directors, officers, employees and independent contractors of
the Business. Target is not in default with respect to any of their
obligations under any of such plans, contracts, agreements, programs, and
policies. Said plans are in compliance in all material respects with ERISA and
the Internal Revenue Code of 1986. Schedule 6.12 also sets forth a true and
complete list of the names and current salaries of all directors, officers,
employees and independent contractors of the Business. Neither ACOM, Merger
Sub, nor Target is or will be, by reason of the consummation of the
transactions contemplated hereby, liable to any employees or independent
contractors for any amount of severance pay, golden parachutes, bonuses,
commissions, or similar payments.
20
<PAGE> 21
6.13 Trademarks, Trade Names, Copyrights. Schedule 6.13 lists (i)
all registered and unregistered trademarks, service marks, trade names, service
names, logos, and assumed names and pending registrations thereof owned by or
used in the Business. All of the foregoing, together with all other trade
secrets, inventions, technology, know-how, customer lists, and proprietary
information owned by or used in the Business are referred to collectively
herein as the "Intellectual Property."
Except as disclosed in Schedule 6.13, there are no contracts or
commitments relating to the Intellectual Property or to similar property rights
of third parties. No claims, demands, judgments or orders are pending or, to
the best knowledge of the Seller Shareholders threatened by any person relating
to the use of any Intellectual property nor is there any reasonable basis for
any allegation against Target of infringement upon or misappropriation of any
Intellectual Property of third parties.
6.14 Accounts Receivable and Payable. All accounts receivable of
the Business represent fees for telecommunication and paging services rendered
or provided in the ordinary course of its business.
6.15 Inventory. To the best of Seller Shareholders' knowledge,
substantially all inventory of the Business is merchantable and consists of a
quality and quantity usable and salable in the ordinary course of business.
6.16 Furniture, Fixtures and Equipment. To the best of the Seller
Shareholders' knowledge, the furniture, fixtures and equipment used in
conducting the Business is in good operating condition and repair and is
adequate for the uses to which it is being put and is not in need of
improvement, maintenance, or repairs except for ordinary, routine maintenance,
or repairs which are not material in nature or cost.
6.17 Competing Businesses. The Seller Shareholders have no direct
or indirect interest of any nature whatever in any business which competes
with, conducts any business similar to, or has any arrangement or agreement
with the Business other than as specified in Section 5.2 herein.
6.18 Insurance. Schedule 6.18 lists all insurance policies
currently in force which name Target as an insured, beneficiary, or loss payee,
or for which it has paid all or part of the premium. All of the property and
assets of the Business are covered by insurance in amounts consistent with past
practice.
6.19 Finders. The Seller Shareholders agree to indemnify and hold
ACOM, Merger Sub and Target harmless from and against any
21
<PAGE> 22
claims for brokerage or similar commission or other compensation which may be
made against any of them based upon a third party having acted as broker,
finder, investment banker, or in any similar capacity on behalf of any of them.
6.20 Investment Matters. The Seller Shareholders are acquiring
ACOM Common Stock as part of the Consideration hereunder, solely for their own
accounts, for investment purposes, and not with a view to, or for resale in
connection with, any distribution of said stock. The Seller Shareholders have
received the ACOM Financial Statements and Reports and have had an opportunity
to review and inspect the same and make such other inquiries of ACOM as the
Seller Shareholders deem relevant to their decision to receive ACOM Common
Stock as part of the Consideration.
6.21 Licenses and Permits. Schedule 6.21 is a list of all material
federal, state, county, and local governmental licenses, certificates, permits,
and authorizations, including but not limited to all FCC and related licenses
("Licenses"), which Target must maintain in connection with the operation of
the Business. The Licenses are current and in good standing. Accurate and
complete copies of the Licenses have been delivered to ACOM. The Licenses
listed constitute all of the licenses issued or required by the FCC or any
other governmental agency for the operation of Target's Business as it is
currently operated. Each of the Licenses is in full force and effect, and
Target is in compliance with the terms and requirements thereof and all FCC and
other governmental regulations pertaining thereto. There is no pending, or to
Target's knowledge threatened, action, investigation, complaint or other
proceeding by the FCC, any other governmental agency, or any individual or
entity to revoke, cancel, suspend, modify, or refuse to renew, or otherwise
relating to the Licenses.
Except for the purpose of consummating the transaction contemplated by
this Agreement, all Licenses, permits, applications, certificates and
authorizations have not been amended, changed, modified or altered in any
material manner, and Target is in compliance in all respects with the
applicable regulations concerning, inter alia, construction, ownership,
operation and maintenance of the Licenses and the facilities associated
therewith, and all other federal statutes, rules, regulations, and policies of
the FCC, the Federal Aviation Administration ("FAA"), and any state and local
regulatory agencies applicable to Target and the Licenses. Other than the
consents required to be obtained in connection with this Agreement and
postclosing notification to the FCC of the consummation of this transaction, no
additional license, authorization, certificate, permit or order is required to
be obtained by Target from any governmental agency or authority in connection
with the operation of the Business by Target or ACOM.
22
<PAGE> 23
Except as described in Schedule 6.21 hereto, none of Target's Licenses
are currently subject to operating under any agreement with third parties,
granted by Target, which encumbers any of the Licenses, or any FCC waiver of
otherwise applicable rules and regulations of which Target is aware.
6.22 Certain Accounts. Schedule 6.22 is a list of all accounts
which Target maintains with financial institutions including but not limited to
safe deposit boxes, along with a list of all personnel having signature
authority over said accounts.
6.23 Disclosure. No representation or warranty by the Seller
Shareholders or Target in this Agreement, the Schedules, or the Financial
Statements, contains any untrue statement of material fact or omits to state
any material fact necessary to make the representations not misleading.
6.24 Pursuit of Alternative Business Opportunities. Target and the
Seller Shareholders hereby represent, warrant and covenant that they will not
pursue with any other party a sale of the Business or other transaction similar
to that contemplated by this Agreement.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
ACOM and Merger Sub jointly and severally represent and warrant the
following to the Seller Shareholders and agrees with them as follows:
7.1 Corporate Organization. ACOM is a corporation duly organized,
validly existing and in good standing under the laws of the State of Tennessee,
with all the requisite corporate power and authority to own, operate, and lease
its properties and to carry on its business as now being conducted. ACOM will
own and control Merger Sub which will be duly organized, validly existing, and
in good standing under the laws of the state under which it is formed.
7.2 Authorization. After obtaining board of director approval,
ACOM and Merger Sub have full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
7 .3 Absence of Conflicts. Neither the execution and delivery by
ACOM and Merger Sub of this Agreement, nor the consummation by them of the
transactions contemplated hereby, nor compliance by them with any of the
provisions hereof will (i) conflict with or result in a breach of any provision
of their articles of incorporation or bylaws; (ii) violate any order, writ,
injunction,
23
<PAGE> 24
decree, judgment, ruling, law, rule, or regulation of any court or governmental
authority, applicable to either of them; or (iii) violate, conflict with, or
constitute a default under any note, bond, or contract, to which either of them
or their properties are bound.
7.4 Finders. Neither ACOM nor any affiliate of ACOM (including
Merger Sub) has paid or become obligated to pay any fee or commission to any
broker, finder, or intermediary for or on account of the transactions provided
for in this Agreement.
7.5 Capitalization. The authorized capital stock of ACOM consists
of 30,000,000 shares of ACOM Common Stock with a par value of $.01 per share
and 1,500,000 shares of preferred stock with a par value of $.01 ("ACOM
Preferred Stock"). At the close of business on December 31, 1995, there were
10,263,225 shares of ACOM Common Stock and 0 shares of ACOM Preferred Stock
issued and outstanding. As of December 31, 1995, no shares of ACOM Common
Stock or ACOM Preferred Stock were reserved for issuance, except that 69,000
shares of ACOM Common Stock were reserved for issuance upon the exercise of
outstanding stock options and purchases under the 1992 Employee Stock Purchase
Plan. All of the issued and outstanding shares of ACOM Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable. As of
the date of this Agreement, except as referred to above or as otherwise
disclosed, ACOM does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of ACOM Common
Stock or ACOM Preferred Stock or any securities representing the right to
purchase or otherwise receive any shares of ACOM Common Stock or ACOM Preferred
Stock. Upon issuance, the shares of ACOM Common Stock to be issued pursuant to
this Agreement will be duly authorized and validly issued and, all such shares
will be fully paid and nonassessable.
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
8.1 Survival of Representations and Warranties etc. All
representations and warranties, covenants, agreements, and other undertakings
of the parties contained in this Agreement, the Schedules, the Financial
Statements or in any certificate or other document or writing delivered
pursuant hereto, shall survive the Closing Date, shall not be merged into the
closing, and shall not be deemed waived by closing, due diligence
investigation, or any other act.
8.2 Indemnification. (a) The Seller Shareholders shall indemnify,
defend, and hold harmless ACOM, Merger Sub and Target from and against any and
all losses, liabilities, damages,
24
<PAGE> 25
obligations, payments, costs, and expenses (including, without limitation, the
costs and expenses of any and all actions, suits, proceedings, judgments,
settlements, and compromises relating thereto, and reasonable attorneys' fees
in connection therewith including attorneys fees incurred in connection with
enforcement of this indemnity obligation) (collectively, "Indemnifiable
Losses") arising out of or due to, directly or indirectly, any of the
following:
(1) a breach of any of the representations, warranties, covenants,
agreements, or undertakings of the Seller Shareholders or
Target contained in this Agreement;
(2) any liability, claim or obligation of the Seller Shareholders
or Target, other than those specifically accepted or assumed
by ACOM; and/or
(3) all debts, liabilities, fines, taxes, or other obligations
resulting from the ownership, maintenance and/or operation of
Target or the Business prior to the Assumption Date.
(b) ACOM shall indemnify, defend, and hold harmless the Seller
Shareholders from and against any and all Indemnifiable Losses (as defined in
Section 8.2(a) above) arising out of or due to, directly or indirectly, a
breach of any of the representations, warranties, covenants, agreements, or
undertakings of ACOM or Merger Sub contained in this Agreement.
8.3 Procedure for Indemnification. If a party seeks
indemnification hereunder ("Indemnitee"), said party shall first give prompt
and reasonable notice to the party from whom indemnification is sought
("Indemnifying Party") setting forth in reasonable detail the nature of the
claim and the amount (estimated if necessary) of the Indemnifiable Loss that
has been or may be sustained. If the claim is a claim asserted by a third
party not a party to this Agreement, the Indemnifying Party may elect to
compromise or defend such claim, at such Indemnifying Party's own expense. If
the Indemnifying Party elects to compromise or defend such third party claim,
it shall within thirty (30) days (or sooner if the nature of the claim so
requires) notify the Indemnitee of its intent to do so, and the Indemnitee
shall cooperate, at the sole expense of the Indemnifying Party, in the
compromise of, or defense against, such third party claim. If the Indemnifying
Party elects not to compromise or defend against the third party claim, or
fails to notify the Indemnitee of its election as herein provided, the
Indemnitee may pay, compromise or defend such third party claim upon terms it
deems appropriate without waiving its claim for indemnification hereunder.
25
<PAGE> 26
Any claim on account of an Indemnifiable Loss which does not result
from at third party claim shall be asserted by written notice given by the
Indemnitee to the Indemnifying Party. The Indemnifying Party shall have a
period of thirty (30) days within which to respond. If the Indemnifying Party
does not respond within such thirty (30) day period, the Indemnifying Party
shall be deemed to have accepted responsibility to provide indemnification and
shall have no further right to contest the validity of such claim. If the
Indemnifying Party does respond within such thirty (30) day period and rejects
such claim in whole or in part, the Indemnitee shall be free to pursue such
remedies as may be available to such party by applicable law. Specifically in
such event, ACOM and Merger Sub shall: (i) have the right to immediately and
from time to time thereafter set off against payments owed to any party under
this Agreement, any and all amounts of the claim rejected by the Indemnifying
Party; or (ii) request from time to time and promptly receive, from the Escrow
Agent, notwithstanding any objection by the Indemnifying Party, any and all
amounts of the claim rejected by the Indemnifying Party, but said right(s)
shall not be ACOM's exclusive remedy hereunder.
8.5 Remedies Cumulative. The remedies provided in this Article 8
shall be cumulative and shall not preclude assertion by an Indemnitee of any
other rights or the seeking of any and all other remedies against an
Indemnifying Party.
ARTICLE IX
NOTICES
Any notices or other communications required or permitted hereunder
shall be given in writing and shall be either hand or courier delivered (which
includes express or overnight delivery) or sent by certified or registered
mail, postage prepaid, return receipt requested and addressed as follows:
If to ACOM or Merger Sub:
A+ Network, Inc.
40 South Palafox Street
5th Floor
Pensacola, Florida 32501
With a Copy to:
Daniel R. Lozier, Esq.
Lozier, Tipton, Tipton & Thames
125 West Romana Street, Suite 222
Pensacola, Florida 32501
Telephone: (904) 469-9666
Facsimile: (904) 469-0006
26
<PAGE> 27
If to the Seller Shareholders or Target:
Radio and Communications
Consultants, Inc.
933 Stoner Avenue
Shreveport, Louisiana 71101
Attention: Leroy Faith, Sr.
With a Copy to:
William H. Ledbetter, Jr., Esq.
Attorney at Law
2285 Benton Road, Suite D-101
Bossier City, Louisiana 71111
Telephone: (318) 747-5333
Facsimile: (318) 742-0953
or to such other address as shall be furnished in writing by such party, and
any such notice or communication shall be effective and be deemed given as of
the date hand or courier delivered, or if mailed, within three (3) business days
following the date mailed; provided that any notice or communications changing
any of the addresses set forth above shall be effective and deemed given only
upon its actual receipt.
ARTICLE X
MISCELLANEOUS
10.1 Headings. The descriptive headings of the several Articles
and Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement. No provision of this Agreement shall be
strictly construed against a party on the basis that said party drafted said
provision.
10.2 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, but neither this Agreement nor any of the
rights, interests, or obligations hereunder shall be assigned by Seller
Shareholders (nor by Target prior to Closing Date) without the prior written
consent of ACOM.
10.3 Expenses and Transfer Taxes. All professional, accounting,
and legal fees and expenses incurred by the Seller Shareholders or by Target in
connection with this Agreement shall be borne by the Seller Shareholders and
all such fees and expenses incurred by ACOM or Merger Sub in connection with
this Agreement
27
<PAGE> 28
shall be borne by ACOM.
Except as otherwise provided for Target above, each party shall pay
its own attorneys fees, accounting fees, or other expenses incurred in
consummating the transactions contemplated hereby. Any and all FCC License
transfer fees shall be paid by ACOM (other than: FCC costs associated with
corrective actions deemed necessary by ACOM to bring the Business into FCC
compliance; and FCC penalties or fines asserted against Seller Shareholders or
the Business, all of which shall be paid by Seller Shareholders). Any and all
sales and/or use taxes or transfer taxes or fees incurred as a result of the
transactions contemplated hereby shall be paid by ACOM, regardless of how or
upon whom levied. All tangible, intangible, personal property, or other similar
recurring taxes shall be pro-rated as of Assumption Date and those attributable
to periods of time prior to such date shall be paid by Seller Shareholders
while those after such date shall be paid by ACOM. Any and all pre-paid items,
deposits, insurance premiums, taxes, or other matters paid prior to Assumption
Date and attributable to periods of time after Assumption Date shall not be
allocated or apportioned in any fashion and Merger Sub shall receive the full
benefit thereof without any obligation of reimbursement to Seller Shareholders.
Any and all closing costs not specifically listed shall be paid one half (1/2)
by ACOM and one half (1/2) by Seller Shareholders.
10.4 Complete Agreement. This Agreement and the Schedules contain
the entire understanding of the parties with respect to the transactions
contemplated hereby and supersede all prior arrangements and understandings
with respect thereto. There are no restrictions, agreements, promises,
warranties, covenants, or understandings other than those expressly set forth
herein or therein.
10.5 Modifications, Amendments and Waivers. At any time prior to
the Closing Date (i) the parties hereto may, by written agreement, modify,
amend, or supplement any term or provision of this Agreement and (ii) any term
or provision of this Agreement may be waived in writing by the party which is
entitled to the benefits thereof.
10.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same Agreement and
each of which shall be deemed an original.
10.7 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the actual or alleged breach hereof, shall be
settled by binding arbitration conducted in accordance with and by arbitrators
appointed pursuant to the Commercial Rules of the American Arbitration
Association in effect at the time. The
28
<PAGE> 29
arbitration shall be conducted where the parties mutually agree or if they
cannot agree, as decided by the arbitrators. The award rendered may be entered
in any court having jurisdiction. The parties acknowledge and agree that this
arbitration provision shall not deprive any party of the right to seek or
pursue injunctive relief or other equitable remedies, including but not limited
to specific performance, which relief or remedies are generally unavailable
through arbitration. The parties specifically acknowledge and agree that the
terms hereof are unique and valuable, that ACOM may not have an adequate remedy
at law, and that the terms and conditions hereof are capable of being
specifically enforced. The parties acknowledge and agree that venue of all
proceedings, judicial or arbitration shall properly and exclusively lie in
Escambia County, Florida.
29
<PAGE> 30
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, individually or by its duly authorized officers, as of the day and
year first above written.
ACOM/MERGER SUB: A+ NETWORK, INC.
/s/ STEVE SIMS
- -----------------------------
Witness
Print Name Steve Sims
-------------------
/s/ JEFF M. FOX By: [sig]
- ----------------------------- ------------------------
Witness
Print Name Jeff M. Fox Its: Vice Chairman
------------------- ------------------------
SELLER SHAREHOLDERS:
/s/ WILLIAM H. LEDBETTER, JR. /s/ LEROY FAITH, SR.
- ------------------------------------ ----------------------------
Witness LEROY FAITH, SR.
Print Name William H. Ledbetter, Jr.
-------------------------
/s/ FRAN R. COKER
- ------------------------------------
Witness
Print Name Fran R. Coker
--------------------------
/s/ STACY MADDEN /s/ LEROY FAITH, JR.
- ------------------------------------ ----------------------------
Witness LEROY FAITH, JR.
Print Name Stacy Madden
--------------------------
/s/ EDDIE FAITH
- ------------------------------------
Witness
Print Name Eddie Faith
--------------------------
30
<PAGE> 31
/s/ WILLIAM H. LEDBETTER, JR.
- ------------------------------------
Witness
Print Name William H. Ledbetter, Jr.
--------------------------
/s/ FRAN R. COKER By: /s/ EDDIE RAY FAITH
- ------------------------------------ ------------------------
Witness EDDIE RAY FAITH
Print Name Fran R. Coker
--------------------------
/s/ LINDA C. JOHNSON /s/ DONALD DEWAYNE FAITH
- ------------------------------------ ----------------------------
Witness DONALD DEWAYNE FAITH
Print Name Linda C. Johnson
-------------------------
/s/ FRAN R. COKER
- ------------------------------------
Witness
Print Name Fran R. Coker
--------------------------
TARGET: RADIO AND COMMUNICATIONS
CONSULTANTS, INC.
/s/ WILLIAM H. LEDBETTER, JR.
- ------------------------------------
Witness
Print Name William H. Ledbetter, Jr.
--------------------------
/s/ FRAN R. COKER By: /s/ EDDIE RAY FAITH
- ------------------------------------ ------------------------
Witness
Print Name Fran R. Coker Its: President
-------------------------- -----------------------
ADVANCED CELLULAR
TELEPHONE, INC.
/s/ STACY MADDEN
- ------------------------------------
Witness
Print Name Stacy Madden
--------------------------
/s/ EDDIE FAITH By: /s/ LEROY FAITH
- ------------------------------------ -------------------------
Witness
Print Name Eddie Faith Its: President
-------------------------- ------------------------
31
<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 MARCH 31, 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)
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 MAY 1, 1996
- ----------------------------- --------------------------
COMMON STOCK, $.01 PAR VALUE 14,626,255
Information has been deleted pursuant to request for confidential treatment.
<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 March 31, 1996 3
Condensed Consolidated Statements of Operations for the three months ended
March 31, 1995 and 1996 4
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 1995 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results 9
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Items 2-5. None or Not Applicable 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
METROCALL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Information)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 123,574 $ 115,150
Accounts receivable, less allowance for doubtful accounts of
$968 as of December 31, 1995 and $892 as of March 31, 1996 9,785 9,345
Prepaid expenses and other current assets 1,908 1,750
----------- -----------
Total current assets 135,267 126,245
----------- -----------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements 9,900 10,003
Furniture, office equipment and vehicles 12,794 14,189
Paging and plant equipment 103,427 113,972
Less - Accumulated depreciation and amortization (50,175) (55,209)
----------- -----------
75,946 82,955
----------- -----------
INTANGIBLE ASSETS, net of accumulated amortization of
approximately $8,875 as of December 31, 1995 and
$ 10,450 as of March 31, 1996 129,085 127,802
OTHER ASSETS 316 292
----------- -----------
$ 340,614 $ 337,294
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 252 $ 260
Accounts payable 9,390 9,651
Deferred revenues and subscriber deposits 1,950 2,561
Other current liabilities 7,666 11,395
----------- -----------
Total current liabilities 19,258 23,867
----------- -----------
CAPITAL LEASE OBLIGATION, net of current portion 2,849 2,799
LONG-TERM DEBT, less current maturities 150,954 150,936
DEFERRED INCOME TAX LIABILITY 11,814 11,642
MINORITY INTEREST IN PARTNERSHIP 501 501
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
shares; 14,626,255 shares issued and outstanding
as of December 31, 1995 and March 31, 1996 146 146
Additional paid-in capital 201,956 201,956
----------- -----------
Accumulated deficit (46,864) (54,553)
----------- -----------
155,238 147,549
----------- -----------
$ 340,614 $ 337,294
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
METROCALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Information)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
REVENUES:
Service, rent and maintenance revenues $ 22,109 $ 23,750
Product sales 3,688 6,189
------------ ------------
Total revenues 25,797 29,939
Net book value of products sold (3,153) (4,650)
------------ ------------
22,644 25,289
------------ ------------
OPERATING EXPENSES:
Service, rent and maintenance expenses 6,297 8,193
Selling and marketing 3,963 4,593
General and administrative 5,849 5,782
Depreciation and amortization 5,769 11,491
------------ ------------
21,878 30,059
------------ ------------
Income (loss) from operations 766 (4,770)
INTEREST EXPENSE (2,579) (4,209)
INTEREST AND OTHER (EXPENSE) INCOME (17) 1,354
------------ ------------
LOSS BEFORE INCOME TAXES (1,830) (7,625)
BENEFIT (PROVISION) FOR INCOME TAXES 140 (64)
------------ ------------
Net loss $ (1,690) $ (7,689)
============ ============
NET LOSS PER COMMON SHARE $ (0.16) $ (0.53)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,602,148 14,626,255
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
METROCALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------
1995 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,690) $ (7,689)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Depreciation and amortization 5,769 11,491
Amortization of debt financing costs 82 72
Decrease in deferred income taxes (172) (172)
Cash provided by (used in) changes in assets
and liabilities:
Accounts receivable (61) 440
Prepaid expenses and other current assets 86 158
Accounts payable 322 261
Deferred revenues and subscriber deposits 179 611
Other current liabilities 268 3,729
----------- -----------
Net cash provided by operating activities 4,783 8,901
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (8,727) (16,889)
Additions to intangibles (226) (400)
Other 35 24
----------- -----------
Net cash used in investing activities (8,918) (17,265)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 6,000 -
Principal payments on long-term debt (48) (60)
Decrease in minority interest in partnership (2) -
----------- -----------
Net cash provided by (used in) financing activities 5,950 (60)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,815 (8,424)
CASH AND CASH EQUIVALENTS, beginning of period 2,773 123,574
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 4,588 $ 115,150
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest $ 2,419 $ 317
Cash payments for income taxes $ 32 $ -
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. ORGANIZATION
Metrocall, Inc. (the "Company"), provides local, regional and
nationwide paging and other wireless messaging services. The Company's selling
efforts are concentrated in 16 markets in four 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) and (iv) the West (primarily California, Nevada and Arizona). Through
its Nationwide Network, the Company provides coverage in approximately 864
cities representing the top 100 Standard Metropolitan Statistical Areas.
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-month period ended March
31, 1996, are not necessarily indicative of the results to be expected for the
full year.
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
disclosures 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.
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.
YEARS
-----
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
6
<PAGE> 7
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH, 1996
(UNAUDITED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment (continued)
In July, 1995, the Company began recording and depreciating all new
pagers as a component of subscriber paging equipment.
4. NET LOSS PER COMMON SHARE
Net loss per common share for the three-month periods ended March 31,
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. STOCK OPTION AND PURCHASE PLANS
During the quarter ended March 31, 1996, pursuant to the Metrocall
Stock Option Plan, as amended, (the "Plan"), the Board of Directors authorized
the issuance of options to purchase 265,000 shares of Metrocall common stock
exercisable at prices ranging from $19.125 to $20.25 per share to certain key
employees of the Company. All options were issued with an exercise price equal
to the fair market value at the date of grant. All options granted under the
Plan become fully vested and exercisable on the second anniversary of the date
of grant and expire ten years from the date of grant. Total options
outstanding under the Plan at March 31, 1996, were 973,000 with exercise prices
ranging from $13.00 to $20.25 per share, excluding 27,958 shares of Metrocall
common stock with an exercise price of $1.035 per share issued in the acquisi-
tion of First PAGE USA, Inc., in August 1994. Options to purchase an additional
160,000 shares of Metrocall common stock were granted under a proposed stock
option plan which was ratified by the Company's stockholders on May 1, 1996.
Pursuant to the Directors Stock Option Plan (the "Directors Plan"), the
Board of Directors authorized the issuance of an option to purchase 1,000 shares
of Metrocall common stock exercisable at $20.00 per share during the quarter
ended March 31, 1996. All options were issued at an exercise price equal to
the fair market value at the grant date. All options granted under the
Directors Plan become fully vested and exercisable on the six-month anniversary
of the date of grant. Total options outstanding under the Directors Plan at
March 31, 1996, were 9,000 with exercise prices ranging from $13.00 to $22.125
per share.
On May 1, 1996, the stockholders of the Company approved the Metrocall,
Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"), which offers
eligible employees the opportunity to purchase an aggregate of 300,000 shares
of Metrocall common stock through payroll deductions. Each eligible employee
may elect to purchase shares of Metrocall common stock at the lesser of 85% of
the fair market value of Metrocall common stock on either the first or last
trading day for each payroll deduction period. The initial payroll deduction
period is from April 1, 1996 to June 30, 1996. Thereafter, a new payroll
deduction period will begin January 1 and July 1 of each year.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
6. PENDING ACQUISITIONS
The Company continuously pursues opportunities to acquire businesses
and investments in wireless companies. Reflected below is a summary of binding
agreements to acquire businesses which remain pending. Consummation of these
pending acquisitions is subject to a number of conditions including, but not
limited to, receipt of all necessary regulatory approvals. There can be no
assurance that such approval can be obtained. In addition, the purchase prices
of each transaction is subject to adjustment based on each company's ability to
meet certain defined performance criteria. The pending transactions, if
consummated, will be accounted for as purchases.
Parkway Paging, Inc.
On January 26, 1996, the Company signed a definitive merger agreement
(the "Parkway Agreement") with Parkway Paging, Inc. of Plano, Texas ("Parkway")
and certain other parties listed therein whereby Parkway will become a
wholly-owned subsidiary of the Company. Under the terms of the Parkway
Agreement, the Company will acquire all of the stock of Parkway in exchange for
consideration of $28 million, up to 51% of which may be issued in the form of
the Company's common stock at Parkway's election.
Satellite Paging and Message Network
On February 28, 1996, the Company signed a definitive acquisition
agreement (the "Satellite Agreement") with Satellite Paging of Fairfield, New
Jersey and Message Network of Boca Raton, Florida (together, "Satellite").
Under the terms of the Satellite Agreement, the Company will acquire all of the
assets of Satellite in exchange for $28 million cash.
Source One Wireless, Inc.
On April 22, 1996, the Company signed a definitive acquisition
agreement (the "Source One Agreement") with Source One Wireless, Inc. of
Wheeling, Illinois ("Source One"). Under the terms of the Source One
Agreement, the Company will acquire all of the assets of Source One in exchange
for consideration of which at least 25%, but not to exceed 50% at Source One's
election, will be in the form of the Company's common stock and the remainder
will be in cash. The purchase price will be based on a multiple of trailing
quarter annualized cash flow, as defined.
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 in exchange for $78.5 million, of which $55 million will be paid in
cash and $23.5 million will be paid in the form of the Company's common stock.
8
<PAGE> 9
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, and the Company's ability
to generate cash from operations and further savings from existing operations,
are based on current expectations. These statements are forward looking in
nature and involve a number of risks and uncertainties. Actual results may
differ materially.
OVERVIEW
Metrocall is among the leading paging companies in the United States
based on number of subscribers, with 1,009,548 pagers in service at March 31,
1996. In February and April, 1996, Metrocall announced four separate pending
acquisitions which, when consummated, will add approximately 770,000 sub-
scribers to its base of pagers in service. The results of operations for the
three months ended March 31, 1996, do not reflect the results of operations
of any of these companies to be acquired. 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, not generally 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 average monthly service, rent and maintenance revenues
per unit ("ARPU") for the year ended December 31, 1995 and the three months
ended March 31, 1995 and 1996 was $9.15, $9.55 and $8.11, respectively. This
decline in ARPU is primarily a function of the changing mix of distribution
channels. In order to increase penetration and maximize utilization of its
networks, the Company has begun to emphasize a number of distribution channels
in addition to its direct sales force. For example, third party resellers do
not lease pagers from the Company and generally purchase services in large
quantities at discount prices. This lower revenue base is, however, offset by
lower sales and administrative costs for these subscribers. Similarly, more
customers are purchasing pagers either directly from the Company or through
retail outlets, and the Company does not earn lease revenues from these COAM
units. These lower revenues are offset by lower capital expenditures as the
Company does not need to make investments in paging equipment for these
subscribers. Furthermore, the Company has been successful in marketing
enhanced services to its subscriber base (e.g. nationwide paging services and
voice-mail). Such services are sold at incremental cost to the consumer and
have also helped to offset declines in per unit revenue.
9
<PAGE> 10
The Company's long-term strategy is to continue to expand its business
by providing paging and other wireless communication services to an
increasingly broad base of subscribers throughout the United States, while
increasing EBITDA and EBITDA margin. The Company is seeking to increase its
base of subscribers by expanding its operations in existing, contiguous and
other markets, through start-up operations, internal growth or the acquisition
of existing paging systems.
The Company's growth and expansion into new markets, whether internal
or through acquisition, 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.
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
ENDED
MARCH 31
-------------------------
1995 1996
-------------------------
<S> <C> <C>
Revenues:
Service, rent and maintenance 97.6 % 93.9 %
Product sales 16.3 24.5
Net book value of products sold (13.9) (18.4)
---------- -----------
Net revenues 100.0 100.0
---------- -----------
Operating expenses:
Service, rent and maintenance 27.8 32.4
Selling and marketing 17.5 18.2
General and administrative 25.8 22.9
Depreciation and amortization 25.5 45.4
---------- -----------
Income (loss) from operations 3.4 (18.9)
Interest expense (11.4) (16.6)
Interest and other (expense) income (0.1) 5.4
Income tax benefit (provision) 0.6 (0.3)
Net loss (7.5) (30.4)
OTHER DATA:
Units in service (end of period) 787,920 1,009,548
EBITDA (in thousands)(1) $ 6,535 $ 6,721
Ratio of EBITDA to net revenues(1) 28.9 % 26.6 %
ARPU(2) $ 9.55 $ 8.11
</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) monthly service, rent and maintenance revenues for the period
by (b) the average number of units in service for the period.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH 1995
Total revenues increased approximately $4.1 million from $25.8 million
for the three months ended March 31, 1995, ("1995") to $29.9 million for the
three months ended March 31, 1996 ("1996"). The increase is attributable to
greater service revenues due to the growth of pagers in service from 787,920 at
March 31, 1995, to 1,009,548 at March 31, 1996. Monthly ARPU declined from
$9.55 per unit in 1995 to $8.11 per unit in 1996 due to the increase in the
base of customers serviced through indirect distribution channels. Product
sales increased $2.5 million from $3.7 million in 1995 to $6.2 million in 1996
and increased as a percentage of net revenues from 16.3% in 1995 to 24.5%
in 1996, due to a higher volume of sales to resellers and other indirect sales
channels.
10
<PAGE> 11
Net book value of products sold increased approximately $1.4 million
from $3.2 million in 1995 to $4.6 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 (operating costs per unit before
depreciation and amortization) from 1995 to 1996. Average monthly operating
cost per unit decreased from $6.96 per unit for 1995 to $6.34 per unit for
1996. Each operating expense is discussed separately below.
Service, rent and maintenance expenses increased approximately $1.9
million from $6.3 million in 1995 to $8.2 million in 1996 and increased as a
percentage of net revenues from 27.8% in 1995 to 32.4% in 1996. The overall
increase in service, rent and maintenance expense is attributable to increased
carrier line costs paid to third party service providers ($1.0 million),
increased rent expense related to the addition of over 160 transmitters in the
Company's Nationwide Network ($0.5 million) and increased personnel costs
($0.4 million). Service, rent and maintenance expense per unit has increased
from $2.72 per unit per month in 1995 to $2.80 per unit per month in 1996.
Continued buildout of the Company's Nationwide Network by the Company may
result in increased service, rent and maintenance expenses as a percentage of
net revenues.
Selling and marketing expenses increased approximately $0.6 million
from $4.0 million in 1995 to $4.6 million in 1996 and increased as a percentage
of net revenues from 17.5% in 1995 to 18.2% in 1996. The increase in selling
and marketing expenses is primarily associated with increased sales staff and
related costs ($0.3 million) and increased advertising and promotion costs
($0.3 million). Monthly selling and marketing expense per unit has declined
from $1.71 per unit in 1995 to $1.57 per unit in 1996. Selling and marketing
expenses may increase as a percentage of net revenues as the Company continues
its subscriber growth and net unit additions.
General and administrative expenses remained consistent at $5.8 million
in 1995 compared to $5.8 million in 1996, but decreased as a percentage of net
revenues from 25.8% in 1995 to 22.9% in 1996. Monthly general and
administrative expense per unit has decreased from $2.53 per unit in 1995 to
$1.97 per unit in 1996.
Depreciation and amortization increased approximately $5.7 million from
$5.8 million in 1995 to $11.5 million in 1996, and increased as a percentage of
net revenues from 25.5% to 45.4% in 1995 and 1996, respectively. The increase
in total depreciation expense resulted primarily from depreciation on
subscriber paging equipment ($4.2 million) and on other plant and operating
equipment ($1.5 million). Beginning in July, 1995, the Company began recording
all purchases of new pagers as a component of subscriber paging equipment.
Amounts previously classified as inventories in the prior period financial
statements have been reclassified to conform to the current period's
presentation.
Interest expense increased approximately $1.6 million, from $2.6
million in 1995 to $4.2 million in 1996. Interest expense increased due to
higher average levels of debt as a result of the Company's offering in October,
1995 of $150.0 million of senior subordinated notes at an interest rate of
10.375%.
Net loss increased $6.0 million in 1996 from approximately $1.7 million
in 1995 to $7.7 million.
EBITDA increased approximately $0.2 million to $6.7 million in 1996
from $6.5 million in 1995. As a percentage of net revenues, EBITDA decreased
from 28.9% in 1995 to 26.6% in 1996.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations and its Grow, Build and Acquire strategy
require the availability of substantial funds to finance the 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 and the use of available cash. Net cash provided by
operating activities increased from $4.8 million for the three months ended
March 31, 1995, to $8.9 million for the three months ended March 31, 1996.
Cash flows used in investing activities were primarily to fund
purchases of property and equipment. Capital expenditures were approximately
$8.7 million and $16.9 million for the three- month periods ended March 31,
1995 and 1996, respectively. The Company experienced greater capital
expenditure requirements through March 31, 1996, due to increased pager
placements and the expansion of transmission networks.
In February and April, 1996, the Company announced definitive
agreements whereby the Company would acquire four paging companies representing
approximately 770,000 subscribers for aggregate purchase prices of
approximately $214.5 million, of which approximately $137 million but not to
exceed $171 million would be paid in cash, with the remainder paid in the form
of Metrocall common stock.
Management believes that funds generated from the Company's operations,
together with funds generated from its 1995 equity offering and notes offering
and those funds available under its currently existing credit facility, as
amended, will be sufficient to meet cash requirements for the pending
acquisitions, projected capital expenditure requirements, and to fund the
Company's existing market operations for the foreseeable future. Management
plans to continue to expand its geographic service areas through internal
growth and acquisitions in the future which will result in substantial capital
requirements for which additional debt or equity financing may be required. In
addition, to the extent the cash portions of the purchase prices of the
definitive agreements are in excess of the Company's cash reserves, the Company
may also be required to seek additional financing. No assurance can be given
that such additional financing would be available on terms satisfactory to the
Company.
12
<PAGE> 13
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.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.
1.1 Underwriting Agreement. (a)
2.1 Agreement and Plan of Reorganization among Metrocall, FPGE
Acquisition Corp., FirstPAGE, Wilmington Securities, Inc.,
First Century Partnership III and Omega Partners, L.P., dated
March 15, 1994 (the "FirstPAGE Reorganization Agreement").(b)
2.2 Certificate of Merger between FirstPAGE and FPGE Acquisition
Corp. executed upon approval of the merger by the
stockholders of Metrocall and FirstPAGE. (b)
2.3 Supplemental Agreement executed in connection with the
FirstPAGE Reorganization Agreement.(b)
2.4 Indemnification and Escrow Agreement executed in connection
with FirstPAGE Reorganization Agreement. (c)
2.5 Voting Agreement among Metrocall, FirstPAGE and certain
principal stockholders of Metrocall and FirstPAGE executed
in connection with the FirstPAGE Reorganization Agreement. (c)
2.6 First Amendment to FirstPAGE Reorganization Agreement. (b)
2.7 Agreement of Merger by and among Metrocall, Inc., PPI
Acquisition Corp., Parkway Paging, Inc. certain shareholders
of Parkway Paging, Inc., and George W. Bush, dated
February 26, 1996.*
2.8 Asset Purchase Agreement by and among O.R. Estman, Inc.
d/b/a Satellite Paging, Dana Panging, Inc. d/b/a Message
Network, Bertram M. Wachtel, Edward R. Davalos, Kevan D.
Bloomgren and Metrocall, Inc., dated February 28, 1996.***
3.1 Amended and Restated Certificate of Incorporation of
Metrocall. (d)
3.2 Third Amended and Restated Bylaws of Metrocall (e)
4.1 Indenture, including form of 10 3/8% Senior Subordinated
Notes due 2007. (a)
10.1 Loan Agreement by and among Metrocall, certain lenders and
Toronto Dominion Bank as agent, dated August 31, 1994
(the "Loan Agreement"). (c)
10.2 First Amendment to Loan Agreement dated November 30, 1994. (f)
10.3 Second Amendment to Loan Agreement dated April 28, 1995. (e)
10.4 Third Amendment to Loan Agreement dated October 2, 1995. (i)
10.5 Amended and Restated 1993 Stock Option Plan of Metrocall. (d)
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONT.)
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K. (CONT.)
10.6 Directors' Stock Option Plan of Metrocall. (d)
10.7 Deed of Lease between Douglas and Joyce Jemal, as landlord,
and Metrocall, as tenant, dated April 14, 1994. (c)
10.8 Lease Agreement dated December 20, 1983, between a
predecessor of Metrocall and Beacon Communications
Associates, Ltd. (g)
10.9 Employment Agreement between Metrocall and Christopher A.
Kidd. (g)
10.10 Employment Agreement between Metrocall and Vincent D.
Kelly. (g)
10.11 Employment Agreement between Metrocall and William L. Collins,
III executed in connection with the FirstPAGE Reorganization
Agreement. (b)
10.12 Employment Agreement between Metrocall and Steven D. Jacoby
executed in connection with the FirstPAGE Reorganization
Agreement. (b)
10.13 Tax Indemnification Agreement by and among Metrocall,
Harry L. Brock, Jr., Christopher A. Kidd, Vincent D. Kelly
and Suzanne S. Brock. (d)
10.14 Metrocall Savings and Retirement Plan, as amended and
restated dated April 1, 1995. (j)
10.15 Agreement and Plan of Merger among Metrocall; ACPI Acquisition
Corporation; AllCity Paging, Norman H. Minkow; Nancy
Minkow; Brian David Minkow, Karen Lynn Mercer and Steven
Andrew Minkow, as Trustees of the Brian David Minkow
Irrevocable Trust dated November 1, 1993; David Minkow,
Karen Lynn Mercer and Steven Andrew Minkow, as Trustees of
the Karen Lynn Minkow Irrevocable Trust dated November 1,
1993; Brian David Minkow, Karen Lynn Mercer and Steven
Andrew Minkow, as Trustees of the Steven Andrew Minkow
Irrevocable Trust dated November 1, 1993; Barry F. Hobbs;
and Tom J. Hull, dated April 20, 1994 ("Agreement and Plan
of Merger").(h)
10.16 First Amendment to Agreement and Plan of Merger dated
November 28, 1994. (h)
13.1 Metrocall 1995 Annual Report to Shareholders. (j)
21.1 Subsidiaries of Metrocall. (j)
----------------
* Exhibit filed herewith.
** Information has been deleted pursuant to request for
confidential treatment.
(a) Incorporated by reference to Metrocall's Registration
Statement on Form S-1, as amended (File No. 33-96042),
filed with the Commission on September 27, 1995.
(b) Incorporated by reference to Metrocall's Registration
Statement on Form S-4, as amended (File No. 33-79818), filed
with the Commission on July 19, 1994.
(c) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994, filed
with the Commission on November 14, 1994.
(d) Incorporated by reference to Metrocall's Annual Report on
Form 10-K/A as amended, for the year ended December 31,
1993, filed with the Commission on July 21, 1994.
(e) Incorporated by reference to Metrocall's Registration
Statement on Form S-1, as amended (File No. 33-96042).
(f) Incorporated by reference to Metrocall's Annual Report on
Form 10-K/A for the year ended December 31, 1994, filed with
the Commission on July 26, 1995.
(g) Incorporated by reference to Metrocall's Registration
Statement on Form S-1, as amended (File No. 33-63886),
filed with the Commission on July 12, 1993.
(h) Incorporated by reference to Metrocall's Current Report on
Form 8-K, dated April 20, 1994, filed with the Commission on
April 26, 1994.
(i) Incorporated by reference to Metrocall's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995, filed
with the Commission on November 14, 1995.
(j) Incorporated by reference to Metrocall's Annual Report on
Form 10-K for the year ended December 31, 1995 filed with
the Commission on April 1, 1996.
(b) REPORTS ON FROM 8-K
None.
14
<PAGE> 15
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: May 14, 1996 METROCALL, INC.
/s/ Vincent D. Kelly
---------------------------------
Vincent D. Kelly
Chief Financial Officer, Treasurer
and Vice President
15
<PAGE> 16
EXHIBITS
TO EXHIBIT 13.2
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- --------- -------------------
<S> <C>
1.1 Underwriting Agreement. (a)
2.1 Agreement and Plan of Reorganization among Metrocall, FPGE Acquisition Corp., FirstPAGE,
Wilmington Securities, Inc., First Century Partnership III and Omega Partners, L.P., dated
March 15, 1994 (the "FirstPAGE Reorganization Agreement"). (b)
2.2 Certificate of Merger between FirstPAGE and FPGE Acquisition Corp. executed upon approval
of the merger by the stockholders of Metrocall and FirstPAGE. (b)
2.3 Supplemental Agreement executed in connection with the FirstPAGE Reorganization Agreement.(b)
2.4 Indemnification and Escrow Agreement executed in connection with FirstPAGE Reorganization
Agreement. (c)
2.5 Voting Agreement among Metrocall, FirstPAGE and certain principal stockholders of Metrocall
and FirstPAGE executed in connection with the FirstPAGE Reorganization Agreement. (c)
2.6 First Amendment to FirstPAGE Reorganization Agreement. (b)
2.7 Agreement of Merger by and among Metrocall, Inc., PPI Acquisition Corp., Parkway Paging, Inc.
certain shareholders of Parkway Paging, Inc., and George W. Bush, dated February 26, 1996.*
2.8 Asset Purchase Agreement by and among O.R. Estman, Inc. d/b/a Satellite Paging, Dana Panging,
Inc. d/b/a Message Network, Bertram M. Wachtel, Edward R. Davalos, Kevan D. Bloomgren and
Metrocall, Inc., dated February 28, 1996.***
3.1 Amended and Restated Certificate of Incorporation of Metrocall. (d)
3.2 Third Amended and Restated Bylaws of Metrocall (e)
4.1 Indenture, including form of 10 3/8% Senior Subordinated Notes due 2007. (a)
10.1 Loan Agreement by and among Metrocall, certain lenders and Toronto Dominion Bank as agent,
dated August 31, 1994 (the "Loan Agreement"). (c)
10.2 First Amendment to Loan Agreement dated November 30, 1994. (f)
10.3 Second Amendment to Loan Agreement dated April 28, 1995. (e)
10.4 Third Amendment to Loan Agreement dated October 2, 1995. (i)
10.5 Amended and Restated 1993 Stock Option Plan of Metrocall. (d)
10.6 Directors' Stock Option Plan of Metrocall. (d)
10.7 Deed of Lease between Douglas and Joyce Jemal, as landlord, and Metrocall, as tenant,
dated April 14, 1994. (c)
10.8 Lease Agreement dated December 20, 1983, between a predecessor of Metrocall and Beacon
Communications Associates, Ltd. (g)
10.9 Employment Agreement between Metrocall and Christopher A. Kidd. (g)
10.10 Employment Agreement between Metrocall and Vincent D. Kelly. (g)
10.11 Employment Agreement between Metrocall and William L. Collins, III executed in connection with
the FirstPAGE Reorganization Agreement. (b)
10.12 Employment Agreement between Metrocall and Steven D. Jacoby executed in connection with the
FirstPAGE Reorganization Agreement. (b)
10.13 Tax Indemnification Agreement by and among Metrocall, Harry L. Brock, Jr., Christopher A. Kidd,
Vincent D. Kelly and Suzanne S. Brock. (d)
10.14 Metrocall Savings and Retirement Plan, as amended and restated dated April 1, 1995. (j)
10.15 Agreement and Plan of Merger among Metrocall; ACPI Acquisition Corporation; AllCity Paging,
Norman H. Minkow; Nancy Minkow; Brian David Minkow, Karen Lynn Mercer and Steven
Andrew Minkow, as Trustees of the Brian David Minkow Irrevocable Trust dated
November 1, 1993; David Minkow, Karen Lynn Mercer and Steven Andrew Minkow, as Trustees
of the Karen Lynn Minkow Irrevocable Trust dated November 1, 1993; Brian David Minkow,
Karen Lynn Mercer and Steven Andrew Minkow, as Trustees of the Steven Andrew Minkow
Irrevocable Trust dated November 1, 1993; Barry F. Hobbs; and Tom J. Hull, dated April 20, 1994
("Agreement and Plan of Merger").(h)
10.16 First Amendment to Agreement and Plan of Merger dated November 28, 1994. (h)
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- --------- -------------------
<S> <C>
13.1 Metrocall 1995 Annual Report to Shareholders. (j)
21.1 Subsidiaries of Metrocall. (j)
</TABLE>
- -----------------
* Exhibit filed herewith.
** Information has been deleted pursuant to request for confidential
treatment.
(a) Incorporated by reference to Metrocall's Registration Statement
on Form S-1, as amended (File No. 33-96042), filed with the
Commission on September 27, 1995.
(b) Incorporated by reference to Metrocall's Registration Statement
on Form S-4, as amended (File No. 33-79818), filed with the
Commission on July 19, 1994.
(c) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994, filed with
the Commission on November 14, 1994.
(d) Incorporated by reference to Metrocall's Annual Report on Form
10-K/A as amended, for the year ended December 31, 1993, filed
with the Commission on July 21, 1994.
(e) Incorporated by reference to Metrocall's Registration Statement
on Form S-1, as amended (File No. 33-96042).
(f) Incorporated by reference to Metrocall's Annual Report on Form
10-K/A for the year ended December 31, 1994, filed with the
Commission on July 26, 1995.
(g) Incorporated by reference to Metrocall's Registration Statement
on Form S-1, as amended (File No. 33-63886), filed with the
Commission on July 12, 1993.
(h) Incorporated by reference to Metrocall's Current Report on Form
8-K, dated April 20, 1994, filed with the Commission on
April 26, 1994.
(i) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995, filed with
the Commission on November 14, 1995.
(j) Incorporated by reference to Metrocall's Annual Report on Form
10-K for the year ended December 31, 1995, filed with the
Commission on April 1, 1996.
<PAGE> 19
EXHIBIT 2.7
TO EXHIBIT 13.2
================================================================================
AGREEMENT OF MERGER
BY AND AMONG
METROCALL, INC., PPI ACQUISITION CORP.,
PARKWAY PAGING, INC.
CERTAIN SHAREHOLDERS OF PARKWAY PAGING, INC.
AND
GEORGE W. BUSH
================================================================================
<PAGE> 20
AGREEMENT OF MERGER
This AGREEMENT OF MERGER (this "Agreement") dated as of February 26,
1996, by and among METROCALL, INC., a Delaware corporation ("Metrocall"), PPI
ACQUISITION CORP., a Delaware corporation and wholly owned subsidiary of
Metrocall (the "Purchaser"), PARKWAY PAGING, INC., a Texas corporation (the
"Company"), the Shareholders executing this Agreement on the date of this
Agreement (the "Executing Shareholders") and George W. Bush. It is intended
that all the shareholders of the Company, which shareholders are identified on
Schedule 1 of this Agreement (the "Shareholders"), will agree in writing to be
bound by the terms of this Agreement prior to the Closing Date (as defined
below).
W I T N E S S E T H:
The Company is engaged in the radio paging, long distance telephone and
related equipment business. The Purchaser, the Company and the Shareholders
wish to enter into an agreement for the merger (the "Merger") of the Company
with and into the Purchaser in a transaction qualifying as a tax-free
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
Accordingly, in consideration of the foregoing and of the covenants,
agreements, representations and warranties hereinafter contained, Metrocall,
the Purchaser, the Company and the Shareholders hereby agree as follows:
1. DEFINITIONS.
As used herein, the following terms shall have the following meanings:
1.1 Assignment Applications means the applications to be jointly
prepared by the Company and the Purchaser and filed with the FCC requesting
its written consent to the assignment or transfer of control of the Licenses
from the Company to the Purchaser.
1.2 Bona Fide Pager means a paging unit through which the Company's
services are presently received in accordance with the Company's historical
policy for disconnecting service, calculated in accordance with the example
attached hereto as Schedule 1.2.
1.3 Closing means the consummation of the Merger in accordance
herewith, and the payment of the portion of the Purchase Price to be paid at
the Closing.
1.4 Closing Date means the date and time on which the Closing
occurs.
1.5 Company's Business means the radio paging, long distance
telephone and related equipment businesses of the Company, the principal place
of business of which is in Plano, Texas and at its branch offices, which are
leased under the agreements set forth in Schedule 1.5, attached hereto.
<PAGE> 21
1.6 DOJ means the United States Department of Justice.
1.7 FCC means the Federal Communications Commission.
1.8 Final Order means an action by the FCC asserting authority over
this transaction granting its consent and approval to the assignment or
transfer of control of License or the Merger that has not been reversed,
stayed, enjoined, set aside, annulled or suspended and with respect to which
no action, request for stay, petition for review or rehearing, reconsideration
or appeal is pending, and as to which the time for filing any request,
petition, or appeal has expired and the time for agency action to set aside
its consent on its own motion has expired.
1.9 FTC means the Federal Trade Commission.
1.10 Licenses means and includes with respect to the Company's
Business all licenses, permits, franchises and authorizations issued by the
FCC and/or other relevant government agencies (including pending applications
for any of the foregoing), for the construction or operation of the Company's
Business, including all renewals and extensions thereof and all additional
licenses, permits, franchises, and authorizations obtained or applied for by
the Company from the date of this Agreement to the Closing Date.
1.11 Lien means any mortgage, pledge, security interest,
encumbrance, lien, claim or charge of any kind.
1.12 Material Adverse Effect or Material Adverse Change means any
change or effect that is, or is reasonably likely to be, materially adverse to
the business, financial condition, assets, liabilities, prospects or results
of operations of the Company's Business or ownership or operation of the
Company's Business by the Purchaser.
1.13 Real Property means all assets of the Company consisting of
interests in real property, including, without limitation, appurtenances,
improvements, and fixtures located on such real property, leasehold interests
therein and any other interests in real property.
1.14 To the Company's Knowledge or words of similar effect with
respect to a fact or matter shall mean the current, actual knowledge of George
W. Bush or Frederick L. Bush at the time when the representation and/or
statement was made and shall not include constructive knowledge.
2. REPRESENTATIONS AND WARRANTIES OF METROCALL AND THE PURCHASER.
Metrocall and the Purchaser hereby jointly and severally represent and warrant
to the Company and the Shareholders as follows:
2.1 Metrocall Common Stock; Authorized and Issued Shares. The
shares of Metrocall Common Stock to be issued or delivered by the Purchaser in
connection with the Merger have been duly authorized for issuance and will,
when issued and delivered as provided in this Agreement, be duly and validly
issued, fully paid and non-assessable, and will be delivered to
-2-
<PAGE> 22
the Shareholders free and clear of all Liens. The authorized capital stock of
Metrocall consists of 20,000,000 shares of Common Stock, $.01 par value per
share, and 1,000,000 shares of Preferred Stock, $.01 par value per share. As
of December 31, 1995, there were 14,626,255 shares of Common Stock issued and
outstanding and there are no shares of Preferred Stock issued as of the date
of this Agreement.
2.2 Organization and Standing. Metrocall and the Purchaser are and
will be at the Closing corporations duly organized, validly existing and in
good standing under the laws of the State of Delaware and have full corporate
power and authority to carry on their businesses as now being conducted and to
own or hold under lease the properties or assets they now own or hold under
lease.
2.3 Authorization and Validity of Agreement. The execution and
delivery of this Agreement and the other agreements, certificates and
documents contemplated hereby or referred to herein by Metrocall and the
Purchaser and the consummation of the Merger by the Purchaser have been duly
authorized by all necessary corporate and shareholder action of Metrocall and
the Purchaser. This Agreement has been duly executed and delivered by
Metrocall and the Purchaser and (assuming the due authorization, execution and
delivery hereof by the other parties hereto) is a legal, valid and binding
obligation of Metrocall and the Purchaser, enforceable against Metrocall and
the Purchaser in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws and subject to the
limitations imposed by law or equitable principles affecting the availability
of specific performance, injunctive relief and other equitable remedies.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.
The Company and each of the Shareholders hereby represent and warrant (with
each Shareholder representing and warranting with respect to the Company and
with respect to himself but not with respect to any other Shareholder) to
Metrocall and the Purchaser as follows:
3.1 Authorized and Issued Shares. The Company's entire authorized
capital stock consists of ten million (10,000,000) shares of Common Stock, one
dollar ($1.00) par value per share (the "Company Common Stock"), of which
twenty-four thousand (24,398) shares are issued and outstanding. All
outstanding shares of Company Common Stock have been duly authorized and are
validly issued and are fully paid and non-assessable. The Company Common
Stock is owned in the amounts as set forth on Schedule 1 hereto and each of
the Shareholders is the record and beneficial owner and holder of the number
of shares of Company Common Stock as set forth by such Shareholders name on
Schedule 1, free and clear of all Liens. None of the Shareholders or the
Company is a party to or bound by any options, calls, contracts, preemptive
rights or commitments of any character relating to any issued or unissued
capital stock, or any other equity security issued or to be issued by the
Company, except for the preemptive rights set forth in the Company's Articles
of Incorporation.
3.2 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Texas, and has full corporate power and authority to carry on its
businesses as it is now being conducted and to own
-3-
<PAGE> 23
or hold under lease the properties or assets it now owns or holds under lease
and to perform the actions contemplated hereby. Complete and accurate copies
of the current Articles of Incorporation, Bylaws, minute book and stock
transfer book of the Company have been provided to the Purchaser, and such
copies are complete and correct and in full force and effect on the date of
this Agreement. The Company is duly qualified or otherwise authorized as
foreign corporations to transact business and is in good standing in the
jurisdictions set forth in Schedule 3.2, which are the only jurisdictions
where the character of its properties or the nature of its activities make
such qualifications necessary and in which the failure to so qualify or be
authorized could have a Material Adverse Effect. Except as set forth in
Schedule 3.2, the Company does not file franchise, income or other tax returns
in any jurisdiction other than the State of Texas based upon the ownership or
use of property therein or the derivation of income therefrom. Except as set
forth in Schedule 3.2, the Company does not own or have any direct or indirect
equity interest in any other corporation, firm, partnership, joint venture
enterprise or other business entity.
3.3 Authorization and Validity of Agreement. The execution,
delivery and performance by the Company and the Shareholders of this Agreement
and the other agreements, certificates, documents, and instruments
contemplated hereby or referred to herein and the consummation by them of the
Merger have been duly authorized by all necessary action of the Company and
the Shareholders. This Agreement has been duly executed and delivered by the
Company and the Shareholders and, assuming the due authorization, execution,
and delivery hereof by the Purchaser and Metrocall, is a legal, valid and
binding obligation of each of the Company and the Shareholders, enforceable
against each of them, in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws and
subject to the limitations imposed by law or equitable principles affecting
the availability of specific performance, injunctive relief and other
equitable remedies.
4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. In addition to
the representations and warranties set forth in Section 3, each of the
Shareholders hereby represents and warrants (with each Shareholder
representing and warranting with respect to the Company but not with respect
to any other Shareholder) to Metrocall and the Purchaser as follows:
4.1 Ownership of Company Common Stock. Except as disclosed on
Schedule 4.1, each of the Shareholders will have at Closing good and
marketable title to the number of issued and outstanding shares of Company
Common Stock set forth opposite his or its name on Schedule 1 hereto, free and
clear of any Liens. Except for the obligations set forth in this Agreement,
such Shareholder is not a party to or bound by any options, calls, contracts,
or commitments of any character relating to any issued or unissued stock or
any other equity security issued or to be issued by the Company.
4.2 Binding Effect. This Agreement is a valid and legally binding
obligation of each Shareholder, enforceable against such Shareholder in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws and subject to the limitations
imposed by law or equitable principles affecting the availability of specific
performance, injunctive relief and other equitable remedies.
-4-
<PAGE> 24
4.3 Metrocall Stock. It is understood that the shares of Metrocall
Common Stock to be delivered to the Shareholders pursuant to this Agreement
are not being registered prior to Closing, for purposes of the transactions
hereunder, under the Securities Act, and the shares are being delivered
without registration in reliance upon an exemption from the registration
requirements of the Securities Act of 1933 (the "Securities Act"). Such
Shareholder is acquiring Metrocall Common Stock hereunder only for such
Shareholder's own account and not for the benefit or account of any other
person or with a present intention of resale or distribution, and shall not
sell or otherwise transfer such shares except when such sale or transfer is
made in compliance with the Securities Act and all applicable state laws.
In connection with the foregoing, each Executing Shareholder
represents and warrants that:
(a) such Shareholder has had the opportunity to or has
reviewed, discussed and evaluated information delivered by Purchaser and
Metrocall and has had the opportunity to ask questions of, and receive answers
from, executive officers of Metrocall concerning the terms and conditions of
this Agreement and to obtain any additional information which he or it
considered relevant;
(b) Such Shareholder understands that such Shareholder must
bear the economic risks of the investment in Metrocall Common Stock to be made
hereunder for an indefinite period of time because such stock has not been
registered under the Securities Act prior to Closing and, therefore, may not
be sold until such stock subsequently is registered under the Securities Act
or an exemption from registration is available; and
(c) Such Shareholder has sufficient knowledge and experience
in financial and business matters to enable such Shareholder to be capable of
evaluating the merits and the risks of the exchange of the Company Capital
Stock for the Metrocall Common Stock contemplated by this Agreement and his or
its prospective investment in Metrocall.
4.4 Legends. It is understood and agreed that, to implement the
requirements of the Securities Act, Metrocall will cause a legend to be
conspicuously noted on the certificates representing Metrocall Common Stock
deliverable hereunder, and that Metrocall will issue stop transfer
instructions to its transfer agent, to the effect that such stock has not been
registered under the Securities Act and that no transfer may take place except
after such stock has been effectively registered for that purpose under the
Securities Act or delivery of an opinion of counsel satisfactory to Metrocall
to the effect that registration thereof for the purpose of transfer is not
required under the Securities Act.
5. COVENANTS OF METROCALL AND THE PURCHASER. Metrocall and the
Purchaser covenant to the Company and the Shareholders that, except as
otherwise consented to in writing by the Company after the date of this
Agreement:
-5-
<PAGE> 25
5.1 Stock Reservation. Between the date hereof and the Closing
Date, Metrocall will keep available and reserve a sufficient number of shares
of its Common Stock for issuance and delivery to the Shareholders as
contemplated in this Agreement.
5.2 Cause Conditions to be Satisfied. Metrocall and the Purchaser
will use their reasonable efforts and act in good faith to cause all of the
conditions described in Section 9 of this Agreement to be satisfied.
5.3 Hart-Scott-Rodino Filings. The Purchaser shall make all
necessary filings and amendments under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR"), as may be required of the
Purchaser, and the Purchaser shall cooperate with the Company and the
Shareholders in connection with filings and amendments under HSR. The
Purchaser agrees to pay the HSR filing fee.
5.4 Disclosure. For the period from the execution and delivery of
this Agreement up to and including the Closing Date, the Purchaser will inform
the Shareholders and the Company promptly of anything that would make the
representations, warranties and disclosures made herein untrue or misleading
or which constitutes a breach of any covenant contained herein and provide
copies of all documentations relevant thereto; provided, however, that, for
purposes of the rights and obligations of the parties hereunder, any such
supplemental or amended disclosure shall not be deemed to have been disclosed
as of the date of this Agreement unless so agreed in writing by the
Shareholders and the Company and shall not affect the rights and remedies of
the Shareholders or the Company hereunder that would exist notwithstanding
such disclosure.
5.5 Consents. Metrocall and the Purchaser agree to take all
necessary corporate or other action and to use their reasonable efforts and
act in good faith to obtain all consents and approvals required for
consummation by Metrocall and Purchaser of the transactions contemplated by
this Agreement.
6. COVENANTS OF THE COMPANY AND THE SHAREHOLDERS. The Company and each
of the Shareholders covenant to Metrocall and the Purchaser that, except as
otherwise consented to in writing by Metrocall and the Purchaser after the
date of this Agreement:
6.1 Conduct of Business. After the date of this Agreement and on or
prior to the Closing Date, with respect to the Company: (a) its business will
be conducted only in the ordinary course consistent with past practice; (b) it
will not enter into, adopt or amend any employee benefit plan, agreement or
arrangement, enter into or amend any employment contracts, or increase the
salaries or compensation of its officers or employees, except for increases in
compensation (i) paid to employees other than executive officers of the
Company in the ordinary course consistent with past practice or (ii) as
disclosed in Schedule 6.1; (c) it shall not incur any liability for borrowed
money other than advances in the ordinary course of business, or encumber any
of its assets with other than Permitted Liens or liens associated with such
advances in the ordinary course; (d) it will use its reasonable efforts to
preserve its business organization intact, to keep available the service of
its officers and key employees and to preserve the goodwill of
-6-
<PAGE> 26
suppliers, customers and others doing business with it; (e) it will not enter
into any agreement for the purchase, sale or other disposition, or purchase,
sell or dispose of, any material equipment, supplies, inventory, investments
or other assets (other than sales and purchases in the ordinary course of
business and in accordance with past practices); (f) no change shall be made
in Company's charter or by-laws; (g) no change shall be made in the number of
shares or terms of the Company's authorized, issued or outstanding capital
stock, nor shall the Company enter into or grant any options, calls, contracts
or commitments of any character relating to any issued or unissued capital
stock; and (h) no dividend or other distribution or payment shall be declared
or paid in respect of the Company's capital stock.
6.2. Information. The Company will give to the Purchaser and to the
Purchaser's officers, accountants, counsel and other representatives full
access, during normal business hours throughout the period prior to the
Closing Date, to all the properties, books, contracts, commitments and records
of the Company. The Company will furnish to the Purchaser during such period
all such information concerning the Company and its business and properties as
the Purchaser may reasonably request.
6.3 Consents. The Company and the Shareholders agree to take all
necessary corporate or other similar action and to use their reasonable
efforts and act in good faith to obtain all consents and approvals required
for consummation by the Company and the Shareholders of the transactions
contemplated by this Agreement, including without limitation the consents of
those landlords under those leases set forth on Schedule 6.3, attached hereto.
6.4 Cause Conditions to Be Satisfied. The Company and the
Shareholders will use their reasonable efforts and act in good faith to cause
all of the conditions described in Section 8 of this Agreement to be
satisfied.
6.5 Corporate Transactions. The Company will not seek affiliation
with any entity other than the Purchaser and will not negotiate or entertain
any offer with respect to the acquisition of part or all of the Company's
stock or substantially all of the Company's assets, other than as may be
required by law. The Company will not, nor will it authorize or knowingly
permit any officer, director or employee to, or any investment banker,
attorney, accountant or other representative retained by the Company to,
solicit or encourage (including by way of furnishing information) any
inquiries or the making of any proposal that is reasonably expected may lead
to the acquisition of the Company's stock or substantially all of the
Company's assets. The Company promptly will advise the Purchaser orally,
followed by written confirmation, of any such inquiries or proposals.
6.6 Hart-Scott-Rodino Filings. The Company and the Shareholders
shall make all necessary filings and amendments under HSR as may be required
of the Company and the Shareholders, and the Company and the Shareholders
shall cooperate with the Purchaser in connection with filings and amendments
under HSR.
6.7 Consultation with Purchaser. To the extent permitted by
applicable law, for the period from the execution and delivery of this
Agreement up to and including the Closing Date, the Shareholders and the
Company will consult with the Purchaser regarding all major
-7-
<PAGE> 27
business and operations decisions affecting the Company, acknowledge the
interest of the Purchaser in the business operations and decisions of the
Company, and give careful consideration to any suggestions the Purchaser may
make with regard thereto. Notwithstanding the foregoing, the operation and
conduct of the Company's Business shall be the sole responsibility, and in the
complete discretion of the Company (subject to the obligations and commitments
of the Company contained in this Agreement).
6.8 Disclosure. For the period from the execution and delivery of
this Agreement up to and including the Closing Date, the Company and the
Shareholders will inform the Purchaser promptly after obtaining Knowledge
thereof of anything that would make the representations, warranties and
disclosures made herein untrue or misleading or which constitutes a breach of
any covenant contained herein and provide copies of all documentation relevant
thereto; provided, however, that, for purposes of the rights and obligations
of the parties hereunder, any such supplemental or amended disclosure shall
not be deemed to have been disclosed as of the date of this Agreement unless
so agreed in writing by the Purchaser and shall not affect the rights and
remedies of the Purchaser hereunder that would exist notwithstanding such
disclosure.
6.9 Interim Financial Information. For the period from the
execution and delivery of this Agreement up to and including the Closing Date,
the Company and the Shareholders will provide the Purchaser with monthly
financial statements and requested supporting materials with respect to the
Company, prepared in accordance with the Financial Statements for the period
ended December 31, 1995.
6.10 Labor Matters and Employment Benefits. For the period from the
execution and delivery of this Agreement up to and including the Closing Date,
the Company and the Shareholders will not make any promises, representations
or statements to any employees of the Company committing the Company
(including its successors) to the continued employment of such employees or
the amount or nature of any employee benefits to be provided to the employees
of the Company following the Closing, and will reasonably cooperate with
Purchaser in all matters respecting the employees of the Company.
6.11 Continuity of Interest. The Shareholders shall by execution of
this Agreement agree to hold as a group sufficient amounts of Metrocall Common
Stock for sufficient duration to satisfy the continuity of shareholder
interest requirements of Section 368(a) of the Code, Treasury Regulation
Section 1.368-1 and all applicable laws.
6.12 Material Employee Terminations. Through the Closing Date, the
Company shall notify the Purchaser in writing whenever an officer or
department head of the Company (other than the officers who shall resign their
respective offices as of the Closing Date) has provided bona fide written or
oral notice of his intention to terminate his relationship with the Company.
6.13 Vote in Favor of the Merger. Each of Sharla A. Bush, Frederick
L. Bush and Ray D. Windle agrees to vote his or her shares of Company Stock
(and any shares held by entities they control) in favor of the Merger.
-8-
<PAGE> 28
7. MERGER. Subject to the terms and conditions set forth herein, on
the Closing Date the Company shall be merged into Purchaser as described
below.
7.1 Merger; Surviving Corporation. In accordance with the
applicable laws of Delaware and Texas, upon the effectiveness of the Merger
the separate existence of the Company shall thereupon cease, and Purchaser, as
the surviving corporation in the Merger (the "Surviving Corporation"), shall
continue its corporate existence under the laws of the State of Delaware under
the name of Parkway Paging, Inc. The Surviving Corporation shall possess all
of the rights, privileges, immunities, powers, franchises and authority,
whether of a public or of a private nature, and be subject to all
restrictions, disabilities and duties of each of the constituent corporations,
and all the rights, privileges, immunities, powers, franchises and authority
of each of the constituent corporations, and all assets and property of every
description, real, personal, and mixed, and every interest therein, wherever
located, and all debts or other obligations belonging or due to either of the
constituent corporations on whatever account, as well as stock subscriptions
and all other choses in action or every other interest of or belonging to each
of such corporations shall be vested in the Surviving Corporation; and all
property, rights, privileges, immunities, powers, franchises and authority,
and all other interests, shall be thereafter as effectually the property of
the Surviving Corporation as they were of the constituent corporations; but
all rights of creditors and all Liens upon any property of either of the
constituent corporations shall be preserved unimpaired, and the Surviving
Corporation shall be liable for the obligations of each of the constituent
corporations and any claim existing, or action or proceeding pending, by or
against either of the constituent corporations may be prosecuted to judgment
with right of appeal, as if the Merger had not taken place.
7.2 The Effective Date and Time. The Certificate of Merger shall
be filed with and recorded by the Secretary of State of Texas and the
Secretary of State of Delaware concurrently with the Closing, and the Merger
shall be effective at midnight, local Dallas time, on the date of such
filings.
7.3 Certificate of Incorporation. On the Closing Date, the
Certificate of Incorporation of Purchaser shall be amended by deleting
existing "Article I" in its entirety and substituting in lieu thereof the
following:
"Article I
The name of the corporation is Parkway Paging, Inc."
7.4 Officers and Board of Directors. On the Closing Date, the
directors of Purchaser shall remain the directors of the Surviving
Corporation; such directors shall hold office until their successors have been
duly elected in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation. The officers of Purchaser on the Closing Date
shall remain the officers of the Surviving Corporation, to serve in accordance
with the Bylaws thereof.
-9-
<PAGE> 29
7.5 Purchase Price; Share Exchange
(a) The purchase price to be paid by Purchaser (the "Purchase
Price") for the Company Common Stock shall be equal to (i) Twenty-Eight
Million and No/100 Dollars ($28,000,000.00) minus (ii) the excess of (A) all
of the Company's current and long-term balance sheet liabilities (other than
deferred revenues, but including, without limitation, (i) the fee payable to
Daniels & Associates referred to in paragraph 16 of Schedule 10.1(a) hereto,
and (ii) the payment in cash of five percent (5%) of the net proceeds of the
Merger, as calculated by the Board of Directors of the Company, to certain
employees of the Company) (except that where the payoff amount for a liability
as of Closing differs from the balance sheet amount for such liability, the
payoff amount shall be used) on the Closing Date, over (B) the sum of (1) all
capital expenditures of the Company prior to the Closing Date which were
requested or specifically agreed to in writing by Metrocall or the Purchaser,
plus (2) the aggregate increase in cost of the inventory of the Company from
the Financial Statements dated December 31, 1995, through the Closing Date, as
such Purchase Price may be adjusted pursuant to this Section 7. The
consideration representing the Purchase Price shall consist of cash and, if
elected in writing by the Shareholders' Representative on or before the date
which is three (3) business days after the date of a Final Order is obtained
for all of the Licenses set forth on Part 2 of Attachment #4 to Schedule
10.1(a), attached hereto, Metrocall Common Stock; provided however, that at
Closing the value of the Metrocall Common Stock transferred to all
Shareholders at Closing in the event of such election shall equal no more than
fifty-one percent (51%) of the Purchase Price.
(b) Cash Portion of Purchase Price. The portion of the
purchase price for the Company Common Stock payable in cash (the "Cash
Consideration") shall consist of and be paid as follows:
(i) Deposit. Within five (5) business days after
execution of this Agreement, the Purchaser shall pay to an escrow account the
sum of One Million Dollars (the "Purchase Price Deposit"). The Purchase Price
Deposit shall be held in escrow and paid to the Shareholders at Closing as
provided in that certain escrow agreement (the "Deposit Escrow Agreement")
substantially in the form of Exhibit A, attached hereto.
(ii) Indemnification Escrow. At the Closing, the
Purchaser shall deposit into an indemnification escrow account the sum of One
Million Dollars ($1,000,000) (the "Escrow Deposit"). The Escrow Deposit shall
be held in escrow and disposed of as provided in that certain escrow agreement
(the "Indemnification Escrow Agreement") substantially in the form of
Exhibit B, attached hereto.
(iii) Remainder. At the Closing, the Purchaser shall pay
to the Shareholders, pro rata in accordance with the percentages set forth on
Schedule 1, the remainder of the Cash Consideration (i.e., after reduction for
the Earnest Money paid to the Shareholders pursuant to the Deposit Escrow
Agreement and for the Escrow Deposit paid pursuant to Section 7.5(b)(ii)),
subject to adjustment as otherwise provided herein.
(c) Stock Portion of Purchase Price. In the event the
Purchase Price shall be payable in part in Metrocall Common Stock (the "Stock
Consideration"), the
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Shareholders shall be entitled to receive an aggregate number of shares of
Metrocall Common Stock determined, to the nearest whole share, by dividing (a)
Nineteen and No/100 Dollars ($19.00), as adjusted to take into account any
stock splits, consolidations, reclassifications, recapitalizations and similar
events after the date hereof (the "Closing Sale Price") (i.e., the closing
price for such shares on the NASDAQ-NMS, as reported by The Wall Street
Journal, for the trading day February 23, 1996), into (b) the Purchase Price
not represented by the Cash Consideration.
(d) Fractional Shares. No fractional shares of Metrocall
Common Stock will be issued in connection with the Merger. As a mechanical
device for rounding fractional interests to whole shares, in any case where
the calculation provided for in Section 7.5(e) or 7.6(b) indicates that any
Shareholder would otherwise be entitled to delivery of a fractional share of
Metrocall Common Stock, such Shareholder shall be entitled to receive a cash
payment with respect to such fraction of a share to which such holder
otherwise would be entitled. Such cash payment shall be equal to the product
obtained by multiplying the fraction of a share to which the Shareholder
thereof otherwise would be entitled by the Closing Sale Price and shall be
paid at Closing.
(e) Conversion of Company Common Stock. On the Closing Date,
by virtue of the Merger and without any action on the part of the holders
thereof:
(i) All of the shares of the Company Common Stock (as
hereinafter defined) which are held by the Company as treasury shares shall be
canceled;
(ii) Subject to the provisions of Section 7.5(d) hereof,
all issued and then outstanding shares of the Company Common Stock shall be
converted in the aggregate into (i) the right to receive cash in the amount of
the Cash Consideration, and (ii) the right to receive shares of Metrocall
Common Stock representing the Stock Consideration. Each issued and then
outstanding share of the Company Common Stock shall be converted into the
right to receive an amount of cash equal to the quotient of (x) the Cash
Consideration divided by (y) the total number of such shares of the Company
Common Stock outstanding on the Closing Date. Each issued and then
outstanding share of Company Common Stock shall be entitled to receive a
number of shares of Metrocall Common Stock equal to the quotient of (x) the
Stock Consideration divided by (y) the total number of such shares of Company
Common Stock outstanding on the Closing Date.
7.6 Purchase Price True-Up.
(a) Estimated Closing Liability Statement. An estimated
statement of current and long term balance sheet liabilities (other than
deferred revenues, but including, without limitation, (i) the fee payable to
Daniels & Associates referred to in paragraph 16 of Schedule 10.1(a) hereto,
and (ii) the payment of five percent (5%) of the net proceeds of the Merger
(as calculated by the Board of Directors of the Company) to certain officers
of the Company) (except that where the payoff amount for a liability as of
Closing differs from the balance sheet amount for such liability, the payoff
amount shall be used) (such liabilities of the Company being referred to
herein as the "Relevant Liabilities") as of the Closing Date (the
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"Estimated Closing Liability Statement") will be prepared in good faith by the
Company in accordance with the Financial Statements for the period ended
December 31, 1995. The Company will deliver the Estimated Closing Liability
Statement to the Purchaser not more than five (5) nor less than two (2) days
prior to the Closing Date. The Company will make available to the Purchaser
and its representatives at reasonable times and upon reasonable notice the
work papers used in preparing the Estimated Closing Liability Statement and
any other information reasonably requested by the Purchaser to assist in its
review and evaluation of those financial matters. The consideration paid on
the Closing Date will be based upon the Company's Relevant Liabilities set
forth in the Estimate Closing Liability Statement (the "Estimated Closing Date
Liabilities").
(b) Closing Liability Statement. Within sixty (60) days after
the Closing Date, Hutton, Patterson & Co., accountants for the Company, shall,
at Purchaser's expense, perform an audit of the Company's financial statements
as of the Closing Date. In connection with such audit, Hutton, Patterson &
Co. shall prepare a statement of the Company's Relevant Liabilities as of the
Closing Date in accordance with the Financial Statements for the period ended
December 31, 1995 (such statement to be prepared in cooperation with, and
subject to the review and input of, Purchaser and the Shareholders). If based
upon the Closing Liability Statement (defined below) the Company's Relevant
Liabilities are less than the Estimated Closing Date Liabilities, the Stock
Consideration shall be increased (and the appropriate number of shares of
Metrocall Common Stock issued, based upon the Closing Sale Price) by an amount
equal to One Dollar ($1.00) for each One Dollar ($1.00) by which Closing Date
Liabilities are less than the Estimated Closing Date Liabilities. If the
Closing Date Liabilities are greater than the Estimated Closing Date
Liabilities, the Cash Consideration in an amount of such difference shall be
repaid by the Shareholders to the Company. Any such payment or issuance of
stock shall be made within five days following final determination of the
Closing Liability Statement and shall be accompanied by accrued interest
(compounded monthly) from the Closing Date to the date of payment at a rate
equal to the Prime Rate. The term "Prime Rate" means the rate published in
the "Money Rates" column of The Wall Street Journal as a guide to the Prime
Rate, which is currently defined as the base rate on corporate loans posted by
at least 75% of the nation's 30 largest banks. If a range is published, the
highest rate shall be the Prime Rate. The Prime Rate will increase or
decrease each time and as of the date the Prime Rate changes. Because the
Purchase Price is directly affected by the amount of the Company's Relevant
Liabilities at the Closing Date, the Company and the Shareholders have
expressly agreed that between the date of this Agreement and the Closing Date
the Company will not retire or otherwise reduce such liabilities other than in
the ordinary course of the Company's Business and consistent with past
practice. The Closing Balance Sheet shall be final and binding on the parties
unless within sixty (60) days after receipt of the Closing Balance Sheet, the
Shareholders' Representative or the Purchaser shall have delivered to the
Purchaser or Shareholders' Representative, respectively, a detailed statement
describing any objections to the Closing Liability Statement. The Purchaser
and the Shareholders' Representative will use their best efforts to resolve
any such objections. If final resolution is not obtained within thirty (30)
days, the Purchaser and the Shareholders' Representative will refer the
matters in dispute to a neutral accountant acceptable to the Company and the
Shareholders' Representative (the "Independent Accountants") to resolve any
remaining objections. If any unresolved objections are submitted to the
Independent Auditors for resolution
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as provided above, the Purchaser on the one hand and the Shareholders on the
other will share equally its fees and expenses.
7.7 Operating Results Purchase Price Adjustment. The Cash
Consideration otherwise payable under this Agreement shall be reduced by an
amount equal to the greater of the following:
(a) The product of (i) the shortfall (if any) between the
number of the Company's Bona Fide Pagers on the Closing Date and 142,500,
multiplied by (ii) $196.
(b) The product of (i) the shortfall (if any) between the
Company's average monthly recurring revenue for the most recent three month
period ending on the 20th of the month, which date shall be the latest such
date prior to the Closing Date and $610,000, multiplied by (ii) 45.16. For
this purpose, "average monthly recurring revenue" shall be defined as the
income currently classified as the sum of the following components from the
Company's Income Statement (in the form reflected on the December 20, 1995
Income Statement): Wholesale Paging, Long Distance Income, Long Distance-LEC,
Retail Paging, Pager Maintenance, and Answering Service, less Deferred Revenue
(such calculation of average monthly recurring revenue being in accordance
with the example attached hereto as Exhibit C). The reduction, if any, in the
Cash Consideration pursuant to this Section 7.7(b) shall be subject to
estimation as of the Closing Date, final determination and payment with
interest in accordance with the principles and procedures set forth in Section
7.6.
7.8 Closing. The Closing of this Agreement shall take place at the
offices of Caolo, Bell & Nunnally L.L.P., 3232 McKinney Avenue, Suite 1400,
Dallas, Texas 75204 beginning at 10:00 a.m. on the date which is ten (10)
business days after a Final Order is obtained for all of the Licenses set
forth on Section 2 to Attachment #4 to Schedule 10.1(a), or at such other time
and place as may be agreed upon by the Purchaser and the Company (the "Closing
Date"); provided, that if all of the conditions specified in this agreement
have not been satisfied or waived as of such date, the Closing shall be
postponed until two (2) business days following the satisfaction or waiver of
all of the conditions of this Agreement. In accordance with Section 13.7 of
this Agreement, this Agreement may be terminated at the election of the
Purchaser or the Company if Closing does not occur on or before July 31, 1996;
provided, however, that in the event the sole conditions to closing under
Sections 8 and 9 which have not been satisfied or waived by the applicable
party shall relate to the failure by the FCC to issue Final Orders for one or
more licenses in accordance with Sections 8.3 and 9.3, then the Closing may be
postponed unilaterally by either the Purchaser or the Shareholders until the
issuance of all such Final Orders, but in no event beyond December 31, 1996.
In the event such Final Orders are not issued by September 30, 1996, then the
parties shall postpone such Closing subject to the Purchaser using its best
efforts to obtain such Final Orders and providing to the Shareholders'
Representative written updates no less frequently than every two (2) weeks on
obtaining such Final Orders. If the Closing shall be postponed beyond July
31, 1996, all conditions to Closing of any party not relating directly to the
failure to obtain such Final Orders shall be deemed for all purposes and
forever to have been satisfied.
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8. CONDITIONS TO METROCALL'S AND THE PURCHASER'S OBLIGATIONS. Unless
waived by Metrocall and the Purchaser in writing in their sole discretion, all
obligations of Metrocall and the Purchaser under this Agreement are subject to
the fulfillment, prior to or at the Closing, of each of the following
conditions:
8.1 Representations, Warranties and Covenants.
(a) The representations and warranties of the Company and the
Shareholders contained in Section 3 and of the Shareholders contained in
Section 4 of this Agreement shall be true and correct in all material respects
on the date hereof and as of the Closing Date with the same effect as though
such representations and warranties had been made or given again at and as of
the Closing Date, except for any representation or warranty expressly stated
to have been made or given as of a specific date which, at the Closing Date,
shall be true and correct in all material respects as of the date expressly
stated.
(b) The Company and the Shareholders shall have performed and
complied in all material respects with all of their agreements, covenants and
conditions required by this Agreement to be performed or complied with by any
of them prior to or at the Closing Date.
(c) The Company and each of the Shareholders shall have
delivered to the Purchaser a certificate, in the case of the Company, signed
by the President of the Company, and in the case of each Shareholder, signed
by the Shareholder, certifying the fulfillment of the conditions set forth in
this Section 8.1.
8.2 Opinion of Counsel. The Company and the Shareholders shall
have delivered to the Purchaser an opinion of Caolo, Bell & Nunnally L.L.P.,
dated the Closing Date, addressed to the Purchaser and in a form reasonable
and customary for the closing of a transaction such as the Merger.
8.3 Approvals of Governmental Authorities. All FCC and other
governmental approvals necessary or advisable in the opinion of the
Purchaser's counsel to consummate the transactions contemplated by this
Agreement shall have been received and be Final Orders and shall not contain
any provision which, in the reasonable judgment of the Purchaser, is unduly
burdensome or could have a Material Adverse Effect.
8.4 No Adverse Proceedings or Events. No suit, action or other
proceeding against the Company or the Purchaser, or their respective officers
or directors, or any of the Shareholders (other than a suit, action or
proceeding in connection with the exercise of dissenters' or appraisal rights
by one or more Shareholders), shall be threatened or pending before any court
or governmental agency in which it will be, or it is, sought to restrain or
prohibit any of the transactions contemplated by this Agreement or to obtain
damages or other relief in connection with this Agreement or the transactions
contemplated hereby.
8.5 Consents and Actions; Contracts. All requisite consents of any
third parties and other actions which the Company or the Shareholders have
covenanted to use their
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<PAGE> 34
reasonable efforts to obtain and take under Section 6.3 hereof shall have been
obtained and completed in all material respects, except for consents the
failure to obtain which would not, individually or in the aggregate, have a
Material Adverse Effect.
8.6 Resignation of Officers and Directors. If and to the extent
requested by the Purchaser, the existing officers and directors of the Company
shall have submitted resignations to be effective immediately after the
Closing is completed.
8.7 Other Evidence. The Purchaser shall have received from the
Company and the Shareholders such further certificates and documents
evidencing due action in accordance with this Agreement, including certified
copies of proceedings of the board of directors and Shareholders of the
Company, as the Purchaser reasonably shall request.
8.8 No Material Adverse Change. Since the date of the execution of
this Agreement there shall not have occurred an event or condition which has
resulted in a material Adverse Change.
8.9 Hart-Scott-Rodino Act. Any waiting period applicable to the
consummation of the transactions contemplated by this Agreement under HSR
shall have expired.
8.10 Pagers. The number of Bona Fide Pagers shall not be less than
140,000.
8.11 Certificate. The Company shall have provided to Purchaser a
letter certifying (i) the number of the Company's Bona Fide Pagers or that
such number exceeds 142,500, as approved by Purchaser prior to the Closing
Date and (ii) the Company's monthly recurring revenue for the three month
period contemplated in Section 7.7(b) or that such revenue exceeds $610,000.
8.12 License Compliance. The Company shall have remedied the
failure of a License listed on Section 3 to Attachment #4 to Schedule 10.1(a)
to be in full force or effect, or of the Company to be in compliance with a
License listed on Section 3 to Attachment #4 to Schedule 10.1(a). Further,
the Company shall have completed in all material respects the tasks described
on Schedule 8.12, attached hereto.
9. CONDITIONS TO THE COMPANY'S AND THE SHAREHOLDERS' OBLIGATIONS.
Unless waived by the Company and the Shareholders, all obligations of the
Company and the Shareholders under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
9.1 Representations, Warranties and Covenants.
(a) The representations and warranties of Metrocall and
Purchaser contained in Section 2 of this Agreement shall be true and correct
in all material respects on the date hereof and as of the Closing Date with
the same effect as though such representations and warranties had been made or
given again at and as of the Closing Date, except for any representation or
warranty expressly stated to have been made or given as of a specified date,
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which, at the Closing Date, shall be true and correct in all material respects
as of the date expressly stated.
(b) The Purchaser shall have performed and complied in all
material respects with all of its agreements, covenants and conditions
required by this Agreement to be performed or complied with by it prior to or
at the Closing Date.
(c) The Purchaser shall have delivered to the Company and the
Stockholders a certificate of its president or any vice president certifying
the fulfillment of the conditions set forth in this Section 9.1.
9.2 Opinion of Counsel to Purchaser. The Purchaser shall have
delivered to the Company and the Shareholders an opinion of the Purchaser's
counsel, Piper & Marbury L.L.P., dated the Closing Date, addressed to the
Company and in a form reasonable and customary for the closing of a
transaction such as the Merger.
9.3 Approvals of Governmental Authorities. All FCC and other
governmental approvals necessary or advisable in the opinion of the Company's
counsel to consummate the transactions contemplated by this Agreement shall
have been received and be Final Orders and shall not contain any provision
which, in the reasonable judgment of the Company, is unduly burdensome or
could have a Material Adverse Effect.
9.4 No Adverse Proceedings or Events. No suit, action or other
proceeding against Metrocall or the Purchaser, or their respective officers or
directors, or any of the Shareholders (other than a suit, action or proceeding
in connection with the exercise of dissenters' or appraisal rights by one or
more Shareholders), shall be threatened or pending before any court or
governmental agency in which it will be, or it is, sought to restrain or
prohibit or to obtain damages or other relief in connection with this
Agreement or the transactions contemplated hereby, and such suit, action or
other proceeding has a substantial possibility of success.
9.5 Consents and Actions. All requisite consents of any third
parties and other actions which the Purchaser has covenanted to use its
reasonable efforts to obtain and take under Section 5.5 of this Agreement
shall have been obtained and completed except for consents the failure to
obtain which would not, individually or in the aggregate, be materially
adverse to the business, financial condition, assets, liabilities, prospects
or results of operation of Purchaser or Metrocall.
9.6 Other Evidence. The Company and the Shareholders shall have
received from the Purchaser such further certificates and documents evidencing
due action in accordance with this Agreement, including certified copies of
proceedings of the board of directors of the Purchaser, as the Company and the
Shareholders reasonably shall request.
9.7 No Material Adverse Change. Since the date of the execution
of this Agreement there shall not have occurred a change or effect that is, or
is reasonably likely to be, materially adverse to the business, financial
condition, assets, liabilities, prospects or results of operation of Purchaser
or Metrocall.
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<PAGE> 36
9.8 Hart-Scott-Rodino Act. Any waiting period applicable to the
consummation of the transactions contemplated by this Agreement under HSR
shall have expired.
9.9 Registration Rights Agreement. Metrocall and the
Shareholders shall have entered into a Registration Rights Agreement
substantially in the form of Exhibit D, attached hereto.
10. INDEMNIFICATION.
10.1 Indemnification by the Shareholders.
(a) Company Indemnification Event. Except as otherwise
limited by this Section 10, each of the Shareholders hereby covenants and
agrees to indemnify and hold harmless Metrocall and the Purchaser and their
officers, directors, employees, agents, successors and assigns from any and
all liabilities, losses, damages, claims, costs and expenses, interest,
awards, judgments and penalties (including, without limitation, reasonable
legal costs and expenses) actually suffered or incurred by any of them
(hereinafter a "Purchaser Loss"), arising out of or resulting from the
occurrence of one or more of the items listed below; provided, however, that
the indemnification and hold harmless obligations contained in this Section
10.1(a) shall be several and not joint among the Shareholders, such that each
Shareholder is responsible for only a portion of each Purchaser Loss equal to
a fraction, the numerator of which is the number of shares of Company Common
Stock held by such Shareholder on the Closing Date, and the denominator of
which is the total number of shares of Company Common Stock outstanding on the
Closing Date:
(i) the breach of, or any inaccuracy in, the
representations and warranties of the Company and the Shareholders set forth
in Section 3 hereof;
(ii) the breach of any covenant or agreement of the
Company or the Shareholders contained in Section 6 or elsewhere herein or in
any document delivered hereunder at the Closing; or
(iii) any of the specific events set forth on Schedule
10.1(a) hereto.
(b) Shareholder Indemnification Event. Except as otherwise
limited by this Section 10, each of the Shareholders hereby covenants and
agrees to indemnify and hold harmless Metrocall and the Purchaser and their
officers, directors, employees, agents, successors and assigns from each
Purchaser Loss arising out of or resulting from the occurrence of one or more
of the items listed below; provided, however, that the indemnification and
hold harmless obligations contained in this Section 10.1(b) shall be limited
solely to the Shareholder with respect to which such specific event has
occurred:
(i) the breach of, or any inaccuracy in, the
representations and warranties of the Shareholders set forth in Section 4
hereof; or
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<PAGE> 37
(ii) any of the specific events set forth on Schedule
10.1(b) hereto.
10.2 Indemnification by Purchaser. Except as otherwise limited by
this Section 10, the Shareholders and their officers, directors, employees,
agents, successors and assigns shall be indemnified and held harmless by
Metrocall and the Purchaser from any and all liabilities, losses, damages,
claims, costs and expenses, interest, awards, judgments and penalties
(including, without limitation, reasonable legal costs and expenses) actually
suffered or incurred by any of them (hereinafter, a "Shareholder Loss")
arising out of or resulting from:
(a) the breach of any representation or warranty by Metrocall
or the Purchaser contained herein or in any document delivered hereunder at
the Closing;
(b) the breach of any covenant or agreement by Metrocall and
the Purchaser contained in Section 5 or elsewhere herein or in any document
delivered hereunder at the Closing; or
(c) any of the specific events set forth on Schedule 10.2
hereto.
10.3 General Indemnification Provisions.
(a) For the purposes of this Section 10.3, the term
"Indemnitee" shall refer to the person indemnified, or entitled, or claiming
to be entitled to be indemnified, pursuant to the provisions of Section 10.1
or 10.2, as the case may be; the term "Indemnitor" shall refer to the person
having the obligation to indemnify pursuant to such provisions; and "Losses"
shall refer to the "Shareholder Losses" or the "Purchaser Losses," as the case
may be.
(b) An Indemnitee shall give written notice (a "Notice of
Claim") to the Indemnitor within ten (10) business days after the Indemnitee
has knowledge of any claim (including a Third Party Claim, as hereinafter
defined) which an Indemnitee has determined has given or could give rise to a
right of indemnification under this Agreement. No failure to give such Notice
of Claim shall affect the indemnification obligations of the Indemnitor
hereunder, except to the extent Indemnitor can demonstrate such failure
materially prejudiced such Indemnitor's ability to successfully defend the
matter giving rise to the claim. The Notice of Claim shall state the nature
of the claim, the amount of the Loss, if known, and the method of computation
thereof, all with reasonable particularity and containing a reference to the
provisions of this Agreement in respect of which such right of indemnification
is claimed or arises.
(c) The obligations and liabilities of an Indemnitor under
this Section 10 with respect to Losses arising from claims of any third party
that are subject to the indemnification provisions provided for in this
Section 10 ("Third Party Claims") shall be governed by and contingent upon the
following additional terms and conditions: the Indemnitee at the time it
gives a Notice of Claim to the Indemnitor of the Third Party Claim shall
advise the Indemnitor that it shall be permitted, at its option, to assume and
control the defense of such Third Party Claim at its expense and through
counsel of its choice if it gives prompt notice of its intention to do so to
the Indemnitee and confirms that the Third Party Claim is one with respect to
which the Indemnitor is obligated to indemnify. In the event the Indemnitor
exercises its right to
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<PAGE> 38
undertake the defense against any such Third Party Claim as provided above,
the Indemnitee shall cooperate with the Indemnitor in such defense and make
available to the Indemnitor all witnesses, pertinent records, materials and
information in its possession or under its control relating thereto as are
reasonably required by the Indemnitor. Similarly, in the event the Indemnitee
is, directly or indirectly conducting the defense against any such Third Party
Claim, the Indemnitor shall cooperate with the Indemnitee in such defense and
make available to it all such witnesses, records, materials and information in
its possession or under its control relating thereto as is reasonably required
by the Indemnitee. Except for the settlement of a Third Party Claim which
involves the payment of money only and for which the Indemnitee is totally
indemnified by the Indemnitor, no Third Party Claim may be settled by the
Indemnitor without the written consent of the Indemnitee, which consent shall
not be unreasonably withheld. Similarly, no Third Party Claim may be settled
by the Indemnitee without the written consent of the Indemnitor, which consent
shall not be unreasonably withheld.
10.4 Waiver of Contribution and Reimbursement. The Shareholder
Indemnitors shall have no right to seek contribution or reimbursement from the
Company in the event that the Shareholder Indemnitors are required to make any
payments under this Section 10.
10.5 Limitations. Metrocall and the Purchaser shall not be entitled
to indemnification hereunder (i) until such time as a single Purchaser Loss or
an aggregate of several Purchaser Losses exceeds Twenty-Five Thousand and
No/100 Dollars ($25,000.00), at which time Metrocall and the Purchaser shall
be entitled to indemnification for all Purchaser Losses in excess of
Twenty-Five Thousand and No/100 Dollars ($25,000.00), (ii) from any
Shareholder in excess of the portion of Purchase Price which is paid to such
Shareholder or (iii) with respect to any Purchaser Loss arising out of or
resulting from any action or failure to act of the Company or any Shareholder
requested in writing by the Purchaser.
11. SURVIVAL. The representations and warranties of Company set forth
herein shall terminate upon the Closing. The representations and warranties
of the Shareholders set forth in Sections 3 and 4 hereof and of Metrocall and
the Purchaser in Section 2 hereof shall survive the Closing for a period of
eighteen (18) months, regardless of any investigation made by the party making
claim hereunder. All covenants of the parties that are to be performed on or
before Closing shall terminate upon Closing. All covenants of the parties
that are to be performed after Closing shall continue in effect and shall
expire in accordance with their respective terms. all indemnification and
hold harmless obligations arising out of the events listed on Schedules
10.1(a), 10.1(b) and 10.2 shall survive the Closing for a period of eighteen
(18) months, except that as to tax matters under Attachment #6 to Schedule
10.1(a) the indemnification and hold harmless obligations shall survive the
Closing for the period of the applicable statute of limitations. If written
notice of a claim has been given by a party prior to the expiration of
eighteen (18) months following the Closing Date (or prior to the applicable
statute of limitations with respect to tax matters), then the relevant
representation, warranty or other obligation shall survive as to such claim
until the claim has been finally resolved.
12. SHAREHOLDERS' REPRESENTATIVE
12.1 Designation. Subject to the terms and conditions of this
Section 12, Frederick L. Bush (the "Shareholders' Representative") is
designated by each of the Shareholders
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to serve, and Metrocall and the Purchaser hereby acknowledge that the
Shareholders' Representative shall serve as the sole representative of the
Shareholders from and after the date of this Agreement with respect to the
matters set forth in this Agreement, the Deposit Escrow Agreement and the
Indemnification Escrow Agreement.
12.2 Authority. Each of the Shareholders, by adoption of this
Agreement by the Shareholders at the special shareholders meeting held to
approve the transactions contemplated by this Agreement, will, effective as of
the date of this Agreement, irrevocably appoint the Shareholders'
Representative as the agent and attorney-in-fact for such Shareholder for all
purposes of this Agreement, the Deposit Escrow Agreement and the
Indemnification Escrow Agreement, including full power and authority on such
Shareholder's behalf (i) to take all actions which the Shareholders'
Representative considers necessary or desirable in connection with the
defense, pursuit or settlement of any adjustments to the Purchase Price
pursuant to Section 7 of this Agreement and any claims for indemnification
pursuant to Section 10 of this Agreement, including to sue, defend, negotiate,
settle, compromise and otherwise handle any such adjustments to the Purchase
Price and any such claims for indemnification made by or against, and other
disputes with, Purchaser pursuant to this Agreement or any of the agreements
or transactions contemplated hereby, (ii) to engage and employ agents and
representatives (including accountants, legal counsel and other professionals)
and to incur such other expenses as the Shareholders' Representative shall
deem necessary or prudent in connection with the administration of the
foregoing, (iii) to provide for all expenses incurred in connection with the
administration of the foregoing to be paid by directing the escrow agent under
the Deposit Escrow Agreement or the Indemnification Escrow Agreement and/or
the Shareholders to pay (or to reimburse the Shareholders' Representative for)
such expenses in the amounts determined by applying the procedures specified
in Section 12.5 below, (iv) to direct the applicable escrow agent under the
Deposit Escrow Agreement or the Indemnification Escrow Agreement to disburse
any funds in such accounts upon termination of such agreements in accordance
with their respective terms, (v) to accept and receive notices pursuant to
this Agreement, the Deposit Escrow Agreement and Indemnification Escrow
Agreement, (vi) to amend and grant consents and waivers after the Closing
under this Agreement, the Deposit Escrow Agreement and the Indemnification
Escrow Agreement, and (vii) to take all other actions and exercise all other
rights which the Shareholders' Representative (in his sole discretion)
considers necessary or appropriate in connection with this Agreement, the
Deposit Escrow Agreement and the Indemnification Escrow Agreement. Each of
the Shareholders agree that such agency and proxy are coupled with an
interest, and are therefore irrevocable without the consent of the
Shareholders' Representative and shall survive the death, incapacity,
bankruptcy, dissolution or liquidation of any Shareholder. All decisions and
acts by the Shareholders' Representative shall be binding upon all of the
Shareholders, and no Shareholder shall have the right to object, dissent,
protest or otherwise contest the same.
12.3 Resignation. In the event that the Shareholders'
Representative shall resign or be unable to serve for any reason, George W.
Bush shall be deemed to be the Shareholders' Representative for all purposes
of this Agreement, the Deposit Escrow Agreement and the Indemnification Escrow
Agreement.
12.4 Exculpation. Neither the Shareholders' Representative nor any
agent employed by him shall be liable to any Shareholder relating to the
performance of his duties under
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<PAGE> 40
this Agreement, the Deposit Escrow Agreement or the Indemnification Escrow
Agreement for any errors in judgment, negligence, oversight, breach of duty or
otherwise except to the extent it is finally determined in a court of
competent jurisdiction that the actions taken or not taken by the
Shareholders' representative constituted fraud or were taken or not taken in
bad faith. The Shareholders' Representative shall be indemnified and held
harmless by the Shareholders, all in the amounts determined by applying the
procedures specified in Section 12.5 below, against all expenses (including
attorneys' fees), judgments, fines and other amounts paid or incurred in
connection with any action, suit, proceeding or claim to which the
Shareholders' Representative is made a party by reason of the fact that he was
acting as the Shareholders' Representative pursuant to this Agreement, the
Deposit Escrow Agreement and the Indemnification Escrow Agreement; provided,
however, that the Shareholders' Representative shall not be entitled to
indemnification hereunder to the extent it is finally determined in a court of
jurisdiction that the actions taken or not taken by the Shareholders'
Representative constituted fraud or were taken or not taken in bad faith. The
Shareholders' Representative shall be protected in acting upon any notice,
statement or certificate believed by him to be genuine and to have been
furnished by the appropriate person and in acting or refusing to act in good
faith on any matter.
12.5 Allocation of Payments. Whenever the Shareholders are
obligated to make any payments under this Section 12, each Shareholder shall
be obligated to make such portion of any such payment that is equal to the
Shareholder's pro-rata percentage interest held by such Shareholder in
accordance with Schedule 1 to this Agreement, as calculated by the
Shareholders' Representative, and in accordance with this Agreement, the
Deposit Escrow Agreement and the Indemnification Escrow Agreement.
13. MISCELLANEOUS
13.1 Confidentiality; Publicity. Each of the parties hereto agrees
not to disclose or use, and agrees to cause its representatives not to
disclose or use, any confidential information relating to any other party
hereto, including without limitation, any aspect or fact relating to the
parties' negotiation concerning this transaction or the existence and contents
of this Agreement. Any information furnished to, or obtained by, any party
hereto, its employees, officers, directors, shareholders, attorneys,
accountants, lender and authorized representatives, as a result of its
investigations or otherwise in connection with the Merger, shall be treated as
confidential and shall be made available only to employees, officers,
directors, shareholders, attorneys, accountants, lenders and authorized
representatives who have a need to know and who have agreed to maintain the
confidentiality of such information except (a) to the extent such information
is or becomes otherwise public or generally available to the public other than
as a result of a disclosure by such party or its representatives or (b) as
required by law. Any such confidential information shall be used by the
applicable party solely for the purpose of the above-referenced investigation.
In the event the Merger does not occur, each party shall return to the other
parties all written confidential information furnished by the other parties to
it or him and will not thereafter use, for any purposes whatsoever, such
confidential information, or disclose any such confidential information. The
parties understand and agree that money damages would not be a sufficient
remedy for the breach of any of the terms of this Section 13.1 by the parties
or any of their respective employees, agents, consultants, directors or
shareholders, and that the parties shall be entitled to specific performance
and injunctive relief, in addition to all other remedies
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<PAGE> 41
otherwise available, at law or equity, including reasonable attorneys' fees.
Prior to the Closing, Metrocall, the Purchaser, the Company and the
Shareholders agree not to issue any statement or communication to the public
or the press regarding the transactions contemplated by this Agreement without
the prior written consent of the other party, which consent shall not be
unreasonably withheld; provided, however, that each party shall be permitted,
upon prior, written notice to the other, to make such disclosures to the
public or such governmental entities as its counsel reasonably should deem
necessary to maintain compliance with applicable laws.
13.2 Non-Compete. (a) The following terms when used in this
Section 13.2 shall have the following meanings:
"Competition" means the Company's Business as it is now operated.
"Directly or Indirectly" means as an individual, member, partner,
shareholder, director, officer, principal, agent or employee.
"Person" means an individual, corporation, partnership, joint venture,
trust or other entity.
"Restricted Territory" means the State of Texas.
(b) Each of George W. Bush and Frederick L. Bush (the
"Restricted Persons") agrees that he shall not, for a period of three (3)
years after the date hereof, Directly or Indirectly, engage in any Competition
in the Restricted Territory; provided, that the Restricted Persons may,
without violating this covenant own as a passive investment not in excess of
10% of the voting interests of a corporation, partnership, joint venture,
trust or other entity which engages in Competition.
(c) The Restricted Persons shall not, Directly or Indirectly,
for themselves or on behalf of any other person induce or attempt to induce
any employee of the Company to leave his or her employment with the Company at
any time within three years from the Closing Date, provided, however, that
general solicitation through the mass media not directed specifically at any
of the Company's employees shall not violate this Section 13.2(c).
(d) The Restricted Persons acknowledge that in view of the
nature of the Company's Business and the business objectives of Purchaser in
acquiring it, and the consideration paid to the Restricted Persons therefor,
the foregoing territorial and time limitations are reasonable and properly
required for the adequate protection of Purchaser and that in the event that
any such territorial or time limitation is deemed to be unreasonable and is
then reduced by a court of competent jurisdiction, then, as reduced, the
territorial and/or time limitation shall be enforced.
(e) The Restricted Persons further acknowledge that the remedy
at law for any breach by them of the agreements contained in this Section 13.2
will be inadequate and that the Purchaser will be entitled to seek injunctive
relief without being required to prove actual damages or post bond. This
Section 13.2 constitutes an independent and severable covenant and if any or
all of the provisions of this Section 13.2 are held to be unenforceable for
any reason
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<PAGE> 42
whatsoever, it will not in any way invalidate or affect the remainder of this
Agreement which will remain in full force and effect.
(f) The parties agree that for federal income tax purposes
each party will report an allocation of One Thousand and No/100 Dollars
($1,000.00) of the Purchase Price to the covenants contained in this Section
13.
13.3 Non-Interference Agreement. The Restricted Persons covenant
and agree that they will not, for a period of three years after the Closing,
Directly or Indirectly, for whatever reason, whether for their own account or
for the account of any other Person: (i) solicit, deal with or otherwise
interfere with any of the Company's Business or its existing or potential
contracts or relationships with any then-current affiliate, employee, officer,
director or any independent contractor; (ii) solicit, accept, deal with or
otherwise interfere with the continuance of supplies to Company (or the terms
relating to such supplies), from any material suppliers who have been
supplying goods, materials or services to Company at any time during the last
twelve months prior to the date of this Agreement; (iii)interfere with the
Company's Business or Company's contracts or relationships with any
independent contractor, customer, client or consultant of the Company; or (iv)
interfere with any contract between the Company and any other party
whatsoever.
13.4 Cooperation. The Restricted Persons agree both before and
after the Closing hereunder (i) to cooperate reasonably with Purchaser to
assure that each supplier and customer of the Company's Business will continue
to do business with the Purchaser on substantially the same terms and
conditions subsequent to the Closing Date as such supplier or customer did
with the Company before such date and (ii) to cooperate reasonably with
Purchaser in order to effect the transfer of, and assure Purchaser of the
continued benefit and full enjoyment of, the Company's Business. The
Purchaser shall reimburse reasonable expenses (incurred in time and/or money)
of cooperation by the Shareholders under this Section 13.4.
13.5 Expenses. Except as otherwise expressly provided herein, each
party to this Agreement shall pay all of its expenses relating hereto,
including fees and disbursements of its counsel, accountants and financial
advisors, whether or not the transactions hereunder are consummated (it being
understood that the Shareholders will bear, and will not cause the Company to
pay, any expenses incurred by or on behalf of the Shareholders; provided,
however, that the fees and expenses of Caolo, Bell & Nunnally, L.L.P. and FCC
Counsel, if any, associated with the Merger shall be paid by the Company).
13.6 Notices. Except as otherwise provided herein, all notices,
requests, demands and other communications under or in connection with this
Agreement shall be in writing, and,
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<PAGE> 43
(a) if to the Purchaser, shall be addressed to:
Metrocall, Inc.
6677 Richmond Highway
Alexandria, Virginia 22306
Attn: Vincent D. Kelly, Vice President and CFO
Fax: (703) 768-5407
with a copy to:
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
Attn: George P. Stamas, Esq. or John B. Watkins, Esq.
Fax: (410) 576-1688
(b) if to the Company, shall be addressed to:
Parkway Paging, Inc.
1200 Commerce Drive
Suite 110
Plano, Texas 75093
Attn: F. L. Bush, Executive Vice President
Fax: (214) 326-1138
with a copy to:
Caolo, Bell & Nunnally L.L.P.
3232 McKinney Avenue, Suite 1400
Dallas, Texas 75204
Attn: James A. Skochdopole, Esq.
Fax: (214) 740-1450
(c) if to the Shareholders, shall be addressed to the
Shareholders' Representative at:
Frederick L. Bush
3532 Colgate
Dallas, Texas 75225
Fax: (214) 326-1138
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<PAGE> 44
with a copy to:
Caolo, Bell & Nunnally L.L.P.
3232 McKinney Avenue, Suite 1400
Dallas, Texas 75204
Attn: James A. Skochdopole, Esq.
Fax: (214) 740-1450
All such notices, requests, demands or communications shall be mailed
postage prepaid, certified mail, return receipt requested, or by overnight
delivery or delivered personally, or by fax or telegram, and shall be
sufficient and effective when delivered to or received at the address so
specified. Any party may change the address at which it is to receive notice
by like written notice to the other parties.
13.7 Termination. The parties, by mutual written consent, may
terminate this Agreement at any time prior to the Closing and, unless
otherwise specifically provided in such consent, any such termination shall be
without liability on the part of any party hereto. Either Metrocall and the
Purchaser, on the one hand, or the Company and the Shareholders, on the other,
may elect to terminate this Agreement and the Merger in the event that any
condition for the terminating party to close has not been met or waived by it
or them in its or their sole discretion and the Merger shall not have become
effective on or before July 31, 1996, or such later date determined in
accordance with Section 7.8. Except as provided otherwise in the Deposit
Escrow Agreement, any such termination shall be without liability to
Metrocall, the Purchaser, the Company or the Shareholders, except to the
extent that there shall have occurred a breach of a representation, warranty
or covenant or any willful or intentional breach of this Agreement, as to each
of which all legal remedies of the party adversely affected shall survive and
be enforceable.
13.8 Entire Agreement. This Agreement (including the exhibits
hereto and the lists, schedules and documents delivered pursuant hereto, which
are a part hereof) is intended by the parties to and does constitute the
entire agreement of the parties with respect to the transactions contemplated
by this Agreement. This Agreement supersedes any and all prior
understandings, written or oral, by and among the parties (including without
limitation that binding letter of intent by and among the parties hereto dated
January 29, 1996), and this Agreement may be amended, modified, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of the amendment, modification, waiver, discharge or
termination is sought.
13.9 General. The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns, but nothing
herein, express or implied, is intended to or shall confer any rights,
remedies or benefits upon any person other than the parties hereto.
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<PAGE> 45
This Agreement may not be assigned by any party hereto. This Agreement shall
be construed in accordance with and governed by the laws of the State of
Texas.
13.10 Further Assurances. From time to time, at a party's
request and without further consideration, the other parties shall execute and
deliver such documents and take such other action as the requesting party may
reasonably request in order to consummate more effectively the transactions
contemplated hereby.
13.11 Attorneys' Fees. In the event of any action or suit based
upon or arising out of any alleged breach by any party of any representations,
warranty, covenant or agreement contained in this Agreement, the prevailing
party will be entitled to recover reasonable attorneys' fees and other costs
of such action or suit from the other party.
13.12 Metrocall Guarantee. Metrocall hereby unconditionally
guarantees the payment, performance and accuracy of all of the obligations,
representations, warranties, agreements and covenants of Purchaser as set
forth in this Agreement, and the documents contemplated hereby. Any breach of
such obligations, representations, warranties, agreements and covenants by
Purchaser shall entitle the Shareholders and the Company to all remedies
against Metrocall available under this Agreement, and the documents
contemplated hereby.
13.13 Schedules and Attachments. The disclosure of an item in a
Schedule or Attachment to this Agreement shall be deemed to be a disclosure of
such item on any other applicable Schedule or Attachment so long as such item
is disclosed in sufficient detail to allow a reasonable determination that
such item should be included on such other Schedule or Attachment. The
Company shall add new Schedules and Amendments or amend and/or supplement the
Schedules and Attachments hereto as necessary after the date hereof to
disclose to Purchaser additional circumstances or events which would otherwise
give rise to indemnification obligations. The Company and the Shareholders
shall provide written notice (including a copy of the additional or amended or
supplemented Schedule or Attachment affected thereby) of any such amendment or
supplement as soon as practicable after the Company obtains Knowledge thereof.
Upon receipt of such notification, the Purchaser shall have the right to
terminate this Agreement pursuant to Section 13.7 as if the Company and/or the
Shareholders had failed to fulfill on the Closing Date a condition to closing
under Section 8 of this Agreement. In the event the Purchaser (i) consents to
such amendment or supplement in writing, or (ii) fails to terminate this
Agreement with ten (10) business days after the receipt of such notice, the
affected Schedule or Attachment shall be deemed amended for all purposes (such
that no Purchaser Loss shall occur in connection with the previous affected
Schedule or Attachment or the absence of same).
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<PAGE> 46
IN WITNESS WHEREOF, Metrocall, the Purchaser, the Company, the Executing
Shareholders, and George W. Bush have caused this Agreement to be duly
executed and their respective seals to be hereunto affixed as of the date
first above written.
WITNESS: METROCALL, INC.
/s/ VINCENT D. KELLY By: /s/ WILLIAM L. COLLINS, III
- ---------------------------------- ------------------------------
Name: Vincent D. Kelly Name: William L. Collins, III
----------------------------- ----------------------------
Title: Chief Executive Officer
and President
---------------------------
WITNESS: PPI ACQUISITION CORP.
/s/ VINCENT D. KELLY By: /s/ WILLIAM L. COLLINS, III
- ---------------------------------- ------------------------------
Name: Vincent D. Kelly Name: William L. Collins, III
----------------------------- ----------------------------
Title: Chief Executive Officer
and President
---------------------------
ATTEST: PARKWAY PAGING, INC.
/s/ F. L. BUSH By: /s/ GEORGE BUSH
- ---------------------------------- ------------------------------
Name: George Bush
Name: F. L. Bush ----------------------------
----------------------------- Title: President
---------------------------
/s/ GEORGE W. BUSH
---------------------------------
George W. Bush, individually
<PAGE> 47
EXECUTING SHAREHOLDERS:
/s/ FREDERICK L. BUSH
---------------------------------
Frederick L. Bush, individually
WINDLE & WINDLE INVESTMENTS, INC.
By: /s/ RAY WINDLE
------------------------------
Name: Ray Windle
----------------------------
Title: General Partner
---------------------------
/s/ SHARLA A. BUSH
---------------------------------
Sharla A. Bush, individually
REX ARTHUR BUSH IRREVOCABLE TRUST,
under an agreement dated
December 1, 1991
By: /s/ FREDERICK L. BUSH
------------------------------
Frederick L. Bush, Trustee
LAURA BARTLETT BUSH IRREVOCABLE
TRUST, under an agreement dated
December 1, 1991
By: /s/ FREDERICK L. BUSH
------------------------------
Frederick L. Bush, Trustee
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.,
June 25, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey,
June 25, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants we hereby consent to the use of our report
dated February 13, 1996, relating to the financial statements of Parkway
Paging, Inc. (and to all references to our Firm) included in or made a part of
this registration statement.
/s/ HUTTON, PATTERSON & COMPANY
Dallas, Texas
June 25, 1996
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Metrocall, Inc. on Form
S-4 of our report dated February 28, 1996, appearing in the Prospectus, which
is part of this Registration Statement, and to the incorporation by reference
of our reports dated February 28, 1996, included in the Annual Report on Form
10-K of A+ Network, Inc. for the year ended December 31, 1995.
/s/ DELOITTE & TOUCHE LLP
Nashville, Tennessee
June 25, 1996
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Metrocall, Inc., of our report dated
February 3, 1995, except as to the first paragraph of Note 8 for which the date
is August 31, 1995, relating to the financial statements of Network Paging
Corporation, which appears in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Tampa, Florida
June 25, 1996
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated June 17, 1996 with respect to the
financial statements of Page America Group, Inc. (New York and Chicago
Operations) included in the Registration Statement (Form S-4 dated June 26,
1996) of Metrocall, Inc. and the related Joint Proxy Statement/Prospectus for
the registration of 9,042,260 shares of its common stock.
/s/ ERNST & YOUNG LLP
Hackensack, New Jersey
June 25, 1996
<PAGE> 1
EXHIBIT 23.8
CONSENT
I, Ray D. Russenberger, hereby consent to the use by Metrocall, Inc.
(the "Company") of my name and biographical description in the Company's
registration statement on Form S-4 (the "Registration Statement") relating to
the proposed exchange offer for the shares of the Company's common stock, to be
filed with the Securities and Exchange Commission, state securities
commissions, securities exchanges and quotation systems and any other
governmental, regulatory or other entity necessary to carry out the
transactions contemplated thereby. I acknowledge that the Registration
Statement will be a public document and as such the general public will be able
to access the information therein, including my name, age and biographical
description. I have reviewed my name, age and biographical information in the
Registration Statement, and they are true and correct in all respects.
/s/ RAY RUSSENBERGER
--------------------
Ray D. Russenberger
June 21, 1996
<PAGE> 1
EXHIBIT 23.9
CONSENT
I, Elliott H. Singer, hereby consent to the use by Metrocall, Inc.
(the "Company") of my name and biographical description in the Company's
registration statement on Form S-4 (the "Registration Statement") relating to
the proposed exchange offer for the shares of the Company's common stock, to be
filed with the Securities and Exchange Commission, state securities
commissions, securities exchanges and quotation systems and any other
governmental, regulatory or other entity necessary to carry out the
transactions contemplated thereby. I acknowledge that the Registration
Statement will be a public document and as such the general public will be able
to access the information therein, including my name, age and biographical
description. I have reviewed my name, age and biographical information in the
Registration Statement, and they are true and correct in all respects.
/s/ ELLIOTT H. SINGER
---------------------
Elliott H. Singer
June 21, 1996
