<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996.
REGISTRATION NO. 333-6919
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4/A
AMENDMENT NO. 1
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>
HOWARD W. HERNDON, ESQ.
GEORGE P. STAMAS, ESQ. WALLER LANSDEN DORTCH & DAVIS, A PROFESSIONAL
WILMER, CUTLER & PICKERING LIMITED LIABILITY COMPANY
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. /X/
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) PRICE FEE(4)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share..... (2) $13.625 $123,200,793 $42,483
- ---------------------------------------------------------------------------------------------------------------------
Variable Common Rights(2).................. 9,042,260 -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Preferred Stock, par value $.01 per
share.................................... (2) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</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 addition to the up to 9,042,260 shares of Common Stock to be issued as
consideration in the Merger described in this Registration Statement, the
Registrant is registering shares of Common Stock and Preferred Stock in an
amount that cannot be determined that may be issued as payment for the
Variable Common Rights registered hereunder. Because the number of shares of
Common Stock and Preferred Stock cannot be determined, these securities are
registered by dollar amount rather than number pursuant to Rule 457(o). No
separate consideration will be received with respect to such additional
shares of Common Stock and Preferred Stock if they are issued.
(3) In accordance with the requirements of Rule 457(f)(1), no separate value has
been allocated to the Variable Common Rights.
(4) Previously paid.
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. LETTERHEAD]
OCTOBER 7, 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
November 6, 1996 at the Ritz-Carlton, Pentagon City, 1250 South Hayes Street,
Arlington, Virginia at 9:00 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 9,000,000 shares, from 26,000,000 shares to 35,000,000
shares, (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 and (iv) the issuance of $35 million aggregate
liquidation value of Series A Convertible Preferred Stock of Metrocall (the
"Preferred Stock Issuance").
The Merger is subject to the terms and conditions of an Agreement and Plan
of Merger dated as of May 16, 1996 and amended on , 1996 (the
"Merger Agreement") 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 36.0% 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> 3
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> 4
A+ NETWORK, INC.
40 SOUTH PALAFOX STREET
PENSACOLA, FL 32501
October 7, 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
Wednesday, November 6, 1996 at 2:00 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 and
amended on , 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 40.0% 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 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 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> 5
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> 6
[METROCALL, INC. LETTERHEAD]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 6, 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 November 6, 1996 at 9:00 a.m. local time to consider and
act upon the following proposals:
1. To approve and adopt an Agreement and Plan of Merger dated as of May 16,
1996 and amended on , 1996 (the "Merger Agreement"), 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 9,000,000 shares, from
26,000,000 shares to 35,000,000 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.
4. To approve the issuance of $35 million aggregate liquidation value of
Series A Convertible Preferred Stock of Metrocall (the "Preferred Stock
Issuance").
Pursuant to Metrocall's Bylaws, the Board of Directors has fixed the close
of business on October 4, 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
October 7, 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> 7
A+ NETWORK, INC.
40 SOUTH PALAFOX STREET
PENSACOLA, FL 32501
NOTICE OF A+ NETWORK SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 6, 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
Wednesday, November 6, 1996 at 2:00 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 and amended on , 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 October 1, 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, A Professional Limited
Liability Company, 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
October 7, 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> 8
METROCALL, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD NOVEMBER 6, 1996
AND PROSPECTUS REGARDING THE ISSUANCE OF UP TO 9,042,260 SHARES OF
METROCALL COMMON STOCK, INDEXED VARIABLE COMMON RIGHTS
AND SHARES OF METROCALL COMMON STOCK AND PREFERRED STOCK
THAT MAY BE ISSUED IN PAYMENT OF THE INDEXED VARIABLE COMMON RIGHTS
----------------------------------------
A+ NETWORK, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD NOVEMBER 6, 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 November 6, 1996 and the Special Meeting of Shareholders
of A+ Network (the "A+ Network Meeting") to be held on November 6, 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, as amended (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 9,000,000 shares, from 26,000,000 shares to 35,000,000
shares, 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 and the issuance of $35 million aggregate
liquidation value of Series A Convertible Preferred Stock of Metrocall (the
"Preferred Stock Issuance").
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 40.0% 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 30.4% 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, THE PLAN
AMENDMENT AND THE PREFERRED STOCK ISSUANCE.
------------------------
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 October 7, 1996.
The date of this Joint Proxy Statement/Prospectus is October 7, 1996.
<PAGE> 9
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> 10
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 Reports on Form 10-Q for the quarters ended March 31, 1996 and June
30, 1996; (iii) its Proxy Statement for the Annual Meeting of Stockholders held
on May 1, 1996; (iv) its Current Report 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 Reports on Form 10-Q for the quarters ended March 31, 1996 and June
30, 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 AND CHIEF FINANCIAL OFFICER, TELEPHONE NUMBER 904-438-1653. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED
BY OCTOBER 25, 1996.
<PAGE> 11
JOINT PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<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....................................................... 8
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................................................ 21
Voting and Revocation of Proxies.................................................. 21
Vote Required for Approval........................................................ 21
Solicitation of Proxies........................................................... 22
Other Matters..................................................................... 22
Appraisal Rights.................................................................. 22
THE MERGER AND RELATED TRANSACTIONS................................................. 23
Purchases Pursuant to the Offer and the Shareholders' Agreement................... 23
General Description of the Merger................................................. 23
Background of the Merger.......................................................... 23
Recommendation of the Board of Directors of Metrocall............................. 25
Metrocall's Reasons for the Merger................................................ 25
Opinion of Financial Advisor to Metrocall......................................... 26
Recommendation of the Board of Directors of A+ Network............................ 29
A+ Network's Reasons for the Merger............................................... 30
Opinion of Financial Advisor to A+ Network........................................ 31
Interests of Certain Persons in the Merger........................................ 35
Shareholders' Agreement........................................................... 36
Other Agreements.................................................................. 37
Certain Federal Income Tax Consequences........................................... 38
Accounting Treatment.............................................................. 39
Government and Regulatory Approvals............................................... 40
Restrictions on Resales by Affiliates............................................. 41
THE MERGER AGREEMENT AND TERMS OF THE MERGER........................................ 41
The Offer......................................................................... 41
Effective Time of the Merger...................................................... 41
Manner and Basis of Converting Shares............................................. 42
Treatment of Stock Options........................................................ 42
Employee Arrangements............................................................. 42
Indemnification................................................................... 43
Representations and Warranties.................................................... 43
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Conduct of Business Pending the Merger............................................ 44
Response to Other Offers.......................................................... 46
Repurchase Option................................................................. 46
Conditions to the Merger.......................................................... 48
Termination....................................................................... 48
Termination Fees.................................................................. 49
Amendment and Modification........................................................ 50
DESCRIPTION OF METROCALL SECURITIES................................................. 50
Metrocall Capital Stock........................................................... 50
Metrocall VCRs.................................................................... 52
Metrocall Preferred Stock......................................................... 55
COMPARATIVE RIGHTS OF METROCALL STOCKHOLDERS AND A+ NETWORK SHAREHOLDERS............ 55
PRO FORMA CONDENSED COMBINED FINANCIAL DATA......................................... 59
RECENT DEVELOPMENTS REGARDING METROCALL............................................. 67
MANAGEMENT OF THE SURVIVING CORPORATION............................................. 68
RECENT DEVELOPMENTS REGARDING A+ NETWORK............................................ 71
A+ NETWORK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................................................................... 72
AMENDMENT OF METROCALL CHARTER TO INCREASE THE NUMBER OF AUTHORIZED METROCALL
SHARES............................................................................ 79
AMENDMENT TO INCREASE THE NUMBER OF SHARES THAT MAY BE ISSUED UNDER METROCALL'S 1996
STOCK OPTION PLAN................................................................. 80
APPROVAL OF ISSUANCE OF METROCALL CONVERTIBLE PREFERRED STOCK....................... 83
LEGAL MATTERS....................................................................... 84
EXHIBIT A -- Agreement and Plan of Merger dated as of 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> 13
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 1,109,647 pagers in service at June 30, 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 a pending acquisition which, when consummated, will
add approximately 220,000 subscribers to its base of pagers in service. In
addition, one acquisition was consummated on July 16, 1996 and another was
consummated on August 30, 1996, adding approximately 140,000 and 100,000
subscribers, respectively. 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 2.2 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
1
<PAGE> 14
business segment provides a variety of message management services over the
telephone to a diverse client base.
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 November 6, 1996 at 9:00 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 October 4, 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 9,000,000 shares, from 26,000,000 shares to 35,000,000 shares,
(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 and (iv) the Preferred Stock Issuance,
which provides for the issuance of $35 million aggregate liquidation value of
Series A Convertible Preferred Stock of Metrocall.
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 and the Preferred Stock Issuance 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 or the Preferred
Stock Issuance. On the Metrocall Record Date, there were 16,060,117 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
31.4% 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 November 6, 1996 at 2:00 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 October 1, 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
2
<PAGE> 15
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.
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 40.0% 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
30.4% 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 $ 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 $15.825 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 $18.825, adjusted
as previously described, and the maximum amount which the holder may receive
will be $ 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 $15.825 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, $18.825 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 paid in cash,
Metrocall Common Stock or shares of preferred stock of Metrocall ("Metrocall
Preferred Stock") having economic and other rights substantially equivalent to
the rights of holders of shares of Metrocall Common Stock, 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
3
<PAGE> 16
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.
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 October 4,
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 31.5% and 36.0% 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 member 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)
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 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
4
<PAGE> 17
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.
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
5
<PAGE> 18
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.
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. In addition, Metrocall expects that purchasers of the Metrocall
Series A Convertible Preferred Stock will have the right to elect a director,
and that the Board of Directors will be expanded to ten members. 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
6
<PAGE> 19
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. The market price of Metrocall Common
Stock is currently less than $17.90. See "Market Prices and Dividends," below.
As a result, the maximum conversion ratio has been reached, and the market value
of shares of Metrocall Common Stock received by A+ Network shareholders would be
less than $21.10 if the Merger occurred today. Furthermore, 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.
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.
7
<PAGE> 20
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>
A+
METROCALL 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............................................... 21 3/4 10 20 1/2 10 3/4
Third Quarter................................................ 11 6 1/4 12 3/4 7 1/8
Fourth Quarter (through October 3)........................... 6 1/4 5 7/8 7 1/8 6 3/4
</TABLE>
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 October 3, 1996 were $6 1/4 and
$7 1/8 per share, respectively. At the A+ Network Record Date, there were
approximately 149 shareholders of record of A+ Network Common Stock and at the
Metrocall Record Date, there were 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> 21
SUMMARY FINANCIAL INFORMATION
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
METROCALL, INC.
(IN THOUSANDS, EXCEPT UNIT, PER UNIT AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- --------------------
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 $45,504 $ 48,829
Product sales.................................. 4,101 4,196 4,549 8,139 18,699 7,932 13,158
------- ------- ------- ------- ------- ------- -------
Total revenues......................... 33,241 35,192 37,660 57,855 110,859 53,436 61,987
Net book value of products sold................ (3,319) (3,439) (4,130) (6,962) (15,527) (6,750) (10,560)
------- ------- ------- ------- ------- ------- -------
Net revenues........................... 29,922 31,753 33,530 50,893 95,332 46,686 51,427
Operating expenses before depreciation and
amortization(2).............................. 19,770 20,683 27,438 34,741 69,611 32,595 39,192
Depreciation and amortization.................. 6,695 6,594 6,525 13,829 31,504 12,713 25,098
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations.................. 3,457 4,476 (433) 2,323 (5,783) 1,378 (12,863)
Interest and other income (expense)............ 2,105 1,212 77 161 2,011 (9) 2,511
Interest expense............................... (4,101) (2,631) (1,331) (3,726) (12,533) (5,408) (8,401)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income tax benefit
(provision) and extraordinary item........... 1,461 3,057 (1,687) (1,242) (16,305) (4,039) (18,753)
Income tax benefit (provision)................. (12) (69) (59) 152 595 312 108
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary item........ 1,449 2,988 (1,746) (1,090) (15,710) (3,727) (18,645)
Extraordinary item(3).......................... -- -- (439) (1,309) (4,392) -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................ $ 1,449 $ 2,988 $(2,185) $(2,399) $(20,102) $(3,727) $ (18,645)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per common share:
Loss per common share before extraordinary
item....................................... $ (0.14) $ (1.34) $ (0.35) $ (1.27)
Extraordinary item, net of income tax
benefit.................................... (0.16) (0.38) -- --
------- ------- ------- -------
Net loss per common share.................... $ (0.30) $ (1.72) $ (0.35) $ (1.27)
======= ======= ======= =======
OPERATING AND OTHER DATA:
Units in service (end of period)............... 193,051 201,397 247,716 755,546 944,013 839,358 1,109,647
EBITDA(4)...................................... $10,152 $11,070 $10,923 $16,152 $ 27,771 $14,091 $ 12,235
EBITDA margin(5)............................... 33.9% 34.9% 32.6% 31.7% 29.1% 30.2% 23.8%
ARPU(6)........................................ $ 13.07 $ 13.10 $ 12.29 $ 10.53 $ 9.15 $ 9.51 $ 7.93
Average monthly operating expense per
unit(7)...................................... $ 8.87 $ 8.74 $ 8.39 $ 7.36 $ 6.71 $ 6.81 $ 6.36
Units in service per employee (end of
period)...................................... 692 730 716 1,007 1,047 1,103 1,218
Capital expenditures........................... $ 4,863 $ 3,918 $13,561 $19,091 $ 44,058 $15,128 $ 39,065
Cash dividends or distributions(8)............. $ -- $11,824 $14,115 $ -- $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
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 $ 49,377
Total assets................................... 56,429 26,180 33,857 200,580 340,614 374,880
Total long-term debt........................... 47,694 31,143 12,102 104,846 154,055 153,934
Total stockholders' equity (deficit)........... 2,929 (11,374) 13,729 68,136 155,238 136,593
</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> 22
(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> 23
A+ NETWORK, INC.
(IN THOUSANDS, EXCEPT UNITS AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31,(2) JUNE 30,
------------------------------------------------------ ---------------------
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 $ 20,053 $ 40,389
Telemessaging............................. 5,518 9,626 10,065 11,227 11,359 5,584 5,786
------- ------- ------- ------- ------- ------- -------
Total revenues...................... 26,154 29,757 36,535 49,126 57,331 25,637 46,175
Costs of equipment sales.................. (4,805) (2,965) (4,563) (9,065) (7,878) (3,867) (4,159)
------- ------- ------- ------- ------- ------- -------
21,349 26,792 31,972 40,061 49,453 21,770 42,016
Costs and expenses:
Operating expenses........................ 5,228 7,667 8,485 8,298 11,584 4,997 9,273
Depreciation and amortization............. 2,450 3,534 4,318 7,476 14,835 6,310 13,236
Selling................................... 4,200 5,751 7,064 11,072 10,936 5,421 7,673
General and administrative................ 7,876 11,392 12,568 16,743 21,566 9,903 15,929
Restructuring charges..................... -- -- -- -- 669 -- 396
------- ------- ------- ------- ------- ------- -------
Total costs and expenses............ 19,754 28,344 32,435 43,589 59,590 26,631 46,507
------- ------- ------- ------- ------- ------- -------
Operating income (loss)..................... 1,595 (1,552) (463) (3,528) (10,137) (4,861) (4,491)
Equity in loss of affiliate................. (27) (248) -- -- -- -- --
Interest expense, net....................... (480) (619) (817) (547) (3,708) (811) (6,580)
Income tax (expense) benefit................ (420) 665 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary item..... 668 (1,754) (1,280) (4,075) (13,845) (5,672) (11,071)
Extraordinary item.......................... -- -- (236) -- (607) -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)........................... $ 668 $(1,754) $ (1,516) $ (4,075) $(14,452) $ (5,672) $(11,071)
======= ======= ======= ======= ======= ======= =======
Income (loss) before extraordinary item per
share..................................... $ .28 $ (.72) $ (.35) $ (.68) $ (2.03) $ (.95) $ (1.07)
Extraordinary item per share................ -- -- (.07) -- (.09) -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) per share..................... $ .28 $ (.72) $ (.42) $ (.68) $ (2.12) $ (.95) $ (1.07)
======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding......... 2,424 2,424 3,648 5,966 6,822 5,992 10,348
OTHER DATA:
Units in service (at period end)............ 70,280 91,961 126,976 216,199 529,450 227,087 618,657
EBITDA(1)................................... $ 4,045 $ 1,982 $ 3,855 $ 3,947 $ 5,367 $ 1,449 $ 9,141
Cash provided by (used in) operating
activities................................ 3,642 2,584 1,935 1,043 2,347 3,837 (3,112)
Capital expenditures........................ 2,972 8,432 7,302 19,098 12,396 6,066 22,857
Acquisition expenditures.................... 1,353 798 10,751 1,411 20,595 1,867 4,615
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ JUNE 30,
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 $ 44,876
Total assets................................ 13,881 21,198 45,256 54,611 211,013 208,366
Total debt.................................. 5,555 12,403 2,721 15,158 124,101 124,776
Shareholders' equity........................ 3,814 2,060 36,052 32,225 69,464 66,688
</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 six months ended June
30, 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
June 30, 1996.
11
<PAGE> 24
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
six-month period ended June 30, 1996 give effect to the acquisitions of Parkway
Paging, Inc. (the "Parkway Acquisition") and of Satellite Paging and Message
Network (the "Satellite Acquisition") by Metrocall under the heading "Pro Forma
Metrocall". The heading "Pro Forma Combined Company" gives effect to the
acquisition of A+ Network by Metrocall. The heading "Pro Forma Combined Company"
also gives effect to the issuance of $35 million in Metrocall Series A
Convertible Preferred Stock that Metrocall expects to issue in order to obtain
the debt financing necessary to consummate the acquisition of A+ Network. The
acquisition of Page America Group, Inc. by Metrocall (the "Page America
Acquisition") is given effect under the heading "Pro Forma Combined Company and
Page America." In each case the pro forma condensed combined statements of
operations data is presented as though the acquisitions and equity placement
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 Page America" give effect to the
acquisitions of Parkway, Satellite, A+ Network and the Page America Acquisition
and to the issuance of $35 million in Metrocell Series A Convertible Preferred
Stock as if each of the transactions had occurred on June 30, 1996.
This information should be read in conjunction with the Unaudited Pro Forma
Condensed Combined Financial Data and the notes thereto included herein, the
Metrocall Consolidated Financial Statements and the A+ Network Consolidated
Financial Statements included herewith and "A+ NETWORK MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." 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
PRO FORMA COMBINED
PRO FORMA PRO FORMA COMBINED COMPANY AND
METROCALL(1) A+ NETWORK(2) COMPANY PAGE AMERICA
------------ ------------- ---------- ------------
<S> <C> <C> <C> <C>
CONDENSED COMBINED STATEMENTS OF OPERATIONS DATA:
Total revenues.................................... $ 132,698 $ 86,043 $ 218,741 $ 243,458
Operating expenses before depreciation and
amortization(3)................................. 83,510 62,630 146,140 164,037
Loss from operations.............................. (7,381) (13,583) (39,692) (45,236)
Interest expense and other, net................... (13,582) (14,589) (30,443) (32,768)
Benefit for income taxes.......................... 1,448 -- 6,042 6,042
Extraordinary item................................ 1,536 (607) 929 929
Net loss.......................................... (17,979) (28,779) (63,164) (71,033)
Preferred dividends............................... -- -- (2,800) (2,800)
Loss attributable to common stockholders.......... (17,979) (28,779) (65,964) (73,833)
Net loss from continuing operations attributable
to common stockholders.......................... $ (1.48) $ (2.81) $ (3.00) $ (3.24)
Net loss per share attributable to common
stockholders.................................... $ (1.36) $ (2.81) $ (2.96) $ (3.20)
Weighted average common shares outstanding........ 13,222 10,228 22,264 23,047
OTHER DATA:
Units in service (end of period).................. 1,202,261 529,450 1,731,711 1,952,711
EBITDA(4)......................................... $ 32,296 $ 11,469 $ 43,765 $ 49,104
</TABLE>
- ---------------
(1) Gives effect to the Parkway Acquisition and the Satellite Acquisition as if
they had occurred on January 1, 1995. See "Unaudited Pro Forma Condensed
Combined Financial Data" included herewith.
(2) 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.
(3) 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.
(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 GAAP. EBITDA excludes nonrecurring
charges described in Note 3 above.
12
<PAGE> 25
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND UNITS IN SERVICE)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
COMPANY
PRO FORMA AND
PRO FORMA HISTORICAL COMBINED PAGE
METROCALL(1) A+ NETWORK COMPANY AMERICA
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
CONDENSED COMBINED STATEMENTS OF OPERATIONS
DATA:
Total revenues.............................. $ 72,845 $ 46,175 $ 119,020 $ 130,556
Operating expenses before depreciation and
amortization............................. 102,600 59,743 180,745 200,375
Loss from operations........................ (13,198) (4,491) (26,890) (30,040)
Interest and other expense, net............. (6,860) (6,580) (15,067) (16,040)
Benefit for income taxes.................... 513 -- 4,248 4,248
Net loss.................................... (19,545) (11,071) (37,709) (41,832)
Preferred dividends......................... -- -- (1,400) (1,400)
Loss attributable to common stockholders.... (19,545) (11,071) (39,109) (42,232)
Net loss per share attributable to common
stockholders............................. $ (1.21) $ (1.07) $ (1.55) $ (1.66)
Weighted average common shares
outstanding.............................. 16,180 10,348 25,223 26,005
OTHER DATA:
Units in service (end of period)............ 1,380,791 618,657 1,999,448 2,221,325
EBITDA(2)................................... $ 15,293 $ 9,141 $ 24,434 $ 26,940
CONDENSED COMBINED BALANCE SHEET DATA
(AS OF JUNE 30, 1996):
Working capital (deficit)................... $ (10,656) $ 28,792 $ 5,024 $ (30,342)
Total assets................................ 444,688 208,366 675,456 711,915
Long-term obligations, net of current
portion.................................. 199,361 124,776 289,137 314,137
Total stockholders' equity(3)............... 147,569 66,688 236,823 241,518
</TABLE>
- ---------------
(1) Gives effect to the Parkway Acquisition and the Satellite Acquisition as if
they had occurred on January 1, 1995. See "Unaudited Pro Forma Condensed
Combined Financial Data" included herewith.
(2) 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. For Pro Forma Metrocall, EBITDA
excludes approximately $12,000 related to Satellite Acquisition
reorganization costs.
(3) The pro forma stockholders' equity assumes a per share price of $6.00 for
Metrocall Common Stock as of the closing date of each acquisition.
13
<PAGE> 26
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
PRO FORMA COMBINED COMPANY AND PAGE AMERICA(2)
----------------------------------- --------------------------------
A+ NETWORK A+ NETWORK
EQUIVALENT(4) EQUIVALENT(4)
PRO FORMA A+ SURVIVING ------------------ SURVIVING ------------------
METROCALL(1) NETWORK CORPORATION(3) HIGH LOW CORPORATION HIGH LOW
------------ ------- -------------- ------ ------ ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loss from continuing operations
attributable to common
stockholders:
Six months ended
June 30, 1996............... $(1.21) $(1.07 ) $(1.55) $(1.83) $(1.49) $ (1.66) $(1.96) $(1.60)
Year ended December 31, 1995
(5)......................... (1.48) (2.81 ) (3.00) (3.54) (2.89) (3.24) (3.82) (3.12)
Book value per common share:
June 30, 1996................. $ 9.12 $ 6.12 $ 8.00 $ 9.43 $ 7.71 $ 7.94 $ 9.36 $ 7.66
</TABLE>
- ---------------
(1) Reflects the acquisitions of Parkway Paging and Satellite as if they had
occurred on January 1, 1995.
(2) Reflects the pending acquisition of Page America by Metrocall.
(3) Gives effect to the 8% dividend rate on the $35 million aggregate
liquidation value of Series A Convertible Preferred Stock as if it had been
issued on January 1, 1995 for purposes of computing loss from continuing
operations attributable to common stockholders.
(4) 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.
(5) 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 9,000,000 shares, from 26,000,000
shares to 35,000,000 shares. See "AMENDMENT OF METROCALL CHARTER TO INCREASE THE
NUMBER OF AUTHORIZED METROCALL 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 SHARES
THAT MAY BE ISSUED UNDER METROCALL'S 1996 STOCK OPTION PLAN." Finally, the
Metrocall stockholders are being asked to consider and vote on the Preferred
Stock Issuance pursuant to which Metrocall intends to issue $35 million
aggregate liquidation value of Series A Convertible Preferred Stock bearing
dividends of approximately 8% (payable in cash or, at Metrocall's option,
additional shares of preferred stock) and convertible into Metrocall Common
Stock at a premium of approximately 25% over the market price of Metrocall
Common Stock on the date of issuance of the preferred stock. See "APPROVAL OF
ISSUANCE OF METROCALL CONVERTIBLE PREFERRED STOCK."
14
<PAGE> 27
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
Metrocall currently has incurred approximately $222 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 the Page America Acquisition (estimated at $55
million). Metrocall has a 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 acquisition of Page America and/or to refinance
indebtedness of A+ Network. 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. However, the ability
to incur additional indebtedness (including draws on the New Credit Facility) is
subject to certain limitations in the agreements relating to existing
indebtedness of Metrocall and A+ Network and Metrocall currently may not incur
additional indebtedness. In particular, Metrocall cannot assume the indebtedness
of A+ Network in connection with the Merger without triggering defaults unless
certain financial covenants are met after assumption of the indebtedness. In
order to be in compliance with these covenants after the Merger, reported cash
flow of Metrocall and A+ Network must increase to a level that is sufficient to
allow Metrocall to assume or refinance the indebtedness of A+ Network or the
overall level of indebtedness that would exist after the Merger must be reduced
by raising additional equity capital or by other means. See "Need for Additional
Capital." Moreover, 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 permitted by
agreements relating to existing indebtedness or otherwise satisfactory to the
Surviving Corporation.
NEED FOR ADDITIONAL CAPITAL
As set forth above, Metrocall is seeking to raise additional equity capital
in order to insure that it will remain in compliance with certain debt covenants
after completion of the Merger. In addition, only $100 million of the $350
million under the New Credit Facility is available (subject in any event to
compliance with certain financial ratios) until Metrocall raises at least $25
million in additional equity capital, and this capital must be raised before
Metrocall can complete the Page America Acquisition. The New Credit Facility
will also require Metrocall to raise a further $25 million in equity capital if
Metrocall's ratio of cash flow to interest expense is less than 2.0 to 1 for the
quarter ended June 30, 1997. See "RECENT DEVELOPMENTS REGARDING METROCALL -- New
Credit Facility." Metrocall is exploring options for raising up to $50 million
of additional equity financing and currently intends to issue $35 million in
aggregate liquidation value of Series A Convertible Preferred Stock. See
"APPROVAL OF ISSUANCE OF METROCALL CONVERTIBLE PREFERRED STOCK." There can be no
assurance that Metrocall will be successful in raising the equity capital it
seeks to raise. Such additional equity may be in the form of additional shares
of Metrocall Common Stock, preferred stock, or some other instrument. Any equity
issued in the form of preferred stock would have preference as to dividends and
liquidating distributions over Metrocall Common Stock and may contain other
terms adversely affecting holders of Metrocall Common Stock.
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
15
<PAGE> 28
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 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,
16
<PAGE> 29
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. 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.
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 $18.6 million for the six months ended June 30, 1996. No assurance can
be given that losses can be reversed in the future. In addition, at June 30,
1996, Metrocall's accumulated deficit was $65.5 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.
17
<PAGE> 30
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 Nasdaq, 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 and adjustments
to the Target Price during the relevant valuation period, and will also be
affected to the extent that the index referred to above declines. As of
September 30, 1996, the index had declined to a level such that no payments
would be made on the VCRs if they had matured on that date. 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 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.
Any payments under the VCRs can be made, at Metrocall's option, in cash,
Metrocall Common Stock, or, in certain limited circumstances defined below (see
"DESCRIPTION OF METROCALL SECURITIES -- Metrocall VCRs"), in Metrocall Preferred
Stock except that, if an event of default under the VCRs has occurred and is
continuing, Metrocall must pay in cash or shares of Preferred Stock. Metrocall
anticipates that, due to restrictions in its existing debt agreements, any
payments will be made in Metrocall Common Stock or Preferred Stock, not in cash.
Any such securities will be subject to the same risks identified herein with
respect to Metrocall Common Stock except that Preferred Stock issued if an event
of default has occurred and is continuing will have a liquidation preference
over Metrocall Common Stock.
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 on Metrocall Common Stock in the foreseeable future. Certain covenants
in Metrocall's bank credit agreement prohibit the payment of dividends on
Metrocall Common Stock 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
18
<PAGE> 31
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 $5 7/8
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 8.1 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 the Page America Acquisition, with the
amount of such shares depending on purchase price adjustments under the
acquisition agreement and the market price of Metrocall Common Stock at the time
of the purchase. Based on second quarter results of Page America and assuming a
price of $6 per share for Metrocall Common Stock, the number of additional
shares would be approximately 782,000 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 34.4% 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.
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
19
<PAGE> 32
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 have entered 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
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 9:00 a.m., eastern time, on November
6, 1996, at the Ritz-Carlton, Pentagon City, 1250 South Hayes Street, Arlington,
Virginia. The A+ Network Meeting will be held at 2:00 p.m., central time, on
November 6, 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
20
<PAGE> 33
increases the authorized shares of Metrocall Common Stock by 9,000,000 shares,
from 26,000,000 shares to 35,000,000 shares (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 and (iv) to approve the Preferred
Stock Issuance, which provides for the issuance of $35 million aggregate
liquidation value of Series A Convertible Preferred Stock of Metrocall.
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 16,060,117 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 149 holders of record of A+
Network Common Stock with 10,888,583 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, FOR approval and adoption of the Plan Amendment and FOR
approval of the Preferred Stock Issuance. 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, 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
(8,030,059 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 and to approve the Preferred
Stock Issuance. 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 or the Preferred Stock Issuance.
21
<PAGE> 34
On the Metrocall Record Date, directors and executive officers of Metrocall
exercised voting control over an aggregate of 5,023,391 shares of the
outstanding Metrocall Common Stock (approximately 31.3% 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 (5,444,292 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 3,331,944 shares of the
outstanding A+ Network Common Stock (approximately 30.6% 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 4,350,743 shares of A+ Network Common
Stock representing approximately 40.0% 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 of $8,000, 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.
22
<PAGE> 35
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 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.
23
<PAGE> 36
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 31.4% 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 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.
On October , 1996, Metrocall and A+ Network executed Amendment No. 1 to
the Merger Agreement. Amendment No. 1: (i) requires A+ Network, upon the request
of Metrocall, to use its best efforts to cause the persons identified in this
Joint Proxy Statement/Prospectus as directors of the Surviving Corporation to be
elected as directors of A+ Network immediately prior to the closing of the
Merger, (ii) increases from 7,500,000 shares to 9,000,000 shares a limit
included in the Merger Agreement on the increase in the number of authorized
Metrocall Common Stock that could be adopted pending completion of the Merger
and (iii) reduces by 25% the prices used to determine payments under the VCRs.
Also, on August 11, 1996, Metrocall relinquished its proxy to vote the Principal
Shareholders' Shares in favor of the Merger and against certain transactions.
24
<PAGE> 37
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 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
25
<PAGE> 38
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.
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
(which term, for the purpose of this section, "Opinion of Financial Advisor of
Metrocall," does not include any amendment thereto) 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
26
<PAGE> 39
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 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.
27
<PAGE> 40
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.
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
28
<PAGE> 41
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.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF A+ NETWORK
The Board of Directors of A+ Network (including the nonemployee directors)
adopted the Merger Agreement and has determined that the Merger is fair to, and
in the best interests of, A+ Network and its
29
<PAGE> 42
shareholders. The Board of Directors of A+ Network has 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 could enable the shareholders of A+ Network to
realize a 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).
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.
30
<PAGE> 43
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 (which term,
for the purpose of this section, "Opinion of A+ Network's Financial Advisor,"
does not include any amendment thereto) 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 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
31
<PAGE> 44
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 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
32
<PAGE> 45
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.
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%).
33
<PAGE> 46
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 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.
34
<PAGE> 47
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 greater of $7.00 and 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 Options as soon as
practicable after the Effective Time. Currently exercisable options may be
exercised and the Shares received thereby exchanged in the Merger.
35
<PAGE> 48
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>
Stock options issued by A+ Network generally are no longer exercisable
three months after employment with A+ Network is terminated. Certain of the
employees identified above are expected to terminate their employment with A+
Network on or prior to the Merger. A+ Network, with Metrocall's consent, has
agreed that the exercisability of these options may be extended through the date
that the options would otherwise be exercisable if they continued to be
employees.
Messrs. Singer, Emling, Schultz and Poole hold options to acquire 235,754,
29,469, 58,939 and 29,469 shares of A+ Network Common Stock, respectively. On
October 4, 1996, the Board of Directors of A+ Network, with Metrocall's consent,
changed the exercise price of substantially all options outstanding to all
current employees of A+ Network as of that date to $ per share. Prior to
this action these options were exercisable for the prices set forth in the table
above.
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. 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.
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
36
<PAGE> 49
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 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.
37
<PAGE> 50
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.
38
<PAGE> 51
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
39
<PAGE> 52
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. Although FCC approval has been granted
for transfer of most of the subject licenses, there can be no assurance that the
FCC will grant the remaining approvals or that, if granted, such FCC approvals
will be on a timely basis or on terms and conditions acceptable to Metrocall, or
that any such approvals 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
40
<PAGE> 53
to those rates, have also been subject to state regulation. However, under the
federal Budget Reconciliation 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.
41
<PAGE> 54
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 greater of $7.00 and 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. Certain employees of A+ Network who
are expected to terminate their employment with A+ Network on or prior to the
Merger hold stock options that would no longer be exercisable three months after
they terminate employment with A+ Network. A+ Network has, with Metrocall's
consent, agreed that the exercisability of these options may be extended through
the date that the options would otherwise be exercisable if they continued to be
employees. The Surviving Corporation will notify option holders regarding their
rights under A+ Network Options 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
42
<PAGE> 55
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+ 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;
43
<PAGE> 56
(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 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
44
<PAGE> 57
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 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 9,000,000
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
45
<PAGE> 58
(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+ 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
46
<PAGE> 59
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."
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.
Pursuant to the terms of the Merger Agreement, the Merger is required to be
consummated by November 16, 1996 subject to extension if final FCC approvals
have not been received by that date. If the Merger is not consummated or the
Merger Agreement otherwise amended, Metrocall may be required to sell its 40%
investment in A+ Network. As of June 30, 1996, Metrocall's investment in A+
Network together with related goodwill is reflected on Metrocall's balance sheet
at approximately $92 million, which resulted from a cash purchase price of
$21.10 per share for approximately 4.4 million shares of A+ Network. The closing
market price of A+ Network Common Stock on October 3, 1996 was $6 3/4 per share,
or a decrease, based
47
<PAGE> 60
upon market value, of approximately $62 million. Therefore, if Metrocall were
required to sell this investment at current market prices, Metrocall would
likely realize a substantial loss upon disposition, which has not been reflected
in the pro forma statement included herein.
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 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,
48
<PAGE> 61
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 15, 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 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
49
<PAGE> 62
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 Charter Amendment is
approved, the authorized capital stock of Metrocall will consist of 35,000,000
shares of Metrocall Common Stock and 1,000,000 shares of Metrocall Preferred
Stock. As of October 4, 1996, there were 16,060,117 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
50
<PAGE> 63
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 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
51
<PAGE> 64
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). The VCR Payment Amount will accordingly be zero if
either the Current Market Value or the Minimum Price exceeds the Target Price.
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
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.
Form of Payment. Metrocall, at its option, may pay the VCR Payment Amount
in cash or that number of Metrocall Shares equal to the VCR Payment Amount
divided by the Current Market Value as defined below; except that, if an Event
of Default (as defined below) has occurred and is continuing, Metrocall must pay
the Default Amount (as defined below) in cash or shares of Metrocall Preferred
Stock having a liquidation preference over Metrocall Common Stock in an amount
equal to the Default Amount. See "Metrocall Preferred Stock," below. If
Metrocall elects to pay the VCR Payment Amount in the form of Metrocall Shares
rather than cash, and if the number of shares of Metrocall Common Stock that is
authorized by Metrocall's certificate of incorporation but not outstanding or
reserved for issuance for purposes other than payment of amounts due in payment
of the VCRs is not sufficient to permit the payment in shares of Metrocall
Common Stock, Metrocall may, in lieu of paying in cash or shares of Metrocall
Common Stock, pay amounts due in payment of the VCRs in shares of Metrocall
Preferred Stock, with each holder of a VCR receiving a fraction of a share of
Metrocall Preferred Stock for each share of Metrocall Common Stock that would
have been issued. Except as noted above, each fraction of a share of Metrocall
Preferred Stock will have liquidation, dividend and voting rights equivalent to
a share of Metrocall Common Stock, and Metrocall will have the right to convert
each fraction of a share of Metrocall Preferred Stock into one share of
Metrocall Preferred Stock upon notice to holders. See "Metrocall Preferred
Stock" below. 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, $15.825
multiplied by the lesser of 1.0 and the "Index Factor", as hereinafter defined,
and (ii) at the Extended Maturity Date, $18.825 multiplied by the lesser of 1.0
and the Index Factor. In each case, such Target Prices shall also 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 or 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, $ ,
and (ii) at the Extended Maturity Date, $ in each case subject to
adjustment upon the occurrence of any event described in the section entitled
"Antidilution" set forth below. The Minimum Price will not be adjusted by the
Index Factor.
52
<PAGE> 65
Accordingly, the Target Price may decrease below the Minimum Price as a result
of adjustments to the Target Price based on the Index Factor.
Index Factor. The Index Factor equals the relevant Ending Period
Comparable Paging Company Index (the Index Factor numerator) divided by 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 is $18.453
which is .75 times 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 median of the simple
arithmetic average of closing bid prices of the index group during each 20
consecutive trading day period that both begins and ends in the relevant
Valuation Periods preceding the Maturity Date, Extended Maturity Date, or
Disposition Date, as the case may be. Thus, for example, if the Maturity Date
were September 30, 1996, the Ending Period Comparable Paging Company Index would
be $10.356, the Index Factor would have been .558, and the Target Price would
have been $8.83. Because the Target Price (as adjusted) would have been less
than the Minimum Price ($ ), no payment would have been made on the VCRs.
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) $15.825 for any 50 calendar day period prior to the Maturity Date, or
(ii) $18.825 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 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,
$15.825 multiplied by the lesser of 1.0 and the 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, $18.825 multiplied by the lesser of 1.0 and the
Index
53
<PAGE> 66
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 Metrocall Common Stock, Metrocall shall
correspondingly subdivide or combine the VCRs and shall proportionally decrease
the Target Price, the Minimum Price and the Discounted Target Price in the case
of a subdivision or increase such prices in the case of a combination.
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.
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.
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.
VCR Agreement. The VCRs will be issued under a Variable Common Rights
Agreement (the "VCR Agreement") by and between Metrocall and First Union
National Bank of Virginia, as Rights Agent (the "Rights Agent"). The VCR
Agreement is qualified under the Trust Indenture Act of 1939, as in effect on
the date of the VCR Agreement (the "Trust Indenture Act"). Pursuant to the VCR
Agreement, VCR Certificates will be issued in registered form and authenticated
and delivered by the Rights Agent. Transfers and exchanges of the VCRs will be
made by presenting the VCR Certificate in the name of the transferor to the
Rights Agent, in its capacity as Security Registrar. The Rights Agent shall then
authenticate and deliver one or more new VCR Certificates in the name of the
designated transferee or transferees. Payment on the VCRs at the Maturity Date,
the Extended Maturity Date, the Default Payment Date or the Disposition Payment
Date, as the case may be, shall be made only upon presentation of a VCR
Certificate by the holder thereof at the office of the Rights Agent in New York,
New York.
The Rights Agent has certain duties and responsibilities with respect to
the holders of the VCRs (the "Holders"). For instance, if an Event of Default
occurs and is continuing, the Rights Agent must give notice of such Event of
Default to all Holders whose names appear in the security register; except that
the Rights Agent may withhold such notice so long as there is no default in
payment of the VCRs and the Rights Agent determines in good faith that
withholding such notice is in the interest of the Holders. In addition, the
Rights Agent will distribute to Holders (i) summaries of reports provided to the
Rights Agent by Metrocall and (ii) certain other reports required by the Trust
Indenture Act.
In addition to providing annual and other reports to the Rights Agent,
Metrocall must also deliver to the Rights Agent, within 120 days after the end
of each fiscal year, a certificate of Metrocall's Chief Executive Officer or
Chief Financial Officer stating that all conditions and covenants provided for
in the VCR Agreement have been complied with. A similar certificate and an
opinion of counsel stating that any conditions precedent have been complied with
must be delivered to the Rights Agent if Metrocall requests that the Rights
Agent take any action under the VCR Agreement.
54
<PAGE> 67
METROCALL PREFERRED STOCK
The Metrocall Preferred Stock that may be issued on payment of VCRs if
there are insufficient shares of Metrocall Common Stock authorized to use
Metrocall Common Stock to make payment on the VCRs, or upon an Event of Default,
would be issued pursuant to a certificate of designation and preferences to be
adopted by the Board of Directors of Metrocall if Metrocall determines to make
payments in the form of Metrocall Preferred Stock instead of cash. The Board of
Directors of Metrocall will determine what fraction of a share of Metrocall
Preferred Stock (a "Fractional Share") will have the rights set forth below
based on the number of shares of preferred stock authorized by Metrocall's
Amended and Restated Certificate of Incorporation and unissued at the time
payment on the VCRs is required. Pursuant to the terms of the VCR Agreement,
each Fractional Share of Metrocall Preferred Stock will have the rights set
forth below.
Liquidation Distribution upon Dissolution. Each Fractional Share shall
share pro rata with all other Fractional Shares and shares of Metrocall Common
Stock in all liquidating distributions upon dissolution following distributions
to all other classes or series of Preferred Stock issued by Metrocall, whether
such other shares are issued and outstanding at the time of the issuance of
Fractional Shares of Metrocall Preferred Stock or issued thereafter; provided,
however, that if an Event of Default has occurred and is continuing at the time
of issuance, each Fractional Share shall have a preference over shares of
Metrocall Common Stock in an amount equal to the VCR Payment Amount.
Dividends. Each Fractional Share shall be entitled to receive any dividend
declared by the Board of Directors with respect to a share of Metrocall Common
Stock. No other dividends will be paid with respect to the Fractional Shares of
Metrocall Preferred Stock.
Voting. Each Fractional Share shall have one vote on all matters on which
shares of Metrocall Common Stock have a vote and shares of Metrocall Common
Stock and Metrocall Preferred Stock will vote together as a single class.
Fractional Shares of Metrocall Preferred Stock will have no other voting rights
except as required by law.
Conversion. Metrocall may at any time convert each Fractional Share of
Metrocall Preferred Stock into one share of Metrocall Common Stock by notice of
such conversion to the record holders of the Fractional Shares of Metrocall
Preferred Stock; provided, however, that if an Event of Default has occurred and
is continuing at the time of issuance, the Company may not convert a Fractional
Share without the consent of the holder of the Fractional Share.
Adjustments. The terms of the Metrocall Preferred Stock shall be adjusted
whenever there is a split or combination of shares of Metrocall Common Stock, so
that each Fractional Share of Metrocall Preferred Stock will have the same
rights in relation to a share of Metrocall Common Stock as at the time of
issuance of the Fractional Share of Metrocall Preferred Stock.
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.
55
<PAGE> 68
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 Bylaws provide 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 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 director or officer who was, or is a
party to, or is threatened to be made a party to, any action
56
<PAGE> 69
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.
"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
57
<PAGE> 70
the affirmative vote of a majority of the outstanding shares of each 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.
58
<PAGE> 71
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(UNAUDITED)
The following unaudited pro forma condensed combined balance sheet under
the heading "Pro Forma Metrocall" gives effect to (a) the Parkway Acquisition
for cash of approximately $25.0 million, direct acquisition costs of
approximately $600,000 and the assumption of approximately $3.2 million in
long-term obligations, and (b) the Satellite Acquisition for cash of
approximately $17.0 million, approximately 1.6 million shares of Metrocall
Common Stock valued at approximately $11 million and direct acquisition costs of
approximately $500,000 as if each had occurred on June 30, 1996. The pro forma
condensed combined balance sheet under the heading "Pro Forma Combined Company"
gives effect to the acquisition of the remaining equity holdings of A+ Network
for approximately 9,042,000 shares of Metrocall Common Stock, an equal number of
VCRs, expected direct acquisition costs of approximately $7.8 million and the
assumption of $125 million of A+ Network debt as if the acquisition had occurred
on June 30, 1996. The pro forma condensed combined balance sheet under the
heading "Pro Forma Combined Company" also gives effect to the issuance of $35
million liquidation value of Series A Convertible Preferred Stock that Metrocall
expects to issue in order to obtain the debt financing necessary to consummate
the acquisition of A+ Network. The unaudited pro forma condensed combined
balance sheet under the heading "Pro Forma Combined Company and Page America"
also gives effect to the Page America Acquisition for cash of approximately $55
million, approximately 782,000 shares of Metrocall Common Stock and expected
direct acquisition costs of approximately $1.2 million as if the acquisition had
occurred on June 30, 1996. The Page America Acquisition is subject to adjustment
based upon the financial performance prior to closing. In the accompanying pro
forma statements, these adjustments are estimated based upon financial
performance for the six month period ended June 30, 1996. Accordingly, the
actual cash and stock consideration to be issued by Metrocall could differ.
The unaudited pro forma condensed combined statements of operations for the
six month period ended June 30, 1996 and for the year ended December 31, 1995
give effect to (a) the Parkway and Satellite Acquisitions under the heading "Pro
Forma Metrocall" and (b) the Merger and the merger of Network Paging Corporation
into A+ Communications, Inc. on October 24, 1995 under the heading "Pro Forma
Combined Company" together with the issuance of $35 million of Series A
Convertible Preferred Stock as described above and (c) the pending acquisition
of Page America under the heading "Pro Forma Combined Company and Page America"
as if each had occurred on January 1, 1995.
Each of the recent and 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 Parkway Financial Statements, Satellite Financial Statements, A+
Network Consolidated 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.
59
<PAGE> 72
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------ PRO FORMA PRO FORMA PRO FORMA
METROCALL PARKWAY(A) SATELLITE ADJUSTMENTS METROCALL A+ NETWORK ADJUSTMENTS
--------- ---------- --------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and short
term investments................ $ 49,377 $ 267 $ 990 $ -- $ 50,634 $ 26,334 $ (45,165)(K)
Accounts receivable, net.......... 10,788 971 548 -- 12,307 8,439 --
Inventory......................... -- 660 423 (1,083)(B) -- 6,387 (6,387)(B)
Prepaid expenses and other current
assets.......................... 2,021 196 31 (106)(C) 2,142 3,716 --
--------- ---------- --------- ----------- --------- ---------- -----------
Total current assets........ 62,186 2,094 1,992 (1,189) 65,083 44,876 (51,552)
Furniture and equipment, net....... 93,375 2,902 1,699 1,083 (B) 99,059 63,527 6,387 (B)
Intangibles, net................... 192,248 4 62 61,048 (D) 253,362 99,963 94,326 (D)
Equity investment in
A+ Network, Inc................... 26,759 -- -- -- 26,759 -- (26,759)(D)
Other assets....................... 312 74 60 (21)(C) 425 -- --
--------- ---------- --------- ---------- --------- ---------- -----------
Total Assets................ $374,880 $5,074 $ 3,813 $60,921 $444,688 $208,366 $ 22,402
========= ========== ========= ========== ========= ========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
Current liabilities:
Current maturities of long-term
obligations..................... $ 271 $2,367 $ 136 $(2,503)(E) $ 271 $ -- $ --
Accounts payable and accrued
expenses........................ 17,457 54 489 418 (F) 18,418 8,860 6,725 (F)
Obligation under tender offer..... 45,165 -- -- -- 45,165 -- (45,165)(K)
Deferred revenues and subscriber
deposits........................ 2,759 1,193 889 43 (G) 4,884 7,224 --
Other current liabilities......... 7,001 -- 534 (534)(G) 7,001 -- --
--------- ---------- --------- ----------- --------- ---------- -----------
Total current liabilities... 72,653 3,614 2,048 (2,576) 75,739 16,084 (38,440)
Capital lease obligation........... 2,745 380 -- (380)(E) 2,745 -- --
Long-term obligations.............. 150,918 489 11,272 33,937 (H) 196,616 124,776 (35,000)(H)
Deferred income taxes.............. 11,471 -- -- 10,048 (I) 21,519 818 73,276 (I)
Minority interest.................. 500 -- -- -- 500 -- --
--------- ---------- --------- ----------- --------- ---------- -----------
Total liabilities........... 238,287 4,483 13,320 41,029 297,119 141,678 (164)
Total stockholders' equity
(deficit)......................... 136,593 591 (9,507) 19,892 (J) 147,569 66,688 22,566 (J)
--------- ---------- --------- ----------- --------- ---------- -----------
Total liabilities and
stockholders' equity (deficit).... $374,880 $5,074 $ 3,813 $60,921 $444,688 $208,366 $ 22,402
========= ========== ========= ========== ========= ========== ==========
<CAPTION>
ASSETS
COMBINED
PRO FORMA HISTORICAL COMPANY AND
COMBINED PAGE PRO FORMA PAGE
COMPANY AMERICA ADJUSTMENTS AMERICA
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and short
term investments................ $ 31,803 $ -- $ (30,000)(K) $ 1,803
Accounts receivable, net.......... 20,746 858 -- 21,604
Inventory......................... -- -- -- --
Prepaid expenses and other current
assets.......................... 5,858 540 -- 6,398
--------- ---------- ----------- -----------
Total current assets........ 58,407 1,398 (30,000) 29,805
Furniture and equipment, net....... 168,973 6,872 -- 175,845
Intangibles, net................... 447,651 32,960 24,919 (D) 505,530
Equity investment in
A+ Network, Inc................... -- -- -- --
Other assets....................... 425 310 -- 735
--------- ---------- ----------- -----------
Total Assets................ 675,456 $ 41,540 $ (5,081) $ 711,915
========= ========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Current maturities of long-term
obligations..................... $ 271 $ -- $ -- $ 271
Accounts payable and accrued
expenses........................ 34,003 3,715 1,194 (F) 38,912
Obligation under tender offer..... -- -- -- --
Deferred revenues and subscriber
deposits........................ 12,108 1,855 -- 13,963
Other current liabilities......... 7,001 -- -- 7,001
--------- ---------- ----------- -----------
Total current liabilities... 53,383 5,570 1,194 60,147
Capital lease obligation........... 2,745 -- -- 2,745
Long-term obligations.............. 286,392 -- 25,000 (H) 311,392
Deferred income taxes.............. 95,613 -- -- 95,613
Minority interest.................. 500 -- -- 500
--------- ---------- ----------- -----------
Total liabilities........... 438,633 5,570 26,194 470,397
Total stockholders' equity
(deficit)......................... 236,823 35,970 (31,275)(J) 241,518
--------- ---------- ----------- -----------
Total liabilities and
stockholders' equity (deficit).... $675,456 $ 41,540 $ (5,081) $ 711,915
========= ========== =========== ===========
</TABLE>
60
<PAGE> 73
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 PRO FORMA PRO FORMA
METROCALL PARKWAY(A) SATELLITE ADJUSTMENTS METROCALL A+ NETWORK(L)
--------- ---------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Service, rent & maintenance
revenue............................ $ 92,160 $ 7,403 $10,723 $ -- $110,286 $ 77,698
Product sales....................... 18,699 2,344 1,369 -- 22,412 8,345
--------- ---------- --------- ----------- --------- -------------
Total revenues............... 110,859 9,747 12,092 -- 132,698 86,043
Net book value of products sold..... (15,527) (2,262) (1,557) -- (19,346) (11,944)
--------- ---------- --------- ----------- --------- -------------
95,332 7,485 10,535 -- 113,352 74,099
Service, rent & maintenance
expense............................ 27,258 2,330 3,918 -- 33,506 16,758
Selling, marketing, general and
administrative..................... 40,303 3,655 4,281 (689)(M) 47,550 45,872
Depreciation & amortization......... 31,504 1,153 1,064 3,502 (N) 37,223 25,052
Other............................... 2,050 -- 404 -- 2,454 --
--------- ---------- --------- ----------- --------- -------------
Total operating expenses..... 101,115 7,138 9,667 2,813 120,733 87,682
--------- ---------- --------- ----------- --------- -------------
(Loss) Income from operations....... (5,783) 347 868 (2,813) (7,381) (13,583)
Interest expense and other, net..... (10,522) (477) (740) (1,843)(O) (13,582) (14,589)
--------- ---------- --------- ----------- --------- -------------
Net (loss) income before
taxes....................... (16,305) (130) 128 (4,656) (20,963) (28,172)
Benefit (provision) for taxes....... 595 43 -- 810 (P) 1,448 --
--------- ---------- --------- ----------- --------- -------------
Net (loss) income before
extraordinary item.......... (15,710) (87) 128 (3,846) (19,515) (28,172)
Extraordinary item.................. (4,392) -- 5,928 -- 1,536 (607)
--------- ---------- --------- ----------- --------- -------------
Net (loss) income............ (20,102) (87) 6,056 (3,846) (17,979) (28,779)
Preferred dividends................. -- -- -- -- -- --
--------- ---------- --------- ----------- --------- -------------
Loss attributable to common
stockholders....................... $(20,102) $ (87) $ 6,056 $(3,846) $(17,979) $ (28,779)
========= ========== ======== =========== ========= =============
Net loss from continuing operations
attributable to common
stockholders....................... $ (1.34) $ (1.48)
Extraordinary item, net of income
tax benefit........................ (0.38) 0.12
--------- ---------
Net loss per share attributable to
common stockholders................ $ (1.72) $ (1.36)
Shares used in computing net loss
per share.......................... 11,668 13,222 (R)
========== =========
<CAPTION>
PRO FORMA COMBINED
PRO FORMA COMBINED HISTORICAL PRO FORMA COMPANY AND
ADJUSTMENTS COMPANY PAGE AMERICA ADJUSTMENTS PAGE AMERICA
----------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Service, rent & maintenance
revenue............................ $ -- $187,984 $ 22,387 $ -- $210,371
Product sales....................... -- 30,757 2,330 -- 33,087
----------- --------- ------ ----------- ------------
Total revenues............... -- 218,741 24,717 -- 243,458
Net book value of products sold..... -- (31,290) (1,481) -- (32,771)
----------- --------- ------ ----------- ------------
-- 187,451 23,236 -- 210,687
Service, rent & maintenance
expense............................ -- 50,264 5,538 -- 55,802
Selling, marketing, general and
administrative..................... -- 93,422 12,359 -- 105,781
Depreciation & amortization......... 18,728 (N) 81,003 6,747 4,136 (N) 91,886
Other............................... -- 2,454 -- -- 2,454
----------- --------- ------ ----------- ------------
Total operating expenses..... 18,728 227,143 24,644 4,136 255,923
----------- --------- ------ ----------- ------------
(Loss) Income from operations....... (18,728) (39,692) (1,408) (4,136) (45,236)
Interest expense and other, net..... (2,272)(O) (30,443) (137) (2,188)(O) (32,768)
----------- --------- ------ ----------- ------------
Net (loss) income before
taxes....................... (21,000) (70,135) (1,545) (6,324) (78,004)
Benefit (provision) for taxes....... 4,594 (P) 6,042 -- -- 6,042
----------- --------- ------ ----------- ------------
Net (loss) income before
extraordinary item.......... (16,406) (64,093) (1,545) (6,324) (71,962)
Extraordinary item.................. -- 929 -- -- 929
----------- --------- ------ ----------- ------------
Net (loss) income............ (16,406) (63,164) (1,545) (6,324) (71,033)
Preferred dividends................. (2,800)(Q) (2,800) -- -- (2,800)
----------- --------- ------ ----------- ------------
Loss attributable to common
stockholders....................... $ (19,206) $(65,964) $ (1,545) $(6,324) $(73,833)
=========== ========= ========== =========== ============
Net loss from continuing operations
attributable to common
stockholders....................... $ (3.00) $ (3.24)
Extraordinary item, net of income
tax benefit........................ 0.04 0.04
--------- -----------
Net loss per share attributable to
common stockholders................ $ (2.96) $ (3.20)
Shares used in computing net loss
per share.......................... 22,264 (R) 23,047(R)
========= ===========
</TABLE>
See accompanying notes to this unaudited statement.
61
<PAGE> 74
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------- PRO FORMA PRO FORMA
METROCALL PARKWAY(A) SATELLITE ADJUSTMENTS METROCALL A+ NETWORK
--------- ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Service, rent & maintenance revenue.... $ 48,829 $ 4,393 $ 5,030 $ -- $ 58,252 $ 43,169
Product sales.......................... 13,158 847 588 -- 14,593 3,006
--------- ---------- --------- ----------- --------- ----------
Total revenues.................. 61,987 5,240 5,618 -- 72,845 46,175
Net book value of products sold........ (10,560) (740) (622) -- (11,922) (4,159)
--------- ---------- --------- ----------- --------- ----------
51,427 4,500 4,996 -- 60,923 42,016
Service, rent & maintenance expense.... 16,498 1,875 1,827 -- 20,200 9,273
Selling, marketing, general
and administrative.................... 22,694 1,410 1,790 (464)(M) 25,430 23,602
Depreciation & amortization............ 25,098 613 339 2,429 (N) 28,479 13,236
Other.................................. -- -- 12 -- 12 396
--------- ---------- --------- ----------- --------- ----------
Total operating expenses........ 64,290 3,898 3,968 1,965 74,121 46,507
--------- ---------- --------- ----------- --------- ----------
(Loss) Income from operations.......... (12,863) 602 1,028 (1,965) (13,198) (4,491)
Interest expense and other, net........ (5,890) (172) (579) (219)(O) (6,860) (6,580)
--------- ---------- --------- ----------- --------- ----------
Net (loss) income before
taxes.......................... (18,753) 430 449 (2,184) (20,058) (11,071)
Benefit (provision) for taxes.......... 108 -- -- 405 (P) 513 --
--------- ---------- --------- ----------- --------- ----------
Net (loss) income............... (18,645) 430 449 (1,779) (19,545) (11,071)
Preferred dividends.................... -- -- -- -- -- --
--------- ---------- --------- ----------- --------- ----------
Loss attributable to common
stockholders.......................... $(18,645) $ 430 $ 449 $(1,779) $(19,545) $(11,071)
========= ========== ========= =========== ========= ==========
Net loss per share attributable to
common stockholders................... $ (1.27) $ (1.21)
Shares used in computing net
loss per share........................ 14,626 16,180 (R)
========= =========
<CAPTION>
PRO FORMA COMBINED
PRO FORMA COMBINED HISTORICAL PRO FORMA COMPANY AND
ADJUSTMENTS COMPANY PAGE AMERICA ADJUSTMENTS PAGE AMERICA
----------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Service, rent & maintenance revenue.... $ -- $101,421 $ 10,499 $ -- $111,920
Product sales.......................... -- 17,599 1,037 -- 18,636
----------- --------- ------ ----------- ------------
Total revenues.................. -- 119,020 11,536 -- 130,556
Net book value of products sold........ -- (16,081) (712) -- (16,793)
----------- --------- ------ ----------- ------------
-- 102,939 10,824 -- 113,763
Service, rent & maintenance expense.... -- 29,473 2,854 -- 32,327
Selling, marketing, general
and administrative.................... -- 49,032 5,464 -- 54,496
Depreciation & amortization............ 9,201 (N) 50,916 2,647 3,009 (N) 56,572
Other.................................. -- 408 -- -- 408
----------- --------- ------ ----------- ------------
Total operating expenses........ 9,201 129,829 10,965 3,009 143,803
----------- --------- ------ ----------- ------------
(Loss) Income from operations.......... (9,201) (26,890) (141) (3,009) (30,040)
Interest expense and other, net........ (1,627)(O) (15,067) 121 (1,094)(O) (16,040)
----------- --------- ------ ----------- ------------
Net (loss) income before
taxes.......................... (10,828) (41,957) (20) (4,103) (46,080)
Benefit (provision) for taxes.......... 3,735 (P) 4,248 -- -- 4,248
----------- --------- ------ ----------- ------------
Net (loss) income............... (7,093) (37,709) (20) (4,103) (41,832)
Preferred dividends.................... (1,400)(Q) (1,400) -- -- (1,400)
----------- --------- ------ ----------- ------------
Loss attributable to common
stockholders.......................... $ (8,493) $(39,109) $ (20) $(4,103) $(43,232)
=========== ========= =========== =========== ============
Net loss per share attributable to
common stockholders................... $ (1.55) $ (1.66)
Shares used in computing net
loss per share........................ 25,223 (R) 26,005 (R)
=========== ============
</TABLE>
See accompanying notes to this unaudited statement.
62
<PAGE> 75
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The pro forma condensed combined financial statements assume a per share
price of $6.00 for the Metrocall Common Stock to be issued in connection with
the acquisitions of A+ Network and Page America. The pro forma condensed
combined financial statements also assume that the variable common rights to be
issued in connection with the A+ Network acquisition have no value. The purchase
price ultimately will be based upon the trading price of Metrocall 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 June 20, 1996, for the 25
week period ending June 20, 1996, and the year-ended December 31, 1995.
(B) Reflects the reclassification of pagers held for resale or future rental,
from inventory to furniture and equipment for Parkway, Satellite and A+
Network to conform accounting practices to those of Metrocall.
(C) Reflects primarily the current and long-term deferred tax asset of Parkway
for which no value has been assigned in the pro forma statements.
(D) Reflects fair values assigned to intangible assets acquired which consist
of the following (in thousands):
<TABLE>
<CAPTION>
PARKWAY SATELLITE A+ NETWORK PAGE AMERICA
------- --------- ---------- ------------
<S> <C> <C> <C> <C>
FCC License........................ $22,357 $ 22,832 $128,300 $ 30,676
Subscriber Lists................... 2,763 3,114 54,986 27,203
Non-compete........................ -- -- 1,950 --
Goodwill........................... 10,048 -- 74,094 --
Less: Historical Investment by
Metrocall........................ -- -- (65,041) --
Less: Historical Intangibles....... (4) (62) (99,963) (32,960)
------- --------- ---------- ------------
$35,164 $ 25,884 $ 94,326 $ 24,919
======= ======= ========= ==========
</TABLE>
As of June 30, 1996, Metrocall had purchased approximately 40% of the
outstanding common stock of A+ Network for approximately $91.8 million plus
direct acquisition costs which was reflected on Metrocall's balance sheet
as equity investment in A+ Network of $26.8 million and goodwill of $65.0
million.
Pursuant to the terms of the Merger Agreement, the merger is required to be
consummated by November 16, 1996. In the event that the merger is not
consummated or the Merger Agreement otherwise amended, Metrocall may be
required to sell its 40% investment in A+ Network. As of June 30, 1996,
Metrocall's investment in A+ Network together with related goodwill is
reflected on Metrocall's balance sheet at approximately $92 million which
resulted from a cash purchase price of $21.10 per share for approximately
4.4 million shares of A+ Network. The closing market price of A+ Network
Common Stock on October 3, 1996 was $6.75 per share or a decrease based
upon market value of approximately $62 million. Therefore, if Metrocall
were required to sell this investment at current market prices, Metrocall
would likely realize a substantial loss upon disposition which has not been
reflected in the accompanying pro forma statements.
(E) Reclassifies assumed current maturities of long-term obligations and
assumed capital lease obligations related to the Parkway Acquisition to
noncurrent long-term obligations pursuant to the terms of Metrocall's
financing arrangements. Also, reflects the elimination of long-term
obligations included on Satellite's financial statements which are not
assumed pursuant to the terms of the acquisition agreement.
63
<PAGE> 76
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(F) Reflects estimated accruals for direct acquisition costs together with
estimated accruals for costs of closing acquired duplicate facilities,
estimated severance for planned terminations of acquired employees and
share registration rights.
(G) Reflects the elimination of $491,000 of other liabilities included on
Satellite's financial statements which are not assumed pursuant to the
terms of the acquisition agreement and reclassifies $43,000 of subscriber
deposits from other current liabilities to deferred revenue and subscriber
deposits.
(H) Reflects cash payments for Parkway and Satellite of $25.5 million and $17
million, respectively, financed with long-term borrowings together with the
refinancing of assumed current maturities of Parkway debt ($2.4 million)
and capital lease obligation of Parkway ($0.4 million), with noncurrent
obligations less $11.3 million of long-term obligations of Satellite not
assumed.
Reflects application of proceeds from $35 million private placement of
Series A Convertible Preferred Stock by Metrocall prior to closing the
Merger.
Reflects cash payments of $55 million for Page America of which $30 million
is assumed to be paid from cash on hand and $25 million is assumed to be
financed with long-term debt.
(I) The Parkway Acquisition is structured as a taxable transaction while the A+
Network acquisition is structured as a tax free reorganization. The
deferred income tax liability represents the tax effect on the difference
between the amounts allocated to assets acquired and their tax basis.
(J) Reflects the shares of Metrocall Common Stock and VCRs expected to be
issued for these acquisitions, less historical equity amounts. Also
reflects the shares estimated to be issued related to the private placement
of $35 million of Series A Convertible Preferred Stock.
The accompanying statements under the heading "Pro Forma Combined Company"
include the expected issuance of approximately 467,000 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.
(K) Reflects the payment under the tender offer for A+ Network shares made on
July 1, 1996 as if the payment was made on June 30, 1996.
Reflects cash payment of $55 million for Page America of which $25 million
is assumed to be financed as long-term debt.
(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.
64
<PAGE> 77
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
HISTORICAL
----------------------- PRO FORMA PRO FORMA
A+ NETWORK NETWORK(1) 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)(2) 16,758
Selling, general and administrative............. 32,503 19,424 (38)(2) 45,872
(1,498)(2)
147 (3)
(4,666)(4)
Depreciation and amortization................... 14,835 3,026 7,191 (5) 25,052
Reorganization.................................. 669 -- (669)(6) --
---------- ---------- ----------- ----------
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)(7) (14,589)
---------- ---------- ----------- ----------
Loss before income taxes and extraordinary
item.......................................... (13,845) (4,098) (10,229) (28,172)
Income taxes.................................... -- (707) 707 (8) --
---------- ---------- ----------- ----------
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) Historical Network financial statements are presented for the period
from January 1, 1995 through October 24, 1995.
(2) 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>
(3) 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.
(4) Adjustment to eliminate compensation costs that would not have been
incurred had the A+/Network Merger occurred on January 1, 1995.
(5) 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.
(6) To give effect to elimination of the non-recurring reorganization
expenses incurred by A+ Network as a result of the A+/Network Merger.
(7) 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.
(8) 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 the elimination of certain executive salaries for Parkway and
Satellite executives terminated upon completion of the respective
acquisitions in July and August of 1996.
(N) 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 15 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.
65
<PAGE> 78
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(O) Represents the estimated incremental interest at a rate of 8.75% that would
have been incurred assuming all acquisitions were completed on January 1,
1995. Does not assume a refinancing of the A+ Network public debt.
(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) Represents the 8% per year preferred dividends payable in cash, or at
Metrocall's option, in additional fully paid and non-assessable shares of
Series A Convertible Preferred Stock.
(R) 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. The Series A Convertible Preferred Stock
are not included as the effect of their conversion would be antidilutive.
66
<PAGE> 79
RECENT DEVELOPMENTS REGARDING METROCALL
RECENT AND PENDING ACQUISITIONS
Reflected below is a summary of transactions by Metrocall that were
recently completed or are currently subject to binding agreements. Consummation
of pending transactions is subject to a number of conditions including, but not
limited to, receipt of all necessary regulatory approvals. In addition to the
transactions identified below, Metrocall entered into an agreement in April,
1996 to purchase the assets of Source One Wireless, Inc. ("Source One") and
placed $1 million cash in escrow. On June 26, 1996, Metrocall advised Source One
that Source One had failed to meet certain conditions to completion of the
transaction and terminated the agreement. On September 20, 1996, Source One
filed an action in the Circuit Court of Cook County, Illinois claiming that
Metrocall had breached the agreement and seeking specific performance of the
purchase agreement or unspecified damages in excess of $80 million. Metrocall
believes it has meritorious defenses to this action and intends to vigorously
defend the claims in this action.
Parkway Paging, Inc.
On July 16, 1996, Metrocall completed the acquisition of Parkway Paging,
Inc. of Plano, Texas ("Parkway"). Metrocall paid $25 million in cash and assumed
approximately $3.2 million in long-term obligations at closing to complete the
acquisition. The Company also incurred direct acquisition costs of $600,000.
Satellite Paging and Message Network
On August 30, 1996, Metrocall completed the acquisition of Satellite Paging
of Fairfield, New Jersey and Message Network of Boca Raton, Florida. Metrocall
paid $17 million in cash and issued 1,417,181 of the Shares subject to a
registration statement on Form S-3 filed with the Securities and Exchange
Commission on October 1, 1996. The number of shares issued at closing will be
adjusted if necessary so that the aggregate value of the shares issued will be
$10,008,843 based upon the average of the midpoints of the closing bid and asked
prices of Common Stock for the five trading day period ending on the second
business day prior to (a) the effective date of the registration statement in
the case of shares not held in escrow and (b) the date of release from escrow
for shares held in escrow. Additional shares of Metrocall Common Stock may also
be issued as an adjustment to the purchase price based on certain defined
performance criteria.
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 $55 million in cash and up to 1.3 million shares of Metrocall
Common Stock. Pursuant to the terms of the New Credit Facility, Metrocall is
required to complete the Merger and raise $25 million in new equity financing
before completing the acquisition of Page America.
NEW CREDIT FACILITY
On September 20, 1996, Metrocall entered into an agreement with The
Toronto-Dominion Bank and The First National Bank of Boston to amend and restate
the loan agreement governing Metrocall's existing credit facility. Subject to
certain conditions set forth in the new agreement, Metrocall may borrow up to
$350,000,000 under two loan facilities. The first facility ("Facility A") is a
$225,000,000 reducing revolving credit facility and the second ("Facility B") is
a $125,000,000 reducing credit facility (together Facility A and Facility B are
referred to as the "New Credit Facility"). Up to $100,000,000 under Facility A
is currently available for borrowing; the remaining $125,000,000 commitment
under Facility A and all of the Facility B commitment will become available only
after completion of the Merger (the "Merger Condition") and the infusion of
$25,000,000 of equity (net of reasonable transaction costs) into Metrocall (the
"Equity Condition"). Amounts borrowed under Facility B may only be used to
refinance the 11 7/8% Senior Subordinated Notes due 2005 of A+ Network. If the
Merger Condition and Equity Condition have not been
67
<PAGE> 80
completed on or prior to December 16, 1996, the remaining $125 million
commitment under Facility A and the commitment under Facility B will terminate
automatically. The New Credit Facility has a term of eight years and is secured
by substantially all the assets of Metrocall. Required quarterly principal
repayments begin on March 31, 2000 and continue through December 31, 2004.
The New Credit Facility contains various covenants that, among other
restrictions, require Metrocall to maintain certain financial ratios, including
total debt to annualized operating cash flow (not to exceed 6.6 to 1.0 through
September 30, 1996 and declining thereafter), senior debt to annualized
operating cash flow, annualized operating cash flow to pro forma debt service,
total sources of cash to total uses of cash and operating cash flow to interest
expense (in each case, as such terms are defined in the agreement relating to
the New Credit Facility). As a result, as of October 1, 1996, Metrocall was not
entitled to draw any of the $33 million remaining availability under Facility A.
The New Credit Facility also requires Metrocall to raise at least $50 million in
new equity if its ratio of cash flow to interest expense is less than 2.0 to 1
for the quarter ended June 30, 1997. The covenants also limit additional
indebtedness and future mergers and acquisitions (other than the Merger and the
acquisition of Page America) without the approval of the lenders and restrict
the payment of cash dividends and other stockholder distributions by Metrocall
during the term of the New Credit Facility. The New Credit Facility also
prohibits certain changes in ownership control of Metrocall, as defined, during
the term of the New Credit Facility.
Under the New Credit Facility, Metrocall may designate all or any portion
of the borrowings outstanding as either a floating base rate advance or a
Eurodollar rate advance with an applicable margin that ranges from 0.0% to
1.750% for base rate advances and 0.75% to 2.750% for Eurodollar rate advances.
The predefined margins will be based upon the level of indebtedness outstanding
relative to annualized cash flow, as defined in the agreement relating to the
New Credit Facility. As of October 3, 1996, the interest rate on base rate
advances was 10.0% and the interest rate on Eurodollar rate advances was 8.2%.
Commitment fees of 0.25% to 0.375% per year (depending on the level of
Metrocall's indebtedness outstanding to annualized cash flow) will be charged on
the average unused balance and will be charged to interest expense as incurred.
Under the New Credit Facility, Metrocall must obtain and maintain interest rate
protection on at least 50% of Metrocall's outstanding debt; all fixed rate debt,
including the 10 3/8% Senior Subordinated Notes due 2007, will count against the
requirement.
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............. 50 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.............. 42 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. There is currently
one vacancy on the Board of Directors. Pursuant to a voting agreement among
certain shareholders, Harry L. Brock has the right to identify a person to fill
this vacancy, and a person so identified shall be appointed upon
68
<PAGE> 81
approval of a majority of the Board of Directors. Mr. Brock has identified a
person to fill this vacancy and his appointment is under consideration by the
Board of Directors.
Metrocall expects that the purchasers of the Metrocall Series A Convertible
Preferred Stock will have the right to elect one member to the Board of
Directors of Metrocall, and that the Board of Directors will be expanded to ten
members. The identity of any such director has not yet been determined. See
"APPROVAL OF ISSUANCE OF METROCALL CONVERTIBLE PREFERRED STOCK."
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 May 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, 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 of A+ Network 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.
69
<PAGE> 82
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 40.3% 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.
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
70
<PAGE> 83
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).
Messrs. Collins, Jacoby and Kelly hold options to acquire 100,000, 100,000
and 206,588 shares of Metrocall Common Stock, respectively. On September 18,
1996, the Compensation Committee of the Metrocall Board of Directors changed the
exercise price of substantially all options outstanding to all current employees
of Metrocall as of that date to equal $7.9375 per share, the closing price of
Metrocall Common Stock on that date. Prior to this action: Mr. Collins' options
were exercisable (until January 16, 2006) for a price of $19.125; Mr. Jacoby's
options were exercisable (until July 26, 2005) for a price of $20.25 (50,000
shares), (until January 16, 2006) for a price of $19.125 (25,000 shares) and
(until February 7, 2006) for a price of $20.25 (25,000 shares); and Mr. Kelly's
options were exercisable (until November 8, 2003) for a price of $19.50 (72,000
shares), (until May 23, 2004) for a price of $13.00 (34,588 shares), (until July
26, 2005) for a price of $20.25 (50,000 shares), (until January 16, 2006) for a
price of $19.125 (25,000 shares) and (until February 7, 2006) for a price of
$20.25 (25,000 shares).
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 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>
71
<PAGE> 84
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.
Portable Communications of America, Inc.
On July 31, 1996, A+ Network acquired the paging and telecommunications
assets of Portable Communications of America, Inc., a paging company serving the
Louisiana area. The purchase price was $2.0 million and was paid in cash.
South Central Communications Corporation
On July 31, 1996, A+ Network acquired the paging assets of South Central
Communications Corporation, an Indiana corporation providing paging services in
Indiana and Tennessee areas. The purchase price was $1.6 million and was paid in
cash.
Radio Telepage
On October 3, 1996, A+ Network acquired the paging assets of Radio
Telepage, a paging company providing paging services in the State of Alabama.
The purchase price was $311,000 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 June 30, 1996. The following
discussion reflects this reclassification.
Results of Operations
Six Months Ended June 30, 1996 and 1995. For the first six months of 1996,
total revenue increased 80.1% to $46.2 million, as compared to $25.6 million for
the same period in 1995. For the first six months of 1996, net revenues
increased 93.0% to $42.0 million, as compared to $21.8 million for the same
period in 1995. For the first six months of 1996, mobile communication revenues
increased 102.0% to $37.4 million, as compared to $18.5 million for the same
period in 1995, while telemessaging revenues increased 3.6% to $5.8 million. The
growth in mobile communication revenues reflected a 172.4% increase in paging
units in service to 618,657 at June 30, 1996, as compared to 227,087 at June 30,
1995, offset by a decline in cellular revenues. Cellular revenues for the six
months ended June 30, 1996 declined to $2.7 million from $5.0 million for the
six months ended June 30, 1995. Cellular revenues have decreased primarily as a
result of a decline in new account activations.
72
<PAGE> 85
The gross margin on sales of pager equipment was $32,000 for the six months
ended June 30, 1996, as compared to a negative margin of $80,000 for the same
period in 1995. The negative margin on total equipment sales decreased to $1.2
million for the six months ended June 30, 1996, as compared to $2.3 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. The negative margins on cellular equipment sales
declined to $1.1 million for the six months ended June 30, 1996 from $2.2
million for the same period in 1995. 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.
For the first six months of 1996, operating expenses increased 85.6% to
$9.3 million (22.1% of net revenues) as compared to $5.0 million (23.0% of net
revenues) for the same period in 1995. The increase primarily reflects the
increase in operating expenses incurred to support the $20.6 million increase in
total revenues for the six months ended June 30, 1996, as compared to the six
months ended June 30, 1995.
For the first six months of 1996, selling expenses increased 41.5% to $7.7
million (18.3% of net revenues), as compared to $5.4 million (24.9% of net
revenues) for the same period in 1995. The increase primarily reflects the
additional sales and marketing costs incurred to support the $20.6 million
increase in total revenues for the six months ended June 30, 1996, as compared
to the six months ended June 30, 1995. Selling expenses declined as a percentage
of net revenues primarily as a result of lower advertising and commission costs.
For the first six months of 1996, general and administrative expenses
increased 60.9% to $15.9 million (37.9% of net revenues), as compared to $9.9
million (45.5% of net revenues) for the same period in 1995. The increase
primarily reflects the additional general and administrative costs incurred to
support the $20.6 million increase in total revenues for the six months ended
June 30, 1996, as compared to the six months ended June 30, 1995. The decline as
a percentage of net revenues is the result of a reduction in general and
administrative salaries, employee related costs and increased operating
efficiencies realized from the A+/Network Merger.
For the first six months of 1996, depreciation and amortization expense
increased 109.8% to $13.2 million, as compared to $6.3 million for the same
period in 1995. These increases in depreciation and amortization expense relate
to increased equipment and intangible asset purchases and paging network
equipment acquired.
The operating loss for the six months ended June 30, 1996 was $4.5 million,
as compared to $4.9 million for the same period in 1995. The decreased 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 93.3% of net revenues in the six months ended June 30, 1995 to 78.2% of net
revenues in the six months ended June 30, 1996.
Interest expense was $7.6 million for the six months ended June 30, 1996,
as compared to interest expense of $811,000 for the same period in 1995. The
increase in 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").
For the first six months of 1996, A+ Network had a net loss of $11.1
million, or $1.07 per share, as compared to a net loss of $5.7 million, or $.95
per share for the first six months of 1995.
Operating cash flow, or earnings before interest, income taxes,
depreciation and amortization (EBITDA), was $8.7 million, as compared to $1.4
million for the same period in 1995. Reduced operating, selling and general and
administrative expenses as a percentage of total revenues resulted in an
increase in EBITDA.
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
73
<PAGE> 86
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 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.
74
<PAGE> 87
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.
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.
75
<PAGE> 88
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 net cash
used in operating activities was $3.1 million for the six months ended June 30,
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, and $700,000 for the six months ended June 30, 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 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. The source
of cash from financing activities during the six months ended June 30, 1996 was
proceeds from the exercise of stock options.
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.
76
<PAGE> 89
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 $6.1 million for the six months ended June 30, 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 $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
$[ ] million, of which $[ ] 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 it in a strong position that will support its 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 six paging companies for an aggregate
consideration of $22.0 million, paid in a combination of cash and shares of its
Common Stock, and also entered into agreements to purchase additional paging
companies for an aggregate consideration of $4.7 million, payable in a
combination of cash and shares of its Common Stock. The two 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. Neither Metrocall's nor A+ Network's
independent auditors have 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 neither assumes 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
77
<PAGE> 90
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 were made as of the date they were
delivered, and have not been updated to reflect the subsequent operating
performance of A+ Network (which, as reflected in the reported financial results
of A+ Network, have generally not been as high as would be required to meet the
projected net revenue and EBITDA set forth above if the reported results were
annualized) and neither Metrocall nor A+ Network assumes any responsibility for
updating the projections. 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."
78
<PAGE> 91
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 9,000,000
shares, from 26,000,000 shares to 35,000,000 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 October 4, 1996, 18,317,394 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. As many as 1,317,080 additional shares may be issued in connection with
the Page America Acquisition and 1,000,000 shares may be reserved for issuance
if the proposal to increase the number of shares that may be issued under
Metrocall's 1996 Stock Option Plan is approved (see "AMENDMENT TO INCREASE THE
NUMBER OF SHARES THAT MAY BE ISSUED UNDER METROCALL'S 1996 STOCK OPTION PLAN").
Accordingly, the additional shares will be necessary to complete the Merger and
other pending acquisitions and to reserve shares under Metrocall's 1996 Stock
Option Plan.
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.
79
<PAGE> 92
AMENDMENT TO INCREASE THE NUMBER OF SHARES THAT MAY BE ISSUED
UNDER METROCALL'S 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 October 2, 1996, there were 1,029 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
80
<PAGE> 93
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 October 3, 1996 was 6 1/4.
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.
81
<PAGE> 94
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.
82
<PAGE> 95
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......................... 230,000
</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.
APPROVAL OF ISSUANCE OF METROCALL CONVERTIBLE PREFERRED STOCK
Metrocall is seeking approval of its shareholders to issue up to $35
million liquidation value of Series A Convertible Preferred Stock. In order to
insure compliance after the Merger with financial covenants under Metrocall's
existing indebtedness, reported cash flow of Metrocall and A+ Network must
increase to a level that is sufficient to allow Metrocall to assume or refinance
the indebtedness of A+ Network, or the overall level of indebtedness that would
exist after the Merger must be reduced by raising additional equity capital or
by other means. In addition, only $100 million of the $350 million under the New
Credit Facility is available (subject in any event to compliance with certain
financial ratios) until Metrocall raises at least $25 million in additional
equity capital. The New Credit Facility will also require Metrocall to raise a
further $25 million in equity capital if Metrocall's ratio of cash flow to
interest expense is less than 2.0 to 1 for the quarter ended June 30, 1997. In
order to reduce its overall level of indebtedness and insure that these
financial covenants are met, Metrocall is seeking to issue $35 million
liquidation value of Series A Convertible Preferred Stock, the proceeds of which
(net of $1.5 million of estimated expenses of issuance) will be used to reduce
indebtedness of Metrocall.
Metrocall is currently seeking to place shares of Series A Convertible
Preferred Stock with institutional investors on substantially the terms set
forth below, subject to final determination by the Board of Directors of
Metrocall. If the terms under which the shares are to be issued differ in
respects that are materially adverse to shareholders of Metrocall Common Stock
compared to the terms set forth below, Metrocall will advise its shareholders of
the change in terms prior to the date of the Metrocall Special Meeting. The
specific purchasers of the Series A Convertible Preferred Stock have not yet
been identified.
Metrocall intends to issue 350,000 shares of Series A Convertible Preferred
Stock at a price of $100 per share, with each share having a liquidation
preference of $100 over other classes of equity securities of Metrocall. The
Series A Convertible Preferred Stock is expected to bear interest of 8% per year
payable in cash, or at Metrocall's option, in additional fully paid and
non-assessable shares of Series A Convertible Preferred Stock based upon a value
of $100 per share.
The Series A Convertible Preferred Stock will be non-voting, except that it
shall vote as a single class to approve: (i) any amendment to the Amended and
Restated Certificate of Incorporation or By-Laws of Metrocall which adversely
affects its rights or preferences, (ii) any merger, other than a merger with a
wholly-owned subsidiary of Metrocall, so long as the subsidiary was a subsidiary
of Metrocall on the date of the sale of the Series A Convertible Preferred Stock
and Metrocall is the surviving corporation of such merger, (iii) a
83
<PAGE> 96
sale of all or substantially all of the assets of Metrocall, (iv) any direct or
indirect purchase or other acquisition by Metrocall of any capital stock of
Metrocall held by any person (other than holders of the Series A Convertible
Preferred Stock) that is the beneficial owner, directly or indirectly, of five
percent or more of the voting power of the outstanding stock of Metrocall, and
(v) the liquidation and dissolution of Metrocall. In addition, the holders of
the Series A Convertible Preferred Stock, voting separately as a single class,
will (as long as no more than 50% of the original Series A Convertible Preferred
Stock has been converted into Metrocall Common Stock) be entitled to elect one
director of Metrocall who shall be a part of the class of directors having an
initial term expiring in 1999. Metrocall intends to appoint a designee of the
purchasers of the Series A Convertible Preferred Stock to the Board of Directors
of Metrocall immediately following the Effective Time of the Merger. This
designee has not yet been identified.
The Series A Convertible Preferred Stock will be convertible into shares of
Metrocall Common Stock at any time at the option of the holder, with each
preferred share being convertible into that number of shares of Metrocall Common
Stock equal to $100 divided by 1.25 times the market price of Metrocall Common
Stock on the date of initial issuance of the Series A Convertible Preferred
Stock. The conversion ratio will be subject to adjustment to protect against
dilution in the event of issuances of Metrocall Common Stock (or securities
convertible into or exercisable for shares of Metrocall Common Stock) at a price
less than the conversion price (with the exception of shares issued pursuant to
employee stock option or similar plan) and in the event of stock splits, stock
dividends, combinations or reclassifications.
Metrocall will have the option to redeem shares of Series A Convertible
Preferred Stock beginning three years after the issuance at a price of $100 per
share plus any accrued and unpaid dividends. Holders of the Series A Convertible
Preferred Stock will retain the right to convert their shares into Metrocall
Common Stock at any time until the redemption date.
The Board of Directors of Metrocall recommends that you vote FOR the
approval of the Preferred Stock Issuance.
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, A Professional Limited Liability Company, Nashville, Tennessee.
84
<PAGE> 97
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 June 30, 1996.......... F-4
Consolidated Statements of Operations for the Years Ended December 31, 1993,
1994 and 1995 and for the Six Months Ended June 30, 1995 and 1996............. F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended
December 31, 1993, 1994 and 1995 and the Six Months Ended June 30, 1996....... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993,
1994 and 1995 and for the Six Months Ended June 30, 1995 and 1996............. F-7
Notes to Consolidated Financial Statements...................................... F-8
A+ NETWORK, INC.
Independent Auditors' Report, Deloitte & Touche LLP............................. F-27
Consolidated Balance Sheets, December 31, 1994, 1995 and June 30, 1996
(Unaudited)................................................................... F-28
Consolidated Statements of Operations Years Ended December 31, 1993, 1994 and
1995 and Six Months Ended June 30, 1995 and 1996 (Unaudited).................. F-29
Consolidated Statements of Stockholders' Equity (Deficit) Years Ended December
31, 1993, 1994 and 1995 and Six Months Ended June 30, 1996 (Unaudited)........ F-30
Consolidated Statements of Cash Flows Years Ended December 31, 1993, 1994 and
1995 and Six Months Ended June 30, 1995 and 1996 (Unaudited).................. F-31
Notes to Consolidated Financial Statements...................................... F-32
NETWORK PAGING CORPORATION
Report of Price Waterhouse LLP, Independent Certified Public Accountants........ F-44
Consolidated Balance Sheets, December 31, 1993 and 1994......................... F-45
Consolidated Statements of Operations for the Years Ended December 31, 1993 and
1994.......................................................................... F-46
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended
December 31, 1993 and 1994.................................................... F-47
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993 and
1994.......................................................................... F-48
Notes to Consolidated Financial Statements...................................... F-49
NETWORK PAGING CORPORATION (UNAUDITED)
Unaudited Consolidated Statements of Operations Periods Ended October 31, 1994
and October 24, 1995.......................................................... F-58
Unaudited Consolidated Statements of Shareholders' Equity Periods Ended October
31, 1994 and October 24, 1995................................................. F-59
Unaudited Consolidated Statements of Cash Flows Periods Ended October 31, 1994
and October 24, 1995.......................................................... F-60
Notes to Unaudited Consolidated Financial Statements............................ F-61
PARKWAY PAGING, INC.
Report of Hutton, Patterson & Company, Independent Public Accountants........... F-62
Balance Sheets, December 31, 1994, 1995 and June 20, 1996....................... F-63
Statements of Income and Retained (Deficit) Earnings for the Years Ended
December 31, 1995, 1994 and 1993 and the Quarters Ended June 20, 1995 and
1996.......................................................................... F-64
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993
and the Quarters Ended June 20, 1995 and 1996................................. F-65
Notes to Financial Statements................................................... F-66
</TABLE>
F-1
<PAGE> 98
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
O.R. ESTMAN, INC. AND DANA PAGING, INC. DBA SATELLITE PAGING AND MESSAGE NETWORK
Report of Arthur Andersen LLP, Independent Public Accountants................... F-74
Combined Balance Sheets, December 31, 1995 and June 30, 1996.................... F-75
Combined Statements of Operations and Accumulated Deficit for the Year Ended
December 31, 1995 and the Six-Month Periods Ended June 30, 1995 and 1996...... F-76
Combined Statements of Cash Flows for the Year Ended December 31, 1995 and the
Six-Month Periods Ended June 30, 1995 and 1996................................ F-77
Notes to Combined Financial Statements.......................................... F-78
PAGE AMERICA GROUP, INC.
Report of Ernst & Young LLP, Independent Auditors............................... F-83
Statements of Net Assets, December 31, 1994, 1995 and June 30, 1996
(Unaudited)................................................................... F-84
Statements of Operations and Net Assets for the Three Years Ended December 31,
1993, 1994 and 1995 and for the Six Months Ended June 30, 1995 and 1996
(Unaudited)................................................................... F-85
Statements of Cash Flows for the Three Years Ended December 31, 1993, 1994 and
1995 and for the Six Months Ended June 30, 1995 and 1996 (Unaudited).......... F-86
Notes to Financial Statements................................................... F-87
</TABLE>
F-2
<PAGE> 99
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
F-3
<PAGE> 100
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:...........................................
Cash and cash equivalents............................... $ 2,773 $123,574 $ 49,377
Accounts receivable, less allowance for doubtful
accounts of $1,150, $968 and $917 as of December 31,
1994 and 1995, and June 30, 1996 respectively........ 6,231 9,785 10,788
Prepaid expenses and other current assets............... 838 1,908 2,021
-------- -------- -----------
Total current assets............................ 9,842 135,267 62,186
-------- -------- -----------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements.............. 9,667 9,900 10,445
Furniture, office equipment and vehicles................ 6,998 12,794 15,605
Paging and plant equipment.............................. 78,463 103,427 129,786
Less -- Accumulated depreciation and amortization....... (36,927) (50,175) (62,461)
-------- -------- -----------
58,201 75,946 93,375
-------- -------- -----------
INTANGIBLE ASSETS, net of accumulated amortization of
approximately $11,466, $8,875 and $12,437 as of December
31, 1994 and 1995, and June 30, 1996, respectively...... 131,962 129,085 192,248
EQUITY INVESTMENT IN A+ NETWORK, INC...................... -- -- 26,759
OTHER ASSETS.............................................. 575 316 312
-------- -------- -----------
TOTAL ASSETS.............................................. $200,580 $340,614 $$374,880
======== ======== =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt.................... $ 443 $ 252 $ 271
Accounts payable........................................ 7,340 9,390 17,457
Obligations under tender offer.......................... -- -- 45,165
Deferred revenues and subscriber deposits............... 3,408 1,950 2,759
Other current liabilities............................... 3,928 7,666 7,001
-------- -------- -----------
Total current liabilities....................... 15,119 19,258 72,653
-------- -------- -----------
CAPITAL LEASE OBLIGATION, less current maturities......... 3,057 2,849 2,745
LONG-TERM DEBT, less current maturities................... 101,346 150,954 150,918
DEFERRED INCOME TAX LIABILITY............................. 12,500 11,814 11,471
MINORITY INTEREST IN PARTNERSHIP.......................... 422 501 500
COMMITMENTS AND CONTINGENCIES
(Notes 6, 9 and 13)
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; 26,000,000
shares authorized; 10,610,673, 14,626,255 and
14,626,255 shares issued and outstanding as of
December 31, 1994 and 1995 and June 30, 1996,
respectively......................................... 106 146 146
Additional paid-in capital.............................. 94,792 201,956 201,956
Accumulated deficit..................................... (26,762) (46,864) (65,509)
-------- -------- -----------
68,136 155,238 136,593
-------- -------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $200,580 $340,614 $ 374,880
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 101
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Service, rent and maintenance............................ $ 33,111 $ 49,716 $ 92,160 $ 45,504 $ 48,829
Product sales............................................ 4,549 8,139 18,699 7,932 13,158
--------- --------- ---------- ---------- ----------
Total revenues.................................... 37,660 57,855 110,859 53,436 61,987
Net book value of products sold.......................... (4,130) (6,962) (15,527) (6,750) (10,560)
--------- --------- ---------- ---------- ----------
33,530 50,893 95,332 46,686 51,427
OPERATING EXPENSES:
Service, rent and maintenance............................ 9,559 14,014 27,258 12,642 16,498
Selling and marketing.................................... 4,945 7,412 15,656 7,827 9,992
General and administrative............................... 8,103 13,315 24,647 12,126 12,702
Depreciation and amortization............................ 6,525 13,829 31,504 12,713 25,098
Management reorganization charge (Note 3)................ -- -- 2,050 -- --
Forgiveness of stockholder notes receivable (Note 8)..... 4,831 -- -- -- --
--------- --------- ---------- ---------- ----------
33,963 48,570 101,115 45,308 64,290
--------- --------- ---------- ---------- ----------
(Loss) income from operations..................... (433) 2,323 (5,783) 1,378 (12,863)
INTEREST AND OTHER INCOME (EXPENSE)........................ 77 161 2,011 (9) 2,511
INTEREST EXPENSE........................................... (1,331) (3,726) (12,533) (5,408) (8,401)
--------- --------- ---------- ---------- ----------
LOSS BEFORE INCOME TAX (PROVISION) BENEFIT AND
EXTRAORDINARY ITEM....................................... (1,687) (1,242) (16,305) (4,039) (18,753)
INCOME TAX (PROVISION) BENEFIT............................. (59) 152 595 312 108
--------- --------- ---------- ---------- ----------
NET LOSS BEFORE EXTRAORDINARY ITEM......................... (1,746) (1,090) (15,710) (3,727) (18,645)
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 6).................................... (439) (1,309) (4,392) -- --
--------- --------- ---------- ---------- ----------
Net loss.......................................... $ (2,185) $ (2,399) $ (20,102) $ (3,727) $ (18,645)
========= ========= ========== ========== ==========
NET LOSS PER COMMON SHARE:
Loss per common share before extraordinary item............ $ (0.14) $ (1.34) $ (0.35) $ (1.27)
Extraordinary item, net of income tax benefit.............. (0.16) (0.38) -- --
--------- ---------- ---------- ----------
NET LOSS PER COMMON SHARE.................................. $ (0.30) $ (1.72) $ (0.35) $ (1.27)
--------- ---------- ---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................. 8,127,679 11,668,140 10,605,253 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> 102
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).................... -- -- -- (18,645) -- (18,645)
--------- ------ ---------- ----------- ------------ --------
BALANCE, June 30, 1996 (unaudited)........ $ -- $146 $ 201,956 $ (65,509) -- $136,593
======= ====== ======== ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 103
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- --------------------
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) $ (3,727) $(18,645)
Adjustments to reconcile net loss to net cash
provided by operating activities --
Depreciation and amortization................. 6,525 13,829 31,504 12,713 25,098
Compensation on amendment of stock options in
management reorganization................... -- -- 285 -- --
Amortization of debt financing costs.......... 73 296 595 377 176
Decrease in deferred income taxes............. -- (200) (686) (343) (343)
Write-off of deferred acquisition costs....... -- -- -- -- 388
Equity in loss of A+ Network, Inc. ........... -- -- -- -- 153
Deferred debt financing costs................. -- -- -- (35) --
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 6)............... 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) (3,950) (1,002)
Prepaid expenses and other current assets..... 469 (236) (1,070) (186) (113)
Accounts payable.............................. 2,307 652 2,050 (1,883) 8,068
Deferred revenues............................. 224 448 (736) 847 957
Subscriber deposits........................... (227) (357) (722) (213) (148)
Other current liabilities..................... (736) 129 3,738 (23) (665)
-------- -------- ------- -------- --------
Net cash provided by operating
activities............................. 10,929 11,796 15,697 3,577 13,924
-------- -------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net........ (13,561) (19,091) (44,058) (15,128) (39,065)
Additions to intangibles........................ (162) (641) (3,592) (754) (35,265)
Equity investment in A+ Network, Inc. .......... -- -- -- -- (13,671)
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 74 2
-------- -------- ------- -------- --------
Net cash used in investing activities.... (13,598) (19,227) (46,225) (15,808) (87,999)
-------- -------- ------- -------- --------
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 13,000 --
Principal payments on long-term debt............ (29,540) (12,788) (113,790) (110) (122)
Proceeds from exercise of common stock
options....................................... -- -- 46 17 --
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 12,909 (122)
-------- -------- ------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS..................................... (686) 1,759 120,801 678 (74,197)
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 $ 3,451 $ 49,377
======== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 104
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 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 $500,000 as
of December 31, 1994 and 1995, and June 30, 1996 respectively. Beacon
Communications has a partnership deficit as of December 31, 1994 and 1995, and
June 30, 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> 105
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Interim Financial Information
The unaudited consolidated financial statements as of June 30, 1996 and for
the six months ended June 30, 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 six months ended
June 30, 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 and for the six-month period
ended June 30, 1996 by approximately $2.7 million and $2.6 million,
respectively. Betterments to acquired pagers are charged to depreciation
expense. Amounts classified as inventories in the prior year's financial
statements have been reclassified to conform with the current year's
presentation.
F-9
<PAGE> 106
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
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
-------------------- JUNE 30, PERIOD IN
1994 1995 1996 YEARS
-------- -------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
State certificates and FCC licenses............ $ 66,679 $ 65,095 $ 64,308 5-40
Goodwill....................................... 44,794 43,754 107,843 25-40
Customer lists................................. 17,034 13,886 12,315 2-6
Debt financing costs........................... 2,989 4,937 4,913 5-12
Other.......................................... 466 1,413 2,869 5-7
-------- -------- -----------
$131,962 $129,085 $ 192,248
======== ======== =========
</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 June 30, 1996
there had been no permanent 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
F-10
<PAGE> 107
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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).
Net Loss Per Common Share
Net loss per common share for the years ended December 31, 1994 and 1995
and the six months ended June 30, 1995 and 1996, is based upon the
weighted-average number of common equivalent shares outstanding during the
period. The effect of outstanding options on net loss per share for the years
ended December 31, 1994 and 1995 and the six months ended June 30, 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
F-11
<PAGE> 108
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
4. ACQUISITIONS -- (CONTINUED)
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 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> 109
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 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,
----------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued severance, payroll and payroll taxes......... $1,623 $2,763 $ 2,247
Accrued interest payable............................. 898 3,893 3,938
Accrued insurance claims............................. 292 300 375
Accrued state and local taxes........................ 181 220 227
Other................................................ 951 490 214
------ ------ ---------
$3,928 $7,666 $ 7,001
====== ====== =========
</TABLE>
F-13
<PAGE> 110
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 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,
-------------------- JUNE 30,
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 1,026 990
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 -- --
-------- -------- ----------
101,634 151,026 150,990
Less -- Current portion.............................. 288 72 72
-------- -------- ----------
Long-term portion.................................... $101,346 $150,954 $ 150,918
======== ======== =========
</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> 111
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 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 Obligations
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>
On July 1, 1996, the Company entered into a lease agreement for certain
computer equipment. The lease agreement requires quarterly rental payments of
approximately $115,000 for a period of three years. This lease agreement will be
accounted for as a capital lease for financial reporting purposes.
F-15
<PAGE> 112
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
6. LONG-TERM LIABILITIES -- (CONTINUED)
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 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.
On October 3, 1996, the balance outstanding and payable on the facility was
$67.0 million. The weighted-average balances outstanding under all credit
facilities outstanding for the years ended December 31, 1993, 1994 and 1995, and
the six months ended June 30, 1995 and 1996 were approximately $21,037,000,
$35,818,000, $108,222,000, $105,281,000 and $0 respectively. The highest
outstanding borrowings under these facilities for the years ended December 31,
1993, 1994 and 1995, and the six months ended June 30, 1995 and 1996 were
approximately $30,200,000, $100,320,000, $113,320,000, $113,320,000 and $0
respectively. For the years ended December 31, 1993, 1994 and 1995, and the six
months ended June 30, 1995 and 1996 interest expense relating to these
facilities was approximately $1,220,000, $3,458,000, $7,630,000, $5,172,000 and
$0 respectively, at weighted-average interest rates of 5.3%, 9.7%, 7.0%, 9.8%
and 0% respectively. The effective interest rates as of December 31, 1994 and
1995 and the six months ended June 30, 1995 and 1996 were 8.8%, 8.5%, 9.4% and
0.0% respectively.
F-16
<PAGE> 113
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
6. LONG-TERM LIABILITIES -- (CONTINUED)
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 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 JUNE 30, 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Senior Subordinated Notes................... $150,000 $159,773 $150,000 $139,125
Industrial development revenue note......... 1,026 1,093 990 918
</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.
F-17
<PAGE> 114
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
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 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 June 30, 1996, and pursuant to the Plan, the Company has
issued options, net of cancellations, to purchase 963,000 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
F-18
<PAGE> 115
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY -- (CONTINUED)
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 stock
option plan Metrocall 1996 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 June 30, 1996, and pursuant to the Directors Plan, options
have been issued to purchase 11,000 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 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 six
months ended June , 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 under the Directors Plan. Also, during the six months ended June 30,
1996, options to purchase an additional 20,000 shares of Metrocall common stock
were granted under the Metrocall 1996 Stock Option Plan to two nonemployee
directors.
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. Of the total options
exchanged, 27,958 were unexercised at June 30, 1996.
Pursuant to the option plans discussed above, the Board of Directors has
approved the issuance of the following common stock options.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------- JUNE 30,
1993 1994 1995 1996
-------------- -------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding, beginning of
period...................... -- 316,500 529,387 798,958
Granted..................... 316,500 170,500 303,500 523,500
Canceled.................... -- (5,000) (12,500) (72,500)
Issued in FirstPAGE
acquisition (see Note
3)....................... -- 47,387 -- --
Exercised................... -- -- (21,429) --
------------- ------------- -------------- --------------
Outstanding, end of period.... 316,500 529,387 798,958 1,249,958
============= ============= ============== ==============
Options exercisable........... -- 50,387 339,958 508,458
============= ============= ============== ==============
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 - $22.125
</TABLE>
On September 18, 1996 the Compensation Committee of the Board of Directors
agreed to change the exercise price for substantially all outstanding common
stock options for current employees and officers. The new exercise price will be
$7.94 per share, the fair market value on the date of the change.
F-19
<PAGE> 116
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
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, $2,514,000 and $3,354,977
for the years ended December 31, 1993, 1994 and 1995, and the six months ended
June 30, 1995 and 1996, respectively.
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, $114,000 and $143,000 for the years ended December
31, 1993, 1994 and 1995, and the six months ended June 30, 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, $250,000 and $52,331 for the years ended December 31, 1993, 1994 and
1995, and the six months ended June 30, 1995 and 1996, respectively.
F-20
<PAGE> 117
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
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.
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>
F-21
<PAGE> 118
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
10. INCOME TAXES -- (CONTINUED)
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>
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, $5,522,000 and $7,956,000 for the years ended December 31, 1993,
1994 and 1995 and the six months ended June 30, 1995
F-22
<PAGE> 119
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
11. CASH FLOW INFORMATION -- (CONTINUED)
and 1996, respectively. The Company made cash payments for income taxes of
$116,000, $48,000, $55,000, $31,000 and $236,000 for the years ended December
31, 1993, 1994 and 1995, and the six months ended June 30, 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.
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 6).
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 6, of $1,309,000 ($0.16 per share)
and $4,392,000 ($0.30 per share), respectively.
13. SUBSEQUENT EVENTS (UNAUDITED)
The Company continuously pursues opportunities to acquire businesses and
investments in wireless companies. Reflected below is a summary of recent and
pending acquisitions and related matters. Consummation of the pending
acquisitions is subject to a number of conditions including, but not limited to,
receipt of all
F-23
<PAGE> 120
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
13. SUBSEQUENT EVENTS (UNAUDITED) -- (CONTINUED)
necessary regulatory approvals. There can be no assurance that the pending
acquisitions will be consummated. Consummation of these recent and 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 proxy/prospectus for further
discussion.
Parkway Paging, Inc.
On July 16, 1996, the Company completed the acquisition of Parkway Paging,
Inc. ("Parkway") of Plano, Texas. Metrocall paid $25 million in cash and assumed
approximately $3.2 million in long-term obligations at closing to complete the
acquisition. The Company also incurred direct acquisition costs of $600,000. The
transaction will be accounted for as a purchase for financial reporting
purposes.
Satellite Paging and Message Network
On August 30, 1996, Metrocall, Inc. (the "Company") completed a transaction
pursuant to which the Company acquired substantially all of the assets of
Satellite Paging ("Satellite") and Message Network for total consideration of
approximately $28.0 million, consisting of $17.0 million in cash, and the
issuance of approximately $11.0 million of the Company's common stock. The
Company has filed a registration statement with respect to the shares to be
issued. The number of shares of the Company's common stock to be issued will be
based upon the average of the mid-points of closing bid and ask prices for the
Company's stock for the five trading day period ceasing on the second business
day prior to effectiveness of the registration statement. Assuming the average
closing price for determining the number of shares to be issued approximates the
Company's stock price at the time of closing, the number of shares of common
stock issuable would be approximately 1.6 million. The transaction will be
accounted for as a purchase for financial reporting purposes.
Page America Group, Inc.
On April 22, 1996, the Company signed a definitive acquisition agreement
(the "Page America Agreement") with Page America Group, Inc. of Hackensack, New
Jersey ("Page America"). Under the terms of the Page America Agreement, the
Company will acquire substantially all of the assets of Page America for up to
approximately $78.5 million, of which $55 million will be paid in cash and up to
23.5 million will be paid in the form of the Company's common stock. The maximum
number of shares of common stock to be exchanged will be approximately 1.3
million. Pursuant to the terms of the New Credit Facility, Metrocall is required
to complete the A+ Network Merger and raise $25 million in new equity financing
before completing the acquisition of Page America.
A+ Network, Inc.
On May 16, 1996, the Company entered into a definitive merger agreement
(the "A+ Agreement") with A+ Network, Inc. of Pensacola, Florida ("A+ Network").
Under the terms of the A+ Agreement, A+ Network will be merged into the Company
in exchange for cash, the assumption of debt and issuance of Metrocall common
stock and variable common rights. Total consideration in the A+ Network merger
is expected to be $91.8 million cash paid pursuant to the tender offer discussed
below, assumption of $125 million of A+ Network indebtedness and the exchange of
approximately 9.0 million shares of Metrocall common stock and an equal number
of variable common rights. The A+ Agreement provided for the
F-24
<PAGE> 121
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
13. SUBSEQUENT EVENTS (UNAUDITED) -- (CONTINUED)
commencement of a tender offer (the "Offer") by the Company for 2,140,526 shares
of A+ Network common stock. The Offer commenced on May 22, 1996 and expired on
June 24, 1996. Shareholders of A+ Network tendered approximately 5,362,482
shares of A+ Network common stock pursuant to the Offer and the Company
purchased 2,140,526 of such shares at $21.10 per share, pursuant to the Offer.
In addition, the Company purchased 2,210,217 shares at $21.10 per share of A+
Network common stock from certain principal shareholders of A+ Network on June
25, 1996 pursuant to the A+ Agreement.
The Company has recorded an equity investment in A+ Network based on the
value of A+ Network's net assets as of June 30, 1996. The shares of A+ Network
common stock acquired pursuant to the Offer were not paid for until July 1,
1996, and, accordingly, the Company has recorded a corresponding liability for
this obligation. In addition, the Company has recorded a charge of approximately
$153,000 representing the Company's share of A+ Network's losses for the period
the Company owned the shares.
Pursuant to the terms of the A+ Agreement, the merger is required to be
consummated by November 16, 1996. In the event that the merger is not
consummated or otherwise amended, the Company may be required to sell its 40%
investment in A+ Network. As of June 30, 1996, the Company's investment in A+
Network together with related goodwill is reflected on the Company's balance
sheet at approximately $92 million, which resulted from a cash purchase price of
$21.10 per share for approximately 4.4 million shares of A+ Network. The closing
market price of A+ Network Common Stock on October 3, 1996 was $6.75 per share
or a decrease based upon market value of approximately $62 million. Therefore,
if the Company were required to sell this investment at current market prices,
the Company would likely realize a substantial loss upon disposition, which has
not been reflected in the financial statements.
Source One Wireless, Inc.
In April 1996, the Company entered into an agreement to purchase certain of
the assets of Source One Wireless, Inc. ("Source One") and placed $1 million
cash in escrow. On June 26, 1996, the Company advised Source One that Source One
had failed to meet certain conditions to completion of the transaction and
terminated the agreement. On September 20, 1996, Source One filed an action in
the Circuit Court of Cook County, Illinois claiming that the Company had
breached the agreement and seeking specific performance of the purchase
agreement or unspecified damages in excess of $80 million. The Company believes
it has meritorious defenses to this action and intends to vigorously defend the
claims in this action.
Other Acquisitions
The Company incurred costs in negotiations to potentially acquire other
wireless telecommunications companies. The Company has ceased further
negotiations with these companies and, accordingly, recorded a charge to write
off deferred acquisition costs of approximately $0.4 million in the accompanying
statement of operations for the three months ended June 30, 1996.
New Credit Facility
On September 20, 1996, the Company entered into an agreement with The
Toronto-Dominion Bank and The First National Bank of Boston to amend and restate
the loan agreement governing the Company's existing credit facility. Subject to
certain conditions set forth in the new agreement, the Company may borrow up to
$350,000,000 under two loan facilities. The first facility ("Facility A") is a
$225,000,000 reducing revolving credit facility and the second ("Facility B") is
a $125,000,000 reducing credit facility (together Facility A and Facility B are
referred to as the "New Credit Facility"). Up to $100,000,000 under Facility A
was available for
F-25
<PAGE> 122
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
13. SUBSEQUENT EVENTS (UNAUDITED) -- (CONTINUED)
borrowing; the remaining $125,000,000 commitment under Facility A and all of the
Facility B commitment will become available only after completion of the A+
Network Merger (the "Merger Condition") and the infusion of $25,000,000 of
equity (net of reasonable transaction costs) into Metrocall (the "Equity
Condition"). Amounts borrowed under Facility B may only be used to refinance the
11 7/8% Senior Subordinated Notes due 2005 of A+ Network. If the Merger
Condition and Equity Condition have not been completed on or prior to December
16, 1996, the remaining $125 million commitment under Facility A and the
commitment under Facility B will terminate automatically. The New Credit
Facility has a term of eight years and is secured by substantially all the
assets of the Company. Required quarterly principal repayments begin on March
31, 2000 and continue through December 31, 2004.
The New Credit Facility contains various covenants that, among other
restrictions, require the Company to maintain certain financial ratios,
including total debt to annualized operating cash flow (not to exceed 6.6 to 1.0
through September 30, 1996 and declining thereafter), senior debt to annualized
operating cash flow, annualized operating cash flow to pro forma debt service,
total sources of cash to total uses of cash and operating cash flow to interest
expense (in each case, as such terms are defined in the agreement relating to
the New Credit Facility). As a result, as of October 1, 1996, the Company was
not entitled to draw any of the $33 million remaining available under Facility
A. The New Credit Facility also requires the Company to raise at least $50
million in new equity if its ratio of cash flow to interest expense is less than
2.0 to 1 for the quarter ended June 30, 1997. The covenants also limit
additional indebtedness and future mergers and acquisitions (other than the
merger with A+ Network and the acquisition of Page America) without the approval
of the lenders, and restrict the payment of cash dividends and other stockholder
distributions by Metrocall during the term of the New Credit Facility. The New
Credit Facility also prohibits certain changes in ownership control of
Metrocall, as defined, during the term of the New Credit Facility.
Under the New Credit Facility, the Company may designate all or any portion
of the borrowings outstanding as either a floating base rate advance or a
Eurodollar rate advance with an applicable margin that ranges from 0.0% to
1.750% for base rate advances and 0.75% to 2.750% for Eurodollar rate advances.
The predefined margins will be based upon the level of indebtedness outstanding
relative to annualized cash flow, as defined in the agreement relating to the
New Credit Facility. As of October 1, 1996, the interest rate on base rate
advances was 10.0% and the interest rate on Eurodollar rate advances was 8.2%.
Commitment fees of 0.25% to 0.375% per year (depending on the level of
Metrocall's indebtedness outstanding to annualized cash flow) will be charged on
the average unused balance and will be charged to interest expense as incurred.
Under the New Credit Facility, Metrocall must obtain and maintain interest rate
protection on at least 50% of Metrocall's outstanding debt; all fixed rate debt,
including the 10 3/8% Senior Subordinated Notes due 2007, will count against the
requirement.
F-26
<PAGE> 123
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-27
<PAGE> 124
A+ NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1994 1995 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Notes 1, 2 and 13)...... $ 254,880 $ 12,500,438 $ 4,031,831
Short term investments (Notes 1, 3, 8 and 13)...... -- 43,151,125 22,301,664
Accounts receivable -- trade (net of allowance for
doubtful accounts of $278,531, $518,267 and
$1,066,329) (Notes 1, 2 and 13)................. 6,168,108 10,721,052 8,439,173
Inventory (Notes 1 and 2).......................... 2,486,729 4,164,077 6,387,416
Prepaid expenses (Note 2).......................... 827,882 732,275 1,216,222
Other current assets (Note 2)...................... 549,447 663,536 2,500,464
----------- ------------ ------------
Total current assets....................... 10,287,046 71,932,503 44,876,770
EQUIPMENT AND FIXTURES -- Net (Notes 1, 2, 4
and 6)............................................. 33,359,489 48,325,727 63,526,965
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
ACQUIRED -- Net (Notes 1, 2, 5 and 6).............. -- 49,608,772 57,117,724
INTANGIBLE AND OTHER ASSETS -- Net (Notes 1, 2, 5 and
6)................................................. 10,964,610 41,145,669 42,844,881
----------- ------------ ------------
TOTAL................................................ $54,611,145 $211,012,671 $208,366,340
========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable (Note 13)......................... $ 2,934,020 $ 4,927,517 $ 1,646,503
Accrued payroll related costs...................... 782,901 1,911,730 2,338,524
Accrued liabilities (Notes 1 and 14)............... 729,617 4,011,615 4,874,902
Deferred revenue and customer deposits (Note 7).... 2,781,817 5,778,147 7,224,077
Current maturities of long-term debt (Notes 8 and
13)............................................. 835,293 -- --
----------- ------------ ------------
Total current liabilities.................. 8,063,648 16,629,009 16,084,006
LONG-TERM DEBT (Notes 8 and 13)...................... 14,322,383 124,101,373 124,775,949
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 at June 30, 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 at June 30, 1996,
respectively; 5,971,816, 10,263,255 and
10,888,516 shares issued and outstanding in
1994, 1995 and at June 30, 1996, respectively... 59,718 102,633 108,885
Additional paid-in capital......................... 38,936,524 90,584,065 98,873,087
Accumulated deficit................................ (6,771,128) (21,222,652) (32,293,830)
----------- ------------ ------------
Total stockholders' equity................. 32,225,114 69,464,046 66,688,142
----------- ------------ ------------
TOTAL................................................ $54,611,145 $211,012,671 $208,366,340
========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE> 125
A+ NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ---------------------------
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 $18,502,705 $ 37,382,992
Equipment sales..................... 2,379,631 3,392,075 4,024,345 1,550,140 3,006,045
Telemessaging services.............. 10,064,980 11,226,952 11,359,426 5,584,132 5,785,872
----------- ----------- ------------ ----------- ------------
Total revenues.............. 36,534,715 49,126,078 57,331,773 25,636,977 46,174,909
Cost of equipment sales............. (4,563,438) (9,065,548) (7,878,474) (3,866,886) (4,158,575)
----------- ----------- ------------ ----------- ------------
31,971,277 40,060,530 49,453,299 21,770,091 42,016,334
COSTS AND EXPENSES:
Operating expenses -- exclusive of
depreciation and amortization.... 8,484,520 8,298,498 11,584,092 4,997,497 9,272,889
Depreciation and amortization
(Notes 1, 2, 4, 5 and 6)......... 4,318,298 7,475,503 14,834,510 6,310,311 13,235,904
Selling............................. 7,063,740 11,071,843 10,936,670 5,420,745 7,672,984
General and administrative.......... 12,568,046 16,742,814 21,565,970 9,902,468 15,929,434
Restructuring charges (Note 14)..... -- -- 669,406 -- 395,815
----------- ----------- ------------ ----------- ------------
32,434,604 43,588,658 59,590,648 26,631,021 46,507,026
----------- ----------- ------------ ----------- ------------
OPERATING LOSS........................ (463,327) (3,528,128) (10,137,349) (4,860,930) (4,490,692)
INTEREST EXPENSE...................... (914,770) (623,291) (4,334,229) (811,071) (7,561,419)
INTEREST INCOME....................... 98,388 76,464 626,762 -- 980,933
----------- ----------- ------------ ----------- ------------
(816,382) (546,827) (3,707,467) (811,071) (6,580,486)
----------- ----------- ------------ ----------- ------------
LOSS BEFORE EXTRAORDINARY ITEM........ (1,279,709) (4,074,955) (13,844,816) (5,672,001) (11,071,178)
EXTRAORDINARY ITEM (Note 8)........... (236,241) -- (606,708) -- --
----------- ----------- ------------ ----------- ------------
NET LOSS.............................. $(1,515,950) $(4,074,955) $(14,451,524) $(5,672,001) $(11,071,178)
========== ========== =========== ========== ===========
LOSS PER SHARE: (Note 1)
Loss before extraordinary item...... $ (0.35) $ (0.68) $ (2.03) $ (0.95) $ (1.07)
Extraordinary item.................. (0.07) -- (0.09) -- --
----------- ----------- ------------ ----------- ------------
Net loss per share.......... $ (0.42) $ (0.68) $ (2.12) $ (0.95) $ (1.07)
========== ========== =========== ========== ===========
AVERAGE NUMBER OF SHARES OUTSTANDING
(in thousands)
(Notes 1 and 11).................... 3,648 5,966 6,822 5,992 10,348
========== ========== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE> 126
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
Exercise of stock options
(unaudited)......................... 56,574 565 702,735 -- 703,300
Issuance of common stock (unaudited)... 568,687 5,687 7,586,287 -- 7,591,974
Net loss (unaudited)................... -- -- -- (11,071,178) (11,071,178)
---------- -------- ----------- ------------ ------------
BALANCE, June 30, 1996 (unaudited)....... 10,888,516 $108,885 $98,873,087 $(32,293,830) $ 66,688,142
========= ======== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE> 127
A+ NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ----------------------------
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) $ (5,672,001) $(11,071,178)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization.................. 4,318,298 7,475,503 14,834,510 6,310,311 13,235,904
Provision for losses on accounts receivable.... 437,478 628,953 2,308,165 681,093 1,840,253
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.................. -- -- -- -- 24,878
Loss on sale of equipment...................... -- -- -- -- 15,800
Changes in assets and liabilities, net of
acquisition of business:
Increase in accounts receivable................ (1,155,565) (2,748,757) (2,556,224) (725,494) 1,285,981
(Increase) decrease in inventory............... (209,569) (1,618,266) 416,737 775,991 (1,991,259)
(Increase) decrease in prepaid expenses........ (596,995) (72,913) 194,200 93,339 (450,096)
Decrease (increase) in other current assets.... 268,839 (477,357) 438,991 (3,647) (2,034,286)
Decrease (increase) in other assets............ 248,094 -- 53,138 -- (2,453,519)
(Decrease) increase in accounts payable........ (640,679) 974,708 (2,448,732) 1,624,351 (3,706,700)
Increase in accrued payroll related costs...... 252,969 152,622 1,128,829 124,449 429,799
Increase (decrease) in accrued liabilities..... 81,605 (1,155) 1,684,732 367,740 820,835
Increase in deferred revenue and customer
deposits..................................... 135,383 618,856 890,352 261,116 941,216
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities.............................. 1,935,149 1,042,689 2,561,862 3,837,248 (3,112,372)
INVESTING ACTIVITIES:
Acquisition of business.......................... -- -- (19,064,152) -- (4,614,500)
Net (increase) decrease in short-term
investments.................................... -- -- (55,571,616) (1,017,446) 20,849,461
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) (6,066,341) (22,856,896)
Proceeds from sale of equipment.................. -- -- -- -- 565,734
Investments in consortium and other.............. -- (974,007) (6,744,600) -- --
Payment for intangible assets.................... (827,311) (1,411,033) (513,381) (634,859) --
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities..... (18,053,180) (21,482,941) (82,563,529) (8,950,707) (6,056,201)
FINANCING ACTIVITIES:
Proceeds of long-term debt....................... 3,295,664 13,329,000 133,092,500 16,301,000 --
Repayment of long-term debt...................... (13,862,152) (892,484) (36,348,623) (11,685,874) (3,333)
Proceeds from sale of common stock............... 35,507,898 62,714 889,356 888,568 703,299
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 5,503,694 699,966
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 8,608,383 (8,560,606) 12,245,558 390,235 (8,468,607)
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 $ 645,115 $ 4,031,831
============= ============= ============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest........... $ 828,000 $ 490,000 $ 1,639,000 $ 789,959 $ 7,712,813
============= ============= ============= ============= =============
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 $ -- $ 7,591,974
============= ============= ============= ============= =============
Debt obtained in connection with acquisition of
business....................................... $ -- $ -- $ -- $ -- $ 653,031
============= ============= ============= ============= =============
Accounts payable converted to long-term debt..... $ 885,000 $ -- $ -- $ -- $ --
============= ============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE> 128
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-32
<PAGE> 129
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 six months ended June
30, 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 six months ended June 30, 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-33
<PAGE> 130
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-34
<PAGE> 131
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-35
<PAGE> 132
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-36
<PAGE> 133
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-37
<PAGE> 134
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-38
<PAGE> 135
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-39
<PAGE> 136
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-40
<PAGE> 137
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-41
<PAGE> 138
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-42
<PAGE> 139
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SUBSEQUENT EVENT, NOTE TO JUNE 30, 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-43
<PAGE> 140
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-44
<PAGE> 141
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-45
<PAGE> 142
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-46
<PAGE> 143
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-47
<PAGE> 144
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-48
<PAGE> 145
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-49
<PAGE> 146
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-50
<PAGE> 147
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-51
<PAGE> 148
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-52
<PAGE> 149
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-53
<PAGE> 150
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-54
<PAGE> 151
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-55
<PAGE> 152
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-56
<PAGE> 153
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-57
<PAGE> 154
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-58
<PAGE> 155
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-59
<PAGE> 156
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-60
<PAGE> 157
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-61
<PAGE> 158
HUTTON, PATTERSON & COMPANY
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 September 30, 1996)
Dallas, Texas
F-62
<PAGE> 159
PARKWAY PAGING, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994 AND JUNE 20, 1996
<TABLE>
<CAPTION>
UNAUDITED
(NOTE M)
DECEMBER 31, ----------
----------------------- JUNE 20,
1995 1994 1996
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash (Note A).................................................................... $ 7,103 $ 516,984 $ 267,001
Accounts receivable (Note A)..................................................... 628,473 511,094 927,800
Inventory (Note A)............................................................... 403,879 704,530 659,771
Notes receivable, current (Notes B & J).......................................... 9,920 22,032 10,323
Other receivables................................................................ 35,885 14,125 43,268
Prepaid taxes (Note I)........................................................... 56,477 122,818 56,477
Deferred income tax asset (Note I)............................................... 105,722 66,605 105,722
Prepaid expenses................................................................. 631 31,821 23,353
---------- ---------- ----------
TOTAL CURRENT ASSETS...................................................... 1,248,090 1,990,009 2,093,715
---------- ---------- ----------
PAGERS HELD FOR LEASE OR SALE (net of accumulated depreciation of $292,203,
$440,511 and $342,284 at December 31, 1995, 1994 and June 20, 1996, respectively)
(Notes A, F & G)................................................................. 257,349 180,956 215,902
---------- ---------- ----------
PROPERTY AND EQUIPMENT (net of accumulated depreciation) (Notes A, C, F & G)....... 3,078,019 2,515,488 2,685,683
OTHER ASSETS
Long-term notes receivable (Notes B & J)......................................... 57,613 67,023 51,838
Deferred income tax asset (Note I)............................................... 17,102 13,078 17,102
Other (Note D)................................................................... 18,748 36,284 9,481
---------- ---------- ----------
TOTAL OTHER ASSETS........................................................ 93,463 116,385 78,421
---------- ---------- ----------
$4,676,921 $4,802,838 $5,073,721
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................................. $ 77,573 $ 313,811 $ 458
Deferred revenue (Note A)........................................................ 706,473 761,335 1,193,345
Accrued and other liabilities (Note E)........................................... 92,738 107,804 53,690
Current maturities of notes payable (Note G)..................................... 256,351 183,199 596,873
Current maturities of obligations under capital leases (Note F).................. 2,149,708 1,544,712 1,770,162
---------- ---------- ----------
TOTAL CURRENT LIABILITIES................................................. 3,282,843 2,910,861 3,614,528
---------- ---------- ----------
LONG-TERM DEBT
Notes payable (Note G)........................................................... 419,943 236,109 489,209
Obligations under capital leases (Note F)........................................ 813,288 1,407,689 379,504
---------- ---------- ----------
TOTAL LONG-TERM DEBT...................................................... 1,233,231 1,643,798 868,713
---------- ---------- ----------
TOTAL LIABILITIES......................................................... 4,516,074 4,554,659 4,483,241
---------- ---------- ----------
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
Additional paid-in capital....................................................... 364,602 364,602 364,602
Retained (deficit) earnings...................................................... (228,153) (140,821) 201,480
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY................................................ 160,847 248,179 590,480
---------- ---------- ----------
$4,676,921 $4,802,838 $5,073,721
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE> 160
PARKWAY PAGING, INC.
STATEMENTS OF INCOME AND RETAINED (DEFICIT) EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND THE QUARTERS ENDED JUNE 20, 1996 AND 1995
<TABLE>
<CAPTION>
UNAUDITED
(NOTE M)
DECEMBER 31, --------------------------
------------------------------------------- JUNE 20, JUNE 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 $4,393,713 $ 3,251,030
Product sales................................ 2,344,026 1,909,991 1,433,461 846,956 1,211,279
----------- ----------- ----------- ---------- -----------
9,747,251 7,128,765 5,649,877 5,240,669 4,462,308
Cost of products sold (Note A)............... (2,261,776) (1,892,906) (1,265,761) (740,548) (1,182,415)
----------- ----------- ----------- ---------- -----------
7,485,475 5,235,859 4,384,116 4,500,121 3,279,893
----------- ----------- ----------- ---------- -----------
OPERATING EXPENSES
Service, rent and maintenance................ 2,329,764 1,674,627 1,068,198 1,874,789 1,293,265
Selling...................................... 1,113,808 712,554 412,138 520,505 443,168
General and administrative................... 2,541,642 1,710,251 1,422,447 889,012 732,079
Depreciation and amortization................ 1,153,896 929,069 899,433 613,547 444,219
----------- ----------- ----------- ---------- -----------
7,139,110 5,026,501 3,802,216 3,897,853 2,912,731
----------- ----------- ----------- ---------- -----------
INCOME FROM OPERATIONS......................... 346,365 209,358 581,900 602,267 367,162
----------- ----------- ----------- ---------- -----------
OTHER
(Loss) gain on disposal (Note A)............. (71,683) (65,748) -- 20,026 --
Interest expense (net of interest income of
$9,278, $15,591, $9,923, $2,827 and $6,621
at December 31, 1995, 1994 and 1993 and
June 30, 1996 and 1995, respectively....... (405,155) (359,299) (332,166) (192,661) (178,441)
----------- ----------- ----------- ---------- -----------
(476,838) (425,047) (332,166) (172,635) (178,441)
----------- ----------- ----------- ---------- -----------
NET (LOSS) INCOME BEFORE BENEFIT (PROVISION)
FOR FEDERAL INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE..... (130,473) (215,689) 249,734 429,632 188,721
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) 171,709 429,632 188,721
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (Note I)........................... -- -- 51,996 -- --
----------- ----------- ----------- ---------- -----------
NET (LOSS) INCOME.............................. (87,332) (146,392) 223,705 429,632 188,721
RETAINED (DEFICIT) EARNINGS, beginning......... (140,821) 5,571 (218,134) (228,153) (140,821)
----------- ----------- ----------- ---------- -----------
RETAINED (DEFICIT) EARNINGS, ending............ $ (228,153) $ (140,821) $ 5,571 $ 201,480 $ 47,901
=========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE> 161
PARKWAY PAGING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND THE QUARTERS ENDED JUNE 20, 1996 AND 1995
<TABLE>
<CAPTION>
UNAUDITED
(NOTE M)
DECEMBER 31, ---------------------------
------------------------------------------- JUNE 20, JUNE 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 $ 429,632 $ 188,721
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities
Depreciation and amortization........... 1,153,896 929,069 899,433 613,547 444,219
Deferred federal income tax credit...... (43,141) (69,297) (10,385) -- --
Loss (gain) disposal.................... 71,683 65,748 -- (20,026) --
Changes in assets and liabilities
(Increase) decrease in accounts
receivable.......................... (117,379) 21,090 (457,525) (318,657) (196,931)
Decrease (increase) in inventory...... 300,651 (496,661) (170,169) (305,961) 311,379
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) -- (22,329) 31,821
(Increase) decrease in pagers held for
lease or sale (Note A).............. (145,073) 51,454 13,729 (8,634) 191,188
(Increase) decrease in deposits....... (1,001) (1,600) 5,102 (4,280) (401)
(Decrease) increase in accounts
payable............................. (236,238) 236,733 41,597 (77,115) (73,034)
(Decrease) increase in deferred
revenue............................. (54,862) 340,250 367,480 486,872 186,487
(Decrease) increase in accrued and
other liabilities................... (15,066) 14,745 39,036 (13,117) (76,580)
----------- ----------- ----------- ---------- ----------
Net cash flows provided by operating
activities.............................. 901,909 859,682 868,696 771,880 1,020,494
----------- ----------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Receipts on notes receivable.............. 21,522 25,875 15,425 5,371 11,496
Purchases of property and equipment....... (1,325,894) (782,849) (272,445) (134,812) (1,074,131)
Proceeds on sale of fixed assets.......... 20,000 -- -- 21,000 --
----------- ----------- ----------- ---------- ----------
Net cash flows used in investing
activities.............................. (1,284,372) (756,974) (257,020) (108,441) (1,062,635)
----------- ----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Additional obligations under capital
leases for inventory.................... 1,693,215 2,071,434 1,315,616 1,134,292 411,502
Payments on obligations under capital
leases.................................. (2,077,619) (1,637,112) (1,466,779) (1,390,170) (577,855)
Proceeds from bank loans.................. 511,475 -- -- -- 216,000
Payments on notes payable................. (254,489) (281,302) (270,186) (147,663) (123,363)
----------- ----------- ----------- ---------- ----------
Net cash flows (used in) provided by
financing activities.................... (127,418) 153,020 (421,349) (403,541) (73,716)
----------- ----------- ----------- ---------- ----------
NET (DECREASE) INCREASE IN CASH............. (509,881) 255,728 190,327 259,898 (115,857)
CASH, beginning............................. 516,984 261,256 70,929 7,103 516,984
----------- ----------- ----------- ---------- ----------
CASH, ending................................ $ 7,103 $ 516,984 $ 261,256 $ 267,001 $ 401,127
=========== =========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest................................ $ 417,258 $ 378,351 $ 334,307 $ 195,488 $ 185,062
----------- ----------- ----------- ---------- ----------
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 $1,134,292 $ 583,332
=========== =========== =========== ========== ==========
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-65
<PAGE> 162
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-66
<PAGE> 163
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-67
<PAGE> 164
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-68
<PAGE> 165
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-69
<PAGE> 166
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-70
<PAGE> 167
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- NOTES PAYABLE -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
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-71
<PAGE> 168
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-72
<PAGE> 169
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 June 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 June 20, 1996 and 1995, are
not necessarily indicative of the results that may be expected for the full
year.
F-73
<PAGE> 170
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-74
<PAGE> 171
O.R. ESTMAN, INC. AND DANA PAGING, INC.
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2)........................ $ 848,985 $ 690,362
Restricted cash (Note 2).................................. 300,000 300,000
Accounts receivable, less allowance for doubtful accounts
of $97,511 and $32,812 as of December 31, 1995 and June
30, 1996, respectively................................. 470,069 472,460
Receivables, other........................................ 82,803 74,848
Inventories (Note 2)...................................... 429,276 423,128
Prepaid expenses and other current assets................. 30,337 31,076
------------- -------------
Total current assets.............................. 2,161,470 1,991,874
------------- -------------
FURNITURE AND EQUIPMENT, at cost (Note 2):
Paging equipment.......................................... 1,987,280 1,822,003
Transmission equipment.................................... 2,897,302 2,994,827
Furniture and office equipment............................ 1,095,823 1,118,357
------------- -------------
5,980,405 5,935,187
Less -- Accumulated depreciation.......................... (4,190,490) (4,235,797)
------------- -------------
Furniture and equipment, net...................... 1,789,915 1,699,390
------------- -------------
OTHER ASSETS (Note 3)....................................... 93,681 121,667
------------- -------------
Total assets...................................... $ 4,045,066 $ 3,812,931
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4)............. $ 307,774 $ 136,267
Deferred revenue (Note 2)................................. 1,006,601 889,248
Accounts payable and accrued expenses..................... 740,549 488,521
Taxes payable............................................. 48,426 --
Other liabilities (Note 6)................................ 625,184 533,577
------------- -------------
Total current liabilities......................... 2,728,534 2,047,613
------------- -------------
LONG-TERM DEBT (Note 4)..................................... 11,272,235 11,272,235
------------- -------------
Total liabilities................................. 14,000,769 13,319,848
------------- -------------
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 June 30, 1996, respectively........................ 9,215,475 9,215,475
Additional paid-in capital................................ 23,240 23,240
Accumulated deficit....................................... (19,194,418) (18,745,632)
------------- -------------
Total stockholders' deficit....................... (9,955,703) (9,506,917)
------------- -------------
Total liabilities and stockholders' deficit....... $ 4,045,066 $ 3,812,931
============= =============
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-75
<PAGE> 172
O.R. ESTMAN, INC. AND DANA PAGING, INC.
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, -----------------------------
1995 1996 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Services, rent and maintenance revenue......... $ 10,722,832 $ 5,029,532 $ 5,331,723
Product sales.................................. 1,369,475 588,559 667,604
------------ ------------ ------------
Total revenues......................... 12,092,307 5,618,091 5,999,327
------------ ------------ ------------
OPERATING EXPENSES:
Services, rent and maintenance................. 3,917,891 1,826,324 1,919,383
Cost of products sold.......................... 1,556,650 622,011 914,095
Selling, general and administrative expenses... 4,280,770 1,790,243 2,260,463
Depreciation and amortization (Note 2)......... 1,064,254 339,079 754,971
------------ ------------ ------------
Total expenses......................... 10,819,565 4,577,657 5,848,912
------------ ------------ ------------
Income from operations................. 1,272,742 1,040,434 150,415
OTHER INCOME (EXPENSE):
Interest income................................ 35,290 17,982 42,568
Interest expense (Note 4)...................... (737,605) (524,613) (201,385)
Other expense.................................. (38,013) (72,746) --
------------ ------------ ------------
Income before reorganization and
extraordinary item................... 532,414 461,057 (8,402)
REORGANIZATION ITEMS (Note 1) -- Professional
fees........................................... 403,745 12,273 379,310
------------ ------------ ------------
Income (loss) before extraordinary
item................................. 128,669 448,784 (387,712)
EXTRAORDINARY ITEM (Note 4) -- Forgiveness of
debt........................................... 5,927,778 -- 5,927,778
------------ ------------ ------------
Net income (loss)...................... 6,056,447 448,784 5,540,066
ACCUMULATED DEFICIT, beginning of period......... (25,250,865) (19,194,418) (25,250,865)
------------ ------------ ------------
ACCUMULATED DEFICIT, end of period............... $(19,194,418) $(18,745,634) $(19,710,799)
============ ============ ============
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-76
<PAGE> 173
O.R. ESTMAN, INC. AND DANA PAGING, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, --------------------------
1995 1996 1995
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ 6,056,447 $ 448,784 $ 5,540,066
Adjustments to reconcile net income (loss) to net
cash provided by operating activities --
Depreciation and amortization................... 1,064,254 339,079 754,971
Forgiveness of debt............................. (5,576,071) -- (5,927,778)
Changes in assets and liabilities
(Increase) decrease in accounts receivables,
net........................................ 441,816 (2,391) 276,296
(Increase) decrease in inventories............ 126,852 6,148 145,394
Increase in prepaid expenses and other current
assets..................................... (17,067) (739) (6,503)
(Increase) decrease in receivables, other..... 3,152 7,955 (1,866)
(Increase) decrease in other assets........... 81,493 (27,986) 30,108
Increase (decrease) in deferred revenue....... (368,889) (117,353) 226,507
Increase (decrease) in accounts payable and
accrued expenses........................... (799,116) (252,028) (378,152)
Decrease in taxes payable..................... (466,786) (48,426) (129,892)
Decrease in due to stockholders............... (117,773) 0 (117,773)
Decrease in other liabilities................. (354,278) (91,607) (79,061)
------------ ---------- -----------
Net cash provided by operating
activities............................... 74,034 261,436 332,317
CASH FLOWS FROM INVESTING ACTIVITIES -- Purchases of
property, plant and equipment, net................. (807,465) (248,552) (637,921)
CASH FLOWS FROM FINANCING ACTIVITIES --
Net (repayments) borrowings of long-term debt...... (741,167) (171,507) (668,509)
------------ ---------- -----------
Net increase (decrease) in cash............ (1,474,598) (158,623) (974,113)
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 $ 990,362 $ 1,649,470
============ ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for
Interest........................................ $ 648,305 $ 94,565 $ 4,857
Taxes........................................... 10,403 373,797 169,557
============ ========== ===========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-77
<PAGE> 174
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, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Pagers.............................................. $368,720 $ 369,231
Parts and accessories............................... 60,556 53,897
-------- --------
$429,276 $ 423,128
======== =========
</TABLE>
F-78
<PAGE> 175
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, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Security deposits and other assets.................. $ 50,568 $ 59,542
Customer lists...................................... 43,113 62,125
------- -------
$ 93,681 $ 121,667
======== =========
</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-79
<PAGE> 176
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-80
<PAGE> 177
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-81
<PAGE> 178
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 six-month periods ended June 30, 1995 and 1996 (unaudited) was
$322,225, $158,616 and $137,410, 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-82
<PAGE> 179
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 $33 million relates to a credit facility with certain banks
which is secured by substantially all of the assets of the New York and Chicago
operations. The Parent intends to satisfy its obligations with proceeds it
expects to receive from the planned sale of the New York and Chicago Operations
pursuant to the Purchase Agreement described in Note B. If this transaction is
not completed as planned, there would be substantial doubt about the ability of
the Parent and the New York and Chicago Operations to continue as going
concerns. This matter, and management's plans with respect thereto, is more
fully discussed in Note A. The accompanying financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result if the transaction described in Note B is not completed as planned.
ERNST & YOUNG LLP
Hackensack, New Jersey
June 17, 1996
F-83
<PAGE> 180
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
STATEMENTS OF NET ASSETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
JUNE 30, -------------------
1996 1995 1994
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Accounts receivable, net of allowance for doubtful
accounts of $223, $277, and $282....................... $ 858 $ 1,017 $ 1,345
Prepaid expenses and other current assets................. 540 442 460
------- ------- -------
Total current assets.............................. 1,398 1,459 1,805
EQUIPMENT, less accumulated depreciation and amortization... 6,872 6,662 7,385
OTHER ASSETS:
Certificates of authority, net of accumulated amortization
of $3,518, $3,216, and $2,616.......................... 20,670 20,968 21,391
Customer lists, net of accumulated amortization of $8,280,
$7,992, and $7,150..................................... 3,489 3,776 4,618
Other intangibles, net of accumulated amortization of
$3,328, $3,184, and $2,882............................. 8,801 8,945 9,725
Deposits and other non-current assets..................... 310 400 832
------- ------- -------
33,270 34,089 36,566
------- ------- -------
$41,540 $42,210 $45,756
======= ======= =======
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
Accounts payable.......................................... $ 2,090 $ 1,982 $ 3,948
Accrued expenses and other liabilities.................... 1,625 1,413 890
Customer deposits......................................... 276 299 359
Deferred revenue.......................................... 1,579 1,242 1,066
------- ------- -------
Total current liabilities......................... 5,570 4,936 6,263
NET ASSETS.................................................. 35,970 37,274 39,493
------- ------- -------
$41,540 $42,210 $45,756
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-84
<PAGE> 181
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
STATEMENTS OF OPERATIONS AND NET ASSETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- -------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service revenues......................... $10,499 $11,510 $22,387 $24,919 $26,586
Sales revenues........................... 1,037 1,223 2,330 3,453 3,648
------- ------- ------- ------- -------
Total revenues................. 11,536 12,733 24,717 28,372 30,234
OPERATING EXPENSES:
Cost of service........................ 1,059 979 2,031 1,963 1,837
Cost of sales.......................... 712 668 1,481 2,189 2,412
Selling................................ 2,188 2,439 5,017 5,104 4,879
General and administrative............. 3,276 3,493 7,342 7,891 8,686
Technical.............................. 1,795 1,773 3,507 3,325 3,340
Depreciation of equipment and
amortization of deferred warranty
costs............................... 1,913 2,066 4,458 5,131 6,868
Amortization and write-off of
intangibles and other assets........ 734 980 2,289 2,748 2,987
------- ------- ------- ------- -------
11,677 12,398 26,125 28,351 31,009
------- ------- ------- ------- -------
Operating (loss) profit................ (141) 335 (1,408) 21 (775)
OTHER INCOME (EXPENSES):
Gain (loss) on disposal of assets...... 18 -- 63 369 (53)
Other.................................. 103 (154) (200) (301) (683)
------- ------- ------- ------- -------
121 (154) (137) 68 (736)
------- ------- ------- ------- -------
NET (LOSS) INCOME........................ $ (20) $ 181 $(1,545) $ 89 $(1,511)
NET DISTRIBUTIONS (TO) FROM PARENT....... (1,284) (1,289) (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.............. $35,970 $38,385 $37,274 $39,493 $44,083
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-85
<PAGE> 182
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- -------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income...................... $ (20) $ 181 $(1,545) $ 89 $(1,511)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization....... 2,647 3,046 6,747 7,879 9,855
Provision for losses on accounts
receivable........................ 371 140 548 1,373 1,130
Provision for lost pagers........... 90 76 249 263 688
Net book value of pagers sold....... 644 648 1,416 2,162 2,352
Loss (gain) on disposal of assets... (18) -- (63) (369) 53
Other............................... 12 26 -- -- --
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable..................... 101 134 (353) (749) (810)
Decrease (increase) in prepaid
expenses and other current
assets......................... (11) (438) 18 (214) 453
(Decrease) increase in accounts
payable........................ (237) (405) (1,966) 577 (2,445)
Increase (decrease) in accrued
expenses....................... (146) 278 523 (312) 376
------- ------- ------- ------- -------
Total adjustments.............. 3,453 3,505 7,119 10,610 11,652
------- ------- ------- ------- -------
Net cash provided by operating
activities................... 3,433 3,686 5,574 10,699 10,141
------- ------- ------- ------- -------
INVESTING ACTIVITIES:
Capital expenditures................... (2,145) (2,306) (5,044) (5,828) (5,759)
Licensing costs........................ (4) (111) (177) (594) (362)
Net proceeds from disposal of
equipment........................... -- 20 321 402 46
------- ------- ------- ------- -------
Net cash used in investing
activities................... (2,149) (2,397) (4,900) (6,020) (6,075)
------- ------- ------- ------- -------
FINANCING ACTIVITY -- Net distributions
(to) from parent....................... $(1,284) $(1,289) $ (674) $(4,679) $(4,066)
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-86
<PAGE> 183
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 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. The Parent has subsequently been in default under
the modified credit facility with respect to the delivery of certain financial
statements in 1996.
F-87
<PAGE> 184
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 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 if the transaction with
Metrocall, Inc. is not completed as planned.
INTERIM FINANCIAL STATEMENTS -- The accompanying unaudited interim
financial statements as of June 30, 1996 and for each of the six month periods
ended June 30, 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 six months ended June 30, 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 $4 million will be placed in escrow for up to 18 months. The number of
shares of Metrocall common stock to be received by the Parent will be based on
the average price of Metrocall common stock during the 20 trading days ending on
the trading day five trading days preceding the closing. The purchase price is
subject to downward adjustment if the actual operating results of the New York
and Chicago operations during the three-month period prior to closing are below
certain specified levels.
Completion of the transaction is subject to approval by the Parent's
stockholders at a special meeting to be held, approval by the Federal
Communications Commission, compliance with the Hart-Scott Rodino Antitrust
Improvements Act and satisfaction of other customary conditions.
F-88
<PAGE> 185
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE C -- BALANCE SHEET CLASSIFICATIONS ($ IN THOUSANDS)
Equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Pagers............................................ $ 8,144 $ 8,164 $ 10,378
Radio common carrier equipment.................... 13,144 12,914 12,571
Office equipment.................................. 3,951 3,946 3,810
Leasehold improvements............................ 614 614 509
Building and land................................. 64 64 64
--------- -------- --------
25,917 25,702 27,332
--------- -------- --------
Less accumulated depreciation and amortization.... (19,045) (19,040) (19,947)
--------- -------- --------
$ 6,872 $ 6,662 $ 7,385
========= ======== ========
</TABLE>
Accrued expenses and other liabilities comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------
1996 1995 1994
----------- ------ ----
(UNAUDITED)
<S> <C> <C> <C>
Salaries............................................... $ 97 $ 228 $ 67
Bonuses................................................ 25 115 49
Professional services.................................. 64 95 0
Commissions............................................ 31 23 15
Taxes.................................................. 934 873 614
Other.................................................. 474 79 145
------- ------ ----
$ 1,625 $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,
JUNE 30, ---------------------
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............................................... 1,604 805 710
Paid-in capital......................................... 53,501 52,850 49,830
Accumulated deficit..................................... (100,145) (94,945) (78,989)
---------- -------- --------
Total Page America Group, Inc. Consolidated Equity
(Deficit)............................................... (14,972) (11,222) 439
Less: Assets and (Liabilities) which are not part of the
New York and Chicago Operations:
Cash and cash equivalents............................... 630 751 1,082
Net assets of radio paging operations in other
geographic areas..................................... -- 18,212
Debt.................................................... (50,347) (48,735) (57,991)
Other assets and liabilities -- net..................... (1,225) (512) (357)
---------- -------- --------
Net Assets of New York and Chicago Operations............. $ 35,970 $ 37,274 $ 39,493
========== ======== ========
</TABLE>
F-89
<PAGE> 186
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 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 G -- TRANSACTIONS WITH PARENT
Page America Group, Inc. provides the Companies with marketing,
administrative and employee benefits services. Amounts charged for such services
(approximately $870,000 and $1,166,000 for the six month periods ended June 30,
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 $24,000 and
$37,000 for the six month periods ended June 30, 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 $3,225,000 and $3,253,000 for the six month periods ended
June 30, 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.
F-90
<PAGE> 187
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE G -- TRANSACTIONS WITH PARENT -- (CONTINUED)
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 H -- RENTALS
Rental expense was approximately $1,337,000 and $1,290,000, for the six
month periods ended June 30, 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-91
<PAGE> 188
EXHIBIT A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
METROCALL, INC.
AND
A+ NETWORK, INC.
MAY 16, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 189
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> 190
<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> 191
<TABLE>
<CAPTION>
PAGE
----
<S> <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> 192
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> 193
<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> 194
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
1
<PAGE> 195
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.
2
<PAGE> 196
(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
3
<PAGE> 197
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.
4
<PAGE> 198
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
5
<PAGE> 199
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
6
<PAGE> 200
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").
7
<PAGE> 201
(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.
8
<PAGE> 202
(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
9
<PAGE> 203
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.
10
<PAGE> 204
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").
11
<PAGE> 205
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;
12
<PAGE> 206
(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.
13
<PAGE> 207
(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,
14
<PAGE> 208
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
15
<PAGE> 209
(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
16
<PAGE> 210
(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.
17
<PAGE> 211
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
18
<PAGE> 212
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,
19
<PAGE> 213
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
20
<PAGE> 214
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
21
<PAGE> 215
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;
22
<PAGE> 216
(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.
23
<PAGE> 217
(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
24
<PAGE> 218
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
25
<PAGE> 219
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
26
<PAGE> 220
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
27
<PAGE> 221
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
28
<PAGE> 222
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
29
<PAGE> 223
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,
30
<PAGE> 224
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.
31
<PAGE> 225
"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
32
<PAGE> 226
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.
33
<PAGE> 227
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;
34
<PAGE> 228
(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
35
<PAGE> 229
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;
36
<PAGE> 230
(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,
37
<PAGE> 231
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.
38
<PAGE> 232
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.]
39
<PAGE> 233
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
40
<PAGE> 234
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;
A-1
<PAGE> 235
(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> 236
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>
<S> <C> <C>
Class of 1997 Class of 1998 Class of 1999
S. Brock E. Singer H. Brock
W. Collins R. Aprahamian R. Johnston
F. Martin To be determined R. Russenberger
</TABLE>
B-1
<PAGE> 237
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
C-1
<PAGE> 238
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
C-2
<PAGE> 239
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.
C-3
<PAGE> 240
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.
D-1
<PAGE> 241
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> 242
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.
B-2
<PAGE> 243
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
B-3
<PAGE> 244
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
C-1
<PAGE> 245
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
C-2
<PAGE> 246
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 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 36,000,000 [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 35,000,000 [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.
D-1
<PAGE> 247
EXHIBIT E
FIRST AMENDMENT TO THE
1996 METROCALL STOCK OPTION PLAN
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.
E-1
<PAGE> 248
PROXY
A+ NETWORK, INC.
SPECIAL MEETING OF STOCKHOLDERS
NOVEMBER 6, 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 2:00 p.m. on November 6, 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 and
amended on October , 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> 249
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
November 6, 1996, at 9:00 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
EXAMPLE.
- --------
6615
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, as amended.
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 35,000,000.
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. Approval of the issuance of up to $35 million aggregate liquidation value
of Series A Convertible Preferred Stock of Metrocall on substantially the
terms described in the Joint Proxy Statement/Prospectus.
FOR / / AGAINST / / ABSTAIN / /
5. 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
November 6, 1996
Ritz-Carlton, Pentagon City
1250 South Hayes Street
Arlington, Virginia
<PAGE> 250
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
2.1 Agreement and Plan of Merger dated as of May 16, 1996,
between Metrocall, Inc. and A+ Network, Inc.(a)
II-1
<PAGE> 251
<TABLE>
<S> <C>
2.2 Amendment to Agreement and Plan of Merger between Metrocall, Inc. and A+
Network, Inc.+
2.3 Shareholders' Option and Sale Agreement dated as of May 16, 1996 between
Metrocall, Inc. and certain shareholders of A+ Network, Inc. listed
therein.(a)
2.4 Metrocall Stockholders Voting Agreement dated as of May 16, 1996 between A+
Network, Inc. and certain stockholders of Metrocall, Inc. listed therein.(a)
2.5 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 Certificate of Amendment of Certificate of Incorporation of Metrocall, Inc.
3.3 Fourth Amended and Restated Bylaws of Metrocall, Inc.
4.1 Specimen Certificate representing the Metrocall, Inc. Common Stock.(c)
4.2 Form of Variable Common 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)
10.9 Change of Control Agreement between Metrocall and Vincent D. Kelly.
10.10 Change of Control Agreement between Metrocall and William L. Collins, III.
10.11 Change of Control Agreement between Metrocall and Steven D. Jacoby.
10.12 Amended and Restated Loan Agreement among Metrocall, Inc., the
Toronto-Dominion Bank and the First National Bank of Boston with the
Toronto-Dominion Bank as "Documentation Agent," the First National Bank of
Boston as "Syndication Agent," the Toronto-Dominion Bank and the First
National Bank of Boston as "Managing Agents," and Toronto-Dominion (Texas),
Inc. as "Administrative Agent."(e)
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>
II-2
<PAGE> 252
<TABLE>
<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 auditors 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)*
25 Statement of Eligibility of Trustee on Form T-1.
(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 previously filed.
+ 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.
(e) Incorporated by reference to Metrocall's Registration Statement on Form
S-3, filed with the Commission on October 1, 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.
(d) The undersigned registrant hereby undertakes:
II-3
<PAGE> 253
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE> 254
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ALEXANDRIA,
COMMONWEALTH OF VIRGINIA, ON OCTOBER 4, 1996.
METROCALL, INC.
By: /S/ VINCENT D. KELLY
------------------------------------
Name: Vincent D. Kelly
Title: Vice President and CFO
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------ ------------------------------------ -----------------
<S> <C> <S>
* President, Chief Executive Officer and October 4, 1996
- ------------------------------------ Director (Principal Executive Officer)
WILLIAM L. COLLINS, III
/S/ VINCENT D. KELLY Vice President, Chief Financial Officer October 4, 1996
- ------------------------------------ and Director (Principal Financial
VINCENT D. KELLY and Accounting Officer)
* Chairman of the Board October 4, 1996
- ------------------------------------
RICHARD M. JOHNSTON
* Director October 4, 1996
- ------------------------------------
RONALD V. APRAHAMIAN
/S/ HARRY L. BROCK, JR. Director October 4, 1996
- ------------------------------------
HARRY L. BROCK, JR.
* Director October 4, 1996
- ------------------------------------
SUZANNE S. BROCK
* Director October 4, 1996
- ------------------------------------
FRANCIS A. MARTIN, III
* Chief Operating Officer and Director October 4, 1996
- ------------------------------------
STEVEN D. JACOBY
*By: /S/ VINCENT D. KELLY October 4, 1996
- ------------------------------------
VINCENT D. KELLY
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE> 255
POWER OF ATTORNEY
I, the undersigned director of Metrocall, Inc., hereby severally constitute
and appoint William L. Collins III and Vincent D. Kelly, and each of them
singly, to sign for me and in my name in the capacity indicated below, the
amendment to the Registration Statement filed herewith and any and all other
amendments to said Registration Statement (including post-effective amendments),
and generally to do all such things in my name and in my capacity as a director
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 my signature as it may be signed by my said attorneys,
or any of them, to said amendment to the Registration Statement and any and all
other amendments thereto.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------- ------------------------------------- ----------------
<S> <C> <C>
/S/ HARRY L. BROCK, JR. Director October 4, 1996
- -------------------------------------
HARRY L. BROCK, JR.
</TABLE>
II-6
<PAGE> 256
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------ ---------------------------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of May 16, 1996, between
Metrocall, Inc. and A+ Network, Inc.(a)
2.2 Amendment to Agreement and Plan of Merger between Metrocall, Inc. and
A+ Network, Inc.+
2.3 Shareholders' Option and Sale Agreement dated as of May 16, 1996
between Metrocall, Inc. and certain shareholders of A+ Network, Inc.
listed therein.(a)
2.4 Metrocall Stockholders Voting Agreement dated as of May 16, 1996
between A+ Network, Inc. and certain stockholders of Metrocall, Inc.
listed therein.(a)
2.5 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 Certificate of Amendment of Certificate of Incorporation of
Metrocall, Inc.
3.3 Fourth Amended and Restated Bylaws of Metrocall, Inc.
4.1 Specimen Certificate representing the Metrocall, Inc. Common
Stock.(c)
4.2 Form of Variable Common 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)
10.9 Change of Control Agreement between Metrocall and Vincent D. Kelly.
10.10 Change of Control Agreement between Metrocall and William L. Collins,
III.
10.11 Change of Control Agreement between Metrocall and Steven D. Jacoby.
10.12 Amended and Restated Loan Agreement among Metrocall, Inc., the
Toronto-Dominion Bank and the First National Bank of Boston with the
Toronto-Dominion Bank as "Documentation Agent," the First National
Bank of Boston as "Syndication Agent," the Toronto-Dominion Bank and
the First National Bank of Boston as "Managing Agents," and
Toronto-Dominion (Texas), Inc. as "Administrative Agent."(e)
13.1 Metrocall's Annual Report on Form 10-K for the year ended December
31, 1995.
</TABLE>
<PAGE> 257
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------ ---------------------------------------------------------------------
<C> <S> <C>
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 auditors 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)*
25 Statement of Eligibility of Trustee on Form T-1.
(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 previously filed.
+ 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.
(e) Incorporated by reference to Metrocall's Registration Statement on Form
S-3, filed with the Commission on October 1, 1996.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
METROCALL, INC.
Metrocall, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: The name of the Corporation is Metrocall, Inc. The Corporation
was originally incorporated under the name Metrocall of Delaware, Inc., and the
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on October 26, 1982.
SECOND: This Amended and Restated Certificate of Incorporation was
duly adopted in accordance with Sections 242 and 245 of the General
Corporation Law of the State of Delaware (the "Delaware General Corporation
Law"), and was duly adopted by the holders of all of the outstanding Common
Stock of the Corporation, acting by written consent pursuant to Section 228(d)
of the Delaware General Corporation Law, and restates and integrates and
further amends the provisions of the Certificate of Incorporation of the
Corporation, as heretofore amended.
THIRD: The text of the Certificate of Incorporation of the
Corporation as heretofore amended hereby is restated and amended to read in its
entirety as follows:
1. NAME.
The name of this corporation is Metrocall, Inc.
2. REGISTERED OFFICE AND AGENT.
The registered office of the Corporation shall be located at 32
Loockerman Square, Suite L-100, Dover, Delaware 19901 in the County of Kent.
The registered agent of the Corporation at such address be United States
Corporation Company.
3. PURPOSE AND POWERS.
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law. The Corporation shall have all power necessary or helpful to
engage in such acts and activities.
<PAGE> 2
4. CAPITAL STOCK.
4.1. AUTHORIZED SHARES.
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 21,000,000 shares, of which
1,000,000 shares shall be Preferred Stock, having a par value of $0.01 per
share ("Preferred Stock"), and 20,000,000 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 of more classes or series without the approval of
the stockholders of the Corporation.
4.2. COMMON STOCK.
(a) RELATIVE RIGHTS.
The Common Stock shall be subject to all of the rights, privileges,
preferences and priorities of the Preferred Stock as set forth in the
certificate of designations filed to establish the respective series of
Preferred Stock. Each share of Common Stock shall have the same relative rights
as and be identical in all respects to all the other shares of Common Stock.
(b) VOTING RIGHTS.
Each holder of shares of Common Stock shall be entitled to attend all
special and annual meetings of the stockholders of the Corporation and, share
for share and without regard to class, together with the holders of all other
classes of stock entitled to attend such meetings and to vote (except any class
or series of stock having special voting rights), to cast one vote for each
outstanding share of Common Stock so held upon any matter or thing (including,
without limitation, the election of one or more directors) properly considered
and acted upon by the stockholders, except as otherwise provided in this
Amended and Restated Certificate of Incorporation or by applicable law.
(c) DIVIDENDS.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of shares of any class of stock having preference over
the Common Stock as to the payment of dividends, the full amount of dividends
and of sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then the holders of
record of the Common Stock and any class or series of stock entitled to
participate therewith as to dividends, shall be entitled to receive dividends,
when, as, and if declared by the
2
<PAGE> 3
Board of Directors, out of any assets legally available for the payment of
dividends thereon.
(d) DISSOLUTIONS, LIQUIDATION, WINDING UP.
In the event of any discussion, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of record of the
Common Stock then outstanding, and all holders of any class or series of stock
entitled to participate therewith in whole or in part, as to distribution of
assets, shall become entitled to participate in the distribution of any assets
of the Corporation remaining after the Corporation shall have paid, or set
aside for payment, to the holders of any class of stock having preference over
the Common Stock in the event of dissolution, liquidation or winding up, the
full preferential amounts (if any) to which they are entitled, and shall have
paid or provided for payment of all debts and liabilities of the Corporation.
4.3. PREFERRED STOCK.
(a) ISSUANCE, DESIGNATIONS, POWER, ETC.
The Board of Directors expressly is authorized, subject to limitations
prescribed by the Delaware General Corporation Law and the provisions of this
Amended and Restated Certificate of Incorporation, to provide, by resolution
and by filing a certificate of designations pursuant to the Delaware General
Corporation Law, for the issuance from time to time of the shares of Preferred
Stock in one or more series, to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences and other rights of the shares of each such series and to fix the
qualifications, limitations and restrictions thereon, including, but without
limiting the generality of the foregoing, the following:
(i) the number of shares constituting that series and the
distinctive designation of that series;
(ii) the dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on shares
of that series;
(iii) whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of Directors
shall determine;
3
<PAGE> 4
(v) whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(vi) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(vii) the rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(viii) any other relative powers, preferences, and rights of
that series, and qualifications, limitations or restrictions on that series.
(b) DISSOLUTION, LIQUIDATION, WINDING UP.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of Preferred Stock
of each series shall be entitled to receive only such amount or amounts as
shall have been fixed by the certificate of designations or by the resolution
or resolutions of the Board of Directors providing for the issuance of such
series.
4.4. ADJUSTMENTS OF AUTHORIZED STOCK.
Except as provided to the contrary in the provisions establishing a
class or series of stock, the amount of the authorized stock of the Corporation
of any class or classes may be increased or decreased (but not below the number
then outstanding) by the affirmative vote of a majority of the directors then
in office, whether or not a quorum.
4.5. RESTRICTIONS ON FOREIGN OWNERSHIP OF SHARES.
(a) No shares of stock of any class or series outstanding at any time
shall be owned of record or beneficially by a person (as defined in Section
4.5(c) hereof) whose ownership thereof would constitute a violation of Section
310(a) or 310(b) of the Communications Act of 1934, as amended, or any similar
or successor federal statutes.
(b) The Corporation may, in its sole discretion, redeem any
outstanding shares of stock of any class or series which are owned in violation
of Section 4.5(a) hereof. Shares redeemed by the Corporation under this Section
4.5(b) may be redeemed for cash, property or rights, at the lesser of (i) the
fair market value at the
4
<PAGE> 5
time of the redemption or (ii) the holder's purchase price, provided the holder
purchased such shares within a year prior to the redemption. The Board of
Directors shall have sole discretion to determine whether shares are owned in
violation of Section 4.5(a) hereof, the fair market value of any shares to be
redeemed, and the value of any non-cash consideration to be provided for such
shares in any such redemption.
(c) For purposes of this Section 4.5, "person" shall mean an
individual, a partnership, a corporation, a trust, a joint venture, an
unincorporated organization, a government or any department or agency thereof
or any other legal entity.
5. BOARD OF DIRECTORS.
5.1. CLASSIFICATION.
Except as otherwise provided in this Amended and Restated Certificate
of Incorporation or a certificate of designations relating to the rights of the
holders of any class or series of Preferred Stock, voting separately by class
or series, to elect additional directors under specified circumstances, the
number of directors of the Corporation shall be as fixed from time to time by
or pursuant to the Bylaws of the Corporation. The directors, other than those
who may be elected by the holders of any class or series of Preferred Stock
voting separately by class or series, shall be classified, with respect to the
time for which they severally hold office, into three classes, Class I, Class II
and Class III, which shall be as nearly equal in number as possible, and shall
be adjusted from time to time in the manner specified in the Bylaws of the
Corporation to maintain such proportionality. Each initial director in Class I
shall hold office for a term expiring at the 1996 annual meeting of
stockholder, each initial director in Class II shall hold office initially for
a term expiring at the 1995 annual meeting of stockholders, and each initial
director in Class III shall hold office for a term expiring at the 1994 annual
meeting of stockholders. Notwithstanding the foregoing provisions of this
Section 5.1, each director shall serve until such director's successor is duly
elected and qualified or until such director's earlier death, resignation or
removal. At each annual meeting of stockholders, the successors to the class of
directors whose term expires at the meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election and until their successors have been duly
elected and qualified or until any such director's earlier death, resignation
or removal.
5.2. REMOVAL.
(a) Except as otherwise provided pursuant to the
provisions of this Amended and Restated Certificate of Incorporation or a
certificate of designations relating to the rights of the holders of any class
or series of Preferred Stock, voting separately by class or series, to elect
directors under specified
5
<PAGE> 6
circumstances, any director or directors may be removed from office at any
time, but only for cause (as defined in Section 5.2(b) hereof) and only by the
affirmative vote, at a special meeting of the stockholders called for such a
purpose, of not less than 66-2/3% of the total number of votes of the then
outstanding shares of stock of the Corporation entitled to vote generally in
the election of directors, voting together as a single class, but only if
notice of such proposal was contained in the notice of such meeting. At least
30 days prior to such special meeting of stockholders, written notice shall be
sent to the director or directors whose removal will be considered at such
meeting. Any vacancy in the Board of Directors resulting from any such removal
or otherwise shall be filled only by vote of a majority of the directors then
in office, although less than a quorum, and any directors so chosen shall hold
office until the next election of the class for which such directors shall have
been chosen and until their successors shall be elected and qualified or until
any such director's earlier death, resignation or removal.
(b) For purposes of this Section 5.2, "cause" shall mean (i)
conduct as a director of the Corporation or any subsidiary involving dishonesty
of a material nature or (ii) criminal conduct (other than minor infractions and
traffic violations) that relates to the performance of the director's duties as
a director of the Corporation or any subsidiary.
5.3. CHANGE OF AUTHORIZED NUMBER.
In the event of any increase or decrease in the authorized number of
directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes as nearly equal as
possible. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
5.4. DIRECTORS ELECTED BY HOLDERS OF PREFERRED STOCK.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Amendment and Restated Certificate of Incorporation or a
certificate of designations applicable thereto, and such directors so elected
shall not be divided into classes pursuant to this Section 5 unless expressly
provided by the certificate of designations.
5.5. LIMITATION OF LIABILITY.
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for any breach of fiduciary duty as a
director,
6
<PAGE> 7
provided that this provision shall not eliminate or limit the liability of a
director (a) for any breach of the director's duty of loyalty to the
Corporation or its stockholders; (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (c) for the
types of liability set forth in Section 174 of the Delaware General Corporation
Law; or (d) for any transaction from which the director received any improper
personal benefit. Any repeal or modification of this Section 5.5 by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification.
6. INDEMNIFICATION.
To the extent permitted by law, the Corporation shall fully indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that such
person is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
To the extent permitted by law, the Corporation may fully indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reasons of the fact that such
person is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
The Corporation may advance expenses (including attorneys' fees)
incurred by a director or officer in advance of the final disposition of such
action, suit or proceeding upon the receipt of an undertaking by or on behalf
of the director or officer to repay such amount if it shall ultimately be
determined that such director or officer is not entitled to indemnification.
The Corporation may advance expenses (including attorneys' fees) incurred by an
employee or agent in advance of the final disposition of such action, suit or
proceeding upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
7
<PAGE> 8
7. ACTIONS BY STOCKHOLDERS.
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders, and may not be effected by any consent in writing by such
stockholders, unless such consent unanimous.
8. SPECIAL MEETINGS.
Special meetings of the stockholders may be called at any time but
only by (a) the chairman of the board of the Corporation, (b) a majority of the
directors in office, although less than a quorum, or (c) the holders of not
less than 35% of the total number of votes of the then outstanding shares of
stock of the Corporation entitled to vote generally in the election of the
directors, voting together as a single class.
9. CRITERIA FOR EVALUATING CERTAIN OFFERS.
The Board of Directors, when evaluating any offer of another party to
(a) make a tender or exchange offer for any equity security of the Corporation,
(b) merge or consolidate the Corporation with another institution, or (c)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, shall, in connection with the exercise of its
judgement, in determining what is in the best interests of the Corporation and
its stockholders, be authorized to give due consideration to any such factors
as the Board of Directors determines to be relevant, including, without
limitation:
(i) the interests of the stockholders of the Corporation;
(ii) whether the proposed transaction might violate federal or
state laws;
(iii) the consolidation being offered in the proposed transaction,
in relation to the then current market price for the outstanding capital stock
of the Corporation, the market price for the capital stock of the Corporation
over a period of years, the estimated price that might be achieved in a
negotiated sale of the Corporation as a whole or in part or through orderly
liquidation, the premiums over market price for the securities of other
corporations in similar transactions, current political, economic and other
factors bearing on securities prices and the Corporation's financial condition
and estimated future value as an independent entity; and
(iv) the social, legal and economic effects upon employees,
suppliers, subscribers and others having similar relationships with the
Corporation, and the communities in which the Corporation conducts its
business.
8
<PAGE> 9
In connection with any such evaluation, the Board of Directors is authorized to
conduct such investigations and engage in such legal proceedings as the Board
of Directors may determine.
10. ANTI-GREENMAIL.
Any direct or indirect purchase or other acquisition by the
Corporation of any capital stock of the Corporation from any Significant
Stockholder (as hereinafter defined) who has been the beneficial owner (as
hereinafter defined) of such capital stock for less than two years prior to the
date of such purchase or other acquisition shall, except as hereinafter
expressly provided, require the affirmative vote of the holders of at least a
majority of the total number of outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, excluding in calculating such affirmative vote and
the total number of outstanding shares all capital stock beneficially owned by
such Significant Stockholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required or the a lesser
percentage may be specified, by law, but no such affirmative vote shall be
required with respect to (a) any purchase or other acquisition of capital stock
of the Corporation made as part of a tender or exchange offer by the
Corporation to purchase capital stock of the Corporation on the same terms from
all holders of the same class of capital stock and complying with the
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, (b) any purchase of capital stock of the
Corporation which the Board of Directors shall determine to be necessary
pursuant to Section 4.5 of this Amended and Restated Certificate of
Incorporation, (c) any purchase or other acquisition of capital stock of the
Corporation on the same terms from all holders of such class of capital stock in
accordance with the terms and conditions of any stock option or employee
benefit plan of the Corporation, or (d) any purchase of capital stock of the
Corporation, where the Board of Directors has determined that the purchase
price per share of the capital stock does note exceed the fair market value of
the capital stock. Such fair market value shall be equal to the average closing
price or the mean of the bid and asked prices of a share of capital stock for
the 20 trading days immediately preceding the execution of a definitive
agreement to purchase the capital stock from a Significant Stockholder.
For purposes of this Section 10, "Significant Stockholder" shall mean
any person (other than the Corporation or any corporation of which a majority
of any class of capital stock of the Corporation is owned, directly or
indirectly, by the Corporation) that is the beneficial owner, directly or
indirectly, of five percent or more of the voting power of the outstanding
capital stock of the Corporation.
For purposes of this Section 10, "Beneficial Owner," when used with
respect to any capital stock of the Corporation, means any person that:
9
<PAGE> 10
(i) individually or with any of its Affiliates (as
hereinafter defined), beneficially owns capital stock directly or
indirectly;
(ii) individually or with any of its Affiliates, has (a)
the right to acquire capital stock (whether such right is exercisable
immediately or only after passage of time) pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise; (b) the
right to vote or direct the voting of capital stock pursuant to any
agreement, arrangement or understanding; or (c) the right to dispose
of or to direct the disposition of capital stock pursuant to any
agreement, arrangement or understanding; or
(iii) individually or with any of its Affiliates, has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of capital stock with any other person
that beneficially owns, or whose Affiliates beneficially own, directly
or indirectly, such shares of capital stock.
For purposes of this Section 10, "Affiliates" shall mean a person that
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, a specified person.
11. COMPROMISE OR ARRANGEMENT CLAUSE.
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
Section 291 of the Delaware General Corporation Law or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
Corporation under Section 279 of the Delaware General Corporation Law order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of the Corporation, as the case may be, and also on the
Corporation.
10
<PAGE> 11
12. AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or the Bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Amended and Restated Certificate of Incorporation or the Bylaws of the
Corporation), the affirmative vote of 66-2/3% of the total number of votes of
the then outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required to amend or repeal, or to adopt any provision inconsistent
with the purpose or intent of Sections 5, 7, 8, 9, and 10 hereof, and this
Section 12. Notice of any such proposed amendment, repeal or adoption shall be
contained in the notice of the meeting at which it is to be considered. Subject
to the provisions set forth herein, the Corporation reserves the right to
amend, alter, repeal or rescind any provision contained in this Amended and
Restated Certificate of Incorporation in the manner now or hereafter prescribed
by law.
13. AMENDMENT OF BYLAWS.
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors is expressly
authorized and empowered to adopt, amend and repeal the Bylaws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to amend or repeal Bylaws adopted by the Board of Directors as
provided for in this Amended and Restated Certificate of Incorporation or in
the Bylaws of the Corporation.
IN WITNESS WHEREOF, Metrocall, Inc. has caused this Amended and
Restated Certificate of Incorporation to be executed on its behalf on July 12,
1993.
METROCALL, INC.
By: /s/ HARRY L. BROCK, JR.
---------------------------
Harry L. Brock, Jr.
President
Attest:
/s/ SUZANNE S. BROCK
- --------------------
Suzanne S. Brock
Secretary
11
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
METROCALL, INC.
I, the undersigned, being the Assistant Secretary of METROCALL, INC., a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware,
DO HEREBY CERTIFY:
FIRST: That Article Four of the Certificate of Incorporation be and it
hereby is amended to read as follows:
4.1 Authorized Shares.
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 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 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.
SECOND: That the amendment was duly adopted in accordance with the
provisions of section 242 of the General Corporation Law of the State of
Delaware.
<PAGE> 2
IN WITNESS WHEREOF, I have signed this certificate this 25th day of
June, 1996.
/s/ Shirley B. White
----------------------------
Shirley B. White
<PAGE> 1
EXHIBIT 3.3
FOURTH AMENDED AND RESTATED BYLAWS
OF
METROCALL, INC.
1. OFFICES
1.1. REGISTERED OFFICE.
The initial registered office of the Corporation shall be in Dover,
Delaware, and the initial registered agent in charge thereof shall be United
States Corporation Company.
1.2. OTHER OFFICES.
The Corporation may also have offices at such other places, both within
and without the State of Delaware, as the Board of Directors may from time to
time determine or as may be necessary or useful in connection with the business
of the Corporation.
2. MEETINGS OF STOCKHOLDERS
2.1. PLACE OF MEETINGS.
All meetings of the stockholders shall be held at such place as may be
fixed from time to time by the Board of Directors.
2.2. ANNUAL MEETINGS.
The Corporation shall hold annual meetings of stockholders on the first
Wednesday in May at 11 a.m. or at such other date and time as shall be
designated from time to time by the Board of Directors, at which stockholders
shall elect directors and transact such other business as may properly be
brought before the meeting.
2.3. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or the Corporation's Amended and
Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), may be called by (a) the Chairman, (b) a majority of the
directors in office, whether or not a quorum, or (c) the holder of not less
than 85% of the
1
<PAGE> 2
total number of votes of the then outstanding shares of stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
2.4. NOTICE OF MEETINGS.
Notice of any meeting of stockholders, stating the place, date and hour
of the meeting and the purpose or purposes for which the meeting is called
shall be given to each stockholder entitled to vote at such meeting not less
than 10 days nor more than 60 days before the date of the meeting (except to
the extent that such notice is waived or is not required as provided in the
General Corporation Law of the State of Delaware (the "Delaware General
Corporation Law")). Such notice shall be given in accordance with, and shall
be deemed effective as set forth in, Section 222 (or any successor section) of
the Delaware General Corporation Law.
2.5. WAIVERS OF NOTICE.
Whenever the giving of any notice is required by statute, the
Certificate of Incorporation or these Bylaws, a waiver thereof, in writing and
delivered to the corporation, signed by the person or persons entitled to said
notice, whether before or after the event as to which such notice is required,
shall be deemed equivalent to notice. Attendance of a stockholder at a meeting
shall constitute a waiver of notice (a) of such meeting, except when the
stockholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting, and (b) of consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the stockholder objects to considering the matter at
the beginning of the meeting.
2.6. BUSINESS AT ANNUAL MEETING.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (b) otherwise properly brought before the meeting by
or at the direction of the Board of Directors or (e) otherwise properly brought
before the meeting by a stockholder.
For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary. To be timely, a stockholder's notice must be received at the
principal executive offices of the Corporation no later than the date
designated for receipt of stockholders' proposals in a prior public disclosure
made by the Corporation. If there has been no such prior public disclosure,
then to be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation not less than 60
days nor more than 90 days prior to the annual meeting; provided, however, that
in the event that less than 70 days' notice of the date of this annual meeting
is given to stockholders or prior public disclosure of the date of the meeting
is
2
<PAGE> 3
made, notice by the stockholder to be timely must be so received not later than
the close of business on the 10th day following the date on which such notice
of the date of the annual meeting was mailed or such public disclosure was
made. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reason for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder
proposing such business, (c) the class and number of shares of the Corporation
which are beneficially owned by the stockholder, (d) any material interest of
the stockholder in such business and (e) the same information required by
clauses (b), (c) and (d) above with respect to any other stockholder that, to
the knowledge of the stockholder proposing such business, supports such
proposal. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 2.6. The Chairman of an annual meeting
shall, if the facts warrant, determine and declare to the annual meeting that a
matter of business was not properly brought before its meeting in accordance
with the provisions of this Section 2.6, and if the Chairman should so
determine, the Chairman shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
2.7. LIST OF STOCKHOLDERS.
After the record date for a meeting of stockholders has been fixed, at
least 10 days before such meeting, the officer who has charge of the stock
ledger of the Corporation shall make a list of all stockholders entitled to
vote at the meeting, arranged in alphabetical order and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place in the city
where the meeting is to be held, which place is to be specified in the notice
of the meeting, or at the place where the meeting is to be held. Such list,
also shall, for the duration of the meeting, be produced and kept open to the
examination of any stockholder who is present at the time and place of the
meeting. The stock ledger of the Corporation shall be the only evidence as to
the stockholders entitled to examine the list required by Section 2.7 hereof or
to vote in person or by proxy at any meeting of stockholders.
2.8. QUORUM AT MEETINGS.
Stockholders may take action on a matter at a meeting only if a quorum
exists with respect to that matter. Except as otherwise provided by statute or
by the Certificate of Incorporation, the holders of a majority of the stock
issued and outstanding and entitled to vote at the meeting, and, who are
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business. Once a share is
represented for any purpose at a meeting (other than solely to object (a) to
holding the meeting or transacting business at the meeting or (b) to
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice), it is deemed present for
quorum purposes for the remainder of the meeting and for any adjournment of
that meeting unless a new
3
<PAGE> 4
record date is or must be set for the adjourned meeting. The holders of a
majority of the voting shares represented at a meeting, whether or not a quorum
is present, may adjourn such meeting from time to time. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at
the meeting.
2.9. VOTING AND PROXIES.
Unless otherwise provided in the Delaware General Corporation Law or in
the Certificate of Incorporation, and subject to the other provisions of these
Bylaws, each stockholder shall be entitled to one vote on each matter, in
person or by proxy, for each share of the Corporation's capital stock that has
voting power and that is held by such stockholder. No proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period. A duly executed appointment of proxy shall be irrevocable if
the appointment form states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power.
2.10. REQUIRED VOTE.
If a quorum exists, action on a matter (other than the election of
directors) is approved if the votes cast favoring the action exceed the votes
cast opposing the action, unless the Certificate of Incorporation or the
Delaware General Corporation Law requires a greater number of affirmative votes
(in which case such different requirement shall apply). Directors shall be
elected by a plurality of the votes cast by the shares entitled to vote in the
election (provided a quorum exists), and the election of directors need not be
by written ballot. The Board of Directors, in its discretion, may require that
any votes cast at such meeting shall be cast by written ballot.
2.11. ACTION WITHOUT A MEETING.
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders, and may not be effected by any consent in writing by such
stockholders, unless such written consent is unanimous, and the writing or
writings are delivered to the Corporation for inclusion in the Minute Book of
the Corporation.
2.12. INSPECTORS OF ELECTION.
The director or the person presiding at the meeting shall appoint one
or more inspectors of election and any substitute inspectors to act at the
meeting or any adjournment thereof. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according
4
<PAGE> 5
to the beat of his or her ability. The inspectors shall determine the number
of shares of stock outstanding and the voting power of each, the shares of
stock represented at the meeting, the existence of a quorum, the validity and
effect of proxies and ballots, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors,
certify their determination of the number of shares represented at the meeting,
and their count of all votes and ballots, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. The inspectors
may appoint and retain other persons or entities to assist the inspectors in
the performance of the duties of the inspectors. On request of the person
presiding at the meeting, the inspectors shall make a report in writing of any
challenge, question or matter determined by them and execute a certificate of
any fact found by them.
3. DIRECTORS
3.1. POWERS.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things, subject to
any limitation set forth in the Certificate of Incorporation, these Bylaws or
agreements among stockholders which are otherwise lawful.
3.2. NUMBER AND ELECTION.
The number of directors which shall constitute the whole board shall
not be fewer than three nor more than 11. Within the limits above specified,
the number of directors shall be determined by resolution of the Board of
Directors. Directors shall be elected only by stockholders at annual meetings
of stockholders, other than the initial board of directors and except as
provided in Section 3.3 hereof in the case of vacancies and newly created
directorships. Each director elected shall hold office for the term for which
such director is elected and until such director's successor is elected and
qualified or until such director's earlier resignation or removal.
3.3. VACANCIES.
Vacancies and newly created directorships resulting from any increase
in the authorized number of directors shall be filled, for the unexpired term,
by the concurring vote of a majority of the directors then in office, whether
or not a quorum, and any director so chosen shall hold office for the remainder
of the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified or until such director's earlier death, resignation
or removal.
5
<PAGE> 6
3.4. CLASSES; TERMS OF OFFICE.
Unless otherwise provided in the Certificate of Incorporation, the
Board of Directors shall divide the directors into three classes; and, when the
number of directors is changed, shall determine the class or classes to which
the increased or decreased number of directors shall be apportioned; provided,
however, that no decrease in the number of directors shall affect the term of
any director then in office. At each annual meeting of stockholders, directors
elected to succeed those whose terms are expiring shall be elected for a term
of office expiring at the annual meeting of stockholders held in the third year
following their election and until their respective successors are elected and
qualified, or until such director's earlier death, resignation or removal.
3.5. NOMINATION OF DIRECTORS.
Nominations of persons for election to the Board of Directors may be
made by the Board of Directors, or by any stockholder of the Corporation
entitled to vote for the election of directors at the annual meeting who
complies with the notice procedures set forth in this Section 3.5. Nominations
by stockholders shall be made pursuant to timely notice in writing to the
Secretary. To be timely, a stockholder's notice shall be received at the
principal executive offices of the Corporation no later than the date
designated for receipt of stockholders' proposals in a prior public disclosure
made by the Corporation. If there has been no such prior public disclosure,
then to be timely, a stockholders nomination must be delivered to or mailed and
received at the principal executive offices of the Corporation not less than 60
days nor more than 90 days prior to the annual meeting; provided, however, that
in the event that less than 70 days' notice of the date of the meeting is given
to stockholders or prior public disclosure of the date of the meeting is made,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, (i) the name,
age, business address and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of shares
of the Corporation which are beneficially owned by such person, and (iv) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including without limitation such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving notice (i) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
nomination, and (ii) the class and number of shares of the Corporation which
are beneficially owned by the stockholder. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 3.5. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the annual meeting that a
nomination was not made in accordance with the provisions of this Section 3.5,
and if the Chairman should so determine, the Chairman shall so declare to the
meeting and the defective nomination shall be disregarded.
6
<PAGE> 7
3.6. MEETINGS.
(a) REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board of Directors.
(b) SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by the
Chairman, the Vice Chairman or Chief Executive Officer on one day's notice to
each director, either personally or by telephone, express delivery service (so
that the scheduled delivery date of the notice is at least one day in advance
of the meeting), telegram or facsimile transmission, and on five days' notice
by mail (effective upon deposit of such notice in the mail). The notice need
not describe the purpose of a special meeting.
(c) TELEPHONE MEETINGS.
Members of the Board of Directors may participate in a meeting of the
Board of Directors by means of conference telephone or similar communications
equipment by means of which all participating directors can simultaneously hear
each other during the meeting. A director participating in a meeting by this
means is deemed to be present in person at the meeting.
(d) ACTION WITHOUT MEETING.
Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if all members of the Board
of Directors consent thereto in writing, and the writing or writings are
delivered to the Corporation for inclusion in the Minute Book of the
Corporation.
(e) WAIVER OF NOTICE OF MEETING; PRESUMPTION OF ASSENT.
A director may waive any notice required by statute, the Certificate of
Incorporation or these Bylaws before or after the date and time stated in the
notice. Except as set forth below, the waiver must be in writing, signed by
the director entitled to the notice, and delivered to the Corporation for
inclusion in the Minute Book of the Corporation. Notwithstanding the
foregoing, a director's attendance at or participation in a meeting waives any
required notice to the director of the meeting unless the director at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting and does not thereafter vote for or assent to action taken at
the meeting. A director who is present at a meeting is presumed to have
assented to any action taken unless such director enters a dissent or
abstention in the minutes of the meeting or files a written dissent to such
action no later than five days after such director
7
<PAGE> 8
receives a copy of the minutes of the meeting, provided that the right to
dissent shall not apply to a director who votes in favor of such action.
(f) QUORUM AND VOTE AT MEETINGS.
At all meetings of the Board of Directors, a quorum of the Board of
Directors consists of a majority of the total number of directors prescribed
pursuant to Section 3.2 hereof (or, if no number is prescribed, the number in
office immediately before the meeting begins). The vote of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation or by these Bylaws. In the
absence of a quorum for any meeting of the Board of Directors, a majority of
the directors present thereat may adjourn such meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present.
3.7. COMPENSATION OF DIRECTORS.
The Board of Directors shall have the authority to fix the compensation
of directors. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
4. COMMITTEES
4.1. CREATION OF COMMITTEES.
The Board of Directors may by resolution create one or more committees
including, but not limited to, an Executive Committee, and appoint members of
the Board of Directors to serve on them. The Board of Directors shall create
(a) an Audit Committee for the purpose of examining and considering matters
relating to the financial affairs of the Corporation, and (b) a Compensation
Committee for the purpose of establishing and implementing an executive
compensation policy. Each committee may have one or more members, who serve at
the pleasure of the Board of Directors, provided that the Audit Committee and
the Compensation Committee shall consist of at least a majority of non-employee
directors. The creation of a committee and appointment of members to it shall
be approved by a majority of all the directors in office when the action is
taken, whether or not a quorum. The same rules that govern meetings, action
without meetings, notice and waiver of notice, and quorum and voting
requirements of the Board of Directors apply to committees and their members as
well.
4.2. COMMITTEE AUTHORITY.
To the extent specified by the Board of Directors or in the Certificate
of Incorporation, each committee may exercise the authority of the Board of
Directors, except that a committee
8
<PAGE> 9
may not: (i) approve or recommend to stockholders action that is required by
law to be approved by stockholders; (ii) fill vacancies on the Board of
Directors or on any of its committees; (iii) amend the Certificate of
Incorporation; (iv) adopt, amend or repeal these Bylaws; (v) approve a plan of
merger not requiring stockholder approval; (vi) authorize or approve a
distribution, except according to a general formula or method prescribed by the
Board of Directors; or (vii) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except that the
Board of Directors may authorize a committee, or a senior executive officer of
the Corporation, to do so within the limits specifically prescribed by the
Board of Directors.
5. OFFICERS
5.1. POSITIONS.
The officers of the Corporation shall be a Chairman, Vice Chairman, a
Chief Executive Officer, a Chief Financial Officer, a Chief Operating Officer,
a President, a Secretary and a Treasurer, and such other officers as the Board
of Directors (or an officer authorized by the Board of Directors) from time to
time may appoint, including one or more Executive Vice Presidents, Vice
Presidents, Assistant Secretaries and Assistant Treasurers. Each such officer
shall exercise such powers and perform such duties as shall be set forth below
and such other powers and duties as from time to time may be specified by the
Board of Directors or by any officer(s) authorized by the Board of Directors to
prescribe the duties of such other officers. Any number of offices may be held
by the same person.
5.2. POWERS.
(a) Each officer shall have, in addition to the duties and powers
set forth herein, such duties and powers as are commonly incident to such
officer's office and such additional duties and powers as the Board of
Directors may from time to time authorize.
(b) Powers of attorney, proxies, waivers of notice of meetings,
consents and other instruments relating to securities or partnership interests
owned by the Corporation may be executed in the name of and on behalf of the
Corporation by the Chairman, the Chief Executive Officer or the President and
any such officer may, in the name of and on behalf of the Corporation, take all
such action as any such officer may deem advisable to vote in person or by
proxy at any meeting of security holders of any corporation in which the
Corporation may own securities, or at any meeting of any partnership in which
the Corporation owns an interest at any such meeting, and shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities or partnership interest and which, as the owner thereof, the
Corporation might have possessed and exercised if present.
9
<PAGE> 10
5.3. CHAIRMAN.
The Chairman shall (when present) preside at all meetings of the Board
of Directors and stockholders, and shall ensure that all orders and resolutions
of the Board of Directors and stockholders are carried into effect. The
Chairman may execute bonds, mortgages and other contracts, under the seal of
the Corporation, if required, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation.
5.4. VICE CHAIRMAN.
The Vice Chairman shall, in the absence of the Chairman, preside at all
meetings of the Board of Directors and stockholders and, without limiting the
foregoing, shall when serving in such capacity exercise the powers vested in
the Chairman in Sections 2.6 and 3.5. The Vice Chairman may execute bonds,
mortgages and other contracts, under the seal of the Corporation, if required,
except where required or permitted by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the Board of Directors to some other officer or agent of the Corporation.
5.5 CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer of the Corporation shall have overall
responsibility and authority for the Corporation's strategic planning and for
evaluating potential mergers and acquisitions and new business opportunities,
subject to the authority of the Board of Directors and the Management
Operations Committee. The Chief Executive Officer may execute bonds, mortgages
and other contracts, under the seal of the Corporation, if required, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the Corporation,
provided that the Chief Executive, in the absence of the President, may sign or
execute any document or instrument where the signing and execution thereof
shall be expressly delegated to the "President" of the Corporation.
5.6. CHIEF OPERATING OFFICER.
The Chief Operating Officer of the Corporation shall have overall
responsibility and authority for the technical systems, sales and marketing and
customer service operations of the Corporation, subject to the authority of the
Board of Directors and the Management Operations Committee.
5.7. CHIEF FINANCIAL OFFICER.
The Chief Financial Officer of the Corporation shall have overall
responsibility and authority for the financial affairs of the Corporation
including, without limitation, oversight of
10
<PAGE> 11
the Corporation's accounting, inventory, management information systems,
internal audit and billing functions, subject to the authority of the Board of
Directors and the Management Operations Committee.
5.8 PRESIDENT.
The President, subject to the authority of the Board of Directors, shall
have general charge and supervision of the business of the Corporation, and
shall have such duties and powers as shall be designated from time to time by
the Board of Directors. The President may execute bonds, mortgages and other
contracts, under the seal of the Corporation, if required, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the Corporation.
5.9. VICE PRESIDENT.
Any Vice President shall have such duties and powers as shall be set
forth in these Bylaws or as shall be designated from time to time by the Board
of Directors or by the Chairman, the Chief Executive Officer or the President.
Any Vice President may execute bonds, mortgages and other documents under the
seal of the Corporation, except where required or permitted by law to be
otherwise executed and except where the execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
Corporation.
5.10. SECRETARY.
The Secretary shall have responsibility for preparation of minutes of
meetings of the Board of Directors and of the stockholders and for
authenticating records of the Corporation. The Secretary shall give, or cause
to be given, notice of all meetings of the stockholders and special meetings of
the Board of Directors. The Secretary or an Assistant Secretary also may
attest all instruments signed by any other officer of the Corporation.
5.11. ASSISTANT SECRETARY.
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors (or if there
shall have been no such determination, then in the order of their election),
shall, in the absence of the Secretary or in the event of the Secretary's
inability or refusal to act, perform the duties and exercise the powers of the
Secretary.
5.12. TREASURER.
The Treasurer shall have responsibility for the custody of the corporate
funds and securities and shall see to it that full and accurate accounts of
receipts and disbursements are kept in books belonging to the Corporation. The
Treasurer shall render to the Chairman, the Vice Chairman, the Chief Executive
Officer, the President, the Vice President, and the Board of
11
<PAGE> 12
Directors, upon request, an account of all financial transactions and of the
financial condition of the Corporation.
5.13. ASSISTANT TREASURER.
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors (or if
there shall have been no such determination, than in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer.
5.14. MANAGEMENT OPERATIONS COMMITTEE.
The Management Operations Committee shall be comprised of the Vice
Chairman, who shall serve as the Chairman of such Committee, the Chief
Executive Officer, the Chief Operating Officer and the Chief Financial Officer.
The responsibilities of the Management Operations Committee shall include
development of a business plan of the Corporation which addresses acquisition,
strategies, the integration of the businesses of the Corporation and that of
any acquired entities, including FirstPAGE USA, Inc. and MetroPaging, Inc.
(formerly AllCity Paging, Inc.), development of a strategy for exploitation of
nationwide licenses held by the Corporation, development of sales, marketing
and distribution strategies of the Corporation, coordination of the integrated
management and daily operations of the Corporation and in general recommend to
the Board of Directors of such other initiatives as the Management Operations
Committee considers appropriate to further the growth and successful operations
of the Corporation, subject to the authority of the Board of Directors.
5.15. TERM OF OFFICE.
The officers of the Corporation shall hold office until their successors
are chosen and qualified or until their death, earlier resignation or removal.
Any officer may resign at any time upon written notice to the Corporation. Any
officer elected or appointed by the Board of Directors may be removed at any
time, with or without cause, by the affirmative vote of a majority of the Board
of Directors
5.16. COMPENSATION.
The compensation of officers of the Corporation shall be fixed by the
Compensation Committee of the Board of Directors.
5.17. FIDELITY BONDS.
The Corporation may secure the fidelity of any or all of its officers
or agents by bond or otherwise.
12
<PAGE> 13
6. CAPITAL STOCK.
6.1. CERTIFICATES OF STOCK; UNCERTIFICATED SHARES.
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors may provide by resolution that some or all
of any or all classes or series of the Corporation's stock shall be
uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates, and upon request
every holder of uncertificated shares, shall be entitled to have a certificate
(representing the number of shares registered in certificate form) signed in
the name of the Corporation by the Chairman, the Vice Chairman, the Chief
Executive Officer, the President, or any Vice President, and by the Treasurer,
Secretary or any Assistant Treasurer or Assistant Secretary. Any or all the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar whose signature or facsimile signature appears on a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
6.2. LOST CERTIFICATES.
The Board of Directors, Chairman, Vice Chairman, Chief Executive
Officer, President or Secretary may direct a new certificate of stock to be
issued in place of any certificate theretofore issued by the Corporation and
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming that the certificate of stock has been
lost, stolen or destroyed. When authorizing such issuance of a new
certificate, the Board of Directors or any such officer may, as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or such owner's legal representative, to
advertise the same in such manner as the Board of Directors or such officer
shall require and/or to give the Corporation a bond, in such sum as the Board
of Directors or such officer may direct, as indemnity against any claim that
may be made against the Corporation on account of the certificate alleged to
have been lost, stolen or destroyed or an account of the issuance of such new
certificate or uncertified shares.
6.3. RECORD DATE.
(a) ACTIONS BY STOCKHOLDERS.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders (or to take any other
action), the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors and shall not be less than 10 nor more than
60 days before the meeting or action requiring a determination of stockholders.
13
<PAGE> 14
In order that the Corporation may determine the stockholders entitled to
consent to corporate action without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting, unless the Board of Directors fixes a new record date.
If no record date is fixed by the Board of Directors, the record date
shall be at the close of business on the day next preceding the day on which
the notice is given, or if notice is not required or is waived, at the close of
business on the day next preceding the day on which the meeting is held or such
other action is taken, except that (if no record date is established by the
Board of Directors) the record date for determining stockholders entitled to
consent to corporate action without a meeting is the first date on which a
stockholder delivers a signed written consent to the Corporation for inclusion
in the Minute Book of the Corporation.
(b) PAYMENTS.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
(c) STOCKHOLDERS OF RECORD.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, to
receive notifications, to vote as such owner, and to exercise all the rights
and powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise may be provided by the Delaware General Corporation Law.
7. INSURANCE
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation
(or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another
14
<PAGE> 15
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) against liability asserted against or incurred by such person in
such capacity or arising from such person's status as such (whether or not the
corporation would have the power to indemnify such person against the same
liability).
8. INDEMNIFICATION
8.1. INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN
THOSE BY OR IN RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether criminal, administrative or investigative) by
reason of fact that such person is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner which 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, had no
reasonable cause to believe that such conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create
a presumption that the person did not act in good faith and in a manner which
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, had
unreasonable cause to believe that such conduct was unlawful.
(b) This Corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative
or investigative) by reason of the fact that such person is or was an employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, if such person acted in good faith and in a manner which
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, had
no reasonable cause to believe that such conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which 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, had reasonable cause to believe that such conduct was unlawful.
15
<PAGE> 16
8.2. INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION.
(a) The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that such person is or
was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit if such person acted in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation. No such indemnification shall be made 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 only to the extent that the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper.
(b) The Corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that such person is or
was an employee or agent of the Corporation, or is or was serving at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit if such person acted in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation. No such indemnification shall be made 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 only to the extent that the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper.
8.3. AUTHORIZATION OF INDEMNIFICATION.
Any indemnification under this Section 8 shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person or persons have met the applicable standard
of conduct set forth in Sections 8.1 and 8.2 hereof. Such determination shall
be made (a) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel, in a written
opinion, or (c) by a majority of the stockholders entitled to vote generally in
the election of directors.
16
<PAGE> 17
8.4. ADVANCEMENT OF EXPENSES.
The Corporation may advance expenses (including attorneys' fees)
incurred by a director or officer in advance of the final disposition of such
action, suit or proceeding upon the receipt of an undertaking by or on behalf
of the director or officer to repay such amount if it shall ultimately be
determined that such director or officer is not entitled to indemnification.
The Corporation may advance expenses (including attorneys' fees)
incurred by any employee or agent in advance of the final disposition of such
action, suit or proceeding upon such terms and condition, if any, as the Board
of Directors deems appropriate.
9. GENERAL PROVISIONS
9.1. INSPECTION OF BOOKS AND RECORDS.
Any stockholder, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during
the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records, and to make copies or extracts therefrom. A proper purpose shall mean
a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act an behalf of the stockholder. The demand under oath shall be
directed to the Corporation at its registered office or at its principal place
of business.
9.2. DIVIDENDS.
The Board of Directors may declare dividends upon the capital stock of
the Corporation, subject to the provisions of the Certificate of Incorporation
and the laws of the State of Delaware.
9.3. RESERVES.
The Board of Directors may set apart, out of the funds of the
Corporation available for dividends, a reserve or reserves for any proper
purpose and may abolish any such reserve.
9.4. EXECUTION OF INSTRUMENTS.
All checks, drafts or other orders for the payment of money, and
promissory notes of the Corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
17
<PAGE> 18
9.5. FISCAL YEAR.
The fiscal year of the Corporation shall begin on January 1 and end on
December 31.
9.6. SEAL.
The corporate seal shall be in such form as the Board of Directors
shall approve. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
10. AMENDMENTS TO BYLAWS
The Board of Directors may from time to time adopt, amend and repeal
these Bylaws. Such action by the Board of Directors shall require the
affirmative vote of at least a majority of the directors then in office. If
stockholders are entitled to vote with respect thereto to amend or repeal
Bylaws adopted by the Board of Directors as may be provided in the Certificate
of Incorporation or by law, then the affirmative vote of 66-2/3% of the total
number of votes of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required for the amendment or repeal of
Bylaws by the stockholders of the Corporation.
18
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of May 15, 1996 (the "Agreement")
is made by and between Metrocall, Inc., a Delaware corporation (the "Company")
and VINCENT D. KELLY (the "Executive"). The employment agreement between the
Company and the Executive dated as of June 1, 1993 and amended as of January 1,
1996 is hereby canceled and replaced with this Agreement.
WHEREAS, in consideration of the Executive's service to the Company as
Chief Financial Officer of the Company and the Executive's agreement not to
compete with the Company, the Company and the Executive desire to enter into
this Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements set forth in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. Employment. The Company agrees to continue to employ the Executive
and the Executive agrees to remain employed by the Company as the
Chief Financial Officer of the Company based upon the terms and
conditions set forth in this Agreement, for the period of time
specified in Section 3. In such position, the Executive shall report
directly to the Chief Executive Officer.
2. Duties and Authority. During the term of this Agreement, as Chief
Financial Officer of the Company, under the direction and subject to
the control of the Chief Executive Officer, the Executive shall be
responsible for the financial operations of the Company and shall have
general executive charge, management, and control of financial
management of the Company, with all such powers and authority with
respect to such business, affairs, properties, and operations as may
be reasonably incident to such duties and responsibilities. During
the term of this Agreement, the Executive shall have such powers,
authority, functions, and responsibilities for the Company and
corporations affiliated with the Company as he possessed as of May 1,
1996 and such additional duties, powers, authority, functions, and
responsibilities as the Chief Executive Officer shall assign to him
that do not (except with the Executive's consent) interfere with, or
detract from, those vested in or being performed by the Executive for
the Company as of the beginning of the term of this Agreement. The
Executive shall devote the Executive's
<PAGE> 2
reasonable best efforts and full business time to the performance of
the Executive's duties and the advancement of the business and affairs
of the Company.
3. Term. The term of this Agreement and the period of employment of the
Executive by the Company hereunder shall commence on the date of this
Agreement and shall end on December 31, 1999; provided, however, that
the term shall be automatically extended for additional one (1) year
periods on each anniversary date of this Agreement, unless and until
either party notifies the other party not less than ninety (90) days
before such anniversary date that such party is terminating this
Agreement, which termination shall be effective as of the end of such
initial term or extended term, as the case may be (the "Expiration
Date"), or until sooner terminated as hereinafter set forth.
4. Salary and Expenses.
(a) In consideration for the Executive's services, the Company
shall pay to the Executive an annual base salary (the "Base
Salary") equal to Two Hundred Twenty-Five Thousand Dollars
($225,000). The Base Salary shall be payable biweekly or in
such other installments as shall be consistent with the
Company's payroll procedures. The Company shall deduct and
withhold all necessary social security and withholding taxes
and any other similar sums required by law or authorized by
the Executive with respect to the payment of the Base Salary.
The Board shall review the Executive's salary annually before
December 31 and may increase, but not decrease, his Base
Salary in any renewal, extension, or replacement of this
Agreement. The Company shall review the appropriateness of
creating additional forms of nonqualified executive
compensation to cover the Executive.
(b) To the maximum extent permitted by applicable state and
federal law, the Executive shall be eligible, at no cost to
the Executive, to participate in all of the Company's benefit
plans, including fringe benefits available to the Company's
senior executives and use of an automobile suitable for a
senior executive of a public company.
-2-
<PAGE> 3
(c) The Executive shall be entitled to (i) time off for all public
holidays observed by the Company and (ii) vacation days in
accordance with the applicable policies for the Company's
senior executives.
(d) The Company shall reimburse the Executive for all reasonable
expenses the Executive incurs in accordance with the
guidelines adopted from time to time by the Company.
5. Confidential Information.
(a) The Executive covenants and agrees that the Executive will not
at any time, without the prior written consent of the Board or
a person authorized by the Board, publish or disclose to any
third party, use for the Executive's own benefit or advantage,
or make available for others to use, any confidential
information with respect to any of the Company's products,
services, subscribers, suppliers, marketing techniques,
methods, or future plans disclosed to the Executive as a
result of the Executive's employment with the Company, to the
extent such information has heretofore remained confidential
(except for unauthorized disclosures) and except as otherwise
ordered by a court of competent jurisdiction.
(b) The Executive acknowledges that the restrictions contained in
Section 5(a) are reasonable and necessary, in view of the
nature of the Company's business, in order to protect the
legitimate interests of the Company, and that any violation
thereof would result in irreparable injury to the Company.
Therefore, the Executive agrees that in the event of a breach
or threatened breach by the Executive of the provisions of
Section 5(a), the Company shall be entitled to obtain from any
court of competent jurisdiction, preliminary or permanent
injunctive relief restraining the Executive from disclosing or
using any such confidential information. Nothing herein shall
be construed as prohibiting the Company from pursuing any
other remedies available to it for such breach or threatened
breach, including, without limitation, recovery of damages
from the Executive.
6. Covenant Not to Compete. The Executive agrees that, through
the position of Chief Financial Officer, the Executive has
established valuable and recognized expertise in the
-3-
<PAGE> 4
paging business and has had and will have access to the trade secrets
and confidential information of the Company. The Executive hereby
enters into a covenant restricting the Executive from soliciting
employees of the Company and from competing against the Company (the
"Covenant Not to Compete") upon the terms and conditions described
below:
(a) During the Executive's employment and for twelve (12) months
thereafter, the Executive agrees that the Executive will not,
without the prior written consent of the Company:
(i) induce or attempt to induce any of the Company's
employees to terminate their employment with the
Company in order to become an director, officer,
employee, consultant, or independent contractor to or
for any enterprise with which the Executive has an
interest, whether as a proprietor, partner,
shareholder, employee, agent, director, or officer;
(ii) at any time and in any state or other jurisdiction in
the United States in which the Company is engaged in
business or, during the Executive's employment, has
developed plans to engage in business: (1) engage in,
including as a director, agent, or representative, or
have any direct or indirect financial interest
(whether as a partner, shareholder, or owner) in any
enterprise that engages in, the business of owning
and operating one-way paging and wireless messaging
networks, voice mail services or data transmitting
services (the "Business"); or (2) participate as an
employee or officer in any enterprise in which the
Executive's responsibility relates to the Business.
The ownership by the Executive of less than five
percent (5%) of the outstanding equity securities of
any corporation, partnership, limited liability
company, trust, or other entity shall not be deemed a
violation of this Section 6(a)(ii).
(iii) solicit or cause or encourage any person to solicit
any Business in competition with the Company from any
person who is a client of the Company during the
Executive's employment hereunder.
-4-
<PAGE> 5
(b) The Executive agrees that the restrictions set forth in this
Section 6 are reasonable, proper, and necessitated by
legitimate business interests of the Company and do not
constitute an unlawful or unreasonable restraint upon the
Executive' ability to earn a livelihood. The parties agree
that in the event any of the restrictions in this Agreement,
interpreted in accordance with the Agreement as a whole, are
found to be unreasonable a court of competent jurisdiction,
such court shall determine the limits allowable by law and
shall enforce the same.
(c) The Executive further acknowledges that it may be impossible
to assess the monetary damages incurred by the Executive's
violation of this Agreement, and that violation of this
Agreement will cause irreparable injury to the Company.
Accordingly, the Executive agrees that the Company will be
entitled, in addition to all other rights and remedies that
may be available, to an injunction enjoining and restraining
the Executive and any other involved party from committing a
violation of this Agreement. In addition, the Company will be
entitled to such damages as it can demonstrate it has
sustained by reason of the violation of this Agreement by the
Executive and/or others. However, recourse to any remedy
hereunder shall not constitute an exclusive remedy for the
Company, but rather the Company may resort to other remedies
or a combination of remedies as it may choose. The Executive
and the Company also agree in the event that either party is
successful in whole or in part in any legal action against the
other party under this Agreement, that the successful party
will be entitled to payment of all costs, including reasonable
attorney's fees, from the other party.
7. Termination. Notwithstanding any other provision of this Agreement,
this Agreement shall terminate upon the death of the Executive, or it
may be terminated with thirty (30) days' written notice as follows:
(a) The Company may terminate this Agreement under the following
circumstances:
(i) if the Executive is unable to perform any services by
reason of illness, physical, or mental disability, or
other similar incapacity ("Disability") that
continues for more than six (6) consecutive months;
-5-
<PAGE> 6
(ii) or for "Cause." For purposes of this Agreement,
"Cause" means (A) dishonesty of a material nature
that relates to the performance of services under
this Agreement, (B) criminal conduct (other than
minor infractions and traffic violations) that
relates to the performance of services under this
Agreement, or (C) the Executive's willfully breaching
or failing to perform his duties as described in
Section 2 hereof, which act or omission results in a
material adverse effect on the Company. No act or
failure to act on the Executive's part shall be
deemed "willful" unless done, or omitted to be done,
by the Executive not in good faith and without
reasonable belief that such action or omission was in
the best interests of the Company. Notwithstanding
the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless and until there
shall have been delivered to the Executive a
certificate of a resolution duly adopted by the
affirmative vote of not less than seventy-five
percent (75%) of the entire membership of the Board
at a meeting of the Board called and held for such
purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board),
finding that in the good faith opinion of the Board,
the Executive has engaged in the conduct set forth in
this paragraph and specifying the particulars thereof
in detail.
(b) The Executive may terminate this Agreement at any time upon
sixty (60) days' prior written notice.
(c) Any purported termination of the Executive's employment by the
Company or by the Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance
with Section 9. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice that shall indicate the
specific provision of this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's
employment under the provision so indicated.
-6-
<PAGE> 7
8. Compensation Upon Termination.
(a) Death. If the Executive's employment is terminated by the
Executive's death, the Company shall pay to the Executive's
estate, or as may be directed by the legal representatives to
such estate, (i) the Executive's full Base Salary through the
Executive's date of death and all other unpaid amounts, if
any, to which the Executive is entitled as of the Executive's
date of death, under any Company fringe benefit or incentive
compensation plan or program, at the time such payments would
otherwise ordinarily be due; and (ii) the Executive's full
Base Salary that would have been payable to the Executive from
the Executive's date of death through the Expiration Date, in
a lump sum within forty-five (45) days after his death.
(b) Disability. During any period that the Executive fails to
perform the Executive's duties hereunder as a result of
incapacity due to Disability (the "Disability Period"), the
Executive shall continue to receive (i) the Executive's full
Base Salary through the Executive's date of disability and all
other unpaid amounts, if any, to which the Executive is
entitled as of the Executive's date of disability, under any
Company fringe benefit or incentive compensation plan or
program, at the time such payments are due; and (ii) the
Executive's full Base Salary that would have been payable to
the Executive from the Executive's date of disability through
the Expiration Date, at the time such payments would otherwise
ordinarily be due; provided, however, that any payments made
to the Executive during the Disability Period shall be reduced
by any amounts paid or payable to the Executive under any
Company disability benefit plans.
(c) For Cause. If the Company terminates the Executive's
employment for Cause, the Company shall pay the Executive's
full Base Salary through the date specified in the Notice of
Termination and the Company shall have no further obligations
to the Executive under this Agreement.
(d) Voluntary. If the Executive terminates his employment for
other than Good Reason, the Company shall pay the Executive
the Executive's full Base Salary through the date specified in
the Notice of Termination and from the date of termination
through the earlier of (I) one (1) year from the date of
termination or
-7-
<PAGE> 8
(ii) the Expiration Date, at the time such payments would
otherwise ordinarily be due.
"Good Reason" means the occurrence, without the Executive's
express written consent, of any of the following circumstances:
(i) the Company's failure to perform or observe
any of the material terms or provisions of
this Agreement or of the Metrocall, Inc.
Change of Control Agreement for Chief
Financial Officer dated of even date herewith
(the "Change of Control Agreement"), and the
continued failure of the Company to cure such
default within fifteen (15) days after the
Executive gives a written demand for
performance to the Company, which demand
shall describe specifically the nature of
such alleged failure to perform or observe
such material terms or provisions;
(ii) the assignment to the Executive of any duties
inconsistent with, or any substantial
diminution in, such Executive's status or
responsibilities as in effect on the date
hereof, including imposition of travel
obligations that differ materially from
required business travel as of the date
hereof;
(iii) any diminution in the status or
responsibilities of the Executive's position
from that which existed as of the date
hereof, whether by reason of the Company's
ceasing to be a public company under the
Securities Exchange Act of 1934, becoming a
subsidiary of a successor public company, or
otherwise;
(iv) (I) a reduction in the Executive's Base
Salary as in effect on the date hereof, as
that amount may be increased from time to
time; or (II) the failure to pay a bonus
award to which the Executive is otherwise
entitled under any short-term incentive plan
in which the Executive then participates, at
the time such awards are usually paid;
-8-
<PAGE> 9
(v) the termination of employment of William L.
Collins, III or Steven D. Jacoby (other than
a termination (I) by the Company for "Cause"
or (II) because of death or "Disability" as
those terms are defined in their respective
employment agreements), including a
termination that results from a failure by
the Company and Collins or Jacoby to reach
agreement to continue Collins' or Jacoby's
employment on terms at least as favorable to
him, in the aggregate, as those in effect
when his then existing employment agreement
expired;
(vi) a change in the principal place of the
Executive's employment, as in effect on the
date hereof, or as in effect after any
subsequent change to which the Executive
consented in writing, to a location more than
thirty-five (35) miles distant from the
location of such principal place;
(vii) (I) the Company's failure to continue in
effect any incentive compensation plan or
stock option plan in which the Executive
participates, unless the Company has provided
an equivalent alternative compensation
arrangement (embodied in an ongoing
substitute or alternative plan) to the
Executive, or (II) the Company's failure to
continue the Executive's participation in any
such incentive or stock option plan on
substantially the same basis, both in terms
of the amount of benefits provided and the
level of the Executive's participation
relative to other participants, as of the
date hereof or as of any succeeding December
31;
(viii) the Company's violation of any applicable
criminal law not due to the Executive's gross
negligence or willful misconduct;
(ix) the failure of the Company or any successor
to obtain a satisfactory written agreement
from any successor to assume and agree to
perform this Agreement, as contemplated in
Section 12 below; or
-9-
<PAGE> 10
(x) any purported termination of the Executive's
employment that is not effected pursuant to a
Notice of Termination satisfying the
requirements of Sections 7(a)(ii) and 7(c) as
applicable. For purposes of this Agreement,
no such purported termination shall be
effective except as constituting Good Reason.
The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any
circumstances constituting Good Reason hereunder.
(e) Other. Except as otherwise provided in Section 8(f) for
terminations after a Change in Control, if the Company
terminates the Executive's employment other than for Cause or
Disability (under Section 8(b) hereof), or if the Executive
terminates employment with the Company for Good Reason, the
Company shall pay the Executive
(i) the Executive's full Base Salary through the date
specified in the Notice of Termination within two (2)
days after such date and all other unpaid amounts, if
any, to which the Executive is entitled as of the
date specified in the Notice of Termination, under
any Company fringe benefit or incentive compensation
plan or program, at the time such payments are due;
(ii) the full Base Salary and any other amounts that would
have been payable to the Executive hereunder from the
date specified in the Notice of Termination through
the Expiration Date within forty-five (45) days after
such date; and
(iii) in lieu of exercising or retaining any rights the
Executive may have to exercise some or all of the
outstanding stock options that he then holds
(including any rights to exercise stock options that
arise during the Term if he were to remain employed
and including any that would otherwise terminate as
result of his termination of employment), the
Executive may elect within sixty (60) days after
termination of employment to surrender such rights to
the Company and receive in exchange therefor a cash
payment equal to the aggregate difference, if
positive, between (a) the
-10-
<PAGE> 11
"fair market value" (determined as of the date of
termination using the higher of the "fair market
value" (i) as defined in the terms of the applicable
option plan or option agreement as of the date of
termination and (ii) as defined in the plan or
agreement on the date of grant) of the shares of
common stock subject to the options and (b) the
option prices of the shares subject to such
surrendered options; and the Company shall make such
payment within forty-five (45) days after the
Executive notifies the Company of his election to
surrender all or a portion of his options.
(f) Termination of Employment after a Change in Control. If,
after a Change of Control (as defined in the Change of Control
Agreement), the Company terminates the Executive's employment
other than for Cause or Disability, or if the Executive
terminates employment with the Company for Good Reason after a
Change of Control, Executive's compensation and benefits shall
be exclusively determined by the terms of the Change of
Control Agreement as then in effect.
(g) Mitigation. The Executive shall not be required to mitigate
amounts payable pursuant to this section by seeking other
employment or otherwise.
9. Notices. All notices, demands, requests, or other communications
required or permitted to be given or made hereunder shall be in
writing and shall be delivered, telecopied, or mailed by first class
registered or certified mail, postage prepaid, addressed as follows:
(a) if to the Company:
Metrocall, Inc.
6677 Richmond Highway
Alexandria, Virginia 22306
Telecopier: (703) 768-5407
Attention: Francis A. Martin, III
-11-
<PAGE> 12
with a copy (which shall not constitute notice) to
Wilmer, Cutler & Pickering
2445 M Street, NW
Washington, DC 20037-1420
Telecopier: (202) 663-6363
Attention: George P. Stamas and John B. Watkins
(a) if to the Executive:
Vincent D. Kelly
11807 Chapel Road
Clifton, VA 22024
or to such other address as may be designated by either party in a
notice to the other. Each notice, demand, request, or other
communication that shall be given or made in the manner described
above shall be deemed sufficiently given or made for all purposes
three (3) days after it is deposited in the U.S. mail, postage
prepaid, or at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, the answer back or the affidavit
of messenger being deemed conclusive evidence of such delivery) or at
such time as delivery is refused by the addressee upon presentation.
10. Severability. The invalidity or unenforceability of any one or more
provisions of this Agreement shall not affect the validity or
enforceability of the other provisions of this Agreement, which shall
remain in full force and effect.
11. Survival. It is the express intention and agreement of the parties
that the provisions of Section 5 shall survive three (3) years after
the termination of this Agreement.
12. Assignment; Successors. The rights and obligations of the parties to
this Agreement shall not be assignable, except that the rights and
obligations of the Company hereunder shall be assignable in connection
with any subsequent merger, consolidation, sale of substantially all
of the assets of the Company, or similar reorganization of a
successor. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company is required to perform
it. Failure
-12-
<PAGE> 13
of the Company to obtain such assumption and agreement before the
effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the
Company as provided in Section 6 of the Change of Control Agreement.
13. Binding Effect. Subject to any provisions restricting assignment,
this Agreement shall be binding upon the parties and shall inure to
the benefit of the parties and their respective heirs, devisees,
executors, administrators, legal representatives, successors, and
assigns.
14. Amendment; Waiver. This Agreement shall not be amended, altered or
modified except by an instrument in writing duly executed by the both
parties. Neither the waiver by either of the parties of a breach of
or a default under any of the provisions of this Agreement, nor the
failure of either of the parties, on one or more occasions, to enforce
any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall thereafter be construed as a waiver of any
subsequent breach or default of a similar nature, or as a waiver of
any such provisions, rights, or privileges.
15. Headings. Section headings contained in this Agreement are inserted
for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction, or scope of any of the provisions of
this Agreement.
16. Governing Law. This Agreement, the rights and obligations of the
parties, and any claims or disputes arising from this Agreement, shall
be governed by and construed in accordance with the laws of the
Commonwealth of Virginia (but not including the choice of law rules
thereof).
17. Entire Agreement. This Agreement and the Change of Control Agreement
constitute the entire agreement between the parties with respect to
the subject matter hereof and thereof, and supersede all prior oral or
written agreements, commitments, or understandings with respect to the
matters provided for in this Agreement and the Change of Control
Agreement.
18. Arbitration. The Executive may designate in writing to the Company (in
which case this Section 18 shall have effect but not otherwise) that
any dispute that may arise directly or
-13-
<PAGE> 14
indirectly in connection with this Agreement, the Executive's
employment, or the termination of the Executive's employment, whether
arising in contract, statute, tort, fraud, misrepresentation, or other
legal theory, shall be determined solely by arbitration in Washington,
D.C. under the rules of the American Arbitration Association (the
"AAA"). The only legal claims between the Executive, on the one hand,
and the Company or any Subsidiary, on the other, that would not be
included in this agreement to arbitration are claims by the Executive
for workers' compensation or unemployment compensation benefits,
claims for benefits under a Company or Subsidiary benefit plan if the
plan does not provide for arbitration of such disputes, and claims by
the Executive that seek judicial relief in the form of specific
performance of the right to be paid until the termination date during
the pendency of any dispute or controversy arising under Section
7(a)(ii). If this Section 18 is in effect, any claim with respect to
this Agreement, the Executive's employment, or the termination of the
Executive's employment must be established by a preponderance of the
evidence submitted to the impartial arbitrator. A single arbitrator
engaged in the practice of law shall conduct any arbitration under the
then current procedures of the AAA and under the AAA's then current
Model Employment Arbitration Rules. The arbitrator shall have the
authority to order a pre-hearing exchange of information by the
parties including, without limitation, production of requested
documents, and examination by deposition of parties and their
authorized agents. If this Section 18 is in effect, the decision of
the arbitrator (i) shall be final and binding, (ii) shall be rendered
within ninety (90) days after the impanelment of the arbitrator, and
(iii) shall be kept confidential by the parties to such arbitration.
The arbitration award may be enforced in any court of competent
jurisdiction. The Federal Arbitration Act, 9 U.S.C. Section Section
1-15, not state law, shall govern the arbitrability of all claims.
19. Cancellation of Previous Agreements. In consideration of this
Agreement, the Executive hereby waives any and all rights under and
releases, and indemnifies and holds the Company and its successors and
assigns, harmless from any damage, loss, liability, judgment, fine,
penalty, assessment, settlement, cost, or expense including, without
limitation, reasonable expenses of investigation, reasonable
attorneys' fees and other reasonable legal costs and expenses incident
to any of the foregoing or to the enforcement of this Section, whether
or not suit is brought or, if brought, whether or not such suit is
successful, in whole or in part arising out of or relating to any and
all employment, consulting, non-competition, bonus, or other
compensatory plan, program,
-14-
<PAGE> 15
arrangement, or contract relating to the employment of the Executive,
written or oral, between the Executive and the Company or any person
affiliated with the Company, and the Executive consents to the
termination of each such agreement and arrangement effective as of the
date of this Agreement; provided, however, that nothing herein shall
constitute a termination or waiver of the Change of Control Agreement.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which
shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed, on their behalf as of the
day and year first hereinabove written.
<TABLE>
<S> <C> <C>
METROCALL, INC.
Date: May 15, 1996 By: /s/ Richard D. Johnston
------------ -----------------------
Richard D. Johnston
Chairman of the Board
Date: May 15, 1996 /s/ Vincent D. Kelly
------------ --------------------
Vincent D. Kelly
| | Executive's Copy
--
| | Company's Copy
--
</TABLE>
-15-
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of May 15, 1996 (the "Agreement")
is made by and between Metrocall, Inc., a Delaware corporation (the "Company")
and WILLIAM L. COLLINS, III (the "Executive"). The employment agreement
between the Company and the Executive dated as of January 16, 1996 is hereby
canceled and replaced with this Agreement.
WHEREAS, in consideration of the Executive's service to the Company as
President and Chief Executive Officer of the Company and the Executive's
agreement not to compete with the Company, the Company and the Executive desire
to enter into this Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements set forth in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. Employment. The Company agrees to continue to employ the Executive
and the Executive agrees to remain employed by the Company as the
President and Chief Executive Officer of the Company based upon the
terms and conditions set forth in this Agreement, for the period of
time specified in Section 3. In such position, the Executive shall
report directly and exclusively to the Board of Directors of the
Company (the "Board").
2. Duties and Authority. During the term of this Agreement, as President
and Chief Executive Officer of the Company, under the direction and
subject to the control of the Board (which direction shall be such as
is customarily exercised over a chief executive officer of a public
company), the Executive shall be responsible for the business,
affairs, properties, and operations of the Company and shall have
general executive charge, management, and control of the Company, with
all such powers and authority with respect to such business, affairs,
properties, and operations as may be reasonably incident to such
duties and responsibilities. During the term of this Agreement, the
Executive shall have such powers, authority, functions, and
responsibilities for the Company and corporations affiliated with the
Company as he possessed as of May 1, 1996 and such additional duties,
powers, authority, functions, and responsibilities as the Board (and
not a committee thereof) shall assign to him that do not (except with
the Executive's consent)
<PAGE> 2
interfere with, or detract from, those vested in or being performed by
the Executive for the Company as of the beginning of the term of this
Agreement. The Executive shall devote the Executive's reasonable best
efforts and full business time to the performance of the Executive's
duties and the advancement of the business and affairs of the Company.
3. Term. The term of this Agreement and the period of employment of the
Executive by the Company hereunder shall commence on the date of this
Agreement and shall end on December 31, 1999; provided, however, that
the term shall be automatically extended for additional one (1) year
periods on each anniversary date of this Agreement, unless and until
either party notifies the other party not less than ninety (90) days
before such anniversary date that such party is terminating this
Agreement, which termination shall be effective as of the end of such
initial term or extended term, as the case may be (the "Expiration
Date"), or until sooner terminated as hereinafter set forth.
4. Salary and Expenses.
(a) In consideration for the Executive's services, the Company
shall pay to the Executive an annual base salary (the "Base
Salary") equal to Three Hundred Thousand Dollars ($300,000).
The Base Salary shall be payable biweekly or in such other
installments as shall be consistent with the Company's payroll
procedures. The Company shall deduct and withhold all
necessary social security and withholding taxes and any other
similar sums required by law or authorized by the Executive
with respect to the payment of the Base Salary. The Board
shall review the Executive's salary annually before December
31 and may increase, but not decrease, his Base Salary in any
renewal, extension, or replacement of this Agreement. The
Company shall review the appropriateness of creating
additional forms of nonqualified executive compensation to
cover the Executive.
(b) To the maximum extent permitted by applicable state and
federal law, the Executive shall be eligible, at no cost to
the Executive, to participate in all of the Company's benefit
plans, including fringe benefits available to the Company's
senior executives and use of an automobile suitable for the
chief executive officer of a public company.
-2-
<PAGE> 3
(c) The Company shall pay any premiums due and payable on the
Executive's whole life policy in effect on the date of this
Agreement (or such other policy as the Executive and the
Company agree shall be substituted for that policy) between
the date of this Agreement and the Expiration Date
(d) The Executive shall be entitled to (i) time off for all public
holidays observed by the Company and (ii) vacation days in
accordance with the applicable policies for the Company's
senior executives.
(d) The Company shall reimburse the Executive for all reasonable
expenses the Executive incurs in accordance with the
guidelines adopted from time to time by the Company.
5. Confidential Information.
(a) The Executive covenants and agrees that the Executive will not
at any time, without the prior written consent of the Board or
a person authorized by the Board, publish or disclose to any
third party, use for the Executive's own benefit or advantage,
or make available for others to use, any confidential
information with respect to any of the Company's products,
services, subscribers, suppliers, marketing techniques,
methods, or future plans disclosed to the Executive as a
result of the Executive's employment with the Company, to the
extent such information has heretofore remained confidential
(except for unauthorized disclosures) and except as otherwise
ordered by a court of competent jurisdiction.
(b) The Executive acknowledges that the restrictions contained in
Section 5(a) are reasonable and necessary, in view of the
nature of the Company's business, in order to protect the
legitimate interests of the Company, and that any violation
thereof would result in irreparable injury to the Company.
Therefore, the Executive agrees that in the event of a breach
or threatened breach by the Executive of the provisions of
Section 5(a), the Company shall be entitled to obtain from
any court of competent jurisdiction, preliminary or permanent
injunctive relief restraining the Executive from disclosing
or using any such confidential information. Nothing herein
shall be construed as prohibiting the Company from pursuing
any other remedies available to it for such breach or
-3-
<PAGE> 4
threatened breach, including, without limitation, recovery of
damages from the Executive.
6. Covenant Not to Compete. The Executive agrees that, through the
position of President and Chief Executive Officer, the Executive has
established valuable and recognized expertise in the paging business
and has had and will have access to the trade secrets and confidential
information of the Company. The Executive hereby enters into a
covenant restricting the Executive from soliciting employees of the
Company and from competing against the Company (the "Covenant Not to
Compete") upon the terms and conditions described below:
(a) During the Executive's employment, the Executive agrees that
the Executive will not, without the prior written consent of
the Company:
(i) induce or attempt to induce any of the Company's
employees to terminate their employment with the
Company in order to become an director, officer,
employee, consultant, or independent contractor to or
for any enterprise with which the Executive has an
interest, whether as a proprietor, partner,
shareholder, employee, agent, director, or officer;
(ii) at any time and in any state or other jurisdiction in
the United States in which the Company is engaged in
business or, during the Executive's employment, has
developed plans to engage in business: (1) engage in,
including as a director, agent, or representative, or
have any direct or indirect financial interest
(whether as a partner, shareholder, or owner) in any
enterprise that engages in, the business of owning
and operating one-way paging and wireless messaging
networks, voice mail services or data transmitting
services (the "Business"); or (2) participate as an
employee or officer in any enterprise in which the
Executive's responsibility relates to the Business.
The ownership by the Executive of less than five
percent (5%) of the outstanding equity securities of
any corporation, partnership, limited liability
company, trust, or other entity shall not be deemed a
violation of this Section 6(a)(ii). The ownership by
the Executive of his current percentage of equity
securities or his position as an officer or
-4-
<PAGE> 5
director of USA Telecommunications, Inc. or Collins
Broadcasting Systems shall not be deemed a violation
of this Section 6(a)(ii).
(iii) solicit or cause or encourage any person to solicit
any Business in competition with the Company from any
person who is a client of the Company during the
Executive's employment hereunder.
(b) The Executive agrees that the restrictions set forth in this
Section 6 are reasonable, proper, and necessitated by
legitimate business interests of the Company and do not
constitute an unlawful or unreasonable restraint upon the
Executive' ability to earn a livelihood. The parties agree
that in the event any of the restrictions in this Agreement,
interpreted in accordance with the Agreement as a whole, are
found to be unreasonable a court of competent jurisdiction,
such court shall determine the limits allowable by law and
shall enforce the same.
(c) The Executive further acknowledges that it may be impossible
to assess the monetary damages incurred by the Executive's
violation of this Agreement, and that violation of this
Agreement will cause irreparable injury to the Company.
Accordingly, the Executive agrees that the Company will be
entitled, in addition to all other rights and remedies that
may be available, to an injunction enjoining and restraining
the Executive and any other involved party from committing a
violation of this Agreement. In addition, the Company will be
entitled to such damages as it can demonstrate it has
sustained by reason of the violation of this Agreement by the
Executive and/or others. However, recourse to any remedy
hereunder shall not constitute an exclusive remedy for the
Company, but rather the Company may resort to other remedies
or a combination of remedies as it may choose. The Executive
and the Company also agree in the event that either party is
successful in whole or in part in any legal action against the
other party under this Agreement, that the successful party
will be entitled to payment of all costs, including reasonable
attorney's fees, from the other party.
-5-
<PAGE> 6
7. Termination. Notwithstanding any other provision of this Agreement,
this Agreement shall terminate upon the death of the Executive, or it
may be terminated with thirty (30) days' written notice as follows:
(a) The Company may terminate this Agreement under the following
circumstances:
(i) if the Executive is unable to perform any services by
reason of illness, physical, or mental disability, or
other similar incapacity ("Disability") that
continues for more than six (6) consecutive months;
(ii) or for "Cause." For purposes of this Agreement,
"Cause" means (A) dishonesty of a material nature
that relates to the performance of services under
this Agreement, (B) criminal conduct (other than
minor infractions and traffic violations) that
relates to the performance of services under this
Agreement, or (C) the Executive's willfully breaching
or failing to perform his duties as described in
Section 2 hereof, which act or omission results in a
material adverse effect on the Company. No act or
failure to act on the Executive's part shall be
deemed "willful" unless done, or omitted to be done,
by the Executive not in good faith and without
reasonable belief that such action or omission was in
the best interests of the Company. Notwithstanding
the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless and until there
shall have been delivered to the Executive a
certificate of a resolution duly adopted by the
affirmative vote of not less than seventy-five
percent (75%) of the entire membership of the Board
at a meeting of the Board called and held for such
purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board),
finding that in the good faith opinion of the Board,
the Executive has engaged in the conduct set forth in
this paragraph and specifying the particulars thereof
in detail.
(b) The Executive may terminate this Agreement at any time upon
sixty (60) days' prior written notice.
-6-
<PAGE> 7
(c) Any purported termination of the Executive's employment by the
Company or by the Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance
with Section 9. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice that shall indicate the
specific provision of this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's
employment under the provision so indicated.
8. Compensation Upon Termination.
(a) Death. If the Executive's employment is terminated by the
Executive's death, the Company shall pay to the Executive's
estate, or as may be directed by the legal representatives to
such estate, (i) the Executive's full Base Salary through the
Executive's date of death and all other unpaid amounts, if
any, to which the Executive is entitled as of the Executive's
date of death, under any Company fringe benefit or incentive
compensation plan or program, at the time such payments would
otherwise ordinarily be due; and (ii) the Executive's full
Base Salary that would have been payable to the Executive from
the Executive's date of death through the Expiration Date, in
a lump sum within forty-five (45) days after his death.
(b) Disability. During any period that the Executive fails to
perform the Executive's duties hereunder as a result of
incapacity due to Disability (the "Disability Period"), the
Executive shall continue to receive (i) the Executive's full
Base Salary through the Executive's date of disability and all
other unpaid amounts, if any, to which the Executive is
entitled as of the Executive's date of disability, under any
Company fringe benefit or incentive compensation plan or
program, at the time such payments are due; and (ii) the
Executive's full Base Salary that would have been payable to
the Executive from the Executive's date of disability through
the Expiration Date, at the time such payments would otherwise
ordinarily be due; provided, however, that any payments made
to the Executive during the Disability Period shall be reduced
by any amounts paid or payable to the Executive under any
Company disability benefit plans.
-7-
<PAGE> 8
(c) For Cause. If the Company terminates the Executive's
employment for Cause, the Company shall pay the Executive's
full Base Salary through the date specified in the Notice of
Termination and the Company shall have no further obligations
to the Executive under this Agreement.
(d) Voluntary. If the Executive terminates his employment for
other than Good Reason, the Company shall pay the Executive
the Executive's full Base Salary through the date specified in
the Notice of Termination and from the date of termination
through the earlier of (I) one (1) year from the date of
termination or (ii) the Expiration Date, at the time such
payments would otherwise ordinarily be due.
"Good Reason" means the occurrence, without the Executive's
express written consent, of any of the following circumstances:
(i) the Company's failure to perform or observe
any of the material terms or provisions of
this Agreement or of the Metrocall, Inc.
Change of Control Agreement for Chief
Executive Officer dated of even date herewith
(the "Change of Control Agreement"), and the
continued failure of the Company to cure such
default within fifteen (15) days after the
Executive gives a written demand for
performance to the Company, which demand
shall describe specifically the nature of
such alleged failure to perform or observe
such material terms or provisions;
(ii) the assignment to the Executive of any duties
inconsistent with, or any substantial
diminution in, such Executive's status or
responsibilities as in effect on the date
hereof, including imposition of travel
obligations that differ materially from
required business travel as of the date
hereof;
(iii) any diminution in the status or
responsibilities of the Executive's position
from that which existed as of the date
hereof, whether by reason of the Company's
ceasing to be a public company under the
-8-
<PAGE> 9
Securities Exchange Act of 1934, becoming a
subsidiary of a successor public company, or
otherwise;
(iv) (I) a reduction in the Executive's Base
Salary as in effect on the date hereof, as
that amount may be increased from time to
time; or (II) the failure to pay a bonus
award to which the Executive is otherwise
entitled under any short-term incentive plan
in which the Executive then participates, at
the time such awards are usually paid;
(v) the termination of employment of Steven D.
Jacoby or Vincent D. Kelly (other than a
termination (I) by the Company for "Cause" or
(II) because of death or "Disability" as
those terms are defined in their respective
employment agreements), including a
termination that results from a failure by
the Company and Jacoby or Kelly to reach
agreement to continue Jacoby's or Kelly's
employment on terms at least as favorable to
him, in the aggregate, as those in effect
when his then existing employment agreement
expired;
(vi) a change in the principal place of the
Executive's employment, as in effect on the
date hereof, or as in effect after any
subsequent change to which the Executive
consented in writing, to a location more than
thirty-five (35) miles distant from the
location of such principal place;
(vii) (I) the Company's failure to continue in
effect any incentive compensation plan or
stock option plan in which the Executive
participates, unless the Company has provided
an equivalent alternative compensation
arrangement (embodied in an ongoing
substitute or alternative plan) to the
Executive, or (II) the Company's failure to
continue the Executive's participation in any
such incentive or stock option plan on
substantially the same basis, both in terms
of the amount of benefits provided and the
level of the Executive's participation
relative to other participants, as of the
date hereof or as of any succeeding December
31;
-9-
<PAGE> 10
(viii) the Company's violation of any applicable
criminal law not due to the Executive's gross
negligence or willful misconduct;
(ix) the failure of the Company or any successor
to obtain a satisfactory written agreement
from any successor to assume and agree to
perform this Agreement, as contemplated in
Section 12 below; or
(x) any purported termination of the Executive's
employment that is not effected pursuant to a
Notice of Termination satisfying the
requirements of Sections 7(a)(ii) and 7(c) as
applicable. For purposes of this Agreement,
no such purported termination shall be
effective except as constituting Good Reason.
The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any
circumstances constituting Good Reason hereunder.
(e) Other. Except as otherwise provided in Section 8(f) for
terminations after a Change in Control, if the Company
terminates the Executive's employment other than for Cause or
Disability (under Section 8(b) hereof), or if the Executive
terminates employment with the Company for Good Reason, the
Company shall pay the Executive
(i) the Executive's full Base Salary through the date
specified in the Notice of Termination within two (2)
days after such date and all other unpaid amounts, if
any, to which the Executive is entitled as of the
date specified in the Notice of Termination, under
any Company fringe benefit or incentive compensation
plan or program, at the time such payments are due;
(ii) the full Base Salary and any other amounts that would
have been payable to the Executive hereunder from the
date specified in the Notice of Termination through
the Expiration Date within forty-five (45) days after
such date;
-10-
<PAGE> 11
(iii) the premiums on the Executive's whole life policy (as
set forth in Section 4(c) hereof) until the earlier
of the end of the time during the insurance policy
during which premiums are due or the Expiration Date.
(iiv) in lieu of exercising or retaining any rights the
Executive may have to exercise some or all of the
outstanding stock options that he then holds
(including any rights to exercise stock options that
arise during the Term if he were to remain employed
and including any that would otherwise terminate as
result of his termination of employment), the
Executive may elect within sixty (60) days after
termination of employment to surrender such rights to
the Company and receive in exchange therefor a cash
payment equal to the aggregate difference, if
positive, between (a) the "fair market value"
(determined as of the date of termination using the
higher of the "fair market value" (i) as defined in
the terms of the applicable option plan or option
agreement as of the date of termination and (ii) as
defined in the plan or agreement on the date of
grant) of the shares of common stock subject to the
options and (b) the option prices of the shares
subject to such surrendered options; and the Company
shall make such payment within forty-five (45) days
after the Executive notifies the Company of his
election to surrender all or a portion of his
options.
(f) Termination of Employment after a Change in Control. If,
after a Change of Control (as defined in the Change of Control
Agreement), the Company terminates the Executive's employment
other than for Cause or Disability, or if the Executive
terminates employment with the Company for Good Reason after a
Change of Control, Executive's compensation and benefits shall
be exclusively determined by the terms of the Change of
Control Agreement as then in effect.
(g) Mitigation. The Executive shall not be required to mitigate
amounts payable pursuant to this section by seeking other
employment or otherwise.
9. Notices. All notices, demands, requests, or other communications
required or permitted to be given or made hereunder shall be in
writing and shall be delivered, telecopied, or mailed by first class
registered or certified mail, postage prepaid, addressed as follows:
-11-
<PAGE> 12
(a) if to the Company:
Metrocall, Inc.
6677 Richmond Highway
Alexandria, Virginia 22306
Telecopier: (703) 768-5407
Attention: Francis A. Martin, III
with a copy (which shall not constitute notice) to
Wilmer, Cutler & Pickering
2445 M Street, NW
Washington, DC 20037-1420
Telecopier: (202) 663-6363
Attention: George P. Stamas and John B. Watkins
(a) if to the Executive:
William L. Collins, III
314 River Bend Road
Great Falls, Virginia 22066
or to such other address as may be designated by either party in a
notice to the other. Each notice, demand, request, or other
communication that shall be given or made in the manner described
above shall be deemed sufficiently given or made for all purposes
three (3) days after it is deposited in the U.S. mail, postage
prepaid, or at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, the answer back or the affidavit
of messenger being deemed conclusive evidence of such delivery) or at
such time as delivery is refused by the addressee upon presentation.
10. Severability. The invalidity or unenforceability of any one or more
provisions of this Agreement shall not affect the validity or
enforceability of the other provisions of this Agreement, which shall
remain in full force and effect.
11. Survival. It is the express intention and agreement of the parties
that the provisions of Section 5 shall survive three (3) years after
the termination of this Agreement.
-12-
<PAGE> 13
12. Assignment; Successors. The rights and obligations of the parties to
this Agreement shall not be assignable, except that the rights and
obligations of the Company hereunder shall be assignable in connection
with any subsequent merger, consolidation, sale of substantially all
of the assets of the Company, or similar reorganization of a
successor. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company is required to perform
it. Failure of the Company to obtain such assumption and agreement
before the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle the Executive to compensation from
the Company as provided in Section 6 of the Change of Control
Agreement.
13. Binding Effect. Subject to any provisions restricting assignment,
this Agreement shall be binding upon the parties and shall inure to
the benefit of the parties and their respective heirs, devisees,
executors, administrators, legal representatives, successors, and
assigns.
14. Amendment; Waiver. This Agreement shall not be amended, altered or
modified except by an instrument in writing duly executed by the both
parties. Neither the waiver by either of the parties of a breach of
or a default under any of the provisions of this Agreement, nor the
failure of either of the parties, on one or more occasions, to enforce
any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall thereafter be construed as a waiver of any
subsequent breach or default of a similar nature, or as a waiver of
any such provisions, rights, or privileges.
15. Headings. Section headings contained in this Agreement are inserted
for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction, or scope of any of the provisions of
this Agreement.
16. Governing Law. This Agreement, the rights and obligations of the
parties, and any claims or disputes arising from this Agreement, shall
be governed by and construed in accordance with the laws of the
Commonwealth of Virginia (but not including the choice of law rules
thereof).
-13-
<PAGE> 14
17. Entire Agreement. This Agreement and the Change of Control Agreement
constitute the entire agreement between the parties with respect to
the subject matter hereof and thereof, and supersede all prior oral or
written agreements, commitments, or understandings with respect to the
matters provided for in this Agreement and the Change of Control
Agreement.
18. Arbitration. The Executive may designate in writing to the Company (in
which case this Section 18 shall have effect but not otherwise) that
any dispute that may arise directly or indirectly in connection with
this Agreement, the Executive's employment, or the termination of the
Executive's employment, whether arising in contract, statute, tort,
fraud, misrepresentation, or other legal theory, shall be determined
solely by arbitration in Washington, D.C. under the rules of the
American Arbitration Association (the "AAA"). The only legal claims
between the Executive, on the one hand, and the Company or any
Subsidiary, on the other, that would not be included in this agreement
to arbitration are claims by the Executive for workers' compensation
or unemployment compensation benefits, claims for benefits under a
Company or Subsidiary benefit plan if the plan does not provide for
arbitration of such disputes, and claims by the Executive that seek
judicial relief in the form of specific performance of the right to be
paid until the termination date during the pendency of any dispute or
controversy arising under Section 7(a)(ii). If this Section 18 is in
effect, any claim with respect to this Agreement, the Executive's
employment, or the termination of the Executive's employment must be
established by a preponderance of the evidence submitted to the
impartial arbitrator. A single arbitrator engaged in the practice of
law shall conduct any arbitration under the then current procedures of
the AAA and under the AAA's then current Model Employment Arbitration
Rules. The arbitrator shall have the authority to order a pre-hearing
exchange of information by the parties including, without limitation,
production of requested documents, and examination by deposition of
parties and their authorized agents. If this Section 18 is in effect,
the decision of the arbitrator (i) shall be final and binding, (ii)
shall be rendered within ninety (90) days after the impanelment of the
arbitrator, and (iii) shall be kept confidential by the parties to
such arbitration. The arbitration award may be enforced in any court
of competent jurisdiction. The Federal Arbitration Act, 9 U.S.C.
Section Section 1-15, not state law, shall govern the arbitrability of
all claims.
-14-
<PAGE> 15
19. Cancellation of Previous Agreements. In consideration of this
Agreement, the Executive hereby waives any and all rights under and
releases, and indemnifies and holds the Company and its successors and
assigns, harmless from any damage, loss, liability, judgment, fine,
penalty, assessment, settlement, cost, or expense including, without
limitation, reasonable expenses of investigation, reasonable
attorneys' fees and other reasonable legal costs and expenses incident
to any of the foregoing or to the enforcement of this Section, whether
or not suit is brought or, if brought, whether or not such suit is
successful, in whole or in part arising out of or relating to any and
all employment, consulting, non-competition, bonus, or other
compensatory plan, program, arrangement, or contract relating to the
employment of the Executive, written or oral, between the Executive
and the Company or any person affiliated with the Company, and the
Executive consents to the termination of each such agreement and
arrangement effective as of the date of this Agreement; provided,
however, that nothing herein shall constitute a termination or waiver
of the Change of Control Agreement.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which
shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed, on their behalf as of the
day and year first hereinabove written.
<TABLE>
<S> <C> <C>
METROCALL, INC.
Date: May 15, 1996 By: /s/ Richard D. Johnston
------------ -----------------------
Richard D. Johnston
Chairman of the Board
Date: May 15, 1996 /s/ William L. Collins, III
------------ ---------------------------
William L. Collins, III
| | Executive's Copy
--
| | Company's Copy
--
</TABLE>
-15-
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of May 15, 1996 (the "Agreement")
is made by and between Metrocall, Inc., a Delaware corporation (the "Company")
and STEVEN D. JACOBY (the "Executive"). The employment agreement between the
Company and the Executive dated as of August 31, 1994 and amended as of January
1, 1996 is hereby canceled and replaced with this Agreement.
WHEREAS, in consideration of the Executive's service to the Company as
Chief Operating Officer of the Company and the Executive's agreement not to
compete with the Company, the Company and the Executive desire to enter into
this Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements set forth in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. Employment. The Company agrees to continue to employ the Executive
and the Executive agrees to remain employed by the Company as the
Chief Operating Officer of the Company based upon the terms and
conditions set forth in this Agreement, for the period of time
specified in Section 3. In such position, the Executive shall report
directly to the Chief Executive Officer.
2. Duties and Authority. During the term of this Agreement, as Chief
Operating Officer of the Company, under the direction and subject to
the control of the Chief Executive Officer, the Executive shall be
responsible for the operations of the Company and shall have general
executive charge, management, and control of sales, marketing, and
other operational matters for the Company, with all such powers and
authority with respect to such business, affairs, properties, and
operations as may be reasonably incident to such duties and
responsibilities. During the term of this Agreement, the Executive
shall have such powers, authority, functions, and responsibilities for
the Company and corporations affiliated with the Company as he
possessed as of May 1, 1996 and such additional duties, powers,
authority, functions, and responsibilities as the Chief Executive
Officer shall assign to him that do not (except with the Executive's
consent) interfere with, or detract from, those vested in or being
performed by the Executive for the Company as of the beginning of the
term of this Agreement. The Executive shall devote the Executive's
<PAGE> 2
reasonable best efforts and full business time to the performance of
the Executive's duties and the advancement of the business and affairs
of the Company.
3. Term. The term of this Agreement and the period of employment of the
Executive by the Company hereunder shall commence on the date of this
Agreement and shall end on December 31, 1999; provided, however, that
the term shall be automatically extended for additional one (1) year
periods on each anniversary date of this Agreement, unless and until
either party notifies the other party not less than ninety (90) days
before such anniversary date that such party is terminating this
Agreement, which termination shall be effective as of the end of such
initial term or extended term, as the case may be (the "Expiration
Date"), or until sooner terminated as hereinafter set forth.
4. Salary and Expenses.
(a) In consideration for the Executive's services, the Company
shall pay to the Executive an annual base salary (the "Base
Salary") equal to Two Hundred Twenty-Five Thousand Dollars
($225,000). The Base Salary shall be payable biweekly or in
such other installments as shall be consistent with the
Company's payroll procedures. The Company shall deduct and
withhold all necessary social security and withholding taxes
and any other similar sums required by law or authorized by
the Executive with respect to the payment of the Base Salary.
The Board shall review the Executive's salary annually before
December 31 and may increase, but not decrease, his Base
Salary in any renewal, extension, or replacement of this
Agreement. The Company shall review the appropriateness of
creating additional forms of nonqualified executive
compensation to cover the Executive.
(b) To the maximum extent permitted by applicable state and
federal law, the Executive shall be eligible, at no cost to
the Executive, to participate in all of the Company's benefit
plans, including fringe benefits available to the Company's
senior executives and use of an automobile suitable for a
senior executive of a public company.
-2-
<PAGE> 3
(c) The Executive shall be entitled to (i) time off for all public
holidays observed by the Company and (ii) vacation days in
accordance with the applicable policies for the Company's
senior executives.
(d) The Company shall reimburse the Executive for all reasonable
expenses the Executive incurs in accordance with the
guidelines adopted from time to time by the Company.
5. Confidential Information.
(a) The Executive covenants and agrees that the Executive will not
at any time, without the prior written consent of the Board or
a person authorized by the Board, publish or disclose to any
third party, use for the Executive's own benefit or advantage,
or make available for others to use, any confidential
information with respect to any of the Company's products,
services, subscribers, suppliers, marketing techniques,
methods, or future plans disclosed to the Executive as a
result of the Executive's employment with the Company, to the
extent such information has heretofore remained confidential
(except for unauthorized disclosures) and except as otherwise
ordered by a court of competent jurisdiction.
(b) The Executive acknowledges that the restrictions contained in
Section 5(a) are reasonable and necessary, in view of the
nature of the Company's business, in order to protect the
legitimate interests of the Company, and that any violation
thereof would result in irreparable injury to the Company.
Therefore, the Executive agrees that in the event of a breach
or threatened breach by the Executive of the provisions of
Section 5(a), the Company shall be entitled to obtain from any
court of competent jurisdiction, preliminary or permanent
injunctive relief restraining the Executive from disclosing or
using any such confidential information. Nothing herein shall
be construed as prohibiting the Company from pursuing any
other remedies available to it for such breach or threatened
breach, including, without limitation, recovery of damages
from the Executive.
6. Covenant Not to Compete. The Executive agrees that, through the
position of Chief Operating Officer, the Executive has established
valuable and recognized expertise in the
-3-
<PAGE> 4
paging business and has had and will have access to the trade secrets
and confidential information of the Company. The Executive hereby
enters into a covenant restricting the Executive from soliciting
employees of the Company and from competing against the Company (the
"Covenant Not to Compete") upon the terms and conditions described
below:
(a) During the Executive's employment and for twelve (12) months
thereafter, the Executive agrees that the Executive will not,
without the prior written consent of the Company:
(i) induce or attempt to induce any of the Company's
employees to terminate their employment with the
Company in order to become an director, officer,
employee, consultant, or independent contractor to or
for any enterprise with which the Executive has an
interest, whether as a proprietor, partner,
shareholder, employee, agent, director, or officer;
(ii) at any time and in any state or other jurisdiction in
the United States in which the Company is engaged in
business or, during the Executive's employment, has
developed plans to engage in business: (1) engage in,
including as a director, agent, or representative, or
have any direct or indirect financial interest
(whether as a partner, shareholder, or owner) in any
enterprise that engages in, the business of owning
and operating one-way paging and wireless messaging
networks, voice mail services or data transmitting
services (the "Business"); or (2) participate as an
employee or officer in any enterprise in which the
Executive's responsibility relates to the Business.
The ownership by the Executive of less than five
percent (5%) of the outstanding equity securities of
any corporation, partnership, limited liability
company, trust, or other entity shall not be deemed a
violation of this Section 6(a)(ii).
(iii) solicit or cause or encourage any person to solicit
any Business in competition with the Company from any
person who is a client of the Company during the
Executive's employment hereunder.
-4-
<PAGE> 5
(b) The Executive agrees that the restrictions set forth in this
Section 6 are reasonable, proper, and necessitated by
legitimate business interests of the Company and do not
constitute an unlawful or unreasonable restraint upon the
Executive' ability to earn a livelihood. The parties agree
that in the event any of the restrictions in this Agreement,
interpreted in accordance with the Agreement as a whole, are
found to be unreasonable a court of competent jurisdiction,
such court shall determine the limits allowable by law and
shall enforce the same.
(c) The Executive further acknowledges that it may be impossible
to assess the monetary damages incurred by the Executive's
violation of this Agreement, and that violation of this
Agreement will cause irreparable injury to the Company.
Accordingly, the Executive agrees that the Company will be
entitled, in addition to all other rights and remedies that
may be available, to an injunction enjoining and restraining
the Executive and any other involved party from committing a
violation of this Agreement. In addition, the Company will be
entitled to such damages as it can demonstrate it has
sustained by reason of the violation of this Agreement by the
Executive and/or others. However, recourse to any remedy
hereunder shall not constitute an exclusive remedy for the
Company, but rather the Company may resort to other remedies
or a combination of remedies as it may choose. The Executive
and the Company also agree in the event that either party is
successful in whole or in part in any legal action against the
other party under this Agreement, that the successful party
will be entitled to payment of all costs, including reasonable
attorney's fees, from the other party.
7. Termination. Notwithstanding any other provision of this Agreement,
this Agreement shall terminate upon the death of the Executive, or it
may be terminated with thirty (30) days' written notice as follows:
(a) The Company may terminate this Agreement under the following
circumstances:
(i) if the Executive is unable to perform any services by
reason of illness, physical, or mental disability, or
other similar incapacity ("Disability") that
continues for more than six (6) consecutive months;
-5-
<PAGE> 6
(ii) or for "Cause." For purposes of this Agreement,
"Cause" means (A) dishonesty of a material nature
that relates to the performance of services under
this Agreement, (B) criminal conduct (other than
minor infractions and traffic violations) that
relates to the performance of services under this
Agreement, or (C) the Executive's willfully breaching
or failing to perform his duties as described in
Section 2 hereof, which act or omission results in a
material adverse effect on the Company. No act or
failure to act on the Executive's part shall be
deemed "willful" unless done, or omitted to be done,
by the Executive not in good faith and without
reasonable belief that such action or omission was in
the best interests of the Company. Notwithstanding
the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless and until there
shall have been delivered to the Executive a
certificate of a resolution duly adopted by the
affirmative vote of not less than seventy-five
percent (75%) of the entire membership of the Board
at a meeting of the Board called and held for such
purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board),
finding that in the good faith opinion of the Board,
the Executive has engaged in the conduct set forth in
this paragraph and specifying the particulars thereof
in detail.
(b) The Executive may terminate this Agreement at any time upon
sixty (60) days' prior written notice.
(c) Any purported termination of the Executive's employment by the
Company or by the Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance
with Section 9. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice that shall indicate the
specific provision of this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's
employment under the provision so indicated.
-6-
<PAGE> 7
8. Compensation Upon Termination.
(a) Death. If the Executive's employment is terminated by the
Executive's death, the Company shall pay to the Executive's
estate, or as may be directed by the legal representatives to
such estate, (i) the Executive's full Base Salary through the
Executive's date of death and all other unpaid amounts, if
any, to which the Executive is entitled as of the Executive's
date of death, under any Company fringe benefit or incentive
compensation plan or program, at the time such payments would
otherwise ordinarily be due; and (ii) the Executive's full
Base Salary that would have been payable to the Executive from
the Executive's date of death through the Expiration Date, in
a lump sum within forty-five (45) days after his death.
(b) Disability. During any period that the Executive fails to
perform the Executive's duties hereunder as a result of
incapacity due to Disability (the "Disability Period"), the
Executive shall continue to receive (i) the Executive's full
Base Salary through the Executive's date of disability and all
other unpaid amounts, if any, to which the Executive is
entitled as of the Executive's date of disability, under any
Company fringe benefit or incentive compensation plan or
program, at the time such payments are due; and (ii) the
Executive's full Base Salary that would have been payable to
the Executive from the Executive's date of disability through
the Expiration Date, at the time such payments would otherwise
ordinarily be due; provided, however, that any payments made
to the Executive during the Disability Period shall be reduced
by any amounts paid or payable to the Executive under any
Company disability benefit plans.
(c) For Cause. If the Company terminates the Executive's
employment for Cause, the Company shall pay the Executive's
full Base Salary through the date specified in the Notice of
Termination and the Company shall have no further obligations
to the Executive under this Agreement.
(d) Voluntary. If the Executive terminates his employment for
other than Good Reason, the Company shall pay the Executive
the Executive's full Base Salary through the date specified in
the Notice of Termination and from the date of termination
through the earlier of (I) one (1) year from the date of
termination or
-7-
<PAGE> 8
(ii) the Expiration Date, at the time such payments would
otherwise ordinarily be due.
"Good Reason" means the occurrence, without the Executive's
express written consent, of any of the following
circumstances:
(i) the Company's failure to perform or observe
any of the material terms or provisions of
this Agreement or of the Metrocall, Inc.
Change of Control Agreement for Chief
Operating Officer dated of even date herewith
(the "Change of Control Agreement"), and the
continued failure of the Company to cure such
default within fifteen (15) days after the
Executive gives a written demand for
performance to the Company, which demand
shall describe specifically the nature of
such alleged failure to perform or observe
such material terms or provisions;
(ii) the assignment to the Executive of any duties
inconsistent with, or any substantial
diminution in, such Executive's status or
responsibilities as in effect on the date
hereof, including imposition of travel
obligations that differ materially from
required business travel as of the date
hereof;
(iii) any diminution in the status or
responsibilities of the Executive's position
from that which existed as of the date
hereof, whether by reason of the Company's
ceasing to be a public company under the
Securities Exchange Act of 1934, becoming a
subsidiary of a successor public company, or
otherwise;
(iv) (I) a reduction in the Executive's Base
Salary as in effect on the date hereof, as
that amount may be increased from time to
time; or (II) the failure to pay a bonus
award to which the Executive is otherwise
entitled under any short-term incentive plan
in which the Executive then participates, at
the time such awards are usually paid;
-8-
<PAGE> 9
(v) the termination of employment of William L.
Collins, III or Vincent D. Kelly (other than
a termination (I) by the Company for "Cause"
or (II) because of death or "Disability" as
those terms are defined in their respective
employment agreements), including a
termination that results from a failure by
the Company and Collins or Kelly to reach
agreement to continue Collins' or Kelly's
employment on terms at least as favorable to
him, in the aggregate, as those in effect
when his then existing employment agreement
expired;
(vi) a change in the principal place of the
Executive's employment, as in effect on the
date hereof, or as in effect after any
subsequent change to which the Executive
consented in writing, to a location more than
thirty-five (35) miles distant from the
location of such principal place;
(vii) (I) the Company's failure to continue in
effect any incentive compensation plan or
stock option plan in which the Executive
participates, unless the Company has provided
an equivalent alternative compensation
arrangement (embodied in an ongoing
substitute or alternative plan) to the
Executive, or (II) the Company's failure to
continue the Executive's participation in any
such incentive or stock option plan on
substantially the same basis, both in terms
of the amount of benefits provided and the
level of the Executive's participation
relative to other participants, as of the
date hereof or as of any succeeding December
31;
(viii) the Company's violation of any applicable
criminal law not due to the Executive's gross
negligence or willful misconduct;
(ix) the failure of the Company or any successor
to obtain a satisfactory written agreement
from any successor to assume and agree to
perform this Agreement, as contemplated in
Section 12 below; or
-9-
<PAGE> 10
(x) any purported termination of the Executive's
employment that is not effected pursuant to a
Notice of Termination satisfying the
requirements of Sections 7(a)(ii) and 7(c) as
applicable. For purposes of this Agreement,
no such purported termination shall be
effective except as constituting Good Reason.
The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any
circumstances constituting Good Reason hereunder.
(e) Other. Except as otherwise provided in Section 8(f) for
terminations after a Change in Control, if the Company
terminates the Executive's employment other than for Cause or
Disability (under Section 8(b) hereof), or if the Executive
terminates employment with the Company for Good Reason, the
Company shall pay the Executive
(i) the Executive's full Base Salary through the date
specified in the Notice of Termination within two (2)
days after such date and all other unpaid amounts, if
any, to which the Executive is entitled as of the
date specified in the Notice of Termination, under
any Company fringe benefit or incentive compensation
plan or program, at the time such payments are due;
(ii) the full Base Salary and any other amounts that would
have been payable to the Executive hereunder from the
date specified in the Notice of Termination through
the Expiration Date within forty-five (45) days after
such date; and
(iii) in lieu of exercising or retaining any rights the
Executive may have to exercise some or all of the
outstanding stock options that he then holds
(including any rights to exercise stock options that
arise during the Term if he were to remain employed
and including any that would otherwise terminate as
result of his termination of employment), the
Executive may elect within sixty (60) days after
termination of employment to surrender such rights to
the Company and receive in exchange therefor a cash
payment equal to the aggregate difference, if
positive, between (a) the
-10-
<PAGE> 11
"fair market value" (determined as of the date of
termination using the higher of the "fair market
value" (i) as defined in the terms of the applicable
option plan or option agreement as of the date of
termination and (ii) as defined in the plan or
agreement on the date of grant) of the shares of
common stock subject to the options and (b) the
option prices of the shares subject to such
surrendered options; and the Company shall make such
payment within forty-five (45) days after the
Executive notifies the Company of his election to
surrender all or a portion of his options.
(f) Termination of Employment after a Change in Control. If,
after a Change of Control (as defined in the Change of Control
Agreement), the Company terminates the Executive's employment
other than for Cause or Disability, or if the Executive
terminates employment with the Company for Good Reason after a
Change of Control, Executive's compensation and benefits shall
be exclusively determined by the terms of the Change of
Control Agreement as then in effect.
(g) Mitigation. The Executive shall not be required to mitigate
amounts payable pursuant to this section by seeking other
employment or otherwise.
9. Notices. All notices, demands, requests, or other communications
required or permitted to be given or made hereunder shall be in
writing and shall be delivered, telecopied, or mailed by first class
registered or certified mail, postage prepaid, addressed as follows:
(a) if to the Company:
Metrocall, Inc.
6677 Richmond Highway
Alexandria, Virginia 22306
Telecopier: (703) 768-5407
Attention: Francis A. Martin, III
-11-
<PAGE> 12
with a copy (which shall not constitute notice) to
Wilmer, Cutler & Pickering
2445 M Street, NW
Washington, DC 20037-1420
Telecopier: (202) 663-6363
Attention: George P. Stamas and John B. Watkins
(a) if to the Executive:
Steven D. Jacoby
4303 Kimbrelee Court
Alexandria, VA 22309
or to such other address as may be designated by either party in a
notice to the other. Each notice, demand, request, or other
communication that shall be given or made in the manner described
above shall be deemed sufficiently given or made for all purposes
three (3) days after it is deposited in the U.S. mail, postage
prepaid, or at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, the answer back or the affidavit
of messenger being deemed conclusive evidence of such delivery) or at
such time as delivery is refused by the addressee upon presentation.
10. Severability. The invalidity or unenforceability of any one or more
provisions of this Agreement shall not affect the validity or
enforceability of the other provisions of this Agreement, which shall
remain in full force and effect.
11. Survival. It is the express intention and agreement of the parties
that the provisions of Section 5 shall survive three (3) years after
the termination of this Agreement.
12. Assignment; Successors. The rights and obligations of the parties to
this Agreement shall not be assignable, except that the rights and
obligations of the Company hereunder shall be assignable in connection
with any subsequent merger, consolidation, sale of substantially all
of the assets of the Company, or similar reorganization of a
successor. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company is required to perform
it. Failure
-12-
<PAGE> 13
of the Company to obtain such assumption and agreement before the
effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the
Company as provided in Section 6 of the Change of Control Agreement.
13. Binding Effect. Subject to any provisions restricting assignment,
this Agreement shall be binding upon the parties and shall inure to
the benefit of the parties and their respective heirs, devisees,
executors, administrators, legal representatives, successors, and
assigns.
14. Amendment; Waiver. This Agreement shall not be amended, altered or
modified except by an instrument in writing duly executed by the both
parties. Neither the waiver by either of the parties of a breach of
or a default under any of the provisions of this Agreement, nor the
failure of either of the parties, on one or more occasions, to enforce
any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall thereafter be construed as a waiver of any
subsequent breach or default of a similar nature, or as a waiver of
any such provisions, rights, or privileges.
15. Headings. Section headings contained in this Agreement are inserted
for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction, or scope of any of the provisions of
this Agreement.
16. Governing Law. This Agreement, the rights and obligations of the
parties, and any claims or disputes arising from this Agreement, shall
be governed by and construed in accordance with the laws of the
Commonwealth of Virginia (but not including the choice of law rules
thereof).
17. Entire Agreement. This Agreement and the Change of Control Agreement
constitute the entire agreement between the parties with respect to
the subject matter hereof and thereof, and supersede all prior oral or
written agreements, commitments, or understandings with respect to the
matters provided for in this Agreement and the Change of Control
Agreement.
18. Arbitration. The Executive may designate in writing to the Company (in
which case this Section 18 shall have effect but not otherwise) that
any dispute that may arise directly or
-13-
<PAGE> 14
indirectly in connection with this Agreement, the Executive's
employment, or the termination of the Executive's employment, whether
arising in contract, statute, tort, fraud, misrepresentation, or other
legal theory, shall be determined solely by arbitration in Washington,
D.C. under the rules of the American Arbitration Association (the
"AAA"). The only legal claims between the Executive, on the one hand,
and the Company or any Subsidiary, on the other, that would not be
included in this agreement to arbitration are claims by the Executive
for workers' compensation or unemployment compensation benefits,
claims for benefits under a Company or Subsidiary benefit plan if the
plan does not provide for arbitration of such disputes, and claims by
the Executive that seek judicial relief in the form of specific
performance of the right to be paid until the termination date during
the pendency of any dispute or controversy arising under Section
7(a)(ii). If this Section 18 is in effect, any claim with respect to
this Agreement, the Executive's employment, or the termination of the
Executive's employment must be established by a preponderance of the
evidence submitted to the impartial arbitrator. A single arbitrator
engaged in the practice of law shall conduct any arbitration under the
then current procedures of the AAA and under the AAA's then current
Model Employment Arbitration Rules. The arbitrator shall have the
authority to order a pre-hearing exchange of information by the
parties including, without limitation, production of requested
documents, and examination by deposition of parties and their
authorized agents. If this Section 18 is in effect, the decision of
the arbitrator (i) shall be final and binding, (ii) shall be rendered
within ninety (90) days after the impanelment of the arbitrator, and
(iii) shall be kept confidential by the parties to such arbitration.
The arbitration award may be enforced in any court of competent
jurisdiction. The Federal Arbitration Act, 9 U.S.C. Section Section
1-15, not state law, shall govern the arbitrability of all claims.
19. Cancellation of Previous Agreements. In consideration of this
Agreement, the Executive hereby waives any and all rights under and
releases, and indemnifies and holds the Company and its successors and
assigns, harmless from any damage, loss, liability, judgment, fine,
penalty, assessment, settlement, cost, or expense including, without
limitation, reasonable expenses of investigation, reasonable
attorneys' fees and other reasonable legal costs and expenses incident
to any of the foregoing or to the enforcement of this Section, whether
or not suit is brought or, if brought, whether or not such suit is
successful, in whole or in part arising out of or relating to any and
all employment, consulting, non-competition, bonus, or other
compensatory plan, program,
-14-
<PAGE> 15
arrangement, or contract relating to the employment of the Executive,
written or oral, between the Executive and the Company or any person
affiliated with the Company, and the Executive consents to the
termination of each such agreement and arrangement effective as of the
date of this Agreement; provided, however, that nothing herein shall
constitute a termination or waiver of the Change of Control Agreement.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which
shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed, on their behalf as of the
day and year first hereinabove written.
<TABLE>
<S> <C> <C>
METROCALL, INC.
Date: May 15, 1996 By:/s/ Richard D. Johnston
------------ -----------------------
Richard D. Johnston
Chairman of the Board
Date: May 15, 1996 /s/ Steven D. Jacoby
------------ --------------------
Steven D. Jacoby
| | Executive's Copy
--
| | Company's Copy
--
</TABLE>
-15-
<PAGE> 1
EXHIBIT 10.9
METROCALL, INC.
CHANGE OF CONTROL AGREEMENT
FOR CHIEF FINANCIAL OFFICER
May 15, 1996
Vincent D. Kelly
11807 Chapel Road
Clifton, VA 22024
Dear Mr. Kelly:
Metrocall, Inc. (the "Company"), on behalf of itself, its
subsidiaries, and its shareholders, wishes to encourage your continued service
and dedication in the performance of your duties, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined in
Section 1(b) below) of the Company. The Board of Directors of the Company (the
"Board") believes that the prospect of a pending or threatened Change of
Control inevitably creates distractions and personal risks and uncertainties
for a company's executives and that it is in the best interests of the Company
to minimize such distractions to certain executives and the Company. The Board
further believes that it is in the best interests of the Company to encourage
its executives' full attention and dedication to their duties, both currently
and in the event of any threatened or pending Change of Control.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued retention of you and certain
members of the Company's management and the attention and dedication of
management to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change
of Control of the Company.
To induce you (the "Executive") to remain in the Company's employ and
in consideration of your continued service to the Company, the Company agrees
that you shall receive the benefits set forth in this letter agreement (the
"Agreement") if your employment with the Company is terminated for any reason
after a Change of Control of the Company and has, of even date herewith,
entered into a revised employment agreement relating to your services as Chief
Financial Officer (the "Employment Agreement"). For purposes of this
Agreement, references to employment with the Company shall include employment
with a Subsidiary of the Company.
Section 1. DEFINITIONS
The following terms shall have the meanings set forth below for purposes of
this Agreement.
(a) CAUSE. Under this Agreement, "Cause" shall mean (1)
dishonesty of a material nature relating to performing
services under the Employment Agreement, (2) criminal conduct
(other than minor infractions and traffic violations) that
relates
<PAGE> 2
to the performance of services under the Employment Agreement,
or (3) the Executive's willfully breaching or failing to
perform his employment duties as set forth in his Employment
Agreement, which act or omission results in a material adverse
effect on the Company. For purposes of this Section 1(a), no
act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that
such action or omission was in the best interests of the
Company. Notwithstanding the foregoing, the Executive shall
not be deemed to have been terminated for Cause unless and
until there shall have been delivered to the Executive a
certificate of a resolution duly adopted by the affirmative
vote of not less than seventy-five percent (75%) of the entire
membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with
the Executive's counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, the
Executive has engaged in the conduct set forth in this
subsection and specifying the particulars thereof in detail.
(b) CHANGE OF CONTROL. For purposes of this Agreement, a "Change
of Control" shall be deemed to have occurred if there is a
change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") or any successor
provision of similar import, whether or not the Company is
then subject to such reporting requirement; provided that,
without limitation, such a Change of Control shall be deemed
to have occurred if:
(i) any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act) is or becomes a
"beneficial owner" (as determined for purposes of
Regulation 13D-G under the Exchange Act as currently
in effect), directly or indirectly, of securities
representing twenty-five percent (25%) or more of the
total voting power of all of the Company's then
outstanding voting securities, unless through a
transaction consummated with the Board's prior
approval; provided, however, that for purposes of
this paragraph, persons acting in concert under the
terms of that certain Voting Agreement dated as of
August 31, 1994 shall not, solely as a result of
actions provided under such agreement, be treated as
a "person";
(ii) during any period of two consecutive calendar years,
individuals who at the beginning of such period
constitute the Board and any new director(s) whose
election by the Board or nomination for election by
the Company's shareholders was approved by a vote of
at least two-thirds of the directors then still in
office who either were directors at the beginning of
the period or whose election or nomination for
election was previously so approved cease for any
reason to constitute a majority of the Board;
-2-
<PAGE> 3
(iii) the Company becomes a party to a merger, plan of
reorganization, consolidation, or share exchange in
which either (x) the Company will not be the
surviving corporation or (y) the Company will be the
surviving corporation and any outstanding shares of
the Company's common stock will be converted into
shares of any other company (other than a
reincorporation or the establishment of a holding
company involving no change of ownership of the
Company) or other securities or cash or other
property (excluding payments made solely for
fractional shares);
(iv) the shareholders of the Company approve a merger,
plan of reorganization, consolidation, or share
exchange with any other corporation, and immediately
following such merger, plan of reorganization,
consolidation, or share exchange the holders of the
voting securities of the Company outstanding
immediately prior thereto hold securities
representing fifty percent (50%) or less of the
combined voting power of the voting securities of the
Company or such surviving entity outstanding
immediately after such merger, plan of
reorganization, consolidation, or share exchange;
provided, however, that notwithstanding the
foregoing, no Change of Control for purposes of this
Section 1(b)(iv) shall be deemed to have occurred if
seventy-five percent (75%) or more of the members of
the Board of the Company or such surviving entity
immediately after such merger, plan of
reorganization, consolidation, or share exchange is
comprised of persons who served as directors of the
Company immediately before such merger, plan of
reorganization, consolidation, or share exchange or
who are otherwise designees of the Company; or
(v) any other event occurs that a majority of the Board,
in its sole discretion, shall determine constitutes a
Change of Control.
(c) CONTROLLED GROUP. For purposes of this Agreement, "Controlled
Group" shall mean the Company and all of the Company's
Subsidiaries.
(d) DISABILITY. "Disability" shall have the meaning set forth in
the Employment Agreement.
(e) EMPLOYER. For purposes of this Agreement, "Employer" shall
mean the Company or the Subsidiary, as the case may be, with
which the Executive has an employment relationship.
-3-
<PAGE> 4
(f) GOOD REASON. For purposes of this Agreement, "Good Reason"
shall mean the occurrence, without the Executive's express
written consent, of any of the following circumstances:
(i) the Company's failure to perform or observe any of
the material terms or provisions of this Agreement or
the Employment Agreement, and the continued failure
of the Company to cure such default within fifteen
(15) days after the Executive gives a written demand
for performance to the Company, which demand shall
describe specifically the nature of such alleged
failure to perform or observe such material terms or
provisions;
(ii) the assignment to the Executive of any duties
inconsistent with, or any substantial diminution in,
such Executive's status or responsibilities as in
effect immediately before a Change of Control of the
Company, including imposition of travel obligations
that differ materially from required business travel
immediately before the Change of Control;
(iii) any diminution in the status or responsibilities of
the Executive's position from that which existed
immediately before the Change of Control, whether by
reason of the Company's ceasing to be a public
company under the Exchange Act, becoming a subsidiary
of a successor public company, or otherwise;
(iv) (I) a reduction in the Executive's Base Salary (as
defined in the Employment Agreement), as that amount
may be increased from time to time and as in effect
immediately before the Change of Control; or (II) the
failure to pay a bonus award to which the Executive
is otherwise entitled under any short-term incentive
plan in which the Executive then participates, or any
successor incentive compensation plans at the time
such awards are usually paid;
(v) the termination of employment of William L. Collins,
III or Steven D. Jacoby (other than a termination (I)
by the Company for "Cause" or (II) because of death
or "Disability" as those terms are defined and
applied in their respective employment agreements),
including a termination that results from a failure
by the Company and Collins or Jacoby to reach
agreement to continue Collins' or Jacoby's employment
on terms at least as favorable to him, in the
aggregate, as those in effect before the Change in
Control of the Company;
(vi) a change in the principal place of the Executive's
employment, as in effect immediately before the
Change of Control of the Company, to a location more
than thirty-five (35) miles distant from the location
of such principal place at such time;
-4-
<PAGE> 5
(vi) (A) the Company's failure to continue in effect any
incentive compensation plan or stock option plan in
which the Executive participates immediately before
the Change in Control, unless an equivalent
alternative compensation arrangement (embodied in an
ongoing substitute or alternative plan) has been
provided to the Executive, or (B) the Company's
failure to continue the Executive's participation in
any such incentive or stock option plan on
substantially the same basis, both in terms of the
amount of benefits provided and the level of the
Executive's participation relative to other
participants, as existed immediately before the time
of the Change of Control;
(viii) the Company's violation of any applicable criminal
law not due to the Executive's gross negligence or
willful misconduct;
(ix) the failure of the Company or any successor to obtain
a satisfactory written agreement from any successor
to assume and agree to perform this Agreement, as
contemplated in Section 6(a) below; or
(x) any purported termination of the Executive's
employment that is not effected pursuant to a Notice
of Termination satisfying the requirements of Section
3(b) or, if applicable, Section 1(a). For purposes
of this Agreement, no such purported termination
shall be effective except as constituting Good
Reason.
The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstances constituting
Good Reason hereunder.
(g) SUBSIDIARY. For purposes of this Agreement, "Subsidiary"
shall mean any corporation of whose voting stock the Company
directly or indirectly owns more than fifty percent (50%).
(h) TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean: (i) if the Executive's
employment is terminated for Disability pursuant to the
Employment Agreement, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not
have returned to the full-time performance of his duties
during such thirty-day period); and (ii) if the Executive's
employment is terminated for Cause or Good Reason or for any
reason other than death or Disability, the date specified in
the Notice of Termination (which in the case of a termination
for Cause shall not be less than thirty (30) days and in the
case of a termination for Good Reason shall not be less than
thirty (30) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given).
-5-
<PAGE> 6
Section 2. TERM OF AGREEMENT
(a) GENERAL. Upon execution by the Executive, this Agreement
shall commence as of May ___, 1996. This Agreement shall
continue in effect on December 31, 1999; provided, however,
that the term shall be automatically extended for additional
one (1) year periods on each anniversary date of this
Agreement, unless and until either party notifies the other
party not less than ninety (90) days before such anniversary
date that such party is terminating this Agreement, which
termination shall be effective as of the end of such initial
term or extended term, as the case may be (the "Expiration
Date"); and provided further, however, that if a Change of
Control of the Company occurs before the Expiration Date, this
Agreement shall continue in effect for a period of thirty-six
months beyond the month in which the Change of Control
occurred.
(b) DISPOSITION OF EMPLOYER. If the Executive is employed by a
Subsidiary, the terms of this Agreement shall expire if such
Subsidiary is sold or otherwise disposed of before a Change of
Control unless the Executive continues in employment with the
Controlled Group after such sale or other disposition. If the
Executive's Employer is sold or disposed of following a Change
of Control, this Agreement shall continue through its original
term or any extended term then in effect.
(c) DEEMED CHANGE OF CONTROL. If the Executive's employment with
the Employer is terminated before the date on which a Change
of Control occurs, and such termination was at the request of
a third party who has taken steps to effect a Change of
Control or the termination was otherwise caused by the Change
of Control, then for all purposes of this Agreement, a Change
of Control shall be deemed to have occurred before such
termination.
(d) EXPIRATION OF AGREEMENT. No termination or expiration of this
Agreement shall affect any rights, obligations, or liabilities
of either party that shall have accrued on or before the date
of such termination or expiration.
Section 3. TERMINATION FOLLOWING CHANGE OF CONTROL
(a) ENTITLEMENT TO BENEFITS. If a Change of Control of the
Company occurs, the Executive shall be entitled to the
benefits provided in Section 4 hereof upon his termination of
employment with the Company within three years after the date
of the Change of Control, unless such termination is (i) a
result of the Executive's death, (ii) for Cause, (iii) a
result of the Executive's Disability (pursuant to the terms of
the Employment Agreement that provide for termination as a
result of Disability), or (iv) by the Executive other than for
Good Reason. A termination of the Executive's employment that
entitles the Executive to the
-6-
<PAGE> 7
payment of benefits under Section 4 hereof shall be referred
to hereinafter as a "Termination."
(b) NOTICE OF TERMINATION. Any purported termination of the
Executive's employment by the Company or by the Executive
shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 8. For purposes
of this Agreement, a "Notice of Termination" shall mean a
notice that shall indicate the specific provision of this
Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision
so indicated.
If, following a Change of Control, the Executive's employment
shall be terminated for Cause or by the Executive for other
than Good Reason, the Company shall pay the Executive any
amounts to be paid to the Executive pursuant to the Employment
Agreement and any other compensation plans, programs, or
employment agreements then in effect, and the Company shall
have no further obligations to the Executive under this
Agreement.
If within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice notifies the other
party that a dispute exists concerning the grounds for
termination, then, notwithstanding the meaning of "Termination
Date" set forth in Section 1(h), the Termination Date shall be
the date on which the dispute is finally resolved, whether by
mutual written agreement of the parties or by a decision
rendered pursuant to Section 11; provided that the Termination
Date shall be extended by a notice of dispute only if such
notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute,
the Company will continue to pay the Executive his full
compensation in effect when the notice giving rise to the
dispute was given, and continue the Executive as a participant
in all benefits, plans, or perquisites in which the Executive
was participating or which he was enjoying when the Notice of
Termination giving rise to the dispute was given (to the
extent such continued participation is not prohibited by law
or the generally applicable terms of those arrangements),
until the dispute is finally resolved. Amounts paid under
this Section 3(b) are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
Section 4. COMPENSATION UPON A TERMINATION
Following a Change of Control of the Company, upon a Termination of the
Executive's employment by the Company without "Cause" or by the Executive for
"Good Reason," the Executive shall be entitled to the following benefits,
provided that the Termination occurs during the three-year period immediately
following the date of the Change of Control:
-7-
<PAGE> 8
(a) STANDARD BENEFITS. The Company shall pay the Executive his
full Base Salary through the Termination Date, at the rate in
effect at the time the Notice of Termination is given, no
later than the second day following the Termination Date, plus
all other amounts to which the Executive is entitled under any
compensation plan of the Company applicable to the Executive
at the time such payments are due. Without limitation,
amounts payable pursuant to this Section 4(a) shall include,
pursuant to the express terms of the short-term incentive plan
in which the Executive participates or otherwise, the
Executive's annual bonus under such short-term incentive plan,
pro-rated to the Termination Date.
(b) ADDITIONAL BENEFITS. The Company shall pay to the Executive
as additional pay ("Additional Pay"), the product of (i) three
(3) and (ii) the sum of (x) the Executive's annual Base Salary
rate in effect immediately before the Termination Date and (y)
the Executive's annual bonus amount under the short-term
incentive plan in which the Executive participates, such bonus
amount to be calculated on the basis of the extent to which
the performance factors targeted by the Compensation Committee
of the Board have been achieved (for this purpose, the
Company's performance through the Termination Date shall be
annualized based upon the actual number of days elapsed from
the beginning of the fiscal year in which the Termination
occurs through the Termination Date over a year of 360 days),
which shall be deemed to be 100% unless the performance
actually achieved is greater than 100%, in which case the
actual performance levels shall be utilized. The Company
shall pay to the Executive the Additional Pay in a lump sum,
in cash, not later than the thirtieth (30th) day following the
Termination Date.
(c) RETIREMENT PLAN BENEFITS. If not already vested, the
Executive shall be deemed fully vested in all Company
retirement plans and/or other written agreements relating to
pay upon retirement in which the Executive was a participant,
party, or beneficiary immediately preceding a Change of
Control, and any additional plans and/or agreements in which
such Executive became a participant, party, or beneficiary
thereafter. In addition to the foregoing, for purposes of
determining the amounts to be paid to the Executive under such
plans and/or agreements, the years of service with the Company
and the age of the Executive under all such plans and
agreements shall be deemed increased by the lesser of
thirty-six (36) months or such shorter period of time as would
render the Executive sixty-five (65) years of age. For
purposes of this Section 4(c), "plans" include, without
limitation, any long-term incentive plan, or non-qualified and
mid-career retirement plans but does not include any plans
intended to be qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). If the terms
of the plans referenced in this Section 4(c) do not for any
reason coincide with the provisions of this Section 4(c), the
Executive shall be entitled to receive from the Company under
the terms of this Agreement an
-8-
<PAGE> 9
amount equivalent to all amounts he would have received had
all such plans continued in existence as in effect on the date
of this Agreement after being amended to coincide with the
terms of this Section 4(c).
(d) OPTION PAYMENTS. In lieu of exercising or retaining any
rights the Executive may have to exercise some or all of the
outstanding stock options that he then holds (including any
rights to exercise stock options that arise during the Term if
he were to remain employed and including any that would
otherwise terminate as result of his termination of
employment), the Executive may elect within sixty (60) days
after termination of employment to surrender such rights to
the Company and receive in exchange therefor a cash payment
equal to the aggregate difference, if positive, between (a)
the "fair market value" (determined as of the date of
termination using the higher of the "fair market value" (i) as
defined in the terms of the applicable option plan or option
agreement as of the date of termination and (ii) as defined
in the plan or agreement on the date of grant) of the shares
of common stock subject to the options and (b) the option
prices of the shares subject to such surrendered options; and
the Company shall make such payment within forty-five (45)
days after the Executive notifies the Company of his election
to surrender all or a portion of his options.
(e) HEALTH BENEFITS. Following the Termination Date, the Company
shall provide, at its own expense, the continued health
coverage required by Section 4980B of the Code.
(f) GROSS-UP PAYMENTS.
(i) If any payment or the value of any benefit received
or to be received by the Executive in connection with
the Executive's Termination or contingent upon a
Change of Control of the Company (whether received or
to be received pursuant to the terms of this
Agreement (the "Agreement Payments") or of any other
plan, arrangement, or agreement of the Company, its
successors, any person whose actions result in a
Change of Control of the Company, or any person
affiliated with any of them (or which, as a result of
the completion of the transactions causing a Change
of Control, will become affiliated with any of them
("Other Payments" and, together with the Agreement
Payments, the "Payments")) would be subject to the
excise tax imposed by Section 4999 of the Code or any
comparable federal, state, or local excise tax (such
excise tax, together with any interest and penalties,
are hereinafter collectively referred to as the
"Excise Tax"), as determined as provided below, the
Company shall pay to the Executive an additional
amount (the "Gross-Up Payment") such that the net
amount the Executive retains, after deduction of the
Excise Tax on Agreement Payments and Other Payments
and any federal, state, and local income tax and
Excise Tax upon the payment provided for by
-9-
<PAGE> 10
this Section 4(f)(i), and any interest, penalties, or
additions to tax payable by the Executive with
respect thereto shall be equal to the total present
value of the Agreement Payments and Other Payments at
the time such Payments are to be made. The intent of
the parties is that the Company shall be solely
responsible for and shall pay, any Excise Tax on any
Payments and Gross-Up Payment and any income and
employment taxes (including, without limitation,
penalties and interest) imposed on any Gross-Up
Payments as well as any loss of deduction caused by
the Gross-Up Payment.
(ii) All determinations required to be made under this
Section 4(f), including, without limitation, whether
and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determinations,
shall be made by tax counsel (either a law firm or a
nationally recognized public accounting firm)
selected by the Company and reasonably acceptable to
the Executive ("Tax Counsel"). The Company shall
cause the Tax Counsel to provide detailed supporting
calculations to the Company and the Executive within
fifteen (15) business days after notice is given by
the Executive to the Company that any or all of the
Payments have occurred, or such earlier time as is
requested by the Company. Within two (2) business
days after such notice is given to the Company, the
Company shall instruct the Tax Counsel to timely
provide the data required by this Section 4(f) to the
Executive. The Company shall pay all fees and
expenses of the Tax Counsel. The Company shall pay
any Excise Tax determined pursuant to this Section
4(f) to the Internal Revenue Service ("IRS") and/or
other appropriate taxing authority on the Executive's
behalf within five (5) days after receipt of the Tax
Counsel's determination. If the Tax Counsel
determines that there is substantial authority
(within the meaning of Section 6662 of the Code) that
no Excise Tax is payable by the Executive, the Tax
Counsel shall furnish the Executive with a written
opinion that failure to disclose or report the Excise
Tax on the Executive's federal income tax return will
not constitute a substantial understatement of tax or
be reasonably likely to result in the imposition of a
negligence or similar penalty. Any determination by
the Tax Counsel shall be binding upon the Company and
the Executive in the absence of material mathematical
or legal error.
As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial
determination by the Tax Counsel hereunder, it is
possible that the Company will not have made Gross-Up
Payments that should have been made or that it will
have made Gross-Up Payments that should not have been
made, in each case, consistent with the calculations
required to be made hereunder. If the Company
exhausts
- 10 -
<PAGE> 11
its remedies pursuant to Section 4(f)(iii) below and
the Executive is thereafter required to pay any
Excise Tax, the Tax Counsel shall determine the
amount of underpayment of Excise Taxes that has
occurred and the Company shall promptly pay any such
underpayment to the IRS or other appropriate taxing
authority on the Executive's behalf or, if the
Executive has previously paid such underpayment, to
the Executive. If the Tax Counsel determines that an
overpayment of Gross-Up Payments has occurred, any
such overpayment shall be treated for all purposes as
a loan to the Executive with interest at the
applicable federal rate provided for in Section
7872(f)(2) of the Code, due and payable within ninety
(90) days after written demand to the Executive by
the Company; provided, however, that the Executive
shall have no duty or obligation whatsoever to repay
such loan if the Executive's receipt of the
overpayment, or any portion thereof, is includible in
the Executive's income and the Executive's repayment
of the same is not deductible by the Executive for
federal and state income tax purposes.
(iii) The Executive shall notify the Company in writing of
any claim by the IRS or state or local taxing
authority, that, if successful, would result in any
Excise Tax or an underpayment of Gross-Up Payments.
Such notice shall be given as soon as practicable but
no later than fifteen (15) business days after the
Executive is informed in writing of the claim and
shall inform the Company of the nature of the claim,
the administrative or judicial appeal period, and the
date on which any payment of the claim must be paid.
The Executive shall not pay any portion of the claim
before the expiration of the thirty (30) day period
following the date on which the Executive gives such
notice to the Company (or such shorter period ending
on the date that any amount under the claim is due).
If the Company notifies the Executive in writing
before the expiration of such thirty (30) day period
that it desires to contest the claim, the Executive
shall:
(A) give the Company any information reasonably
requested by the Company relating to the
claim;
(B) take such action in connection with
contesting the claim as the Company shall
reasonably request in writing from time to
time, including, without limitation,
accepting legal representation concerning the
claim by an attorney selected by the Company
who is reasonably acceptable to the
Executive; and
(C) cooperate with the Company in good faith in
order to effectively contest the claim;
provided, however, that the Company shall
bear and pay directly all costs and expenses
(including, without
- 11 -
<PAGE> 12
limitation, additional interest and penalties
and attorneys' fees) incurred in such
contests and shall indemnify and hold the
Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including,
without limitation, interest and penalties
thereon) imposed as a result of such
representation. Without limitation upon the
foregoing provisions of this Section
4(f)(iii), except as provided below, the
Company shall control all proceedings
concerning such contest and, in its sole
opinion, may pursue or forego any and all
administrative appeal, proceedings, hearings,
and conferences with the taxing authority
pertaining to the claim. At the Company's
written request and upon payment to the
Executive of an amount at least equal to the
claim plus any additional amount necessary to
obtain the jurisdiction of the appropriate
tribunal and/or court, the Executive shall
pay the same and sue for a refund. The
Executive agrees to prosecute any contest of
a claim to a determination before any
administrative tribunal, in a court of
initial jurisdiction and in one or more
appellate courts, as the Company shall
determine; provided, however, that if the
Company requests the Executive to pay the
claim and sue for a refund, the Company shall
advance the amount of such payment to the
Executive, on an interest-free basis, and
shall indemnify and hold the Executive
harmless on an after-tax basis, from any
Excise Tax or income tax (including, without
limitation, interest and penalties thereon)
imposed on such advance or for any imputed
income on such advance. Any extension of the
statute of limitations relating to assessment
of any Excise Tax for the taxable year of the
Executive that is the subject of the claim is
to be limited solely to the claim.
Furthermore, the Company's control of the
contest shall be limited to issues for which
a Gross-Up Payment would be payable
hereunder. The Executive shall be entitled
to settle or contest, as the case may be, any
other issue raised by the IRS or any other
taxing authority.
(iv) If, after the Executive receives an amount the
Company advanced pursuant to Section 4(f)(iii) above,
the Executive receives any refund of a claim and/or
any additional amount that was necessary to obtain
jurisdiction, the Executive shall promptly pay to the
Company the amount of such refund (together with any
interest paid or credited thereon after taxes
applicable thereto). If, after the Executive
receives an amount the Company advanced pursuant to
Section 4(f)(iii) above, a determination is made that
the Executive shall not be entitled to any refund of
the claim, and the Company does not notify the
Executive in writing of its intent to contest such
denial of refund of a claim before the expiration of
thirty (30) days after such determination, then the
portion of such advance
- 12 -
<PAGE> 13
attributable to a claim shall be forgiven and shall
not be required to be repaid. The amount of such
advance attributable to a claim shall offset, to the
extent thereof, the amount of the underpayment
required to be paid by the Company to the Executive.
(v) If, after the Company advances an additional amount
necessary to obtain jurisdiction, there is a final
determination made by the taxing authority that the
Executive is not entitled to any refund of such
amount, or any portion thereof, then the Executive
shall repay such nonrefundable amount to the Company
within thirty (30) days after the Executive receives
notice of such final determination. A final
determination shall occur when the period to contest
or otherwise appeal any decision by an administrative
tribunal or court of initial jurisdiction has been
waived or the time for contesting or appealing the
same has expired.
(g) LEGAL FEES AND EXPENSES. The Company shall pay to the
Executive all legal fees and expenses as and when incurred by
the Executive in connection with this Agreement, including all
such fees and expenses, if any, incurred in contesting or
disputing any Termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement, regardless of
the outcome, unless, in the case of a legal action brought by
or in the name of the Executive, a decision is rendered
pursuant to Section 10 that such action was not brought by the
Executive in good faith, in which event the Executive shall be
liable to the Company for its legal fees and expenses.
(h) NO MITIGATION. The Executive shall not be required to
mitigate the amount of any payment provided for in this
Section 4 by seeking other employment or otherwise, nor shall
the amount of any payment or benefit provided for in this
Section 4 be reduced by any compensation the Executive earns
as the result of employment by another employer or by
retirement or other benefits received after the Termination
Date or otherwise, except as specifically provided in this
Section 4. The Company's obligation to make payments provided
for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense, or other claim, right, or action that the
Company or Employer may have against the Executive or other
parties.
Section 5. DEATH AND DISABILITY BENEFITS
In the event of the death or Disability of the Executive after a
Change of Control of the Company, the Executive, or in the case of death, the
Executive's beneficiaries, shall receive the benefits to which they are
entitled under the the Employment Agreement, the retirement plans, disability
policies, and other applicable plans or agreements of the Company.
- 13 -
<PAGE> 14
Section 6. SUCCESSORS; BINDING AGREEMENT
(a) OBLIGATIONS OF SUCCESSORS. The Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and
agree to perform this Agreement in the same manner and to the
same extent that the Company is required to perform it.
Failure of the Company to obtain such assumption and agreement
before the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the
same terms as the Executive would be entitled hereunder if the
Executive had terminated his employment following a Change of
Control of the Company, except that for purposes of
implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Termination
Date. As used in this Agreement, the "Company" shall mean the
Company as hereinabove defined and any successor to its
business and/or assets as aforesaid that assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(b) ENFORCEABLE BY BENEFICIARIES. This Agreement shall inure to
the benefit of and be enforceable by the Executive's personal
or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees (the
"Beneficiaries"). If the Executive dies while any amount
would still be payable hereunder if he had not then died, all
such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to the
Executive's Beneficiaries.
(c) EMPLOYMENT. Except in the event of a Change of Control and,
thereafter, only as specifically set forth in this Agreement,
nothing in this Agreement shall be construed to (i) limit in
any way the right of the Company or a Subsidiary to terminate
the Executive's employment at any time for any reason or for
no reason; or (ii) be evidence of any agreement or
understanding, expressed or implied, that the Company or a
Subsidiary will employ the Executive in any particular
position, on any particular terms, or at any particular rate
of remuneration.
Section 7. CONFIDENTIAL INFORMATION.
The Executive shall hold in fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge, or data relating to
the Company, the Subsidiaries, and their respective businesses, that shall have
been obtained during the Executive's employment by the Employer and that shall
not be public knowledge (other than by acts by the Executive or his
representatives in violation of this Agreement). After termination of the
Executive's employment with the Company or any Employer within the Controlled
Group, the Executive shall not, without prior written consent of the Company or
the Employer, communicate or divulge any such information, knowledge, or data
to anyone other than the Company, the
- 14 -
<PAGE> 15
Employer, or those designated by them. In no event shall an asserted violation
of this Section 7 or comparable provisions in any applicable employment
agreement constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
Section 8. NOTICE
All notices, demands, requests. or other communications required or
permitted to be given or made hereunder shall be in writing and shall be
delivered, telecopied, or mailed by first class registered or certified mail,
postage prepaid, addressed as follows:
(a) if to the Company:
Metrocall, Inc.
6677 Richmond Highway
Alexandria, Virginia 22306
Telecopier: (703) 768-5407
Attention: Francis A. Martin, III
with a copy (which shall not constitute notice) to
Wilmer, Cutler & Pickering
2445 M Street, NW
Washington, DC 20037-1420
Telecopier: (202) 663-6363
Attention: George P. Stamas and John B. Watkins
(a) if to the Executive:
Vincent D. Kelly
11807 Chapel Road
Clifton, VA 22024
or to such other address as may be designated by either party in a
notice to the other. Each notice, demand, request, or other
communication that shall be given or made in the manner described
above shall be deemed sufficiently given or made for all purposes
three (3) days after it is deposited in the U.S. mail, postage
prepaid, or at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, the answer back, or the
affidavit of messenger being deemed conclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
Section 9. MISCELLANEOUS
No provision of this Agreement may be modified, waived, or discharged
unless such waiver, modification, or discharge is agreed to in writing and
signed by the Executive and the
- 15 -
<PAGE> 16
Chairman of the Compensation Committee of the Board of Directors. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any conditions or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any earlier or later time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party that are
not expressly set forth in this Agreement. validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Virginia. All references to sections of the Code or the
Exchange Act shall be deemed also to refer to any successor provisions of such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Sections 4 and 5 shall survive the expiration
of the term of this Agreement.
Section 10. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
Section 11. ARBITRATION
The Executive may designate in writing to the Company (in which case
this Section 11 shall have effect but not otherwise) that any dispute that may
arise directly or indirectly in connection with this Agreement, the Executive's
employment, or the termination of the Executive's employment, whether arising
in contract, statute, tort, fraud, misrepresentation, or other legal theory,
shall be determined solely by arbitration in Washington, D.C. under the rules
of the American Arbitration Association (the "AAA"). The only legal claims
between the Executive, on the one hand, and the Company or any Subsidiary, on
the other, that would not be included in this agreement to arbitration are
claims by the Executive for workers' compensation or unemployment compensation
benefits, claims for benefits under a Company or Subsidiary benefit plan if the
plan does not provide for arbitration of such disputes, and claims by the
Executive that seek judicial relief in the form of specific performance of the
right to be paid until the Termination Date during the pendency of any dispute
or controversy arising under Section 3(b). If this Section 11 is in effect,
any claim with respect to this Agreement, the Executive's employment, or the
termination of the Executive's employment must be established by a
preponderance of the evidence submitted to the impartial arbitrator. A single
arbitrator engaged in the practice of law shall conduct any arbitration under
the then current procedures of the AAA and under the AAA's then current Model
Employment Arbitration Rules. The arbitrator shall have the authority to order
a pre-hearing exchange of information by the parties including, without
limitation, production of requested documents, and examination by deposition of
parties and their authorized agents. If this Section 11 is in effect, the
decision of the arbitrator (i) shall be final and binding, (ii) shall be
rendered within ninety (90) days after the impanelment of the arbitrator, and
(iii) shall be kept confidential by the parties to such arbitration. The
- 16 -
<PAGE> 17
arbitration award may be enforced in any court of competent jurisdiction. The
Federal Arbitration Act, 9 U.S.C. Section Section 1-15, not state law, shall
govern the arbitrability of all claims.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign both originals of this letter and return to the Assistant Secretary
of the Company one of the fully executed originals of this letter, which will
then constitute our agreement on this subject.
Sincerely,
METROCALL, INC.
By: /s/ Richard D. Johnston
-----------------------
Richard D. Johnston
Chairman of the Board of Directors
Acknowledged and Agreed:
/s/ Vincent D. Kelly
- --------------------
Vincent D. Kelly
May 15, 1996
- ------------
Date
- 17 -
<PAGE> 1
EXHIBIT 10.10
METROCALL, INC.
CHANGE OF CONTROL AGREEMENT
FOR CHIEF EXECUTIVE OFFICER
May 15, 1996
William L. Collins, III
314 River Bend Road
Great Falls, Virginia 22066
Dear Mr. Collins:
Metrocall, Inc. (the "Company"), on behalf of itself, its
subsidiaries, and its shareholders, wishes to encourage your continued service
and dedication in the performance of your duties, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined in
Section 1(b) below) of the Company. The Board of Directors of the Company (the
"Board") believes that the prospect of a pending or threatened Change of
Control inevitably creates distractions and personal risks and uncertainties
for a company's executives and that it is in the best interests of the Company
to minimize such distractions to certain executives and the Company. The Board
further believes that it is in the best interests of the Company to encourage
its executives' full attention and dedication to their duties, both currently
and in the event of any threatened or pending Change of Control.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued retention of you and certain
members of the Company's management and the attention and dedication of
management to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change
of Control of the Company.
To induce you (the "Executive") to remain in the Company's employ and
in consideration of your continued service to the Company, the Company agrees
that you shall receive the benefits set forth in this letter agreement (the
"Agreement") if your employment with the Company is terminated for any reason
after a Change of Control of the Company and has, of even date herewith,
entered into a revised employment agreement relating to your services as
President and Chief Executive Officer (the "Employment Agreement"). For
purposes of this Agreement, references to employment with the Company shall
include employment with a Subsidiary of the Company.
Section 1. DEFINITIONS
The following terms shall have the meanings set forth below for purposes of
this Agreement.
(a) CAUSE. Under this Agreement, "Cause" shall mean (1)
dishonesty of a material nature relating to performing
services under the Employment Agreement, (2) criminal conduct
(other than minor infractions and traffic violations) that
relates
<PAGE> 2
to the performance of services under the Employment Agreement,
or (3) the Executive's willfully breaching or failing to
perform his employment duties as set forth in his Employment
Agreement, which act or omission results in a material adverse
effect on the Company. For purposes of this Section 1(a), no
act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that
such action or omission was in the best interests of the
Company. Notwithstanding the foregoing, the Executive shall
not be deemed to have been terminated for Cause unless and
until there shall have been delivered to the Executive a
certificate of a resolution duly adopted by the affirmative
vote of not less than seventy-five percent (75%) of the entire
membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with
the Executive's counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, the
Executive has engaged in the conduct set forth in this
subsection and specifying the particulars thereof in detail.
(b) CHANGE OF CONTROL. For purposes of this Agreement, a "Change
of Control" shall be deemed to have occurred if there is a
change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") or any successor
provision of similar import, whether or not the Company is
then subject to such reporting requirement; provided that,
without limitation, such a Change of Control shall be deemed
to have occurred if:
(i) any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act) is or becomes a
"beneficial owner" (as determined for purposes of
Regulation 13D-G under the Exchange Act as currently
in effect), directly or indirectly, of securities
representing twenty-five percent (25%) or more of the
total voting power of all of the Company's then
outstanding voting securities, unless through a
transaction consummated with the Board's prior
approval; provided, however, that for purposes of
this paragraph, persons acting in concert under the
terms of that certain Voting Agreement dated as of
August 31, 1994 shall not, solely as a result of
actions provided under such agreement, be treated as
a "person";
(ii) during any period of two consecutive calendar years,
individuals who at the beginning of such period
constitute the Board and any new director(s) whose
election by the Board or nomination for election by
the Company's shareholders was approved by a vote of
at least two-thirds of the directors then still in
office who either were directors at the beginning of
the period or whose election or nomination for
election was previously so approved cease for any
reason to constitute a majority of the Board;
-2-
<PAGE> 3
(iii) the Company becomes a party to a merger, plan of
reorganization, consolidation, or share exchange in
which either (x) the Company will not be the
surviving corporation or (y) the Company will be the
surviving corporation and any outstanding shares of
the Company's common stock will be converted into
shares of any other company (other than a
reincorporation or the establishment of a holding
company involving no change of ownership of the
Company) or other securities or cash or other
property (excluding payments made solely for
fractional shares);
(iv) the shareholders of the Company approve a merger,
plan of reorganization, consolidation, or share
exchange with any other corporation, and immediately
following such merger, plan of reorganization,
consolidation, or share exchange the holders of the
voting securities of the Company outstanding
immediately prior thereto hold securities
representing fifty percent (50%) or less of the
combined voting power of the voting securities of the
Company or such surviving entity outstanding
immediately after such merger, plan of
reorganization, consolidation, or share exchange;
provided, however, that notwithstanding the
foregoing, no Change of Control for purposes of this
Section 1(b)(iv) shall be deemed to have occurred if
seventy-five percent (75%) or more of the members of
the Board of the Company or such surviving entity
immediately after such merger, plan of
reorganization, consolidation, or share exchange is
comprised of persons who served as directors of the
Company immediately before such merger, plan of
reorganization, consolidation, or share exchange or
who are otherwise designees of the Company; or
(v) any other event occurs that a majority of the Board,
in its sole discretion, shall determine constitutes a
Change of Control.
(c) CONTROLLED GROUP. For purposes of this Agreement, "Controlled
Group" shall mean the Company and all of the Company's
Subsidiaries.
(d) DISABILITY. "Disability" shall have the meaning set forth in
the Employment Agreement.
(e) EMPLOYER. For purposes of this Agreement, "Employer" shall
mean the Company or the Subsidiary, as the case may be, with
which the Executive has an employment relationship.
(f) GOOD REASON. For purposes of this Agreement, "Good Reason"
shall mean the occurrence, without the Executive's express
written consent, of any of the following circumstances:
-3-
<PAGE> 4
(i) the Company's failure to perform or observe any of
the material terms or provisions of this Agreement or
the Employment Agreement, and the continued failure
of the Company to cure such default within fifteen
(15) days after the Executive gives a written demand
for performance to the Company, which demand shall
describe specifically the nature of such alleged
failure to perform or observe such material terms or
provisions;
(ii) the assignment to the Executive of any duties
inconsistent with, or any substantial diminution in,
such Executive's status or responsibilities as in
effect immediately before a Change of Control of the
Company, including imposition of travel obligations
that differ materially from required business travel
immediately before the Change of Control;
(iii) any diminution in the status or responsibilities of
the Executive's position from that which existed
immediately before the Change of Control, whether by
reason of the Company's ceasing to be a public
company under the Exchange Act, becoming a subsidiary
of a successor public company, or otherwise;
(iv) (I) a reduction in the Executive's Base Salary (as
defined in the Employment Agreement), as that amount
may be increased from time to time and as in effect
immediately before the Change of Control; or (II) the
failure to pay a bonus award to which the Executive
is otherwise entitled under any short-term incentive
plan in which the Executive then participates, or any
successor incentive compensation plans at the time
such awards are usually paid;
(v) the termination of employment of Steven D. Jacoby or
Vincent D. Kelly (other than a termination (I) by the
Company for "Cause" or (II) because of death or
"Disability" as those terms are defined and applied
in their respective employment agreements), including
a termination that results from a failure by the
Company and Jacoby or Kelly to reach agreement to
continue Jacoby's or Kelly's employment on terms at
least as favorable to him, in the aggregate, as those
in effect before the Change in Control of the
Company;
(vi) a change in the principal place of the Executive's
employment, as in effect immediately before the
Change of Control of the Company, to a location more
than thirty-five (35) miles distant from the location
of such principal place at such time;
(vi) (A) the Company's failure to continue in effect any
incentive compensation plan or stock option plan in
which the Executive participates immediately before
the Change in Control, unless an
-4-
<PAGE> 5
equivalent alternative compensation arrangement
(embodied in an ongoing substitute or alternative
plan) has been provided to the Executive, or (B) the
Company's failure to continue the Executive's
participation in any such incentive or stock option
plan on substantially the same basis, both in terms
of the amount of benefits provided and the level of
the Executive's participation relative to other
participants, as existed immediately before the time
of the Change of Control;
(viii) the Company's violation of any applicable criminal
law not due to the Executive's gross negligence or
willful misconduct;
(ix) the failure of the Company or any successor to obtain
a satisfactory written agreement from any successor
to assume and agree to perform this Agreement, as
contemplated in Section 6(a) below; or
(x) any purported termination of the Executive's
employment that is not effected pursuant to a Notice
of Termination satisfying the requirements of Section
3(b) or, if applicable, Section 1(a). For purposes
of this Agreement, no such purported termination
shall be effective except as constituting Good
Reason.
The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstances constituting
Good Reason hereunder.
(g) SUBSIDIARY. For purposes of this Agreement, "Subsidiary"
shall mean any corporation of whose voting stock the Company
directly or indirectly owns more than fifty percent (50%).
(h) TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean: (i) if the Executive's
employment is terminated for Disability pursuant to the
Employment Agreement, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not
have returned to the full-time performance of his duties
during such thirty-day period); and (ii) if the Executive's
employment is terminated for Cause or Good Reason or for any
reason other than death or Disability, the date specified in
the Notice of Termination (which in the case of a termination
for Cause shall not be less than thirty (30) days and in the
case of a termination for Good Reason shall not be less than
thirty (30) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given).
Section 2. TERM OF AGREEMENT
(a) GENERAL. Upon execution by the Executive, this Agreement
shall commence as of May ___, 1996. This Agreement shall
continue in effect on December 31,
-5-
<PAGE> 6
1999; provided, however, that the term shall be automatically
extended for additional one (1) year periods on each
anniversary date of this Agreement, unless and until either
party notifies the other party not less than ninety (90) days
before such anniversary date that such party is terminating
this Agreement, which termination shall be effective as of the
end of such initial term or extended term, as the case may be
(the "Expiration Date"); and provided further, however, that
if a Change of Control of the Company occurs before the
Expiration Date, this Agreement shall continue in effect for a
period of thirty-six months beyond the month in which the
Change of Control occurred.
(b) DISPOSITION OF EMPLOYER. If the Executive is employed by a
Subsidiary, the terms of this Agreement shall expire if such
Subsidiary is sold or otherwise disposed of before a Change of
Control unless the Executive continues in employment with the
Controlled Group after such sale or other disposition. If the
Executive's Employer is sold or disposed of following a Change
of Control, this Agreement shall continue through its original
term or any extended term then in effect.
(c) DEEMED CHANGE OF CONTROL. If the Executive's employment with
the Employer is terminated before the date on which a Change
of Control occurs, and such termination was at the request of
a third party who has taken steps to effect a Change of
Control or the termination was otherwise caused by the Change
of Control, then for all purposes of this Agreement, a Change
of Control shall be deemed to have occurred before such
termination.
(d) EXPIRATION OF AGREEMENT. No termination or expiration of this
Agreement shall affect any rights, obligations, or liabilities
of either party that shall have accrued on or before the date
of such termination or expiration.
Section 3. TERMINATION FOLLOWING CHANGE OF CONTROL
(a) ENTITLEMENT TO BENEFITS. If a Change of Control of the
Company occurs, the Executive shall be entitled to the
benefits provided in Section 4 hereof upon his termination of
employment with the Company within three years after the date
of the Change of Control, unless such termination is (i) a
result of the Executive's death, (ii) for Cause, (iii) a
result of the Executive's Disability(pursuant to the terms of
the Employment Agreement that provide for termination as a
result of Disability), or (iv) by the Executive other than for
Good Reason. A termination of the Executive's employment that
entitles the Executive to the payment of benefits under
Section 4 hereof shall be referred to hereinafter as a
"Termination."
(b) NOTICE OF TERMINATION. Any purported termination of the
Executive's employment by the Company or by the Executive
shall be communicated by
-6-
<PAGE> 7
written Notice of Termination to the other party hereto in
accordance with Section 8. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice that shall
indicate the specific provision of this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated.
If, following a Change of Control, the Executive's employment
shall be terminated for Cause or by the Executive for other
than Good Reason, the Company shall pay the Executive any
amounts to be paid to the Executive pursuant to the Employment
Agreement and any other compensation plans, programs, or
employment agreements then in effect, and the Company shall
have no further obligations to the Executive under this
Agreement.
If within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice notifies the other
party that a dispute exists concerning the grounds for
termination, then, notwithstanding the meaning of "Termination
Date" set forth in Section 1(h), the Termination Date shall be
the date on which the dispute is finally resolved, whether by
mutual written agreement of the parties or by a decision
rendered pursuant to Section 11; provided that the Termination
Date shall be extended by a notice of dispute only if such
notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute,
the Company will continue to pay the Executive his full
compensation in effect when the notice giving rise to the
dispute was given, and continue the Executive as a participant
in all benefits, plans, or perquisites in which the Executive
was participating or which he was enjoying when the Notice of
Termination giving rise to the dispute was given (to the
extent such continued participation is not prohibited by law
or the generally applicable terms of those arrangements),
until the dispute is finally resolved. Amounts paid under
this Section 3(b) are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
Section 4. COMPENSATION UPON A TERMINATION
Following a Change of Control of the Company, upon a Termination of the
Executive's employment by the Company without "Cause" or by the Executive for
"Good Reason," the Executive shall be entitled to the following benefits,
provided that the Termination occurs during the three-year period immediately
following the date of the Change of Control:
(a) STANDARD BENEFITS. The Company shall pay the Executive his
full Base Salary through the Termination Date, at the rate in
effect at the time the Notice of Termination is given, no
later than the second day following the Termination Date, plus
all other amounts to which the Executive is entitled under any
-7-
<PAGE> 8
compensation plan of the Company applicable to the Executive
at the time such payments are due. Without limitation,
amounts payable pursuant to this Section 4(a) shall include,
pursuant to the express terms of the short-term incentive plan
in which the Executive participates or otherwise, the
Executive's annual bonus under such short-term incentive plan,
pro-rated to the Termination Date.
(b) ADDITIONAL BENEFITS. The Company shall pay to the Executive
as additional pay ("Additional Pay"), the product of (i) three
(3) and (ii) the sum of (x) the Executive's annual Base Salary
rate in effect immediately before the Termination Date and (y)
the Executive's annual bonus amount under the short-term
incentive plan in which the Executive participates, such bonus
amount to be calculated on the basis of the extent to which
the performance factors targeted by the Compensation Committee
of the Board have been achieved (for this purpose, the
Company's performance through the Termination Date shall be
annualized based upon the actual number of days elapsed from
the beginning of the fiscal year in which the Termination
occurs through the Termination Date over a year of 360 days),
which shall be deemed to be 100% unless the performance
actually achieved is greater than 100%, in which case the
actual performance levels shall be utilized. The Company
shall pay to the Executive the Additional Pay in a lump sum,
in cash, not later than the thirtieth (30th) day following the
Termination Date.
(c) RETIREMENT PLAN BENEFITS. If not already vested, the
Executive shall be deemed fully vested in all Company
retirement plans and/or other written agreements relating to
pay upon retirement in which the Executive was a participant,
party, or beneficiary immediately preceding a Change of
Control, and any additional plans and/or agreements in which
such Executive became a participant, party, or beneficiary
thereafter. In addition to the foregoing, for purposes of
determining the amounts to be paid to the Executive under such
plans and/or agreements, the years of service with the Company
and the age of the Executive under all such plans and
agreements shall be deemed increased by the lesser of
thirty-six (36) months or such shorter period of time as would
render the Executive sixty-five (65) years of age. For
purposes of this Section 4(c), "plans" include, without
limitation, any long-term incentive plan, or non-qualified and
mid-career retirement plans but does not include any plans
intended to be qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). If the terms
of the plans referenced in this Section 4(c) do not for any
reason coincide with the provisions of this Section 4(c), the
Executive shall be entitled to receive from the Company under
the terms of this Agreement an amount equivalent to all
amounts he would have received had all such plans continued in
existence as in effect on the date of this Agreement after
being amended to coincide with the terms of this Section 4(c).
-8-
<PAGE> 9
(d) OPTION PAYMENTS. In lieu of exercising or retaining any
rights the Executive may have to exercise some or all of the
outstanding stock options that he then holds (including any
rights to exercise stock options that arise during the Term if
he were to remain employed and including any that would
otherwise terminate as result of his termination of
employment), the Executive may elect within sixty (60) days
after termination of employment to surrender such rights to
the Company and receive in exchange therefor a cash payment
equal to the aggregate difference, if positive, between (a)
the "fair market value" (determined as of the date of
termination using the higher of the "fair market value" (i) as
defined in the terms of the applicable option plan or option
agreement as of the date of termination and (ii) as defined
in the plan or agreement on the date of grant) of the shares
of common stock subject to the options and (b) the option
prices of the shares subject to such surrendered options; and
the Company shall make such payment within forty-five (45)
days after the Executive notifies the Company of his election
to surrender all or a portion of his options.
(e) HEALTH AND LIFE BENEFITS. Following the Termination Date, the
Company shall provide, at its own expense, the continued
health coverage required by Section 4980B of the Code and
shall continue to pay the premiums on his whole life policy
(as set forth in Section 4(c) of the Employment Agreement) for
the lesser of the remainder of the time during the insurance
policy during which premiums are due or three years.
(f) GROSS-UP PAYMENTS.
(i) If any payment or the value of any benefit received
or to be received by the Executive in connection with
the Executive's Termination or contingent upon a
Change of Control of the Company (whether received or
to be received pursuant to the terms of this
Agreement (the "Agreement Payments") or of any other
plan, arrangement, or agreement of the Company, its
successors, any person whose actions result in a
Change of Control of the Company, or any person
affiliated with any of them (or which, as a result of
the completion of the transactions causing a Change
of Control, will become affiliated with any of them
("Other Payments" and, together with the Agreement
Payments, the "Payments")) would be subject to the
excise tax imposed by Section 4999 of the Code or any
comparable federal, state, or local excise tax (such
excise tax, together with any interest and penalties,
are hereinafter collectively referred to as the
"Excise Tax"), as determined as provided below, the
Company shall pay to the Executive an additional
amount (the "Gross-Up Payment") such that the net
amount the Executive retains, after deduction of the
Excise Tax on Agreement Payments and Other Payments
and any federal, state, and local income tax and
Excise Tax upon the payment provided for by this
Section 4(f)(i), and any interest, penalties, or
additions to tax payable
-9-
<PAGE> 10
by the Executive with respect thereto shall be equal
to the total present value of the Agreement Payments
and Other Payments at the time such Payments are to
be made. The intent of the parties is that the
Company shall be solely responsible for and shall
pay, any Excise Tax on any Payments and Gross-Up
Payment and any income and employment taxes
(including, without limitation, penalties and
interest) imposed on any Gross-Up Payments as well as
any loss of deduction caused by the Gross-Up Payment.
(ii) All determinations required to be made under this
Section 4(f), including, without limitation, whether
and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determinations,
shall be made by tax counsel (either a law firm or a
nationally recognized public accounting firm)
selected by the Company and reasonably acceptable to
the Executive ("Tax Counsel"). The Company shall
cause the Tax Counsel to provide detailed supporting
calculations to the Company and the Executive within
fifteen (15) business days after notice is given by
the Executive to the Company that any or all of the
Payments have occurred, or such earlier time as is
requested by the Company. Within two (2) business
days after such notice is given to the Company, the
Company shall instruct the Tax Counsel to timely
provide the data required by this Section 4(f) to the
Executive. The Company shall pay all fees and
expenses of the Tax Counsel. The Company shall pay
any Excise Tax determined pursuant to this Section
4(f) to the Internal Revenue Service ("IRS") and/or
other appropriate taxing authority on the Executive's
behalf within five (5) days after receipt of the Tax
Counsel's determination. If the Tax Counsel
determines that there is substantial authority
(within the meaning of Section 6662 of the Code) that
no Excise Tax is payable by the Executive, the Tax
Counsel shall furnish the Executive with a written
opinion that failure to disclose or report the Excise
Tax on the Executive's federal income tax return will
not constitute a substantial understatement of tax or
be reasonably likely to result in the imposition of a
negligence or similar penalty. Any determination by
the Tax Counsel shall be binding upon the Company and
the Executive in the absence of material mathematical
or legal error.
As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial
determination by the Tax Counsel hereunder, it is
possible that the Company will not have made Gross-Up
Payments that should have been made or that it will
have made Gross-Up Payments that should not have been
made, in each case, consistent with the calculations
required to be made hereunder. If the Company
exhausts its remedies pursuant to Section 4(f)(iii)
below and the Executive is
- 10 -
<PAGE> 11
thereafter required to pay any Excise Tax, the Tax
Counsel shall determine the amount of underpayment of
Excise Taxes that has occurred and the Company shall
promptly pay any such underpayment to the IRS or
other appropriate taxing authority on the Executive's
behalf or, if the Executive has previously paid such
underpayment, to the Executive. If the Tax Counsel
determines that an overpayment of Gross-Up Payments
has occurred, any such overpayment shall be treated
for all purposes as a loan to the Executive with
interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code, due and payable
within ninety (90) days after written demand to the
Executive by the Company; provided, however, that the
Executive shall have no duty or obligation whatsoever
to repay such loan if the Executive's receipt of the
overpayment, or any portion thereof, is includible in
the Executive's income and the Executive's repayment
of the same is not deductible by the Executive for
federal and state income tax purposes.
(iii) The Executive shall notify the Company in writing of
any claim by the IRS or state or local taxing
authority, that, if successful, would result in any
Excise Tax or an underpayment of Gross-Up Payments.
Such notice shall be given as soon as practicable but
no later than fifteen (15) business days after the
Executive is informed in writing of the claim and
shall inform the Company of the nature of the claim,
the administrative or judicial appeal period, and the
date on which any payment of the claim must be paid.
The Executive shall not pay any portion of the claim
before the expiration of the thirty (30) day period
following the date on which the Executive gives such
notice to the Company (or such shorter period ending
on the date that any amount under the claim is due).
If the Company notifies the Executive in writing
before the expiration of such thirty (30) day period
that it desires to contest the claim, the Executive
shall:
(A) give the Company any information reasonably
requested by the Company relating to the
claim;
(B) take such action in connection with
contesting the claim as the Company shall
reasonably request in writing from time to
time, including, without limitation,
accepting legal representation concerning the
claim by an attorney selected by the Company
who is reasonably acceptable to the
Executive; and
(C) cooperate with the Company in good faith in
order to effectively contest the claim;
provided, however, that the Company shall
bear and pay directly all costs and expenses
(including, without limitation, additional
interest and penalties and attorneys' fees)
- 11 -
<PAGE> 12
incurred in such contests and shall indemnify
and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income
tax (including, without limitation, interest
and penalties thereon) imposed as a result of
such representation. Without limitation upon
the foregoing provisions of this Section
4(f)(iii), except as provided below, the
Company shall control all proceedings
concerning such contest and, in its sole
opinion, may pursue or forego any and all
administrative appeal, proceedings, hearings,
and conferences with the taxing authority
pertaining to the claim. At the Company's
written request and upon payment to the
Executive of an amount at least equal to the
claim plus any additional amount necessary to
obtain the jurisdiction of the appropriate
tribunal and/or court, the Executive shall
pay the same and sue for a refund. The
Executive agrees to prosecute any contest of
a claim to a determination before any
administrative tribunal, in a court of
initial jurisdiction and in one or more
appellate courts, as the Company shall
determine; provided, however, that if the
Company requests the Executive to pay the
claim and sue for a refund, the Company shall
advance the amount of such payment to the
Executive, on an interest-free basis, and
shall indemnify and hold the Executive
harmless on an after-tax basis, from any
Excise Tax or income tax (including, without
limitation, interest and penalties thereon)
imposed on such advance or for any imputed
income on such advance. Any extension of the
statute of limitations relating to assessment
of any Excise Tax for the taxable year of the
Executive that is the subject of the claim is
to be limited solely to the claim.
Furthermore, the Company's control of the
contest shall be limited to issues for which
a Gross-Up Payment would be payable
hereunder. The Executive shall be entitled
to settle or contest, as the case may be, any
other issue raised by the IRS or any other
taxing authority.
(iv) If, after the Executive receives an amount the
Company advanced pursuant to Section 4(f)(iii) above,
the Executive receives any refund of a claim and/or
any additional amount that was necessary to obtain
jurisdiction, the Executive shall promptly pay to the
Company the amount of such refund (together with any
interest paid or credited thereon after taxes
applicable thereto). If, after the Executive
receives an amount the Company advanced pursuant to
Section 4(f)(iii) above, a determination is made that
the Executive shall not be entitled to any refund of
the claim, and the Company does not notify the
Executive in writing of its intent to contest such
denial of refund of a claim before the expiration of
thirty (30) days after such determination, then the
portion of such advance attributable to a claim shall
be forgiven and shall not be required to be
- 12 -
<PAGE> 13
repaid. The amount of such advance attributable to a
claim shall offset, to the extent thereof, the amount
of the underpayment required to be paid by the
Company to the Executive.
(v) If, after the Company advances an additional amount
necessary to obtain jurisdiction, there is a final
determination made by the taxing authority that the
Executive is not entitled to any refund of such
amount, or any portion thereof, then the Executive
shall repay such nonrefundable amount to the Company
within thirty (30) days after the Executive receives
notice of such final determination. A final
determination shall occur when the period to contest
or otherwise appeal any decision by an administrative
tribunal or court of initial jurisdiction has been
waived or the time for contesting or appealing the
same has expired.
(g) LEGAL FEES AND EXPENSES. The Company shall pay to the
Executive all legal fees and expenses as and when incurred by
the Executive in connection with this Agreement, including all
such fees and expenses, if any, incurred in contesting or
disputing any Termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement, regardless of
the outcome, unless, in the case of a legal action brought by
or in the name of the Executive, a decision is rendered
pursuant to Section 10 that such action was not brought by the
Executive in good faith, in which event the Executive shall be
liable to the Company for its legal fees and expenses.
(h) NO MITIGATION. The Executive shall not be required to
mitigate the amount of any payment provided for in this
Section 4 by seeking other employment or otherwise, nor shall
the amount of any payment or benefit provided for in this
Section 4 be reduced by any compensation the Executive earns
as the result of employment by another employer or by
retirement or other benefits received after the Termination
Date or otherwise, except as specifically provided in this
Section 4. The Company's obligation to make payments provided
for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense, or other claim, right, or action that the
Company or Employer may have against the Executive or other
parties.
Section 5. DEATH AND DISABILITY BENEFITS
In the event of the death or Disability of the Executive after a
Change of Control of the Company, the Executive, or in the case of death, the
Executive's beneficiaries, shall receive the benefits to which they are
entitled under the the Employment Agreement, the retirement plans, disability
policies, and other applicable plans or agreements of the Company.
- 13 -
<PAGE> 14
Section 6. SUCCESSORS; BINDING AGREEMENT
(a) OBLIGATIONS OF SUCCESSORS. The Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and
agree to perform this Agreement in the same manner and to the
same extent that the Company is required to perform it.
Failure of the Company to obtain such assumption and agreement
before the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the
same terms as the Executive would be entitled hereunder if the
Executive had terminated his employment following a Change of
Control of the Company, except that for purposes of
implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Termination
Date. As used in this Agreement, the "Company" shall mean the
Company as hereinabove defined and any successor to its
business and/or assets as aforesaid that assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(b) ENFORCEABLE BY BENEFICIARIES. This Agreement shall inure to
the benefit of and be enforceable by the Executive's personal
or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees (the
"Beneficiaries"). If the Executive dies while any amount
would still be payable hereunder if he had not then died, all
such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to the
Executive's Beneficiaries.
(c) EMPLOYMENT. Except in the event of a Change of Control and,
thereafter, only as specifically set forth in this Agreement,
nothing in this Agreement shall be construed to (i) limit in
any way the right of the Company or a Subsidiary to terminate
the Executive's employment at any time for any reason or for
no reason; or (ii) be evidence of any agreement or
understanding, expressed or implied, that the Company or a
Subsidiary will employ the Executive in any particular
position, on any particular terms, or at any particular rate
of remuneration.
Section 7. CONFIDENTIAL INFORMATION.
The Executive shall hold in fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge, or data relating to
the Company, the Subsidiaries, and their respective businesses, that shall have
been obtained during the Executive's employment by the Employer and that shall
not be public knowledge (other than by acts by the Executive or his
representatives in violation of this Agreement). After termination of the
Executive's employment with the Company or any Employer within the Controlled
Group, the Executive shall not, without prior written consent of the Company or
the Employer, communicate or divulge any such information, knowledge, or data
to anyone other than the Company, the
- 14 -
<PAGE> 15
Employer, or those designated by them. In no event shall an asserted violation
of this Section 7 or comparable provisions in any applicable employment
agreement constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
Section 8. NOTICE
All notices, demands, requests. or other communications required or
permitted to be given or made hereunder shall be in writing and shall be
delivered, telecopied, or mailed by first class registered or certified mail,
postage prepaid, addressed as follows:
(a) if to the Company:
Metrocall, Inc.
6677 Richmond Highway
Alexandria, Virginia 22306
Telecopier: (703) 768-5407
Attention: Francis A. Martin, III
with a copy (which shall not constitute notice) to
Wilmer, Cutler & Pickering
2445 M Street, NW
Washington, DC 20037-1420
Telecopier: (202) 663-6363
Attention: George P. Stamas and John B. Watkins
(a) if to the Executive:
William L. Collins, III
314 River Bend Road
Great Falls, Virginia 22066
or to such other address as may be designated by either party in a
notice to the other. Each notice, demand, request, or other
communication that shall be given or made in the manner described
above shall be deemed sufficiently given or made for all purposes
three (3) days after it is deposited in the U.S. mail, postage
prepaid, or at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, the answer back, or the
affidavit of messenger being deemed conclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
Section 9. MISCELLANEOUS
No provision of this Agreement may be modified, waived, or discharged
unless such waiver, modification, or discharge is agreed to in writing and
signed by the Executive and the
- 15 -
<PAGE> 16
Chairman of the Compensation Committee of the Board of Directors. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any conditions or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any earlier or later time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party that are
not expressly set forth in this Agreement. validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Virginia. All references to sections of the Code or the
Exchange Act shall be deemed also to refer to any successor provisions of such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Sections 4 and 5 shall survive the expiration
of the term of this Agreement.
Section 10. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
Section 11. ARBITRATION
The Executive may designate in writing to the Company (in which case
this Section 11 shall have effect but not otherwise) that any dispute that may
arise directly or indirectly in connection with this Agreement, the Executive's
employment, or the termination of the Executive's employment, whether arising
in contract, statute, tort, fraud, misrepresentation, or other legal theory,
shall be determined solely by arbitration in Washington, D.C. under the rules
of the American Arbitration Association (the "AAA"). The only legal claims
between the Executive, on the one hand, and the Company or any Subsidiary, on
the other, that would not be included in this agreement to arbitration are
claims by the Executive for workers' compensation or unemployment compensation
benefits, claims for benefits under a Company or Subsidiary benefit plan if the
plan does not provide for arbitration of such disputes, and claims by the
Executive that seek judicial relief in the form of specific performance of the
right to be paid until the Termination Date during the pendency of any dispute
or controversy arising under Section 3(b). If this Section 11 is in effect,
any claim with respect to this Agreement, the Executive's employment, or the
termination of the Executive's employment must be established by a
preponderance of the evidence submitted to the impartial arbitrator. A single
arbitrator engaged in the practice of law shall conduct any arbitration under
the then current procedures of the AAA and under the AAA's then current Model
Employment Arbitration Rules. The arbitrator shall have the authority to order
a pre-hearing exchange of information by the parties including, without
limitation, production of requested documents, and examination by deposition of
parties and their authorized agents. If this Section 11 is in effect, the
decision of the arbitrator (i) shall be final and binding, (ii) shall be
rendered within ninety (90) days after the impanelment of the arbitrator, and
(iii) shall be kept confidential by the parties to such arbitration. The
- 16 -
<PAGE> 17
arbitration award may be enforced in any court of competent jurisdiction. The
Federal Arbitration Act, 9 U.S.C. Section Section 1-15, not state law, shall
govern the arbitrability of all claims.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign both originals of this letter and return to the Assistant Secretary
of the Company one of the fully executed originals of this letter, which will
then constitute our agreement on this subject.
Sincerely,
METROCALL, INC.
By: /s/ Richard D. Johnston
-----------------------
Richard D. Johnston
Chairman of the Board of Directors
Acknowledged and Agreed:
/s/ William L. Collins, III
----------------------------
William L. Collins, III
May 15, 1996
------------
Date
- 17 -
<PAGE> 1
EXHIBIT 10.11
METROCALL, INC.
CHANGE OF CONTROL AGREEMENT
FOR CHIEF OPERATING OFFICER
May 15, 1996
Steven D. Jacoby
4203 Kimbrelee Court
Alexandria, VA 22309
Dear Mr. Jacoby:
Metrocall, Inc. (the "Company"), on behalf of itself, its
subsidiaries, and its shareholders, wishes to encourage your continued service
and dedication in the performance of your duties, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined in
Section 1(b) below) of the Company. The Board of Directors of the Company (the
"Board") believes that the prospect of a pending or threatened Change of
Control inevitably creates distractions and personal risks and uncertainties
for a company's executives and that it is in the best interests of the Company
to minimize such distractions to certain executives and the Company. The Board
further believes that it is in the best interests of the Company to encourage
its executives' full attention and dedication to their duties, both currently
and in the event of any threatened or pending Change of Control.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued retention of you and certain
members of the Company's management and the attention and dedication of
management to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change
of Control of the Company.
To induce you (the "Executive") to remain in the Company's employ and
in consideration of your continued service to the Company, the Company agrees
that you shall receive the benefits set forth in this letter agreement (the
"Agreement") if your employment with the Company is terminated for any reason
after a Change of Control of the Company and has, of even date herewith,
entered into a revised employment agreement relating to your services as Chief
Operating Officer (the "Employment Agreement"). For purposes of this
Agreement, references to employment with the Company shall include employment
with a Subsidiary of the Company.
Section 1. DEFINITIONS
The following terms shall have the meanings set forth below for purposes of
this Agreement.
(a) CAUSE. Under this Agreement, "Cause" shall mean (1) dishonesty
of a material nature relating to performing services under the
Employment Agreement, (2) criminal conduct (other than minor
infractions and traffic violations) that relates
<PAGE> 2
to the performance of services under the Employment Agreement,
or (3) the Executive's willfully breaching or failing to
perform his employment duties as set forth in his Employment
Agreement, which act or omission results in a material adverse
effect on the Company. For purposes of this Section 1(a), no
act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that
such action or omission was in the best interests of the
Company. Notwithstanding the foregoing, the Executive shall
not be deemed to have been terminated for Cause unless and
until there shall have been delivered to the Executive a
certificate of a resolution duly adopted by the affirmative
vote of not less than seventy-five percent (75%) of the entire
membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with
the Executive's counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, the
Executive has engaged in the conduct set forth in this
subsection and specifying the particulars thereof in detail.
(b) CHANGE OF CONTROL. For purposes of this Agreement, a "Change
of Control" shall be deemed to have occurred if there is a
change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") or any successor
provision of similar import, whether or not the Company is
then subject to such reporting requirement; provided that,
without limitation, such a Change of Control shall be deemed
to have occurred if:
(i) any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act) is or becomes a
"beneficial owner" (as determined for purposes of
Regulation 13D-G under the Exchange Act as currently
in effect), directly or indirectly, of securities
representing twenty-five percent (25%) or more of the
total voting power of all of the Company's then
outstanding voting securities, unless through a
transaction consummated with the Board's prior
approval; provided, however, that for purposes of
this paragraph, persons acting in concert under the
terms of that certain Voting Agreement dated as of
August 31, 1994 shall not, solely as a result of
actions provided under such agreement, be treated as
a "person";
(ii) during any period of two consecutive calendar years,
individuals who at the beginning of such period
constitute the Board and any new director(s) whose
election by the Board or nomination for election by
the Company's shareholders was approved by a vote of
at least two-thirds of the directors then still in
office who either were directors at the beginning of
the period or whose election or nomination for
election was previously so approved cease for any
reason to constitute a majority of the Board;
- 2 -
<PAGE> 3
(iii) the Company becomes a party to a merger, plan of
reorganization, consolidation, or share exchange in
which either (x) the Company will not be the
surviving corporation or (y) the Company will be the
surviving corporation and any outstanding shares of
the Company's common stock will be converted into
shares of any other company (other than a
reincorporation or the establishment of a holding
company involving no change of ownership of the
Company) or other securities or cash or other
property (excluding payments made solely for
fractional shares);
(iv) the shareholders of the Company approve a merger,
plan of reorganization, consolidation, or share
exchange with any other corporation, and immediately
following such merger, plan of reorganization,
consolidation, or share exchange the holders of the
voting securities of the Company outstanding
immediately prior thereto hold securities
representing fifty percent (50%) or less of the
combined voting power of the voting securities of the
Company or such surviving entity outstanding
immediately after such merger, plan of
reorganization, consolidation, or share exchange;
provided, however, that notwithstanding the
foregoing, no Change of Control for purposes of this
Section 1(b)(iv) shall be deemed to have occurred if
seventy-five percent (75%) or more of the members of
the Board of the Company or such surviving entity
immediately after such merger, plan of
reorganization, consolidation, or share exchange is
comprised of persons who served as directors of the
Company immediately before such merger, plan of
reorganization, consolidation, or share exchange or
who are otherwise designees of the Company; or
(v) any other event occurs that a majority of the Board,
in its sole discretion, shall determine constitutes a
Change of Control.
(c) CONTROLLED GROUP. For purposes of this Agreement, "Controlled
Group" shall mean the Company and all of the Company's
Subsidiaries.
(d) DISABILITY. "Disability" shall have the meaning set forth in
the Employment Agreement.
(e) EMPLOYER. For purposes of this Agreement, "Employer" shall
mean the Company or the Subsidiary, as the case may be, with
which the Executive has an employment relationship.
(f) GOOD REASON. For purposes of this Agreement, "Good Reason"
shall mean the occurrence, without the Executive's express
written consent, of any of the following circumstances:
- 3 -
<PAGE> 4
(i) the Company's failure to perform or observe any of
the material terms or provisions of this Agreement or
the Employment Agreement, and the continued failure
of the Company to cure such default within fifteen
(15) days after the Executive gives a written demand
for performance to the Company, which demand shall
describe specifically the nature of such alleged
failure to perform or observe such material terms or
provisions;
(ii) the assignment to the Executive of any duties
inconsistent with, or any substantial diminution in,
such Executive's status or responsibilities as in
effect immediately before a Change of Control of the
Company, including imposition of travel obligations
that differ materially from required business travel
immediately before the Change of Control;
(iii) any diminution in the status or responsibilities of
the Executive's position from that which existed
immediately before the Change of Control, whether by
reason of the Company's ceasing to be a public
company under the Exchange Act, becoming a subsidiary
of a successor public company, or otherwise;
(iv) (I) a reduction in the Executive's Base Salary (as
defined in the Employment Agreement), as that amount
may be increased from time to time and as in effect
immediately before the Change of Control; or (II) the
failure to pay a bonus award to which the Executive
is otherwise entitled under any short-term incentive
plan in which the Executive then participates, or any
successor incentive compensation plans at the time
such awards are usually paid;
(v) the termination of employment of William L. Collins,
III or Vincent D. Kelly (other than a termination (I)
by the Company for "Cause" or (II) because of death
or "Disability" as those terms are defined and
applied in their respective employment agreements),
including a termination that results from a failure
by the Company and Collins or Kelly to reach
agreement to continue Collins' or Kelly's employment
on terms at least as favorable to him, in the
aggregate, as those in effect before the Change in
Control of the Company;
(vi) a change in the principal place of the Executive's
employment, as in effect immediately before the
Change of Control of the Company, to a location more
than thirty-five (35) miles distant from the location
of such principal place at such time;
(vi) (A) the Company's failure to continue in effect any
incentive compensation plan or stock option plan in
which the Executive participates immediately before
the Change in Control, unless an
- 4 -
<PAGE> 5
equivalent alternative compensation arrangement
(embodied in an ongoing substitute or alternative
plan) has been provided to the Executive, or (B) the
Company's failure to continue the Executive's
participation in any such incentive or stock option
plan on substantially the same basis, both in terms
of the amount of benefits provided and the level of
the Executive's participation relative to other
participants, as existed immediately before the time
of the Change of Control;
(viii) the Company's violation of any applicable criminal
law not due to the Executive's gross negligence or
willful misconduct;
(ix) the failure of the Company or any successor to obtain
a satisfactory written agreement from any successor
to assume and agree to perform this Agreement, as
contemplated in Section 6(a) below; or
(x) any purported termination of the Executive's
employment that is not effected pursuant to a Notice
of Termination satisfying the requirements of Section
3(b) or, if applicable, Section 1(a). For purposes
of this Agreement, no such purported termination
shall be effective except as constituting Good
Reason.
The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstances constituting
Good Reason hereunder.
(g) SUBSIDIARY. For purposes of this Agreement, "Subsidiary"
shall mean any corporation of whose voting stock the Company
directly or indirectly owns more than fifty percent (50%).
(h) TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean: (i) if the Executive's
employment is terminated for Disability pursuant to the
Employment Agreement, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not
have returned to the full-time performance of his duties
during such thirty-day period); and (ii) if the Executive's
employment is terminated for Cause or Good Reason or for any
reason other than death or Disability, the date specified in
the Notice of Termination (which in the case of a termination
for Cause shall not be less than thirty (30) days and in the
case of a termination for Good Reason shall not be less than
thirty (30) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given).
Section 2. TERM OF AGREEMENT
(a) GENERAL. Upon execution by the Executive, this Agreement
shall commence as of May ___, 1996. This Agreement shall
continue in effect on December 31,
- 5 -
<PAGE> 6
1999; provided, however, that the term shall be automatically
extended for additional one (1) year periods on each
anniversary date of this Agreement, unless and until either
party notifies the other party not less than ninety (90) days
before such anniversary date that such party is terminating
this Agreement, which termination shall be effective as of the
end of such initial term or extended term, as the case may be
(the "Expiration Date"); and provided further, however, that
if a Change of Control of the Company occurs before the
Expiration Date, this Agreement shall continue in effect for a
period of thirty-six months beyond the month in which the
Change of Control occurred.
(b) DISPOSITION OF EMPLOYER. If the Executive is employed by a
Subsidiary, the terms of this Agreement shall expire if such
Subsidiary is sold or otherwise disposed of before a Change of
Control unless the Executive continues in employment with the
Controlled Group after such sale or other disposition. If the
Executive's Employer is sold or disposed of following a Change
of Control, this Agreement shall continue through its original
term or any extended term then in effect.
(c) DEEMED CHANGE OF CONTROL. If the Executive's employment with
the Employer is terminated before the date on which a Change
of Control occurs, and such termination was at the request of
a third party who has taken steps to effect a Change of
Control or the termination was otherwise caused by the Change
of Control, then for all purposes of this Agreement, a Change
of Control shall be deemed to have occurred before such
termination.
(d) EXPIRATION OF AGREEMENT. No termination or expiration of this
Agreement shall affect any rights, obligations, or liabilities
of either party that shall have accrued on or before the date
of such termination or expiration.
Section 3. TERMINATION FOLLOWING CHANGE OF CONTROL
(a) ENTITLEMENT TO BENEFITS. If a Change of Control of the
Company occurs, the Executive shall be entitled to the
benefits provided in Section 4 hereof upon his termination of
employment with the Company within three years after the date
of the Change of Control, unless such termination is (i) a
result of the Executive's death, (ii) for Cause, (iii) a
result of the Executive's Disability (pursuant to the terms of
the Employment Agreement that provide for termination as a
result of Disability), or (iv) by the Executive other than for
Good Reason. A termination of the Executive's employment that
entitles the Executive to the payment of benefits under
Section 4 hereof shall be referred to hereinafter as a
"Termination."
(b) NOTICE OF TERMINATION. Any purported termination of the
Executive's employment by the Company or by the Executive
shall be communicated by
- 6 -
<PAGE> 7
written Notice of Termination to the other party hereto in
accordance with Section 8. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice that shall
indicate the specific provision of this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated.
If, following a Change of Control, the Executive's employment
shall be terminated for Cause or by the Executive for other
than Good Reason, the Company shall pay the Executive any
amounts to be paid to the Executive pursuant to the Employment
Agreement and any other compensation plans, programs, or
employment agreements then in effect, and the Company shall
have no further obligations to the Executive under this
Agreement.
If within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice notifies the other
party that a dispute exists concerning the grounds for
termination, then, notwithstanding the meaning of "Termination
Date" set forth in Section 1(h), the Termination Date shall be
the date on which the dispute is finally resolved, whether by
mutual written agreement of the parties or by a decision
rendered pursuant to Section 11; provided that the Termination
Date shall be extended by a notice of dispute only if such
notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute,
the Company will continue to pay the Executive his full
compensation in effect when the notice giving rise to the
dispute was given, and continue the Executive as a participant
in all benefits, plans, or perquisites in which the Executive
was participating or which he was enjoying when the Notice of
Termination giving rise to the dispute was given (to the
extent such continued participation is not prohibited by law
or the generally applicable terms of those arrangements),
until the dispute is finally resolved. Amounts paid under
this Section 3(b) are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
Section 4. COMPENSATION UPON A TERMINATION
Following a Change of Control of the Company, upon a Termination of the
Executive's employment by the Company without "Cause" or by the Executive for
"Good Reason," the Executive shall be entitled to the following benefits,
provided that the Termination occurs during the three-year period immediately
following the date of the Change of Control:
(a) STANDARD BENEFITS. The Company shall pay the Executive his
full Base Salary through the Termination Date, at the rate in
effect at the time the Notice of Termination is given, no
later than the second day following the Termination Date, plus
all other amounts to which the Executive is entitled under any
- 7 -
<PAGE> 8
compensation plan of the Company applicable to the Executive
at the time such payments are due. Without limitation,
amounts payable pursuant to this Section 4(a) shall include,
pursuant to the express terms of the short-term incentive plan
in which the Executive participates or otherwise, the
Executive's annual bonus under such short-term incentive plan,
pro-rated to the Termination Date.
(b) ADDITIONAL BENEFITS. The Company shall pay to the Executive
as additional pay ("Additional Pay"), the product of (i) three
(3) and (ii) the sum of (x) the Executive's annual Base Salary
rate in effect immediately before the Termination Date and (y)
the Executive's annual bonus amount under the short-term
incentive plan in which the Executive participates, such bonus
amount to be calculated on the basis of the extent to which
the performance factors targeted by the Compensation Committee
of the Board have been achieved (for this purpose, the
Company's performance through the Termination Date shall be
annualized based upon the actual number of days elapsed from
the beginning of the fiscal year in which the Termination
occurs through the Termination Date over a year of 360 days),
which shall be deemed to be 100% unless the performance
actually achieved is greater than 100%, in which case the
actual performance levels shall be utilized. The Company
shall pay to the Executive the Additional Pay in a lump sum,
in cash, not later than the thirtieth (30th) day following the
Termination Date.
(c) RETIREMENT PLAN BENEFITS. If not already vested, the
Executive shall be deemed fully vested in all Company
retirement plans and/or other written agreements relating to
pay upon retirement in which the Executive was a participant,
party, or beneficiary immediately preceding a Change of
Control, and any additional plans and/or agreements in which
such Executive became a participant, party, or beneficiary
thereafter. In addition to the foregoing, for purposes of
determining the amounts to be paid to the Executive under such
plans and/or agreements, the years of service with the Company
and the age of the Executive under all such plans and
agreements shall be deemed increased by the lesser of
thirty-six (36) months or such shorter period of time as would
render the Executive sixty-five (65) years of age. For
purposes of this Section 4(c), "plans" include, without
limitation, any long-term incentive plan, or non-qualified and
mid-career retirement plans but does not include any plans
intended to be qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). If the terms
of the plans referenced in this Section 4(c) do not for any
reason coincide with the provisions of this Section 4(c), the
Executive shall be entitled to receive from the Company under
the terms of this Agreement an amount equivalent to all
amounts he would have received had all such plans continued in
existence as in effect on the date of this Agreement after
being amended to coincide with the terms of this Section 4(c).
- 8 -
<PAGE> 9
(d) OPTION PAYMENTS. In lieu of exercising or retaining any
rights the Executive may have to exercise some or all of the
outstanding stock options that he then holds (including any
rights to exercise stock options that arise during the Term if
he were to remain employed and including any that would
otherwise terminate as result of his termination of
employment), the Executive may elect within sixty (60) days
after termination of employment to surrender such rights to
the Company and receive in exchange therefor a cash payment
equal to the aggregate difference, if positive, between (a)
the "fair market value" (determined as of the date of
termination using the higher of the "fair market value" (i) as
defined in the terms of the applicable option plan or option
agreement as of the date of termination and (ii) as defined
in the plan or agreement on the date of grant) of the shares
of common stock subject to the options and (b) the option
prices of the shares subject to such surrendered options; and
the Company shall make such payment within forty-five (45)
days after the Executive notifies the Company of his election
to surrender all or a portion of his options.
(e) HEALTH BENEFITS. Following the Termination Date, the Company
shall provide, at its own expense, the continued health
coverage required by Section 4980B of the Code.
(f) GROSS-UP PAYMENTS.
(i) If any payment or the value of any benefit received
or to be received by the Executive in connection with
the Executive's Termination or contingent upon a
Change of Control of the Company (whether received or
to be received pursuant to the terms of this
Agreement (the "Agreement Payments") or of any other
plan, arrangement, or agreement of the Company, its
successors, any person whose actions result in a
Change of Control of the Company, or any person
affiliated with any of them (or which, as a result of
the completion of the transactions causing a Change
of Control, will become affiliated with any of them
("Other Payments" and, together with the Agreement
Payments, the "Payments")) would be subject to the
excise tax imposed by Section 4999 of the Code or any
comparable federal, state, or local excise tax (such
excise tax, together with any interest and penalties,
are hereinafter collectively referred to as the
"Excise Tax"), as determined as provided below, the
Company shall pay to the Executive an additional
amount (the "Gross-Up Payment") such that the net
amount the Executive retains, after deduction of the
Excise Tax on Agreement Payments and Other Payments
and any federal, state, and local income tax and
Excise Tax upon the payment provided for by this
Section 4(f)(i), and any interest, penalties, or
additions to tax payable by the Executive with
respect thereto shall be equal to the total present
value of the Agreement Payments and Other Payments at
the time such Payments are to be made. The intent of
the parties is that the Company
- 9 -
<PAGE> 10
shall be solely responsible for and shall pay, any
Excise Tax on any Payments and Gross-Up Payment and
any income and employment taxes (including, without
limitation, penalties and interest) imposed on any
Gross-Up Payments as well as any loss of deduction
caused by the Gross-Up Payment.
(ii) All determinations required to be made under this
Section 4(f), including, without limitation, whether
and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determinations,
shall be made by tax counsel (either a law firm or a
nationally recognized public accounting firm)
selected by the Company and reasonably acceptable to
the Executive ("Tax Counsel"). The Company shall
cause the Tax Counsel to provide detailed supporting
calculations to the Company and the Executive within
fifteen (15) business days after notice is given by
the Executive to the Company that any or all of the
Payments have occurred, or such earlier time as is
requested by the Company. Within two (2) business
days after such notice is given to the Company, the
Company shall instruct the Tax Counsel to timely
provide the data required by this Section 4(f) to the
Executive. The Company shall pay all fees and
expenses of the Tax Counsel. The Company shall pay
any Excise Tax determined pursuant to this Section
4(f) to the Internal Revenue Service ("IRS") and/or
other appropriate taxing authority on the Executive's
behalf within five (5) days after receipt of the Tax
Counsel's determination. If the Tax Counsel
determines that there is substantial authority
(within the meaning of Section 6662 of the Code) that
no Excise Tax is payable by the Executive, the Tax
Counsel shall furnish the Executive with a written
opinion that failure to disclose or report the Excise
Tax on the Executive's federal income tax return will
not constitute a substantial understatement of tax or
be reasonably likely to result in the imposition of a
negligence or similar penalty. Any determination by
the Tax Counsel shall be binding upon the Company and
the Executive in the absence of material mathematical
or legal error.
As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial
determination by the Tax Counsel hereunder, it is
possible that the Company will not have made Gross-Up
Payments that should have been made or that it will
have made Gross-Up Payments that should not have been
made, in each case, consistent with the calculations
required to be made hereunder. If the Company
exhausts its remedies pursuant to Section 4(f)(iii)
below and the Executive is thereafter required to pay
any Excise Tax, the Tax Counsel shall determine the
amount of underpayment of Excise Taxes that has
occurred and the Company shall promptly pay any such
underpayment to the IRS or
- 10 -
<PAGE> 11
other appropriate taxing authority on the Executive's
behalf or, if the Executive has previously paid such
underpayment, to the Executive. If the Tax Counsel
determines that an overpayment of Gross-Up Payments
has occurred, any such overpayment shall be treated
for all purposes as a loan to the Executive with
interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code, due and payable
within ninety (90) days after written demand to the
Executive by the Company; provided, however, that the
Executive shall have no duty or obligation whatsoever
to repay such loan if the Executive's receipt of the
overpayment, or any portion thereof, is includible in
the Executive's income and the Executive's repayment
of the same is not deductible by the Executive for
federal and state income tax purposes.
(iii) The Executive shall notify the Company in writing of
any claim by the IRS or state or local taxing
authority, that, if successful, would result in any
Excise Tax or an underpayment of Gross-Up Payments.
Such notice shall be given as soon as practicable but
no later than fifteen (15) business days after the
Executive is informed in writing of the claim and
shall inform the Company of the nature of the claim,
the administrative or judicial appeal period, and the
date on which any payment of the claim must be paid.
The Executive shall not pay any portion of the claim
before the expiration of the thirty (30) day period
following the date on which the Executive gives such
notice to the Company (or such shorter period ending
on the date that any amount under the claim is due).
If the Company notifies the Executive in writing
before the expiration of such thirty (30) day period
that it desires to contest the claim, the Executive
shall:
(A) give the Company any information reasonably
requested by the Company relating to the
claim;
(B) take such action in connection with
contesting the claim as the Company shall
reasonably request in writing from time to
time, including, without limitation,
accepting legal representation concerning the
claim by an attorney selected by the Company
who is reasonably acceptable to the
Executive; and
(C) cooperate with the Company in good faith in
order to effectively contest the claim;
provided, however, that the Company shall
bear and pay directly all costs and expenses
(including, without limitation, additional
interest and penalties and attorneys' fees)
incurred in such contests and shall indemnify
and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income
tax (including, without limitation, interest
and penalties
- 11 -
<PAGE> 12
thereon) imposed as a result of such
representation. Without limitation upon the
foregoing provisions of this Section
4(f)(iii), except as provided below, the
Company shall control all proceedings
concerning such contest and, in its sole
opinion, may pursue or forego any and all
administrative appeal, proceedings, hearings,
and conferences with the taxing authority
pertaining to the claim. At the Company's
written request and upon payment to the
Executive of an amount at least equal to the
claim plus any additional amount necessary to
obtain the jurisdiction of the appropriate
tribunal and/or court, the Executive shall
pay the same and sue for a refund. The
Executive agrees to prosecute any contest of
a claim to a determination before any
administrative tribunal, in a court of
initial jurisdiction and in one or more
appellate courts, as the Company shall
determine; provided, however, that if the
Company requests the Executive to pay the
claim and sue for a refund, the Company shall
advance the amount of such payment to the
Executive, on an interest-free basis, and
shall indemnify and hold the Executive
harmless on an after-tax basis, from any
Excise Tax or income tax (including, without
limitation, interest and penalties thereon)
imposed on such advance or for any imputed
income on such advance. Any extension of the
statute of limitations relating to assessment
of any Excise Tax for the taxable year of the
Executive that is the subject of the claim is
to be limited solely to the claim.
Furthermore, the Company's control of the
contest shall be limited to issues for which
a Gross-Up Payment would be payable
hereunder. The Executive shall be entitled
to settle or contest, as the case may be, any
other issue raised by the IRS or any other
taxing authority.
(iv) If, after the Executive receives an amount the
Company advanced pursuant to Section 4(f)(iii) above,
the Executive receives any refund of a claim and/or
any additional amount that was necessary to obtain
jurisdiction, the Executive shall promptly pay to the
Company the amount of such refund (together with any
interest paid or credited thereon after taxes
applicable thereto). If, after the Executive
receives an amount the Company advanced pursuant to
Section 4(f)(iii) above, a determination is made that
the Executive shall not be entitled to any refund of
the claim, and the Company does not notify the
Executive in writing of its intent to contest such
denial of refund of a claim before the expiration of
thirty (30) days after such determination, then the
portion of such advance attributable to a claim shall
be forgiven and shall not be required to be repaid.
The amount of such advance attributable to a claim
shall offset, to the extent thereof, the amount of
the underpayment required to be paid by the Company
to the Executive.
- 12 -
<PAGE> 13
(v) If, after the Company advances an additional amount
necessary to obtain jurisdiction, there is a final
determination made by the taxing authority that the
Executive is not entitled to any refund of such
amount, or any portion thereof, then the Executive
shall repay such nonrefundable amount to the Company
within thirty (30) days after the Executive receives
notice of such final determination. A final
determination shall occur when the period to contest
or otherwise appeal any decision by an administrative
tribunal or court of initial jurisdiction has been
waived or the time for contesting or appealing the
same has expired.
(g) LEGAL FEES AND EXPENSES. The Company shall pay to the
Executive all legal fees and expenses as and when incurred by
the Executive in connection with this Agreement, including all
such fees and expenses, if any, incurred in contesting or
disputing any Termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement, regardless of
the outcome, unless, in the case of a legal action brought by
or in the name of the Executive, a decision is rendered
pursuant to Section 10 that such action was not brought by the
Executive in good faith, in which event the Executive shall be
liable to the Company for its legal fees and expenses.
(h) NO MITIGATION. The Executive shall not be required to
mitigate the amount of any payment provided for in this
Section 4 by seeking other employment or otherwise, nor shall
the amount of any payment or benefit provided for in this
Section 4 be reduced by any compensation the Executive earns
as the result of employment by another employer or by
retirement or other benefits received after the Termination
Date or otherwise, except as specifically provided in this
Section 4. The Company's obligation to make payments provided
for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense, or other claim, right, or action that the
Company or Employer may have against the Executive or other
parties.
Section 5. DEATH AND DISABILITY BENEFITS
In the event of the death or Disability of the Executive after a
Change of Control of the Company, the Executive, or in the case of death, the
Executive's beneficiaries, shall receive the benefits to which they are
entitled under the the Employment Agreement, the retirement plans, disability
policies, and other applicable plans or agreements of the Company.
Section 6. SUCCESSORS; BINDING AGREEMENT
(a) OBLIGATIONS OF SUCCESSORS. The Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly
- 13 -
<PAGE> 14
assume and agree to perform this Agreement in the same manner
and to the same extent that the Company is required to perform
it. Failure of the Company to obtain such assumption and
agreement before the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled
hereunder if the Executive had terminated his employment
following a Change of Control of the Company, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the
Termination Date. As used in this Agreement, the "Company"
shall mean the Company as hereinabove defined and any
successor to its business and/or assets as aforesaid that
assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) ENFORCEABLE BY BENEFICIARIES. This Agreement shall inure to
the benefit of and be enforceable by the Executive's personal
or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees (the
"Beneficiaries"). If the Executive dies while any amount
would still be payable hereunder if he had not then died, all
such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to the
Executive's Beneficiaries.
(c) EMPLOYMENT. Except in the event of a Change of Control and,
thereafter, only as specifically set forth in this Agreement,
nothing in this Agreement shall be construed to (i) limit in
any way the right of the Company or a Subsidiary to terminate
the Executive's employment at any time for any reason or for
no reason; or (ii) be evidence of any agreement or
understanding, expressed or implied, that the Company or a
Subsidiary will employ the Executive in any particular
position, on any particular terms, or at any particular rate
of remuneration.
Section 7. CONFIDENTIAL INFORMATION.
The Executive shall hold in fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge, or data relating to
the Company, the Subsidiaries, and their respective businesses, that shall have
been obtained during the Executive's employment by the Employer and that shall
not be public knowledge (other than by acts by the Executive or his
representatives in violation of this Agreement). After termination of the
Executive's employment with the Company or any Employer within the Controlled
Group, the Executive shall not, without prior written consent of the Company or
the Employer, communicate or divulge any such information, knowledge, or data
to anyone other than the Company, the Employer, or those designated by them.
In no event shall an asserted violation of this Section 7 or comparable
provisions in any applicable employment agreement constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
- 14 -
<PAGE> 15
Section 8. NOTICE
All notices, demands, requests. or other communications required or
permitted to be given or made hereunder shall be in writing and shall be
delivered, telecopied, or mailed by first class registered or certified mail,
postage prepaid, addressed as follows:
(a) if to the Company:
Metrocall, Inc.
6677 Richmond Highway
Alexandria, Virginia 22306
Telecopier: (703) 768-5407
Attention: Francis A. Martin, III
with a copy (which shall not constitute notice) to
Wilmer, Cutler & Pickering
2445 M Street, NW
Washington, DC 20037-1420
Telecopier: (202) 663-6363
Attention: George P. Stamas and John B. Watkins
(a) if to the Executive:
Steven D. Jacoby
4203 Kimbrelee Court
Alexandria, VA 22309
or to such other address as may be designated by either party in a
notice to the other. Each notice, demand, request, or other
communication that shall be given or made in the manner described
above shall be deemed sufficiently given or made for all purposes
three (3) days after it is deposited in the U.S. mail, postage
prepaid, or at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, the answer back, or the
affidavit of messenger being deemed conclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
Section 9. MISCELLANEOUS
No provision of this Agreement may be modified, waived, or discharged
unless such waiver, modification, or discharge is agreed to in writing and
signed by the Executive and the Chairman of the Compensation Committee of the
Board of Directors. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any conditions or provision
of this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any earlier
or later time. No
- 15 -
<PAGE> 16
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party that are
not expressly set forth in this Agreement. validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Virginia. All references to sections of the Code or the
Exchange Act shall be deemed also to refer to any successor provisions of such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Sections 4 and 5 shall survive the expiration
of the term of this Agreement.
Section 10. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
Section 11. ARBITRATION
The Executive may designate in writing to the Company (in which case
this Section 11 shall have effect but not otherwise) that any dispute that may
arise directly or indirectly in connection with this Agreement, the Executive's
employment, or the termination of the Executive's employment, whether arising
in contract, statute, tort, fraud, misrepresentation, or other legal theory,
shall be determined solely by arbitration in Washington, D.C. under the rules
of the American Arbitration Association (the "AAA"). The only legal claims
between the Executive, on the one hand, and the Company or any Subsidiary, on
the other, that would not be included in this agreement to arbitration are
claims by the Executive for workers' compensation or unemployment compensation
benefits, claims for benefits under a Company or Subsidiary benefit plan if the
plan does not provide for arbitration of such disputes, and claims by the
Executive that seek judicial relief in the form of specific performance of the
right to be paid until the Termination Date during the pendency of any dispute
or controversy arising under Section 3(b). If this Section 11 is in effect,
any claim with respect to this Agreement, the Executive's employment, or the
termination of the Executive's employment must be established by a
preponderance of the evidence submitted to the impartial arbitrator. A single
arbitrator engaged in the practice of law shall conduct any arbitration under
the then current procedures of the AAA and under the AAA's then current Model
Employment Arbitration Rules. The arbitrator shall have the authority to order
a pre-hearing exchange of information by the parties including, without
limitation, production of requested documents, and examination by deposition of
parties and their authorized agents. If this Section 11 is in effect, the
decision of the arbitrator (i) shall be final and binding, (ii) shall be
rendered within ninety (90) days after the impanelment of the arbitrator, and
(iii) shall be kept confidential by the parties to such arbitration. The
arbitration award may be enforced in any court of competent jurisdiction. The
Federal Arbitration Act, 9 U.S.C. Section Section 1-15, not state law, shall
govern the arbitrability of all claims.
- 16 -
<PAGE> 17
If this letter sets forth our agreement on the subject matter hereof,
kindly sign both originals of this letter and return to the Assistant Secretary
of the Company one of the fully executed originals of this letter, which will
then constitute our agreement on this subject.
<TABLE>
<S> <C>
Sincerely,
METROCALL, INC.
By: /s/ Richard D. Johnston
-----------------------
Richard D. Johnston
Chairman of the Board of Directors
Acknowledged and Agreed:
/s/ Steven D. Jacoby
--------------------
Steven D. Jacoby
May 15, 1996
------------
Date
</TABLE>
- 17 -
<PAGE> 1
EXHIBIT 13.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
/ / 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
</TABLE>
METROCALL, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 54-1215634
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6677 RICHMOND HIGHWAY, ALEXANDRIA, VIRGINIA 22306
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, including area code: (703) 660-6677
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- -------------------- ----------------------
<S> <C>
None None
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF CLASS
Common Stock ($.01 Par Value)
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 by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
Based on the closing sales price of March 1, 1996, the aggregate market
value of the voting stock held by non-affiliates of the Registrant was
approximately $182,959,060.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT MARCH 1, 1996
---------------------------------------- ----------------------------------------
<S> <C>
Common stock, $.01 par value 14,626,255
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1995 Annual Report to Shareholders of the Registrant which
is filed as Exhibit 13 to this Annual Report on Form 10-K has been incorporated
by reference into Parts II and IV.
Portions of the Proxy Statement for the Annual Meeting of the Registrant to
be held May 1, 1996, which will be filed with the Commission within 120 days
after the close of the fiscal year, are incorporated by reference into Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Metrocall, Inc. ("Metrocall" or the "Company") is the sixth largest paging
company in the United States, based on 944,013 pagers in service at December 31,
1995, providing local, regional and nationwide paging and other wireless
messaging services. While the Company operates regional and nationwide paging
networks throughout the United States, the Company's selling efforts are
currently concentrated 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 ("Nationwide Network"), the Company can provide
service in approximately 860 U.S. cities which comprise the top 100 Standard
Metropolitan Statistical Areas ("SMSAs").
Set forth below is a table showing the Company's operating regions and
number of units in service as of December 31, 1993, 1994 and 1995.
NUMBER OF PAGERS IN SERVICE
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1993 1994(1) 1995
------- ------- -------
<S> <C> <C> <C>
Northeast................................................... 24,077 230,830 283,391
Mid-Atlantic................................................ 83,601 178,008 200,370
Southeast................................................... 58,635 108,775 133,232
West........................................................ 81,403 237,933 327,020
------- ------- -------
Total............................................. 247,716 755,546 944,013
======= ======= =======
</TABLE>
- ---------------
(1) Includes approximately 420,000 pagers in service acquired in the FirstPAGE
and MetroPaging acquisitions in 1994.
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 expanding its EBITDA margin. To achieve this strategy, the Company pursues
three distinct initiatives: (i) to grow its subscriber base, revenues and EBITDA
in markets where the Company has an existing sales presence; (ii) to build its
presence in new markets, where the Company has network infrastructure and signal
coverage but no active marketing efforts; and (iii) to acquire additional
subscribers and spectrum through strategic combinations with other wireless
communications companies.
For the calendar year ended December 31, 1995, the total pagers in service
has grown approximately 25%, all from internal growth. From 1994 to 1995, the
Company's EBITDA grew 72% from $16.2 million ($21.1 million on a pro forma
basis) to $27.8 million. Concurrently, the Company's EBITDA margin in 1995 of
29.1% compares to pro forma EBITDA margin in 1994 of 25.7%. In addition, the
Company established a sales presence and began offering local service in Boston,
Pittsburgh and Southern Florida in the East, and San Diego, Las Vegas and
Phoenix in the West. In addition to growing and building the business in 1995,
the Company also completed the integration of the operations of FirstPAGE USA,
Inc. ("FirstPAGE") and MetroPaging, Inc. ("MetroPaging"). During 1994, the
Company more than tripled its base of pagers in service as a result of both
acquisitions and internal growth. Metrocall added approximately 420,000 pagers
in service through the FirstPAGE and MetroPaging acquisitions.
The Company's future growth and expansion into new markets, whether
internal or through acquisitions, require significant capital investment for the
installation of paging equipment and technical infrastructure. Accordingly, in
1995, the Company's efforts focused on raising the necessary capital to carry
out the acquisition element of its long-term strategy. As such, the Company
completed concurrent offerings of
1
<PAGE> 3
4 million shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), at $28.25 per share, and $150.0 million senior subordinated
notes bearing interest at 10 3/8%. Net proceeds from the offerings were
approximately $252.0 million. Proceeds from the offerings were used, in part, to
repay outstanding borrowings of $113.3 million due under the Company's existing
credit facility. More than $123 million of the net proceeds remained available
at December 31, 1995, to finance all aspects of the Company's long-term
strategy, including future acquisitions. In February 1996, the Company announced
the signing of definitive acquisition agreements with Parkway Paging, Inc.
("Parkway"), and Satellite Paging and Message Network (together, "Satellite").
Metrocall's paging operations are subject to regulation by the FCC and
various state regulatory agencies. Metrocall was incorporated under the laws of
the State of Delaware in 1982. Its executive offices are located at 6677
Richmond Highway, Alexandria, Virginia 22306, and its telephone number is (703)
660-6677.
BUSINESS STRATEGY
The primary elements of the Company's business strategy are described
below.
Growth Strategy
The Company's "growth" strategy is designed to increase subscribers,
revenues and EBITDA in markets which have an existing sales presence. This
strategy entails: (i) pursuit of small- and mid-sized accounts; (ii) greater
emphasis on value-added, more profitable service offerings; (iii) expansion of
distribution channels, focusing on the increased use of indirect sales channels;
and (iv) maintenance of a low cost operating structure.
- Pursuit of small- and mid-sized accounts. The Company has historically
focused its selling efforts on small accounts (historically those with
less than 25 units in service) in order to minimize its dependence on any
single customer and because the Company believes that smaller accounts
are generally more profitable than larger accounts. Given increased
operating efficiencies, the Company has been able to economically justify
the pursuit of larger accounts, offering volume discounts where
competition warrants. This strategy should facilitate growth of the
customer base while maintaining operating margins.
- Emphasis on value-added service offerings. The Company continually
develops and introduces enhanced services to increase average monthly
revenue per unit ("ARPU") and attract new subscribers. A key feature of
most of these services is that they can be made available to existing
subscribers without the need for new customer equipment. During 1995, the
Company adjusted its sales force's monthly quotas in order to focus on
services that carry above average monthly revenues or, in the case of
customer owned and maintained ("COAM") units, services with lower capital
requirements. These quotas require that each of the following services
represents 10% of monthly additions: nationwide services, enhanced
services (which include alphanumeric service, voice mail, custom
greetings, regional coverage and One Touch) and COAM service.
- Expansion of distribution channels. Given the growing appeal of the
paging product to consumers, Metrocall expanded its distribution channels
to access as wide a range of potential subscribers as possible. For
example, traditional direct sales efforts have been augmented by the use
of database marketing techniques to target potential subscribers not
currently served by local sales offices. The Company has also increased
its emphasis on indirect channels (e.g., resellers, dealers and
retailers). This strategy has allowed the Company to access subscribers
that would not typically be targeted by the direct sales force and
ensures efficient utilization of technical capacity by maximizing the
number of subscribers on the Company's network. The importance of these
channels in the Company's subscriber base is growing, comprising 42% of
the Company's subscriber base at December 31, 1995.
The Company believes that as the appeal of the paging product to the
consumer segment grows, retail distribution will become an increasingly
important focus of its marketing strategy. The consumer segment is
particularly attractive because these customers typically buy, rather
than lease, pagers,
2
<PAGE> 4
allowing the Company to more quickly recover capital invested in
inventory, and rarely require discounts on service rates (although
discounts for one year lump sum payments are common). The Company has
already entered this channel through distribution arrangements with Ritz
Camera Centers, a nationwide photography and electronics retail chain,
and Crutchfield, the consumer electronics mail-order catalogue.
With a renewed focus on both local and nationwide small business and
consumer markets, the Company has begun entering into strategic
partnerships with selected companies that have large customer bases such
as long-distance providers and cable companies. This approach, which
seeks to establish a mutually beneficial relationship for both parties,
provides access to a market that is predisposed toward the Company's
products and services. The Company expects these partnerships to become
an increasingly important component of its distribution strategy in the
future.
- Maintenance of low cost operating structure. The Company is able to
compete effectively and price its services competitively due to its low
cost operating structure and its efficient use of capital. For example,
administrative functions are consolidated in a national operations center
which handles all back-office functions including management information
systems, billing and inventory management. The National Customer Service
Center handles overflow customer service from local offices and customer
service in markets where the Company does not maintain a sales presence.
The Company expeditiously integrated the FirstPAGE and MetroPaging
operations into this organizational structure. Through improvements in
operations and synergies from these acquisitions, the Company has
achieved an increase in units in service per employee from 1,007 at
December 31, 1994 to 1,047 as of December 31, 1995. The Company believes
its unit per employee results are significantly higher than the industry
average. This centralized structure puts the Company in a unique position
to maximize the benefits of industry consolidation as the integration of
acquired companies is more easily facilitated.
The Company is also prudent in its utilization of growth capital. For
example, new markets are initially entered by using the Nationwide Network as a
platform to offer local service without building a separate local technical
infrastructure. Similarly, the Company has pursued cooperative programs with
other operators to build out the Nationwide Network and plans to act as a
co-developer of narrowband personal communications services ("PCS")
applications.
Build Strategy
The Company's "build" strategy entails expansion of the sales effort into
areas where the Company currently has network infrastructure and signal coverage
but no active marketing efforts. The Company focuses on markets in which
demographic profiles indicate the likelihood of above average demand for
traditional and enhanced wireless communications services and where service can
be offered on a cost-effective basis.
The Company's 929.5125 MHz Nationwide Network (launched in 1993) provides
signal coverage on a common frequency in each of the top 100 SMSAs in the United
States. The network is operated via both Company owned transmitters and
intercarrier agreements with other operators, and provides nationwide service
coverage in approximately 860 cities. In 1996, the intercarrier agreements
expire and the Company has committed to expanding its Nationwide Network through
capital investment. The network allows the Company to provide subscribers with
low priced nationwide paging service, and also provides the Company a platform
from which to enter new markets cost effectively by using the existing
Nationwide Network infrastructure to carry a local frequency during the startup
period. In this way, the Company can place a local or regional frequency on a
pre-existing nationwide transmitter and thus begin service in a new market at
low incremental cost without delay. Customers in new markets opened in this way
can be economically serviced by the National Customer Service Center until such
time as a local sales office is established. As part of the 1994 FirstPAGE
acquisition, the Company acquired a second nationwide license which is already
constructed in the Eastern United States and which will be further expanded as
customer demand dictates. Ownership of this second nationwide license ensures
the Company has the flexibility to expand its operations without potential
capacity constraints.
3
<PAGE> 5
The Company's "build" strategy is currently focused on expanding its
coverage and sales efforts in recently established markets. During the first
quarter of 1995, the Company established a sales presence and began offering
local service in Boston, Pittsburgh and Southern Florida, utilizing network
facilities constructed by FirstPAGE prior to its acquisition by Metrocall.
During the third quarter of 1995, the Company established a local sales presence
in Pittsburgh. Throughout 1995, the Company expanded its West Coast coverage and
commenced or expanded the marketing of local paging service in San Diego, Las
Vegas and Phoenix. The network facilities in these markets had been constructed
by MetroPaging prior to its acquisition by Metrocall and serve as a further
enhancement to Metrocall's western operations.
Acquisition Strategy
Following the Company's initial public offering of Common Stock in July
1993, the Company embarked upon a strategy of increasing its subscriber base
through acquisitions that meet certain key strategic criteria, including size of
the subscriber base, paging spectrum, geographic coverage, market penetration,
potential administrative operating efficiencies, financial leverage and price.
The August 1994 FirstPAGE acquisition and the November 1994 MetroPaging
acquisition fulfilled these criteria, adding significant subscriber bases,
enhancing the Company's market presence in the Mid-Atlantic and Northeast
regions and further strengthening the Company's presence in California and other
Western markets. The Company believes there will be additional consolidation
within the paging industry and opportunity for growth by acquisition. The
successful completion in 1995 of concurrent equity and debt offerings raised
approximately $252.0 million of capital, of which approximately $123 million
remained as cash at December 31, 1995. This capital provides the Company the
opportunity to aggressively pursue acquisition candidates and to complete the
integration of management and operations in order to achieve economies of scale.
The Company has successfully demonstrated its ability to perform in these areas
through the FirstPAGE and MetroPaging acquisitions in which the Company
integrated all administrative, billing, inventory control, customer service and
management information systems into the Company's systems within seven months of
the closing of the MetroPaging acquisition.
On February 26, 1996, the Company signed a definitive merger agreement (the
"Parkway Agreement") with Parkway Paging, Inc., of Plano, Texas, 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 common 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. The purchase
price is subject to downward adjustment based on Parkway's ability to meet
certain defined performance criteria and benchmarks prior to closing. The
Parkway Agreement is subject to a number of conditions including, but not
limited to, receipt of all necessary regulatory approvals.
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, subject to adjustment based on
Satellite's ability to meet certain defined performance criteria. The Satellite
Agreement is subject to a number of conditions including, but not limited to,
receipt of all necessary regulatory approvals.
NEW PRODUCTS AND SERVICES
The Company differentiates itself from its competitors by offering its
customers a variety of value-added services packaged to reflect the specific
subscriber's business or personal needs. Value-added services are billed as an
enhancement to the basic service and tend to result in higher ARPU. Two of these
valued added services, "One Touch" and "Metrocall Nationwide," are currently
available. A third set of services, broadly defined as narrowband PCS, is
expected to become commercially available within the next three years.
One Touch ServiceTM. In June of 1995, the Company introduced its "One
Touch" advanced messaging service. Each One Touch subscriber is assigned a
personal "1-800" telephone number and voice mailbox for a monthly fee. Through
one telephone number, customers can have calls routed to a home, office or
cellular phone and enjoy voice messaging and fax storage and forwarding
services, all with instant notification of mail
4
<PAGE> 6
box activity via their pager. One Touch services are offered either separately
or in individualized packages designed to meet the needs of special markets or
affinity groups. The Company will, in the near future, bill customers on a
per-transaction basis (e.g., per page for faxes) where appropriate, which
should serve to increase per unit revenues. The Company also will, in the near
future, offer long distance service connection as part of the One Touch service
options. All One Touch services are available to new and existing customers. An
existing subscriber who desires One Touch services does not require new
equipment.
Metrocall Nationwide. Through its Nationwide Network the Company is able
to offer low-price nationwide paging services in approximately 860 cities in the
top 100 SMSAs. Coverage is currently available in heavily traveled areas in each
location (e.g., airports, central business districts) and can be expanded by the
Company as warranted by customer demand for regional and nationwide service.
PCS Strategy. During 1994, the FCC auctioned 1,237.5 KHz of narrowband PCS
spectrum. The Company believes this spectrum will allow paging operators to
offer a broad array of new products and services which heretofore were
impossible to offer given the limited spectrum allocated to traditional paging.
These products include voice pagers, high speed alphanumeric pagers and pagers
which will allow subscribers to acknowledge the receipt of messages. The Company
elected not to participate in the 1994 auctions because the Company believes
that there will be ample PCS spectrum available which it can use to resell PCS
services to its existing customers. For example, the Company has signed a
memorandum of understanding with PCS Development Corporation (a nationwide
narrowband PCS license holder) to act as a co-developer of technology,
co-carrier of signal and distributor of services. The Company's affiliation with
PCS Development Corporation should enable it to offer its subscribers narrowband
PCS services without the licensing or capital cost associated with the
construction of a narrowband PCS network. The Company is pursuing similar
relationships with other PCS developers and operators.
PAGING OPERATIONS
Subscribers and Services. The Company currently provides four basic types
of paging services: (i) digital display pagers, which permit a subscriber to
receive a telephone number or other numeric coded information and to store
several such numeric messages that the customer can recall when desired; (ii)
alphanumeric display pagers, which allow the subscriber to receive and store
text messages; (iii) tone-only pagers, which notify the subscriber that a call
has been received by vibrating or emitting a beeping sound; and (iv)
tone-plus-voice pagers, which emit a beeping sound followed by a brief voice
message. The Company provides digital display, alphanumeric display and
tone-only service in all its markets, and provides tone-plus-voice service in a
few markets. Digital display paging service, which was introduced by the paging
industry over 10 years ago, has in recent years grown at a faster rate than
tone-only or tone-plus-voice service, and approximately 93% of the Company's
pagers in service at December 31, 1995 were digital display pagers. At December
31, 1995 approximately 5% of the Company's pagers were alphanumeric pagers and
the balance were relatively evenly divided among tone-plus-voice and tone-only.
Alphanumeric display service, which was introduced in the mid-1980s, is
beginning to grow at increasing rates as users and dispatch centers overcome
technical and operational obstacles to data input. For example, the Company now
markets, under its service mark "Metrotext," a computer program designed for use
in transmitting alphanumeric messages from personal computers to pagers. The
Company also provides enhancements and ancillary services such as personalized
automated answering services, message protection, annual loss protection and
maintenance service on equipment. Personalized automated answering services
allow the subscriber to record a message that greets callers who reach the
subscriber's voice mailbox. Message protection allows a subscriber to retrieve
any calls that come in during the period when the subscriber was beyond the
reach of the Company's radio transmitters. Annual loss protection allows
subscribers who lease pagers to limit their costs of replacement upon loss or
destruction of the pager. Maintenance services are offered to subscribers who
own their own pagers.
The Company's subscribers either lease or buy their pagers and purchase
either local, regional, multi-regional or nationwide service. Contracts with
large unit volume subscribers are typically for three to five year terms, while
contracts with smaller volume subscribers generally have one year terms with
annual renewals. The
5
<PAGE> 7
Company receives additional revenue for enhanced services such as voice mail,
personalized greetings and One Touch service. Volume discounts on lease costs
and service fees are typically offered to large unit volume subscribers. In
some instances, the Company's subscribers are resellers that purchase services
at substantially discounted rates, but are responsible for marketing, billing
and collection with respect to their customers.
The following table sets forth as of December 31, 1993, 1994 and 1995 the
respective numbers and percentages of pagers that are (i) serviced and owned by
the Company, (ii) serviced by the Company and owned by subscribers and (iii)
serviced by the Company through resellers and owned by the resellers or their
subscribers.
OWNERSHIP OF PAGERS IN SERVICE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1993 1994(1) 1995
-------------- -------------- --------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Company owned and leased to subscribers... 111,681 45% 319,565 42% 380,951 40%
Subscriber owned (COAM)................... 116,478 47 212,809 28 223,506 24
Resellers................................. 19,557 8 223,172 30 339,556 36
------- --- ------- --- ------- ---
Total........................... 247,716 100% 755,546 100% 944,013 100%
======= === ======= === ======= ===
</TABLE>
- ---------------
(1) Includes approximately 420,000 pagers in service acquired in the FirstPAGE
and MetroPaging acquisitions in 1994.
Sales and Marketing. Subscribers who use paging services have
traditionally included small business operators and employees, professionals,
medical personnel, sales and service providers, construction and tradespeople,
and real estate brokers and developers. However, paging's appeal to the mass
market is growing, and the service is increasingly being adopted by individuals
for private, nonbusiness uses such as communicating with family members and
friends.
While the Company historically has relied on its direct sales force to
obtain paging customers, it has implemented a strategy to capitalize on the
growing mass market appeal of paging products. This sales and marketing strategy
incorporates a multi-tiered distribution system that utilizes the following five
different distribution channels to access different market segments: (i) the
Company's own direct sales staff that concentrates on business accounts; (ii)
database telemarketing conducted by Company-employed professional sales staff
which utilizes computerized lead management and professional telemarketing
techniques to identify different categories of potential subscribers; (iii)
resellers, who purchase bulk paging services and resell them to their own
subscribers generally on a private label basis; (iv) retail outlets that sell
pagers to the emerging consumer market; and (v) independent dealers,
representatives and agents, who use their own sales forces to sell Metrocall
paging equipment and services to their established customer bases. As of
December 31, 1995, the Company, through its 32 sales offices, employed a sales
force of 312 sales representatives, including the Company's direct sales staff,
telemarketing professionals and sales representatives who call on retailers and
resellers. The Company's distribution channels are described briefly below.
- Direct Sales. Direct sales personnel sell primarily to businesses,
placing special emphasis on key accounts, which are accounts that are of
strategic importance to the Company. The businesses targeted by the
Company's direct sales personnel are generally those that have highly
mobile employees or employees with multiple work locations. Examples
include hospitals, sales and service organizations, specialty trades,
transportation, construction and manufacturing companies and government
agencies. Direct sales personnel are compensated based on a percentage of
sales contract value (plus certain quota incentives), reduced by any
cancellations within the first 120 days of a contract. As previously
discussed, sales compensation plans are designed to motivate direct sales
personnel to increase sales of higher revenue products, such as
nationwide service, alphanumeric service, voice mail, One Touch and other
value-added services.
6
<PAGE> 8
- Database Telemarketing. The Company's internal, professionally-trained
staff uses computerized lead management and telemarketing techniques
combined with the Company's proprietary lead screening and development
protocol to generate sales. Using acquired lists to focus their effort,
the internal staff targets groups of consumers and small businesses who
have a propensity to use paging services but are either in a region where
the Company does not have a direct sales effort or are not reached by
other distribution channels. Telemarketing salespeople are compensated on
a salary plus commission basis. The cost to add a new subscriber through
this channel is lower than the cost through the direct sales channel.
- Resellers. Resellers buy bulk paging services from the Company for
resale to their own business clients and individual customers. The
Company issues one monthly bill to each reseller who is responsible for
the marketing, billing and collection, and equipment maintenance. As a
result of emphasizing this channel, the Company is able to achieve high
network utilization at low incremental cost. The Company does not lease
pagers to resellers.
- Retail Outlets. The Company sells pagers on a wholesale basis to retail
outlets such as office supply, electronics and general merchandise chains
for resale to consumers. These outlets are selected based on factors such
as the number of stores in a region and the extent of their advertising.
The outlets sell the pager itself and provide limited customer service to
the consumer. The Company provides sales incentives and advertising
support, and emphasizes training of sales personnel to enhance the retail
outlet's effectiveness and to ensure that the customer is well educated
regarding the product. The Company does not lease pagers to retailers.
The Company believes that as consumer awareness of the product grows,
retailers will become an increasingly important distribution channel. In
1995, the Company entered into separate arrangements to sell products
through Ritz Camera Centers, a nationwide photography and electronics
retail chain, and Crutchfield, the consumer electronics mail-order
catalogue.
- Independent Dealers, Representatives and Agents. The Company contracts
with independent dealers, representatives and agents, including such
outlets as small cellular phone dealers or independent specialty
electronics stores. The Company typically uses dealers to reach specific
consumer niches (e.g., ethnic or non-English speaking communities) and
small businesses that are more efficiently accessed through this channel
than through other distribution channels. In addition to selling the
Company's pagers, independent dealers assist the subscriber in choosing a
service plan and collect the initial payments. Independent dealers are
paid commissions for their placement of customers with the Company.
The following table sets forth information regarding numbers of pagers in
service by distribution channel at December 31, 1993, 1994 and 1995.
PAGERS IN SERVICE BY DISTRIBUTION CHANNEL
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995
------------------ ------------------ ------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Direct.................................... 226,317 91% 491,170 65% 550,970 58%
Indirect(1)............................... 21,399 9 264,376 35 393,043 42
------- --- ------- --- ------- ---
Total........................... 247,716 100% 755,546 100% 944,013 100%
======= === ======= === ======= ===
</TABLE>
- ---------------
(1) Includes resellers, retailers and independent dealers.
The Company believes that most of its markets are underdeveloped in terms
of pager penetration and offer substantial growth opportunities. The Company
believes that marketing through its multi-tiered distribution system
successfully increases subscriber growth at a low incremental marketing expense
to the Company.
7
<PAGE> 9
Centralized Organizational Structure. In order to minimize its cost
structure, the Company centralizes operating functions where possible, utilizes
common billing and subscriber management systems throughout its markets and
offers paging services under the Metrocall brand name in all of its markets. The
Company's centralized operating structure focuses regional management on sales
and distribution by transferring technical and back-office responsibilities to a
central location.
All of the Company's administrative and back-office functions are located
in a single national operations center in Alexandria, Virginia. These functions
include all accounting, management information systems, inventory and order
fulfillment. Following the successful integration of FirstPAGE and MetroPaging,
all customer billing databases were merged into a single corporate billing
database. This combined billing database allows flexibility and efficiency when
handling customer account inquiries throughout any of the Company's sales
offices and the National Customer Service Center. This consolidation has enabled
the Company to achieve economies of systems, personnel, training and management.
From December 31, 1991 to December 31, 1995, units in service per employee
increased from 692 to 1,047.
The Company also maintains a centralized National Customer Service Center.
The Company's National Customer Service Center handles customer inquiries from
existing and potential customers. The National Customer Service Center is
staffed with over 70 employees and is open six days per week (with emergency
service provided seven days a week, 24 hours a day) with a toll-free access
number. In addition to responding to local customer service inquiries, the
National Customer Service Center is a critical factor in marketing and servicing
the Nationwide Network to all markets in the United States. Efforts are made to
satisfy customers on initial inquiry to avoid repeat calls, thereby increasing
customer satisfaction and decreasing costs. The Company deploys state-of-the-art
call management equipment (such as an automated call distribution system) to
provide quality customer service. The Company tracks both productivity and
quality of performance of its customer service representatives.
The Company also focuses on the allocation of administrative costs over a
greater number of units in service. While the Company expects revenue from units
in service to grow through internal growth, geographic expansion and
acquisitions, the Company's administrative costs are expected to grow at a much
lower rate.
Network and Equipment. The Company has developed a state-of-the-art paging
system deploying current technology which achieves optimal building penetration,
wide-area coverage and the ability to deliver new and enhanced paging services.
This existing paging transmission equipment has significant capacity to support
future growth. In 1996, certain intercarrier agreements will expire, requiring
the Company to replace transmitters it previously shared with other paging
companies with its own transmitters. This will require significant capital
investment in 1996 but will result in one of the industry's most extensive
paging networks.
The Company's paging services are initiated when telephone calls are placed
to the Company's paging terminals. These state-of-the-art terminals, which the
Company maintains within its service areas, have a modular design that allows
significant future expansion by adding or replacing modules rather than
replacing the entire terminal. The Company's paging terminals direct pages to
the Company's primary satellite, which signals terrestrial network transmitters
providing coverage throughout the service area.
The Company operates a series of regional operating systems or networks
consisting of primary networks servicing the states of Arizona, California and
Nevada, and the area from Boston to the Virginia/North Carolina border. The
Company also has licenses issued by the FCC for the same channel in each of the
largest 100 SMSAs and began operations of the Nationwide Network on the channel
in November 1993. The Company is also capable of providing local paging in each
market serviced by the Nationwide Network by using nationwide transmitters to
carry local messages. Services provided through the Nationwide Network are
marketed to subscribers directly through the Metrocall sales force and
indirectly through retailers and resellers. With its acquisition of FirstPAGE,
Metrocall obtained a second nationwide FCC license allowing the Company to
operate an additional national paging network. The Company intends to use this
incremental operating spectrum to support future growth.
8
<PAGE> 10
The Company does not manufacture any of the pagers or related transmitting
and computerized paging terminal equipment used in the Company's paging
operations. The equipment used in the Company's paging operations is available
for purchase from multiple sources, and the Company anticipates that equipment
and pagers will continue to be available to the Company in the foreseeable
future, consistent with normal manufacturing and delivery lead times. Because of
the high degree of compatibility among different models of pagers, transmitters,
computers and other paging equipment, the Company is able to design, supply and
operate its systems without being dependent upon any single source of such
equipment. The Company continually evaluates new developments in paging
technology in connection with the design and enhancement of its paging systems
and selection of products to be offered to subscribers.
The Company achieves cost savings by purchasing pagers for a volume
discount from a limited number of companies, including Motorola, Inc.
("Motorola"), from which the Company currently purchases most of its pagers, NEC
America, Inc., Uniden America Corporation and Panasonic Corporation. The Company
purchases its transmitters and paging terminals from Motorola and Glenayre
Electronics, Incorporated.
PAGING INDUSTRY OVERVIEW
Industry sources predict that there will be approximately 35.0 million
pagers in service in the United States by the end of 1996. Industry sources also
indicate that in recent years the number of pagers in service in the United
States has been growing at annual rates in excess of 20% per year and predict
that the number of pagers in service will continue to grow at annual rates of
approximately 15%-20% through the year 2000. Factors that have been described as
contributing to this growth include (i) declining costs of service, (ii)
increasing consumer awareness of the benefits of mobile communications, (iii)
introduction of new or enhanced paging equipment and services, and (iv)
expanding channels of distribution.
Although the United States paging industry has over 600 licensed paging
companies, the Company estimates that the ten largest paging companies,
including Metrocall, currently serve approximately 70% of the total paging
subscribers in the United States. These paging companies are facilities-based,
Commercial Mobile Radio Service ("CMRS") providers, previously classified as
either Radio Common Carrier ("RCC") or Private Carrier Paging ("PCP") operators,
servicing over 100,000 subscribers each in multiple markets and regions.
The Company believes that future developments in the paging and wireless
communications industry will include (i) technological improvements that permit
increased service and applications to a wider market on a cost-effective basis,
(ii) consolidation of smaller, single-market operators and larger, multi-market
paging companies, and (iii) increased numbers of pagers in service, as a result
of general expansion into consumer and retail markets. Future technological
developments in the paging industry may include new paging services such as
"confirmation" or "response" paging that will have the ability to send a message
back to the paging system that confirms that the paging message has been
received, digitized voice paging, two-way paging and notebook and sub-notebook
computer wireless data applications. Narrowband PCS may offer the ability to
provide some of these services. While these services have been proven
technologically feasible, the economic viability has not been tested based on
the cost of licenses and capital infrastructure requirements.
PAGING TECHNOLOGY
Paging is a method of one-way wireless communications that uses an assigned
radio frequency to contact a paging subscriber anywhere in a service area. A
subscriber carries a pager that receives messages by the broadcast of a one-way
radio signal. To contact a subscriber, a message is usually sent by placing a
telephone call to the subscriber's designated telephone number. The telephone
call is received by an electronic paging switch which then generates a signal
that is sent to radio transmitters in the service area. Depending upon the
topography of the service area, the operating radius of a radio transmitter
typically ranges from three to 20 miles. The transmitters send a signal that is
received by the pager carried by the subscriber and is delivered as a tone,
vibration, numeric or alphanumeric message. A tone-only pager notifies the
subscriber that a call has been received by emitting a beeping sound or
vibration. In the case of tone-plus-voice service, the subscriber's pager emits
a beeping sound followed by a brief voice message. Depending upon the type of
pager
9
<PAGE> 11
in use, the subscriber may receive a message that is displayed on the pager or a
subscriber may call his or her home, office or telemessaging service to receive
the message. A digital display pager permits a caller to transmit to the
subscriber a numeric message that may consist of a telephone number, an account
number or coded information. A digital display pager has the memory capability
to store several numeric messages that can be recalled by the subscriber when
desired. Alphanumeric display paging service allows subscribers to receive and
store messages consisting of both numbers and text.
Metrocall believes that paging is the most cost-effective and reliable
means of conveying a variety of information rapidly over a wide geographic area
either directly to a person traveling or to various fixed locations. Because it
is a one-way communication tool, paging is an inherently lower cost way to
communicate than two-way communication methods. For example, pagers and air time
required to transmit an average message cost less than equipment and air time
for cellular telephones. Furthermore, pagers operate for longer periods due to
superior battery life, often exceeding one month on a single AAA battery. Paging
subscribers generally pay a flat monthly service fee, which covers a certain
number of messages sent to the subscriber. In addition, pagers are unobtrusive,
portable and historically have not become obsolete even in the face of
substantial technological advances in the communications industry. Growth in the
number of cellular telephone customers is increasingly viewed as a complement to
wireless messaging. Many cellular telephone customers use pagers in conjunction
with their telephones to screen incoming calls and minimize battery use and
cellular usage charges.
COMPETITION
The Company experiences competition from one or more paging operators in
all of the regions in which it operates. Some of the Company's competitors have
greater financial resources than the Company. Since 1988, the Company has
competed with Paging Network, Inc. ("PageNet"), the world's largest provider of
paging services, in all of the Company's major markets. The Company believes
that competition for subscribers is based on price, geographic coverage and
quality of service. Metrocall believes that it compares favorably with its
competitors on these bases.
With the introduction of the Nationwide Network, the Company's principal
competitors for national accounts are MobileMedia Communications, Inc. (using
the trade name MobileComm through its recent acquisition of the MobileComm
subsidiary of Bell South), SkyTel Corporation ("SkyTel"), a subsidiary of MTEL,
Inc., PageMart, Inc. ("PageMart"), and PageNet, all of which possess
significantly greater financial and other resources than the Company and have
FCC licenses to provide nationwide services. In addition to MobileComm, SkyTel,
PageMart and PageNet, the Company is aware of other paging companies that offer,
or intend to offer, nationwide paging services to their subscribers.
In 1994, the FCC began auctioning licenses for new PCS. 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. PCS providers
may compete directly and indirectly with the Company.
Future technological developments in the wireless telecommunications
industry, such as PCS, and enhancements of current technology could create new
products and services which might compete with the paging services currently
offered by Metrocall. There can be no assurance that Metrocall would not be
adversely affected by such technological change.
REGULATION
Federal. Metrocall's paging operations are subject to regulation by the
FCC under the Communications Act of 1934, as amended (the "Communications Act").
The Communications Act requires that the Company obtain licenses from the FCC to
use radio frequencies to conduct its paging operations within specified
10
<PAGE> 12
geographic areas. In addition to authorizing the use of radio frequencies, FCC
licenses awarded to the Company set forth the technical parameters, such as
maximum power and tower height, under which the Company is permitted to use
those frequencies.
The Company currently provides paging service as a RCC operator, and as a
PCP operator. Until recently, RCC and PCP operators were subject to different
regulatory treatment under the Communications Act and the FCC's rules. As a
result of Congressional legislation, these differences were eliminated and new,
common rules for RCC and PCP operators will be implemented by the FCC over the
next year.
In the meantime, certain regulatory differences between RCC licenses and
PCP licenses exist. Until recently, PCP frequencies were licensed by the FCC on
a shared basis, that is, in a given market more than one licensee could be
authorized to provide paging services on the same frequency. Nevertheless, PCP
license applications were first processed through a "frequency coordinator" that
attempted to minimize "overcrowding" on a given frequency. Until recently, in
most markets nationwide, there had been more PCP frequencies available than
applicants. Hence, so long as a given PCP frequency was not congested with
multiple licensees, the subscriber would not perceive any difference between PCP
and RCC services. In most areas of the country where the Company holds PCP
licenses, the Company is the only paging operator licensed on its particular PCP
frequency.
The FCC recently enacted substantial changes to these PCP rules. In
November of 1993, the FCC adopted new rules to provide "channel exclusivity" to
PCP operators operating on certain 929 MHz frequencies, provided the licensee
meets certain qualifications. The Company appears to qualify for nationwide
exclusivity on the 929 MHz frequency used for the Nationwide Network, and on one
of the 929 MHz frequencies obtained from the FirstPAGE acquisition. Requests
were previously submitted to the FCC to have those frequencies designated as
"exclusive" on a nationwide basis, along with waiver requests seeking approval
of an extended construction implementation schedule (a so-called "slow-growth
waiver"). By Memorandum Opinion and Order released on February 13, 1996, the FCC
granted the Company an additional six months within which to complete
construction of its nationwide systems on both 929 MHz frequencies. The Company
anticipates meeting this construction deadline. If the Company timely completes
build-out on these frequencies, and if the Company continues to comply with the
PCP exclusivity requirements, then no new PCP licenses will be granted on those
frequencies anywhere in the United States, other than the Company's. Any PCP
licenses other than the Company's that were previously granted by the FCC on
those PCP frequencies will be allowed to continue operating on those
frequencies, but those licensees will not be allowed to expand their paging
service areas beyond their existing coverage areas. Additionally, on other 929
MHz frequencies, the Company has been approved by the appropriate frequency
coordinator for local exclusivity in the Chicago area, and for regional
exclusivity in the Northeast and Mid-Atlantic areas of the United States.
Until recently, one of the principal differences between RCC and PCP
service was that PCP operators, as private land mobile radio service operators,
were exempt from state rate and entry regulations. RCC operators, on the other
hand, were subject to such regulations in those states that chose to impose
tariff and certification obligations on RCC paging companies. These regulatory
differences between RCC and PCP operators have been eliminated as a result of
Congressional legislation.
In August of 1993, as part of its Omnibus Budget Reconciliation Act (the
"Budget Act"), Congress implemented Sections 3(n) and 332 amendments to the
Communications Act. The amended statute changed the prior regulatory regime in
two fundamental respects. First, Congress replaced the prior common carrier and
private radio definitions with two newly defined categories of mobile radio
services: (1) CMRS (commercial mobile radio service) and (2) private mobile
radio service ("PMRS"). The new CMRS definition essentially supplants the prior
RCC definition. The FCC has determined that PCP and RCC paging services are to
be classified as CMRS. The FCC has defined CMRS as follows: service that is for
profit, interconnected to the public switched network, and is available to the
public. The FCC has issued the technical, operational and licensing rules for
CMRS operators, which became effective on January 2, 1995. "Grandfathered" PCP
operators, including the Company, will not be subject to the new PCP rules until
August 10, 1996.
11
<PAGE> 13
Second, Congress replaced existing mobile services regulations with a new
approach that gives the FCC flexibility to establish what the FCC has deemed
"appropriate levels of regulation for mobile service providers." By that, the
FCC means that certain previous common carrier regulations, such as tariffs,
might not be necessary or appropriate for paging, cellular radiotelephone and
other mobile service providers. Specifically, the FCC decided to 'forbear' from
enforcing against all CMRS licensees all of the following Title II of the
Communications Act regulations: any interstate tariff requirements, including
the regulation of CMRS rates and practices; the collection of intercarrier
contracts; certification concerning interlocking directorates; and FCC approval
relating to market entry and exit. Also, the states are prohibited from imposing
entry regulations on CMRS operators; and the states are prohibited from
regulating CMRS rates.
Under this new regulatory regime, the Company's RCC operations will
probably face fewer state and federal regulatory requirements. Its PCP
operations may be subject to more state and federal regulations than previously
applied to PCP operators, but less regulations than previously applied to RCC
operators.
The FCC radio licenses granted to the Company are for varying terms of up
to 10 years, and renewal applications must be approved by the FCC. The Company's
current licenses have expiration dates ranging from 1997 to 1999. In the past,
FCC renewal applications have been routinely granted. Although there can be no
assurance that any future applications filed by the Company will be approved or
acted upon in a timely manner by the FCC, based on its experience to date, the
Company knows of no reason to believe such applications would not be approved or
granted.
The Company regularly applies to the FCC for authority to use additional
frequencies, to modify the technical parameters of existing facilities, to
expand its service territories and to provide new services. Effective February
8, 1996, the FCC suspended acceptance of all applications for new paging
frequencies and most modifications to paging facilities. The Company believes
that it currently has sufficient channel capacity and geographic coverage to
conduct its business in spite of this application "freeze"; however, if the
"freeze" lasts for more than several months, it could have an adverse impact on
the Company.
The Communications Act also requires prior FCC approval for acquisitions by
the Company of radio licenses held by other companies, as well as transfers of
controlling interests of any entities that hold radio licenses. Although there
can be no assurance that any such future applications filed by the Company will
be approved or acted upon in a timely manner by the FCC, based on its experience
to date, the Company knows of no reason to believe such applications would not
be approved or granted. The FCC has determined that certain modification
applications may be subject to competitive bidding ("auction") procedures.
The FCC has authority to restrict the operation of licensed radio
facilities or to revoke or modify such licenses. The FCC may adopt changes to
its radio licensing rules at any time, and may impose fines for violations of
its rules. Under certain circumstances, the Company's license applications may
be deemed "mutually exclusive" with those of other paging companies, in which
case, the FCC would select between the mutually exclusive applicants. The FCC
has previously used lottery procedures to select between mutually exclusive RCC
paging applications. The FCC, in response to a Congressional mandate, in the
future will award new CMRS paging licenses by the auction process. Since auction
procedures are new to the paging industry, Metrocall cannot predict their impact
on its licensing practices.
The FCC is currently considering issuing paging licenses on a wide-area
basis, with auctions for large, FCC-designated service areas to be awarded by
auction. If the FCC adopts this proposal, it will, at least initially, increase
the Company's cost in obtaining authorizations. However, in any service area
where the Company is the successful bidder or already qualifies for wide-area
licensing, the Company will be able to save on costs by being able to modify and
add facilities without applying for licenses on a site-by-site basis. The FCC's
wide-area licensing and auction proposals may serve as entry barriers to new
participants in the paging industry. To the extent that the Company is the
successful bidder in a geographic area, or already holds a nationwide or
wide-area authorization for particular paging frequencies, no other entity will
be able to file for new or additional facilities on the Company's frequencies in
that area; conversely, in geographic areas where the Company is not the high
bidder, its ability to expand its service territories in those geographic areas
will be curtailed.
12
<PAGE> 14
The Communications Act requires the FCC to limit foreign ownership of RCC
licenses. These foreign ownership restrictions limit the percentage of Company
stock that may be owned or voted, directly or indirectly, by aliens or their
representatives, a foreign government or its representatives, or a foreign
corporation. Prior to the Budget Act, these foreign ownership restrictions did
not apply to private land mobile services such as PCP services; however, those
restrictions now apply to both PCP and RCC licenses. The Certificate of
Incorporation permits the redemption of the Common Stock from stockholders where
necessary to protect the Company's compliance with these regulatory
requirements.
The FCC could change its rules or policies in a manner that could have a
material adverse effect on the Company's business. Such actions could affect the
scope and manner of the Company's services, or could lead to increased
competition in the paging industry. For example, the FCC was ordered by Congress
to hold auctions to award PCS licenses in 1994 and has since issued a number of
PCS licenses. These and other new mobile services could compete directly or
indirectly with the Company. The FCC has several rulemaking proceedings pending
that could affect the Company's business; for example, the FCC is currently
engaged in proceedings to resolve the shortage of 800 numbers and to ease the
transition to 888 toll free numbers; to establish compensation arrangements for
interconnection between CMRS operators and local exchange carriers ("LECs"); and
to allow CMRS operators to provide fixed telecommunications services in addition
to mobile services. The Company expects that these proceedings will generally be
favorable to the paging industry; however, the Company cannot predict the final
outcome of any FCC proceeding or the possible impact of future FCC proceedings.
State. The Budget Act preempts all state and local rate and entry
regulation of all CMRS operators. The Budget Act became effective August 10,
1994. Entry regulations typically refer to the process whereby a RCC operator
must apply to the state to obtain a certificate to provide service in that
state. Rate regulation typically refers to the requirement that RCC operators
file a tariff describing the Company's rates, terms and conditions by which it
provides paging services. Apart from rate and entry regulations, some states may
continue to regulate other aspects of the Company's business in the form of
zoning regulations, or "health and safety" measures. The Budget Act does not
preempt state authority to regulate such matters. Although there can be no
assurances given with respect to future state regulatory approvals, based on its
experience to date, the Company knows of no reason to believe such approvals
would not be granted. The Telecommunications Act of 1996 (the
"Telecommunications Act") requires that state and local zoning regulations shall
not unreasonably discriminate among providers of "functionally equivalent"
wireless services, and shall not have the effect of prohibiting the provision of
personal wireless services. The Telecommunications Act provides for expedited
judicial review of state and local zoning decisions. Additionally, state and
local governments may not regulate the placement, construction and modification
of personal wireless service facilities on the basis of the environmental
effects of radio frequency emissions, if the facilities comply with the FCC's
requirements.
Pursuant to the Budget Act's preemption provisions, in August 1994, eight
states petitioned the FCC to retain rate regulation authority over intrastate
CMRS operators. The FCC denied those petitions, and all appeals before the FCC
have been exhausted. One state, Connecticut, filed an appeal of the FCC's order
denying its petition with the U.S. Court of Appeals for the Second Circuit. That
appeal remains pending; since Connecticut's petition involved only the
regulation of cellular telephone service rates, the Company does not expect the
outcome of that pending appellate legislation to have an impact on the Company's
business.
Legislative Changes. From time to time, federal and state legislators
propose legislation that could affect the Company's business, either
beneficially or adversely. For example, the Budget Act requires the FCC to hold
public auctions to award new PCS licenses throughout the United States. While
PCS services do not pose an imminent threat to the Company's business, such
regulatory and legislative actions may increase competition and affect the
Company's cost of operations. The recently-enacted Telecommunications Act will
also have an impact on the paging industry; the Company expects that that impact
will be mostly positive. For example, the Telecommunications Act imposes a duty
on all telecommunications carriers to provide interconnection to other carriers,
and requires LECs to, among other things, establish reciprocal compensation
arrangements for the transport and termination of calls, provide other
telecommunications carriers access to the network elements on an unbundled basis
on reasonable and non-discriminatory rates, terms and conditions. The
Telecommunications Act also requires the FCC to appoint an impartial entity to
administer
13
<PAGE> 15
telecommunications numbering and to make numbers available on an equitable
basis. Additionally, as previously indicated, the Telecommunications Act
restricts state and local authority with regard to zoning and environmental
regulation of telecommunications operators. Other provisions of the
Telecommunications Act, however, may provide for increased competition to the
Company (for example, the provisions allowing the FCC to forbear from applying
regulations and provisions of the Communications Act to any class of carriers,
not only to CMRS, and the provisions allowing public utilities to provide
telecommunications services directly) and may impose additional regulatory costs
(for example, provisions requiring contributions to universal service by
providers of both interstate and intrastate telecommunications). The Company
cannot predict the impact of such legislative actions on its operations.
The foregoing description of certain regulatory factors does not purport to
be a complete summary of all present and proposed legislation and regulations
pertaining to the Company's operations.
SEASONALITY
Generally, Metrocall's operating results are not significantly affected by
seasonal factors. However, selected markets reflect slower new pager
replacements during the winter months.
TRADEMARKS; SERVICE MARKS
"Metrocall" is a registered trademark with the U.S. Patent and Trademark
Office ("Trademark Office") and is owned by the Company. The Company markets its
paging services under the service marks "Datacall," "Metronet" and
"Metromessage." In addition, the Company owns the service marks "In Touch,"
which it has used in connection with its paging services, and "Metrotext", which
it uses in connection with its marketing of computer programs designed for use
in transmitting alphanumeric messages from personal computers to pagers.
Copyright registration has been granted to the Metrotext computer program. The
Company has applications with the Trademark Office for service marks "The Power
in Paging," "One Touch" and "Metrofax."
EMPLOYEES
As of December 31, 1995, the Company had 902 full-time employees, none of
whom is represented by a labor union. The Company believes that its relationship
with its employees is good.
ITEM 2. PROPERTIES
The Company does not hold title to any real property, although the Company
and its affiliates own interests in certain properties. At December 31, 1995,
the Company leased office space in 32 cities used in conjunction with its paging
operations. These office leases provide for monthly payments ranging from $600
to $38,625 and expire, subject to renewal options, on various dates through July
2010.
In April 1994, Metrocall entered into a 10-year lease for additional office
space near its existing headquarters building. The lease may be renewed for two
additional five-year periods. The lease provided for initial annual rent of
approximately $450,000 or $37,500 per month, with annual escalation of 3%. In
connection with this lease, Metrocall also has an option, exercisable from
January 2, 1995 through December 31, 1997, to acquire a 51% interest in the
property for approximately $2.9 million.
The Company leases sites for its transmitters on commercial broadcast
towers, buildings and other fixed structures. During 1995, the Company leased
transmitter sites for monthly rentals ranging from approximately $100 to $5,550
that expire, subject to renewal options, on various dates through March 2002.
ITEM 3. LITIGATION
The Company is not currently involved in any material pending legal
proceedings likely to have a material adverse impact on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during
the fourth quarter of 1995, through the solicitation of proxies or otherwise.
14
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Common Stock is quoted and traded on The Nasdaq National Market under
the symbol "MCLL." The following table sets forth for the periods indicated the
high and low closing prices per share of the Common Stock as reported by The
Nasdaq National Market.
<TABLE>
<CAPTION>
CALENDAR YEAR 1994 HIGH LOW
----------------------------------------------------------- ---- ----
<S> <C> <C>
Quarter ended March 31..................................... $20 $ 16
Quarter ended June 30...................................... 18 1/4 12
Quarter ended September 30................................. 17 3/4 12 1/2
Quarter ended December 31.................................. 18 3/4 15
</TABLE>
<TABLE>
<CAPTION>
CALENDAR YEAR 1995
-----------------------------------------------------------
<S> <C> <C>
Quarter ended March 31..................................... $18 $ 14 1/2
Quarter ended June 30...................................... 18 3/8 17
Quarter ended September 30................................. 29 18
Quarter ended December 31.................................. 28 1/4 19 1/8
</TABLE>
On March 1, 1996, the last reported sales price of the Common Stock on The
Nasdaq National Market was $20 per share. As of March 1, 1996, the Company had
approximately 155 stockholders of record.
Dividend Policy. The Company has not declared or paid any cash dividends
or distributions on its capital stock since its initial public offering of
Common Stock in 1993. The Company currently intends to retain future earnings to
finance the growth and development of its business and does not anticipate
paying any cash dividends on the Common Stock in the foreseeable future. Future
cash dividends, if any, will be determined by the Board of Directors, and will
be based upon the Company's earnings, capital requirements, financial condition
and other factors deemed relevant by the Board of Directors. In addition,
certain covenants in the Company's Credit Facility and in its Indenture restrict
the payment of cash dividends or other stockholder distributions by the Company.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to the
Selected Consolidated Financial and Operating Data on page 10 of the Company's
Annual Report to Shareholders for the year ended December 31, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is incorporated by reference to
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 11 through 15 of the Company's Annual Report to Shareholders
for the year ended December 31, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to
Consolidated Financial Statements and Notes to Consolidated Financial Statements
on pages 15 through 26 of the Company's Annual Report to Shareholders for the
year ended December 31, 1995.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
15
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors and executive officers of the Company
is incorporated by reference from the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held on May 1, 1996, (the "1996 Proxy Statement")
under the caption "Election of Directors -- Information as to Nominees and
Continuing Directors."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference
from the 1996 Proxy Statement under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding the stock ownership of each person known to the
Company to be the beneficial owner of more than 5% of the Common Stock, of each
director and executive officer of Metrocall and all directors and executive
officers as a group is incorporated by reference from the 1996 Proxy Statement
under the caption "Beneficial Ownership of Common Stock."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated by reference from the 1996 Proxy Statement under the caption
"Certain Relationships and Related Transactions."
16
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the Registrant and its
subsidiaries, and the report of independent public accountants are incorporated
by reference herein by reference to pages 15 through 26 in the Registrant's
Annual Report to Shareholders for the year ended December 31, 1995.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants...................
Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and 1995..................
Consolidated Statements of Operations for the three years
ended December 31, 1993, 1994 and 1995.....................................
Consolidated Statements of Stockholders' Equity (Deficit) for the
three years ended December 31, 1993, 1994 and 1995.........................
Consolidated Statements of Cash Flows for the three years
ended December 31, 1993, 1994 and 1995.....................................
Notes to Consolidated Financial Statements....................................
</TABLE>
(a)(2) Financial Statement Schedules
The following financial statement schedule for the three years ended
December 31, 1993, 1994 and 1995 is submitted herewith:
<TABLE>
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants............... F-1
Schedule II Valuation and Qualifying Accounts............................... F-2
</TABLE>
All other schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in the financial statements
or notes thereto.
(b) Reports on Form 8-K
None
17
<PAGE> 19
(c) Exhibits
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------------------------------------------------------------------
<C> <S>
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)
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 Noted 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.
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------------------------------------------------------------------
<C> <S>
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; Brian 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 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.
21.1 Subsidiaries of Metrocall.
23.1 Consent of Arthur Andersen LLP, as independent public accountants for
Metrocall.
</TABLE>
- ---------------
(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.
19
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 29th day of
March, 1996.
METROCALL, INC.
By: /s/ RICHARD M. JOHNSTON
---------------------------
Richard M. Johnston
Chairman of the Board
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------
<C> <S> <C>
/s/ RICHARD M. JOHNSTON Chairman of the Board March 29, 1996
-----------------------------------------
Richard M. Johnston
/s/ WILLIAM L. COLLINS, III Vice Chairman of the Board, March 29, 1996
----------------------------------------- President, Chief Executive
William L. Collins, III Officer and Director
/s/ VINCENT D. KELLY Chief Financial Officer, March 29, 1996
----------------------------------------- Vice President, Treasurer
Vincent D. Kelly and Director (Principal
Financial and Accounting
Officer)
/s/ STEVEN D. JACOBY Chief Operating Officer, March 29, 1996
----------------------------------------- Vice President and Director
Steven D. Jacoby
/s/ HARRY L. BROCK, JR. Director March 29, 1996
-----------------------------------------
Harry L. Brock, Jr.
/s/ CHRISTOPHER A. KIDD Director March 29, 1996
-----------------------------------------
Christopher A. Kidd
/s/ SUZANNE S. BROCK Secretary and Director March 29, 1996
-----------------------------------------
Suzanne S. Brock
/s/ FRANCIS A. MARTIN, III Director March 29, 1996
-----------------------------------------
Francis A. Martin, III
/s/ RONALD V. APRAHAMIAN Director March 29, 1996
-----------------------------------------
Ronald V. Aprahamian
</TABLE>
20
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metrocall, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Metrocall, Inc. and subsidiaries, and
have issued our report thereon dated February 8, 1996 (except with respect to
the matters discussed in Note 13 to the consolidated financial statements as to
which the date is February 28, 1996). Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The schedule included
on page F-2 is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.,
February 8, 1996
F-1
<PAGE> 23
SCHEDULE II
METROCALL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES ACQUIRED (1) DEDUCTIONS (2) YEAR
- -------------------------------------- ---------- ---------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful
accounts......................... $1,150 $3,414 $ -- $3,596 $ 968
====== ====== ==== ====== ======
Year ended December 31, 1994
Allowance for doubtful
accounts......................... $ 300 $ 925 $850 $ 925 $1,150
====== ====== ==== ====== ======
Year ended December 31, 1993
Allowance for doubtful
accounts......................... $ 337 $ 526 $ -- $ 563 $ 300
====== ====== ==== ====== ======
</TABLE>
- ---------------
(1) Allowance for doubtful accounts acquired in the FirstPAGE and MetroPaging
mergers (see Note 3 -- Notes to Consolidated Financial Statements).
(2) Deductions represent write-offs of accounts receivable.
F-2
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------- ----
<C> <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)
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 Noted 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.
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------- ----
<C> <S> <C>
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; Brian 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 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.
21.1 Subsidiaries of Metrocall.
23.1 Consent of Arthur Andersen LLP, as independent public accountants for
Metrocall.
</TABLE>
- ---------------
(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.
<PAGE> 26
EXHIBIT 10.14
TO EXHIBIT 13.1
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN
AND TRUST/CUSTODIAL ACCOUNT
BASIC PLAN DOCUMENT
February 1993
COPYRIGHT 1993 MCKAY HOCHMAN CO., INC.
<PAGE> 27
THIS DOCUMENT IS COPYRIGHTED UNDER THE LAWS OF THE UNITED STATES. USE,
DUPLICATION OR REPRODUCTION, INCLUDING THE USE OF ELECTRONIC MEANS, IS
PROHIBITED BY LAW WITHOUT THE EXPRESS CONSENT OF THE AUTHOR.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH PAGE
- --------- ----
<S> <C> <C>
ARTICLE I
DEFINITIONS
1.1 ACTUAL DEFERRAL PERCENTAGE 1
1.2 ADOPTION AGREEMENT 1
1.3 AGGREGATE LIMIT 2
1.4 ANNUAL ADDITIONS 2
1.5 ANNUITY STARTING DATE 2
1.6 APPLICABLE CALENDAR YEAR 3
1.7 APPLICABLE LIFE EXPECTANCY 3
1.8 AVERAGE CONTRIBUTION PERCENTAGE (ACP) 3
1.9 AVERAGE DEFERRAL PERCENTAGE (ADP) 3
1.10 BREAK IN SERVICE 3
1.11 CODE 3
1.12 COMPENSATION 3
1.13 CONTRIBUTION PERCENTAGE 5
1.14 CUSTODIAN 6
1.15 DEFINED BENEFIT PLAN 6
1.16 DEFINED BENEFIT (PLAN) FRACTION 6
1.17 DEFINED CONTRIBUTION DOLLAR LIMITATION 7
1.18 DEFINED CONTRIBUTION PLAN 7
1.19 DEFINED CONTRIBUTION (PLAN) FRACTION 7
1.20 DESIGNATED BENEFICIARY 7
1.21 DISABILITY 7
1.22 DISTRIBUTION CALENDAR YEAR 7
1.23 EARLY RETIREMENT AGE 8
1.24 EARNED INCOME 8
1.25 EFFECTIVE DATE 8
1.26 ELECTION PERIOD 8
1.27 ELECTIVE DEFERRAL 8
1.28 ELIGIBLE PARTICIPANT 8
1.29 EMPLOYEE 8
1.30 EMPLOYER 9
1.31 ENTRY DATE 9
1.32 EXCESS AGGREGATE CONTRIBUTIONS 9
1.33 EXCESS AMOUNT 9
1.34 EXCESS CONTRIBUTION 9
1.35 EXCESS ELECTIVE DEFERRALS 9
1.36 FAMILY MEMBER 10
1.37 FIRST DISTRIBUTION CALENDAR YEAR 10
1.38 FUND 1
1.39 HARDSHIP 10
1.40 HIGHEST AVERAGE COMPENSATION 10
1.41 HIGHLY COMPENSATED EMPLOYEE 10
1.42 HOUR OF SERVICE 11
1.43 KEY EMPLOYEE 12
</TABLE>
<PAGE> 28
<TABLE>
<S> <C> <C>
1.44 LEASED EMPLOYEE 12
1.45 LIMITATION YEAR 12
1.46 MASTER OR PROTOTYPE PLAN 12
1.47 MATCHING CONTRIBUTION 12
1.48 MAXIMUM PERMISSIBLE AMOUNT 13
1.49 NET PROFIT 13
1.50 NORMAL RETIREMENT AGE 13
1.51 OWNER-EMPLOYEE 13
1.52 PAIRED PLANS 13
1.53 PARTICIPANT 13
1.54 PARTICIPANT'S BENEFIT 13
1.55 PERMISSIVE AGGREGATION GROUP 13
1.56 PLAN 14
1.57 PLAN ADMINISTRATOR 14
1.58 PLAN YEAR 14
1.59 PRESENT VALUE 14
1.60 PROJECTED ANNUAL BENEFIT 14
1.61 QUALIFIED DEFERRED COMPENSATION PLAN 14
1.62 QUALIFIED DOMESTIC RELATIONS ORDER 14
1.63 QUALIFIED EARLY RETIREMENT AGE 15
1.64 QUALIFIED JOINT AND SURVIVOR ANNUITY 15
1.65 QUALIFIED MATCHING CONTRIBUTION 15
1.66 QUALIFIED NON-ELECTIVE CONTRIBUTIONS 15
1.67 QUALIFIED VOLUNTARY CONTRIBUTION 15
1.68 REQUIRED AGGREGATION GROUP 15
1.69 REQUIRED BEGINNING DATE 15
1.70 ROLLOVER CONTRIBUTION 15
1.71 SALARY SAVINGS AGREEMENT 16
1.72 SELF-EMPLOYED INDIVIDUAL 16
1.73 SERVICE 16
1.74 SHAREHOLDER EMPLOYEE 16
1.75 SIMPLIFIED EMPLOYEE PENSION PLAN 16
1.76 SPONSOR 16
1.77 SPOUSE (SURVIVING SPOUSE) 16
1.78 SUPER TOP-HEAVY PLAN 17
1.79 TAXABLE WAGE BASE 17
1.80 TOP-HEAVY DETERMINATION DATE 17
1.81 TOP-HEAVY PLAN 17
1.82 TOP-HEAVY RATIO 17
1.83 TOP-PAID GROUP 19
1.84 TRANSFER CONTRIBUTION 19
1.85 TRUSTEE 19
1.86 VALUATION DATE 19
1.87 VESTED ACCOUNT BALANCE 19
1.88 VOLUNTARY CONTRIBUTION 19
1.89 WELFARE BENEFIT FUND 19
1.90 YEAR OF SERVICE 20
ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 PARTICIPATION 21
2.2 CHANGE IN CLASSIFICATION OF EMPLOYMENT 21
2.3 COMPUTATION PERIOD 21
2.4 EMPLOYMENT RIGHTS 21
2.5 SERVICE WITH CONTROLLED GROUPS 21
</TABLE>
<PAGE> 29
<TABLE>
<S> <C> <C>
2.6 OWNER-EMPLOYEES 21
2.7 LEASED EMPLOYEES 22
2.8 THRIFT PLANS 23
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 AMOUNT 24
3.2 EXPENSES 24
3.3 RESPONSIBILITY FOR CONTRIBUTIONS 24
3.4 RETURN OF CONTRIBUTIONS 24
ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 VOLUNTARY CONTRIBUTIONS 25
4.2 QUALIFIED VOLUNTARY CONTRIBUTIONS 25
4.3 ROLLOVER CONTRIBUTION 25
4.4 TRANSFER CONTRIBUTION 26
4.5 EMPLOYER APPROVAL OF TRANSFER CONTRIBUTIONS 26
4.6 ELECTIVE DEFERRALS 26
4.7 REQUIRED-VOLUNTARY CONTRIBUTIONS 27
4.8 DIRECT ROLLOVER OF BENEFITS 27
ARTICLE V
PARTICIPANT ACCOUNTS
5.1 SEPARATE ACCOUNTS 28
5.2 ADJUSTMENTS TO PARTICIPANT ACCOUNTS 28
5.3 ALLOCATING EMPLOYER CONTRIBUTIONS 29
5.4 ALLOCATING INVESTMENT EARNINGS AND LOSSES 29
5.5 PARTICIPANT STATEMENTS 30
ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 NORMAL RETIREMENT BENEFITS 31
6.2 EARLY RETIREMENT BENEFITS 31
6.3 BENEFITS ON TERMINATION OF EMPLOYMENT 31
6.4 RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS 33
6.5 NORMAL FORM OF PAYMENT 34
6.6 COMMENCEMENT OF BENEFITS 34
6.7 CLAIMS PROCEDURES 34
6.8 IN-SERVICE WITHDRAWALS 35
6.9 HARDSHIP WITHDRAWAL 36
</TABLE>
<PAGE> 30
<TABLE>
<S> <C> <C>
ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 JOINT AND SURVIVOR ANNUITY REQUIREMENTS 38
7.2 MINIMUM DISTRIBUTION REQUIREMENTS 38
7.3 LIMITS ON DISTRIBUTION PERIODS 38
7.4 REQUIRED DISTRIBUTIONS ON OR AFTER THE REQUIRED BEGINNING DATE 38
7.5 REQUIRED BEGINNING DATE 39
7.6 TRANSITIONAL RULE 40
7.7 DESIGNATION OF BENEFICIARY FOR DEATH BENEFIT 41
7.8 NONEXISTENCE OF BENEFICIARY 42
7.9 DISTRIBUTION BEGINNING BEFORE DEATH 42
7.10 DISTRIBUTION BEGINNING AFTER DEATH 42
7.11 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS 43
7.12 DISTRIBUTIONS OF EXCESS CONTRIBUTIONS 44
7.13 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS 44
ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 APPLICABILITY OF PROVISIONS 46
8.2 PAYMENT OF QUALIFIED JOINT AND SURVIVOR ANNUITY 46
8.3 PAYMENT OF QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY 46
8.4 QUALIFIED ELECTION 46
8.5 NOTICE REQUIREMENTS FOR QUALIFIED JOINT AND SURVIVOR ANNUITY 47
8.6 NOTICE REQUIREMENTS FOR QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY 47
8.7 SPECIAL SAFE HARBOR EXCEPTION FOR CERTAIN PROFIT SHARING PLANS 48
8.8 TRANSITIONAL JOINT AND SURVIVOR ANNUITY RULES 49
8.9 AUTOMATIC JOINT AND SURVIVOR ANNUITY AND EARLY SURVIVOR ANNUITY 49
8.10 ANNUITY CONTRACTS 50
ARTICLE IX
VESTING
9.1 EMPLOYEE CONTRIBUTIONS 51
9.2 EMPLOYER CONTRIBUTIONS 51
9.3 COMPUTATION PERIOD 51
9.4 REQUALIFICATION PRIOR TO FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE 51
9.5 REQUALIFICATION AFTER FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE5
9.6 CALCULATING VESTED INTEREST 51
9.7 FORFEITURES 52
9.8 AMENDMENT OF VESTING SCHEDULE 52
9.9 SERVICE WITH CONTROLLED GROUPS 52
</TABLE>
<PAGE> 31
<TABLE>
<S> <C>
ARTICLE X
LIMITATIONS ON ALLOCATIONS
AND ANTIDISCRIMINATION TESTING
10.1 PARTICIPATION IN THIS PLAN ONLY 54
10.2 DISPOSITION OF EXCESS ANNUAL 54
10.3 PARTICIPATION IN THIS PLAN AND ANOTHER MASTER AND PROTOTYPE DEFINED
CONTRIBUTION PLAN, WELFARE BENEFIT FUND OR INDIVIDUAL MEDICAL ACCOUNT
MAINTAINED BY THE EMPLOYER 55
10.4 DISPOSITION OF EXCESS ANNUAL ADDITIONS UNDER TWO PLANS 56
10.5 PARTICIPATION IN THIS PLAN AND ANOTHER DEFINED CONTRIBUTION PLAN WHICH
IS NOT A MASTER OR PROTOTYPE PLAN 56
10.6 PARTICIPATION IN THIS PLAN AND A DEFINED BENEFIT PLAN 56
10.7 AVERAGE DEFERRAL PERCENTAGE (ADP) TEST 56
10.8 SPECIAL, RULES RELATING TO APPLICATION OF ADP TEST 57
10.9 RECHARACTERIZATION 58
10.10 AVERAGE CONTRIBUTION PERCENTAGE (ACP) TEST 58
10.11 SPECIAL RULES RELATING TO APPLICATION OF ACP TEST 59
ARTICLE XI
ADMINISTRATION
11.1 PLAN ADMINISTRATOR 61
11.2 TRUSTEE/CUSTODIAN 61
11.3 ADMINISTRATIVE FEES AND EXPENSES 62
11.4 DIVISION OF DUTIES AND INDEMNIFICATION 62
ARTICLE XII
TRUST FUND/CUSTODIAL ACCOUNT
12.1 THE FUND 64
12.2 CONTROL OF PLAN ASSETS 64
12.3 EXCLUSIVE BENEFIT RULES 64
12.4 ASSIGNMENT AND ALIENATION OF BENEFITS 64
12.5 DETERMINATION OF QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) 64
ARTICLE XIII
INVESTMENTS
13.1 FIDUCIARY STANDARDS 66
13.2 FUNDING ARRANGEMENT 66
13.3 INVESTMENT ALTERNATIVES OF THE TRUSTEE 66
13.4 INVESTMENT ALTERNATIVES OF THE CUSTODIAN67
13.5 PARTICIPANT LOANS 67
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C> <C>
13.6 INSURANCE POLICIES 69
13.7 EMPLOYER INVESTMENT DIRECTION 70
13.8 EMPLOYEE INVESTMENT DIRECTION 71
ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 APPLICABILITY OF RULES 73
14.2 MINIMUM CONTRIBUTION 73
14.3 MINIMUM VESTING 73
14.4 LIMITATIONS ON ALLOCATIONS 74
ARTICLE XV
AMENDMENT AND TERMINATION
15.1 AMENDMENT BY SPONSOR 75
15.2 AMENDMENT BY EMPLOYER 75
15.3 TERMINATION 75
15.4 QUALIFICATION OF EMPLOYER'S PLAN 76
15.5 MERGERS AND CONSOLIDATIONS 76
15.6 RESIGNATION AND REMOVAL 76
15.7 QUALIFICATION OF PROTOTYPE 76
ARTICLE XVI
GOVERNING LAW 77
</TABLE>
<PAGE> 33
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN AND
TRUST/CUSTODIAL
ACCOUNT
Sponsored By
The Sponsor hereby establishes the following Prototype Retirement Plan and
Trust./Custodial Account for use by those of its customers who qualify and wish
to adopt a qualified retirement program. Any Plan and Trust/Custodial Account
established hereunder shall be administered for the exclusive benefit of
Participants and their beneficiaries under the following terms and conditions:
ARTICLE I
DEFINITIONS
1.1 ACTUAL DEFERRAL PERCENTAGE The ratio (expressed as a percentage and
calculated separately for each Participant) of:
(a) the amount of Employer contributions [as defined at (c) and
(d)] actually paid over to the Fund on behalf of such
Participant for the Plan Year to
(b) the Participant's Compensation for such Plan Year.
Compensation will only include amounts for the period during
which the Employee was eligible to participate.
Employer contributions on behalf of any Participant shall include:
(c) any Elective Deferrals made pursuant to the Participant's
deferral election, including Excess Elective Deferrals, but
excluding Elective Deferrals that are either taken into
account in the Contribution Percentage test (provided the
ADP test is satisfied both with and without exclusion of
these Elective Deferrals) or are returned as excess Annual
Additions; and
(d) at the election of the Employer, Qualified Non-Elective
Contributions and Qualified Matching Contributions.
For purposes of computing Actual Deferral Percentages, an Employee who would be
a Participant but for the failure to make Elective Deferrals shall be treated
as a Participant on whose behalf no Elective Deferrals are made.
1.2 ADOPTION AGREEMENT The document attached to this Plan by which an
Employer elects to establish a qualified retirement plan and trust/custodial
account under the terms of this Prototype Plan and Trust/Custodial Account.
1
<PAGE> 34
1.3 AGGREGATE LIMIT The sum of:
(a) 125 percent of the greater of the ADP of the non-Highly
Compensated Employees for the Plan Year or the ACP of
non-Highly Compensated Employees under the Plan subject to
Code Section 401(m) for the Plan Year beginning with or
within the Plan Year of the cash or deferred arrangement as
described in Code Section 401(k) or Code Section
402(h)(1)(B), and
(b) the lesser of 200% or two percent plus the lesser of such
ADP or ACP.
Alternatively, the aggregate limit can be determined by substituting "the
lesser of 200% or 2 percent plus" for "125% of" in (a) above. and substituting
"125% of" for "the lesser of 200% or 2 percent plus" in (b) above.
1.4 ANNUAL ADDITIONS The sum of the following amounts credited to a
Participant's account for the Limitation Year:
(a) Employer Contributions,
(b) Employee Contributions (under Article IV),
(c) forfeitures,
(d) amounts allocated after March 31, 1984 to an individual
medical account, as defined in Code Section 415(l)(2), which
is part of a pension or annuity plan maintained by the
Employer (these amounts are treated as Annual Additions to a
Defined Contribution Plan though they arise under a Defined
Benefit Plan), and
(e) amounts derived from contributions paid or accrued after
1985, in taxable years ending after 1985, which are either
attributable to post-retirement medical benefits allocated
to the account of a Key Employee, or to a Welfare Benefit
Fund maintained by the Employer, are also treated as Annual
Additions to a Defined Contribution Plan. For purposes of
this paragraph, an Employee is a Key Employee if he or she
meets the requirements of paragraph 1.43 at any time during
the Plan Year or any preceding Plan Year. Welfare Benefit
Fund is defined at paragraph 1.89.
Excess amounts applied in a Limitation Year to reduce Employer contributions
will be considered Annual Additions for such Limitation Year, pursuant to the
provisions of Article X.
1.5 ANNUITY STARTING DATE The first day of the first period for which
an amount is paid as an annuity or in any other form.
1.6 APPLICABLE CALENDAR YEAR The First Distribution Calendar Year, and
in the event of the recalculation of life expectancy, such succeeding calendar
year, if payments commence in accordance with paragraph 7.4(e) before the
Required Beginning Date, the Applicable Calendar Year is the year such payments
commence. If distribution is in the form of an immediate annuity purchased
after the Participant's death with the Participant's remaining interest, the
Applicable Calendar Year is the year of purchase.
2
<PAGE> 35
1.7 APPLICABLE LIFE EXPECTANCY Used in determining the required minimum
distribution. The life expectancy (or joint and last survivor expectancy)
calculated using the attained age of the Participant (or Designated
Beneficiary) as of the Participant's (or Designated Beneficiary's) birthday in
the Applicable Calendar Year reduced by one for each calendar year which has
elapsed since the date life expectancy was first calculated. If life
expectancy is being recalculated, the Applicable Life Expectancy shall be the
life expectancy as so recalculated. The life expectancy of a non-Spouse
Beneficiary may not be recalculated.
1.8 AVERAGE CONTRIBUTION PERCENTAGE (ACP) The average of the
Contribution Percentages for each Highly Compensated Employee and for each
non-Highly Compensated Employee.
1.9 AVERAGE DEFERRAL PERCENTAGE (ADP) The average of the Actual
Deferral Percentages for each Highly Compensated Employee and for each
non-Highly Compensated Employee.
1.10 BREAK IN SERVICE A 12-consecutive month period during which an
Employee fails to complete more than 500 Hours of Service.
1.11 CODE The Internal Revenue Code of 1986, including any amendments.
1.12 COMPENSATION The Employer may select one of the following three
safe-harbor definitions of Compensation in the Adoption Agreement.
Compensation shall only include amounts earned while a Participant if Plan Year
is chosen as the applicable computation period.
(a) CODE SECTION 3401(A) WAGES. Compensation is defined as
wages within the meaning of Code Section 3401(a) for the
purposes of Federal income tax withholding at the source but
determined without regard to any rules that limit the
remuneration included in wages based on the nature or
location of the employment or the services performed (such
as the exception for agricultural labor in Code Section
3401(a)(2)].
(b) CODE SECTION 6041 AND 6051 WAGES. Compensation is defined
as wages as defined in Code Section 3401(a) and all other
payments of compensation to an Employee by the Employer (in
the course of the Employer's trade or business) for which
the Employer is required to furnish the employee a written
statement under Code Section 6041(d) and 6051(a)(3).
Compensation must be determined without regard to any rules
under Code Section 3401(a) that limit the remuneration
included in wages based on the nature or location of the
employment or the services performed [such as the exception
for agricultural labor in Code Section 3401(a)(2)].
3
<PAGE> 36
(c) CODE SECTION 415 COMPENSATION. For purposes of applying the
limitations of Article X and Top-Heavy Minimums, the
definition of Compensation shall be Code Section 415
Compensation defined as follows: a Participant's Earned
Income, wages, salaries, and fees for professional services
and other amounts received (without regard to whether or not
an amount is paid in cash) for personal services actually
rendered in the course of employment with the Employer
maintaining the Plan to the extent that the amounts are
includible in gross income [including, but not limited to,
commissions paid salesmen, Compensation for services on the
basis of a percentage of profits, commissions on insurance
premiums, tips, bonuses, fringe benefits and reimbursements
or other expense allowances under a nonaccountable plan (as
described in Regulation 1.62-2(c)], and excluding the
following:
1. Employer contributions to a plan of deferred
compensation which are not includible in the
Employee's gross income for the taxable year in which
contributed, or Employer contributions under a
Simplified Employee Pension Plan or any distributions
from a plan of deferred compensation,
2. Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property)
held by the Employee either becomes freely
transferable or is no longer subject to a
substantial risk of forfeiture,
3. Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
4. other amounts which received special tax benefits, or
contributions made by the Employer (whether or not
under a salary reduction agreement) towards the
purchase of an annuity contract described in Code
Section 403(b) (whether or not the contributions are
actually excludible from the gross income of the
Employee).
For purposes of applying the limitations of Article X and Top-Heavy Minimums,
the definition of Compensation shall be Code Section 415 Compensation described
in this paragraph 1.12(c). Also, for purposes of applying the limitations of
Article X, Compensation for a Limitation Year is the Compensation actually paid
or made available during such Limitation Year. Notwithstanding the preceding
sentence, Compensation for a Participant in a defined contribution plan who is
permanently and totally disabled [as defined in Code Section 22(e)(3)] is the
Compensation such Participant would have received for the Limitation Year if
the Participant had been paid at the rate of Compensation paid immediately
before becoming permanently and totally disabled. Such imputed Compensation
for the disabled Participant may be taken into account only if the participant
is not a Highly Compensated Employee [as defined in Code Section 414(q)] and
contributions made on behalf of such Participant are nonforfeitable when made.
4
<PAGE> 37
If the Employer fails to pick the applicable period in the Adoption Agreement,
the Plan Year shall be used. Unless otherwise specified by the Employer in the
Adoption Agreement, Compensation shall be determined as provided in Code
Section 3401(a) [as defined in this paragraph 1.12(a)]. In nonstandardized
Adoption Agreement 002, the Employer may choose to eliminate or exclude
categories of Compensation which do not violate the provisions of Code Sections
401(a)(4), 414(s) the regulations thereunder and Revenue Procedure 89-65.
Beginning with 1989 Plan Years, the annual Compensation of each Participant
which may be taken into account for determining all benefits provided under the
Plan (including benefits under Article XIV) for any year shall not exceed
$200,000, as adjusted under Code Section 415(d). In determining the
Compensation of a Participant for purposes of this limitation, the rules of
Code Section 414(q)(6) shall apply, except in applying such rules, the term
"family" shall include only the Spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19 before the end of
the Plan year. If, as a result of the application of such rules the adjusted
$200,000 limitation is exceeded, then (except for purposes of determining the
portion of Compensation up to the integration level if this Plan provides for
permitted disparity), the limitation shall be prorated among the affected
individuals in proportion to each such individual's Compensation as determined
under this section prior Lo the application of this limitation.
If a Plan has a Plan Year that contains fewer than 12 calendar months, then the
annual Compensation limit for that period is an amount equal to the $200,000 as
adjusted for the calendar year in which the Compensation period begins,
multiplied by a fraction the numerator of which is the number of full months in
the Short Plan Year and the denominator of which is 12. If Compensation for
any prior Plan Year is taken into account in determining an Employee's
contributions or benefits for the current year, the Compensation for such prior
year is subject to the applicable annual Compensation limit in effect for that
prior year. For this purpose, for years beginning before January 1, 1990, the
applicable annual Compensation limit is $200,000.
Compensation shall not include deferred Compensation other than contributions
through a salary reduction agreement to a cash or deferred plan under Code
Section 401(k), a Simplified Employee Pension Plan under Code Section
402(h)(1)(B), a cafeteria plan under Code Section 125 or a tax-deferred annuity
under Code Section 403(b). Unless elected otherwise by the Employer in the
Adoption Agreement, these deferred amounts will be considered as Compensation
for Plan purposes. These deferred amounts are not counted as Compensation for
purposes of Articles X and XIV. When applicable to a Self-Employed Individual,
Compensation shall mean Earned Income.
1.13 CONTRIBUTION PERCENTAGE The ratio (expressed as a percentage and
calculated separately for each Participant) of:
(a) the Participant's Contribution Percentage Amounts [as
defined at (c)-(f)] for the Plan Year, to
(b) the Participant's Compensation for the Plan Year.
Compensation will only include amounts for the period during
which the Employee was eligible to participate.
5
<PAGE> 38
Contribution Percentage Amounts on behalf of any Participant shall include:
(c) the amount of Employee Voluntary Contributions, Matching
Contributions, and Qualified Matching Contributions (to the
extent not taken into account for purposes of the ADP test)
made under the Plan on behalf of the Participant for the
Plan Year,
(d) forfeitures of Excess Aggregate Contributions or Matching
Contributions allocated to the Participant's account which
shall be taken into account in the year in which such
forfeiture is allocated,
(e) at the election of the Employer, Qualified Non-Elective
Contributions, and
(f) the Employer also may elect to use Elective Deferrals in the
Contribution Percentage Amounts so long as the ADP test is
met before the Elective Deferrals are used in the ACP test
and continues to be met following the exclusion of those
Elective Deferrals that are used to meet the ACP test.
Contribution Percentage Amounts shall not include Matching Contributions,
whether or not Qualified, that are forfeited either to correct Excess Aggregate
Contributions, or because the contributions to which they relate are Excess
Deferrals, Excess Contributions, or Excess Aggregate Contributions.
1.14 CUSTODIAN The Sponsor of this Prototype, or, if applicable, an
affiliate or successor, shall serve as Custodian if a Custodian is appointed in
the Adoption Agreement.
1.15 DEFINED BENEFIT PLAN A Plan under which a Participant's benefit is
determined by a formula contained in the Plan and no individual accounts are
maintained for Participants.
1.16 DEFINED BENEFIT (PLAN) FRACTION A fraction, the numerator of which
is the sum of the Participant's Projected Annual Benefits under all the Defined
Benefit Plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the dollar limitation
determined for the Limitation Year under Code Sections 415(b) and (d) or 140
percent of the Highest Average Compensation, including any adjustments under
Code Section 415(b).
Notwithstanding the above, if the Participant was a Participant as of the first
day of the first Limitation Year beginning after 1986, in one or more Defined
Benefit Plans maintained by the Employer which were in existence on May 6,
1986, the denominator of this fraction will not be less than 125 percent of the
sum of the annual benefits under such plans which the Participant had accrued
as of the close of the last Limitation Year beginning before 1987, disregarding
any changes in the terms and conditions of the plan after May 5, 1986. The
preceding sentence applies only if the Defined Benefit Plans individually and
in the aggregate satisfied the requirements of Section 415 for all Limitation
Years beginning before 1987.
1.17 DEFINED CONTRIBUTION DOLLAR LIMITATION Thirty thousand dollars
($30,000) or if greater, one-fourth of the defined benefit dollar limitation
set forth in Code Section 415(b)(1) as in effect for the Limitation Year.
6
<PAGE> 39
1.18 DEFINED CONTRIBUTION PLAN A Plan under which individual accounts
are maintained for each Participant to which all contributions, forfeitures,
investment income and gains or losses, and expenses are credited or deducted.
A Participant's benefit under such Plan is based solely on the fair market
value of his or her account balance.
1.19 DEFINED CONTRIBUTION (PLAN) FRACTION A Fraction, the numerator of
which is the sum of the Annual Additions to the Participant's account under all
the Defined Contribution Plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years (including the Annual
Additions attributable to the Participant's nondeductible Employee
contributions to all Defined Benefit Plans, whether or not terminated.
maintained by the Employer, and the Annual Additions attributable to all
Welfare Benefit Funds, as defined in paragraph 1.89 and individual medical
accounts, as defined in Code Section 415(l)(2), maintained by the Employer),
and the denominator of which is the sum of the maximum aggregate amounts for
the current and all prior Limitation Years of service with the Employer
(regardless of whether a Defined Contribution Plan was maintained by the
Employer). The maximum aggregate amount in the Limitation Year is the lesser
of 125 percent of the dollar limitation determined under Code Sections 415(b)
and (d) in effect under Code Section 4 15(c)(1)(A) or 35 percent of the
Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first day of the first
Limitation Year beginning after 1986, in one or more Defined Contribution Plans
maintained by the Employer which were in existence on May 6, 1986, the
numerator of this fraction will be adjusted if the sum of this fraction and the
Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this
Plan. Under the adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the denominator of this fraction
will be permanently subtracted from the numerator of this fraction. The
adjustment is calculated using the fractions as they would be computed as of
the end of the last Limitation Year beginning before 1987, and disregarding any
changes in the terms and conditions of the Plan made after May 6. 1986, but
using the Section 415 limitation applicable to the first Limitation Year
beginning on or after January 1, 1987. The Annual Addition for any Limitation
Year beginning before 1987, shall not be re-computed to treat all Employee
Contributions as Annual Additions.
1.20 DESIGNATED BENEFICIARY The individual who is designated as the
beneficiary under the Plan in accordance with Code Section 401(a)(9) and the
regulations thereunder.
1.21 DISABILITY An illness or injury of a potentially permanent nature,
expected to last for a continuous period of not less than 12 months, certified
by a physician selected by or satisfactory to the Employer, which prevents the
Employee from engaging in any occupation for wage or profit for which the
Employee is reasonably fitted by training, education or experience.
1.22 DISTRIBUTION CALENDAR YEAR A calendar year for which a minimum
distribution is required.
1.23 EARLY RETIREMENT AGE The age set by the Employer in the Adoption
Agreement (but not less than 55), which is the earliest age at which a
Participant may retire and receive his or her benefits under the Plan.
7
<PAGE> 40
1.24 EARNED INCOME Net earnings from self-employment in the trade or
business with respect to which the Plan is established, determined without
regard to items not included in gross income and the deductions allocable to
such items, provided that personal services of the individual are a material
income-producing factor. Earned income shall be reduced by contributions made
by an Employer to a qualified plan to the extent deductible under Code Section
404. For tax years beginning after 1989, net earnings shall be determined
taking into account the deduction for one-half of self-employment taxes allowed
to the Employer under Code Section 164(f) to the extent deductible.
1.25 EFFECTIVE DATE The date on which the Employer's retirement plan or
amendment to such plan becomes effective. For amendments reflecting statutory
and regulatory changes post Tax Reform Act of 1986, the Effective Date will be
the earlier of the date upon which such amendment is first administratively
applied or the first day of the Plan Year following the date of adoption of
such amendment.
1.26 ELECTION PERIOD The period which begins on the first day of the Plan
Year in which the Participant attains age 35 and ends on the date of the
Participant's death. If a Participant separates from service prior to the
first day of the Plan Year in which age 35 is attained, the Election Period
shall begin on the date of separation, with respect to the account balance as
of the date of separation.
1.27 ELECTIVE DEFERRAL Employer contributions made to the Plan at the
election of the Participant, in lieu of cash Compensation. Elective Deferrals
shall also include contributions made pursuant to a Salary Savings Agreement or
other deferral mechanism. such as a cash option contribution. With respect to
any taxable year, a Participant's Elective Deferral is the sum of all Employer
contributions made on behalf of such Participant pursuant to an election to
defer under any qualified cash or deferred arrangement as described in Code
Section 401(k), any simplified employee pension cash or deferred arrangement as
described in Code Section 402(h)(1)(B), any eligible deferred compensation plan
under Code Section 457, any plan as described under Code Section 501(c)(18),
and any Employer contributions made on the behalf of a Participant for the
purchase of an annuity contract under Code Section 403(b) pursuant to a Salary
Savings Agreement. Elective Deferrals shall not include any deferrals properly
distributed as Excess Annual Additions.
1.28 ELIGIBLE PARTICIPANT Any Employee who is eligible to make a
Voluntary Contribution, or an Elective Deferral (if the Employer takes such
contributions into account in the calculation of the Contribution Percentage),
or to receive a Matching Contribution (including forfeitures) or a Qualified
Matching Contribution. If a Voluntary Contribution or Elective Deferral is
required as a condition of participation in the Plan, any Employee who would be
a Participant in the Plan if such Employee made such a contribution shall be
treated as an Eligible Participant even though no Voluntary Contributions or
Elective Deferrals are made.
1.29 EMPLOYEE Any person employed by the Employer (including
Self-Employed Individuals and partners), all Employees of a member of an
affiliated service group [as defined in Code Section 414(m)], Employees of a
controlled group of corporations (as defined in Code Section 414(b)], all
Employees of any incorporated or unincorporated trade or business which is
under common control [as defined in Code Section 414(c)], Leased Employees [as
defined in Code Section 414(n)] and any Employee required to be aggregated by
Code Section 414(o). All such Employees shall be treated as employed by a
single Employer.
8
<PAGE> 41
1.30 EMPLOYER The Self-Employed Individual, partnership, corporation or
other organization which adopts this Plan including any firm that succeeds the
Employer and adopts this Plan. For purposes of Article X, Limitations on
Allocations, Employer shall mean the Employer that adopts this Plan, and all
members of a controlled group of corporations (as defined in Code Section
414(b) as modified by Code Section 415(h)], all commonly controlled trades or
businesses [as defined in Code Section 414(c) as modified by Code Section
415(h)] or affiliated service groups [as defined in Code Section 414(m)] of
which the adopting Employer is a part, and any other entity required to be
aggregated with the Employer pursuant to regulations under Code Section 414(o).
1.31 ENTRY DATE The date on which an Employee commences participation in
the Plan as determined by the Employer in the Adoption Agreement.
1.32 EXCESS AGGREGATE CONTRIBUTIONS The excess, with respect to any Plan
Year, of:
(a) The aggregate Contribution Percentage Amounts taken into
account in computing the numerator of the Contribution
Percentage actually made on behalf of Highly Compensated
Employees for such Plan Year, over
(b) The maximum Contribution Percentage Amounts permitted by the
ACP test (determined by reducing contributions made on
behalf of Highly Compensated Employees in order of their
Contribution Percentages beginning with the highest of such
percentages).
Such determination shall be made after first determining Excess Elective
Deferrals pursuant to paragraph 1.35 and then determining Excess Contributions
pursuant to paragraph 1.34.
1.33 EXCESS AMOUNT The excess of the Participant's Annual Additions for
the Limitation Year over the Maximum Permissible Amount.
1.34 EXCESS CONTRIBUTION With respect to any Plan Year, the excess of:
(a) The aggregate amount of Employer contributions actually
taken into account in computing the ADP of Highly
Compensated Employees for such Plan Year, over
(b) The maximum amount of such contributions permitted by the
ADP test (determined by reducing contributions made on
behalf of Highly Compensated Employees in order of the ADPs,
beginning with the highest of such percentages).
1.35 EXCESS ELECTIVE DEFERRALS Those Elective Deferrals that are
includible in a Participant's gross income under Code Section 402(g) to the
extent such Participant's Elective Deferrals for a taxable year exceed the
dollar limitation under such Code Section. Excess Elective Deferrals shall be
treated as Annual Additions under the Plan, unless such amounts are distributed
no later than the first April 15th following the close of the Participant's
taxable year.
1.36 FAMILY MEMBER The Employee's Spouse, any lineal descendants and
ascendants and the Spouse of such lineal descendants and ascendants.
9
<PAGE> 42
1.37 FIRST DISTRIBUTION CALENDAR YEAR For distributions beginning before
the Participant's death. The First Distribution Calendar Year is the calendar
year immediately preceding the calendar year which contains the Participant's
Required Beginning Date. For distributions beginning after the Participant's
death, the First Distribution Calendar Year is the calendar year in which
distributions are required to begin pursuant to paragraph 7.10.
1.38 FUND All contributions received by the Trustee/Custodian under this
Plan and Trust/Custodial Account, investments thereof and earnings and
appreciation thereon.
1.39 HARDSHIP An immediate and heavy financial need of the Employee
where such Employee lacks other available resources.
1.40 HIGHEST AVERAGE COMPENSATION The average Compensation for the three
consecutive Years of Service with the Employer that produces the highest
average. A Year of Service with the Employer is the 12-consecutive month
period defined in the Adoption Agreement.
1.41 HIGHLY COMPENSATED EMPLOYEE Any Employee who performs service for
the Employer during the determination year and who, during the immediate prior
year:
(a) received Compensation from the Employer in excess of $75,000
(as adjusted pursuant to Code Section 415(d)]; or
(b) received Compensation from the Employer in excess of $50,000
(as adjusted pursuant to Code Section 415(d)] and was a
member of the Top-Paid Group for such year; or
(c) was an officer of the Employer and received Compensation
during such year that is greater than 50 percent of the
dollar limitation in effect under Code Section 415(b)(1)(A).
Notwithstanding (a), (b) and (c), an Employee who was not Highly Compensated
during the preceding Plan Year shall not be treated as a Highly Compensated
Employee with respect to the current Plan Year unless such Employee is a member
of the 100 Employees paid the greatest Compensation during the year for which
such determination is being made.
(d) Employees who are five percent (5%) Owners at any time
during the immediate prior year or determination year.
Highly Compensated Employee includes Highly Compensated active Employees and
Highly Compensated former Employees.
1.42 HOUR OF SERVICE
(a) Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer.
These hours shall be credited to the Employee for the
computation period in which the duties are performed; and
10
<PAGE> 43
(b) Each hour for which an Employee is paid. or entitled to
payment, by the Employer on account of a period of time
during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to
vacation, holiday, illness. incapacity (including
disability), layoff, jury duty, military duty or leave of
absence. No more than 501 Hours of Service shall be
credited under this paragraph for any single continuous
period (whether or not such period occurs in a single
computation period). Hours under this paragraph shall be
calculated and credited pursuant to Section 2530.200b-2 of
the Department of Labor Regulations which are incorporated
herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer.
The same Hours of Service shall not be credited both under
paragraph (a) or paragraph (b). as the case may be, and
under this paragraph (c). These hours shall be credited to
the Employee for the computation period or periods to which
the award or agreement pertains rather than the computation
period in which the award, agreement or payment is made.
(d) Hours of Service shall be credited for employment with the
Employer and with other members of an affiliated service
group [as defined in Code Section 414(m)], a controlled
group of corporations [as defined in Code Section 414(b)],
or a group of trades or businesses under common control [as
defined in Code Section 414(c)] of which the adopting
Employer is a member, and any other entity required to be
aggregated with the Employer pursuant to Code Section 414(o)
and the regulations thereunder. Hours of Service shall also
be credited for any individual considered an Employee for
purposes of this Plan under Code Section 414(n) or Code
Section 414(o) and the regulations thereunder.
(e) Solely for purposes of determining whether a Break in
Service, as defined in paragraph 1.10, for participation and
vesting purposes has occurred in a computation period, an
individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of
Service which would otherwise have been credited to such
individual but for such absence, or in any case in which
such hours cannot be determined, 8 Hours of Service per day
of such absence. For purposes of this paragraph, an absence
from work for maternity or paternity reasons means an
absence by reason of the pregnancy of the individual, by
reason of a birth of a child of the individual, by reason of
the placement of a child with the individual in connection
with the adoption of such child by such individual, or for
purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of
Service credited under this paragraph shall be credited in
the computation period in which the absence begins if the
crediting is necessary to prevent a Break in Service in that
period, or in all other cases, in the following computation
period. No more than 501 hours will be credited under this
paragraph.
(f) Hours of Service shall be determined on the basis of the
method selected in the Adoption Agreement.
11
<PAGE> 44
1.43 KEY EMPLOYEE Any Employee or former Employee (and the beneficiaries
of such employee) who at any time during the determination period was an
officer of the Employer if such individual's annual compensation exceeds 50% of
the dollar limitation under Code Section 415(b)(1)(A) (the defined benefit
maximum annual benefit), an owner (or considered an owner under Code Section
318) of one of the ten largest interests in the employer if such individual's
compensation exceeds 100% of the dollar limitation under Code Section
415(c)(1)(A), a 5% owner of the Employer, or a 1% owner of the Employer who has
an annual compensation of more than $150,000. For purposes of determining who
is a Key Employee, annual compensation shall mean Compensation as defined for
Article X, but including amounts deferred through a salary reduction agreement
to a cash or deferred plan under Code Section 401(k), a Simplified Employee
Pension Plan under Code Section 408(k), a cafeteria plan under Code Section 125
or a tax-deferred annuity under Code Section 403(b). The determination period
is the Plan Year containing the Determination Date and the four preceding Plan
Years. The determination of who is a Key Employee will be made in accordance
with Code Section 416(i)(1) and the regulations thereunder.
1.44 LEASED EMPLOYEE Any person (other than an Employee of the
recipient) who, pursuant to an agreement between the recipient and any other
person ("leasing organization"), has performed services for the recipient (or
for the recipient and related persons determined in accordance with Code
Section 414(n)(6)] on a substantially full-time basis for a period of at least
one year, and such services are of a type historically performed by Employees
in the business field of the recipient Employer.
1.45 LIMITATION YEAR The calendar year or such other Inconsecutive mouth
period designated by the Employer in the Adoption Agreement for purposes of
determining the maximum Annual Addition to a Participant's account. All
qualified plans maintained by the Employer must use the same Limitation Year.
If the Limitation Year is amended to a different 12-consecutive month period,
the new Limitation Year must begin on a date within the Limitation Year in
which the amendment is made.
1.46 MASTER OR PROTOTYPE PLAN A plan, the form of which is the subject
of a favorable opinion letter from the Internal Revenue Service.
1.47 MATCHING CONTRIBUTION An Employer contribution made to this or any
other defined contribution plan on behalf of a Participant on account of an
Employee Voluntary Contribution made by such Participant, or on account of a
Participant's Elective Deferral, under a Plan maintained by the Employer.
1.48 MAXIMUM PERMISSIBLE AMOUNT The maximum Annual Addition that may be
contributed or allocated to a Participant's account under the plan for any
Limitation Year shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation, or
(b) 25% of the Participant's Compensation for the Limitation
Year.
The compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits [within the meaning of Code Section 401(h) or
Code Section 419A(f)(2)] which is otherwise treated as an Annual Addition under
Code Section 415(l)(1) or 419(d)(2). If a short Limitation Year is created
because of an amendment changing the Limitation Year to a different
Inconsecutive month period, the Maximum Permissible Amount will not exceed the
Defined Contribution Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year divided by 12.
12
<PAGE> 45
1.49 NET PROFIT The current and accumulated operating earnings of the
Employer before Federal and State income taxes, excluding nonrecurring or
unusual items of income, and before contributions to this and any other
qualified plan of the Employer. Alternatively, the Employer may fix another
definition in the Adoption Agreement.
1.50 NORMAL RETIREMENT AGE The age, set by the Employer in the Adoption
Agreement, at which a Participant may retire and receive his or her benefits
under the Plan.
1.51 OWNER-EMPLOYEE A sole proprietor, or a partner owning more than 10%
of either the capital or profits interest of the partnership.
1.52 PAIRED PLANS Two or more Plans maintained by the Sponsor designed
so that a single or any combination of Plans adopted by an Employer will meet
the antidiscrimination rules, the contribution and benefit limitations, and the
Top-Heavy provisions of the Code.
1.53 PARTICIPANT Any Employee who has met the eligibility requirements
and is participating in the Plan.
1.54 PARTICIPANT'S BENEFIT The account balance as of the last Valuation
Date in the calendar year immediately preceding the Distribution Calendar Year
(valuation calendar year) increased by the amount of any contributions or
forfeitures allocated to the account balance as of the dates in the valuation
calendar year after the Valuation Date and decreased by distributions made in
the valuation calendar year after the Valuation Date. A special exception
exists for the second distribution Calendar Year. For purposes of this
paragraph, if any portion of the minimum distribution for the First
Distribution Calendar Year is made in the second Distribution Calendar Year on
or before the Required Beginning Date, the amount of the minimum distribution
made in the second distribution calendar year shall be treated as if it had
been made in the immediately preceding Distribution Calendar Year.
1.55 PERMISSIVE AGGREGATION GROUP Used for Top-Heavy testing purposes,
it is the Required Aggregation Group of plans plus any other plan or plans of
the Employer which, when considered as a group with the Required Aggregation
Group, would continue to satisfy the requirements of Code Sections 401(a)(4)
and 410.
1.56 PLAN The Employer's retirement plan as embodied herein and in the
Adoption Agreement.
1.57 PLAN ADMINISTRATOR The Employer.
1.58 PLAN YEAR The 12-consecutive month period designated by the Employer
in the Adoption Agreement.
1.59 PRESENT VALUE Used for Top-Heavy test and determination purposes,
when determining the Present Value of accrued benefits, with respect to any
Defined Benefit Plan maintained by the Employer, interest and mortality rates
shall be determined in accordance with the provisions of the respective plan.
If applicable, interest and mortality assumptions will be specified in Section
11 of the Adoption Agreement.
13
<PAGE> 46
1.60 PROJECTED ANNUAL BENEFIT Used to test the maximum benefit which may
be obtained from a combination of retirement plans, it is the annual retirement
benefit (adjusted to an actuarial equivalent straight life annuity if such
benefit is expressed in a form other than a straight life annuity or Qualified
Joint and Survivor Annuity) to which the Participant would be entitled under
the terms of a Defined Benefit Plan or plans, assuming:
(a) the Participant will continue employment until Normal
Retirement Age under the plan (or current age, if later),
and
(b) the Participant's Compensation for the current Limitation
Year and all other relevant factors used to determine
benefits under the plan will remain constant for all future
Limitation Years.
1.61 QUALIFIED DEFERRED COMPENSATION PLAN Any pension. profit-sharing,
stock bonus, or other plan which meets the requirements of Code Section 401 and
includes a trust exempt from tax under Code Section 501(a) or any annuity plan
described in Code Section 403(a).
An Eligible Retirement Plan is an individual retirement account (IRA) as
described in Code Section 408(a), an individual retirement annuity (IRA) as
described in Code Section 408(b), an annuity plan as described in Code Section
403(a), or a qualified trust as described in Code Section 401(a), which accepts
Eligible Rollover Distributions. However in the case of an Eligible Rollover
Distribution to a Surviving Spouse, an Eligible Retirement Plan is an
individual retirement account or individual retirement annuity.
1.62 QUALIFIED DOMESTIC RELATIONS ORDER A QDRO is a signed Domestic
Relations Order issued by a State Court which creates, recognizes or assigns to
an alternate payee(s) the right to receive all or part of a Participant's Plan
benefit and which meets the requirements of Code Section 414(p). An alternate
payee is a Spouse, former Spouse, child, or other dependent who is treated as a
beneficiary under the Plan as a result of the QDRO.
1.63 QUALIFIED EARLY RETIREMENT AGE For purposes of paragraph 8.9,
Qualified Early Retirement Age is the latest of:
(a) the earliest date, under the Plan, on which the Participant
may elect to receive retirement benefits, or
(b) the first day of the 120th month beginning before the
Participant reaches Normal Retirement Age, or
(c) the date the Participant begins participation.
1.64 QUALIFIED JOINT AND SURVIVOR ANNUITY An immediate annuity for the
life of the Participant with a survivor annuity for the life of the
Participant's Spouse which is at least one-half of but not more than the amount
of the annuity payable during the joint lives of the Participant and the
Participant's Spouse. The exact amount of the Survivor Annuity is to be
specified by the Employer in the Adoption Agreement. If not designated by the
Employer, the Survivor Annuity will be 1/2 of the amount paid to the
Participant during his or her lifetime. The Qualified Joint and Survivor
Annuity will be the amount of benefit which can be provided by the
Participant's Vested Account Balance.
14
<PAGE> 47
1.65 QUALIFIED MATCHING CONTRIBUTION Matching Contributions which when
made are subject to the distribution and nonforfeitability requirements under
Code Section 401(k).
1.66 QUALIFIED NON-ELECTIVE CONTRIBUTIONS Contributions (other than
Matching Contributions or Qualified Matching Contributions) made by the
Employer and allocated to Participants' accounts that the Participants may not
elect to receive in cash until distributed from the Plan; that are
nonforfeitable when made; and that are distributable only in accordance with
the distribution provisions that are applicable to Elective Deferrals and
Qualified Matching Contributions.
1.67 QUALIFIED VOLUNTARY CONTRIBUTION A tax-deductible voluntary
Employee contribution. These contributions may no longer be made to the Plan.
1.68 REQUIRED AGGREGATION GROUP Used for Top-Heavy testing purposes, it
consists of:
(a) each qualified plan of the Employer in which at least one
Key Employee participates or participated at any time during
the determination period (regardless of whether the plan has
terminated), and
(b) any other qualified plan of the Employer which enables A
plan described in (a) to meet the requirements of Code
Sections 401(a)(4) or 410.
1.69 REQUIRED BEGINNING DATE The date on which a Participant is required
to take his or her first minimum distribution under the Plan. The rules are
set forth at paragraph 7.5.
1.70 ROLLOVER CONTRIBUTION A contribution made by a Participant of an
amount distributed to such Participant from another Qualified Deferred
Compensation Plan in accordance with Code Sections 402(a)(5), (6), and (7).
An Eligible Rollover Distribution is any distribution of all or any portion of
the balance to the credit of the Participant except that an Eligible Rollover
Distribution does not include:
(a) any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the Participant or
the joint lives (or joint life expectancies) of the
Participant and the Participant's Designated Beneficiary or
for a specified period of ten years or more;
(b) any distribution to the extent such distribution is required
under Code Section 401(a)(9); and
(c) the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to Employer
securities).
A Direct Rollover is a payment by the plan to the Eligible Retirement Plan
specified by the Participant.
15
<PAGE> 48
1.71 SALARY SAVINGS AGREEMENT An agreement between the Employer and a
participating Employee where the Employee authorizes the Employer to withhold a
specified percentage of his or her Compensation for deposit to the Plan on
behalf of such Employee.
1.72 SELF-EMPLOYED INDIVIDUAL An individual who has Earned Income for
the taxable year from the trade or business for which the Plan is established
including an individual who would have had Earned Income but for the fact that
the trade or business had no Net Profit for the taxable year.
1.73 SERVICE The period of current or prior employment with the
Employer. If the Employer maintains a plan of a predecessor employer, Service
for such predecessor shall be treated as Service for the Employer.
1.74 SHAREHOLDER EMPLOYEE An Employee or Officer who owns (or is
considered as owning within the meaning of Code Section 318(a)(1)], on any day
during the taxable year of an electing small business corporation (S
Corporation), more than 5% of such corporation's outstanding stock.
1.75 SIMPLIFIED EMPLOYEE PENSION PLAN An individual retirement account
which meets the requirements of Code Section 408(k), and to which the Employer
makes contributions pursuant to a written formula. These plans are considered
for contribution limitation and Top-Heavy testing purposes.
1.76 SPONSOR ________________, or any successors) or assign(s).
1.77 SPOUSE (SURVIVING SPOUSE) The Spouse or Surviving Spouse of the
Participant, provided that a former Spouse will be treated as the Spouse or
Surviving Spouse and a current Spouse will not be treated as the Spouse or
Surviving Spouse to the extent provided under a Qualified Domestic Relations
Order as described in Code Section 414(p).
1.78 SUPER TOP-HEAVY PLAN A Plan described at paragraph 1.81 under which
the Top-Heavy Ratio [as defined at paragraph 1.82] exceeds 90%.
1.79 TAXABLE WAGE BASE For plans with an allocation formula which takes
into account the Employer's contribution under the Federal Insurance
Contributions Act (FICA), the maximum amount of earnings which may be
considered wages for such Plan Year under the Social Security Act (Code Section
3121(a)(1)], or the amount elected by the Employer in the Adoption Agreement.
1.80 TOP-HEAVY DETERMINATION DATE For any Plan Year subsequent to the
first Plan Year, the last day of the preceding Plan Year. For the first Plan
Year of the Plan, the last day of that year.
1.81 TOP-HEAVY PLAN For any Plan Year beginning after 1983, the
Employer's Plan is top-heavy if any of the following conditions exist:
(a) If the Top-Heavy Ratio for the Employer's Plan exceeds 60%
and this Plan is not part of any required Aggregation Group
or Permissive Aggregation Group of Plans.
(b) If the Employer's plan is a part of a Required Aggregation
Group of plans but not part of a Permissive Aggregation
Group and the Top-Heavy Ratio for the group of plans exceeds
60%.
16
<PAGE> 49
(c) If the Employer's plan is a part of a Required Aggregation
Group and part of a Permissive Aggregation Group of plans
and the Top-Heavy Ratio for the Permissive Aggregation Group
exceeds 60%.
1.82 TOP-HEAVY RATIO
(a) If the Employer maintains one or more Defined Contribution
plans (including any Simplified Employee Pension Plan) and
the Employer has not maintained any Defined Benefit Plan
which during the 5-year period ending on the Determination
Date(s) has or has had accrued benefits, the Top-Heavy Ratio
for this Plan alone, or for the Required or Permissive
Aggregation Group as appropriate, is a fraction,
(1) the numerator of which is the sum of the account
balances of all Key Employees as of the Determination
Date(s) [including any part of any account balance
distributed in the 5-year period ending on the
Determination Date(s)], and
(2) the denominator of which is the sum of all account
balances (including any part of any account balance
distributed in the 5-year period ending on the
Determination Date(s)], both computed in accordance
with Code Section 416 and the regulations thereunder.
Both the numerator and denominator of the Top-Heavy Ratio
are increased to reflect any contribution not actually made
as of the Determination Date, but which is required to be
taken into account on that date under Code Section 416 and
the regulations thereunder.
(b) If the Employer maintains one or more Defined Contribution
Plans (including any Simplified Employee Pension Plan) and
the Employer maintains or has maintained one or more Defined
Benefit Plans which during the 5-year period ending on the
Determination Date(s) has or has had any accrued benefits,
the Top-Heavy Ratio for any Required or Permissive
Aggregation Group as appropriate is a fraction, the
numerator of which is the sum of account balances under the
aggregated Defined Contribution Plan or Plans for all Key
Employees, determined in accordance with (a) above, and the
Present Value of accrued benefits under the aggregated
Defined Benefit Plan or Plans for all Key Employees as of
the Determination Date(s), and the denominator of which is
the sum of the account balances under the aggregated Defined
Contribution Plan or Plans for all Participants, determined
in accordance with (a) above, and the Present Value of
accrued benefits under the Defined Benefit Plan or Plans for
all Participants as of the Determination Date(s), all
determined in accordance with Code Section 416 and the
regulations thereunder. The accrued benefits under a
Defined Benefit Plan in both the numerator and denominator
of the Top-Heavy Ratio are increased for any distribution of
an accrued benefit made in the 5-year period ending on the
Determination Date.
17
<PAGE> 50
(c) For purposes of (a) and (b) above, the value of account
balances and the Present Value of accrued benefits will be
determined as of the most recent Valuation Date that falls
within or ends with the 12-month period ending on the
Determination Date, except as provided in Code Section 416
and the regulations thereunder for the first and second plan
years of a Defined Benefit Plan. The account balances and
accrued benefits of a participant (1) who is not a Key
Employee but who was a Key Employee in a prior year, or (2)
who has not been credited with at least one hour of service
with any Employer maintaining the Plan at any time during
the 5-year period ending on the Determination Date, will be
disregarded. The calculation of the Top- Heavy Ratio, and
the extent to which distributions, rollovers, and transfers
are taken into account will be made in accordance with Code
Section 416 and the regulations thereunder. Qualified
Voluntary Employee Contributions will not be taken into
account for purposes of computing the Top-Heavy Ratio. When
aggregating plans the value of account balances and accrued
benefits will be calculated with reference to the
Determination Dates that fall within the same calendar year.
The accrued benefit of a Participant other than a Key
Employee shall be determined under (1) the method, if any,
that uniformly applies for accrual purposes under all
Defined Benefit Plans maintained by the Employer, or (2) if
there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the
fractional rule of Code Section 411(b)(1)(C).
1.83 TOP-PAID GROUP The group consisting of the top 20% of Employees
when ranked on the basis of Compensation paid during such year. For purposes
of determining the number of Employees in the group (but not who is in it), the
following Employees shall be excluded:
(a) Employees who have not completed 6 months of Service.
(b) Employees who normally work less than 17-1/2 hours per week.
(c) Employees who normally do not work more than 6 months during
any year.
(d) Employees who have not attained age 21.
(e) Employees included in a collective bargaining unit, covered
by an agreement between employee representatives and the
Employer, where retirement benefits were the subject of good
faith bargaining and provided that 90% or more of the
Employer's Employees are covered by the agreement.
(f) Employees who are nonresident aliens and who receive no
earned income which constitutes income from sources within
the United States.
1.84 TRANSFER CONTRIBUTION A non-taxable transfer of a Participant's
benefit directly from a Qualified Deferred Compensation Plan to this Plan.
1.85 TRUSTEE The Sponsor of this Prototype Plan shall serve as Trustee.
18
<PAGE> 51
1.86 VALUATION DATE The last day of the Plan Year or such other date as
agreed to by the Employer and the Trustee/Custodian on which Participant
accounts are revalued in accordance with Article V hereof. For Top-Heavy
purposes, the date selected by the Employer as of which the Top-Heavy Ratio is
calculated.
1.87 VESTED ACCOUNT BALANCE The aggregate value of the Participant's
Vested Account Balances derived from Employer and Employee contributions
(including Rollovers), whether vested before or upon death, including the
proceeds of insurance contracts, if any, on the Participant's life. The
provisions of Article VIII shall apply to a Participant who is vested in
amounts attributable to Employer contributions, Employee contributions (or
both) at the time of death or distribution.
1.88 VOLUNTARY CONTRIBUTION An Employee contribution made to the Plan by
or on behalf of a Participant that is included in the Participant's gross
income in the year in which made and that is maintained under a separate
account to which earnings and losses are allocated.
1.89 WELFARE BENEFIT FUND Any fund that is part of a plan of the
Employer, or has the effect of a plan, through which the Employer provides
welfare benefits to Employees or their beneficiaries. For these purposes,
Welfare Benefits means any benefit other than those with respect to which Code
Section 83(h) (relating to transfers of property in connection with the
performance of services), Code Section 404 (relating to deductions for
contributions to an Employee's trust or annuity and Compensation under a
deferred payment plan), Code Section 404A (relating to certain foreign deferred
compensation plans) apply. A "Fund" is any social club, voluntary employee
benefit association, supplemental unemployment benefit trust or qualified group
legal service organization described in Code Section 501(c)(7), (9), (17) or
(20); any trust, corporation, or other organization not exempt from income tax,
or to the extent provided in regulations, any account held for an Employer by
any person.
1.90 YEAR OF SERVICE A Inconsecutive month period during which an
Employee is credited with not less than 1,000 (or such lesser number as
specified by the Employer in the Adoption Agreement) Hours of Service.
19
<PAGE> 52
ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 PARTICIPATION Employees who meet the eligibility requirements in
the Adoption Agreement on the Effective Date of the Plan shall become
Participants as of the Effective Date of the Plan. If so elected in the
Adoption Agreement, all Employees employed on the Effective Date of the Plan
may participate, even if they have not satisfied the Plan's specified
eligibility requirements. Other Employees shall become Participants on the
Entry Date coinciding with or immediately following the date on which they meet
the eligibility requirements. The Employee must satisfy the eligibility
requirements specified in the Adoption Agreement and be employed on the Entry
Date to become a Participant in the Plan. In the event an Employee who is not
a member of the eligible class of Employees becomes a member of the eligible
class, such Employee shall participate immediately if such Employee has
satisfied the minimum age and service requirements and would have previously
become a Participant had he or she been in the eligible class. A former
Participant shall again become a Participant upon returning to the employ of
the Employer at the next Entry Date or if earlier, the next Valuation Date.
For this purpose, Participant's Compensation and Service shall be considered
from date of rehire.
2.2 CHANGE IN CLASSIFICATION OF EMPLOYMENT In the event a Participant
becomes ineligible to participate because he or she is no longer a member of an
eligible class of Employees, such Employee shall participate upon his or her
return to an eligible class of Employees.
2.3 COMPUTATION PERIOD To determine Years of Service and Breaks in
Service for purposes of eligibility, the Inconsecutive month period shall
commence on the date on which an Employee first performs an Hour of Service for
the Employer and each anniversary thereof, such that the succeeding
Inconsecutive month period commences with the employee's first anniversary of
employment and so on. If, however, the period so specified is one year or less,
the succeeding Inconsecutive month period shall commence on the first day of
the Plan Year prior to the anniversary of the date they first performed an Hour
of Service regardless of whether the Employee is entitled to be credited with
1,000 (or such lesser number as specified by the Employer in the Adoption
Agreement) Hours of Service during their first employment year.
2.4 EMPLOYMENT RIGHTS Participation in the Plan shall not confer upon a
Participant any employment rights, nor shall it interfere with the Employer's
right to terminate the employment of any Employee at any time.
2.5 SERVICE WITH CONTROLLED GROUPS All Years of Service with other
members of a controlled group of corporations [as defined in Code Section
414(b)], trades or businesses under common control [as defined in Code Section
414(c)], or members of an affiliated service group (as defined in Code Section
414(m)) shall be credited for purposes of determining an Employee's eligibility
to participate.
2.6 OWNER-EMPLOYEES If this Plan provides contributions or benefits for
one or more Owner-Employees who control both the business for which this Plan
is established and one or more other trades or businesses, this Plan and the
Plan established for other trades or businesses must, when looked at as a
single Plan, satisfy Code Sections 401(a) and (d) for the Employees of this and
all other trades or businesses.
20
<PAGE> 53
If the Plan provides contributions or benefits for one or more Owner-Employees
who control one or more other trades or businesses, the Employees of the other
trades or businesses must be included in a Plan which satisfies Code Sections
401(a) and (d) and which provides contributions and benefits not less favorable
than provided for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans Of two or more
trades or businesses which are not controlled, and the individual controls a
trade or business, then the contributions or benefits of the Employees under
the plan of the trades or businesses which are controlled must be as favorable
as those provided for him or her under the most favorable plan of the trade or
business which is not controlled.
For purposes of the preceding sentences, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if the
Owner-Employee, or two or more Owner-Employees together:
(a) own the entire interest in an unincorporated trade or
business, or
(b) in the case of a partnership, own more than 50% of either
the capital interest or the profits interest in the
partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership which such Owner-Employee,
or such two or more Owner-Employees, are considered to control within the
meaning of the preceding sentence.
2.7 LEASED EMPLOYEES Any Leased Employee shall be treated as an
Employee of the recipient Employer; however, contributions or benefits provided
by the leasing organization which are attributable to services performed for
the recipient Employer shall be treated as provided by the recipient Employer.
A Leased Employee shall not be considered an Employee of the recipient if such
Employee is covered by a money purchase pension plan providing:
(a) a non-integrated Employer contribution rate of at least 10%
of Compensation, (as defined in Code Section 415(c)(3) but
including amounts contributed by the Employer pursuant to a
salary reduction agreement, which are excludable from the
Employee's gross income under a cafeteria plan covered by
Code Section 125, a cash or deferred profit-sharing plan
under Section 401(k) of the Code, a Simplified Employee
Pension Plan under Code Section 402(h)(1)(B ) and a
tax-sheltered annuity under Code Section 403(b)],
(b) immediate participation, and
(c) full and immediate vesting.
This exclusion is only available if Leased Employees do not constitute more
than twenty percent (20%) of the recipient's non-highly compensated work force.
21
<PAGE> 54
2.8 THRIFT PLANS If the Employer makes an election in the Adoption
Agreement to require Voluntary Contributions to participate in this Plan, the
Employer shall notify each eligible Employee in writing of his or her
eligibility for participation at least 30 days prior to the appropriate Entry
Date. The Employee shall indicate his or her intention to join the Plan by
authorizing the Employer to withhold a percentage of his or her Compensation as
provided in the Plan. Such authorization shall be returned to the Employer at
least 10 days prior to the Employee's Entry Date. The Employee may decline
participation by so indicating on the enrollment form or by failure to return
the enrollment form to the Employer prior to the Employee's Entry Date. If the
Employee declines to participate, such Employee shall be given the opportunity
to join the Plan on the next Entry Date. The taking of a Hardship Withdrawal
under the provisions of paragraph 6.9 will impact the Participant's ability to
make these contributions.
22
<PAGE> 55
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 AMOUNT The Employer intends to make periodic contributions to the
Plan in accordance with the formula or formulas selected in the Adoption
Agreement. However, the Employer's contribution for any Plan Year shall be
subject to the limitations on allocations contained in Article X.
3.2 EXPENSES And Fees The Employer shall also be authorized to
reimburse the Fund for all expenses and fees incurred in the administration of
the Plan or Trust/Custodial Account and paid out of the assets of the Fund.
Such expenses shall include, but shall not be limited to, fees for professional
services, printing and postage. Brokerage commissions may not be reimbursed.
3.3 RESPONSIBILITY FOR CONTRIBUTIONS Neither the Trustee/Custodian nor
the Sponsor shall be required to determine if the Employer has made a
contribution or if the amount contributed is in accordance with the Adoption
Agreement or the Code. The Employer shall have sole responsibility in this
regard. The Trustee/Custodian shall be accountable solely for contributions
actually received by it. within the limits of Article XI.
3.4 RETURN OF CONTRIBUTIONS Contributions made to the Fund by the
Employer shall be irrevocable except as provided below:
(a) Any contribution forwarded to the Trustee/Custodian because
of a mistake of fact, provided that the contribution is
returned to the Employer within one year of the
contribution.
(b) In the event that the Commissioner of Internal Revenue
determines that the Plan is not initially qualified under
the Internal Revenue Code, any contribution made incident to
that initial qualification by the Employer must be returned
to the Employer within one year after the date the initial
qualification is denied, but only if the application for the
qualification is made by the time prescribed by law for
filing the Employer's return for the taxable year in which
the Plan is adopted, or such later date as the Secretary of
the Treasury may prescribe.
(c) Contributions forwarded to the Trustee/Custodian are
presumed to be deductible and are conditioned. on their
deductibility. Contributions which are determined to not be
deductible will be returned to the Employer.
23
<PAGE> 56
ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 VOLUNTARY CONTRIBUTIONS An Employee may make Voluntary
Contributions to the Plan established hereunder if so authorized by the
Employer in a uniform and nondiscriminatory manner. Such contributions are
subject to the limitations on Annual Additions and are subject to
antidiscrimination testing.
4.2 QUALIFIED VOLUNTARY CONTRIBUTIONS A Participant may no longer make
Qualified Voluntary Contributions to the Plan. Amounts already contributed may
remain in the Trust Fund/Custodial Account until distributed to the
Participant. Such amounts will be maintained in a separate account which will
be nonforfeitable at all times. The account will share in the gains and losses
of the Trust in the same manner as described at paragraph 5.4 of the Plan. No
part of the Qualified Voluntary Contribution account will be used to purchase
life insurance. Subject to Article VIII, Joint and Survivor Annuity
Requirements (if applicable), the Participant may withdraw any part of the
Qualified Voluntary Contribution account by making a written application to the
Plan Administrator.
4.3 ROLLOVER CONTRIBUTION Unless provided otherwise in the Adoption
Agreement, a Participant may make a Rollover Contribution to any Defined
Contribution Plan established hereunder of all or any part of an amount
distributed or distributable to him or her from a Qualified Deferred
Compensation Plan provided:
(a) the amount distributed to the Participant is deposited to
the Plan no later than. the sixtieth day after such
distribution was received by the Participant,
(b) the amount distributed is not one of a series of
substantially equal periodic payments made for the life (or
life expectancy) of the Participant or the joint lives (or
joint life expectancies) of the Participant and the
Participant's Designated Beneficiary, or for a specified
period of ten years or more;
(c) the amount distributed is not required under Code Section
401(a)(9);
(d) if the amount distributed included property such property is
rolled over, or if sold the proceeds of such property may be
rolled over,
(e) the amount distributed is not includible in gross income
(determined without regard to the exclusion for net
unrealized appreciation with respect to employer
securities).
In addition, if the Adoption Agreement allows Rollover Contributions, the Plan
will also accept any Eligible Rollover Distribution (as defined at paragraph
1.70) directly to the Plan.
Rollover Contributions, which relate to distributions prior to January 1, 1993,
must be made in accordance with paragraphs (a) through (e) and additionally
meet the requirements of paragraph (f):
24
<PAGE> 57
(f) The distribution from the Qualified Deferred Compensation
Plan constituted the Participant's entire interest in such
Plan and was distributed within one taxable year to the
Participant:
(1) on account of separation from Service, a Plan
termination, or in the case of a profit-sharing or
stock bonus plan, a complete discontinuance of
contributions under such plan within the meaning of
Code Section 402(a)(6)(A), or
(2) in one or more distributions which constitute a
qualified lump sum distribution within the meaning of
Code Section 402(e)(4)(A), determined without
reference to subparagraphs (B) and (H).
Such Rollover Contribution may also be made through an individual retirement
account qualified under Code Section 408 where the IRA was used as a conduit
from the Qualified Deferred Compensation Plan, the Rollover Contribution is
made in accordance with the rules provided under paragraphs (a) through (e) and
the Rollover Contribution does not include any regular IRA contributions, or
earnings thereon, which the Participant may have made to the IRA. Rollover
Contributions, which relate to distributions prior to January 1, 1993, may be
made through an IRA in accordance with paragraphs (a) through (f) and
additional requirements as provided in the previous sentence. The
Trustee/Custodian shall not be held responsible for determining the tax-free
status of any Rollover Contribution made under this Plan.
4.4 TRANSFER CONTRIBUTION Unless provided otherwise in the Adoption
Agreement a Participant may, subject to the provisions of paragraph 4.5, also
arrange for the direct transfer of his or her benefit from a Qualified Deferred
Compensation Plan to this Plan. For accounting and record keeping purposes,
Transfer Contributions shall be treated in the same manner as Rollover
Contributions.
In the event the Employer accepts a Transfer Contribution from a Plan in which
the Employee was directing the investments of his or her account, the Employer
may continue to permit the Employee to direct his or her investments in
accordance with paragraph 13.7 with respect only to such Transfer Contribution.
Notwithstanding the above, the Employer may refuse to accept such Transfer
Contributions.
4.5 EMPLOYER APPROVAL OF TRANSFER CONTRIBUTIONS The Employer
maintaining a Safe-Harbor Profit-Sharing Plan in accordance with the provisions
of paragraph 8.7, acting in a nondiscriminatory manner, may in its sole
discretion refuse to allow Transfer Contributions to its profit-sharing plan,
if such contributions are directly or indirectly being transferred from a
defined benefit plan, a money purchase pension plan (including a target benefit
plan), a stock bonus plan, or another profit-sharing plan which would otherwise
provide for a life annuity form of payment to the Participant.
25
<PAGE> 58
4.6 ELECTIVE DEFERRALS A Participant may enter into a Salary Savings
Agreement with the Employer authorizing the Employer to withhold a portion of
such Participant's Compensation not to exceed $7,000 per calendar year as
adjusted under Code Section 415(d) or, if lesser, the percentage of
Compensation specified in the Adoption Agreement and to deposit such amount to
the Plan. No Participant shall be permitted to have Elective Deferrals made
under this Plan or any other qualified plan maintained by the Employer, during
any taxable year. in excess of the dollar limitation contained in Code Section
402(g) in effect at the beginning of such taxable year. Thus, the $7,000 limit
may be reduced if a Participant contributes pre-tax contributions to qualified
plans of this or other Employers. Any such contribution shall be credited to
the Employee's Salary Savings Account. Unless otherwise specified in the
Adoption Agreement, a Participant may amend his or her Salary Savings Agreement
to increase, decrease or terminate the percentage upon 30 days written notice
to the Employer. If a Participant terminates his or her agreement, such
Participant shall not be permitted to put a new Salary Savings Agreement into
effect until the first pay period in the next Plan Year, unless otherwise
stated in the Adoption Agreement. The Employer may also amend or terminate
said agreement on written notice to the Participant. If a Participant has not
authorized the Employer to withhold at the maximum rate and desires to increase
the total withheld for a Plan Year, such Participant may authorize the Employer
upon 30 days notice to withhold a supplemental amount up to 100% of his or her
Compensation for one or more pay periods. In no event may the sum of the
amounts withheld under the Salary Savings Agreement plus the supplemental
withholding exceed 25% of a Participant's Compensation for a Plan Year. The
Employer may also recharacterize as after-tax Voluntary Contributions all or
any portion of amounts previously withheld under any Salary Savings Agreement
within the Plan Year as provided for at paragraph 10.9. This may be done to
insure that the Plan will meet one of the antidiscrimination tests under Code
Section 401(k). Elective Deferrals shall be deposited in the Trust within 30
days after being withheld from the Participant's pay.
4.7 REQUIRED-VOLUNTARY CONTRIBUTIONS If the Employer makes a thrift
election in the Adoption Agreement, each eligible Participant shall be required
to make Voluntary Contributions to the Plan for credit to his or her account as
provided in the Adoption Agreement. Such Voluntary Contributions shall be
withheld from the Employee's Compensation and shall be transmitted by the
Employer to the Trustee/Custodian as agreed between the Employer and
Trustee/Custodian. A Participant may discontinue participation or change his
or her Voluntary Contribution percentage by so advising the Employer at least
10 days prior to the date on which such discontinuance or change is to be
effective. If a Participant discontinues his or her Voluntary Contributions,
such Participant may not again authorize Voluntary Contributions for a period
of one year from the date of discontinuance. A Participant may voluntarily
change his or her Voluntary Contribution percentage once during any Plan Year
and may also agree to have a reduction in his or her contribution, if required
to satisfy the requirements of the ACP test.
26
<PAGE> 59
4.8 DIRECT ROLLOVER OF BENEFITS Notwithstanding any provision of the
Plan to the contrary that would otherwise limit a Participant's election under
this paragraph, for distributions made on or after January 1,1993, a
Participant may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the Participant in a
Direct Rollover. Any portion of a distribution which is not paid directly to
an Eligible Retirement Plan shall be distributed to the Participant. For
purposes of this paragraph. a Surviving Spouse or a Spouse or former Spouse who
is an alternate payee under a Qualified Domestic Relations Order as defined in
Code Section 414(p), will be permitted to elect to have any Eligible Rollover
Distribution paid directly to an individual retirement account (IRA) or an
individual retirement annuity (IRA).
The plan provisions otherwise applicable to distributions continue to apply to
Rollover and Transfer Contributions.
27
<PAGE> 60
ARTICLE V
PARTICIPANT ACCOUNTS
5.1 SEPARATE ACCOUNTS The Employer shall establish a separate
bookkeeping account for each Participant showing the total value of his or her
interest in the Fund. Each Participant's account shall be separated for
bookkeeping purposes into the following sub-accounts:
(a) Employer contributions.
(1) Matching Contributions.
(2) Qualified Matching Contributions.
(3) Qualified Non-Elective Contributions.
(4) Discretionary Contributions.
(5) Elective Deferrals.
(b) Voluntary Contributions (and additional amounts including
required contributions and, if applicable, either repayments
of loans previously defaulted on and treated as "deemed
distributions" on which a tax report has been issued, and
amounts paid out upon a separation from service which have
been included in income and which are repaid after being
re-hired by the Employer).
(c) Qualified Voluntary Contributions (if the Plan previously
accepted these).
(d) Rollover Contributions and Transfer Contributions.
5.2 ADJUSTMENTS TO PARTICIPANT ACCOUNTS As of each Valuation Date of
the Plan, the Employer shall add to each account:
(a) the Participant's share of the Employer's contribution and
forfeitures as determined in the Adoption Agreement,
(b) any Elective Deferrals, Voluntary, Rollover or Transfer
Contributions made by the Participant,
(c) any repayment of amounts previously paid out to a
Participant upon a separation from Service and repaid by the
Participant since the last Valuation Date, and
(d) the Participant's proportionate share of any investment
earnings and increase in the fair market value of the Fund
since the last Valuation Date, as determined at paragraph
5.4.
28
<PAGE> 61
The Employer shall deduct from each account:
(e) any withdrawals or payments made from the Participant's
account since the last Valuation Date, and
(f) the Participant's proportionate share of any decrease in the
fair market value of the Fund since the last Valuation Date,
as determined at paragraph 5.4.
5.3 ALLOCATING EMPLOYER CONTRIBUTIONS The Employer's contribution shall
be allocated to Participants in accordance with the allocation formula selected
by the Employer in the Adoption Agreement. and the minimum contribution and
allocation requirements for Top-Heavy Plans. Beginning with the 1990 Plan Year
and thereafter, for plans on Standardized Adoption Agreement 001, Participants
who are credited with more than 500 Hours of Service or are employed on the
last day of the Plan Year must receive a full allocation of Employer
contributions. In Nonstandardized Adoption Agreement 002, Employer
contributions shall be allocated to the accounts of Participants employed by
the Employer on the last day of the Plan Year unless indicated otherwise in the
Adoption Agreement. In the case of a nonTop-Heavy, Nonstandardized Plan,
Participants must also have completed a Year of Service unless otherwise
specified in the Adoption Agreement. For Nonstandardized Adoption Agreement
002, the Employer may only apply the last day of the Plan Year and Year of
service requirements if the Plan satisfies the requirements of Code Sections
401(a)(26) and 410(b) and the regulations thereunder including the exception
for 401(k) plans. If, when applying the last day and Year of Service
requirements, the Plan fails to satisfy the aforementioned requirements,
additional Participants will be eligible to receive an allocation of Employer
Contributions until the requirements are satisfied. Participants who are
credited with a Year of Service, but not employed at Plan Year end, are the
first category of additional Participants eligible to receive an allocation.
If the requirements are still not satisfied, Participants credited with more
than 500 Hours of Service and employed at Plan Year end are the next category
of Participants eligible to receive an allocation. Finally, if necessary to
satisfy the said requirements, any Participant credited with more than 500
Hours of Service will be eligible for an allocation of Employer Contributions.
The Service requirement is not applicable With respect to any Plan Year during
which the Employer's Plan is Top-Heavy.
5.4 ALLOCATING INVESTMENT EARNINGS AND LOSSES A Participant's share of
investment earnings and any increase or decrease in the fair market value of
the Fund shall be based on the proportionate value of all active accounts
(other than accounts with segregated investments) as of the last Valuation Date
less withdrawals since the last Valuation Date. If Employer and/or Employee
contributions are made monthly, quarterly, or on some other systematic basis,
the adjusted value of such accounts for allocation of investment income and
gains or losses shall include one-half the contributions for such period. If
Employer and/or Employee contributions are not made on a systematic basis, it
is assumed that they are made at the end of the valuation period and therefore
will not receive an allocation of investment earnings and gains or losses for
such period. Account balances not yet forfeited shall receive an allocation of
earnings and/or losses. Accounts with segregated investments shall receive
only the income or loss on such segregated investments.
29
<PAGE> 62
5.5 PARTICIPANT STATEMENTS Upon completing the allocations described
above for the Valuation Date coinciding with the end of the Plan Year, the
Employer shall prepare a statement for each Participant showing the additions
to and subtractions from his or her account since the last such statement and
the fair market value of his or her account as of the current Valuation Date.
Employers so choosing may prepare Participant statements for each Valuation
Date.
30
<PAGE> 63
ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 NORMAL RETIREMENT BENEFITS A Participant shall be entitled to
receive the balance held in his or her account from Employer contributions upon
attaining Normal Retirement Age or at such earlier dates as the provisions of
this Article VI may allow. If the Participant elects to continue working past
his or her Normal Retirement Age, he or she will continue as an active Plan
Participant and no distribution shall be made to such Participant until his or
her actual retirement date unless the employer elects otherwise in the Adoption
Agreement, or a minimum distribution is required by law. Settlement shall be
made in the normal form, or if elected, in one of the optional forms of payment
provided below.
6.2 EARLY RETIREMENT BENEFITS If the Employer so provides in the
Adoption Agreement, an Early Retirement Benefit will be available to
individuals who meet the age and Service requirements. An individual who meets
the Early Retirement Age requirements and separates from Service, will become
fully vested, regardless of any vesting schedule which otherwise might apply.
If a Participant separates from Service before, satisfying the age
requirements, but after having satisfied the Service requirement, the
Participant will be entitled to elect an Early Retirement benefit upon
satisfaction of the age requirement.
6.3 BENEFITS ON TERMINATION OF EMPLOYMENT
(a) If a Participant terminates employment prior to Normal
Retirement Age, such Participant shall be entitled to
receive the vested balance held in his or her account
payable at Normal Retirement Age in the normal form, or if
elected, in one of the optional forms of payment provided
hereunder. If applicable, the Early Retirement Benefit
provisions may be elected. Notwithstanding the preceding
sentence, a former Participant may, if allowed in the
Adoption Agreement, make application to the Employer
requesting early payment of any deferred vested and
nonforfeitable benefit due.
(b) If a Participant terminates employment, and the value of
that Participant's Vested Account Balance derived from
Employer and Employee contributions is not greater than
$3,500, the Participant may receive a lump sum distribution
of the value of the entire vested portion of such account
balance and the nonvested portion will be treated as a
forfeiture. The Employer shall continue to follow their
consistent policy, as may be established, regarding
immediate cash-outs of Vested Account Balances of $3,500 or
less. For purposes of this Article, if the value of a
Participant's Vested Account Balance is zero, the
Participant shall be deemed to have received a distribution
of such Vested Account Balance immediately following
termination. Likewise, if the Participant is reemployed
prior to incurring 5 consecutive year Breaks in Service they
will be deemed to have immediately repaid such distribution.
For Plan Years beginning prior to 1989, a Participant's
Vested Account Balance shall not include Qualified
31
<PAGE> 64
Voluntary Contributions. Notwithstanding the above, if the
Voluntary Employer maintains or has maintained a policy
of not distributing any amounts until the Participant's
Normal Retirement Age, the Employer can continue to
uniformly apply such policy.
(c) If a Participant terminates employment With a Vested Account
Balance derived from Employer and Employee contributions in
excess of $3,500, and elects (with his or her Spouse's
consent, if required) to receive 100% of the value of his or
her Vested Account Balance in a lump sum, the non- vested
portion will be treated as a forfeiture. The Participant
(and his or her Spouse, if required) must consent to any
distribution, when the Vested Account Balance described
above exceeds $3,500 or if at the time of any prior
distribution it exceeded $3,500. For purposes of this
paragraph, for Plan Years beginning prior to 1989, a
Participant's Vested Account Balance shall not include
Qualified Voluntary Contributions.
(d) Distribution of less than 100% of the Participant's Vested
Account Balance shall only be permitted if the Participant
is fully vested upon termination of employment.
(e) If a Participant who is not 100% vested receives or is
deemed to receive a distribution pursuant to this paragraph
and resumes employment covered under this Plan, the
Participant shall have the right to repay to the Plan the
full amount of the distribution attributable to Employer
contributions on or before the earlier of the date that the
Participant incurs 5 consecutive 1-year Breaks in Service
following the date of distribution or five years after the
first date on which the Participant is subsequently
reemployed. In such event, the Participant's account shall
be restored to the value thereof at the time the
distribution was made and may further be increased by the
Plan's income and investment gains and/or losses on the
undistributed amount from the date of distribution to the
date of repayment.
(f) A Participant shall also have the option, to postpone
payment of his or her Plan benefits until the first day of
April following the calendar year in which he or she attains
age 70-1/2. Any balance of a Participant's account
resulting from his or her Employee contributions not
previously withdrawn, if any, may be withdrawn by the
Participant immediately following separation from Service.
(g) If a Participant ceases to be an active Employee as a result
of a Disability as defined at paragraph 1.21, such
Participant shall be able to make an application for a
disability retirement benefit payment. The Participant's
account balance will be deemed "immediately distributable"
as set forth in paragraph 6.4, and will be fully vested
pursuant to paragraph 9.2.
32
<PAGE> 65
6.4 RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS
(a) An account balance is immediately distributable if any part
of the account balance could be distributed to the
Participant (or Surviving Spouse) before the Participant
attains (or would have attained if not deceased) the later
of the Normal Retirement Age or age 62.
(b) If the value of a Participant's Vested Account Balance
derived from Employer and Employee Contributions exceeds (or
at the time of any prior distribution exceeded) $3,500, and
the account balance is immediately distributable, the
Participant and his or her Spouse (or where either the
Participant or the Spouse has died, the survivor) must
consent to any distribution of such account balance. The
consent of the Participant and the Spouse shall be obtained
in writing within the 90-day period ending on the annuity
starting date, which is the first day of the first period
for which an amount is paid as an annuity or any other form.
The Plan Administrator shall notify the Participant and the
Participant's Spouse of the right to defer any distribution
until the Participant's account balance is no longer
immediately distributable. Such notification shall include
a general description of the material features, and an
explanation of the relative values of, the optional forms of
benefit available under the plan in a manner that would
satisfy the notice requirements of Code Section 417(a)(3),
and shall be provided no less than 30 days and no more than
90 days prior to the annuity starting date.
(c) Notwithstanding the foregoing, only the Participant need
consent to the commencement of a distribution in the form of
a qualified Joint and Survivor Annuity while the account
balance is immediately distributable. Furthermore, if
payment in the form of a Qualified Joint and Survivor
Annuity is not required with respect to the Participant
pursuant to paragraph 8.7 of the Plan, only the Participant
need consent to the distribution of an account balance that
is immediately distributable. Neither the consent of the
Participant nor the Participant's Spouse shall be required
to the extent that a distribution is required to satisfy
Code Section 401(a)(9) or Code Section 415. In addition.
upon termination off this Plan if the Plan does not offer an
annuity option (purchased from a commercial provider), the
Participant's account balance may, without the Participant's
consent, be distributed to the Participant or transferred to
another Defined Contribution Plan [other than an employee
stock ownership plan as defined in Code Section 4975(e)(7)]
within the same controlled group.
(d) For purposes of determining the applicability of the
foregoing consent requirements to distributions made before
the first day of the first Plan Year beginning after 1988,
the Participant's Vested Account Balance shall not include
amounts attributable to Qualified Voluntary Contributions.
6.5 NORMAL FORM OF PAYMENT The normal form of payment for a
profitsharing plan satisfying the requirements of paragraph 8.7 hereof shall be
a lump sum with no option for annuity payments. For all other plans, the normal
form of payment hereunder shall be a Qualified Joint and Survivor Annuity as
provided
33
<PAGE> 66
under Article VIII. A Participant whose Vested Account Balance derived from
Employer and Employee contributions exceeds $3,500, or if at the time of any
prior distribution it exceeded $3,500, shall (with the consent of his or her
Spouse) have the right to receive his or her benefit in a lump sum or in
monthly, quarterly, semiannual or annual payments from the Fund over any period
not extending beyond the life expectancy of the Participant and his or her
Beneficiary. For purposes of this paragraph, for Plan Years prior to 1989, a
Participant's Vested Account Balance shall not include Qualified Voluntary
Contributions. The normal form of payment shall be automatic, unless the
Participant files a written request with the Employer prior to the date on
which the benefit is automatically payable, electing a lump sum or installment
payment option. No amendment to the Plan may eliminate one of the optional
distribution forms listed above.
6.6 COMMENCEMENT OF BENEFITS
(a) Unless the Participant elects otherwise, distribution of
benefits will begin no later than the 60th day after the
close of the Plan Year in which the latest of the following
events occurs:
(1) the Participant attains age 65 (or normal retirement
age if earlier),
(2) the 10th anniversary of the year in which the
Participant commenced participation in the Plan, or
(3) the Participant terminates Service with the Employer.
(b) Notwithstanding the foregoing, the failure of a Participant
and Spouse (if necessary) to consent to a distribution while
a benefit is immediately distributable, within the meaning
of paragraph 6.4 hereof, shall be deemed an election to
defer commencement of payment of any benefit sufficient to
satisfy this paragraph.
6.7 CLAIMS PROCEDURES Upon retirement, death, or other severance of
employment, the Participant or his or her representative may make application
to the Employer requesting payment of benefits due and the manner of payment.
If no application for benefits is made, the Employer shall automatically pay
any vested benefit due hereunder in the normal form at the time prescribed at
paragraph 6.4. If an application for benefits is made, the Employer shall
accept, reject, or modify such request and shall notify the Participant in
writing setting forth the response of the Employer and in the case of a denial
or modification the Employer shall:
(a) state the specific reason or reasons for the denial,
(b) provide specific reference to pertinent Plan provisions on
which the denial is based,
(c) provide a description of any additional material or
information necessary for the Participant or his
representative to perfect the claim and an explanation of
why such material or information is necessary, and
(d) explain the Plan's claim review procedure as contained in
this Plan.
34
<PAGE> 67
In the event tied request is rejected or modified, the Participant or his or
her representative may within 60 days following receipt by the Participant or
representative of such rejection or modification, submit a written request for
review by the Employer of its initial decision. Within 60 days following such
request for review, the Employer shall render its final decision in writing to
the Participant or representative stating specific reasons for such decision.
If the Participant or representative is not satisfied with the Employer's final
decision, the Participant or representative can institute an action in a
federal court of competent jurisdiction; for this purpose, process would be
served on the Employer.
6.8 IN-SERVICE WITHDRAWALS An Employee may withdraw all or any part of
the fair market value of his or her Mandatory Contributions, Voluntary
Contributions, Qualified Voluntary Contributions or Rollover Contributions,
upon written request to the Employer. Transfer Contributions, which originate
from a Plan meeting the safe-harbor provisions of paragraph 8.7, may also be
withdrawn by an Employee upon written request to the Employer. Transfer
Contributions not meeting the safe-harbor provisions may only be withdrawn upon
retirement, death, Disability, termination or termination of the Plan, and will
be subject to Spousal consent requirements contained in Code Sections
411(a)(11) and 417. No such withdrawals are permitted from a money purchase
plan until the participant reaches Normal Retirement Age. Such request shall
include the Participant's address, social security number, birth date, and
amount of the withdrawal. If at the time a distribution of Qualified Voluntary
Contributions is received the Participant has not attained age 591/2 and is not
disabled, as defined at Code Section 22(e)(3). the Participant will be subject
to a federal income tax penalty, unless the distribution is rolled over to a
qualified plan or individual retirement plan within 60 days of the date of
distribution. A Participant may withdraw all or any part of the fair market
value of his or her pre-1987 Voluntary Contributions with or without
withdrawing the earnings attributable thereto. Post-1986 Voluntary
Contributions may only be withdrawn along with a portion of the earnings
thereon. The amount of the earnings to be withdrawn is determined by using the
formula: DA[1-(V / V + E)], where DA is the distribution amount, V is the
amount of Voluntary Contributions and V + E is the amount of Voluntary
Contributions plus the earnings attributable thereto. A Participant
withdrawing his or her other contributions prior to attaining age 59-1/2, will
be subject to a federal tax penalty to the extent that the withdrawn amounts
are includible in income. Unless the Employer provides otherwise in the
Adoption Agreement, any Participant in a profit-sharing plan who is 100% fully
vested in his or her Employer contributions may withdraw all or any part of the
fair market value of any of such contributions that have been in the account at
least two years, plus the investment earnings thereon, after attaining age
59-1/2 without separation from Service. Such distributions shall not be
eligible for redeposit to the Fund. A withdrawal under this paragraph shall
not prohibit such Participant from sharing in any future Employer Contribution
he or she would otherwise be eligible to share in. A request to withdraw
amounts pursuant to this paragraph must if applicable, be consented to by the
Participant's Spouse. The consent shall comply with the requirements of
paragraph 6.4 relating to immediate distributions.
Elective Deferrals, Qualified Non-elective Contributions, and Qualified
Matching Contributions, and income allocable to each are not distributable to a
Participant or his or her Beneficiary or Beneficiaries, in accordance with such
Participant's or Beneficiary's or Beneficiaries' election, earlier than upon
separation from Service, death, or Disability. Such amounts may also be
distributed upon:
(a) Termination of the Plan without the establishment of another
Defined Contribution Plan.
35
<PAGE> 68
(b) The disposition by a corporation to an unrelated corporation
of substantially all of the assets [within the meaning of
Code Section 409(d)(2)) used in a trade or business of such
corporation if such corporation continues to maintain this
Plan after the disposition, but only with respect to
Employees who continue employment with the corporation
acquiring such assets.
(c) The disposition by a corporation to an unrelated entity of
such corporation's interest in a subsidiary [within the
meaning of Code Section 409(d)(3)] if such corporation
continues to maintain this plan, but only with respect to
Employees who continue employment with such subsidiary.
(d) The attainment of age 59-1/2.
(e) The Hardship of the Participant as described in paragraph
6.9.
All distributions that may be made pursuant to one or more of the foregoing
distributable events are subject to the Spousal and Participant consent
requirements, if applicable, contained in Code Sections 401(a)(11) and 417.
6.9 HARDSHIP WITHDRAWAL If permitted by the Trustee/Custodian and the
Employer in the Adoption Agreement, a Participant may request a Hardship
withdrawal prior to attaining age 59-1/2. If the Participant has not attained
age 591/2, the Participant may be subject to a federal income tax penalty.
Such request shall be in writing to the Employer who shall have sole authority
to authorize a Hardship withdrawal, pursuant to the rules below. Hardship
withdrawals may include Elective Deferrals regardless of when contributed and
any earnings accrued and credited thereon as of the last day of the Plan Year
ending before July 1, 1989 and Employer related contributions, including but
not limited to Employer Matching Contributions; plus the investment earnings
thereon to the extent vested. Qualified Matching Contributions, Qualified
Non-Elective Contributions and Elective Deferrals reclassified as Voluntary
Contributions plus the investment earnings thereon are only available for
Hardship withdrawal prior to age 59-1/2 to the extent that they were credited
to the Participant's Account as of the last day of the Plan Year ending prior
to July 1. 1989. The Plan Administrator may limit withdrawals to Elective
Deferrals and the earnings thereon as stipulated above. Hardship withdrawals
are subject to the Spousal consent requirements contained in Code Sections
401(a)(11) and 417. Only the following reasons are valid to obtain Hardship
withdrawal:
(a) medical expenses [within the meaning of Code Section
213(d)], incurred or necessary for the medical care of the
Participant, his or her Spouse, children and other
dependents,
(b) the purchase (excluding mortgage payments) of the principal
residence for the Participant,
(c) payment of tuition and related educational expenses for the
next twelve (12) months of post-secondary education for the
Participant, his or her Spouse, children or other
dependents, or
(d) the need to prevent eviction of the Employee from or a
foreclosure on the mortgage of, the Employee's principal
residence.
Furthermore, the following conditions must be met in order for a withdrawal to
be authorized:
36
<PAGE> 69
(e) the Participant has obtained all distributions. other than
hardship distributions, and all nontaxable loans under all
plans maintained by the Employer,
(f) all plans maintained by the Employer, other than flexible
benefit plans under Code Section 125 providing for current
benefits, provide that the Employee's Elective Deferrals and
Voluntary Contributions will be suspended for twelve months
after the receipt of the Hardship distribution,
(g) the distribution is not in excess of the amount of the
immediate and heavy financial need [(a) through (d) above],
including amounts necessary to pay any federal, state or
local income tax or penalties reasonably anticipated to
result from the distribution, and
(h) all plans maintained by the Employer provide that an
Employee may not make Elective Deferrals for the Employee's
taxable year immediately following the taxable year of the
Hardship distribution in excess of the applicable limit
under Code Section 402(g) for such taxable year, less the
amount of such Employee's pre-tax contributions for the
taxable year of the Hardship distribution.
If a distribution is made at a time when a Participant has a nonforfeitable
right to less than 100% of the account balance derived from Employer
contributions and the Participant may increase the nonforfeitable percentage in
the account:
(a) A separate account will be established for the Participant's
interest in the Plan as of the time of the distribution, and
(b) At any relevant time the Participant's nonforfeitable
portion of the separate account will be equal to an amount
("X") determined by the formula:
X = P [AB + (R X D)] - (R X D)
For purposes of applying the formula: "P" is the nonforfeitable percentage at
the relevant time, "AB" is the account balance at the relevant time, "D" is the
amount of the distribution and "R" is the ratio of the account balance at the
relevant time to the account balance after distribution.
37
<PAGE> 70
ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 JOINT AND SURVIVOR ANNUITY REQUIREMENTS All distributions made
under the terms of this Plan must comply with the provisions of Article VIII
including, if applicable, the safe harbor provisions thereunder.
7.2 MINIMUM DISTRIBUTION REQUIREMENTS All distributions required under
this Article shall be determined and made in accordance with the minimum
distribution requirements of Code Section 401(a)(9) and the regulations
thereunder, including the minimum distribution incidental benefit rules found
at Regulations Section 1.401(a)(9)-2. The entire interest of a Participant
must be distributed or begin to be distributed no later than the Participant's
Required Beginning Date. Life expectancy and joint and last survivor life
expectancy are computed by using the expected return multiples found in Tables
V and VI of Regulations Section 1.72-9.
7.3 LIMITS ON DISTRIBUTION PERIODS As of the First Distribution
Calendar Year, distributions if not made in a single-sum. may only be made
over one of the following periods (or a, combination thereof):
(a) the life of the Participant,
(b) the life of the Participant and a Designated Beneficiary,
(c) a period certain not extending beyond the life expectancy of
the participant, or
(d) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
beneficiary.
7.4 REQUIRED DISTRIBUTIONS ON OR AFTER THE REQUIRED BEGINNING DATE
(a) If a participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the
Participant or the joint life and last survivor expectancy
of the Participant and the Participant's Designated
Beneficiary or (2) a period not extending beyond the life
expectancy of the Designated Beneficiary, the amount
required to be distributed for each calendar year, beginning
with distributions for the First Distribution Calendar Year,
must at least equal the quotient obtained by dividing the
Participant's benefit by the Applicable Life Expectancy.
(b) For calendar years beginning before 1989, if the
Participant's Spouse is not the Designated Beneficiary, the
method of distribution selected must have assured that at
least 50% of the Present Value of the amount available for
distribution was to be paid within the life expectancy of
the Participant.
38
<PAGE> 71
(c) For calendar years beginning after 1988, the amount to be
distributed each year, beginning with distributions for the
First Distribution Calendar Year shall not be less than the
quotient obtained by dividing the Participant's benefit by
the lesser of (1) the Applicable Life Expectancy or (2) if
the Participant's Spouse is not the Designated Beneficiary,
the applicable divisor determined from the table set forth
in Q&A-4 of Regulations Section 1.401(a)(9)-2.
Distributions after the death of the Participant shall be
distributed using the Applicable Life Expectancy as the
relevant divisor without regard to Regulations Section
1.401(a)(9)-2.
(d) The minimum distribution required for the Participant's
First Distribution Calendar Year must be made on or before
the Participant's Required Beginning Date. The minimum
distribution for other calendar years, including the minimum
distribution for the Distribution Calendar Year in which the
Participant's Required Beginning Date occurs, must be made
on or before December 31 of that Distribution Calendar Year.
(e) If the Participant's benefit is distributed in the form of
an annuity purchased from an insurance company,
distributions thereunder shall be made in accordance with
the requirements of Code Section 401(a)(9) and the
Regulations thereunder.
(f) For purposes of determining the amount of the required
distribution for each Distribution Calendar Year, the
account balance to be used is the account balance determined
as of the last valuation preceding the Distribution Calendar
Year. This balance will be increased by the amount of any
contributions or forfeitures allocated to the account
balance after the valuation date in such preceding calendar
year. Such balance will also be decreased by distributions
made after the Valuation Date in such preceding Calendar
Year.
(g) For purposes of subparagraph 7.4(f), if any portion of the
minimum distribution for the First Distribution Calendar
Year is made in the second Distribution Calendar Year on or
before the Required Beginning Date, the amount of the
minimum distribution made in the second Distribution
Calendar Year shall be treated as if it had been made in the
immediately preceding Distribution Calendar Year.
7.5 REQUIRED BEGINNING DATE
(a) General Rule. The Required Beginning Date of a Participant
is the first day of April of the calendar year following the
calendar year in which the Participant attains age 70-1/2.
(b) Transitional Rules. The Required Beginning Date of a
Participant who attains age 70-1/2 before 1988, shall be
determined in accordance with (1) or (2) below:
39
<PAGE> 72
(1) Non-5-percent owners. The Required Beginning Date of
a Participant who is not a 5-percent owner is the
first day of April of the calendar year following the
calendar year in which the later of retirement or
attainment of age 70-1/2 occurs. In the case of a
Participant who is not a 5-percent owner who attains
age 70-1/2 during 1988 and who has not retired as of
January 1, 1989, the Required Beginning Date is April
1, 1990.
(2) 5-percent owners. The Required Beginning Date of a
Participant who is a 5-percent owner during any year
beginning after 1979, is the first day of April
following the later of:
(i) the calendar year in which the Participant
attains age 70-1/2, or
(ii) the earlier of the calendar year with or
within which ends the plan year in which the
Participant becomes a 5-percent owner, or the
calendar year in which the Participant
retires.
(c) A Participant is treated as a 5-percent owner for purposes
of this Paragraph if such Participant is a 5-percent owner
as defined in Code Section 416(i) (determined in accordance
with Code Section 416 but without regard to whether the Plan
is Top-Heavy) at any time during the Plan Year ending with
or within the calendar year in which such Owner attains age
66-1/2 or any subsequent Plan Year.
(d) Once distributions have begun to a 5-percent owner under
this paragraph, they must continue to be distributed, even
if the Participant ceases to be a 5- percent owner in a
subsequent year.
7.6 TRANSITIONAL RULE
(a) Notwithstanding the other requirements of this Article and
subject to the requirements of Article VIII, Joint and
Survivor Annuity Requirements, distribution on behalf of any
Employee, including a 5-percent owner, may be made in
accordance with all of the following requirements
(regardless of when such distribution commences):
(1) The distribution by the Trust is one which would not
have disqualified such Trust under Code Section
401(a)(9) as in effect prior to amendment by the
Deficit Reduction Act of 1984.
(2) The distribution is in accordance with a method of
distribution designated by the Employee whose
interest in the Trust is being distributed or, if the
Employee is deceased, by a beneficiary of such
Employee.
40
<PAGE> 73
(3) Such designation was in writing, was signed by the
Employee or the beneficiary, and was made before 1984.
(4) The Employee had accrued a benefit under the Plan as
of December 31, 1983.
(5) The method of distribution designated by the Employee
or the beneficiary specifies the time at which
distribution will commence, the period over which
distributions will be made, and in the case of any
distribution upon the Employee's death, the
beneficiaries of the Employee listed in order of
priority.
(b) A distribution upon death will not be covered by this
transitional rule unless the information in the designation
contains the required information described above with
respect to the distributions to be made upon the death of
the Employee.
(c) For any distribution which commences before 1984, but
continues after 1983, the Employee or the beneficiary, to
whom such distribution is being made, will be presumed to
have designated the method of distribution under which the
distribution is being made if the method of distribution was
specified in writing and the distribution satisfies the
requirements in subparagraphs (a)(1) and (5) above.
(d) If a designation is revoked, any subsequent distribution
must satisfy the requirements of Code Section 401(a)(9) and
the regulations thereunder. If a designation is revoked
subsequent to the date distributions are required to begin,
the Trust must distribute by the end of the calendar year
following the calendar year in which the revocation occurs
the total amount not yet distributed which would have been
required to have been distributed to satisfy Code Section
401(a)(9) and the regulations thereunder, but for the
section 242(b)(2) election of the Tax Equity and Fiscal
Responsibility Act of 1982. For calendar years beginning
after 1988, such distributions must meet the minimum
distribution incidental benefit requirements in section
1.401(a)(9)-2 of the Income Tax Regulations. Any changes in
the designation will be considered to be a revocation of the
designation. However, the mere substitution or addition of
another beneficiary (one not named in the designation) under
the designation will not be considered to be a revocation of
the designation, so long as such substitution or addition
does not alter the period over which distributions are to be
made under the designation, directly or indirectly (for
example, by altering the relevant measuring life). In the
case in which an amount is transferred or rolled over from
one plan to another plan, the rules in Q&A J-2 and Q&A J-3
of the regulations shall apply.
41
<PAGE> 74
7.7 DESIGNATION OF BENEFICIARY FOR DEATH BENEFIT Each Participant shall
file a written designation of beneficiary with the Employer upon qualifying for
participation in this Plan. Such designation shall remain in force until
revoked by the Participant by filing a new beneficiary form with the Employer.
The Participant may elect to have a portion of his or her account balance
invested in an insurance contracts If an insurance contract is purchased under
the Plan, the Trustee must be named as Beneficiary under the terms of the
contract. However, the Participant shall designate a Beneficiary to receive
the proceeds of the contract after settlement is received by the Trustee.
Under a profit-sharing plan satisfying the requirements of paragraph 8.7, the
Designated Beneficiary shall be the Participant's Surviving Spouse, if any,
unless such Spouse properly consents otherwise.
7.8 NONEXISTENCE OF BENEFICIARY Any portion of the amount payable
hereunder which is not disposed. of because of the Participant's or former
Participant's failure to designate a beneficiary, or because all of the
Designated Beneficiaries predeceased the Participant, shall be paid to his or
her Spouse. If the Participant had no Spouse at the time of death, payment
shall be made to the personal representative of his or her estate in a lump
sum.
7.9 DISTRIBUTION BEGINNING BEFORE DEATH If the Participant dies after
distribution of his or her interest has begun, the remaining portion of such
interest will continue to be distributed at least as rapidly as under the
method of distribution being used prior to the Participant's death.
7.10 DISTRIBUTION BEGINNING AFTER DEATH If the Participant dies before
distribution of his or her interest begins, distribution of the Participant's
entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death except to the
extent that an election is made to receive distributions in accordance with (a)
or (b) below:
(a) If any portion of the Participant's interest is payable to a
Designated Beneficiary, distributions may be made over the
life or over a period certain not greater than the life
expectancy of the Designated Beneficiary commencing on or
before December 31 of the calendar year immediately
following the calendar year in which the Participant died;
(b) If the Designated Beneficiary is the Participant's surviving
Spouse, the date distributions are required to begin in
accordance with (a) above shall not be earlier than the
later of (1) December 31 of the calendar year immediately
following the calendar year in which the participant died or
(2) December 31 of the calendar year in which the
Participant would have attained age 70-1/2.
If the Participant has not made an election pursuant to this paragraph 7.10 by
the time of his or her death, the Participant's Designated Beneficiary must
elect the method of distribution no later than the earlier of (1) December 31
of the calendar year in which distributions would be required to begin under
this section, or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the participant. If the Participant has no
Designated Beneficiary, or if the Designated Beneficiary does not elect a
method of distribution, then distribution of the Participant's entire interest
must be completed by December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
42
<PAGE> 75
For purposes of this paragraph if the Surviving Spouse dies after the
Participant, but before payments to such Spouse begin, the provisions of this
paragraph with the exception of paragraph (b) therein, shall be applied as if
the Surviving Spouse were the Participant. For the purposes of this paragraph
and paragraph 7.9, distribution of a Participant's interest is considered to
begin on the Participant's Required Beginning Date (or, if the preceding
sentence is applicable, the date distribution is required to begin to the
Surviving Spouse). If distribution in the form of an annuity described in
paragraph 7.4(e) irrevocably commences to the Participant before the Required
Beginning Date, the date distribution is considered to begin is the date
distribution actually commences.
For purposes of paragraph 7.9 and this paragraph, if an amount is payable to
either a minor or an individual who has been declared incompetent, the benefits
shall be paid to the legally appointed guardian for the benefit of said minor
or incompetent individual, unless the court which appointed the guardian has
ordered otherwise.
7.11 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
(a) Notwithstanding any other provision of the Plan, Excess
Elective Deferrals plus any income and minus any loss
allocable thereto, shall be distributed no later than April
15, 1988, and each April 15 thereafter, to Participants to
whose accounts Excess Elective Deferrals were allocated for
the preceding taxable year, and who claim Excess Elective
Deferrals for such taxable year. Excess Elective Deferrals
shall be treated as Annual Additions under the Plan, unless
such amounts are distributed no later than the first April
15th following the close of the Participant's taxable year.
A Participant is deemed to notify the Plan Administrator of
any Excess Elective Deferrals that arise by taking into
account only those Elective Deferrals made to this Plan and
any other plans of this Employer.
(b) Furthermore, a Participant who participates in another plan
allowing Elective Deferrals may assign to this Plan any
Excess Elective Deferrals made during a taxable year of the
Participant, by notifying the Plan Administrator of the
amount of the Excess Elective Deferrals to be assigned. The
Participant's claim shall be in writing; shall be submitted
to the Plan Administrator not later than March 1 of each
year; shall specify the amount of the Participant's Excess
Elective Deferrals for the preceding taxable year; and shall
be accompanied by the Participant's written statement that
if such amounts are not distributed, such Excess Elective
Deferrals, when added to amounts deferred under other plans
or arrangements described in Code Sections 401(k), 408(k)
[Simplified Employee Pensions], or 403(b) [annuity programs
for public schools and charitable organizations] will exceed
the $7,000 limit as adjusted under Code Section 415(d)
imposed on the Participant by Code Section 402(g) for the
year in which the deferral occurred.
(c) Excess Elective Deferrals shall be adjusted for any income
or loss up to the end of the taxable year, during which such
excess was deferred. Income or loss will be calculated
under the method used to calculate investment earnings and
losses elsewhere in the Plan.
43
<PAGE> 76
(d) If the Participant receives a return o f his or her Elective
Deferrals, the amount of such contributions which are
returned must be brought into the Employee's taxable income.
7.12 DISTRIBUTIONS OF EXCESS CONTRIBUTIONS
(a) Notwithstanding any other provision of this Plan, Excess
Contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of
each Plan Year to Participants to whose accounts such Excess
Contributions were allocated for the preceding Plan Year. if
such excess amounts are distributed more than 2-1/2 months
after the last day of the Plan Year in which such excess
amounts arose, a ten (10) percent excise tax will be imposed
on the Employer maintaining the Plan with respect to such
amounts. Such distributions shall be made to Highly
Compensated Employees on the basis of the respective
portions of the Excess Contributions attributable to each of
such Employees. Excess Contributions of Participants who
are subject to the Family Member aggregation rules of Code
Section 414(q)(6) shall be allocated among the Family
Members in proportion to the Elective Deferrals (and amounts
treated as Elective Deferrals) of each Family Member that is
combined to determine the Average Deferral Percentage.
(b) Excess Contributions (including the amounts recharacterized)
shall be treated as Annual Additions under the Plan.
(c) Excess Contributions shall be adjusted for any income or
loss up to the end of the Plan Year. Income or loss will be
calculated under the method used to calculate investment
earnings and losses elsewhere in the Plan.
(d) Excess Contributions shall be' distributed from the
Participant's Elective Deferral account and Qualified
Matching Contribution account (if applicable) in proportion
to the Participant's Elective Deferrals and Qualified
Matching Contributions (to the extent used in the ADP test)
for the Plan Year. Excess Contributions shall be
distributed from the Participant's Qualified Non-Elective
Contribution account only to the extent that such Excess
Contributions exceed the balance in the Participant's
Elective Deferral account and Qualified Matching
Contribution account.
7.13 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
(a) Notwithstanding any other provision of this Plan, Excess
Aggregate Contributions, plus any income and minus any loss
allocable thereto, shall be forfeited, if forfeitable, or if
not forfeitable, distributed no later than the last day of
each Plan Year to Participants to whose accounts such Excess
Aggregate Contributions were allocated for the preceding
Plan Year. Excess Aggregate Contributions shall be
allocated to Participants who are subject to the Family
Member aggregation rules of Code Section 414(q)(6) in the
manner prescribed by the regulations.
44
<PAGE> 77
If such Excess Aggregate Contributions are distributed
more than 2-1/2 months after the last day of the Plan Year
in which such excess amounts arose, a ten (10) percent
excise tax will be imposed on the Employer maintaining the
Plan with respect to those amounts. Excess Aggregate
Contributions shall be treated as Annual Additions under the
plan.
(b) Excess Aggregate Contributions shall be adjusted for any
income or loss up to the end of the Plan Year. The income
or loss allocable to Excess Aggregate Contributions is the
sum of income or loss for the Plan Year allocable to the
Participant's Voluntary Contribution account. Matching
Contribution account (if any, and if all amounts therein are
not used in the ADP test) and, if applicable, Qualified
Non-Elective Contribution account and Elective Deferral
account. Income or loss will be calculated under the method
used to calculate investment earnings and losses elsewhere
in the Plan.
(c) Forfeitures of Excess Aggregate Contributions may either be
reallocated to the accounts of non-Highly Compensated
Employees or applied to reduce Employer contributions, as
elected by the employer in the Adoption Agreement.
(d) Excess Aggregate Contributions shall be forfeited if such
amount is not vested. If vested, such excess shall be
distributed on a pro-rata basis from the Participant's
Voluntary Contribution account (and, if applicable, the
Participant's Qualified Non-Elective Contribution account,
Matching Contribution account, Qualified Matching
Contribution account, or Elective Deferral account, or
both).
45
<PAGE> 78
ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 APPLICABILITY OF PROVISIONS The provisions of this Article shall
apply to any Participant who is credited with at least one Hour of Service with
the Employer on or after August 23, 1984 and such other Participants as
provided in paragraph 8.8.
8.2 PAYMENT OF QUALIFIED JOINT AND SURVIVOR ANNUITY Unless an optional
form of benefit is selected pursuant to a Qualified Election within the 90-day
period ending on the Annuity Starting Date, a married Participant's Vested
Account Balance will be paid in the form of a Qualified Joint and Survivor
Annuity and an unmarried Participant's Vested Account Balance will be paid in
the form of a life annuity. The Participant may elect to have such annuity
distributed upon attainment of the Early Retirement Age under the Plan.
8.3 PAYMENT OF QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY Unless an
optional form of benefit has been selected within the Election Period pursuant
to a Qualified Election, if a Participant dies before benefits have commenced
then the Participant's Vested Account Balance shall be paid in the form of an
annuity for the life of the Surviving Spouse. The Surviving Spouse may elect
to have such annuity distributed within a reasonable period after the
Participant's death.
A Participant who does not meet the age 35 requirement set forth in the
Election Period as of the end of any current Plan Year may make a special
qualified election to waive the qualified Pre-retirement Survivor Annuity for
the period beginning on the date of such election and ending on the first day
of the Plan Year in which the Participant will attain age 35. Such election
shall not be valid unless the Participant receives a written explanation of the
Qualified Pre-retirement Survivor Annuity in such terms as are comparable to
the explanation required under paragraph 8.5. Qualified Pre-retirement Survivor
Annuity coverage will be automatically reinstated as of the first day of the
Plan Year in which the Participant attains age 35. Any new waiver on or after
such date shall be subject to the full requirements of this Article.
8.4 QUALIFIED ELECTION A Qualified Election is an election to either
waive a Qualified Joint and Survivor Annuity or a qualified pre-retirement
survivor annuity. Any such election shall not be effective unless:
(a) the Participant's Spouse consents in writing to the
election;
(b) the election designates a specific beneficiary, including
any class of beneficiaries or any contingent beneficiaries,
which may not be changed without spousal consent (or the
Spouse expressly permits designations by the Participant
without any further spousal consent);
(c) the Spouse's consent acknowledges the effect of the
election; and
(d) the Spouse's consent is witnessed by a Plan representative
or notary public.
46
<PAGE> 79
Additionally, a Participant's waiver of the Qualified Joint and Survivor
Annuity shall not be effective unless the election designates a form of benefit
payment which may not be changed without spousal consent (or the Spouse
expressly permits designations by the Participant without any further spousal
consent). If it is established to the satisfaction of the Plan Administrator
that there is no Spouse or that the Spouse cannot be located, a waiver will be
deemed a Qualified Election. Any consent by a Spouse obtained under this
provision (or establishment that the consent of a Spouse may not be obtained)
shall be effective only with respect to such Spouse. A consent that permits
designations by the Participant without any requirement of further consent by
such Spouse must acknowledge that the Spouse has the right to limit consent to
a specific beneficiary, and a specific form of benefit where applicable, and
that the Spouse voluntarily elects to relinquish either or both of such rights.
A re vocation of a prior waiver may be made by a Participant without the
consent of the Spouse at any time before the commencement of benefits. The
number of revocations shall not be limited. No consent obtained under this
provision shall be valid unless the Participant has received notice as provided
in paragraphs 8.5 and 8.6 below.
8.5 NOTICE REQUIREMENTS FOR QUALIFIED JOINT AND SURVIVOR ANNUITY In the
case of a Qualified Joint and Survivor Annuity, the Plan Administrator shall,
no less than 30 days and no more than 90 days prior to the Annuity Starting
date, provide each participant a written explanation of:
(a) the terms and conditions of a Qualified Joint and Survivor
Annuity;
(b) the Participant's right to make and the effect of an
election to waive the Qualified Joint and Survivor Annuity
form of benefit;
(c) the rights of a Participant's Spouse; and
(d) the right to make, and the effect of, a revocation of a
previous election to waive the Qualified Joint and Survivor
Annuity.
8.6 NOTICE REQUIREMENTS FOR QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY
In the case of a qualified pre-retirement survivor annuity as described in
paragraph 8.3, the Plan Administrator shall provide each Participant within the
applicable period for such Participant a written explanation of the qualified
pre-retirement survivor annuity in such terms and in such manner as would be
comparable to the explanation provided for meeting the requirements of
paragraph 8.5 applicable to a Qualified Joint and Survivor Annuity. The
applicable period for a Participant is whichever of the following periods ends
last:
(a) the period beginning with the first day of the Plan Year in
which the Participant attains age 32 and ending with the
close of the Plan Year preceding the Plan Year in which the
Participant attains age 35;
(b) a reasonable period ending after the individual becomes a
Participant;
(c) a reasonable period ending after this Article first applies
to the Participant. Notwithstanding the foregoing, notice
must be provided within a reasonable period ending after
separation from Service in the case of a Participant who
separates from Service before attaining age 35.
47
<PAGE> 80
For purposes of applying the preceding paragraph, a reasonable period ending
after the events described in (b) and (c) is the end of the two-year period
beginning one year prior to the date the applicable event occurs, and ending
one-year after that date. In the case of a Participant who separates from
Service before the Plan Year in which age 35 is attained, notice shall be
provided within the two-year period beginning one year prior to separation and
ending one year after separation. If such a Participant subsequently returns
to employment with the Employer, the applicable period for such Participant
shall be re-determined.
8.7 SPECIAL SAFE HARBOR EXCEPTION FOR CERTAIN PROFIT SHARING PLANS
(a) This paragraph shall apply to a Participant in a
profit-sharing plan, and to any distribution, made on or
after the first day of the first plan year beginning after
1988, from or under a separate account attributable solely
to Qualified Voluntary contributions, as maintained on
behalf of a Participant in a money purchase pension plan,
(including a target benefit plan) if the following
conditions are satisfied:
(1) the Participant does not or cannot elect payments in
the form of a life annuity; and
(2) on the death of a Participant, the Participant's
Vested Account Balance will be paid to the
Participant's Surviving Spouse, but if there is no
Surviving Spouse, or if the Surviving Spouse has
consented in a manner conforming to a Qualified
Election, then to the Participant's Designated
Beneficiary.
The Surviving Spouse may elect to have distribution of the
Vested Account Balance commence within the 90-day period
following the date of the Participant's death. The account
balance shall be adjusted for gains or losses occurring
after the Participant's death in accordance with the
provisions of the Plan governing the adjustment of account
balances for other types of distributions. These
safe-harbor rules shall not be operative with respect to a
Participant in a profit-sharing plan if that plan is a
direct or indirect transferee of a Defined Benefit Plan,
money purchase plan, a target benefit plan, stock bonus
plan, or profit-sharing plan which is subject to the
survivor annuity requirements of Code Section 401(a)(11) and
Code Section 417, and would therefore have a Qualified Joint
and Survivor Annuity as its normal form of benefit.
(b) The Participant may waive the spousal death benefit
described in this paragraph at any time provided that no
such waiver shall be effective unless it satisfies the
conditions (described in paragraph 8.4) that would apply to
the Participant's waiver of the Qualified Pre-Retirement
Survivor Annuity.
(c) If this paragraph 8.7 is operative, then all other
provisions of this Article other than paragraph 8.8 are
inoperative.
48
<PAGE> 81
8.8 TRANSITIONAL JOINT AND SURVIVOR ANNUITY RULES Special transition
rules apply to Participants who were not receiving benefits on August 23. 1984.
(a) Any living Participant not receiving benefits on August 23,
1984, who would otherwise not receive the benefits
prescribed by the previous paragraphs of this Article, must
be given the opportunity to elect to have the prior
paragraphs of this Article apply if such Participant is
credited with at least one Hour of Service under this Plan
or a predecessor Plan in a Plan Year beginning on or after
January 1, 1976 and such Participant had at least 10 Years
of Service for vesting purposes when he or she separated
from Service.
(b) Any living Participant not receiving benefits on August 23,
1984, who was credited with at least one Hour of Service
under this Plan or a predecessor Plan on or after September
2, 1974, and who is not otherwise credited with any Service
in a Plan Year beginning on or after January 1, 1976, must
be given the opportunity to have his or her benefits paid in
accordance with paragraph 8.9.
(c) The respective opportunities to elect [as described in (a)
and (b) above] must be afforded to the appropriate
Participants during the period commencing on August 23, 1984
and ending on the date benefits would otherwise commence to
said Participants.
8.9 AUTOMATIC JOINT AND SURVIVOR ANNUITY AND EARLY SURVIVOR ANNUITY Any
Participant who has elected pursuant to paragraph 8.8(b) and any Participant
who does not elect under paragraph 8.8(a) or who meets the requirements of
paragraph 8.8(a), except that such Participant does not have at least 10 years
of vesting Service when he or she separates from Service, shall have his or her
benefits distributed in accordance with all of the following requirements if
benefits would have been payable in the form of a life annuity.
(a) Automatic Joint and Survivor Annuity. If benefits in the
form of a life annuity become payable to a married
Participant who:
(1) begins to receive payments under the Plan on or after
Normal Retirement Age, or
(2) dies on or after Normal Retirement Age while still
working for the Employer, or
(3) begins to receive payments on or after the Qualified
Early Retirement Age, or
(4) separates from Service on or after attaining Normal
Retirement (or the Qualified Early Retirement Age)
and after satisfying the eligibility requirements for
the payment of benefits under the Plan and thereafter
dies before beginning to receive such benefits, then
such benefits will be received under this
49
<PAGE> 82
Plan in the form of a Qualified Joint and Survivor
Annuity, unless the Participant has elected otherwise
during the Election Period. The Election Period must
begin at least 6 months before the Participant
attains Qualified Early Retirement Age and end not
more than 90 days before the commencement of
benefits. Any election will be in writing and may be
changed by the Participant at any time.
(b) Election of Early Survivor Annuity. A participant who is
employed after attaining the Qualified Early Retirement Age
will be given the opportunity to elect, during the Election
Period, to have a survivor annuity payable on death. If the
Participant elects the survivor annuity, payments under such
annuity must not be less than the payments which would have
been made to the Spouse under the Qualified Joint and
Survivor Annuity if the Participant had retired on the day
before his or her death. Any election under this provision
will be in writing and may be changed by the Participant at
any time. The Election Period begins on the later of:
(1) the 90th day before the Participant attains the
Qualified Early Retirement Age, or
(2) the date on which participation begins, and ends on
the date the Participant terminates employment.
8.10 ANNUITY CONTRACTS Any annuity contract distributed under this Plan
must be nontransferable. The terms of any annuity contract purchased and
distributed by the Plan to a Participant or Spouse shall comply with the
requirements of this Plan.
50
<PAGE> 83
ARTICLE IX
VESTING
9.1 EMPLOYEE CONTRIBUTIONS A Participant shall always have a 100%
vested and nonforfeitable interest in his or her Elective Deferrals, Voluntary
Contributions, Qualified Voluntary Contributions, Rollover Contributions, and
Transfer Contributions plus the earnings thereon. No forfeiture of Employer
related contributions (including any minimum contributions made under paragraph
14.2) will occur solely as a result of an Employee's withdrawal of any Employee
contributions.
9.2 EMPLOYER CONTRIBUTIONS A Participant shall acquire a vested and
nonforfeitable interest in his or her account attributable to Employer
contributions in accordance with the table selected in the Adoption Agreement,
provided that if a Participant is not already fully vested, he or she shall
become so upon attaining Normal Retirement Age, Early Retirement Age, on death
prior to normal retirement, on retirement due to Disability, or on termination
of the Plan.
9.3 COMPUTATION PERIOD The computation period for purposes of
determining Years of Service and Breaks in Service for purposes of computing a
Participant's nonforfeitable right to his or her account balance derived from
Employer contributions shall be determined by the Employer in the Adoption
Agreement. In the event a former Participant with no vested interest in his or
her Employer contribution account requalifies for participation in the Plan
after incurring a Break in Service, such Participant shall be credited for
vesting with all pre-break and post-break Service.
9.4 REQUALIFICATION PRIOR TO FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE
The account balance of such Participant shall consist of any undistributed
amount in his or her account as of the date of re-employment plus any future
contributions added to such account plus the investment earnings on the
account. The Vested Account Balance of such Participant shall be determined by
multiplying the Participant's account balance (adjusted to include any
distribution or redeposit made under paragraph 6.3) by such Participant's
vested percentage. All Service of the Participant, both prior to and following
the break, shall be counted when computing the Participant's vested percentage.
9.5 REQUALIFICATION AFTER FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE
If such Participant is not fully vested upon re-employment, a new account shall
be established for such Participant to separate his or her deferred vested and
nonforfeitable account, if any, from the account to which new allocations will
be made. The Participant's deferred account to the extent remaining shall be
fully vested and shall continue to share in earnings and losses of the Fund.
When computing the Participant's vested portion of the new account, all
pre-break and post-break Service shall be counted. However, notwithstanding
this provision, no such former Participant who has had five consecutive
one-year Breaks in Service shall acquire a larger vested and nonforfeitable
interest in his or her prior account balance as a result of requalification
hereunder.
9.6 CALCULATING VESTED INTEREST A Participant's vested and
nonforfeitable interest shall be calculated by multiplying the fair market
value of his or her account attributable to Employer contributions on the
Valuation Date preceding distribution by the decimal equivalent of the vested
percentage as of his or her termination date. The amount attributable to
Employer contributions for purposes of the calculation includes amounts
previously paid out pursuant to paragraph 6.3 and
51
<PAGE> 84
not repaid. The Participant's vested and nonforfeitable interest, once
calculated above, shall be reduced to reflect those amounts previously paid out
to the Participant and not repaid by the Participant. The Participant's vested
and nonforfeitable interest so determined shall continue to share in the
investment earnings and any increase or decrease in the fair market value of
the Fund up to the Valuation Date preceding or coinciding with payment.
9.7 FORFEITURES Any balance in the account of a Participant who has
separated from Service to which he or she is not entitled under the foregoing
provisions, shall be forfeited and applied as provided in the Adoption
Agreement. A forfeiture may only occur if the Participant has received a
distribution from the Plan or if the Participant has incurred five consecutive
1-year Breaks in Service. Furthermore, a Highly Compensated Employee's Matching
Contributions may be forfeited, even if vested, if the contributions to which
they relate are Excess Deferrals, Excess Contributions or Excess Aggregate
Contributions.
9.8 AMENDMENT OF VESTING SCHEDULE No amendment to the Plan shall have
the effect of decreasing a Participant's vested interest determined without
regard to such amendment as of the later of the date such amendment is adopted
or the date it becomes effective. Further, if the vesting schedule of the Plan
is amended, or the Plan is amended in any way that directly or indirectly
affects the computation of any Participant's nonforfeitable percentage or if
the Plan is deemed amended by an automatic change to or from a Top-Heavy
vesting schedule, each Participant with at least three Years of Service with
the Employer may elect, within a reasonable period after the adoption of the
amendment, to have his or her nonforfeitable percentage computed under the Plan
without regard to such amendment. For Participants who do not have at least
one Hour of Service in any Plan Year beginning after 1988, the preceding
sentence shall be applied by substituting "Five Years of Service" for "Three
Years of Service" where such language appears. The period during which the
election may be made shall commence with the date the amendment is adopted and
shall end on the later of:
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of
the amendment by the Employer or the Trustee/Custodian. If
the Trustee/Custodian is asked to so notify, the Fund will
be charged for the costs thereof.
No amendment to the Plan shall be effective to the extent that it has the
effect of decreasing a Participant's accrued benefit. Notwithstanding the
preceding sentence, a Participant's account balance may be reduced to the
extent permitted under section 412(c)(8) of the Code (relating to financial
hardships). For purposes of this paragraph, a Plan amendment which has the
effect of decreasing a Participant's account balance or eliminating an optional
form of benefit, with respect to benefits attributable to service before the
amendment, shall be treated as reducing an accrued benefit.
9.9 SERVICE WITH CONTROLLED GROUPS All Years of Service with other
members of a controlled group of corporations [as defined in Code Section
414(b)], trades or businesses under common control [as defined in Code Section
414(c)], or members of an affiliated service group [as defined in Code Section
414(m)] shall be considered for purposes of determining a Participant's
nonforfeitable percentage.
52
<PAGE> 85
ARTICLE X
LIMITATIONS ON ALLOCATIONS
AND ANTIDISCRIMINATION TESTING
10.1 PARTICIPATION IN THIS PLAN ONLY If the Participant does not
participate in and has never participated in another qualified plan, a Welfare
Benefit Fund (as defined in paragraph 1.89) or an individual medical account,
as defined in Code Section 415(l)(2), maintained by the adopting Employer,
which provides an Annual Addition as defined in paragraph 1.4, the amount of
Annual Additions which may be credited to the Participant's account for any
Limitation Year will not exceed the lesser of the Maximum Permissible Amount or
any other limitation contained in this Plan. If the Employer contribution that
would otherwise be contributed or allocated to the Participant's account would
cause the Annual Additions for the Limitation Year to exceed the Maximum
Permissible Amount, the amount contributed or allocated will be reduced so that
the Annual Additions for the Limitation Year will equal the Maximum Permissible
Amount. Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount for
a Participant on the basis of a reasonable estimate of the Participant's
Compensation for the Limitation Year, uniformly determined for all Participants
similarly situation. As soon as is administratively feasible after the end of
the Limitation Year, the Maximum Permissible Amount for the Limitation Year
will be determined on the basis of the Participant's actual Compensation for
the Limitation Year.
10.2 DISPOSITION OF EXCESS ANNUAL Additions If, pursuant to paragraph
10.1 or as a result of the allocation of forfeitures, there is an Excess
Amount, the excess will be disposed of under one of the following methods as
determined in the Adoption Agreement. If no election is made in the Adoption
Agreement then method "(a)" below shall apply.
(a) Suspense Account Method
(1) Any nondeductible Employee Voluntary, Required
Voluntary Contributions and unmatched Elective
Deferrals to the extent they would reduce the Excess
Amount will be returned to the Participant. To the
extent necessary to reduce the Excess Amount,
non-Highly Compensated Employees will have all
Elective Deferrals returned whether or not there was
a corresponding match.
(2) If after the application of paragraph (1) an Excess
Amount still exists, and the Participant is covered
by the Plan at the end of the Limitation Year, the
Excess Amount in the Participant's account will be
used to reduce Employer contributions (including any
allocation of forfeitures) for such Participant in
the next Limitation Year, and each succeeding
Limitation Year if necessary.
(3) If after the application of paragraph (1) an Excess
Amount still exists, and the Participant is not
covered by the Plan at the end of the Limitation
Year, the Excess Amount will be held unallocated in a
suspense account. The suspense account will be
53
<PAGE> 86
applied to reduce future Employer contributions
(including allocation of any forfeitures ) for all
remaining Participants in the next Limitation Year
and each succeeding Limitation Year if necessary.
(4) If a suspense account is in existence at any time
during the Limitation Year pursuant to this
paragraph, it will not participate in the allocation
of investment gains and losses. If a suspense
account is in existence at any time during a
particular Limitation Year, all amounts in the
suspense account must be allocated and reallocated to
Participants' accounts before any Employer
contributions or any Employee Contributions may be
made to the Plan for that Limitation Year. Excess
amounts may not be distributed to Participants or
former Participants.
(b) Spillover Method
(1) Any nondeductible Employee Voluntary, Required
Voluntary Contributions and unmatched Elective
Deferrals to the extent they would reduce the Excess
Amount will be returned to the Participant. To the
extent necessary to reduce the Excess Amount,
non-Highly Compensated Employees will have all
Elective Deferrals returned whether or not there was
a corresponding match.
(2) Any Excess Amount which would be allocated to the
account of an individual Participant under the Plan's
allocation formula will be reallocated to other
Participants in the same manner as other Employer
contributions. No such reallocation shall be made to
the extent that it will result in an Excess Amount
being created in such Participant's own account.
(3) To the extent that amounts cannot be reallocated
under (1) above, the suspense account provisions of
(a) above will apply.
10.3 PARTICIPATION IN THIS PLAN AND ANOTHER MASTER AND PROTOTYPE DEFINED
CONTRIBUTION PLAN, WELFARE BENEFIT FUND OR INDIVIDUAL MEDICAL ACCOUNT
MAINTAINED BY THE EMPLOYER The Annual Additions which may be credited to a
Participant's account under this Plan for any Limitation Year will not exceed
the Maximum Permissible Amount reduced by the Annual Additions credited to a
Participant's account under the other Master or Prototype Defined Contribution
Plans, Welfare Benefit Funds, and individual medical accounts as defined in
Code Section 415(l)(2), maintained by the Employer, which provide an Annual
Addition as defined in paragraph 1.4 for the same Limitation Year. If the
Annual Additions, with respect to the Participant under other Defined
Contribution Plans and Welfare Benefit Funds maintained by the Employer, are
less than the Maximum Permissible Amount and the Employer contribution that
would otherwise be contributed or allocated to the Participant's account under
this Plan would cause the Annual Additions for the Limitation Year to exceed
this limitation, the amount contributed or allocated will be reduced so that
the Annual Additions under all such plans and funds for the Limitation Year
will equal the Maximum Permissible Amount. If the Annual
54
<PAGE> 87
Additions with respect to the Participant under such other Defined Contribution
Plans and Welfare Benefit Funds in the aggregate are equal to or greater than
the Maximum Permissible Amount no amount will be contributed or allocated to
the Participant's account under this Plan for the Limitation Year. Prior to
determining the Participant's actual Compensation for the Limitation Year, the
Employer may determine the Maximum Permissible Amount for a Participant in the
manner described in paragraph 10.1. As soon as administratively feasible after
the end of the Limitation Year, the Maximum Permissible Amount for the
Limitation Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
10.4 DISPOSITION OF EXCESS ANNUAL ADDITIONS UNDER TWO PLANS If, pursuant
to paragraph 10.3 or as a result of forfeitures, a Participant's Annual
Additions under this Plan and such other plans would result in an Excess Amount
for a Limitation Year, the Excess Amount will be deemed to consist of the
Annual Additions last allocated except that Annual Additions attributable to a
Welfare Benefit Fund or Individual Medical Account as defined in Code Section
415(l)(2) will be deemed to have been allocated first regardless of the actual
allocation date. If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date of another
plan, the Excess Amount attributed to this Plan will be the product of:
(a) the total Excess Amount allocated as of such date, times
(b) the ratio of:
(1) the Annual Additions allocated to the Participant for
the Limitation Year as of such date under the Plan,
to
(2) the total Annual Additions allocated to the
Participant for the Limitation Year as of such date
under this and all the other qualified Master or
Prototype Defined Contribution Plans.
Any Excess Amount attributed to this Plan will be disposed of in the manner
described in paragraph 10.2.
10.5 PARTICIPATION IN THIS PLAN AND ANOTHER DEFINED CONTRIBUTION PLAN
WHICH IS NOT A MASTER OR PROTOTYPE PLAN If the Participant is covered under
another qualified Defined Contribution Plan maintained by the Employer which is
not a Master or Prototype Plan. Annual Additions which may be credited to the
Participant's account under this Plan for any Limitation Year will be limited
in accordance with paragraphs 10.3 and 10.4 as though the other plan were a
Master or Prototype Plan, unless the Employer provides other limitations in the
Adoption Agreement.
10.6 PARTICIPATION IN THIS PLAN AND A DEFINED BENEFIT PLAN If the
Employer maintains, or at any time maintained, a qualified Defined Benefit Plan
covering any Participant in this Plan, the sum of the Participant's Defined
Benefit Plan Fraction and Defined Contribution Plan Fraction will not exceed
1.0 in any Limitation Year. For any Plan Year during which the Plan is
Top-Heavy, the Defined Benefit and Defined Contribution Plan Fractions shall be
calculated in accordance with Code Section 416(h). The Annual Additions which
may be credited to the Participant's account under this Plan for any Limitation
Year will be limited in accordance with the provisions set forth in the
Adoption Agreement.
55
<PAGE> 88
10.7 AVERAGE DEFERRAL PERCENTAGE (ADP) TEST With respect to any Plan
Year, the Average Deferral Percentage for Participants who are Highly
Compensated Employees and the Average Deferral Percentage for Participants who
are non-Highly Compensated Employees must satisfy one of the following tests:
(a) BASIC TEST - The Average Deferral Percentage for
Participants who are Highly Compensated Employees for the
Plan Year is not more than 1.25 times the Average Deferral
Percentage for Participants who are non-Highly Compensated
Employees for the same Plan Year, or
(b) ALTERNATIVE TEST - The Average Deferral Percentage for
Participants who are Highly Compensated Employees for the
Plan Year does not exceed the Average Deferral Percentage
for Participants who are non-Highly Compensated Employees
for the same Plan Year by more than 2 percentage points
provided that the Average Deferral Percentage for
Participants who are Highly Compensated Employees is not
more than 2.0 times the Average Deferral Percentage for
Participants who are non-Highly Compensated Employees.
10.8 SPECIAL, RULES RELATING TO APPLICATION OF ADP TEST
(a) The Actual Deferral Percentage for any Participant who is a
Highly Compensated Employee for the Plan Year and who is
eligible to have Elective Deferrals (and Qualified
Non-Elective Contributions or Qualified Matching
Contributions, or both, if treated as Elective Deferrals for
purposes of the ADP test) allocated to his or her accounts
under two or more arrangements described in Code Section
401(k), that are maintained by the Employer, shall be
determined as if such Elective Deferrals (and, if
applicable, such Qualified Non-Elective Contributions or
Qualified Matching Contributions, or both) were made under a
single arrangement. If a Highly Compensated Employee
participates in two or more cash or deferred arrangements
that have different Plan Years, all cash or deferred
arrangements ending with or within the same calendar year
shall be treated as a single arrangement.
(b) In the event that this Plan satisfies the requirements of
Code Sections 401(k), 401(a)(4), or 410(b), only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such Code Sections
only if aggregated with this Plan, then this Section shall
be applied by determining the Actual Deferral Percentage of
Employees as if all such plans were a single plan. For Plan
Years beginning after 1989, plans may be aggregated in order
to satisfy Code Section 401(k) only if they have the same
Plan Year.
56
<PAGE> 89
(c) For purposes of determining the Actual Deferral Percentage
of a Participant who is a 5-percent owner or one of the ten
most highly-paid Highly Compensated Employees, the Elective
Deferrals (and Qualified Non-Elective Contributions or
Qualified Matching Contributions, or both, if treated as
Elective Deferrals for purposes of the ADP test) and
Compensation of such Participant shall include the Elective
Deferrals (and, if applicable. Qualified Non-Elective
Contributions and Qualified Matching Contributions, or both)
for the Plan Year of Family Members as defined in paragraph
1.36 of this Plan. Family Members, with respect to such
Highly Compensated Employees, shall be disregarded as
separate Employees in determining the ADP both for
Participants who are non-Highly Compensated Employees and
for Participants who are Highly Compensated Employees. In
the event of repeal of the family aggregation rules under
Code Section 414(q)(6), all applications of such rules under
this Plan will cease as of the effective date of such
repeal.
(d) For purposes of determining . the ADP test, Elective
Deferrals, Qualified Non-Elective Contributions and
Qualified Matching Contributions must be made before the
last day of the twelve-month period immediately following
the Plan Year to which contributions relate.
(e) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ADP test and the amount of
Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, used in such test.
(f) The determination and treatment of the Actual Deferral
Percentage amounts of any Participant shall satisfy such
other requirements as may be prescribed by the Secretary of
the Treasury.
10.9 RECHARACTERIZATION If the Employer allows for Voluntary
Contributions in the Adoption Agreement, a Participant may treat his or her
Excess Contributions as an amount distributed to the Participant and then
contributed by the Participant to the Plan. Recharacterized amounts will
remain nonforfeitable and subject to the same distribution requirements as
Elective Deferrals. Amounts may not be recharacterized by a Highly Compensated
Employee to the extent that such amount in combination with other Employee
Contributions made by that Employee would exceed any stated limit under the
Plan on Voluntary Contributions. Recharacterization must occur no later than
two and one-half months after the last day of the Plan Year in which such
Excess Contributions arose and is deemed to occur no earlier than the date the
last Highly Compensated Employee is informed in writing of the amount
recharacterized and the consequences thereof. Recharacterized amounts will be
taxable to the Participant for the Participant's tax year in which the
Participant would have received them in cash.
57
<PAGE> 90
10.10 AVERAGE CONTRIBUTION PERCENTAGE (ACP) TEST If the Employer makes
Matching Contributions or if the Plan allows Employees to make Voluntary
Contributions the Plan must meet additional nondiscrimination requirements
provided under Code Section 401(m). If Employee Contributions (including any
Elective Deferrals recharacterized as Voluntary Contributions) are made
pursuant to this Plan. then in addition to the ADP test referenced in
paragraph 10.7, the Average Contribution Percentage test is also applicable.
The Average Contribution Percentage for Participants who are Highly Compensated
Employees for each Plan Year and the Average Contribution Percentage for
Participants who are Non-Highly Compensated Employees for the same Plan Year
must satisfy one of the following tests:
(a) BASIC TEST - The Average Contribution Percentage for
Participants who are Highly Compensated Employees for the
Plan Year shall not exceed the Average Contribution
Percentage for Participants who are non-Highly Compensated
Employees for the same Plan Year multiplied by 1.25; or
(b) ALTERNATIVE TEST - The ACP for Participants who are Highly
Compensated Employees for the Plan Year shall not exceed the
Average Contribution Percentage for Participants who are
non-Highly Compensated Employees for the same Plan Year
multiplied by two (2), provided that the Average
Contribution Percentage for Participants who are Highly
Compensated Employees does not exceed the Average
Contribution Percentage for Participants who are non-Highly
Compensated Employees by more than two (2) percentage
points.
10.11 SPECIAL RULES RELATING TO APPLICATION OF ACP TEST
(a) If one or more Highly Compensated Employees participate in
both a cash or deferred arrangement and a plan subject to
the ACP test maintained by the Employer and the sum of the
ADP and ACP of those Highly Compensated Employees subject to
either or both tests exceeds the Aggregate Limit, then the
ADP or ACP of those Highly Compensated Employees who also
participate in a cash or deferred arrangement will be
reduced (beginning with such Highly Compensated Employee
whose ADP or ACP is the highest) as set forth in the
Adoption Agreement so that the limit is not exceeded. The
amount by which each Highly Compensated Employee's
Contribution Percentage Amounts is reduced shall be treated
as an Excess Aggregate Contribution. The ADP and ACP of the
Highly Compensated Employees are determined after any
corrections required to meet the ADP and ACP tests.
Multiple use does not occur if both the ADP and ACP of the
Highly Compensated Employees does not exceed 1.25 multiplied
by the ADP and ACP of the non-Highly Compensated Employees.
58
<PAGE> 91
(b) For purposes of this Article, the Contribution Percentage
for any Participant who is a Highly Compensated Employee and
who is eligible to have Contribution Percentage Amounts
allocated to his or her account under two or more plans
described in Code Section 401(a), or arrangements described
in Code Section 401(k) that are maintained by the Employer,
shall be determined as if the total of such Contribution
Percentage Amounts was made under each Plan. If a Highly
Compensated Employee participates in two or more cash or
deferred arrangements that have different plan years. all
cash or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement.
(c) In the event that this Plan satisfies the requirements of
Code Sections 401(a)(4), 401(m), or 410(b) only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such Code Sections
only if aggregated with this Plan, then this Section shall
be applied by determining the Contribution Percentage of
Employees as if all such . plans were a single plan. For
plan years beginning after 1989, plans may be aggregated in
order to satisfy Code Section 401(m) only if the aggregated
plans have the same Plan Year.
(d) For purposes of determining the Contribution percentage of a
Participant who is a five-percent owner or one of the ten
most highly-paid. Highly Compensated Employees, the
Contribution Percentage Amounts and Compensation of such
Participant shall include the Contribution Percentage
Amounts and Compensation for the Plan Year of Family Members
as defined in Paragraph 1.36 of this Plan. Family Members,
with respect to Highly Compensated Employees, shall be
disregarded as separate Employees in determining the
Contribution Percentage both for Participants who are
non-Highly Compensated Employees and for Participants who
are Highly Compensated Employees. In the event of repeal of
the family aggregation rules under Code Section 414(q)(6),
all applications of such rules under this Plan will cease as
of the effective date of such repeal.
(e) For purposes of determining the Contribution Percentage
test, Employee Contributions are considered to have been
made in the Plan Year in which contributed to the trust.
Matching Contributions and Qualified Non-Elective
Contributions will be considered made for a Plan Year if
made no later than the end of the twelve-month period
beginning on the day after the close of the Plan Year.
(f) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ACP test and the amount of
Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, used in such test.
59
<PAGE> 92
(g) The determination and treatment of the Contribution
Percentage of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of the
Treasury.
(h) Qualified Matching Contributions and Qualified Non-Elective
Contributions used to satisfy the ADP test may not be used
to satisfy the ACP test.
60
<PAGE> 93
ARTICLE XI
ADMINISTRATION
11.1 PLAN ADMINISTRATOR The Employer shall be the named fiduciary and
Plan Administrator. These duties shall include:
(a) appointing the Plan's attorney, accountant, actuary, or any
other party needed to administer the Plan,
(b) directing the Trustee/Custodian with respect to payments
from the Fund,
(c) communicating with Employees regarding their participation
and benefits under the Plan, including the administration of
all claims procedures,
(d) filing any returns and reports with the Internal Revenue
Service, Department of Labor, or any other governmental
agency,
(e) reviewing and approving any financial reports, investment
reviews, or other reports prepared by any party appointed by
the Employer under paragraph (a),
(f) establishing a funding policy and investment objectives
consistent with the purposes of the Plan and the Employee
Retirement Income Security Act of 1974, and
(g) construing and resolving any question of Plan
interpretation. The Plan Administrator's interpretation of
Plan provisions including eligibility and benefits under the
Plan is final, and unless it can be shown to be arbitrary
and capricious will not be subject to "de novo" review.
11.2 TRUSTEE/CUSTODIAN The Trustee/Custodian shall be responsible for
the administration of investments held in the Fund. These duties shall
include:
(a) receiving contributions under the terms of the Plan,
(b) making distributions from the Fund in accordance with
written instructions received from an authorized
representative of the Employer,
(c) keeping accurate records reflecting its administration of
the Fund and making such records available to the Employer
for review and audit. Within 90 days after each Plan Year,
and within 90 days after its removal or resignation, the
Trustee/Custodian shall file with the Employer an accounting
of its administration of the Fund during such year or from
the end of the preceding Plan Year to the date of removal or
resignation. Such accounting shall include a statement of
cash receipts and disbursements since the date of its last
accounting and shall contain an asset list showing the fair
market value of investments held in the Fund as of the end
of the Plan Year. The value of marketable investments shall
be determined using the most recent price quoted on a na-
61
<PAGE> 94
tional securities exchange or over the counter market. The
value of non-marketable investments shall be determined in
the sole judgement of the Trustee/Custodian which
determination shall be binding and conclusive. The value of
investments in securities or obligations of the Employer in
which there is no market shall be determined in the sole
judgement of the Employer and the Trustee/Custodian shall
have no responsibility with respect to the valuation of such
assets. The Employer shall review the Trustee/Custodian's
accounting and notify the Trustee/Custodian in the event of
its disapproval of the report within 90 days, providing the
Trustee/Custodian with a written description of the items in
question. The Trustee/Custodian shall have 60 days to
provide the Employer with a written explanation of the items
in question. If the Employer again disapproves, the
Trustee/Custodian shall file its accounting in a court of
competent jurisdiction for audit and adjudication, and
(d) employing such agents, attorneys or other professionals as
the Trustee may deem necessary or advisable in the
performance of its duties.
The Trustee's/Custodian's duties shall be limited to those described above.
The Employer shall be responsible for any other administrative duties required
under the Plan or by applicable law.
11.3 ADMINISTRATIVE FEES AND EXPENSES All reasonable costs, charges and
expenses incurred by the Trustee/Custodian in connection with the
administration of the Fund and all reasonable costs, charges and expenses
incurred by the Plan Administrator in connection with the administration of the
Plan (including fees for legal services rendered to the Trustee/Custodian or
Plan Administrator) may be paid by the Employer, but if not paid by the
Employer when due, shall be paid from the Fund. Such reasonable compensation to
the Trustee/Custodian as may be agreed upon from time to time between the
Employer and the Trustee/Custodian and such reasonable compensation to the Plan
Administrator as may be agreed upon from time to time between the Employer and
Plan Administrator may be paid by the Employer, but if not paid by the Employer
when due shall be paid by the Fund. The Trustee shall have the right to
liquidate trust assets to cover its fees. Notwithstanding the foregoing, no
compensation other than reimbursement for expenses shall be paid to a Plan
Administrator who is the Employer or a full-time Employee of the Employer. In
the event any part of the Trust/Custodial Account becomes subject to tax, all
taxes incurred will be paid from the Fund unless the Plan Administrator advises
the Trustee/Custodian not to pay such tax.
11.4 DIVISION OF DUTIES AND INDEMNIFICATION
(a) The Trustee/Custodian shall have the authority and
discretion to manage and govern the Fund to the extent
provided in this instrument, but does not guarantee the Fund
in any manner against investment loss or depreciation in
asset value, or guarantee the adequacy of the Fund to meet
and discharge all or any liabilities of the Plan.
(b) The Trustee/Custodian shall not be liable for the making,
retention or sale of any investment or reinvestment made by
it, as herein provided, or for any loss to, or diminution of
the Fund, or for any other loss or damage which may result
from the discharge of its duties hereunder except to the
extent it is
62
<PAGE> 95
judicially determined that the Trustee/Custodian has failed
to exercise the care. skill. prudence and diligence under
the circumstances then prevailing that a prudent person
acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like
character with like aims.
(c) The Employer warrants that at all directions issued to the
Trustee/Custodian by it or the Plan Administrator will be in
accordance with the terms of the Plan and not contrary to
the provisions of the Employee Retirement Income Security
Act of 1974 and regulations issued thereunder.
(d) The Trustee/Custodian shall not be answerable for any action
taken pursuant to any direction, consent, certificate, or
other paper or document on the belief that the same is
genuine and signed by the proper person. All directions by
the Employer, Participant or the Plan Administrator shall be
in writing. The Employer shall deliver to the
Trustee/Custodian certificates evidencing the individual or
individuals authorized to act as set forth in the Adoption
Agreement or as the Employer may subsequently inform the
Trustee/Custodian in writing and shall deliver to the
Trustee/Custodian specimens of their signatures.
(e) The duties and obligations of the Trustee/Custodian shall be
limited to those expressly imposed upon it by this
instrument or subsequently agreed upon by the parties.
Responsibility for administrative duties required under the
Plan or applicable law not expressly imposed upon or agreed
to by the Trustee/Custodian, shall rest solely with the
Employer.
(f) The Trustee shall be indemnified and saved harmless by the
Employer from and against any and all liability to which the
Trustee/Custodian may be subjected, including all expenses
reasonably incurred in its defense, for any action or
failure to act resulting from compliance with the
instructions of the Employer, the employees or agents of the
Employer, the Plan Administrator, or any other fiduciary to
the Plan. and for any liability arising from the actions or
non-actions of any predecessor Trustee/Custodian or
fiduciary or other fiduciaries of the Plan.
(g) The Trustee/Custodian shall not be responsible in any way
for the application of any payments it is directed to make
or for the adequacy of the Fund to meet and discharge any
and all liabilities under the Plan.
63
<PAGE> 96
ARTICLE XII
TRUST FUND/CUSTODIAL ACCOUNT
12.1 THE FUND The Fund shall consist of all contributions made under
Article III and Article IV of the Plan and the investment thereof and earnings
thereon. All contributions and the earnings thereon less payments made under
the terms of the Plan, shall constitute the Fund. The Fund shall be
administered as provided in this document.
12.2 CONTROL OF PLAN ASSETS The assets of the Fund or evidence of
ownership shall be held by the Trustee/Custodian under the terms of the Plan
and Trust/Custodial Account. If the assets represent amounts transferred from
another trustee/custodian under a former plan, the Trustee/Custodian named
hereunder shall not be responsible for the propriety of any investment under
the former plan.
12.3 EXCLUSIVE BENEFIT RULES No part of the Fund shall be used for, or
diverted to, purposes Other than for the exclusive benefit of Participants,
former Participants with a vested interest. and the beneficiary or
beneficiaries of deceased Participants having a vested interest in the Fund at
death.
12.4 ASSIGNMENT AND ALIENATION OF BENEFITS No right or claim to, or
interest in, any part of the Fund, or any payment from the Fund, shall be
assignable, transferable, or subject to sale, mortgage, pledge, hypothecation,
commutation, anticipation, garnishment, attachment, execution, or levy of any
kind. The Trustee/Custodian shall not recognize any attempt to assign,
transfer, sell, mortgage, pledge, hypothecate, commute, or anticipate the same,
except to the extent required by law. The preceding sentences shall also apply
to the creation, assignment, or recognition of a right to any benefit payable
with respect to a Participant pursuant to a domestic relations order, unless
such order is determined to be a qualified domestic relations order, as defined
in Code Section 414(p), or any domestic relations order entered before January
1, 1985 which the Plan attorney and Plan Administrator deem to be qualified.
12.5 DETERMINATION OF QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) A
Domestic Relations Order shall specifically state all of the following in order
to be deemed a Qualified Domestic Relations Order ("QDRO"):
(a) The name and last known mailing address (if any) of the
Participant and of each alternate payee covered by the QDRO.
However, if the QDRO does not specify the current mailing
address of the alternate payee, but the Plan Administrator
has independent knowledge of that address, the QDRO will
still be valid.
(b) The dollar amount or percentage of the Participant's benefit
to be paid by the Plan to each alternate payee, or the
manner in which the amount or percentage will be determined.
(c) The number of payments or period for which the order
applies.
(d) The specific plan (by name) to which the Domestic Relations
Order applies.
64
<PAGE> 97
The Domestic Relations Order shall not be deemed a QDRO if it requires the Plan
to provide:
(e) any type or form of benefit, or any option not already
provided for in the Plan;
(f) increased benefits, or benefits in excess of the
Participant's vested rights;
(g) payment of a benefit earlier than allowed by the Plan's
earliest retirement provisions or in the case of a
profit-sharing plan, prior to the allowability of in-service
withdrawals, or
(h) payment of benefits to an alternate payee which are required
to be paid to another alternate payee under another QDRO.
Promptly, upon receipt of a Domestic Relations Order ("Order") which may or may
not be "Qualified", the Plan Administrator shall notify the Participant and any
alternate payee(s) named in the Order of such receipt, and include a copy of
this paragraph 12.5. The Plan Administrator shall then forward the Order to
the Plan's legal counsel for an opinion as to whether or not the Order is in
fact "Qualified" as defined in Code Section 414(p). Within a reasonable time
after receipt of the Order, not to exceed 60 days, the Plan's legal counsel
shall make a determination as to its "Qualified" status and the Participant and
any alternate payee(s) shall be promptly notified in writing of the
determination.
If the "Qualified" status of the Order is in question, there will be a delay in
any payout to any payee including the Participant, until the status is
resolved. In such event, the Plan Administrator shall segregate the amount
that would have been payable to the alternate payee(s) if the Order had been
deemed a QDRO. If the Order is not Qualified, or the status is not resolved
(for example, it has been sent back to the Court for clarification or
modification) within 18 months beginning with the date the first payment would
have to be made under the Order, the Plan Administrator shall pay the
segregated amounts plus interest to the person(s) who would have been entitled
to the benefits had there been no Order. If a determination as to the
Qualified status of the Order is made after the 18-month period described
above, then the Order shall only be applied on a prospective basis. If the
Order is determined to be a QDRO, the Participant and alternate payee(s) shall
again be notified promptly after such determination. Once an Order is deemed a
QDRO, the Plan Administrator shall pay to the alternate payee(s) all the
amounts due under the QDRO, including segregated amounts plus interest which
may have accrued during a dispute as to the Order's qualification.
Unless specified otherwise in the Adoption Agreement, the earliest retirement
age with regard to the Participant against whom the order is entered shall be
the date the order is determined to be qualified. This will only allow payouts
to alternate payee(s) and not the Participant.
65
<PAGE> 98
ARTICLE XIII
INVESTMENTS
13.1 FIDUCIARY STANDARDS The Trustee/Custodian shall invest and reinvest
principal and income in the same Fund in accordance with the investment
objectives established by the Employer, provided that:
(a) such investments are prudent under the Employee Retirement
Income Security Act of 1974 and the regulations thereunder,
(b) such investments are sufficiently diversified or otherwise
insured or guaranteed to minimize the risk of large losses,
and
(c) such investments are similar to those which would be
purchased by another professional money manager for a like
plan with similar investment objectives.
13.2 FUNDING ARRANGEMENT The Employer shall. in the Adoption Agreement,
appoint the Sponsor to serve as either Trustee or Custodian of the Fund. If
the Sponsor is appointed Trustee, the Fund shall be invested in any of the
alternatives available to the Trustee under paragraph 13.3 herein. If the
Sponsor is appointed Custodian, the Fund shall be invested only in the
alternatives available to the Custodian under paragraph 13.4 herein.
13.3 INVESTMENT ALTERNATIVES OF THE TRUSTEE As Trustee, the Sponsor
shall implement an investment program based on the Employer's investment
objectives and the Employee Retirement Income Security Act of 1974. In
addition to powers given by law, the Trustee may:
(a) invest the Fund in any form of property, including common
and preferred stocks, exchange traded put and call options,
bonds, money market instruments, mutual funds (including
funds for which the Trustee or its affiliates serve as
investment advisor), savings accounts, certificates of
deposit, Treasury bills, insurance policies and contracts,
or in any other property, real or personal, having a ready
market. The Trustee may invest in time deposits (including,
if applicable, its own or those of affiliates) which bear a
reasonable interest rate. No portion of any Qualified
Voluntary Contribution, or the earnings thereon, may be
invested in life insurance contracts or, as with any
Participant-directed investment, in tangible personal
property characterized by the IRS as a collectible,
(b) transfer any assets of the Fund to a group or collective
trust established to permit the pooling of funds of separate
pension and profit-sharing trusts, provided the Internal
Revenue Service has ruled such group or collective trust to
be qualified under Code Section 401(a) and exempt under Code
Section 501(a) (or the applicable corresponding provision of
any other Revenue Act) or to any other common, collective,
or commingled trust fund which has been or may hereafter be
established and maintained
66
<PAGE> 99
by the Trustee and/or affiliates of the Trustee. Such
commingling of assets of the Fund with assets of other
qualified trusts is specifically authorized, and to the
extent of the investment of the Fund in such a group or
collective trust, the terms of the instrument establishing
the group or collective trust shah be a part hereof as
though set forth herein,
(c) invest up to 100% of the Fund in the common stock, debt
obligations. or any other security issued by the Employer or
by an affiliate of the Employer within the limitations
provided under Sections 406, 407, and 408 of the Employee
Retirement Income Security Act of 1974 and further provided
that such investment does not constitute a prohibited
transaction under Code Section 4975. Any such investment in
Employer securities shall only be made upon written
direction of the Employer who shall be solely responsible
for propriety of such investment,
(d) hold cash uninvested and deposit same with any banking or
savings institution. including its own banking department,
(e) join in or oppose the reorganization, recapitalization,
consolidation, sale or merger of corporations or properties,
including those in which it is interested as Trustee, upon
such terms as it deems wise,
(f) hold investments in nominee or bearer form,
(g) vote proxies and, if appropriate, pass them on to any
investment manager which may have directed the investment in
the equity giving rise to the proxy,
(h) exercise all ownership rights with respect to assets held in
the Fund.
13.4 INVESTMENT ALTERNATIVES OF THE CUSTODIAN As Custodian, the Sponsor
shall be depository of the Fund and shall, at the direction of the Employer,
invest all contributions exclusively in savings or time accounts, savings
certificates of deposit, or Other savings or time instruments offered by the
Custodian and, if offered, by an affiliate of the Custodian.
13.5 PARTICIPANT LOANS If agreed upon by the Trustee and permitted by
the Employer in the Adoption Agreement, a Plan Participant may make application
to the Employer requesting a loan from the Fund. The Employer shall have the
sole right to approve or disapprove a Participant's application provided that
loans shall be made available to all Participants on a reasonably equivalent
basis. Loans shall not be made available to Highly Compensated Employees (as
defined in Code Section 414(q)] in an amount greater than the amount made
available to other Employees. Any loan granted under the Plan shall be made
subject to the following rules:
(a) No loan. when aggregated with any outstanding Participant
loan(s), shall exceed the lesser of (i) $50,000 reduced by
the excess. if any, of the highest outstanding balance of
loans during the one year period ending on the day before
the loan is made, over the outstanding balance of loans from
the Plan on the date the loan is made or (ii) one-half of
the fair market value of a Participant's Vested Account
Balance built up from Employer Contributions, Voluntary
Contributions, and Rollover
67
<PAGE> 100
Contributions. If the Participant's Vested Account Balance
is $20,000 or less, the maximum loan shall not exceed the
lesser of $10,000 or 100% of the Participant's Vested
Account Balance. For the purpose of the above limitation,
all loans from all plans of the Employer and other members
of a group of employers described in Code Sections 414(b),
414(c), and 414(m) are aggregated. An assignment or pledge
of any portion of the Participant's interest in the Plan and
a loan. pledge, or assignment with respect to any insurance
contract purchased under the Plan, will be treated as a loan
under this paragraph.
(b) All applications must be made on forms provided by the
Employer and must be signed by the Participant.
(c) Any loan shall bear interest at a rate reasonable at the
time of application, considering the purpose of the loan and
the rate being charged by representative commercial banks in
the local area for a similar loan unless the Employer sets
forth a different method for determining loan interest rates
in its loan procedures. The loan agreement shall also
provide that the payment of principal and interest be
amortized in level payments not less than quarterly.
(d) The term of such loan shall not exceed five years except in
the case of a loan for the purpose of acquiring any house,
apartment, condominium, or mobile home (not used on a
transient basis) which is used or is to be used within a
reasonable time as the principal residence of the
Participant. The term of such loan shall be determined by
the Employer considering the maturity dates quoted by
representative commercial banks in the local area for a
similar loan.
(e) The principal and interest paid by a Participant on his or
her loan shall be credited to the Fund in the same manner as
for any other Plan investment. If elected in the Adoption
Agreement, loans may be treated as segregated investments of
the individual Participants. This provision is not
available if its election will result in discrimination in
operation of the Plan.
(f) If a Participant's loan application is approved by the
Employer, such Participant shall be required to sign a note,
loan agreement, and assignment of 50% of his or her interest
in the Fund as collateral for the loan. The Participant.
except in the case of a profit-sharing plan satisfying the
requirements of paragraph 8.7 must obtain the consent of his
or her Spouse, if any, within the 90 day period before the
time his or her account balance is used as security for the
loan. A new consent is required if the account balance is
used for any renegotiation, extension, renewal or other
revision of the loan, including an increase in the amount
thereof. The consent must be written, must acknowledge the
effect of the loan, and must be witnessed by a plan
representative or notary public. Such consent shall
subsequently be binding with respect to the consenting
Spouse or any subsequent Spouse.
68
<PAGE> 101
(g) If a valid Spousal consent has been obtained, then,
notwithstanding any other provision of this Plan, the
portion of the Participant's Vested Account Balance used as
a security interest held by the Plan by reason of a loan
outstanding to the Participant shall be taken into account
for purposes of determining the amount of the account
balance payable at the time of death or distribution, but
only if the reduction is used as repayment of the loan. If
less than 100% of the Participant's Vested Account Balance
(determined without regard to the preceding sentence) is
payable to the Surviving Spouse, then the account balance
shall be adjusted by first reducing the Vested Account
Balance by the amount of the security used as repayment of
the loan, and then determining the benefit payable to the
Surviving Spouse.
(h) The Employer may also require additional collateral in order
to adequately secure the loan.
(i) A Participant's loan shall immediately become due and
payable if such Participant terminates employment for any
reason or fails to make a principal and/or interest payment
as provided in the loan agreement. If such Participant
terminates employment, the Employer shall immediately
request payment of principal and interest on the loan. If
the Participant refuses payment following termination, the
Employer shall reduce the Participant's Vested Account
Balance by the remaining principal and interest on his or
her loan. If the Participant's Vested Account Balance is
less than the amount due, the Employer shall take whatever
steps are necessary to collect the balance due directly from
the Participant. However, no foreclosure on the
Participant's note or attachment of the Participant's
account balance will occur until a distributable event
occurs in the Plan.
(j) No loans will be made to Owner-Employees (as defined in
paragraph 1.51) or Shareholder-Employees (as defined in
paragraph 1.74), unless the Employer obtains a prohibited
transaction exemption from the Department of Labor.
13.6 INSURANCE POLICIES If agreed upon by the Trustee and permitted by
the Employer in the Adoption Agreement, Employees may elect the purchase of
life insurance policies under the Plan. If elected, the maximum annual premium
for a whole life policy shall not exceed 50% of the aggregate Employer
contributions allocated to the account of a Participant. For profit-sharing
plans the 50% test need only be applied against Employer contributions
allocated in the last two years. Whole life policies are policies with both
nondecreasing death benefits and nonincreasing premiums. The maximum annual
premium for term contracts or universal life policies and all other policies
which are not whole life shall not exceed 25% of aggregate Employer
contributions allocated to the account of a Participant. The two-year rule for
profit-sharing plans again applies. The maximum annual premiums for a
Participant with both a whole life and a term contract or universal life
policies shall be limited to one-half of the whole life premium plus the term
premium, but shall not exceed 25% of the aggregate Employer contributions
allocated to the account of a Participant, subject to the two year rule for
profit-sharing plans. Any policies purchased under this Plan shall be held
subject to the following rules:
69
<PAGE> 102
(a) The Trustee shall be applicant and owner of any policies
issued.
(b) All policies or contracts purchased hereunder, shall be
endorsed as nontransferable, and must provide that proceeds
will be payable to the Trustee; however, the Trustee shall
be required to pay over all proceeds of the contracts to the
Participant's Designated Beneficiary in accordance with the
distribution provisions of this Plan. Under no circumstances
shall the Trust retain any part of the proceeds.
(c) Each Participant shall be entitled to designate a
beneficiary under the terms of any contract issued; however,
such designation will be given to the Trustee which must be
the named beneficiary on any policy. Such designation shall
remain in force, until revoked by the Participant, by filing
a new beneficiary form with the Trustee. A Participant's
Spouse will be the Designated Beneficiary of the proceeds in
all circumstances unless a Qualified Election has been made
in accordance with paragraph 8.4. The beneficiary of a
deceased Participant shall receive, in addition to the
proceeds of the Participant's policy or policies, the amount
credited to such Participant's investment account.
(d) A Participant who is uninsurable or insurable at substandard
rates, may elect to receive a reduced amount of insurance,
if available, or may waive the purchase of any insurance.
(e) All dividends or other returns received on any policy
purchased shall be applied to reduce the next premium due on
such policy, or if no further premium is due, such amount
shall be credited to the Fund as part of the account of the
Participant for whom the policy is held.
(f) If Employer contributions are inadequate to pay all premiums
on all insurance policies, the Trustee may, at the option of
the Employer, utilize other amounts remaining in each
Participant's account to pay the premiums on his or her
respective policy or policies, allow the policies to lapse,
reduce the policies to a level at which they may be
maintained, or borrow against the policies on a prorated
basis, provided that the borrowing does not discriminate in
favor of the policies on the lives of Officers,
Shareholders, and highly compensated Employees.
(g) On retirement or termination of employment of a Participant,
the Employer shall direct the Trustee to cash surrender the
Participant's policy and credit the proceeds to his or her
account for distribution under the terms of the Plan.
However, before so doing, the Trustee shall first offer to
transfer ownership of the policy to the Participant in
exchange for payment by the Participant of the cash value of
the policy at the time of transfer. Such payment shall be
credited to the Participant's account for distribution under
the terms of the Plan. All distributions resulting from the
application of this paragraph shall be subject to the Joint
and Survivor Annuity Rules of Article VIII, if applicable.
70
<PAGE> 103
(h) The Employer shall be solely responsible to see that these
insurance provisions are administered properly and that if
there is any conflict between the provisions of this Plan
and any insurance. contracts issued that the terms of this
Plan will control.
13.7 EMPLOYER INVESTMENT DIRECTION If agreed upon by the Trustee and
approved by the Employer in the Adoption Agreement, the Employer shall have the
right to direct the Trustee with respect to investments of the Fund, may
appoint an investment manager (registered as an investment advisor under the
Investment Advisors Act of 1940) to direct investments, or may give the Trustee
sole investment management responsibility. The Employer may purchase and sell
interests in a registered investment company (i.e., mutual funds) for which the
Sponsor, its parent, affiliates, or successors, may serve as investment advisor
and receive compensation from the registered investment company for its
services as investment advisor. The Employer shall advise the Trustee in
writing regarding the retention of investment powers, the appointment of an
investment manager, or the delegation of investment powers to the Trustee. Any
investment directive under this Plan shall be made in writing by the Employer
or investment manager, as the case may be. In the absence of such written
directive, the Trustee shall automatically invest the available cash in its
discretion in an appropriate interim investment until specific investment
directions are received. Such instructions regarding the delegation of
investment responsibility shall remain in force until revoked or amended in
writing. The Trustee shall Rot be responsible for the propriety of any
directed investment made and shall not be required to consult with or advise
the Employer regarding the investment quality of any directed investment held
hereunder. If the Employer fails to designate an investment manager, the
Trustee shall have full investment authority. If the Employer does not issue
investment directions, the Trustee shall have authority to invest the Fund in
its sole discretion. While the Employer may direct the Trustee with respect to
Plan investments, the Employer may not:
(a) borrow from the Fund or pledge any of the assets of the Fund
as security for a loan,
(b) buy property or assets from or sell property or assets to
the Fund,
(c) charge any fee for services rendered to the Fund, or
(d) receive any services from the Fund on a preferential basis.
13.8 EMPLOYEE INVESTMENT DIRECTION If agreed to by the Trustee and
approved by the Employer in the Adoption Agreement, Participants shall be given
the option to direct the investment of their personal contributions and their
share of the Employer's contribution among alternative investment funds
established as part of the overall Fund. Unless otherwise specified by the
Employer in the Adoption Agreement, such investment funds shall be under the
full control of the management of the Trustee. If investments outside the
Trustee's control are allowed, Participants may not direct that investments be
made in collectibles, other than U.S. Government or State issued gold and
silver coins. In this connection, a Participant's right to direct the
investment of any contribution shall apply only to selection of the desired
fund. The following rules shall apply to the administration of such funds.
(a) At the time an Employee becomes eligible for the Plan, he or
she shall complete an investment designation form stating
the percentage of his or her contributions to be invested in
the available funds.
71
<PAGE> 104
(b) A Participant may chance his or her election with respect to
future contributions by filing a new investment designation
form with the Employer in accordance with the procedures
established by the Plan Administrators.
(c) A Participant may elect to transfer all or part of his or
her balance from one investment fund to another by filing an
investment designation form with the Employer in accordance
with the procedures established by the Plan Administrators.
(d) The Employer shall be responsible when transmitting Employee
and Employer contributions to show the dollar amount to be
credited to each investment fund for each Employee.
(e) Except as otherwise provided in the Plan, neither the
Trustee, nor the Employer, nor any fiduciary of the Plan
shall be liable to the Participant or any of his or her
beneficiaries for any loss resulting from action taken at
the direction of the Participant.
72
<PAGE> 105
ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 APPLICABILITY OF RULES If the Plan is or becomes Top-Heavy in any
Plan Year beginning after 1983. the provisions of this Article will supersede
any conflicting provisions in the Plan or Adoption Agreement.
14.2 MINIMUM CONTRIBUTION Notwithstanding any other provision in the
Employer's Plan, for any Plan Year in which the Plan is Top-Heavy or Super
Top-Heavy, the aggregate Employer contributions and forfeitures allocated on
behalf of any Participant (without regard to any Social Security contribution)
under this Plan and any other Defined Contribution Plan of the Employer shall
be lesser of 3% of such Participant's Compensation or the largest percentage of
Employer contributions and forfeitures, as a percentage of the first $200,000,
as adjusted under Code Section 415(d). of the Key Employee's Compensation,
allocated on behalf of any Key Employee for that year.
Each Participant who is employed by the Employer on the last day of the Plan
Year shall be entitled to receive an allocation of the Employer's minimum
contribution for such Plan Year. The minimum allocation applies even though
under other Plan provisions the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the year
because the Participant fails to make Mandatory Contributions to the Plan, the
Participant's Compensation is less than a stated amount, or the Participant
fails to complete 1,000 Hours of Service (or such lesser number designated by
the Employer in the Adoption Agreement) during the Plan Year. A Paired
profit-sharing plan designated to provide the minimum Top-Heavy contribution
must do so regardless of profits. An Employer may make the minimum Top-Heavy
contribution available to all Participants or just non-Key Employees.
For purposes of computing the minimum allocation, Compensation shall mean
Compensation as defined in paragraph 1.12(c) of the Plan.
The Top-Heavy minimum contribution does not apply to any Participant to the
extent the Participant is covered under any other plan(s) of the Employer and
the Employer has provided in Section 11 of the Adoption Agreement that the
minimum allocation or benefit requirements applicable to Top-Heavy Plans will
be met in the other plan(s).
If a Key Employee makes an Elective Deferral or has an allocation of Matching
Contributions made to his or her account, a Top-Heavy minimum will be required
for non-Key Employees who are Participants, however, neither Elective Deferrals
by nor Matching Contributions to non-Key Employees may be taken into account
for purposes of satisfying the top-heavy Minimum Contribution requirement.
14.3 MINIMUM VESTING For any Plan Year in which this Plan is Top-Heavy,
the minimum vesting schedule elected by the Employer in the Adoption Agreement
will automatically apply to the Plan. If the vesting schedule selected by the
Employer in the Adoption Agreement is less liberal than the allowable schedule,
the schedule will automatically be modified. If the vesting schedule under the
Employer's Plan shifts in or out of the Top-Heavy schedule for any Plan Year,
such shift is an amendment to the vesting schedule and the election in
paragraph 9.8 of the Plan applies.- The minimum vesting schedule applies to all
accrued benefits within the meaning of Code Section 411(a)(7) except those
attributable to Employee contributions, including benefits accrued before the
effective date of Code Section 416 and benefits accrued
73
<PAGE> 106
before the Plan became Top-Heavy. Further, no reduction in vested benefits may
occur in the event the Plan's status as Top-Heavy changes for any Plan Year.
However, this paragraph does not apply to the account balances of any Employee
who does not have an Hour of Service after the Plan initially becomes Top-Heavy
and such Employee's account balance attributable to Employer contributions and
forfeitures will be determined without regard to this paragraph.
14.4 LIMITATIONS ON ALLOCATIONS In any Plan Year in which the Top-Heavy
Ratio exceeds 90% (i.e., the Plan becomes Super Top-Heavy), the denominators of
the Defined Benefit Fraction (as defined in paragraph 1.16) and Defined
Contribution Fraction (as defined in paragraph 1.19) shall be computed using
100% of the dollar limitation instead of 125%.
74
<PAGE> 107
ARTICLE XV
AMENDMENT AND TERMINATION
15.1 AMENDMENT BY SPONSOR The Sponsor may amend any or all provisions of
this Plan and Trust/Custodial Account at any time without obtaining the
approval or consent of any Employer which has adopted this Plan and
Trust/Custodial Account provided that no amendment shall authorize or permit
any part of the corpus or income of the Fund to be used for or diverted to
purposes other than for the exclusive benefit of Participants and their
beneficiaries, or eliminate an optional form of distribution. In the case of a
mass-submitted plan, the mass-submitter shall amend the Plan on behalf of the
Sponsor.
15.2 AMENDMENT BY EMPLOYER The Employer may amend any option in the
Adoption Agreement, and may include language as permitted in the Adoption
Agreement,
(a) to satisfy Code Section 415, or
(b) to avoid duplication of minimums under Code Section 416
because of the required aggregation of multiple plans.
The Employer may add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause the Plan
to be treated as an individually designed plan for which the Employer must
obtain a separate determination letter.
If the Employer amends the Plan and Trust/Custodial Account other than as
provided above, the Employer's Plan shall no longer participate in this
Prototype Plan and will be considered an individually designed plan.
15.3 TERMINATION Employers shall have the right to terminate their Plans
upon 60 days notice in writing to the Trustee/Custodian. If the Plan is
terminated, partially terminated, or if there is a complete discontinuance of
contributions under a profitsharing plan maintained by the Employer, all
amounts credited to the accounts of Participants shall vest and become
nonforfeitable. In the event of a partial termination, only those who are
affected by such partial termination shall be fully vested. In the event of
termination, the Employer shall direct the Trustee/Custodian with respect to
the distribution of accounts to or for the exclusive benefit of Participants or
their beneficiaries. The Trustee/Custodian shall dispose of the Fund in
accordance with the written directions of the Plan Administrator, provided that
no liquidation of assets and payment of benefits, (or provision therefor),
shall actually be made by the Trustee/Custodian until after it is established
by the Employer in a manner satisfactory to the Trustee/Custodian, that the
applicable requirements, if any, of the Employee Retirement Income Security Act
of 1974 and the Internal Revenue Code governing the termination of employee
benefit plans, have been or are being, complied with, or that appropriate
authorizations, waivers, exemptions, or variances have been, or are being
obtained.
15.4 QUALIFICATION OF EMPLOYER'S PLAN If the adopting Employer fails to
attain or retain Internal Revenue Service qualification, such Employer's Plan
shall no longer participate in this Prototype Plan and will be considered an
individually designed plan.
75
<PAGE> 108
15.5 MERGERS AND CONSOLIDATIONS
(a) In the case of any merger or consolidation of the Employer's
Plan with, or transfer of assets or liabilities of the
Employer's Plan to. any other plan, Participants in the
Employer's Plan shall be entitled to receive benefits
immediately after the merger, consolidation, or transfer
which are equal to or greater than the benefits they would
have been entitled to receive immediately before the merger,
consolidation, or transfer if the Plan had then terminated.
(b) Any corporation into which the Trustee/Custodian or any
successor trustee/custodian may be merged or with which it
may be consolidated, or any corporation resulting from any
merger or consolidation to which the Trustee/Custodian or
any successor trustee/custodian may be a party, or any
corporation to which all or substantially all the trust
business of the Trustee/Custodian or any successor
trustee/custodian may be transferred, shall be the successor
of such Trustee/Custodian without the filing of any
instrument or performance of any further act, before any
court.
15.6 RESIGNATION AND REMOVAL The Trustee/Custodian may resign by written
notice to the Employer which shall be effective 60 days after delivery. The
Employer may discontinue its participation in this Prototype Plan and
Trust/Custodial Account effective upon 60 days written notice to the Sponsor.
In such event the Employer shall, prior to the effective date thereof, amend
the Plan to eliminate any reference to this Prototype Plan and Trust/Custodial
Account and appoint a successor trustee or custodian or arrange for another
funding agent. The Trustee/Custodian shall deliver the Fund to its successor
on the effective date of the resignation or removal, or as soon thereafter as
practicable, provided that this shall not waive any lien the Trustee/Custodian
may have upon the Fund for its. compensation or expenses. If the Employer
fails to amend the Plan and appoint a successor trustee, custodian, or other
funding agent within the said 60 days, or such longer period as the
Trustee/Custodian may specify in writing, the Plan shall be deemed individually
designed and the Employer shall be deemed the successor trustee/custodian. The
Employer must then obtain its own determination letter.
15.7 QUALIFICATION OF PROTOTYPE The Sponsor intends that this Prototype
Plan will meet the requirements of the Code as a qualified Prototype Retirement
Plan and Trust/Custodial Account. Should the Commissioner of Internal Revenue
or any delegate of the Commissioner at any time determine that the Plan and
Trust/Custodial Account fails to meet the requirements of the Code, the Sponsor
will amend the Plan and Trust/Custodial Account to maintain its qualified
status.
76
<PAGE> 109
ARTICLE XVI
GOVERNING LAW
Construction, validity and administration of the Prototype Plan and
Trust/Custodial Account, and any Employer Plan and Trust/Custodial Account as
embodied in the Prototype document and accompanying Adoption Agreement, shall
be governed by Federal law to the extent applicable and to the extent not
applicable by the laws of the State/Commonwealth in which the principal office
of the Sponsor is located.
77
<PAGE> 110
PART I - SECTION 401(a)(17) LIMITATION
[MAY BE ADOPTED BY DEFINED CONTRIBUTION
AND DEFINED BENEFIT PLANS]
In addition to other applicable limitations set forth in the Plan,
and notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of each
Employee taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living in
effect for a calendar year applies to any period, not exceeding 12 months, over
which Compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period, and the
denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference
in this Plan to the limitation under Section 401(a)(17) of the Code shall mean
the OBRA '93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan
Year, the Compensation for that prior determination period is subject to the
OBRA'93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the first
day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $150,000.
78
<PAGE> 111
MODEL AMENDMENT
REVENUE PROCEDURE 93-47
(This model amendment allows Participants receiving distribution from
safe-harbored profit sharing plans to waive the 30-day period required under
the Unemployment Compensation Act of 1992. Non-safe harbored plans must still
provide notice not less than 30 days and not more than 90 days prior to the
distribution.)
If a distribution is one to which Section 401(a)(11) and 417 of the Internal
Revenue Code do not apply, such distribution may commence less than 30 days
after the notice required under Section 1.41 1 (a)-l 1 (c) of the Income Tax
Regulations is given, provided that:
(1) the plan administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days
after receiving the notice to consider the decision of
whether or not to elect a distribution (and, if applicable,
a particular distribution option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
79
<PAGE> 112
NONSTANDARDIZED
ADOPTION AGREEMENT
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING
PLAN AND TRUST/CUSTODIAL ACCOUNT
The Employer named below hereby establishes a Cash or Deferred Profit-Sharing
Plan for eligible Employees as provided in this Adoption Agreement and the
accompanying Basic Prototype Plan and Trust/Custodial Account Basic Plan
Document.
<TABLE>
<S> <C>
1. EMPLOYER INFORMATION
NOTE: If multiple Employers are adopting the Plan, complete this
section based on the lead Employer. Additional Employers
may adopt this Plan by attaching executed signature pages
to the back of the Employer's Adoption Agreement.
(a) NAME AND ADDRESS:
METROCALL, INC.
6677 RICHMOND HIGHWAY
ALEXANDRIA, VA 22306
(b) TELEPHONE NUMBER: (703)660-6677
(c) TAX ID NUMBER: 54-1215634
(d) FORM OF BUSINESS:
/ / (i) Sole Proprietor
/ / (ii) Partnership
/X/ (iii) Corporation
/ / (iv) "S" Corporation (formerly known as Subchapter S)
/ / (v) Other:
---------------------------
</TABLE>
1
<PAGE> 113
<TABLE>
<S> <C>
(e) NAME OF INDIVIDUAL AUTHORIZED TO ISSUE
INSTRUCTIONS TO THE TRUSTEE/CUSTODIAN:
RETIREMENT PLAN COMMITTEE
(f) NAME OF PLAN: METROCALL, INC. SAVING AND RETIREMENT PLAN
(g) THREE DIGIT PLAN NUMBER FOR
ANNUAL RETURN/REPORT: 001
2. EFFECTIVE DATE
(a) This is a new Plan having an effective date of .
----------------
(b) This is an amended Plan.
The effective date of the original Plan was JANUARY 1, 1989 .
----------------------
The effective date of the amended Plan is APRIL 1, 1995 .
---------------------
(c) If different from above, the Effective Date for the Plan's Elective Deferral provisions shall be APRIL 1, 1995.
-------------
3. DEFINITIONS
(a) "Collective or Commingled Funds" (Applicable to institutional Trustees only.) Investment in collective or
commingled funds as permitted at paragraph 13.3(b) of the Basic Plan Document shall only be made to the following
specifically named fund(s):
PNC FAMILY OF MUTUAL FUNDS
Funds made available after the execution of this Adoption Agreement will be listed on schedules attached to the end
of this Adoption Agreement.
(b) "Compensation" Compensation shall be determined on the basis of the:
/X/ (i) Plan Year.
/ / (ii) Employer's Taxable Year.
/ / (iii) Calendar Year.
</TABLE>
2
<PAGE> 114
<TABLE>
<S> <C>
Compensation shall be determined on the basis of the following safe-harbor definition of Compensation in IRS
Regulation Section 1.414(s)-1(c):
/ / (iv) Code Section 6041 and 6051 Compensation,
/X/ (v) Code Section 3401(a) Compensation, or
/ / (vi) Code Section 415 Compensation.
Compensation /X/ shall / / shall not include Employer contributions made pursuant to a Salary Savings Agreement
which are not includable in the gross income of the Employee for the reasons indicated in the definition of
Compensation at 1.12 of the Basic Plan Document .
For purposes of the Plan, Compensation shall be limited to $____________, the maximum amount which will be
considered for Plan purposes. [If an amount is specified, it will limit the amount of contributions allowed on
behalf of higher compensated Employees. Completion of this section is not intended to coordinate with the $200,000
of Code Section 415(d), thus the amount should be less than $200,000 as adjusted for cost-of-living increases.]
(iii) Exclusions From Compensation:
(1) overtime.
(2) bonuses.
(3) commissions.
(4)
-----------------------
Type of Contribution(s) Exclusion(s)
----------------------- ------------
Elective Deferrals [Section 7(b)]
----------
Matching Contributions (Section 7(c)]
----------
Qualified Non-Elective Contributions [Section 7(d)]
and Non-Elective Contributions [Section 7(e)]
----------
(c) "Entry Date"
/ / (i) The first day of the Plan Year nearest the date on which an Employee meets the eligibility
requirements.
</TABLE>
3
<PAGE> 115
<TABLE>
<S> <C>
/ / (ii) The earlier of the first day of the Plan Year or the first day of the seventh month of the Plan
Year coinciding with or following the date on which an Employee meets the eligibility
requirements.
/ / (iii) The first day of the Plan Year following the date on which the Employee meets the eligibility
requirements. If this election is made, the Service requirement at 4(a)(ii) may not exceed 1/2
year and the age requirement at 4(b)(ii) may not exceed 20-1/2.
/ / (iv) The first day of the month coinciding with or following the date on which an Employee meets the
eligibility requirements.
/X/ (v) The first day of the Plan Year, or the first day of the fourth month, or the first day of the
seventh month or the first day of the tenth month, of the Plan Year coinciding with or following
the date on which an Employee meets the eligibility requirements.
(d) "Hours of Service" Shall be determined on the basis of the method selected below. Only one method may be selected.
The method selected shall be applied to all Employees covered under the Plan as follows:
/X/ (i) On the basis of actual hours for which an Employee is paid or entitled to payment.
/ / (ii) On the basis of days worked.
An Employee shall be credited with ten (10) Hours of Service if under paragraph 1.42 of the Basic
Plan Document such Employee would be credited with at least one (1) Hour of Service during the
day.
/ / (iii) On the basis of weeks worked.
An Employee shall be credited with forty-five (45) Hours of Service if under paragraph 1.42 of the
Basic Plan Document such Employee would be credited with at least one (1) Hour of Service during
the week.
/ / (iv) On the basis of semi-monthly payroll periods.
An Employee shall be credited with ninety-five (95) Hours of Service if under paragraph 1.42 of
the Basic Plan Document such Employee would be credited with at least one (1) Hour of Service
during the semi-monthly payroll period.
/ / (v) On the basis of months worked.
An Employee shall be credited with one-hundred-ninety (190) Hours of Service if under paragraph
1.42 of the Basic Plan Document such Employee would be credited with at least one (1) Hour of
Service during the month.
</TABLE>
4
<PAGE> 116
<TABLE>
<S> <C>
(e) "Limitation Year" The 12-consecutive month period commencing on JANUARY 1 and ending on DECEMBER 31 .
---------- -------------
If applicable, the Limitation Year will be a short Limitation Year commencing on _____________ and ending on
____________. Thereafter, the Limitation Year shall end on the date last specified above.
(f) "Net Profit"
/X/ (i) Not applicable (profits will not be required for any contributions to the Plan).
/ / (ii) As defined in paragraph 1.49 of the Basic Plan Document.
/ / (iii) Shall be defined as:
------------------------------
(Only use if definition in paragraph 1.49 of the Basic Plan Document is to be superseded.)
(g) "Plan Year" The 12-consecutive month period commencing on JANUARY 1 and ending on DECEMBER 31 .
---------- ------------
If applicable, the Plan Year will be a short Plan Year commencing on __________ and ending on ___________.
Thereafter, the Plan Year shall end on the date last specified above.
(h) "Qualified Early Retirement Age" For purposes of making distributions under the provisions of a Qualified Domestic
Relations Order, the Plan's Qualified Early Retirement Age with regard to the Participant against whom the order is
entered /X/ shall / / shall not be the date the order is determined to be qualified. If "shall" is elected, this
will only allow payout to the alternate payee(s).
(i) "Qualified Joint and Survivor Annuity" The safe-harbor provisions of paragraph 8.7 of the Basic Plan Document / /
are /X/ are not applicable. If not applicable, the survivor annuity shall be 50 % (50%, 66-2/3%, 75% or 100%) of
----
the annuity payable during the lives of the Participant and Spouse. If no answer is specified, 50% will be used.
(j) "Taxable Wage Base" [paragraph 1.79]
/X/ (i) Not Applicable - Plan is not integrated with Social Security.
/ / (ii) The maximum earnings considered wages for such Plan Year under Code Section 3121(a).
</TABLE>
5
<PAGE> 117
<TABLE>
<S> <C>
/ / (iii) _____% (not more than 100%) of the amount considered wages for such Plan Year under Code Section
3121(a).
/ / (iv) $_________, provided that such amount is not in excess of the amount determined under paragraph
30(j)(ii) above.
/ / (v) For the 1989 Plan Year $10,000. For all subsequent Plan Years, 20% of the maximum earnings
considered wages for such Plan Year under Code Section 3121(a).
NOTE: Using less than the maximum at (ii) may result in a change in the allocation formula in Section 7.
(k) "Valuation Date(s)" Allocations to Participant Accounts will be done in accordance with Article V of the Basic Plan
Document:
(i) Daily (v) Quarterly
(ii) Weekly (vi) Semi-Annually
(iii) Monthly (vii) Annually
(iv) Bi-Monthly
Indicate Valuation Date(s) to be used by specifying option from list above:
Type of Contribution(s) Valuation Date(s)
----------------------- -----------------
After-Tax Voluntary Contributions [Section 6]
--------
Elective Deferrals [Section 7(b)] V
--------
Matching Contributions [Section 7(c)] V
--------
Qualified Non-Elective Contributions (Section 7(d)] V
--------
Non-Elective Contributions [Section 7(e), (f) and (g)] V
--------
Minimum Top-Heavy Contributions [Section 7(i)] V
--------
(l) "Year of Service"
(i) For Eligibility Purposes: The 12-consecutive month period during which an Employee is credited with 1000
(not more than 1,000) Hours of Service.
</TABLE>
6
<PAGE> 118
<TABLE>
<S> <C>
(ii) For Allocation Accrual Purposes: The Inconsecutive month period during which an Employee is credited with
1000 (not more than 1,000) Hours of Service.
(iii) For Vesting purposes: The 12-consecutive month period during which an Employee is credited with 1000 (not
more than 1,000) Hours of Service.
4. ELIGIBILITY REQUIREMENTS
(a) Service:
/ / (i) The Plan shall have no service requirement.
/X/ (ii) The Plan shall cover only Employees having completed at least 1 [not more than three (3)] Years of
Service. If more than one (1) is specified, for Plan Years beginning in 1989 and later, the
answer will be deemed to be one (1).
NOTE: If the eligibility period selected is less than one year, an Employee will not be required to
complete any specified number of Hours of Service to receive credit for such period.
(b) Age:
/ / (i) The Plan shall have no minimum age requirement.
/X/ (ii) The Plan shall cover only Employees having attained age 18 (not more than age 21).
(c) Classification:
The Plan shall cover all Employees who have met the age and service requirements with the following exceptions:
/ / (i) No exceptions.
/X/ (ii) The Plan shall exclude Employees included in a unit of Employees covered by a collective
bargaining agreement between the Employer and Employee Representatives, if retirement benefits
were the subject of good faith bargaining. For this purpose, the term "Employee Representative"
does not include any organization more than half of whose members are Employees who are owners,
officers, or executives of the Employer.
/X/ (iii) The Plan shall exclude Employees who are nonresident aliens and who receive no earned income from
the Employer which constitutes income from sources within the United States.
</TABLE>
7
<PAGE> 119
<TABLE>
<S> <C>
/X/ (iv) The Plan shall exclude from participation any nondiscriminatory classification of Employees
determined as follows:
LEASED EMPLOYEES
(d) Employees on Effective Date:
/ / (i) Not Applicable. All Employees will be required to satisfy both the age and Service requirements
specified above.
/X/ (ii) Employees employed on the Plan's Effective Date do not have to satisfy the Service requirements
specified above.
/X/ (iii) Employees employed on the Plan's Effective Date do not have to satisfy the age requirements
specified above.
5. RETIREMENT AGES
(a) Normal Retirement Age:
If the Employer imposes a requirement that Employees retire upon reaching a specified age, the Normal Retirement
Age selected below may not exceed the Employer imposed mandatory retirement age.
/X/ (i) Normal Retirement Age shall be 65 (not to exceed age 65).
/ / (ii) Normal Retirement Age shall be the later of attaining age ____ (not to exceed age 65) or the
_______ (not to exceed the 5th) anniversary of the first day of the first Plan Year in which the
Participant commenced participation in the Plan.
(b) Early Retirement Age:
/X/ (i) Not Applicable.
/ / (ii) The Plan shall have an Early Retirement Age of ____ (not less than 55) and completion of ____
Years of Service.
6. EMPLOYEE CONTRIBUTIONS
/X/ (a) Participants shall be permitted to make Elective Deferrals in any amount from 1% up to 15%
of their Compensation.
</TABLE>
8
<PAGE> 120
<TABLE>
<S> <C>
If (a) is applicable, Participants shall be permitted to amend their Salary Savings Agreements to change the
contribution percentage as provided below:
/ / (i) On the Anniversary Date of the Plan,
/ / (ii) On the Anniversary Date of the Plan and on the first day of the seventh month of the Plan Year,
/X/ (iii) On the Anniversary Date of the Plan and on the first day following any Valuation Date, or
/ / (iv) Upon 30 days notice to the Employer.
/ / (b) Participants shall be permitted to make after tax Voluntary Contributions.
/ / (c) Participants shall be required to make after tax Voluntary Contributions as follows (Thrift Savings Plan):
/ / (i) _____% of Compensation.
/ / (ii) A percentage determined by the Employee on his or her enrollment form.
/X/ (d) If necessary to pass the Average Deferral Percentage Test, Participants / / may /X/ may not have Elective
Deferrals recharacterized as Voluntary Contributions.
NOTE: The Average Deferral Percentage Test will apply to contributions under (a) above. The Average
Contribution Percentage Test will apply to contributions under (b) and (c) above, and may apply to (a).
</TABLE>
7. EMPLOYER CONTRIBUTIONS AND ALLOCATION THEREOF
NOTE: The Employer shall make contributions to the Plan in
accordance with the formula or formulas selected below. The
Employer's contribution shall be subject to the limitations
contained in Articles III and X. For this purpose, a
contribution for a Plan Year shall be limited for the
Limitation Year which ends with or within such Plan Year.
Also, the integrated allocation formulas below are for Plan
Years beginning in 1989 and later. The Employer's
allocation for earlier years shall be as specified in its
Plan prior to amendment for the Tax Reform Act of 1986.
9
<PAGE> 121
<TABLE>
<S> <C> <C>
(a) Profits Requirement:
(i) Current or Accumulated Net Profits are required for:
/ / (A) Matching Contributions.
/ / (B) Qualified Non-Elective Contributions.
/ / (C) discretionary contributions.
(ii) No Net Profits are required for:
/X/ (A) Matching Contributions.
/X/ (B) Qualified Non-Elective Contributions.
/X/ (C) discretionary contributions.
NOTE: Elective Deferrals can always be contributed regardless of profits.
/X/ (b) Salary Savings Agreement:
The Employer shall contribute and allocate to each Participant's account an amount equal to the amount withheld
from the Compensation of such Participant pursuant to his or her Salary Savings Agreement. If applicable, the
maximum percentage is specified in Section 6 above.
An Employee who has terminated his or her election under the Salary Savings Agreement other than for hardship
reasons may not make another Elective Deferral:
/ / (i) until the first day of the next Plan Year.
/X/ (ii) until the first day of the next valuation period.
/ / (iii) for a period of _____ month(s) (not to exceed 12 months).
/X/ (c) Matching Employer Contribution [See paragraphs (h) and (i)]:
/X/ (i) PERCENTAGE MATCH: The Employer shall contribute and allocate to each eligible Participant's
account an amount equal to 25 % of the amount contributed and allocated in accordance with
-----
paragraph 7(b) above and (if checked) ____% of / ] the amount of Voluntary Contributions made in
accordance with paragraph 4.1 of the Basic Plan Document. The Employer shall not match
Participant Elective Deferrals as provided above in excess of $______ or in excess of 3% of
the Participant's Compensation or if applicable,
</TABLE>
10
<PAGE> 122
<TABLE>
<S> <C>
Voluntary Contributions in excess of $_____ or in excess of ____% of the Participant's
Compensation. In no event will the match on both Elective Deferrals and Voluntary Contributions
exceed a combined amount of $_______ or _____%.
/ / (ii) DISCRETIONARY MATCH: The Employer shall contribute and allocate to each eligible Participant's
account a percentage of the Participant's Elective Deferral contributed and allocated in
accordance with paragraph 7(b) above. The Employer shall set such percentage prior to the end of
the Plan Year. The Employer shall not match Participant Elective Deferrals in excess of $_______
or in excess of ____% of the Participant's Compensation.
/ / (iii) TIERED MATCH: The Employer shall contribute and allocate to each Participant's account an amount
equal to ____% of the first ____% of the Participant's Compensation, to the extent deferred.
/ / ____% of the next ____% of the Participant's Compensation, to the extent deferred.
NOTE: Percentages specified in (iii) above may not increase as the percentage of Participant's contribution
increases.
/ / (iv) FLAT DOLLAR MATCH: The Employer shall contribute and allocate to each Participant's account
$______ if the Participant defers at least 1% of Compensation.
/ / (v) PERCENTAGE OF COMPENSATION MATCH: The Employer shall contribute and allocate to each
Participant's account _____% of Compensation if the Participant defers at least 1% of
Compensation.
/ / (vi) PROPORTIONATE COMPENSATION MATCH: The Employer shall contribute and allocate to each Participant
who defers at least 1% of Compensation, an amount determined by multiplying such Employer Matching
Contribution by a fraction the numerator of which is the Participant's Compensation and the
denominator of which is the Compensation of all Participants eligible to receive such an
allocation. The Employer shall set such discretionary contribution prior to the end of the Plan
Year.
</TABLE>
11
<PAGE> 123
<TABLE>
<S> <C> <C>
/X/ (vii) QUALIFIED MATCH: Employer Matching Contributions will be treated as Qualified Matching
Contributions to the extent specified below:
/ / (A) AU Matching Contributions.
/ / (B) None.
/ / (C) _____% of the Employer's Matching Contribution.
/ / (D) Up to ____% of each Participant's Compensation.
/X/ (E) The amount necessary to meet the / / Average Deferral Percentage (ADP) Test, / /
Average Contribution Percentage (ACP) Test, /X/ Both the ADP and ACP Tests.
(viii) MATCHING CONTRIBUTION COMPUTATION PERIOD: The time period upon which matching contributions will
be based shall be
/ / (A) weekly
/ / (B) bi-weekly
/ / (C) semi-monthly
/ / (D) monthly
/X/ (E) quarterly
/ / (F) semi-annually
/ / (G) annually
/ / (ix) ELIGIBILITY FOR MATCH: Employer Matching Contributions, whether or not Qualified, will only be made
on Employee Contributions not withdrawn prior to the end of the /X/ valuation period / / Plan Year.
/X/ (d) Qualified Non-Elective Employer Contribution - [See paragraphs (h) and (i)] These contributions are fully vested
when contributed.
The Employer shall have the right to make an additional discretionary contribution which shall be allocated to each
eligible Employee in proportion to his or her Compensation as a percentage of the Compensation of all eligible
Employees. This part of the Employer's contribution and the allocation thereof shall be unrelated to any Employee
contributions made hereunder. The amount of
</TABLE>
12
<PAGE> 124
<TABLE>
<S> <C> <C>
Qualified non-Elective Contributions taken into account for purposes of meeting the ADP or ACP test requirements
is:
/ / (i) All such Qualified non-Elective Contributions.
/X/ (ii) The amount necessary to meet / / the ADP test, / / the ACP test, /X/ Both the ADP and ACP tests.
Qualified non-Elective Contributions will be made to:
/ / (iii) All Employees eligible to participate.
/x/ (iv) Only non-Highly Compensated Employees eligible to participate.
/ / (e) Additional Employer Contribution Other Than Qualified Non-Elective Contributions - Non-Integrated [See paragraphs
(h) and (i)]
The Employer shall have the right to make an additional discretionary contribution which shall be allocated to each
eligible Employee in proportion to his or her Compensation as a percentage of the Compensation of all eligible
Employees. This part of the Employer's contribution and the allocation thereof shall be unrelated to any Employee
contributions made hereunder.
/ / (f) Additional Employer Contribution - Integrated Allocation Formula [See paragraphs (h) and (i)]
The Employer shall have the right to make an additional discretionary contribution. The Employer's contribution
for the Plan Year plus any forfeitures shall be allocated to the accounts of eligible Participants as follows:
(i) First, to the extent contributions and forfeitures are sufficient, all Participants will receive an
allocation equal to 3% of their Compensation.
(ii) Next, any remaining Employer Contributions and forfeitures will be allocated to Participants who have
Compensation in excess of the Taxable Wage Base (excess Compensation). Each such Participant will receive
an allocation in the ratio that his or her excess compensation bears to the excess Compensation of all
Participants. Participants may only receive an allocation of 3% of excess Compensation.
(iii) Next, any remaining Employer contributions and forfeitures will be allocated to all Participants in the
ratio that their Compensation plus excess Compensation bears to the total Compensation plus excess
Compensation of all Participants. Participants may only receive an allocation of up to 2.7% of their
Compensation plus excess Compensation, under this allocation method. If the Taxable Wage Base defined at
Section
</TABLE>
13
<PAGE> 125
<TABLE>
<S> <C> <C>
3(j) is less than or equal to the greater of $10,000 or 20% of the maximum, the 2.7% need not be reduced.
If the amount specified is greater than the greater of $10,000 or 20% of the maximum Taxable Wage Base,
but not more than 80%, 2.7% must be reduced to 1.3%. If the amount specified is greater than 80% but less
than 100% of the maximum Taxable Wage Base, the 2.7% must be reduced to 2.4%.
NOTE: If the Plan is not Top-Heavy or if the Top-Heavy minimum contribution or benefit is provided under another
Plan [see Section 11(c)(ii)] covering the same Employees, sub-paragraphs (i) and (ii) above may be
disregarded and 5.7%, 4.3% or 5.4% may be substituted for 2.7%, 1.3% or 2.4% where it appears in (iii)
above.
(iv) Next, any remaining Employer contributions and forfeitures will be allocated to all Participants (whether
or not they received an allocation under the preceding paragraphs) in the ratio that each Participant's
Compensation bears to all Participants' Compensation.
/ / (g) Additional Employer Contribution-Alternative Integrated Allocation Formula. [See paragraph (h) and (i)]
The Employer shall have the right to make an additional discretionary contribution. To the extent that such
contributions are sufficient, they shall be allocated as follows:
____% of each eligible Participant's Compensation plus ____% of Compensation in excess of the Taxable Wage Base
defined at Section 3(j) hereof. The percentage on excess compensation may not exceed the lesser of (i) the amount
first specified in this paragraph or (ii) the greater of 5.7% or the percentage rate of tax under Code Section
3111(a) as in effect on the first day of the Plan Year attributable to the Old Age (OA) portion of the OASDI
provisions of the Social Security Act. If the Employer specifies a Taxable Wage Base in Section 3(j) which is
lower than the Taxable Wage Base for Social Security purposes (SSTWB) in effect as of the first day of the Plan
Year, the percentage contributed with respect to excess Compensation must be adjusted. If the Plan's Taxable Wage
Base is greater than the larger of $10,000 or 20% of the SSTWB but not more than 80% of the SSTWB, the excess
percentage is 4.3%. If the Plan's Taxable Wage Base is greater than 80% of the SSTWB but less than 100% of the
SSTWB, the excess percentage is 5.4%.
NOTE: Only one plan maintained by the Employer may be integrated with Social Security.
</TABLE>
14
<PAGE> 126
<TABLE>
<S> <C> <C>
/X/ (h) Additional Employer Contribution-Points Allocation
Employer's profit-sharing contribution, if any, shall be allocated to each Participant in the ratio that the points
allocable to such Participant bears to the total points allocable to all Participants. The points allocable to a
Participant shall be 40 points for each Year of Service and one point for each $100 of Compensation. For purposes
of allocating points based upon Compensation, Compensation shall be rounded to the next $100 increment. For
purposes of allocating points based upon Service, Service shall be credited in the same manner as Service is
credited for purposes of determining a Participant's vested percentage, except that no credited Service shall be
disregarded. In no event shall the average allocation rate of the Highly Compensated Participants exceed the
average allocation rate of the non-Highly Compensated Participants. If an allocation pursuant to this paragraph
would violate the preceding sentence, then the portion of Employer's profit-sharing contribution allocable to the
Highly Compensated shall be proportionately reduced, and the portion allocable to the non-Highly Compensated
proportionately increased until such time as the requirements of such sentence are met.
(i) Allocation of Excess Amounts (Annual Additions)
In the event that the allocation formula above results in an Excess Amount, such excess shall be:
/ / (i) placed in a suspense account accruing no gains or losses for the benefit of the Participant.
/X/ (ii) reallocated as additional Employer contributions to all other Participants to the extent that they do
not have any Excess Amount.
(j) Minimum Employer Contribution Under Top-Heavy Plans:
For any Plan Year during which the Plan is Top-Heavy, the sum of the contributions and forfeitures as allocated to
eligible Employees under paragraphs 7(d), 7(e), 7(f), 7(g) and 9 of this Adoption Agreement shall not be less than
the amount required under paragraph 14.2 of the Basic Plan document. Top-Heavy minimums will be allocated to:
/ / (i) all eligible Participants.
/X/ (ii) only eligible non-Key Employees who are Participants.
(k) Return of Excess Contributions and/or Excess Aggregate Contributions:
</TABLE>
15
<PAGE> 127
<TABLE>
<S> <C>
In the event that one or more Highly Compensated Employees is subject to both the ADF and ACP tests and the sum of
such tests exceeds the Aggregate Limit, the limit will be satisfied by reducing the:
/ / (i) the ADP of the affected Highly Compensated Employees.
/ / (ii) the ACP of the affected Highly Compensated Employees.
/X/ (iii) a combination of the ADP and ACP of the affected Highly Compensated Employees.
8. ALLOCATIONS TO TERMINATED EMPLOYEES
/ / (a) The Employer will not allocate Employer related contributions to Employees who terminate during a Plan
Year, unless required to satisfy the requirements of Code Section 401(a)(26) and 410(b). (These
requirements are effective for 1989 and subsequent Plan Years.)
/X/ (b) The Employer will allocate Employer matching and other related contributions as indicated below to
Employees who terminate during the Plan Year as a result of:
Matching Other
-------- -----
/X/ / / (i) Retirement.
/X/ / / (ii) Disability.
/X/ / / (iii) Death.
/ / / / (iv) Other termination of employment provided that the Participant has completed a
Year of Service as defined for Allocation Accrual Purposes.
/ / / / (v) Other termination of employment even though the Participant has not completed
a Year of Service.
/ / / / (vi) Termination of employment (for any reason) provided that the Participant had
completed a Year of Service for Allocation Accrual Purposes.
9. ALLOCATION OF FORFEITURES
NOTE: Subsections (a), (b) and (c) below apply to forfeitures of amounts other than Excess Aggregate
Contributions.
</TABLE>
16
<PAGE> 128
<TABLE>
<S> <C>
(a) Allocation Alternatives:
/ / (i) Not Applicable. All contributions are always fully vested.
/X/ (ii) Forfeitures shall be allocated to Participants in the same manner as the Employer's contribution.
If allocation to other Participants is selected, the allocation shall be as follows:
/1/ Amount attributable to Employer discretionary contributions and Top-Heavy minimums will be
allocated to:
/X/ all eligible Participants under the Plan.
/ / only those Participants eligible for an allocation of Employer contributions in the
current year.
/ / only those Participants eligible for an allocation of matching contributions in the
current year.
/2/ Amounts attributable to Employer Matching contributions will be allocated to:
/ / all eligible Participants.
/X/ only those Participants eligible for allocations of matching contributions in the current
year.
/ / (iii) Forfeitures shall be applied to reduce the Employer's contribution for such Plan Year.
/ / (iv) Forfeitures shall be applied to offset administrative expenses of the Plan. If forfeitures exceed
these expenses, (iii) above shall apply.
(b) Date for Reallocation:
NOTE: If no distribution has been made to a former Participant, sub-section (i) below will apply to such Participant
even if the Employer elects (ii), (iii) or (iv) below as its normal administrative policy.
</TABLE>
17
<PAGE> 129
<TABLE>
<S> <C>
/ / (i) Forfeitures shall be reallocated at the end of the Plan Year during which the former Participant
incurs his or her fifth consecutive one year Break In Service.
/ / (ii) Forfeitures will be reallocated immediately (as of the next Valuation Date).
/ / (iii) Forfeitures shall be reallocated at the end of the Plan Year during which the former Employee
incurs his or her ___ (1st, 2nd, 3rd, or 4th) consecutive one year Break In Service.
/X/ (iv) Forfeitures will be reallocated immediately (as of the Plan Year end).
(c) Restoration of Forfeitures:
If amounts are forfeited prior to five consecutive 1-year Breaks in Service, the Funds for restoration of account
balances will be obtained from the following resources in the order indicated (fill in the appropriate number):
/1/ (i) Current year's forfeitures.
/2/ (ii) Additional Employer contribution.
/3/ (iii) Income or gain to the Plan.
(d) Forfeitures of Excess Aggregate Contributions shall be:
/ / (i) Applied to reduce Employer contributions.
/X/ (ii) Allocated, after all other forfeitures under the Plan, to the Matching Contribution account of
each non-highly compensated Participant who made Elective Deferrals or Voluntary Contributions in
the ratio which each such Participant's Compensation for the Plan Year bears to the total
Compensation of all Participants for such Plan Year. Such forfeitures cannot be allocated to the
account of any Highly Compensated Employee.
Forfeitures of Excess Aggregate Contributions will be so applied at the end of the Plan Year in which they occur.
10. CASH OPTION
/ / (a) The Employer may permit a Participant to elect to defer to the Plan, an amount not to exceed _____% of any
Employer paid cash bonus made for such Participant for any year. A Participant must file an election to
defer such contribution at least fifteen (15) days prior to the end of the Plan
</TABLE>
18
<PAGE> 130
<TABLE>
<S> <C>
Year. If the Employee fails to make such an election, the entire Employer paid cash bonus to which the
Participant would be entitled shall be paid as cash and not to the Plan. Amounts deferred under this
section shall be treated for all purposes as Elective Deferrals. Notwithstanding the above, the election
to defer must be made before the bonus is made available to the Participant.
/X/ (b) Not Applicable.
11. LIMITATIONS ON ALLOCATIONS
/X/ This is the only Plan the Employer maintains or ever maintained, therefore, this section is not applicable.
/ / The Employer does maintain or has maintained another Plan (including a Welfare Benefit Fund or an individual
medical account (as defined in Code Section 415(l)(2)), under which amounts are treated as Annual Additions) and
has completed the proper sections below.
Complete (a), (b) and (c) only if the Employer maintains or ever maintained another qualified plan, including a
Welfare Benefit Fund or an individual medical account [as defined in Code Section 415(l)(2)] in which any
Participant in this Plan is (or was) a participant or could possibly become a participant.
(a) If the Participant is covered under another qualified Defined Contribution Plan maintained by the Employer, other
than a Master or Prototype Plan.
/ / (i) the provisions of Article X of the Basic Plan Document will apply, as if the other plan were a Master
or Prototype Plan.
/ / (ii) Attach provisions stating the method under which the plans will limit total Annual Additions to the
Maximum Permissible Amount, and will properly reduce any Excess Amounts, in a manner that precludes
Employer discretion.
(b) If a Participant is or ever has been a participant in a Defined Benefit Plan maintained by the Employer:
Attach provisions which will satisfy the 1.0 limitation of Code Section 415(e). Such language must preclude
Employer discretion. The Employer must also specify the interest and mortality assumptions used in determining
Present Value in the Defined Benefit Plan.
(c) The minimum contribution or benefit required under Code Section 416 relating to Top-Heavy Plans shall be satisfied
by:
/ / (i) this Plan.
</TABLE>
19
<PAGE> 131
<TABLE>
<S> <C>
/ / (i)
----------------------------------------
(Name of other qualified plan of the Employer).
/ / (iii) Attach provisions stating the method under which the minimum contribution and benefit provisions
of Code Section 416 will be satisfied. If a Defined Benefit Plan is or was maintained, an
attachment must be provided showing interest and mortality assumptions used in the Top-Heavy
Ratio.
12. VESTING
Employees shall have a fully vested and nonforfeitable interest in any Employer contribution and the investment earnings
thereon made in accordance with paragraphs (select one or more options) / / 7(c), / / 7(e), / / 7(f), / / 7(g) and
/ / 7(i) hereof. Contributions under paragraph 7(b), 7(c)(vii) and 7(d) are always fully vested. If one or more of the
foregoing options are not selected, such Employer contributions shall be subject to the vesting table selected by the
Employer.
Each Participant shall acquire a vested and nonforfeitable percentage in his or her account balance attributable to
Employer contributions and the earnings thereon under the procedures selected below except with respect to any Plan Year
during which the Plan is Top-Heavy, in which case the Two-twenty vesting schedule [Option (b)(iv)] shall automatically
apply unless the Employer has already elected a faster vesting schedule. If the Plan is switched to option (b)(iv),
because of its Top-Heavy status, that vesting schedule will remain in effect even if the Plan later becomes non-Top-Heavy
until the Employer executes an amendment of this Adoption Agreement indicating otherwise.
(a) Computation Period:
The computation period for purposes of determining Years of Service and Breaks in Service for purposes of computing
a Participant's nonforfeitable right to his or her account balance derived from Employer contributions:
/ / (i) shall not be applicable since Participants are always fully vested,
/ / (ii) shall commence on the date on which an Employee first performs an Hour of Service for the Employer
and each subsequent 12-consecutive month period shall commence on the anniversary thereof, or
/X/ (iii) shall commence on the first day of the Plan Year during which an Employee first performs an Hour
of Service for the Employer and each subsequent 12-consecutive month period shall commence on the
anniversary thereof.
A Participant shall receive credit for a Year of Service if he or she completes at least 1,000 Hours of Service [or if
lesser, the number of hours specified at 3(l)(iii) of this
</TABLE>
20
<PAGE> 132
<TABLE>
<S> <C>
Adoption Agreement] at any time during the 12-consecutive month computation period. Consequently, a Year of Service may be
earned prior to the end of the Inconsecutive month computation period and the Participant need not be employed at the end
of the 12-consecutive month computation period to receive credit for a Year of Service.
(b) Vesting Schedules:
NOTE: The vesting schedules below only apply to a Participant who has at least one Hour of Service during or after the
1989 Plan Year. If applicable, Participants who separated from Service prior to the 1989 Plan Year will remain
under the vesting schedule as in effect in the Plan prior to amendment for the Tax Reform Act of 1986.
(i) Full and immediate vesting.
</TABLE>
<TABLE>
<CAPTION>
Years of Service
----------------
1 2 3 4 5 6 7
----- ----- ----- ------ ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(ii) ____% 100%
(iii) ____% ____% 100%
(iv) 0 % 20% 40% 60% 80% 100%
(v) ____% ____% 20% 40% 60% 80% 100%
(vi) 10% 20% 30% 40% 60% 80% 100%
(vii) ____% ____% ____% ____% 100%
(viii) ____% ____% ____% ____% ___% ___% 100%
</TABLE>
<TABLE>
<S> <C>
NOTE: The percentages selected for schedule (viii) may not be less for any year than the percentages shown at schedule (v).
/X/ All contributions other than those which are fully vested when contributed will vest under schedule iv above.
/ / Contributions other than those which are fully vested when contributed will vest as provided below:
Vesting
Option Selected Type Of Employer Contribution
--------------- -----------------------------
______ 7(c) Employer Match on Salary Savings
______ 7(c) Employer Match on Employee Voluntary
______ 7(e) Employer Discretionary
</TABLE>
21
<PAGE> 133
<TABLE>
<S> <C>
______ 7(f) & (g) Employer Discretionary - Integrated
(c) Service disregarded for Vesting:
/X/ (i) Not Applicable. All Service shall be considered.
/ / (ii) Service prior to the Effective Date of this Plan or a predecessor plan shall be
disregarded when computing a Participant's vested and nonforfeitable interest.
/ / (iii) Service prior to a Participant having attained age 18 shall be disregarded when computing a
Participant's vested and nonforfeitable interest.
13. SERVICE WITH PREDECESSOR ORGANIZATION
For purposes of satisfying the Service requirements for eligibility, Hours of Service shall include Service with the
following predecessor organization(s):
(These hours will also be used for vesting purposes.) Mid-Atlantic
SEE ATTACHED
14. ROLLOVER/TRANSFER CONTRIBUTIONS
(a) Rollover Contributions, as described at paragraph 4.3 of the Basic Plan Document, /X/ shall / / shall not be
permitted. If permitted, Employees /X/ may / / may not make Rollover Contributions prior to meeting the
eligibility requirements for participation in the Plan.
(b) Transfer Contributions, as described at paragraph 4.4 of the Basic Plan Document /X/ shall / / shal1 not be
permitted. If permitted, Employees /X/ may / / may not make Transfer Contributions prior to meeting the
eligibility requirements for participation in the Plan.
NOTE: Even if available, the Employer may refuse to accept such contributions if its Plan meets the safe-harbor rules
of paragraph 8.7 of the Basic Plan Document.
15. HARDSHIP WITHDRAWALS
Hardship withdrawals, as provided for in paragraph 6.9 of the Basic Plan Document, /X/ are / / are not permitted.
16. PARTICIPANT LOANS
</TABLE>
22
<PAGE> 134
<TABLE>
<S> <C>
Participant loans, as provided for in paragraph 13.5 of the Basic Plan Document, / / are /X/ are not permitted. If
permitted, repayments of principal and interest shall be repaid to / / the Participant's segregated account or / / the
general Fund.
17. INSURANCE POLICIES
The insurance provisions of paragraph 13.6 of the Basic Plan Document / / shall /X/ shall not be applicable.
18. EMPLOYER INVESTMENT DIRECTION
The Employer investment direction provisions, as set forth in paragraph 13.7 of the Basic Plan Document, /X/ shall / /
shall not be applicable.
19. EMPLOYEE INVESTMENT DIRECTION
(a) The Employee investment direction provisions, as set forth in paragraph 13.8 of the Basic Plan Document /X/ shall
/ / shall not be applicable.
If applicable, Participants may direct their investments:
/X/ (i) among funds offered by the Trustee.
/ / (ii) among any allowable investments.
(b) Participants may direct the following kinds of contributions and the earnings thereon (check all applicable):
/X/ (i) All Contributions
/ / (ii) Elective Deferrals
/ / (iii) Employee Voluntary Contributions (after-tax)
/ / (iv) Employee Mandatory Contributions (after-tax)
/ / (v) Employer Qualified Matching Contributions
/ / (vi) Other Employer Matching Contributions
/ / (vii) Employer Qualified Non-Elective Contributions
/ / (viii) Employer Discretionary Contributions
/ / (ix) Rollover Contributions
/ / (x) Transfer Contributions
</TABLE>
23
<PAGE> 135
<TABLE>
<S> <C>
/ / (xi) All of above which are checked, but only to the extent that the Participant is vested in those
contributions.
NOTE: To the extent that Employee investment direction was previously allowed, it shall continue to be allowed
on those amounts and the earnings thereon.
20. EARLY PAYMENT OPTION
(a) A Participant who separates from Service prior to retirement, death or Disability /X/ may / / may not make
application to the Employer requesting an early payment of his or her vested account balance.
(b) A Participant who has attained age 59-1/2 and who has not separated from Service /X/ may / / may not obtain a
distribution of his or her vested Employer contributions. Distribution can only be made if the Participant is 100%
vested.
(c) A Participant who has attained the Plan's Normal Retirement Age and who has not separated from Service /X/ may / /
may not receive a distribution of his or her vested account balance.
NOTE: If the Participant has had the right to withdraw his or her account balance in the past, this right may
not be taken away. Notwithstanding the above, to the contrary, required minimum distributions will be
paid. For timing of distributions, see item 21(a) below.
21. DISTRIBUTION OPTIONS
(a) Timing of Distributions:
In cases of termination for other than death, Disability or retirement, benefits shall be paid:
/X/ (i) As soon as administratively feasible, following the close of the valuation period during which a
distribution is requested or is otherwise payable.
/ / (ii) As soon as administratively feasible following the close of the Plan Year during which a
distribution is requested or is otherwise payable.
/ / (iii) As soon as administratively feasible, following the date on which a distribution is requested or
is otherwise payable.
/ / (iv) As soon as administratively feasible, after the close of the Plan Year during which the
Participant incurs ____ consecutive one-year Breaks in Service.
</TABLE>
24
<PAGE> 136
<TABLE>
<S> <C>
/ / (v) Only after the Participant has achieved the Plan's Normal Retirement Age, or Early Retirement Age,
if applicable.
In cases of death, Disability or retirement, benefits shall be paid:
/X/ (vi) As soon as administratively feasible, following the close of the valuation period during which a
distribution is requested or is otherwise payable.
/ / (vii) As soon as administratively feasible following the close of the Plan Year during which a
distribution is requested or is otherwise payable.
/ / (viii) As soon as administratively feasible, following the date on which a distribution is requested or
is otherwise payable.
(b) Optional Forms of Payment:
/X/ (i) Lump Sum.
/X/ (ii) Installment Payments.
/X/ (iii) Life Annuity*.
/X/ (iv) Life Annuity Term Certain*.
Life Annuity with payments guaranteed for 10 years (not to exceed 20 years, specify all
-------
applicable).
/ / (v) Joint and / / 50%, / / 66-2/3%, / / 75% or / / 100% survivor annuity* (specify all applicable).
/ / (vi) Other form(s) specified: ___________________
*Not available in Plan meeting provisions of paragraph 8.7 of Basic Plan Document.
(c) Recalculation of Life Expectancy:
In determining required distributions under the Plan, Participants and/or their Spouse (Surviving Spouse) /X/ shall
/ / shall not have the right to have their life expectancy recalculated annually.
If "shall",
/ / only the Participant shall be recalculated.
/ / both the Participant and Spouse shall be recalculated.
</TABLE>
25
<PAGE> 137
<TABLE>
<S> <C>
/x/ who is recalculated shall be determined by the Participant.
22. SPONSOR CONTACT
Employers should direct questions concerning the language contained in and qualification of the Prototype to:
(Job Title) DIRECTOR OF HUMAN RESOURCES
(Phone Number) (703) 660-6677 EXT. 6110
In the event that the Sponsor amends, discontinues or abandons this Prototype Plan, notification will be provided to the
Employer's address provided on the first page of this Agreement.
</TABLE>
26
<PAGE> 138
<TABLE>
<S> <C>
23. SIGNATURES:
DUE TO THE SIGNIFICANT TAX RAMIFICATIONS, THE SPONSOR RECOMMENDS THAT BEFORE YOU EXECUTE THIS ADOPTION AGREEMENT, YOU
CONTACT YOUR ATTORNEY OR TAX ADVISOR, IF ANY.
(a) EMPLOYER:
Name and address of Employer if different than specified in Section 1 above.
This agreement and the corresponding provisions of the Plan and Trust/Custodial Account Basic Plan Document were
adopted by the Employer the 3rd day of May, 1995.
Signed for the Employer by:
Title:
Signature: /s/ Vincent D. Kelly
--------------------------------
THE EMPLOYER UNDERSTANDS THAT ITS FAILURE TO PROPERLY COMPLETE THE ADOPTION AGREEMENT MAY RESULT IN
DISQUALIFICATION OF ITS PLAN.
Employer's Reliance: The adopting Employer may not rely on an opinion letter issued by the National Office of the
Internal Revenue Service as evidence that the Plan is qualified under Code Section 401. In order to obtain
reliance with respect to Plan qualification, the Employer must apply to the appropriate Key District Office for a
determination letter.
This Adoption Agreement may only be used in conjunction with Basic Plan Document.
</TABLE>
27
<PAGE> 139
EXHIBIT 13.1
TO EXHIBIT 13.1
METROCALL
1995
ANNUAL REPORT
[Picture of Metrocall, Inc. corporate headquarters]
<PAGE> 140
METROCALL INC.
METROCALL IS POISED TO ASSUME A LEADERSHIP ROLE IN THE PAGING INDUSTRY. 1996
WILL BE A THRESHOLD YEAR FOR THE COMPANY AS IT PASSES THE ONE MILLION
SUBSCRIBER MARK IN THE FIRST QUARTER AND SEEKS TO DOUBLE THE SIZE AND SCOPE OF
THE COMPANY BY YEAR END. IT IS OF STRATEGIC RELEVANCE THAT YOUR COMPANY EXECUTE
AND DELIVER ON ALL THREE ELEMENTS OF OUR STATED "GROW, BUILD, AND ACQUIRE"
STRATEGY.
CONTENTS
<TABLE>
<S> <C>
1 FINANCIAL HIGHLIGHTS
2 SHAREHOLDERS' LETTER
4 OUR CORPORATE VISION
6 OUR MARKETING STRATEGY
8 OUR FINANCIAL STRATEGY
10 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
16 CONSOLIDATED BALANCE SHEETS
17 CONSOLIDATED STATEMENTS OF OPERATIONS
18 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
19 CONSOLIDATED STATEMENTS OF CASH FLOWS
20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27 CORPORATE INFORMATION AND MANAGEMENT
28 BOARD OF DIRECTORS AND COMMITTEES
</TABLE>
<PAGE> 141
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(Dollars in thousands, except per unit amounts) 1993 1994(a) 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenues(b) $ 33,530 $ 50,893 $ 95,332
Operating Cash Flow(c) $ 10,923 $ 16,152 $ 27,771
Pagers in Service Per Employee 716 1,007 1,047
Operating Cost Per Unit Per Month $ 8.39 $ 7.36 $ 6.71
Pagers in Service 247,716 755,546 944,013
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 1994 includes the results of operations of acquired companies from their
respective dates of acquisition.
(b) Total revenues less net book value of products sold.
(c) Earnings before interest, taxes, depreciation, and amortization.
METROCALL NATIONWIDE WIRELESS NETWORK:
6 REGIONS, 50 STATES, 864 CITIES
[GRAPHIC: MAP ILLUSTRATING METROCALL NATIONWIDE WIRELESS NETWORK]
1
<PAGE> 142
DEAR SHAREHOLDERS, EMPLOYEES, AND FRIENDS:
The year 1995 marked our 30th year in the wireless communications business. We
view this past year as an important consolidation period, following our two
major acquisitions completed in late 1994. Your management was involved in
numerous transition issues, including the integration of distribution,
marketing, management information systems, and financial functions -- and
developed a strategy to foster internal growth and facilitate acquisitions.
Substantial capital was invested in paging network expansion and new market
development. Programs to enhance customer support and improve our regional and
wide-area local network infrastructure were initiated. We believe the regions
networked by your Company are better served as a result, and that substantial
future growth can be accommodated.
[PHOTO OF RICHARD M. JOHNSTON]
A highlight of the past year was the successful public equity offering which
raised $1l3 million, and the sale of senior subordinated notes through a public
debt offering of approximately $150 million. The financings enabled your
Company to repay bank indebtedness, fund the capital investment plan, and end
the year with substantial cash balances. Going forward, our balance sheet is
one of the strongest among industry participants. The Company's financial
strength, coupled with our ability to access additional financing, will enable
us to pursue our announced strategy of "grow, build, and acquire."
Technology, economies of scale, and access to capital have been accelerating
consolidation of the paging industry. Today, some 70% of the U.S. market is
controlled by the top ten providers. Pricing is competitive, and alternative
forms of distribution are supplementing the traditional mode of direct selling.
Industry sources predict 35 million pagers in service by the end of 1996
compared with five million a decade ago. We expect to be a driving force in
the growth and further consolidation of the paging industry.
During 1995, our distribution channels continued to shift toward indirect forms
such as resellers, retail stores, and mail-order fulfillment houses. For
example, we signed distribution agreements with Ritz Camera Centers, the
nationwide photography and electronics retail chain, and with Crutchfield, the
consumer electronics mail-order catalogue. We are positioning our marketing
effort to utilize additional channels of distribution such as database
telemarketing, national strategic partnerships, and franchising of reseller
companies.
Our product line of higher margin "enhanced paging" services was expanded to
meet growing consumer demand for innovative options. Examples include "One
Touch," which features MetroFax, Multiple Greeting option, "Meet Me," and "Find
Me."
New markets which opened in 1995 included Boston, Phoenix, Pittsburgh, San
Diego, Las Vegas, and Florida. Coverage areas were extended in several
metropolitan areas in response to expanded customer patterns of use. We
continued a strategic build-out of our nationwide network infrastructure and
experienced meaningful growth in subscribers.
As we indicated earlier, management devoted considerable effort to acquisition
activity throughout the year, in addition to addressing the transition issues
related to our 1994 acquisitions, which virtually tripled the size of our
Company. Board support of management's strategy, together with the
restructuring of the balance sheet, has provided the direction and means to
actively
2
<PAGE> 143
pursue quality, complementary paging company acquisitions in the consolidation
phase of this industry. Your board and management believe it to be in the best
interest of all shareholders to aggressively grow the Company through a
three-phased strategy. We view it as a vital component of building shareholder
value, as well as strengthening our Company's future viability.
Shortly after the end of 1995, the Board of Directors reorganized board and
certain management roles, placing the undersigned in our current positions.
Our many years of telecommunication investing, management experience, and
entreprenuership give us confidence that we are on the right track to
participate fully in the continued rapid growth of wireless messaging. We are
mindful of the resource requirements for a "grow, build, and acquire" plan and
are totally committed to its success. We must promote a winning mentality
among our employees and management to meet the challenges of becoming a leader
in this consolidating industry. Our internal growth rate must be maintained
with managers empowered to meet agreed upon objectives. Distribution channels
must be broadened, and our acquisition plan must achieve meaningful additions.
We must prepare to offer our long-term and newly-acquired customers new voice
and data services as the personal communications industry expands. It is an
exciting time in one of the most exciting segments of the telecommunications
revolution.
[PHOTO OF WILLIAM L. COLLINS III]
We welcome Ronald Aprahamian to our Board of Directors and thank our former
Chairman and President, Harry Brock, and former Chief Executive Officer, Chris
Kidd, for their many years of service. We also thank our loyal and dedicated
employees for their continued efforts in giving Metrocall a strong foundation
and a leadership position in our industry.
Sincerely,
/s/ RICHARD M. JOHNSTON /s/ WILLIAM L. COLLINS III
RICHARD M. JOHNSTON WILLIAM L. COLLINS III
Chairman of the Board President and Chief Executive Officer
3
<PAGE> 144
OUR CORPORATE VISION
The wireless messaging industry has undergone a dramatic transformation over
the last few years, redefining the standards for success in this marketplace.
Events we describe as commonplace today would have amazed the industry only a
few years ago. In fact, the industry has experienced more change in the past
two years than in all of the previous ten. Today, competition and
technological advancements are forcing the consolidation of the communications
industry. During this consolidation phase Metrocall has emerged as a leader
and one of the top ten paging companies in the United States. This did not
happen by accident, but rather by design. We have attained our position by
developing a strategy and then executing it. It is this plan, to "grow, build,
and acquire" that represents the driving force in Metrocall's future.
Our strategy is simple: we will "grow" existing markets internally, seeking an
above industry average growth rate that will increase our market share; we will
"build" new markets and increase our presence throughout the United States,
linking local markets to regional ones and then expanding them as part of our
nationwide system; and we will "acquire" quality, complementary companies as a
means of strategically expanding to the scale and size necessary for remaining
an industry leader.
An important benchmark for success in our industry is the growth and scale of
one's subscriber base. Metrocall demonstrated its commitment to this goal over
the last year. By the end of 1995 Metrocall had, in a little over 16 months,
tripled its base to nearly one million subscribers. Our internal subscriber
growth surge during the last quarter of 1995 also demonstrated this commitment.
Our plan to strengthen, focus and incentivize our sales force as well as
developing nationally a multi-tiered distribution strategy holds great promise
for 1996. This strategy allows us to aggressively increase our subscriber base
internally, grow our operating cash flow, and increase the value of Metrocall
for every shareholder.
Our strategy does not stop with internal growth. The marketplace demands
nationwide capabilities, not only in terms of frequency and footprint, but
national market presence and distribution.
4
<PAGE> 145
Metrocall, with its two nationwide frequencies has advantageous spectrum
possibilities and capabilities to serve its customers today and into the
future. We invested in a nationwide buildout in 1995 with plans for continued
expansion in 1996. We are responding to the market and remain dedicated to
incorporating our network capabilities as a key component of our strategic
plan.
In order to remain a leader in the consolidating wireless messaging industry,
where size and scope are paramount, we have set in motion an aggressive
acquisition program. In 1994 we acquired two major companies and successfully
integrated all systems and personnel in 1995. The speed at which our industry
has consolidated demands that Metrocall execute its aggressive acquisition
strategy during 1996. Management has formulated a three-phased acquisition
plan of business consolidation that seeks to double the size of the Company as
a direct result of these efforts. The acquired companies will provide
geographical and synergistic assets which combined produces a national wireless
information network and distribution structure in a rapidly consolidating
industry. This aggressive pursuit of quality acquisitions will dominate senior
management efforts during the year.
To succeed in this marketplace a company must employ a forward thinking
strategy that reflects the realities of our industry yet possesses the
flexibility to capitalize on opportunities. We must be able to look beyond the
present and build for the future. Strategic investments in Metrocall's
nationwide infrastructure, in management information systems, and in developing
senior management talent must continue. New opportunities must be seized; new
technologies deployed; new markets developed. Today, the United States
dominates the paging industry and will remain its foundation. However, the
wireless communications revolution has begun to dawn overseas as well and we
are committed to exploring opportunities on a global basis as they arise. 1996
is a year of great opportunity for Metrocall to strengthen its leadership
position and be recognized and rewarded for having had the vision to invest and
build for the future.
GROW... BUILD... ACQUIRE
[DEPICTION OF A GLOBE]
[PHOTO OF WILLIAM L. COLLINS III]
"OUR STRATEGY FOR CONTINUED LEADERSHIP IN THE WIRELESS MESSAGING INDUSTRY IS TO
AGGRESSIVELY INCREASE OUR SUBSCRIBER BASE INTERNALLY, "GROW" OUR OPERATING CASH
FLOW, "BUILD" OUT OUR NATIONWIDE INFRASTRUCTURE, AND "ACQUIRE" QUALITY,
COMPLEMENTARY COMPANIES AS A MEANS OF STRATEGICALLY EXPANDING THE SCALE AND
SCOPE OF THE COMPANY. THE SPEED AT WHICH OUR INDUSTRY HAS CONSOLIDATED DEMANDS
THAT METROCALL EXECUTE ITS STRATEGY DURING 1996 AND BE RECOGNIZED AND REWARDED
FOR HAVING HAD THE VISION TO INVEST AND BUILD FOR THE FUTURE."
WILLIAM L. COLLINS III
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5
<PAGE> 146
OUR MARKETING STRATEGY
Metrocall's marketing strategy is to grow internally at above industry average
growth rates by employing a multi-tiered distribution strategy. This past year
has effected enormous changes in our industry and its means of distribution,
presenting us with unique opportunities for growth.
Metrocall has grasped these opportunities, rapidly mapping out a strategy for
internal growth that was in place before year's end. We have developed a
multi-tiered distribution plan that addresses each of the Company's networks --
local, regional, and nationwide -- with each tier targeting a specific market
segment for both the business and consumer sectors.
Traditional methods of distribution continue to be very successful. Our
reseller program has constituted over 50% of our internal growth over the last
several quarters and represents the lowest cost of sale of any distribution
channel. Direct sales, where specialized sales forces target small, medium,
and large companies, continue to produce new subscribers across each business
front. Inside sales, where existing customers add on new units or acquire
enhanced features, have grown faster and are proving more cost-effective than
traditional direct sales.
Even though many of the traditional methods remain effective, we continue to
develop new channels of distribution to supplement them and reduce the
marketing cost per new subscriber. Among those we are focusing on for 1996 are
database marketing, catalogue sales, and the use of strategic partnerships.
Our database marketing department analyzes the professional and small business
segment of the market and then targets specific sectors through direct mail
and/or telemarketing. This channel employs a lower cost of sale and reaches a
wider audience for both our local and nationwide products.
In 1995 we began exploring catalogue sales, a distribution channel which has
seen meteoric growth over the last several years. We recently signed an
agreement with a major distributor, which allows us to reach a nationwide
audience for our local and nationwide
6
<PAGE> 147
products of over six million households. Although the implementation of this
plan is relatively recent, we have already seen the benefits of this
distribution program.
With a renewed focus on both local and nationwide small business and consumer
markets, we have begun entering into strategic partnerships with selected
companies that have large customer bases such as long distance and cable
companies. This approach, which seeks to establish a mutually beneficial
relationship for both parties, accesses a market that is predisposed toward our
products. We expect these partnerships to both increase our return while
expanding our base.
Although product sales are always paramount in our operations, we have also
continued to emphasize the importance of building a strong foundation for our
internal growth. Metrocall's Nationwide Network has expanded to include over
860 cities throughout the United States. We have integrated our management
information and billing systems in order to provide access to our indirect
distribution channels so they may better serve their own customer base.
Functions such as accounting, inventory, and credit and collections have been
centralized to improve efficiency, productivity, and management control. We
have further improved and upgraded our National Customer Service Center
providing extended hours of service for our nationwide subscribers.
The Company is constantly fine tuning its operations to achieve the
efficiencies and economies of scale necessary to provide exceptional service
while maintaining a low cost infrastructure. We continue to identify and
evaluate those areas where we can further automate, streamline, or eliminate
functions.
While the Company recognizes the importance of technological advancement, we
know that our people will always be our greatest asset. When it comes to our
workforce, we have one of the most experienced management and marketing teams
in the mobile communications industry.
As the consolidation of the paging industry continues, we are uniquely prepared
to play a major role in shaping its future.
SUBSCRIBER GROWTH THROUGH... MULTI-TIERED DISTRIBUTION
[PICTURE OF SEVERAL METROCALL PAGERS]
[PHOTO OF STEVEN D. JACOBY]
"A key to remaining an industry leader is being responsive to the dynamic
evolution of the wireless messaging industry. Even though many of the
traditional sales methods remain effective, we continue to develop new channels
of distribution to take advantage of the explosive growth projected for our
industry segment.
Metrocall has develop a multi-tiered distribution strategy that addresses each
of the Company's networks -- local, regional and nationwide -- with each tier
targeting a specific market segment. We have also begun pursuing strategic
partnerships with other subscriber-based communications companies to expand our
distribution capabilities. Database marketing initiated in 1995 is also leading
us toward attractive targets in specialized business markets. This strategy
allows us to increase market penetration while maintaining one of the lowest
marketing costs per subscriber ratios in the industry."
Steven D. Jacoby
Chief Operating Officer
7
<PAGE> 148
OUR FINANCIAL STRATEGY
The strength of a company is often measured by, among other things, its balance
sheet. Historically, Metrocall has had one of the strongest balance sheets in
the industry. Going into 1996, Metrocall is again one of the healthiest
companies in the industry based on the strength of our balance sheet. This has
always been our hallmark and a key element in our financial strategy.
Large amounts of capital investment are needed to build a national
communications company. Metrocall's Nationwide Network, first activated in
November 1993, now covers 864 U.S. cities with 32 field offices and offers
paging and other wireless services to over 940,000 subscribers throughout the
top 100 Standard Metropolitan Service Areas (SMSAs) in the United States. This
Network not only provides Metrocall with an exclusive nationwide paging system
but also offers an efficient, low cost means of entering new local and regional
markets.
Metrocall continues to invest in infrastructure -- transmitters, paging
terminals, and computer systems -- necessary to increase capacity as we "build"
for the future. In 1996 our strategic plans call for both the continued build
out of our infrastructure and the aggressive pursuit of quality, complementary
acquisitions. We will continue the expansion of our service capacity and
coverage areas in order to achieve a low-cost and large-scale operating
platform for both near- and long-term.
In a rapidly consolidating industry where the survival of the fittest dictates
judicious expenditures of capital to acquire the assets and companies needed to
leverage the Company forward, ever larger amounts of capital will be required.
It is testimony to Metrocall's "grow, build, and acquire" strategy and our
record that in 1995 we successfully completed a massive underwriting to raise
capital for the Company's future. The investing public, both individually and
through a large cadre of investing institutions, placed over $260 million of
equity and debt into Metrocall.
8
<PAGE> 149
Throughout 1995, Metrocall continued to pursue the "grow" element of our
strategy, increasing our customer base by approximately 25% solely through
internal growth. This growth was facilitated in part by direct sales through
the pursuit of small and mid-sized accounts and by emphasizing value-added
services. The Company also expanded distribution channels to include indirect
sales through paging service resellers.
During 1994, Metrocall more than tripled our base of pagers in service as a
result of both acquisitions and internal growth. As we enter 1996, Metrocall's
Board of Directors and management are committed, prepared, and equipped to
execute the third leg of our operating strategy, "acquire." We have assembled a
knowledgeable and experienced team comprised of bankers, lawyers, and
accountants, as well as key members from within our own management, to move
quickly and assuredly in evaluating potential candidates for acquisition.
Our current balance sheet and history lends credibility to our strategy of
growth through acquisitions which make financial and strategic sense to
Metrocall and our shareholders. Our acquisition strategy is based on our
evaluation of long established criteria, including the size of the subscriber
base, paging spectrum, geographic coverage, market penetration, potential
administrative operating efficiencies, financial leverage, and price. The
ultimate goal, of course, is to increase shareholder value.
Metrocall remains a financially strong company with assets, leverage, and
banking relationships in place to continue the implementation of our "grow,
build, and acquire" strategy. The support we have received from our investors,
employees, and professional relationships has been overwhelming. We look
forward to ensuring the continued financial success of our Company and
increasing shareholder value as we enter the new year.
BUILDING AN INFRASTRUCTURE FOR THE FUTURE
[PHOTO OF SATELLITE DISH]
[PHOTO OF VINCENT D. KELLY]
"METROCALL'S RESPONSE TO A GROWING, YET RAPIDLY CONSOLIDATING INDUSTRY INCLUDES
CONTINUING TO BUILD OUT VITAL INFRASTRUCTURE -- TRANSMITTERS, PAGING TERMINALS
AND COMPUTER SYSTEMS -- AND THE AGGRESSIVE PURSUIT OF QUALITY, COMPLEMENTARY
ACQUISITIONS. RECENT ACQUISITIONS HAVE SIGNIFICANTLY ADDED TO OUR SUBSCRIBER
BASE IN ESTABLISHED MARKETS AND FUSED ADDITIONAL NEW TERRITORY ONTO OUR
NATIONWIDE BASE. BY CONTINUING TO EXPAND SERVICE CAPACITY AND COVERAGE AREAS,
WE WILL ACHIEVE A LOW COST OPERATING PLATFORM FOR BOTH THE NEAR- AND LONG-TERM.
OUR 1995 DEBT AND EQUITY OFFERINGS HAVE INCREASED METROCALL'S FINANCIAL
STRENGTH AND FLEXIBILITY, SETTING THE STAGE FOR ADDITIONAL GROWTH IN 1996."
VINCENT D. KELLY
CHIEF FINANCIAL OFFICER AND TREASURER
9
<PAGE> 150
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents selected financial data of the Company for each of
the five years in the period ended December 31, 1995. The historical financial
data has been derived from the audited consolidated financial statements of the
Company. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and notes
thereto presented elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
(Dollars in thousands, except per share, unit and per unit data) 1991 1992 1993 1994(1) 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Service, rent and maintenance revenues $ 29,140 $ 30,996 $ 33,111 $ 49,716 $ 92,160
Product sales 4,101 4,196 4,549 8,139 18,699
-----------------------------------------------------------------
Total revenues 33,241 35,192 37,660 57,855 110,859
Net book value of products sold (3,319) (3,439) (4,130) (6,962) (15,527)
-----------------------------------------------------------------
Net revenues 29,922 31,753 33,530 50,893 95,332
Operating expenses before depreciation
and amortization(2) 19,770 20,683 27,438 34,741 69,611
Depreciation and amortization 6,695 6,594 6,525 13,829 31,504
-----------------------------------------------------------------
Income (loss) from operations 3,457 4,476 (433) 2,323 (5,783)
Interest and other income 2,105 1,212 77 161 2,011
Interest expense (4,101) (2,631) (1,331) (3,726) (12,533)
-----------------------------------------------------------------
Income (loss) before income tax benefit
(provision) and extraordinary item 1,461 3,057 (1,687) (1,242) (16,305)
Income tax benefit (provision) (12) (69) (59) 152 595
-----------------------------------------------------------------
Income (loss) before extraordinary item 1,449 2,988 (1,746) (1,090) (15,710)
Extraordinary item(3) -- -- (439) (1,309) (4,392)
-----------------------------------------------------------------
Net income (loss) $ 1,449 $ 2,988 $ (2,185) $ (2,399) $ (20,102)
=================================================================
Net loss per common share:
Loss per common share before
extraordinary item $ (0.14) $ (1.34)
Extraordinary item, net of income tax benefit (0.16) (0.38)
-----------------------
Net loss per common share: $ (0.30) $ (1.72)
=======================
OPERATING AND OTHER DATA:
Units in service (end of period) 193,051 201,397 247,716 755,546 944,013
EBITDA(4) $ 10,152 $ 11,070 $ 10,923 $ 16,152 $ 27,771
EBITDA margin(5) 33.9% 34.9% 32.6% 31.7% 29.1%
ARPU(6) $ 13.07 $ 13.10 $ 12.29 $ 10.53 $ 9.15
Average monthly operating expense per unit(7) 8.87 8.74 8.39 7.36 6.71
Units in service per employee (end of period) 692 730 716 1,007 1,047
Capital expenditures $ 4,863 $ 3,918 $ 13,561 $ 19,091 $ 44,058
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $ 882 $ 1,700 $ 1,014 $ 2,773 $ 123,574
Total assets 56,429 26,180 33,857 200,580 340,614
Total long-term debt 47,694 31,143 12,102 104,846 154,055
Total stockholders' equity (deficit) 2,929 (11,374) 13,729 68,136 155,238
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1994 includes the results of operations of aquired companies from their
respective aquisition dates (see Note 4 to consolidated financial
statements).
(2) Includes the impact of non-recurring charges for the forgiveness of
certain stockholder 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 the Company refinanced balances outstanding under
its then existing credit facilities. As a result of these refinancings the
Company 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.
(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 GAAP. EBITDA is,
however, an approximation of the primary financial measure by which the
Company's covenants are calculated under the Indenture and the Credit
Facility. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" for
discussion of significant capital requirements and commitments. EBITDA
excludes non-recurring charges for the forgiveness of certain stockholder
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 stockholder notes receivable of approximately $4.8 million in 1993
and approximately $2.0 million incurred as part of a management
reorganization charge in 1995.
10
<PAGE> 151
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and the notes thereto which appear elsewhere in this
Annual Report.
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. Among the factors that could cause actual results to differ
materially are the following: the availability of sufficient capital to finance
the Company's business plan on terms satisfactory to the Company; competitive
factors, such as the introduction of new technologies and competitors into the
paging and wireless communication industry; pricing pressures which could
affect demand for the Company's service; changes in labor, equipment and
capital costs; future acquisitions and strategic partnerships; general business
and economic conditions; and the other risk factors described from time to time
in the Company's reports filed with the SEC. The Company wishes to caution
readers not to place undue reliance on any such forward looking statements,
which statements are made pursuant to the Private Securities Litigation Reform
Act of 1995 and, as such, speak only as of the date made.
OVERVIEW
Metrocall is the sixth largest paging company in the United States, based on
944,013 pagers in service as of December 31, 1995. In August and November 1994,
Metrocall completed the FirstPAGE acquisition and the MetroPaging acquisition,
respectively. As a result of these acquisitions, Metrocall added approximately
420,000 subscribers to its base of pagers in service, more than doubling its
total pagers in service during 1994. For the calendar year 1995, the Company's
total pagers in service has grown approximately 25%, exclusively through
internal growth. The consolidated statement of operations for the year ended
December 31, 1994 includes the results of operations for FirstPAGE and
MetroPaging from their respective acquisition dates. The definitions below
relate to management's discussion of the Company's results of operations that
follows.
- - SERVICE, RENT AND MAINTENANCE REVENUES: include primarily monthly,
quarterly, semi-annually and annually billed recurring revenue, 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
products 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, rents and maintenance, information services
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 continues to use the
Company's service, operating results benefit from this recurring revenue stream
with minimal requirements for incremental selling expenses or other fixed
costs. The Company's total revenues have grown from $33.2 million for the year
ended December 31, 1991 to $110.9 million for the year ended December 31, 1995.
The Company's average monthly service, rent and maintenance revenue per
unit ("ARPU") for the years ended December 31, 1994 and 1995 was $10.53 and
$9.15, respectively. Assuming completion of the FirstPAGE and MetroPaging
acquisitions on January 1, 1994, the Company's ARPU for the year ended December
31, 1994 would have been $10.13. This decline in ARPU is in part a function of
the changing mix of distribution channels. In order to increase penetration and
maximize utilization of its networks, the Company emphasizes a number of
distribution channels, such as resellers, in addition to its direct sales
force, upon which the Company has historically relied for a majority of its
sales. The reseller channel is characterized by lower ARPU, with a
corresponding decline in associated costs. For example, third party resellers
do not lease pagers from the Company and generally purchase services in large
quantities at discounted prices. This lower revenue base is, however, offset by
lower sales and administrative costs for their subscribers. Additionally, the
Company has a reduced capital expenditure requirement for reseller customers,
as resellers generally purchase rather than lease pagers. 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 also offset by lower capital expenditures on
paging equipment. Increases in ARPU resulting from an increase in the sale of
enhanced services have partially offset declines in ARPU due to changes in the
distribution mix. The Company has been successful in marketing enhanced
services such as nationwide paging service and voice mail, to its subscriber
base. Such services carry a low incremental cost to the Company.
The Company's growth and expansion into new markets, whether internal or
through acquisitions, 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 equipment from the Company.
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 expanding its 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 and the acquisition of
existing paging systems.
11
<PAGE> 152
RESULTS OF OPERATIONS
The following table sets forth the percentage of net revenues represented by
certain items in the Company's Consolidated Statements of Operations and
certain other information for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Service, rent and maintenance 98.7% 97.7% 96.7%
Product sales 13.6 16.0 19.6
Net book value of products sold (12.3) (13.7) (16.3)
--------------------------------------
Net revenues 100.0 100.0 100.0
Operating expenses:
Service, rent and maintenance 28.5 27.4 28.6
Selling and marketing 14.7 14.6 16.4
General and administrative 24.2 26.2 25.9
Depreciation and amortization 19.5 27.2 33.1
Management reorganization
charge -- -- 2.1
Forgiveness of stockholder
notes receivable 14.4 -- --
--------------------------------------
(Loss) income from operations (1.3) 4.6 (6.1)
Interest and other income 0.2 0.3 2.1
Interest expense (4.0) (7.3) (13.1)
Loss before extraordinary item (5.2) (2.1) (16.5)
Net loss (6.5)% (4.7)% (21.1)%
OTHER DATA:
Units in service (end of period) 247,716 755,546 944,013
EBITDA (in thousands)(1) $10,923 $16,152 $27,771
Ratio of EBITDA to net revenues(1) 32.6% 31.7% 29.1%
ARPU $12.29 $10.53 $9.15
- --------------------------------------------------------------------------------
</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. EBITDA is,
however, an approximation of the primary financial measure by which the
Company's covenants are calculated under the Indenture and the Credit
Facility. See "-- Liquidity and Capital Resources" for discussion of
significant capital requirements and commitments. EBITDA excludes
non-recurring charges for the forgiveness of certain stockholder notes
receivable of approximately $4.8 million in 1993 and for severance and
other compensation costs of approximately $2.0 million incurred as part of
a management reorganization charge in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH DECEMBER 31, 1994
Net revenues increased approximately $44.4 million, or 87.2%, from $50.9
million in the year ended December 31, 1994 ("1994"), to $95.3 million for the
year ended December 31, 1995 ("1995"). The increase is attributable to greater
service revenues due to the growth of pagers in service from 755,546 at
December 31, 1994 to 944,013 at December 31, 1995. The FirstPAGE and
MetroPaging acquisitions, completed on August 31, 1994 and November 29, 1994,
respectively, added approximately 420,000 pagers in service. Operations of
FirstPAGE and MetroPaging are included in the results of operations from their
respective acquisition dates. ARPU has declined from $10.53 in 1994 to $9.15 in
1995 due primarily to the increase in the base of customers serviced through
indirect channels and, to a lesser extent, the inclusion of the operations of
FirstPAGE and MetroPaging. Declining ARPU during 1995 is partially offset by
increased sales of enhanced services including those provided by the Metrocall
Nationwide Wireless Network ("Nationwide Network"). Product sales increased
$10.6 million from $8.1 million in 1994 to $18.7 million in 1995 largely due to
the FirstPAGE and MetroPaging acquisitions, and increased as a percentage of
net revenues from 16.0% in 1994 to 19.6% in 1995 due to increased sales to
resellers and other indirect sales channels.
Net book value of products sold increased approximately $8.5 million from
$7.0 million in 1994 to $15.5 million in 1995. The gross margin on products
sold increased from 14.5% in 1994 to 17.0% in 1995. Net book value of products
sold increased principally due to the increase in product sales, partially
offset by increased depreciation expense.
Overall, the Company has experienced a decline in total average operating
expenses per unit in service (operating expenses per unit before depreciation
and amortization) from 1994 to 1995. Average monthly operating expenses per
unit decreased from $7.36 for 1994 to $6.71 for 1995. Each operating expense is
discussed separately below.
Service, rent and maintenance expenses increased approximately $13.3
million from $14.0 million in 1994 to $27.3 million in 1995 and increased as a
percentage of net revenues from 27.4% in 1994 to 28.6% in 1995. The Company
estimates that this overall increase in service, rent and maintenance expenses
is primarily attributable to the acquisitions of FirstPAGE ($6.5 million) and
MetroPaging ($5.3 million) and, to a lesser extent, increased carrier line
costs paid to third party service providers ($1.7 million), offset by reduced
transmitter site rental costs due to the elimination of duplicative paging
equipment ($0.2 million). On a per-unit basis, monthly service, rent and
maintenance expenses declined from $2.97 in 1994 to $2.71 in 1995 as a result
of increased efficiencies due largely to the integration of the FirstPAGE and
MetroPaging operations.
Selling and marketing expenses increased approximately $8.2 million from
$7.4 million in 1994 to $15.6 million in 1995 and increased as a percentage of
net revenues from 14.6% in 1994 to 16.4% in 1995. The Company estimates this
increase in selling and marketing expenses is primarily associated with the
acquisitions of FirstPAGE ($2.5 million) and MetroPaging ($3.3 million), and in
part due to increased personnel costs ($2.2 million) and travel expenses ($0.4
million), offset by the consolidation of advertising and other efforts of the
combined company ($0.2 million). Additionally, the Company commenced or
significantly expanded operations in six new markets during 1995 including
Boston, Pittsburgh, Miami, San Diego, Phoenix and Las Vegas. Monthly selling
and marketing expenses per unit declined from $1.57 in 1994 to $1.55 in 1995,
due primarily to efficiencies gained by consolidating the Company's sales force
with those of FirstPAGE and MetroPaging. Selling and marketing expenses may
increase as a percentage of revenue as the Company continues to increase
markets and expand geographic coverage.
General and administrative expenses increased approximately $11.3 million
from $13.3 million in 1994 to $24.6 million in 1995 and decreased as a
percentage of net revenues from 26.2% in 1994 to 25.9% in 1995. The Company
estimates that this increase in general and administrative expenses is
primarily attributable to the acquisitions of FirstPAGE ($7.2 million) and
MetroPaging ($4.9 million) from their respective acquisition dates and other
general corporate costs ($0.3 million), offset in part by synergies resulting
from the reduction of duplicative functions and lower personnel costs ($1.1
million). Monthly general and administrative expenses per unit have declined
from $2.82 in 1994 to $2.45 in 1995.
12
<PAGE> 153
In 1995, the Company recognized a charge for $2.0 million for severance
and other compensation costs incurred as part of a management reorganization.
In addition, the Company instituted a reduction-in-force whereby certain
non-sales positions were eliminated.
EBITDA increased approximately $11.6 million from $16.2 million in 1994 to
$27.8 million in 1995. As a percentage of net revenues, EBITDA decreased from
31.7% in 1994 to 29.1% in 1995.
Depreciation and amortization increased approximately $17.7 million from
$13.8 million in 1994 to $31.5 million in 1995 and increased as a percentage of
net revenues from 27.2% to 33.1% for 1994 and 1995, respectively. The Company
estimates that the increase in total depreciation expense resulted from
depreciation on additional pagers in service ($9.1 million) and depreciation of
assets acquired in the FirstPAGE ($2.6 million) and MetroPaging acquisitions
($1.1 million). Amortization increased substantially during 1995 due to the
amortization of goodwill and other intangibles recorded in the acquisitions of
FirstPAGE ($3.2 million) and MetroPaging ($1.7 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 year financial statements have been reclassified to conform to the
current period's presentation. This resulted in an increase to depreciation
expense of approximately $2.7 million.
Interest and other income increased approximately $1.8 million from $0.2
million in 1994 to $2.0 million in 1995. The increase is the result of interest
earned on cash balances, resulting from the completion of public offerings of
4.0 million shares of the Company's common stock and $150.0 million senior
subordinated notes, net of amounts used to repay existing debt and other costs.
Interest expense increased approximately $8.8 million from $3.7 million in
1994 to $12.5 million in 1995. Interest expense increased due to the completion
in October 1995 of the Company's public offering of senior subordinated notes
bearing interest at 10 3/8%, payable semi-annually on April 1 and October 1,
due 2007. This raised the Company's average level of debt outstanding and
increased the average interest rate in effect in 1995.
During the fourth quarter of 1995, the Company recognized an extraordinary
charge of $4.4 million to expense unamortized debt financing costs and other
costs associated with the repayment of balances outstanding under its credit
agreement in October 1995.
The Company's net loss increased approximately $17.7 million from $2.4
million in 1994 to a $20.1 million in 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH DECEMBER 31, 1993
Net revenues increased approximately $17.4 million, or 51.9%, from $33.5
million for the year ended December 31, 1993 ("1993") to $50.9 million for the
year ended December 31, 1994 ("1994"). The increase was primarily attributable
to greater service revenues due to the growth of pagers in service from 247,716
at the end of 1993 to 755,546 at the end of 1994. The FirstPAGE and MetroPaging
acquisitions added approximately 420,000 pagers to the Metrocall subscriber
base. Operations of FirstPAGE and MetroPaging are included in the results of
operations for 1994 from their respective acquisition dates, August 31, 1994
and November 29, 1994. ARPU declined from $12.29 for 1993 to $10.53 for 1994.
The decline is primarily the result of the increase in customers serviced
through indirect channels. Product sales increased $3.6 million, or 78.9%, from
1993 to 1994, and increased as a percentage of net revenues from 13.6% in 1993
to 16.0% in 1994. The increase in product sales in 1994 resulted from the
acquisitions of FirstPAGE and MetroPaging and increased pager placements in
1994 through resellers and other indirect sales channels, most of which were
acquired in the FirstPAGE and MetroPaging acquistions.
Net book value of products sold increased approximately $2.9 million, or
68.6%, from $4.1 million in 1993 to $7.0 million in 1994. The gross margin on
products sold increased from 9.2% in 1993 to 14.5% in 1994. The increase in
cost of products sold is primarily attributable to increased product sales
following the acquisitions of FirstPAGE and MetroPaging. The increase in gross
margin was primarily attributable to lower product costs associated with volume
discounts.
Total average monthly operating expenses per unit have declined from $8.39
in 1993 to $7.36 in 1994. These declines are discussed below.
Service, rent and maintenance expenses increased approximately $4.4
million, or 46.6%, from $9.6 million in 1993 to $14.0 million in 1994, but
decreased as a percentage of net revenues from 28.5% in 1993 to 27.4% in 1994.
The Company estimates that this increase in service, rent and maintenance
expenses was primarily attributable to the addition of FirstPAGE ($2.6 million)
and MetroPaging ($0.3 million) from their respective acquisition dates,
increased carrier line costs paid to third party service providers ($0.5
million), increased transmitter site rental costs associated with expanded
system coverage ($0.3 million), increased salaries due to greater number of
employees ($0.4 million) and other various operating expenses ($0.3 million).
On a per-unit basis, monthly service, rent and maintenance expenses declined
from $3.55 in 1993 to $2.97 in 1994. The decline is due to efficiencies gained
from the initial integration of FirstPAGE and MetroPaging operations.
Selling and marketing expenses increased approximately $2.5 million, or
49.9%, from $4.9 million in 1993 to $7.4 million in 1994, but decreased as a
percentage of net revenues from 14.7% in 1993 to 14.6% in 1994. The Company
estimates that the increase was attributable to sales staff compensation
related to increased pager placements during 1994 ($0.8 million) and increased
advertising expenses ($0.2 million) to promote the Nationwide Network. The
Company also estimates that selling and marketing expenses increased for 1994
due to the addition of FirstPAGE and MetroPaging sales and marketing personnel
($1.5 million). Monthly selling and marketing expenses per unit declined from
$1.84 in 1993 to $1.57 in 1994. The decline is due to efficiencies gained by
consolidating Metrocall's sales force with those of FirstPAGE and MetroPaging.
13
<PAGE> 154
General and administrative expenses increased approximately $5.2 million,
or 64.3%, from $8.1 million in 1993 to $13.3 million in 1994, and increased as
a percentage of net revenues from 24.2% in 1993 to 26.2% in 1994. The Company
estimates that this increase in general and administrative expenses is
primarily attributable to the acquisitions of FirstPAGE ($3.8 million) and
MetroPaging ($0.2 million) from their respective acquisition dates and, to a
lesser extent, increased personnel costs ($0.4 million) and general corporate
expenses ($0.7 million). Monthly general and administrative expenses per unit
have declined from $3.01 in 1993 to $2.82 in 1994. The decline is due to
synergies from the FirstPAGE and MetroPaging acquisitions which resulted in the
reduction of duplicative functions and lower personnel costs.
EBITDA increased $5.3 million from $10.9 million in 1993 to $16.2 million
in 1994. As a percentage of net revenues, EBITDA decreased from 32.6% in 1993
to 31.7% in 1994.
Depreciation and amortization increased approximately $7.3 million, or
111.9%, from $6.5 million in 1993 to $13.8 million in 1994, and increased as a
percentage of net revenues from 19.5% in 1993 to 27.2% in 1994. The increase in
total depreciation resulted from depreciation on additional pagers ($3.5
million) and paging equipment ($1.7 million) and the reduction in the estimated
useful life of 1994 pager acquisitions from four to three years ($0.5 million).
Amortization increased substantially during 1994 due to the amortization of
goodwill and other intangibles recorded in the acquisitions of FirstPAGE ($1.4
million) and MetroPaging ($0.2 million).
Interest expense increased approximately $2.4 million, or 179.9%, from
$1.3 million in 1993 to $3.7 million in 1994. Interest expense increased due to
an increase in the average level of debt outstanding and higher bank lending
rates in 1994. The increase in average debt outstanding during 1994 is
primarily attributable to the assumption and subsequent refinancing of debt in
connection with the FirstPAGE and the MetroPaging acquisitions.
During the third quarter of 1994, Metrocall recognized an extraordinary
charge of $1.3 million to expense unamortized debt financing costs associated
with the refinancing of its credit agreement in August 1994.
Net loss increased $0.2 million from approximately $2.2 million in 1993 to
$2.4 million in 1994 due to factors discussed above.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets." This statement requires companies to
review long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate the carrying amounts may
not be recoverable. The Company determined that as of December 31, 1995 there
had been no impairment in the carrying value of long-lived assets.
The Company follows the guidelines established by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock options. In October 1995,
the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which
established an alternative method of expense recognition for stock-based
compensation awards to employees based on fair values. The Company is currently
evaluating the provisions of SFAS No. 123 and has not yet determined whether it
will adopt the statement for expense recognition purposes.
INFLATION
Inflation is not a material factor affecting the Company's business. Paging
system equipment and operating costs have not increased while pager costs have
declined significantly in recent years. This reduction in costs has been
reflected in lower prices charged to the Company's subscribers. General
operating expenses such as salaries, employee benefits and occupancy costs are,
however, subject to inflationary pressures.
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 and the acquisition of other wireless communications
companies (see "-Pending Acquisitions" below). Further cash requirements
include debt service, working capital and general corporate requirements.
The Company financed its internal growth in 1995 through its operating
cash flow and the use of bank debt. Net cash provided by operating activities
was $10.9 million, $11.8 million and $15.7 million, respectively, for the years
ended December 31, 1993, 1994 and 1995. Additional borrowings under the
Company's credit facility in 1995, approximating $13.0 million, were used
primarily to fund capital expenditures and general corporate requirements (for
a description of the Company's credit facility, see Note 6 to the consolidated
financial statements).
During 1995, the Company completed offerings of 4 million shares of the
Company's common stock at $28.25 per share, and $150.0 million senior
subordinated notes bearing interest at 10 3/8% payable semi-annually on April 1
and October 1, due 2007. After underwriting discounts, commissions and other
professional fees, net proceeds from the offerings were approximately $252.0
million. Proceeds from the offerings were used, in part, to repay outstanding
borrowings of $113.3 million due under the Company's existing credit facility.
Cash flows used in investing activities for 1995 were primarily to fund
purchases of property and equipment. Capital expenditures were approximately
$13.6 million, $19.1 million, and $44.1 million for the years ended December
31, 1993, 1994 and 1995, respectively. The Company experienced greater capital
expenditure requirements in 1995, due to increased pager placements and the
expansion of transmission networks including the Company's nationwide networks.
To the extent leased pagers in service continue to increase at historical
rates, the Company will experience additional capital expenditure requirements.
Although management has no commitment to do so, it plans to continue to expand
its geographic service areas, as well as expand its coverage in existing
markets in the future, which may result in substantial capital requirements.
14
<PAGE> 155
The Company's capital expenditures for 1996 will be used to fund the
purchase of pagers, the expansion of the Company's regional and nationwide
coverage on the Nationwide Network, the continued build-out of the Company's
second nationwide frequency and general maintenance of the Company's paging
transmission infrastructure.
The Company's current schedule to build out transmitters for the
Nationwide Network is based upon its receipt of a six-month "slow growth
waiver" of the FCC requirement that the Company install 300 dedicated
transmitters on each of the Private Carrier Paging ("PCP") frequencies for
which it has requested nationwide exclusivity. The Company believes that it has
adequate capital resources to finance the installation of such transmitters
within the time permitted by the FCC. The estimated cost for the purchase and
installation of the additional transmitters necessary to perfect its
qualification for FCC exclusivity is approximately $7.0 million.
Cash flows from financing activities for 1995 included funds raised in the
Company's equity and notes offerings, which were used to refinance balances
outstanding under the Company's credit facility and fund general obligations
and capital requirements.
Management believes that funds generated from the Company's operations,
together with cash currently available, will be sufficient to meet projected
capital expenditure requirements for the existing systems. The Company is
precluded from making cash dividends or other such distributions under the
terms of the Company's credit facility and Indenture under the senior
subordinated notes.
Additional capital may be required in 1996 to fund the Company's build-out
and acquisition plans. No assurance can be given that such additional
financing, if required, would be available or, if available, on terms
satisfactory to the Company.
PENDING ACQUISITIONS
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 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. The Parkway Agreement is subject to
downward adjustment based on Parkway's ability to meet certain defined
performance criteria and benchmarks prior to closing. The Parkway Agreement is
subject to a number of conditions including, but not limited to, receipt of all
necessary regulatory approvals.
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, subject to adjustment
based on Satellite's ability to meet certain defined performance criteria. The
Satellite Agreement is subject to a number of conditions including, but not
limited to, receipt of all necessary regulatory approvals.
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.
/s/ 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)
15
<PAGE> 156
CONSOLIDATED BALANCE SHEETS
Metrocall, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31,
-----------------------
(In thousands, except share and per share information) 1994 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,773 $ 123,574
Accounts receivable, less allowance for doubtful accounts of $1,150 and
$968 as of December 31, 1994 and 1995, respectively 6,231 9,785
Prepaid expenses and other current assets 838 1,908
-----------------------
Total current assets 9,842 135,267
-----------------------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements 9,667 9,900
Furniture, office equipment and vehicles 6,998 12,794
Paging and plant equipment 78,463 103,427
Less -- Accumulated depreciation and amortization (36,927) (50,175)
-----------------------
58,201 75,946
-----------------------
INTANGIBLE ASSETS, net of accumulated amortization of approximately
$11,466 and $8,875 as of December 31, 1994 and 1995, respectively 131,962 129,085
OTHER ASSETS 575 316
-----------------------
TOTAL ASSETS $ 200,580 $ 340,614
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 443 $ 252
Accounts payable 7,340 9,390
Deferred revenues 1,456 720
Subscriber deposits 1,952 1,230
Other current liabilities 3,928 7,666
-----------------------
Total current liabilities 15,119 19,258
-----------------------
CAPITAL LEASE OBLIGATION, less current maturities 3,057 2,849
LONG-TERM DEBT, less current maturities 101,346 150,954
DEFERRED INCOME TAX LIABILITY 12,500 11,814
MINORITY INTEREST IN PARTNERHIP 422 501
COMMITMENTS AND CONTINGENCIES (Notes 6, 9 and 13)
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;
10,610,673 and 14,626,255 shares issued and outstanding as of
December 31, 1994 and 1995, respectively 106 146
Additional paid-in capital 94,792 201,956
Accumulated deficit (26,762) (46,864)
-----------------------
TOTAL STOCKHOLDERS' EQUITY 68,136 155,238
-----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 200,580 $ 340,614
=======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE> 157
CONSOLIDATED STATEMENTS OF OPERATIONS
Metrocall, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(In thousands, except share and per share information) 1993 1994 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Service, rent and maintenance $ 33,111 $ 49,716 $ 92,160
Product sales 4,549 8,139 18,699
--------------------------------------
Total revenues 37,660 57,855 110,859
Net book value of products sold (4,130) (6,962) (15,527)
--------------------------------------
33,530 50,893 95,332
OPERATING EXPENSES:
Service, rent and maintenance 9,559 14,014 27,258
Selling and marketing 4,945 7,412 15,656
General and administrative 8,103 13,315 24,647
Depreciation and amortization 6,525 13,829 31,504
Management reorganization charge (Note 3) -- -- 2,050
Forgiveness of stockholder notes receivable (Note 8) 4,831 -- --
--------------------------------------
33,963 48,570 101,115
--------------------------------------
(Loss) income from operations (433) 2,323 (5,783)
INTEREST AND OTHER INCOME 77 161 2,011
INTEREST EXPENSE (1,331) (3,726) (12,533)
--------------------------------------
NET LOSS BEFORE INCOME TAX (PROVISION) BENEFIT AND
EXTRAORDINARY ITEM (1,687) (1,242) (16,305)
INCOME TAX (PROVISION) BENEFIT (59) 152 595
--------------------------------------
NET LOSS BEFORE EXTRAORDINARY ITEM (1,746) (1,090) (15,710)
EXTRAORDINARY ITEM: Write-off of unamortized debt financing
costs, net of income tax benefit of $36 for the year ended
December 31, 1994 and none in 1993 and 1995, respectively (Note 6) (439) (1,309) (4,392)
--------------------------------------
Net loss $ (2,185) $ (2,399) $ (20,102)
======================================
NET LOSS PER COMMON SHARE:
Loss per common share before extraordinary item $ (0.14) $ (1.34)
Extraordinary item, net of income tax benefit (0.16) (0.38)
------------------------
NET LOSS PER COMMON SHARE $ (0.30) $ (1.72)
------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,127,679 11,668,140
========================
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.
17
<PAGE> 158
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Metrocall, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Notes
Additional Receivable
Preferred Common Paid-In Accumulated From
(In thousands) 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 -- -- -- -- 4,831 4,831
Net proceeds from initial public
offering (including underwriters'
options exercised) -- 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 -- 29 45,161 -- -- 45,190
Shares issued in acquisition of
MetroPaging -- 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 -- -- (105) -- -- (105)
Exercise of stock options -- -- 46 -- -- 46
Net proceeds from public offering -- 40 106,938 -- -- 106,978
Compensation on amendment of
stock options in management
reorganization -- -- 285 -- -- 285
Net loss -- -- -- (20,102) -- (20,102)
--------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $ -- $ 146 $ 201,956 $ (46,864) $ -- $ 155,238
==========================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 159
CONSOLIDATED STATEMENTS OF CASH FLOWS
Metrocall, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(In thousands) 1993 1994 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,185) $ (2,399) $ (20,102)
Adjustments to reconcile net loss to net cash
provided by operating activities --
Depreciation and amortization 6,525 13,829 31,504
Compensation on amendment of stock options in
management reorganization (Note 3) -- -- 285
Amortization of debt financing costs 73 296 595
Decrease in deferred income taxes -- (200) (686)
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 6) 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)
Prepaid expenses and other current assets 469 (236) (1,070)
Accounts payable 2,307 652 2,050
Deferred revenues 224 448 (736)
Subscriber deposits (227) (357) (722)
Other current liabilities (736) 129 3,738
--------------------------------------
Net cash provided by operating activities 10,929 11,796 15,697
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (13,561) (19,091) (44,058)
Additions to intangibles (162) (641) (3,592)
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
--------------------------------------
Net cash used in investing activities (13,598) (19,227) (46,225)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from public offerings of common stock 36,572 -- 106,978
Proceeds from long-term debt 10,500 24,781 163,000
Principal payments on long-term debt (29,540) (12,788) (113,790)
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 in minority interest in partnership 45 76 79
--------------------------------------
Net cash provided by financing activities 1,983 9,190 151,329
--------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (686) 1,759 120,801
CASH AND CASH EQUIVALENTS, beginning of period 1,700 1,014 2,773
--------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 1,014 $ 2,773 $ 123,574
======================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 160
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Metrocall, Inc. and Subsidiaries
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 more than 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 became 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 issued 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 and $501,000 as of
December 31, 1994 and 1995, respectively. Beacon Communications has a
partnership deficit as of December 31, 1994 and 1995, respectively, and
accordingly, the minority interest is not recognized in the accompanying
consolidated financial statements.
All significant intercompany transactions have been eliminated in
consolidation.
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.
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.
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.
20
<PAGE> 161
INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consist of the following
(dollars in thousands).
<TABLE>
<CAPTION>
December 31, Amortization
--------------------------- Period in
1994 1995 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
State certificates and FCC
licenses $ 66,679 $ 65,095 5-40
Goodwill 44,794 43,754 25-40
Customer lists 17,034 13,886 5-6
Debt financing costs 2,989 4,937 1-12
Other 466 1,413 5-12
-------------------------
$ 131,962 $ 129,085
=========================
</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, 1995, there had been no impairment in the
carrying value of long-lived assets.
The Company's estimates of anticipated gross revenues, the remaining
estimated 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).
NEW ACCOUNTING PRONOUNCEMENT
The Company follows the guidelines established by Accounting Principle Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock options. In October 1995,
the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which established an alternative method of expense
recognition for stock-based compensation awards to employees based on fair
values. The Company is currently evaluating the provisions of SFAS No. 123 and
has not yet determined whether it will adopt the statement for expense
recognition purposes.
NET LOSS PER COMMON SHARE
Net loss per common share for the years ended December 31, 1994 and 1995 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 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
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
21
<PAGE> 162
assumption of 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 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, 1994 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Accrued severance, payroll and payroll taxes $ 1,623 $ 2,763
Accrued interest 898 3,893
Accrued insurance claims 292 300
Accrued state and local taxes 181 220
Other 934 490
--------------------
$ 3,928 $ 7,666
====================
</TABLE>
6. LONG-TERM LIABILITIES
LONG-TERM DEBT
Long-term debt consists of the following (in thousands).
<TABLE>
<CAPTION>
December 31, 1994 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Senior Subordinated Notes, bearing
interest at 10.375%, Notes due in 2007 $ -- $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
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
Less -- Current portion 288 72
--------------------
Long-term portion $101,346 $150,954
====================
</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%
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.
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.
22
<PAGE> 163
CAPITAL LEASE OBLIGATION
In April 1994, the Company entered into a lease agreement (the "Lease
Agreement") for additional office space. The Lease Agreement requires 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>
Capital
Long-Term 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") with a group of lenders (the "Lenders") for $125.0 million
consisting of a seven-year $75.0 million reducing revolver and a seven-year
$50.0 million revolving credit and term loan (collectively, the "Facility"). On
November 30, 1994, the Agreement was amended to increase the total amount
available under the Facility to $175.0 million, increasing the reducing
revolver to $100.0 million and the revolving credit and term loan to $75.0
million. Borrowings under the Facility were used to refinance existing
indebtedness (under its former 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 two 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. As of
December 31, 1995, due to certain financial covenant restrictions, the
Company's availability under the credit facility was limited to $3 million.
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, were
approximately $21,037,000, $35,818,000, and $108,222,000, respectively. The
highest outstanding borrowings under these facilities for the years ended
December 31, 1993, 1994 and 1995, were approximately $30,200,000, $100,320,000,
and $113,320,000, respectively. For the years ended December 31, 1993, 1994 and
1995, interest expense relating to these facilities was approximately
$1,220,000, $3,458,000, and $7,630,000, respectively, at weighted-average
interest rates of 5.3%, 9.7% and 7.0%, respectively. The effective interest
rates as of December 31, 1994 and 1995 were 8.8% and 8.5%, 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 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 Company's initial public offering, 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.
23
<PAGE> 164
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 Carrying Amount Fair Value
- -------------------------------------------------------
<S> <C> <C>
Senior Subordinated Notes $150,000 $159,773
Industrial development
revenue note 1,026 1,093
- -------------------------------------------------------
</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 date 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 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 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 7.93% and 7.08%, 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 initial public 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 December 31, 1995, and pursuant to the Plan, the Company has
issued options to purchase 780,500 shares at prices ranging from $13.00 to
$20.25 per common share.
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"). 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,
through December 31, 1995. 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 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.
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, 1993 1994 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning
of period -- 316,500 529,387
Granted 316,500 170,500 303,500
Canceled -- (5,000) (12,500)
Issued in FirstPAGE
acquisition -- 47,387 --
Exercised -- -- (21,429)
-----------------------------------------------
Outstanding, end
of period 316,500 529,387 798,958
===============================================
Options exercisable -- 50,387 339,958
===============================================
Option price
range -- Options
outstanding $13.00-$19.50 $1.035-$19.50 $1.035-$22.125
Option price
range -- Options
exercisable -- $1.035-$18.25 $1.035-$19.50
- ---------------------------------------------------------------------------------------
</TABLE>
Subsequent to year-end, the Company's Board of Directors authorized grants
of options to purchase 420,000 shares of the Company's common stock at prices
ranging from $19.125 to $20.25 per share. Certain of these options will be
issued under a proposed stock option plan which must first be ratified by the
Company's stockholders.
24
<PAGE> 165
9. COMMITMENTS AND CONTINGENCIES
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 and $4,818,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.
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 and $359,000 for the years ended
December 31, 1993, 1994 and 1995, 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 for the
years ended December 31, 1993, 1994 and 1995 were $150,000, $200,000 and
$93,000, respectively.
10. INCOME TAXES
As of December 31, 1995, the Company had net operating loss and investment tax
credit carryforwards of approximately $67,801,00 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. The components of the net deferred tax
(liability) asset 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 expense (1,974) (5,288)
Other (39) (388)
-------------------
Total deferred tax liabilities (14,513) (17,490)
-------------------
Net deferred tax (liability) asset (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>
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>
25
<PAGE> 166
11. CASH FLOW INFORMATION
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company made cash payments for interest of $1,471,000, $2,576,000, and
$9,538,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
The Company made cash payments for income taxes of $116,000, $48,000 and
$55,000 for the years ended December 31, 1993, 1994 and 1995, 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.
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 preliminary allocation of the total
purchase price.
A capital lease obligation of $3,185,000 was incurred in 1994 when the
Company entered into a lease for new office space (see Note 6).
12. INTERIM FINANCIAL DATA (UNAUDITED)
The following table of quarterly financial data has been prepared from the
financial records of the Company, 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 (in thousands, except per share
data).
<TABLE>
<CAPTION>
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 10,165 $ 11,018 $ 14,331 $ 22,341
=====================================================================================
Income (loss) from
operations $ 906 $ 848 $ 1,280 $ (711)
=====================================================================================
Net income (loss) before
extraordinary item $ 590 $ 568 $ 525 $ (2,773)
=====================================================================================
Net income (loss) $ 590 $ 568 $ (784) $ (2,773)
=====================================================================================
Net income (loss) per
share before
extraordinary item $ 0.08 $ 0.08 $ (0.06) $ (0.27)
=====================================================================================
Net income (loss) per
common share $ 0.08 $ 0.08 $ (0.10) $ (0.27)
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 25,796 $ 27,640 $ 27,978 $ 29,445
=====================================================================================
Income (loss) from
operations $ 766 $ 612 $ (721) $ (6,440)
=====================================================================================
Net income (loss) before
extraordinary item $ (1,690) $ (2,038) $ (3,370) $ (8,612)
=====================================================================================
Net income (loss) $ (1,690) $ (2,038) $ (3,370) $(13,004)
=====================================================================================
Net income (loss) per
share before
extraordinary item $ (0.16) $ (0.19) $ (0.31) $ (0.59)
=====================================================================================
Net income (loss) per
common share $ (0.16) $ (0.19) $ (0.31) $ (0.89)
=====================================================================================
</TABLE>
The sum of the per share amounts may not equal the annual amounts because of
the changes in the weighted average number of shares outstanding during the
year. The loss from operations in the quarter ended December 31, 1995, includes
a charge of $2,050,000 for management reorganization described in Note 3. Net
loss for the quarters ended September 30, 1994 and December 31, 1995, includes
extraordinary charges net of income tax benefit in 1994, for the write-off of
deferred financing costs discussed in Note 6, of $1,309,000 ($0.16 per share)
and $4,392,000 ($0.30 per share), respectively.
13. SUBSEQUENT EVENTS
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 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. The Parkway Agreement is subject to
downward adjustment based on Parkway's ability to meet certain defined
performance criteria and benchmarks prior to closing. The Parkway Agreement is
subject to a number of conditions including, but not limited to, receipt of all
necessary regulatory approvals.
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, subject to adjustment
based on Satellite's ability to meet certain defined performance criteria. The
Satellite Agreement is subject to a number of conditions including, but not
limited to, receipt of all necessary regulatory approvals.
26
<PAGE> 167
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
Metrocall, Inc.
6677 Richmond Highway
Alexandria, Virginia 22306
(703) 660-9343
http://www.metrocall.com
ANNUAL MEETING
Date: May 1, 1996
Time: 9:00 a.m. (EDT)
Place: Crystal Gateway Marriott
1700 Jefferson Davis Highway
Arlington, Virginia 22202
Phone: (703) 920-3230
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
1666 K Street, N.W.
Washington, D.C. 20006
LEGAL COUNSEL
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
TRANSFER AGENT
First Chicago Trust Company of
New York
P.O. Box 2500
Jersey City, New Jersey 07303
INVESTOR RELATIONS
Security analysts, investment
professionals, stockholders, and
prospective investors should direct
their business inquiries to:
Investor Relations
Metrocall, Inc.
6677 Richmond Highway
Alexandria, Virginia 22306
(703) 660-9343
COMMON STOCK
Metrocall's common stock was initially offered to the public on July 16, 1993,
and is listed on the NASDAQ Stock Market under the symbol MCLL. Prior to that
offering there was no public market for the common stock. A second public
offering occurred in September 1995.
FORM 10-K
A copy of Metrocall's annual report on Form 10-K filed with the Securities and
Exchange Commission can be obtained by stockholders without charge by writing
to Investor Relations and requesting one.
MANAGEMENT
President and Chief Executive Officer
William L. Collins III
Vice President and
Chief Operating Officer
Steven D. Jacoby
Vice President,
Chief Financial Officer and Treasurer
Vincent D. Kelly
Vice President,
Operations
Thomas P. Matthews
Vice President,
Finance
Ronnie E. Harold
27
<PAGE> 168
BOARD OF DIRECTORS
RICHARD M. JOHNSTON
Chairman of the Board
Vice President, Investments
The Hillman Company
Former Chairman
Dial Page, Inc.
WILLIAM L. COLLINS III
Vice Chairman of the Board
President and Chief Executive Officer
Metrocall, Inc.
Former Chairman, President,
and Chief Executive Officer
FirstPAGE USA, Inc.
Co-Founder and Former Director
Vanguard Cellular Systems, Inc.
RONALD V. APRAHAMIAN
Chairman and Chief Executive Officer
The Compucare Company
Consulting Director
The Riggs National Bank of
Washington, D.C.
Director
Sunrise Assisted Living, Inc.
HARRY L. BROCK, JR.
Founder and Former Chairman
and President
Metrocall, Inc.
Founding Partner
Cellular One of Washington
Director
Personal Communications Industry
Association (PCIA)
SUZANNE S. BROCK
Corporate Secretary
Metrocall, Inc.
STEVEN D. JACOBY
Chief Operating Officer
Metrocall, Inc.
Former Chief Operating Officer,
Vice President, and Secretary
FirstPAGE USA, Inc.
VINCENT D. KELLY
Chief Financial Officer and Treasurer
Metrocall, Inc.
CHRISTOPHER A. KIDD
Former Chief Executive Officer
Metrocall, Inc.
FRANCIS A. MARTIN III
Chairman, President, and
Chief Executive Officer
U.S. Media Holdings, Inc.
Former President and
Chief Executive Officer
Chronicle Broadcasting Co.
COMMITTEES
AUDIT COMMITTEE
Ronald V. Aprahamian
Chairman
Francis A. Martin III
COMPENSATION COMMITTEE
Francis A. Martin III
Chairman
Ronald V. Aprahamian
EXECUTIVE COMMITTEE
Richard M. Johnston
Chairman
Ronald V. Aprahamian
Francis A. Martin III
[PHOTO OF BOARD OF DIRECTORS]
FROM LEFT TO RIGHT: Ronald V. Aprahamian;
Suzanne S. Brock; Harry L. Brock, Jr.;
Steven D. Jacoby; Francis A. Martin III;
Richard M. Johnston; William L. Collins III;
Vincent D. Kelly and Christopher A. Kidd
28
<PAGE> 169
[METROCALL LOGO]
6677 Richmond Highway
Alexandria, Virginia 22306
(703) 660-9343
http://www.metrocall.com
<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
ARTHUR ANDERSEN LLP
Washington, D.C.,
October 3, 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,
October 3, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated February 13, 1996,
except to NOTE M for which the date is September 30, 1996, relating to the
financial statements of Parkway Paging, Inc. in this Registration
Statement on Form S-4/A of Metrocall, Inc.
/s/ HUTTON, PATTERSON & COMPANY
Hutton, Patterson & Company
Dallas, Texas
October 4, 1996
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-6919 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
October 3, 1996
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form
S-4/A (No. 333-6919) 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,
appearing in such Registration Statement.
/s/ PRICE WATERHOUSE, LLP
PRICE WATERHOUSE, LLP
Tampa, Florida
October 3, 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 Amendment No. 1 to the Registration Statement
(Form S-4/A No. 333-6919) 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
ERNST & YOUNG LLP
Hackensack, New Jersey
October 3, 1996
<PAGE> 1
EXHIBIT 25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM T-1
------------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT FOR 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------------
FIRST UNION NATIONAL BANK OF VIRGINIA
(Exact name of Trustee as specified in its charter)
<TABLE>
<S> <C> <C>
213 SOUTH JEFFERSON STREET
ROANOKE, VIRGINIA 24011 54-0211320
(Address of principal executive office) (Zip Code) (I.R.S. Employer Identification No.)
</TABLE>
------------------------
METROCALL, INC.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Delaware 54-1215634
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</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)
------------------------
VARIABLE COMMON RIGHTS
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
1. GENERAL INFORMATION.
(a) The following are the names and addresses of each examining or
supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market
Regulation, Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR.
The obligor is not an affiliate of the Trustee.
(See Note 2 on Page 5)
3. VOTING SECURITIES OF THE TRUSTEE.
The following information is furnished as to each class of
voting securities of the Trustee:
As of June 30, 1996
- --------------------------------------------------------------------------------
Column A Column B
- --------------------------------------------------------------------------------
Title of Class Amount Outstanding
- --------------------------------------------------------------------------------
Common Stock, par value $3.33-1/3 a share 171,837,000 shares
4. TRUSTEESHIPS UNDER OTHER INDENTURES.
a) Title of the securities outstanding under each such other
indenture.
$150,000,000 Metrocall, Inc. 10 3/8 Senior Subordinated Notes
due 2007 issued under an indenture dated September 27, 1995.
b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of Section
310(b)(1) of the Act arises as a result of the trusteeship under any
such other indenture, including a statement as to how the indenture
securities will rank as compared with the securities issued under
such other indenture.
The Trustee is not deemed to have a conflicting interest
within the meaning of Section 310(b)(1) of the Act because there is
no default under the indenture described in (a) (the "Indenture"),
and the trustee will resign as Rights Agent under the Variable Common
Rights Agreement within the periods set forth in Section 310(b) of
the Trust Indenture Act if any default occurs under either the
Indenture or the Variable Rights Agreement. The Variable Common
Rights may be considered general obligations of the issuer and the
notes issued under the Indenture are senior subordinated obligations
of the issuer.
5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR
OR UNDERWRITERS.
Neither the Trustee nor any of the directors or executive officers of
the Trustee is a director, officer, partner, employee, appointee or
representative of the obligor or of any underwriter for the obligor.
(See Note 2 on Page 5)
6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
Voting securities of the Trustee owned by the obligor and its
directors, partners, executive officers, taken as a group, do not
exceed one percent of the outstanding voting securities of the
Trustee.
(See Notes 1 and 2 on Page 5)
2
<PAGE> 3
7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR
OFFICIALS.
Voting securities of the Trustee owned by any underwriter and its
directors, partners, and executive officers, taken as a group, do not
exceed one percent of the outstanding voting securities of the
Trustee.
(See Note 2 on Page 5)
8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
The amount of securities of the obligor which the Trustee owns
beneficially or holds as collateral security for obligation in default
does not exceed one percent of the outstanding securities of the
obligor.
(See Note 2 on Page 5)
9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
The Trustee does not own beneficially or hold as collateral security
for obligations in default any securities of an underwriter for the
obligor.
(See Note 2 on Page 5)
10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
The Trustee does not own beneficially or hold as collateral security
for obligations in default voting securities of a person, who, to the
knowledge of the Trustee (1) owns 10% or more of the voting securities
of the obligor or (2) is an affiliate, other than a subsidiary, of the
obligor.
(See Note 2 on Page 5)
11. OWNERSHIP OF HOLDERS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON
OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
The Trustee does not own beneficially or hold as collateral security
for obligations in default any securities of a person who, to the
knowledge of Trustee, owns 50 percent or more of the voting securities
of the obligor. (See Note 2 on Page 5)
12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
The Trustee, First Union National Bank of Virginia is an affiliate of
First Union Corporation. First Union National Bank of Virginia, an
affiliate bank of First Union Corporation, is one of 10 banks
participating in a $175,000,000 revolving credit agreement for the
obligor. The lead banks for the revolver are Toronto Dominion Bank,
PNC Bank, Bank of New York, and First Union National Bank. As of
July 31, 1996 First Union National Bank had advanced $9,142,857.14 to
the obligor under First Union's portion of the revolving credit
agreement.
13. DEFAULTS BY THE OBLIGOR.
Not applicable
3
<PAGE> 4
14. AFFILIATIONS WITH THE UNDERWRITERS.
No underwriter is an affiliate of the Trustee.
15. FOREIGN TRUSTEE.
Not applicable.
16. LIST OF EXHIBITS.
(1) Incorporated by reference. See Exhibit 25 to Registration No.
33-57401, filed January 25, 1995.
(2) Incorporated by reference. See Exhibit 25 to Registration No.
33-57401, filed January 25, 1995.
(3) Incorporated by reference. See Exhibit 25 to Registration No.
33-57401, filed January 25, 1995.
(4) Incorporated by reference. See Exhibit 25 to Registration No.
33-57401, filed January 25, 1995.
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939. Included at Page 6 of this Form T-1
Statement.
(7) Incorporated by reference. See Exhibit 25(a) to Registration
No. 33-64275, filed May 20, 1996.
(8) Inapplicable.
(9) Inapplicable.
4
<PAGE> 5
--------------
NOTES
--------------
1. Since the Trustee is a member of First Union Corporation, a
bank holding company, all of the voting securities of the Trustee
are held by First Union Corporation. The securities of First Union
Corporation are described in Item 3.
2. Inasmuch as this Form T-1 is filed prior to the ascertainment by
the Trustee of all facts on which to base responsive answers to
Items 2, 5, 6, 7, 8, 9, 10 and 11, the answers to said Items are
based on incomplete information. Items 2, 5, 6, 7, 8, 9, 10 and
11 may, however by considered as correct unless amended
by an amendment to this Form T-1.
5
<PAGE> 6
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK OF VIRGINIA, a national
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of Richmond, and Commonwealth of Virginia on the 1st day of October,
1996.
FIRST UNION NATIONAL BANK OF VIRGINIA
(Trustee)
BY: /s/ DANTE M. MONAKIL
--------------------------------------
Dante M. Monakil, Vice President
EXHIBIT T-1 (6)
CONSENTS OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939 and in connection with
the proposed issuance by Metrocall, Inc. Variable Common Rights, First Union
National Bank of Virginia, as the Trustee herein named, hereby consents that
reports of examinations of said Trustee by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon requests therefor.
FIRST UNION NATIONAL BANK OF VIRGINIA
BY: /s/ JOHN M. TURNER
--------------------------------------
John M. Turner, Vice President
Dated: October 1, 1996
---------------
6
