<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1997.
REGISTRATION NO. 333-36079
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
AMENDMENT NO. 2
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> <C>
GEORGE P. STAMAS, ESQ. MARK A. SOLLS, ESQ. JEFFREY A. CHAPMAN, ESQ.
WILMER, CUTLER & PICKERING VICE PRESIDENT AND GENERAL MARK EARLY, ESQ.
2445 M STREET, N.W. COUNSEL VINSON & ELKINS L.L.P.
WASHINGTON, D.C. 20037 PRONET INC. 3700 TRAMMELL CROW CENTER
(202) 663-6000 6340 LBJ FREEWAY 2001 ROSS AVENUE
DALLAS, TEXAS 75340 DALLAS, TEXAS 75201
(972) 687-2100 (214) 220-7700
</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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
<S> <C> <C> <C> <C>
PROPOSED
MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE(2)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share....... 12,306,388 $6.18 $76,060,318 $23,049
============================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(c) and Rule 457(f)(1) solely for the purpose
of calculating the registration fee based on the average of the high and low
prices per share of ProNet Inc. common stock, par value $.01 per share, on
September 15, 1997 as reported on the Nasdaq Stock Market's National Market
and consideration consisting of 13,673,765 shares of ProNet Inc. common
stock for the securities to be registered.
(2) 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
LOGO
METROCALL, INC.
6677 RICHMOND HIGHWAY
ALEXANDRIA, VA 22306
November 7, 1997
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Metrocall, Inc. ("Metrocall") to be held on December 17, 1997 at the
Ritz-Carlton, Pentagon City, 1250 South Hayes Street, Arlington, Virginia at
9:00 a.m., local time. You will be asked at this meeting to consider and vote
upon (i) the Agreement and Plan of Merger dated as of August 8, 1997 (the
"Merger Agreement") between Metrocall and ProNet Inc., a Delaware corporation
("ProNet"), (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, par value $.01 per share
("Metrocall Common Stock") by 20,000,000 shares, from 60,000,000 shares to
80,000,000 shares, (iii) an amendment (the "Option Plan Amendment") to
Metrocall's 1996 Stock Option Plan to increase the number of shares of Metrocall
Common Stock that may be issued thereunder by 2,000,000 shares from 2,000,000
shares to 4,000,000 shares and (iv) an amendment (the "ESPP Amendment") to
Metrocall's Employee Stock Purchase Plan (the "ESPP") to increase the number of
shares of Metrocall Common Stock that may be issued thereunder by 700,000 shares
from 300,000 shares to 1,000,000 shares, to extend the term of the ESPP to
December 31, 2007, to increase administrative flexibility, and to make certain
other changes.
The accompanying Joint Proxy Statement/Prospectus provides a detailed
description of the Merger Agreement and information regarding other matters to
be considered at the meeting. A copy of the Merger Agreement is attached to the
Joint Proxy Statement/Prospectus as Exhibit A.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the proposed Merger. We believe that the Merger is fair to
Metrocall's stockholders, have unanimously approved the Merger Agreement and the
Merger and recommend that you vote FOR approval and adoption of the Merger
Agreement. We also recommend that you vote FOR the Charter Amendment, FOR the
Option Plan Amendment and FOR the ESPP Amendment.
Your vote on these matters is very important. The Merger and the Charter
Amendment 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 and the Charter Amendment. 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 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,
/s/ Richard M. Johnston
Richard M. Johnston
Chairman of the Board
<PAGE> 3
[PRONET LOGO]
PRONET INC.
6340 LBJ FREEWAY
DALLAS, TEXAS 75240
November 7, 1997
To the Stockholders of ProNet Inc.:
Enclosed are a Notice of Special Meeting of Stockholders, a Joint Proxy
Statement and Prospectus ("Joint Proxy Statement/Prospectus"), and a Proxy for a
Special Meeting of Stockholders (the "Meeting") of ProNet Inc., a Delaware
corporation ("ProNet"), to be held on December 17, 1997, at 8:00 a.m., local
time, at The Westin Hotel-Galleria, 13340 Dallas Parkway, Dallas, Texas. All
holders of common stock, par value $.01 per share, of ProNet ("ProNet Common
Stock") as of October 31, 1997, are entitled to notice of and to vote at the
Meeting.
At the Meeting you will be asked to consider and vote on the approval and
adoption of that certain Agreement and Plan of Merger (the "Merger Agreement")
dated August 8, 1997, pursuant to which ProNet will be merged (the "Merger")
with and into Metrocall, Inc., a Delaware corporation ("Metrocall"). Under the
terms of the Merger Agreement, holders of ProNet Common Stock each will receive
shares of Metrocall common stock, par value $.01 per share ("Metrocall Common
Stock"), in exchange for the shares of ProNet Common Stock they hold as of the
effective time of the Merger. Pursuant to the terms of the Merger Agreement,
each share of ProNet Common Stock shall be converted into the right to receive
0.90 of a share of Metrocall Common Stock, subject to adjustment in certain
circumstances. Details of the proposal are set forth in the accompanying Joint
Proxy Statement/Prospectus, which you should read carefully.
After careful consideration, the Board of Directors of ProNet has approved
the Merger Agreement and the Merger and recommends that all stockholders vote in
favor of the approval and adoption of the Merger Agreement.
All stockholders are invited to attend the Meeting in person. The
affirmative vote of the holders of a majority of the issued and outstanding
shares of ProNet Common Stock will be necessary for the approval and adoption of
the Merger Agreement.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING, YOU ARE URGED
TO READ THE PROXY STATEMENT/PROSPECTUS AND PROMPTLY COMPLETE, SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING. If you attend the Meeting in person you may, if you wish,
vote personally on all matters brought before the Meeting even if you have
previously returned your Proxy.
Sincerely,
[/s/ JACKIE R. KIMZEY]
Jackie R. Kimzey
Chairman of the Board and
Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE READ, SIGN, DATE AND RETURN YOUR PROXY
<PAGE> 4
LOGO
METROCALL, INC.
6677 RICHMOND HIGHWAY
ALEXANDRIA, VA 22306
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 17, 1997
------------------------
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 December 17, 1997 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
August 8, 1997 (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) ProNet Inc., a Delaware corporation ("ProNet"), will
be merged with and into Metrocall, and (b) each share of ProNet common
stock, par value $.01 per share ("ProNet Common Stock"), outstanding
immediately prior to the effective time of the Merger will be converted
into the right to receive (i) 0.90 of a newly issued share of Metrocall
common stock, par value $.01 per share ("Metrocall Common Stock"), subject
to adjustment in certain circumstances, plus (ii) cash in respect of
fractional shares of Metrocall Common Stock, if any. The Merger must be
approved and adopted by the holders of 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 20,000,000 shares, from 60,000,000
shares to 80,000,000 shares. The Charter Amendment must be approved by the
holders of a majority of the issued and outstanding shares of Metrocall
Common Stock.
3. To approve and adopt an amendment (the "Option Plan Amendment") to
Metrocall's 1996 Stock Option Plan to increase the number of shares of
Metrocall Common Stock that may be issued thereunder by 2,000,000 shares to
4,000,000 shares.
4. To approve and adopt an amendment (the "ESPP Amendment") to
Metrocall's Employee Stock Purchase Plan (the "ESPP") to increase the
number of shares of Metrocall Common Stock that may be issued thereunder by
700,000 shares to 1,000,000 shares, to extend the term of the ESPP to
December 31, 2007, to increase administrative flexibility, and to make
certain other changes.
Pursuant to Metrocall's Bylaws, the Board of Directors has fixed the close
of business on October 20, 1997 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
/s/ Shirley B. White
Shirley B. White
Assistant Secretary
Alexandria, Virginia
November 7, 1997
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> 5
[PRONET LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 17, 1997
------------------------
TO THE STOCKHOLDERS OF PRONET INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of ProNet
Inc., a Delaware corporation ("ProNet"), will be held on December 17, 1997 at
8:00 a.m., local time, at the Westin Hotel-Galleria, 13340 Dallas Parkway,
Dallas, Texas (the "ProNet Meeting") to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of August 8, 1997, between ProNet and Metrocall, Inc., a Delaware
corporation ("Metrocall"), providing for the merger (the "Merger") of ProNet
with and into Metrocall, with Metrocall being the surviving entity and pursuant
to which each outstanding share of common stock, par value $.01 per share, of
ProNet ("ProNet Common Stock") will be converted into the right to receive 0.90
of a share of Metrocall's common stock, par value $.01 per share ("Metrocall
Common Stock"), subject to adjustment in certain circumstances, plus cash in
respect of fractional shares of Metrocall Common Stock, if any. A copy of the
Merger Agreement is attached as Exhibit A to the accompanying Joint Proxy
Statement/Prospectus.
Only holders of record of ProNet Common Stock at the close of business on
October 31, 1997 are entitled to notice of and to vote at the ProNet Meeting and
any adjournments or postponements thereof. The affirmative vote of the holders
of a majority of the issued and outstanding shares of ProNet Common Stock is
required for the approval and adoption of the Merger Agreement. The list of
ProNet stockholders entitled to vote at the ProNet Meeting will be available for
examination for ten days prior to the ProNet Meeting at the offices of ProNet,
6340 LBJ Freeway, Dallas, Texas 75240.
All stockholders are cordially invited to attend the ProNet Meeting. To
ensure your representation at the ProNet 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 ProNet Meeting. No postage is required
if mailed in the United States. Any ProNet stockholder attending the ProNet
Meeting may vote in person even if that stockholder has returned a proxy card.
By Order of the Board of Directors
/s/ Mark A. Solls
Mark A. Solls
Secretary
November 7, 1997
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> 6
METROCALL, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD DECEMBER 17, 1997
AND PROSPECTUS REGARDING THE ISSUANCE OF 12,306,388 SHARES OF
METROCALL COMMON STOCK
------------------------
PRONET INC.
PROXY STATEMENT FOR SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD DECEMBER 17, 1997
------------------------
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Metrocall, Inc., a Delaware corporation ("Metrocall"), and to
the stockholders of ProNet Inc., a Delaware corporation ("ProNet"), and relates
to the Special Meeting of Stockholders of Metrocall (the "Metrocall Meeting") to
be held on December 17, 1997 and the Special Meeting of Stockholders of ProNet
(the "ProNet Meeting") to be held on December 17, 1997 (collectively, the
"Stockholders Meetings"). At the Stockholders Meetings, stockholders of
Metrocall and of ProNet, respectively, will be asked to consider and act upon
the Agreement and Plan of Merger dated as of August 8, 1997 between Metrocall
and ProNet (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 (i) 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, par value $.01 per share
("Metrocall Common Stock"), by 20,000,000 shares, from 60,000,000 shares to
80,000,000 shares, (ii) an amendment (the "Option Plan Amendment") to
Metrocall's 1996 Stock Option Plan to increase the number of shares of Metrocall
Common Stock that may be issued thereunder by 2,000,000 shares and (iii) an
amendment (the "ESPP Amendment") to Metrocall's Employee Stock Purchase Plan to
increase the number of shares of Metrocall Common Stock that may be issued
thereunder by 700,000 shares and to make certain other changes.
Pursuant to the Merger Agreement, (i) ProNet will be merged with and into
Metrocall (the "Merger") and (ii) each share of ProNet common stock, par value
$.01 per share ("ProNet Common Stock"), outstanding immediately prior to the
effective time of the Merger (the "Effective Time") will be converted into the
right to receive (A) that number of newly issued shares of Metrocall Common
Stock equal to the Conversion Ratio plus (B) cash in respect of fractional
shares of Metrocall Common Stock, if any. The Conversion Ratio is 0.90 of a
share of Metrocall Common Stock for each share of ProNet Common Stock, subject
to adjustment if certain liabilities of ProNet exceed certain targets, if
annualized operating cash flow (earnings before interest, taxes, depreciation
and amortization) of ProNet is less or more than certain targets, and if
ProNet's new pager inventory falls below certain targets. The Conversion Ratio
will not be adjusted based on changes in the market price of Metrocall Common
Stock, and changes in the value of Metrocall Common Stock will therefore change
the value of the consideration that ProNet stockholders will receive in the
Merger. In addition, because the trading price of Metrocall Common Stock will
fluctuate and because the Conversion Ratio adjustments, if any, will be
calculated after the Stockholders Meetings, the exact Conversion Ratio and the
value of the Metrocall Common Stock to be received in the Merger will not be
known at the time the stockholders of Metrocall and ProNet vote on the Merger
Agreement. See "THE MERGER AGREEMENT AND TERMS OF THE MERGER -- Number of Shares
to be Issued; Conversion Ratio Adjustments."
Pursuant to an Option Agreement dated August 8, 1997, as amended (the
"Option Agreement"), ProNet has granted Metrocall the option to purchase up to
2,450,000 shares of ProNet Common Stock (representing approximately 19.4% of the
issued and outstanding ProNet Common Stock) at an exercise price of $5.40 per
share, subject to certain limitations. The option is exercisable in certain
circumstances involving ProNet's withdrawal of its recommendation of the Merger
Agreement or the Merger or acceptance of an alternative acquisition offer.
Pursuant to the terms of a Stockholders Voting Agreement dated August 8, 1997,
certain stockholders of Metrocall have agreed to vote their shares of Metrocall
Common Stock (which constitute approximately 33% of the issued and outstanding
shares as of the record date for the Metrocall Meeting) in favor of the Merger
Agreement and the Charter Amendment.
Holders of ProNet Common Stock and Metrocall Common Stock will not be
entitled to appraisal rights in connection with the Merger.
The closing sale prices of Metrocall Common Stock and ProNet Common Stock
on November 4, 1997 were $6.625 and $5.734, respectively.
------------------------
THE BOARDS OF DIRECTORS OF METROCALL AND PRONET RECOMMEND THAT STOCKHOLDERS
OF THEIR RESPECTIVE COMPANIES VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. THE BOARD OF DIRECTORS OF METROCALL ALSO RECOMMENDS THAT STOCKHOLDERS
OF METROCALL VOTE FOR APPROVAL OF THE CHARTER AMENDMENT, THE OPTION PLAN
AMENDMENT AND THE ESPP AMENDMENT.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
(THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES 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 ProNet on or about
November 7, 1997.
The date of this Joint Proxy Statement/Prospectus is November 7, 1997.
<PAGE> 7
AVAILABLE INFORMATION
ProNet and Metrocall are subject to the informational reporting
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"). All
such reports, proxy statements and other information filed with the Commission
are available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and at Seven World Trade Center, 13th Floor, New York, New York 10048. Such
reports, proxy statements and other information filed with the Commission are
also available at the Commission's site on the World Wide Web located at
http://www.sec.gov. Copies of such documents may also 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. In addition, such materials
and other information concerning Metrocall and ProNet can be inspected at the
National Association of Securities Dealers, Inc., 1801 K Street, N.W.,
Washington, D.C. 20006.
Metrocall has filed with the Commission, under the Securities Act of 1933,
as amended (the "Securities Act"), a Registration Statement on Form S-4
(together with all amendments, schedules and exhibits thereto, the "Registration
Statement") 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 the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. The Registration Statement,
including any amendments, schedules and exhibits thereto, is available for
inspection and copying as set forth above. Statements contained in this Joint
Proxy Statement/Prospectus as to the contents of any contract or other document
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. After the Merger, registration of the ProNet Common Stock under the
Exchange Act will be terminated.
All information contained in this Joint Proxy Statement/Prospectus with
respect to Metrocall has been furnished by Metrocall and all information herein
with respect to ProNet has been furnished by ProNet. Each of Metrocall and
ProNet 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 in which it was made, in order to make such
information not misleading.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY PRONET OR METROCALL. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION
OF AN OFFER TO PURCHASE, ANY METROCALL COMMON STOCK OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION IN WHICH, OR TO OR FROM ANY PERSON TO OR FROM WHOM,
IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF METROCALL COMMON
STOCK HEREUNDER SHALL UNDER ANY CIRCUMSTANCES BE DEEMED TO IMPLY THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF METROCALL OR PRONET OR IN THE INFORMATION SET
FORTH OR INCORPORATED BY REFERENCE HEREIN SUBSEQUENT TO THE DATE HEREOF.
------------------------
i
<PAGE> 8
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by Metrocall (File No.
0-21924) pursuant to the Exchange Act are incorporated by reference in this
Joint Proxy Statement/Prospectus:
1. Metrocall's Annual Report on Form 10-K for the year ended December
31, 1996, as amended, filed with the Commission on May 8, 1997;
2. Metrocall's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, filed with the Commission on May 15, 1997;
3. Metrocall's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, as amended, filed with the Commission on August 22, 1997;
4. Metrocall's Current Reports on Form 8-K, as amended, filed with the
Commission on October 1, 1996, January 27, 1997, July 16, 1997, August 12,
1997, September 8, 1997, October 8, 1997 and October 23, 1997,
respectively; and
5. Metrocall's Proxy Statement for the Annual Meeting of Stockholders
held on May 7, 1997, filed with the Commission on April 18, 1997.
The following documents filed with the Commission by ProNet (File No.
0-16029) pursuant to the Exchange Act are incorporated by reference in this
Joint Proxy Statement/Prospectus:
1. ProNet's Annual Report on Form 10-K for the year ended December 31,
1996, filed with the Commission on March 28, 1997, as amended by amendment
filed with the Commission on May 1, 1997;
2. ProNet's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, filed with the Commission on May 15, 1997;
3. ProNet's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, filed with the Commission on August 12, 1997; and
4. ProNet's Current Report on Form 8-K, filed with the Commission on
July 2, 1997.
All documents subsequently filed by Metrocall or ProNet pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the later to occur of the Metrocall Meeting
and the ProNet Meeting shall be deemed to be incorporated by reference in this
Joint Proxy Statement/Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Joint Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
that also is or is deemed incorporated by reference herein modifies or
supersedes such statement. Any such 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 PRONET 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 ON WRITTEN OR
ORAL REQUEST DIRECTED TO METROCALL, INC., 6677 RICHMOND HIGHWAY, ALEXANDRIA,
VIRGINIA 22306, ATTENTION: SHIRLEY B. WHITE, ASSISTANT SECRETARY (TELEPHONE
NUMBER: (703) 660-6677). DOCUMENTS RELATING TO PRONET ARE AVAILABLE ON WRITTEN
OR ORAL REQUEST DIRECTED TO PRONET INC., 6340 LBJ FREEWAY, DALLAS, TEXAS 75240,
ATTENTION: MARK A. SOLLS, SECRETARY (TELEPHONE NUMBER: (972) 687-2000). IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY
NOVEMBER 30, 1997.
ii
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SUMMARY............................................................................ 1
The Companies.................................................................... 1
The Stockholders' Meetings....................................................... 2
The Merger....................................................................... 3
Regulatory Approvals............................................................. 8
Market Prices and Dividends...................................................... 9
Summary Historical Consolidated Financial Data................................... 10
Other Proposals to be Presented at the Metrocall Meeting......................... 14
RISK FACTORS....................................................................... 15
THE MEETINGS....................................................................... 21
Date, Time and Place of Meetings................................................. 21
Purpose of the Meetings.......................................................... 22
Record Date and Outstanding Shares............................................... 22
Voting and Revocation of Proxies................................................. 22
Vote Required for Approval....................................................... 22
Solicitation of Proxies.......................................................... 23
Other Matters.................................................................... 23
Appraisal Rights................................................................. 24
THE MERGER AND RELATED TRANSACTIONS................................................ 24
General Description of the Merger................................................ 24
Background of the Merger......................................................... 24
History of the Negotiations...................................................... 25
Recommendation of the Board of Directors of Metrocall............................ 26
Metrocall's Reasons for the Merger............................................... 27
Opinion of Financial Advisor to Metrocall........................................ 28
Recommendation of the Board of Directors of ProNet............................... 31
ProNet's Reasons for the Merger.................................................. 31
Opinion of Financial Advisor to ProNet........................................... 32
Interests of Certain Persons in the Merger....................................... 36
Option Agreement................................................................. 37
Stockholders Agreement........................................................... 38
Certain Federal Income Tax Consequences.......................................... 39
Accounting Treatment............................................................. 40
Government and Regulatory Approvals.............................................. 40
Restrictions on Resales by Affiliates............................................ 42
THE MERGER AGREEMENT AND TERMS OF THE MERGER....................................... 42
Effective Time of the Merger..................................................... 42
Manner and Basis of Converting Shares............................................ 42
Certificate of Incorporation and Bylaws of the Surviving Corporation............. 42
Number of Shares to be Issued; Conversion Ratio Adjustments...................... 43
Treatment of Stock Options....................................................... 44
Indemnification.................................................................. 44
Representations and Warranties................................................... 45
Conduct of Business Pending the Merger........................................... 45
Response to Other Offers......................................................... 47
Conditions to the Merger......................................................... 47
</TABLE>
iii
<PAGE> 10
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
Termination...................................................................... 49
Termination Fees................................................................. 50
Amendment........................................................................ 50
DESCRIPTION OF METROCALL CAPITAL STOCK............................................. 51
Common Stock..................................................................... 51
Series A Preferred Stock......................................................... 53
Series B Preferred Stock......................................................... 54
Warrants......................................................................... 55
Indexed Variable Common Rights................................................... 55
COMPARATIVE RIGHTS OF METROCALL STOCKHOLDERS AND PRONET STOCKHOLDERS............... 55
MANAGEMENT OF THE SURVIVING CORPORATION............................................ 64
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.................................. 67
RECENT DEVELOPMENTS REGARDING METROCALL............................................ 73
RECENT DEVELOPMENTS REGARDING PRONET............................................... 74
AMENDMENT OF METROCALL CHARTER TO INCREASE THE NUMBER OF AUTHORIZED METROCALL
SHARES........................................................................... 75
AMENDMENT TO INCREASE THE NUMBER OF SHARES THAT MAY BE ISSUED UNDER METROCALL'S
1996 STOCK OPTION PLAN........................................................... 76
AMENDMENT TO METROCALL'S EMPLOYEE STOCK PURCHASE PLAN.............................. 80
OTHER MATTERS...................................................................... 82
LEGAL MATTERS...................................................................... 82
EXPERTS............................................................................ 83
Exhibit A -- Agreement and Plan of Merger dated as of August 8, 1997 between
Metrocall, Inc. and ProNet Inc.
Exhibit B -- Opinion of Morgan Stanley & Co. Incorporated dated August 8, 1997.
Exhibit C -- Opinion of Salomon Brothers Inc dated August 5, 1997.
Exhibit D -- Proposed Amendment to Metrocall, Inc. Amended and Restated Certificate
of Incorporation.
Exhibit E -- Proposed Amendment to the Metrocall, Inc. 1996 Stock Option Plan.
Exhibit F -- Metrocall, Inc. Amended Employee Stock Purchase Plan.
</TABLE>
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<PAGE> 11
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus and/or in the exhibits attached hereto,
and in the documents incorporated herein by reference. Certain capitalized terms
used and not defined in this summary are defined elsewhere in this Joint Proxy
Statement/Prospectus. This summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information and
financial statements contained elsewhere in this Joint Proxy Statement/
Prospectus and the exhibits attached hereto and in the documents incorporated
herein by reference. STOCKHOLDERS OF METROCALL AND PRONET ARE URGED TO REVIEW
CAREFULLY THE ENTIRE JOINT PROXY STATEMENT/ PROSPECTUS, INCLUDING THE EXHIBITS
ATTACHED HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE, BEFORE
VOTING ON THE MATTERS DISCUSSED HEREIN.
THE COMPANIES
METROCALL
Metrocall had 2,332,006 pagers in service at June 30, 1997, and is the
fifth largest paging company in the United States, 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 five operating regions:
(i) the Northeast (Massachusetts through Delaware); (ii) the Mid-Atlantic
(Maryland and the Washington, D.C. metropolitan area); (iii) the Southeast
(including Virginia, the Carolinas, Georgia, Florida, Alabama, Louisiana,
Mississippi and Tennessee); (iv) the Southwest (primarily Texas); and (v) the
West (California, Nevada and Arizona). Through the Metrocall Nationwide Wireless
Network, Metrocall provides paging services in all 50 states and approximately
1,000 U.S. cities, which include the top 100 Standard Metropolitan Statistical
Areas.
On July 1, 1997, Metrocall acquired substantially all the assets of Page
America Group, Inc. and its subsidiaries ("Page America"), which added
approximately 200,000 subscribers (the "Page America Acquisition"). On a
combined basis, Metrocall services a total subscriber base consisting of more
than 2.5 million units in service. On August 8, 1997, Metrocall entered into the
Merger Agreement with ProNet. Under that agreement, ProNet will, subject to
satisfaction of the terms and conditions of that agreement, merge into Metrocall
(the "Merger"). The Surviving Corporation is expected to be the second largest
paging company in the United States with over 4 million subscribers on a pro
forma basis. On October 21, 1997, Metrocall completed the sale of $200 million
in 9 3/4% senior subordinated notes due 2007 (the "Note Offering"), the net
proceeds of which were used to repay outstanding bank debt.
Metrocall was organized as a Delaware corporation in October 1982.
Metrocall Common Stock is traded on the Nasdaq Stock Market (the "NSM") 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.
PRONET
ProNet is one of the largest providers of wireless messaging services in
the United States. Since 1994, ProNet has migrated its business focus from
servicing primarily the healthcare industry to broader commercial and retail
markets. Since March 1, 1994, ProNet has completed 22 acquisitions and increased
its subscriber base from 132,284 pagers in service to 1,385,354 pagers in
service at June 30, 1997.
ProNet has focused its business development around five geographic regions
serviced by communication "Super Centers" located in Charlotte, Chicago,
Houston, New York and Stockton, California. This geographically concentrated
operating strategy has allowed ProNet to develop regional critical mass and
selectively access markets which feature the size, growth rates, demographic
groups, types of businesses and competitive dynamics that indicate significant
potential demand for ProNet's current and future products and services. In
addition, by developing a heavy concentration of subscribers in each geographic
region, ProNet has maintained one of the lowest cost operating structures in the
paging industry.
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<PAGE> 13
ProNet was incorporated in Delaware in 1982. ProNet Common Stock is traded
on the NSM under the symbol "PNET." ProNet's principal executive office is
located at 6340 LBJ Freeway, Dallas, Texas 75240 and its telephone number is
(972) 687-2000.
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 December 17, 1997 at 9:00 a.m.,
eastern 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 20, 1997 (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 ProNet with and into Metrocall, (ii) the Charter Amendment,
which provides for the increase in the number of authorized shares of Metrocall
Common Stock by 20,000,000 shares, from 60,000,000 shares to 80,000,000 shares,
(iii) the Option Plan Amendment, which provides for the increase in the number
of shares of Metrocall Common Stock that may be issued under Metrocall's 1996
Stock Option Plan by 2,000,000 shares, and (iv) the ESPP Amendment, which
provides for the increase in the number of shares of Metrocall Common Stock that
may be issued under the Employee Stock Purchase Plan by 700,000 shares, to
extend the term of the ESPP to December 31, 2007, to increase administrative
flexibility, and to make certain other changes.
Each of the Merger Agreement and the Charter Amendment will be approved and
adopted if the holders of 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 Option Plan Amendment and the ESPP
Amendment will be approved if the votes cast in favor of the Option Plan
Amendment and the ESPP Amendment, respectively, exceed the votes opposing such
actions. 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. Abstentions will be treated as votes cast against the Merger Agreement
and the Charter Amendment, but will not be counted for purposes of the Option
Plan Amendment or the ESPP Amendment. 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 Option Plan Amendment or the ESPP Amendment. On
the Metrocall Record Date, there were approximately 29,112,998 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, 9,604,873 shares (approximately
33% 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 pursuant to the
terms of the Stockholders Voting Agreement dated August 8, 1997 (the
"Stockholders Agreement"). See "THE MERGER AND RELATED TRANSACTIONS --
Stockholders Agreement."
PRONET
The ProNet Meeting will be held on December 17, 1997 at 8:00 a.m., central
time, at The Westin Hotel-Galleria, 13340 Dallas Parkway, Dallas, Texas. Only
holders of record of shares of ProNet Common Stock at the close of business on
October 31, 1997 (the "ProNet Record Date") are entitled to notice of and to
vote at the ProNet Meeting.
2
<PAGE> 14
At the ProNet Meeting, stockholders will be asked to consider and vote upon
a proposal to approve and adopt the Merger Agreement, which provides for the
merger of ProNet with and into Metrocall. If the Merger Agreement is approved,
subject to certain adjustments, each outstanding share of ProNet Common Stock
will be converted into the right to receive 0.90 of a newly issued share of
Metrocall Common Stock. Fractional shares of Metrocall Common Stock will not be
issued in connection with the Merger. A holder otherwise entitled to a
fractional share will be paid cash in lieu of such fractional share in an amount
equal to the product of the closing price of a share of Metrocall Common Stock
on the trading day immediately prior to the Merger multiplied by the fraction of
a share to which such holder would otherwise be entitled.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of ProNet Common Stock is required to approve and adopt the
Merger Agreement. Each share of ProNet Common Stock is entitled to one vote on
each matter to be acted upon or which may properly come before the ProNet
Meeting. 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. Abstentions and broker non-votes will be equivalent to votes cast
against the Merger Agreement.
THE MERGER
GENERAL
Upon consummation of the Merger, ProNet will be merged with and into
Metrocall. Each share of ProNet Common Stock outstanding immediately prior to
consummation of the Merger will be converted, without any action on the part of
the holder thereof, into the right to receive that number of shares of Metrocall
Common Stock equal to the Conversion Ratio. The Conversion Ratio is 0.90 of a
share of Metrocall Common Stock for each share of ProNet Common Stock, subject
to adjustment if certain liabilities of ProNet exceed certain targets, if
annualized operating cash flow (earnings before interest, taxes, depreciation
and amortization) of ProNet is less or more than certain targets, and if new
pager inventory of ProNet falls below certain targets. Fractional shares of
Metrocall Common Stock will not be issued in connection with the Merger. A
holder otherwise entitled to a fractional share will be paid cash in lieu of
such fractional share in an amount equal to the product of the closing price of
a share of Metrocall Common Stock on the trading day immediately prior to the
Merger multiplied by the fraction of a share to which such holder would
otherwise be entitled.
Based upon the capitalization of Metrocall and ProNet as of the ProNet
Record Date, the stockholders of ProNet immediately prior to consummation of the
Merger (other than Metrocall and its subsidiaries) are expected to receive
Metrocall Common Stock in the Merger representing approximately 30% of the
outstanding voting power of the Surviving Corporation upon consummation of the
Merger.
The shares of Metrocall Common Stock held by existing Metrocall
stockholders prior to the Merger will remain unchanged by the Merger.
At the Effective Time, all shares of ProNet Common Stock will no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any shares of ProNet Common
Stock will cease to have any rights with respect thereto, except the right to
receive the number of whole shares of Metrocall Common Stock to be issued in
exchange therefor upon the surrender of such certificate and cash in lieu of any
fraction of a share of Metrocall Common Stock otherwise issuable to such holder.
After the Effective Time, the exchange agent will deliver a letter of
transmittal and instructions to all holders of record of ProNet Common Stock for
use in exchanging their ProNet Common Stock certificates for Metrocall Common
Stock certificates.
HOLDERS OF PRONET COMMON STOCK SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES
FOR EXCHANGE UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL AND INSTRUCTIONS
FROM THE EXCHANGE AGENT.
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<PAGE> 15
NUMBER OF SHARES TO BE ISSUED; CONVERSION RATIO ADJUSTMENTS
The Conversion Ratio is 0.90 of a share of Metrocall Common Stock for each
share of ProNet Common Stock, subject to the adjustments described below.
Accordingly, subject to the adjustments described below, Metrocall will issue
12,306,388 shares of Metrocall Common Stock as consideration for an aggregate of
13,673,765 shares of ProNet Common Stock that are presently issued and
outstanding or which ProNet has agreed to issue. The number of shares of
Metrocall Common Stock issuable in the Merger is subject to the following
adjustments. In the event of any such adjustments, the Conversion Ratio would be
adjusted to equal the number of shares of Metrocall Common Stock to be issued
based on the adjustments, divided by 13,673,765.
The Conversion Ratio will not be not adjusted based on changes in the
market price of Metrocall Common Stock, and the Merger Agreement contains no
provisions for termination in the event that the trading price of the Metrocall
Common Stock exceeds or falls below any particular level. Changes in the value
of Metrocall Common Stock will therefore change the value of the consideration
that ProNet stockholders will receive in the Merger. In addition, because the
trading price of Metrocall Common Stock will fluctuate and because the
Conversion Ratio adjustments, if any, will be calculated after the Stockholders
Meetings, the exact Conversion Ratio and the number of shares and value of the
Metrocall Common Stock to be received in the Merger will not be known at the
time Metrocall and ProNet stockholders vote on the Merger Agreement. The Merger
is presently expected to be consummated within two weeks after the Stockholders
Meetings. See "THE MERGER AGREEMENT AND TERMS OF THE MERGER -- Number of Shares
to be Issued; Conversion Ratio Adjustments." PRIOR TO THE STOCKHOLDERS MEETINGS,
METROCALL AND PRONET STOCKHOLDERS MAY OBTAIN A CURRENT ESTIMATE OF THE
CONVERSION RATIO AND THE NUMBER OF SHARES OF METROCALL COMMON STOCK INTO WHICH
THEIR SHARES OF PRONET COMMON STOCK WOULD BE CONVERTED, BY CALLING
1-800-223-2064.
Liabilities Adjustment. If the sum of ProNet's aggregate indebtedness and
its working capital surplus or deficit ("Relevant Net Liabilities") at the end
of the calendar month prior to closing ("Measurement Date") exceeds a specified
target, the number of shares of Metrocall Common Stock to be issued in the
Merger will be reduced by the excess, divided by $4.875 (the "Liabilities
Adjustment"). The following table shows pro forma adjustments to the Conversion
Ratio based on the Liabilities Adjustment, assuming the levels of Relevant Net
Liabilities set forth below, and that the Effective Time occurs in December
1997.
<TABLE>
<CAPTION>
ASSUMED RELEVANT TARGET SHARE CONVERSION
NET LIABILITIES NET LIABILITIES ADJUSTMENT RATIO
- ---------------- --------------- ------------ ----------
(MILLIONS) (MILLIONS) (DECREASE)
<S> <C> <C> <C>
$180.0 $ 184.2 -- .9000
$184.2 $ 184.2 -- .9000
$190.0 $ 184.2 (1,189,743) .8130
</TABLE>
At September 30, 1997, Relevant Net Liabilities were $184.3 million.
Operating Cash Flow Adjustment. If ProNet's annualized operating cash flow
(earnings before interest, taxes, depreciation and amortization, as defined in
the Merger Agreement) ("Annualized Cash Flow") is greater than 110% or less than
90% of target cash flow as provided in Annex B to the Merger Agreement, the
number of shares of Metrocall Common Stock to be issued in the Merger will be
increased or decreased, whichever is applicable, by a number equal to eight
times the excess over 110% or shortfall below 90%, divided by $4.875 (the
"Operating Cash Flow Adjustment"). Target cash flow for this purpose is defined
to mean annualized operating cash flow for the period beginning on July 1, 1997
and ending on the Measurement Date. The following table shows pro forma
adjustments to the Conversion Ratio based on the Operating Cash Flow
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<PAGE> 16
Adjustment, assuming the levels of Annualized Cash Flow set forth below, and
that the Effective Time occurs in December 1997.
<TABLE>
<CAPTION>
ASSUMED ANNUALIZED TARGET SHARE CONVERSION
CASH FLOW CASH FLOW ADJUSTMENT RATIO
- ------------------ --------- ------------------- ----------
(MILLIONS) (MILLIONS) INCREASE (DECREASE)
<S> <C> <C> <C>
$ 28.0 $31.488 (556,636) .8593
$ 30.0 $31.488 -- .9000
$ 33.0 $31.488 -- .9000
$ 35.0 $31.488 596,021 .9436
</TABLE>
Based on ProNet's operating results through September 30, 1997, Annualized
Cash Flow would be $31.3 million.
New Pager Inventory Adjustment. If ProNet's new pager inventory ("New Pager
Inventory") at the Measurement Date is less than 50,000 units (45,000 of which
must be Motorola pagers), the number of shares of Metrocall Common Stock to be
issued in the Merger will be reduced by the number of new pagers in inventory
below 50,000 (or the number of Motorola pagers below 45,000, if that number is
greater) times $50.00, divided by $4.875 (the "New Pager Inventory Adjustment").
The following table shows the adjustments to the Conversion Ratio based on the
New Pager Inventory Adjustment, assuming the levels of New Pager Inventory set
forth below, and that the Effective Time occurs in December 1997.
<TABLE>
<CAPTION>
SHARE
ADJUSTMENT
ASSUMED NEW REQUIRED ---------- CONVERSION
PAGER INVENTORY PAGER INVENTORY RATIO
- ------------------ ------------------ (DECREASE) ----------
<S> <C> <C> <C>
60,000 50,000 -- .9000
50,000
(Motorola) 45,000 (Motorola)
45,000 50,000 (51,282) .8963
45,000
(Motorola) 45,000 (Motorola)
50,000 50,000 (51,282) .8963
40,000
(Motorola) 45,000 (Motorola)
</TABLE>
At September 30, 1997, New Pager Inventory was 64,196 pagers, of which
50,772 were Motorola pagers.
The Merger Agreement contains no floor or ceiling on the adjustments to the
Conversion Ratio. However, Metrocall has the right not to close and/or to
terminate the Merger Agreement, if Annualized Cash Flow is less than 80% of the
targeted Annualized Cash Flow.
On the basis of ProNet's operating results as of September 30, 1997 and its
expectations for the fourth quarter of 1997, ProNet management currently does
not expect that any adjustment to the Conversion Ratio will be required under
the Merger Agreement. However, each of the criteria for adjustments to the
Conversion Ratio may be affected, perhaps materially, by circumstances beyond
ProNet's control. There can be no assurance that (i) ProNet will meet targets
for Relevant Net Liabilities, Annualized Cash Flow or New Pager Inventory at the
Measurement Date or (ii) that any adjustments to the Conversion Ratio will not
be material.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Board of Directors of Metrocall unanimously 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 recommended that the stockholders of Metrocall vote
FOR the approval and adoption of the Merger Agreement.
The Board of Directors of ProNet unanimously has approved the Merger
Agreement and has determined that the Merger is fair to, and in the best
interests of, ProNet and its stockholders. The Board of Directors of ProNet has
unanimously recommended that the stockholders of ProNet vote FOR the approval
and adoption of the Merger Agreement.
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<PAGE> 17
REASONS FOR THE MERGER
In reaching the determination that the Merger Agreement and the
transactions contemplated thereby are in the best interests of Metrocall and its
stockholders and ProNet and its stockholders, respectively, the Boards of
Directors of Metrocall and ProNet considered the factors set forth under "THE
MERGER AND RELATED TRANSACTIONS -- Metrocall's Reasons for the Merger" and
"-- ProNet's Reasons for the Merger."
RISKS ASSOCIATED WITH THE MERGER
Stockholders of Metrocall and ProNet should consider certain risks
associated with the merger of ProNet with and into Metrocall. For instance,
Metrocall currently has a substantial amount of indebtedness, has sustained net
losses for the past three years and has experienced fluctuation in the price of
the shares of Metrocall Common Stock. Metrocall and ProNet are subject to
pending litigation. Certain members of ProNet's Board of Directors and
management have interests related to the Merger other than as ProNet
stockholders. The Merger will require the integration of each company's
operations, networks and administrative functions. Once integrated, the
Surviving Corporation will rely upon key personnel, will confront competition
and technological change and will be susceptible to changes in the regulatory
environment and to subscriber turnover. See "RISK FACTORS."
METROCALL'S FINANCIAL ADVISOR
Metrocall retained the investment banking firm of Morgan Stanley & Co.
Incorporated ("Morgan Stanley") to render an opinion as to the fairness, from a
financial point of view, to Metrocall of the Conversion Ratio pursuant to the
Merger Agreement. Morgan Stanley has delivered to Metrocall's Board of Directors
a written opinion, dated August 8, 1997, to the effect that, as of such date and
based upon and subject to certain matters stated therein, the Conversion Ratio
pursuant to the Merger Agreement is fair from a financial point of view to
Metrocall. See "THE MERGER AND RELATED TRANSACTIONS -- Opinion of Financial
Advisor to Metrocall." A copy of Morgan Stanley's opinion is attached hereto as
Exhibit B.
PRONET'S FINANCIAL ADVISOR
ProNet retained Salomon Brothers Inc ("Salomon Brothers") to render an
opinion as to the fairness, from a financial point of view, of the consideration
to be received by the holders of shares of ProNet Common Stock in the Merger.
Salomon Brothers has delivered to the ProNet Board of Directors a written
opinion dated August 5, 1997, 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 of ProNet Common Stock pursuant to the Merger Agreement is
fair to such holders from a financial point of view. A copy of Salomon Brothers'
opinion is attached hereto as Exhibit C.
PROHIBITION ON CERTAIN ACTIVITIES
The Merger Agreement generally provides that, prior to the Effective Time,
ProNet and Metrocall each will conduct its business in the ordinary course and
each 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, ProNet has agreed that it 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
ProNet 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) approval and adoption of the Merger
Agreement by the stockholders of Metrocall and ProNet, (ii) the absence of any
legal bar to consummation of the Merger, (iii) listing of the shares of
Metrocall Common Stock issuable pursuant to the
6
<PAGE> 18
Merger Agreement on the NSM, (iv) receipt of FCC and other governmental
approvals, (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 permitted
exceptions. See "THE MERGER AGREEMENT AND TERMS OF THE MERGER -- Conditions to
the Merger."
TERMINATION
The Merger Agreement may be terminated prior to the Effective Time, whether
before or after stockholder approval, by the mutual written consent of Metrocall
and ProNet. The Merger Agreement may also be terminated prior to the Effective
Time, whether before or after stockholder approval, by either Metrocall or
ProNet upon the occurrence of certain events.
If the Merger Agreement is terminated by ProNet or Metrocall as a result of
ProNet's Board of Directors acceptance of another proposal related to the
acquisition of ProNet (an "Acquisition Proposal") or withdrawal of its
recommendation of the Merger Agreement, or as a result of ProNet's stockholders
failure to approve the Merger Agreement, ProNet will immediately pay to
Metrocall a termination fee of $4 million. Metrocall will pay ProNet a
termination fee of $4 million if Metrocall's stockholders fail to approve the
Merger Agreement or the Charter Amendment. See "THE MERGER AGREEMENT AND TERMS
OF THE MERGER -- Termination."
OPTION AGREEMENT
Metrocall and ProNet entered into an Option Agreement dated as of August 8,
1997 (the "Option Agreement"), in which ProNet granted Metrocall an irrevocable
option to purchase up to 2,450,000 shares of ProNet Common Stock, subject to
certain adjustments, at a price of $5.40 per share (the "Option"). Metrocall may
exercise the Option upon the occurrence of any of the following "Trigger
Events": (i) ProNet's termination of the Merger Agreement because its Board of
Directors has accepted an Acquisition Proposal; (ii) Metrocall's termination of
the Merger Agreement because ProNet's Board of Directors has accepted an
Acquisition Proposal or has withdrawn its recommendation of the Merger; or (iii)
ProNet's acceptance of an Acquisition Proposal within six months after the
stockholders of ProNet disapprove the Merger Agreement. The Option will
terminate upon the earliest to occur of consummation of the Merger, termination
of the Merger Agreement for reasons other than a Trigger Event, or one year
after occurrence of a Trigger Event, subject to extension in certain
circumstances but no later than two years after a Trigger Event. See "THE MERGER
AND RELATED TRANSACTIONS -- Option Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of ProNet's Board of Directors with
respect to the Merger, stockholders should be aware that certain members of the
Board of Directors and management of ProNet have certain interests in the Merger
that are in addition to the interests of stockholders of ProNet generally.
Certain of such persons have entered into non-competition and other 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
After the Merger, the Board of Directors of the Surviving Corporation will
consist of 14 members, of whom 11 will be current Metrocall directors and three
will be current ProNet directors. See "MANAGEMENT OF THE SURVIVING CORPORATION."
7
<PAGE> 19
MANAGEMENT OF THE SURVIVING CORPORATION
The executive officers of Metrocall will be the executive officers of the
Surviving Corporation. 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 ProNet prior to the
Effective Time. See "THE MERGER AND RELATED TRANSACTIONS -- Accounting
Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The obligations of Metrocall and ProNet to consummate the Merger are
conditioned on the receipt of opinions of their respective counsel, Wilmer,
Cutler & Pickering and Vinson & Elkins L.L.P., to the effect that the Merger
will be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). If so treated, no gain or loss will be recognized by ProNet
stockholders upon the receipt of Metrocall Common Stock in exchange for ProNet
Common Stock, except with respect to cash received in lieu of a fractional
interest in Metrocall Common Stock. See "THE MERGER AND RELATED
TRANSACTIONS -- Certain Federal Income Tax Consequences." ProNet stockholders
are urged to consult their own tax advisors.
APPRAISAL RIGHTS
Holders of ProNet Common Stock and Metrocall Common Stock are not entitled
to appraisal rights in connection with the Merger. See "THE
MEETINGS -- Appraisal Rights."
FLUCTUATION IN MARKET PRICE
The value realized by ProNet stockholders 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 the Metrocall Common
Stock, which is subject to fluctuation. The value realized by ProNet
stockholders in the Merger also will depend on possible Conversion Ratio
adjustments based on results determined after the Stockholders Meetings. The
closing sale price of Metrocall Common Stock at November 4, 1997 was $6.625. See
"Market Prices and Dividends" below. 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 PRONET STOCKHOLDERS"
for a summary of the material differences between the rights of holders of
Metrocall Common Stock and ProNet Common Stock.
REGULATORY APPROVALS
ProNet and the operating subsidiaries of ProNet 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 ProNet and its operating subsidiaries. Some of
those applications have been granted by the FCC. 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 approval will not be subject to administrative or
judicial review.
8
<PAGE> 20
MARKET PRICES AND DIVIDENDS
Metrocall Common Stock and ProNet Common Stock are traded on the NSM. The
following table sets forth, for the calendar periods indicated, the high and low
closing sales prices of Metrocall Common Stock and ProNet Common Stock on the
NSM.
<TABLE>
<CAPTION>
METROCALL PRONET
COMMON STOCK COMMON STOCK
---------------- --------------------
1995 HIGH LOW HIGH LOW
------- -------- -------- -------
<S> <C> <C> <C> <C>
First Quarter................................... $18 $14 1/2 $19 $13 7/8
Second Quarter.................................. 18 3/8 17 22 1/8 17 3/4
Third Quarter................................... 29 18 32 1/8 20 1/4
Fourth Quarter.................................. 28 1/4 19 1/2 30 3/16 23 3/4
1996
First Quarter................................... $21 1/4 $16 1/2 $29 $20 7/8
Second Quarter.................................. 21 3/4 10 33 1/2 10 3/8
Third Quarter................................... 11 6 1/4 12 3/4 6 1/16
Fourth Quarter.................................. 7 1/8 3 13/16 8 15/16 4 1/4
1997
First Quarter................................... $ 7 1/2 $ 4 1/8 $ 6 1/4 $ 3 3/8
Second Quarter.................................. 5 5/8 3 3/4 4 1/2 2 1/2
Third Quarter................................... 7 9/16 4 13/16 6 3/8 4
Fourth Quarter (through November 4, 1997)....... 7 3/8 5 7/8 6 1/2 4 7/8
</TABLE>
On August 8, 1997, the last full trading day for Metrocall Common Stock and
ProNet Common Stock prior to the public announcement of the execution of the
Merger Agreement, the reported closing sale prices of Metrocall Common Stock and
ProNet Common Stock, as reported by the NSM, were $6 and $6 per share,
respectively. On August 4, 1997, the last full trading day before ProNet
publicly announced that it was in negotiations regarding a potential strategic
business combination, the reported closing sale price of ProNet Common Stock was
$5.4375 per share. The closing sale prices of Metrocall Common Stock and ProNet
Common Stock, as reported by the NSM, on November 4, 1997 were $6.625 and $5.734
per share, respectively. At the ProNet Record Date, there were approximately 200
stockholders of record of ProNet Common Stock. At the Metrocall Record Date,
there were approximately 639 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 ProNet
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 COMMON STOCK AND THE PRONET COMMON STOCK.
Neither Metrocall nor ProNet 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 ProNet currently
does 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, indentures governing certain
indebtedness of Metrocall and ProNet, and Metrocall's Series A Convertible
Preferred Stock restrict in certain circumstances the payment of dividends by
Metrocall.
9
<PAGE> 21
METROCALL, INC.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT UNIT, PER UNIT AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
---------------------------------------------------------- ENDED JUNE 30,
1992 1993 1994(1) 1995 1996(1) 1997
-------- -------- -------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Service, rent and maintenance revenues............ $ 30,996 $ 33,111 $ 49,716 $ 92,160 $ 124,029 $ 118,537
Product sales..................................... 4,196 4,549 8,139 18,699 25,928 18,513
-------- -------- -------- -------- ---------- ----------
Total revenues............................ 35,192 37,660 57,855 110,859 149,957 137,050
Net book value of products sold................... (3,439) (4,130) (6,962) (15,527) (21,633) (13,682)
-------- -------- -------- -------- ---------- ----------
31,753 33,530 50,893 95,332 128,324 123,368
Operating expenses:
Service, rent and maintenance..................... 8,342 9,559 14,014 27,258 38,347 35,440
Selling, general and administrative(2)............ 12,341 17,879 20,727 42,353 57,226 54,749
Depreciation and amortization..................... 6,594 6,525 13,829 31,504 58,196 43,549
-------- -------- -------- -------- ---------- ----------
Income (loss) from operations..................... 4,476 (433) 2,323 (5,783) (25,445) (10,370)
Interest and other (expense) income(3)............ 1,212 77 161 314 (607) 60
Interest expense.................................. (2,631) (1,331) (3,726) (12,533) (20,424) (15,907)
-------- -------- -------- -------- ---------- ----------
Income (loss) before income tax benefit
(provision) and extraordinary item.............. 3,057 (1,687) (1,242) (18,002) (46,476) (26,217)
Income tax benefit (provision).................... (69) (59) 152 595 1,021 2,165
-------- -------- -------- -------- ---------- ----------
Income (loss) before extraordinary item........... 2,988 (1,746) (1,090) (17,407) (45,455) (24,052)
Extraordinary item(3)............................. -- (439) (1,309) (2,695) (3,675) --
-------- -------- -------- -------- ---------- ----------
Net income (loss)............................... 2,988 (2,185) (2,399) (20,102) (49,130) (24,052)
Preferred dividends............................... -- -- -- -- (780) (3,169)
-------- -------- -------- -------- ---------- ----------
Income (loss) attributable to common
stockholders.................................. $ 2,988 $ (2,185) $ (2,399) $(20,102) $ (49,910) $ (27,221)
======== ======== ======== ======== ========== ==========
Loss per share attributable to common
stockholders:
Loss per share before extraordinary item
attributable to common stockholders........... $ (0.14) $ (1.49) $ (2.84) $ (1.09)
Extraordinary item, net of income tax benefit... (0.16) (0.23) (0.23) --
-------- -------- ---------- ----------
Loss per share attributable to common
stockholders.................................. $ (0.30) $ (1.72) $ (3.07) $ (1.09)
======== ======== ========== ==========
OPERATING AND OTHER DATA:
Units in service (end of period).................. 201,397 247,716 755,546 944,013 2,142,351 2,332,006
EBITDA(4)......................................... $ 11,070 $ 10,923 $ 16,152 $ 27,771 $32,751 $ 33,179
EBITDA margin(5).................................. 34.9% 32.6% 31.7% 29.1% 25.5% 26.9%
Net cash provided by operating activities......... $ 8,858 $ 10,929 $ 11,796 $ 14,000 $ 15,608 $ 14,298
Net cash provided by (used in) investing
activities...................................... $ 26,127 $(13,598) $(19,227) $(44,528) $ (327,904) $ (23,974)
Net cash (used in) provided by financing
activities...................................... $(34,167) $ 1,983 $ 9,190 $151,329 $ 199,639 $ 19,508
ARPU(6)........................................... $ 13.10 $ 12.29 $ 10.53 $ 9.15 $ 8.01 $ 8.36
Average monthly operating expense per unit(7)..... $ 8.74 $ 8.39 $ 7.36 $ 6.71 $ 6.28 $ 6.50
Units in service per employee (end of period)..... 730 716 1,007 1,047 1,086 1,132
Capital expenditures(8)........................... $ 3,918 $ 13,561 $ 19,091 $ 44,058 $ 62,110 $ 32,501
<CAPTION>
DECEMBER 31, JUNE 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)......................... $ 531 $ (1,603) $ (5,277) $116,009 $ (7,267) $ 5,825
Cash and cash equivalents......................... 1,700 1,014 2,773 123,574 10,917 20,749
Total assets...................................... 26,180 33,857 200,580 340,614 651,468 646,728
Total long-term debt.............................. 31,143 12,102 104,846 154,055 327,792 349,253
Total stockholders' equity (deficit).............. (11,374) 13,729 68,136 155,238 166,298 141,918
</TABLE>
- ---------------
(1) 1994 and 1996 include the results of operations of acquired companies from
their respective acquisition dates (see Note 3 to consolidated financial
statements as of and for the year ended December 31, 1996).
(2) Includes the impact of one-time, 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 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 this refinancing Metrocall
recorded extraordinary items of $439,000, $1.3 million and $2.7 million,
respectively, representing charges to expense unamortized deferred financing
costs and other costs, net of any income tax benefits, related to those
credit facilities. In 1996, Metrocall recorded an extraordinary item for
costs of approximately $3.7 million paid to purchase the A+ Network 11 7/8%
senior subordinated notes outstanding. Additionally, Metrocall incurred
breakage fees of approximately $1.7 million associated with the termination
of two interest rate swap agreements in 1995. Costs associated with this
termination have been included in interest and other (expense) income in the
1995 statement of operations.
(4) EBITDA (earnings before interest, taxes, depreciation and amortization, and
certain one-time charges), while not a measure under generally accepted
accounting principles ("GAAP"), is a standard measure of financial
performance in the paging industry; EBITDA 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 Metrocall's covenants are calculated under its
credit facility and the indentures governing certain indebtedness of
Metrocall. 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) total revenues
less the net book value of products sold.
(6) ARPU (average monthly paging revenue per unit) is calculated by dividing (a)
service, rent and maintenance revenues for the period by (b) the average
number of units in service for the period. ARPU calculation excludes
revenues derived from non-paging services such as telemessaging, long
distance and cellular telephone.
(7) Average monthly operating expense per unit is calculated by dividing (a)
total recurring operating expenses before depreciation and amortization for
the period by (b) the average number of units in service for the period. For
this calculation, 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 a part of a
management reorganization charge in 1995.
(8) Excludes acquisitions but includes leased pager costs.
10
<PAGE> 22
PRONET INC.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT UNIT, PER UNIT AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Service, rent and maintenance revenues(1).............. $ 16,845 $ 19,234 $ 33,079 $ 56,108 $ 87,239 $ 48,562
Product sales(2)....................................... 1,855 2,040 6,639 10,036 15,817 10,430
-------- -------- -------- -------- ---------- --------------
Total revenues....................................... 18,700 21,274 39,718 66,144 103,056 58,992
Net book value of products sold........................ (1,072) (956) (6,644) (9,421) (13,244) (7,183)
-------- -------- -------- -------- ---------- --------------
17,628 20,318 33,074 56,723 89,812 51,809
Operating expenses:
Service, rent and maintenance.......................... 4,708 5,102 9,185 14,396 25,924 15,351
Selling, general and administrative.................... 6,996 7,828 12,126 23,935 39,090 21,571
Depreciation and amortization.......................... 4,077 4,656 8,574 18,662 40,624 33,117
Nonrecurring charges................................... -- -- -- -- 8,809 6,550
-------- -------- -------- -------- ---------- --------------
Income (loss) from operations.......................... 1,847 2,732 3,189 (270) (24,635) (24,780)
Interest and other income.............................. 217 43 173 1,291 285 137
Interest expense....................................... (310) (292) (1,774) (8,640) (15,370) (8,756)
-------- -------- -------- -------- ---------- --------------
Income (loss) before income tax provision.............. 1,754 2,483 1,588 (7,619) (39,720) (33,399)
Income tax provision................................... -- (909) (895) (78) (323) (167)
-------- -------- -------- -------- ---------- --------------
Net income (loss)...................................... $ 1,754 $ 1,574 $ 693 $ (7,697) $ (40,043) $ (33,566)
======== ======== ======== ======== ========= ==============
OPERATING AND OTHER DATA:
Units in service (end of period)....................... 114,356 130,000 353,830 856,302 1,270,954 1,385,354
EBITDA(3).............................................. $ 5,911 $ 7,388 $ 11,763 $ 18,392 $ 24,798 $ 14,887
EBITDA margin(4)....................................... 34% 36% 36% 32% 28% 29%
Net cash provided by operating activities(5)........... $ 6,720 $ 7,144 $ 11,952 $ 12,470 $ 160 $ 13,502
Net cash provided by (used in) investing activities.... (5,399) (6,071) (45,373) (89,006) (142,493) (33,523)
Net cash provided by (used in) financing activities.... (1,559) (674) 33,557 86,024 134,465 21,552
ARPU -- Paging(6)...................................... 10.48 10.23 8.51 6.57 6.17 5.61
ARPU -- Tracking(7).................................... 14.75 15.90 16.52 15.90 18.42 18.80
Average monthly operating expense per unit(8).......... 7.80 7.91 5.08 4.78 4.68 4.45
Units in service per employee (end of period)(9)....... 880 1,000 1,325 1,619 1,648 1,708
Capital expenditures(10)............................... $ 2,315 $ 2,565 $ 2,811 $ 9,773 $ 14,534 $ 6,745
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit).............................. $ 1,130 $ 812 $ (3,119) $ 3,242 $ (1,927) $ (11,392)
Cash and cash equivalents.............................. 131 530 666 10,154 2,286 3,817
Total assets........................................... 28,128 30,296 73,273 186,969 311,716 307,191
Total long-term debt................................... 3,460 3,903 9,500 99,319 148,691 170,226
Total stockholders' equity............................. 19,803 20,359 50,235 49,556 133,649 101,267
</TABLE>
- ---------------
(1) Service, rent and maintenance revenues consist of fixed monthly, quarterly,
annual and bi-annual service and leasing fees.
(2) Product sales include pager and paging equipment sales and other security
systems' income.
(3) EBITDA is earnings before interest and other income, income taxes,
depreciation and amortization and nonrecurring charges. Interest and other
income consist primarily of interest expense. EBITDA does not represent
cash flows as defined by generally accepted accounting principles and does
not necessarily indicate that cash flows are sufficient to fund all of
ProNet's cash needs. EBITDA should not be considered in isolation or as a
substitute for net income (loss), cash from operating activities or other
measures of liquidity determined in accordance with generally accepted
accounting principles. EBITDA excludes nonrecurring charges of
approximately $8.8 million in 1996 and $6.6 million in 1997.
(4) Calculated by dividing EBITDA by the remainder of total revenues less net
book value of products sold for the period presented.
(5) Cash flow from operating activities is derived from the statement of cash
flows and differs from EBITDA (as defined above) primarily due to interest
expense and changes in working capital.
(6) ARPU -- Paging (average revenue per paging unit) is calculated by dividing
paging systems average monthly service revenues for the last quarter of the
period by the average number of pagers in service at the beginning of such
quarter.
(7) ARPU -- Tracking (average revenue per tracking unit) is calculated by
dividing security systems' service revenues for the last month in the
period by the number of tracking units in service at the beginning of such
month.
(8) Calculated by dividing the sum of the cost of pager lease and access fees
and selling, general and administrative expenses for the last month in the
period by the number of pagers in service at the beginning of such month.
(9) Calculated by dividing pagers in service at the end of each period by the
number of employees at the end of the period presented. This calculation
excludes employees directly related to the security systems' business.
(10) Excludes acquisition and leased pager costs.
11
<PAGE> 23
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, 1996 give effect to
Metrocall's 1996 acquisitions including Parkway Paging, Inc. ("Parkway"), O.R.
Estman, Inc. and Dana Paging, Inc. (collectively, "Satellite") and A+ Network,
Inc. ("A+ Network") as if each transaction had occurred on January 1, 1996 under
the heading "Pro Forma Metrocall." The unaudited pro forma condensed combined
statements of operations data for the year ended December 31, 1996 and for the
six months ended June 30, 1997 also give effect to the Page America Acquisition
and the Note Offering under the heading "Pro Forma Metrocall, Page America and
Note Offering" and to the Page America Acquisition, the Note Offering and the
Merger under the heading "Pro Forma Metrocall, Page America, Note Offering and
ProNet" as if those transactions had occurred on January 1, 1996.
The unaudited pro forma condensed combined balance sheet under the heading
"Pro Forma Metrocall, Page America and Note Offering" gives effect to the Page
America Acquisition and the Note Offering as if each had occurred on June 30,
1997. The unaudited pro forma condensed combined balance sheet under the heading
"Pro Forma Metrocall, Page America, Note Offering and ProNet" gives effect to
the Page America Acquisition, the Note Offering and the Merger as if each had
occurred on June 30, 1997.
This information should be read in conjunction with the unaudited Pro Forma
Condensed Combined Financial Data and the notes thereto included herein (see
"PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS"), the financial statements
of Parkway, Satellite, A+ Network, Network Paging Corporation and Page America
incorporated by reference herein and the Metrocall Consolidated Financial
Statements and the ProNet Consolidated Financial Statements included herewith.
The unaudited pro forma condensed combined financial data do not purport to
represent what the Surviving Corporation's results of operations or financial
position actually would have been had such transactions and events occurred on
the dates specified, or to project the Surviving Corporation's results of
operations or financial position for any future period or date. The pro forma
adjustments are based upon available information and certain adjustments that
management of Metrocall believes are reasonable. In the opinion of management of
Metrocall, all adjustments have been made that are necessary to present fairly
the unaudited pro forma condensed combined financial data.
12
<PAGE> 24
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND UNITS IN SERVICE)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
METROCALL, METROCALL,
PAGE AMERICA PAGE AMERICA,
PRO FORMA AND NOTE NOTE OFFERING
METROCALL OFFERING AND PRONET
---------- --------------------- -------------
<S> <C> <C> <C>
CONDENSED COMBINED STATEMENTS OF OPERATIONS DATA:
Total revenues.................................................... $ 247,886 $ 269,870 $ 372,926
Operating expenses................................................ 264,120 288,383 406,525
Loss from operations.............................................. (46,821) (50,384) (78,714)
Interest and other income (expense), net.......................... (30,573) (50,024) (65,109)
Benefit for income taxes.......................................... 5,614 5,614 10,403
Net loss.......................................................... (71,780) (94,794) (133,420)
Net loss per share................................................ $ (2.87) $ (3.28) $ (3.24)
Weighted average common shares outstanding........................ 24,978 28,890 41,196
OTHER DATA:
Units in service (end of period).................................. 2,142,351 2,347,351 3,618,305
EBITDA(1)......................................................... $ 53,879 $ 59,003 $ 83,801
</TABLE>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND UNITS IN SERVICE)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
METROCALL, METROCALL,
PAGE AMERICA PAGE AMERICA,
AND NOTE NOTE OFFERING
METROCALL OFFERING AND PRONET
------------ --------------------- -----------------
<S> <C> <C> <C>
CONDENSED COMBINED STATEMENTS OF OPERATIONS DATA:
Total revenues................................................. $ 137,050 $ 146,377 $ 205,369
Operating expenses............................................. 133,738 144,789 223,226
Loss from operations........................................... (10,370) (12,519) (39,147)
Interest and other income (expense), net....................... (15,847) (19,311) (27,930)
Benefit for income taxes....................................... 2,165 2,139 4,528
Net loss....................................................... (24,052) (29,691) (62,549)
Net loss per share............................................. $ (0.96) $ (1.03) $ (1.52)
Weighted average common shares outstanding..................... 24,978 28,890 41,196
OTHER DATA:
Units in service (end of period)............................... 2,332,006 2,530,631 3,915,985
EBITDA(1)...................................................... $ 33,179 $ 34,597 $ 49,484
CONDENSED COMBINED BALANCE SHEET DATA (AS OF JUNE 30, 1997):
Working capital (deficit)...................................... $ 5,825 $ 3,612 $ (13,380)
Total assets................................................... 646,728 717,734 1,081,931
Long-term obligations, net of current portion(2)............... 348,288 381,288 551,514
Total stockholders' equity(3).................................. 141,918 161,954 241,945
</TABLE>
- ---------------
(1) EBITDA (earnings before interest, taxes, depreciation and amortization),
while not a measure under GAAP, is a standard measure of financial
performance in the paging industry; EBITDA 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. Pro forma EBITDA excludes certain nonrecurring
charges related to Satellite and A+ Network of $0.4 million for the year
ended December 31, 1996. Pro forma EBITDA excludes certain nonrecurring
charges related to ProNet of approximately $8.8 million and $6.6 million for
the year ended December 31, 1996 and six months ended June 30, 1997,
respectively.
(2) During August and October 1997, Metrocall increased borrowings outstanding
under its credit facility by a total of $28.0 million to fund working
capital requirements.
(3) The pro forma stockholders' equity assumes a per share price of $4.8125 for
Metrocall Common Stock as of the closing date of the Page America
Acquisition and $6.50 per share for the Merger. See "Pro Forma Condensed
Combined Financial Statements."
13
<PAGE> 25
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth certain pro forma per share data of
Metrocall and combined unaudited pro forma per share data after giving effect to
the Page America Acquisition, the Note Offering and the Merger. This information
should be read in conjunction with the Pro Forma Condensed Combined Financial
Statements and the notes thereto, the Metrocall Consolidated Financial
Statements and the ProNet 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
PRO FORMA METROCALL,
METROCALL, PAGE AMERICA,
PRO FORMA PAGE AMERICA(2) NOTE OFFERING
METROCALL(1) AND NOTE OFFERING AND PRONET(3)
------------ ----------------- -------------
<S> <C> <C> <C>
Loss per share attributable to common stockholders:
Year ended December 31, 1996........................ $(2.87) $ (3.28) $ (3.24)
Six months ended June 30, 1997...................... (0.96) (1.03) (1.52)
Book value per share on June 30, 1997................. 5.66 5.59 5.86
</TABLE>
- ---------------
(1) Reflects the acquisitions of Parkway, Satellite, and A+ Network by Metrocall
as though each had occurred on January 1, 1996.
(2) Reflects the Page America Acquisition as though it had occurred on January
1, 1996.
(3) Reflects the Merger as though it had occurred on January 1, 1996.
OTHER PROPOSALS TO BE PRESENTED AT THE METROCALL MEETING
In addition to approving and adopting of the Merger Agreement, the
Metrocall stockholders are also being asked to consider and vote upon the
Charter Amendment to increase the number of authorized shares of Metrocall
Common Stock by 20,000,000 shares, from 60,000,000 shares to 80,000,000 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 Option Plan Amendment to increase the number of shares of
Metrocall Common Stock that may be issued under Metrocall's 1996 Stock Option
Plan by 2,000,000 shares. 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 ESPP Amendment to
increase the number of shares of Metrocall Common Stock that may be issued under
Metrocall's Employee Stock Purchase Plan by 700,000 shares and to make certain
other changes. See "AMENDMENT TO METROCALL'S EMPLOYEE STOCK PURCHASE PLAN."
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RISK FACTORS
The following are certain risk factors that should be carefully considered
by Metrocall and ProNet stockholders in evaluating the Merger in addition to the
other information described elsewhere or incorporated by reference in this Joint
Proxy Statement/Prospectus.
SUBSTANTIAL INDEBTEDNESS OF METROCALL
At October 31, 1997, Metrocall had outstanding approximately $410.0 million
in indebtedness consisting of bank loans, senior subordinated notes, mortgage
indebtedness and capital leases. On October 21, 1997, Metrocall completed the
sale of $200 million in 9 3/4% Senior Subordinated Notes due 2007 pursuant to
the Note Offering. The net proceeds of the Note Offering were used to repay
outstanding indebtedness under Metrocall's senior secured credit facility (the
"Metrocall Credit Facility"). After the Note Offering, the maximum principal
amount available under the Metrocall Credit Facility, subject to certain
limitations, was $300 million (of which $50.9 million was drawn as of October
31, 1997, and is included in the outstanding indebtedness described above).
Pursuant to the Merger, Metrocall will assume $100 million principal amount of
ProNet's 11 7/8% Senior Subordinated Notes due 2005 (the "ProNet Senior
Subordinated Notes") and will refinance ProNet's existing secured bank debt, of
which approximately $72.3 million was outstanding on September 30, 1997, with
borrowings under the Metrocall Credit Facility.
Metrocall also has issued and outstanding $39.9 million stated value of its
Series A Convertible Preferred Stock (the "Series A Preferred Stock"), the terms
of which require Metrocall to pay dividends, in cash or additional shares of
Series A Preferred Stock, at a rate of 14% per year. Metrocall is required to
redeem all outstanding shares of Series A Preferred Stock (including dividend
shares) in November 2008 unless the holders have previously converted such
shares to Metrocall Common Stock. As part of the consideration for the Page
America Acquisition, Metrocall issued 1,500 shares of Series B Junior
Convertible Preferred Stock (the "Series B Preferred Stock"). Each share of
Series B Preferred Stock has a stated value of $10,000 per share. The Series B
Preferred Stock carries a dividend of 14% of the stated value per share, payable
semi-annually in cash or in additional shares of Series B Preferred Stock, at
Metrocall's option. The Series B Preferred Stock must be redeemed in July 2009
for an amount equal to its stated value, plus accrued and unpaid dividends.
Metrocall also expects to incur additional indebtedness (in the form of draws on
the Metrocall Credit Facility or otherwise) to meet working capital needs, in
connection with future acquisitions, or for other purposes. However, the ability
to incur additional indebtedness (including draws on the Metrocall Credit
Facility) is subject to certain limitations in the agreements relating to
existing indebtedness, the terms of the Series A Preferred Stock and Series B
Preferred Stock and the terms of the indenture governing the ProNet Senior
Subordinated Notes (the "ProNet Indenture").
Metrocall would be able to incur approximately $40 million of additional
indebtedness based on its operating results through June 30, 1997 and estimated
cash balances on hand and after giving pro forma effect to the Page America
Acquisition, the Note Offering and the Merger.
This substantial indebtedness, along with the net losses and working
capital deficits sustained by Metrocall in recent periods, will have certain
adverse consequences for Metrocall, including the following: (i) the ability of
Metrocall to obtain additional financing for working capital, capital
expenditures, debt service requirements or other purposes may be impaired; (ii)
a substantial portion of Metrocall's cash flow from operations will be required
to be dedicated to the payment of Metrocall's interest expense; (iii)
indebtedness under the Metrocall Credit Facility bears interest at floating
rates, which will cause Metrocall to be vulnerable to increases in interest
rates; (iv) Metrocall may be more highly leveraged than companies with which it
competes, which may place it at a competitive disadvantage; and (v) Metrocall
may be more vulnerable in the event of a downturn in its business or in general
economic conditions. See "-- History of Losses from Operations."
Metrocall has required, and will continue to require, substantial capital
in connection with the further development and expansion of its operations.
Historically, Metrocall has funded its capital requirements by debt financing
and the sale of capital stock. Metrocall expects its capital expenditures for
1997 and 1998 will be approximately $70 million and $80 million (after giving
effect to the Merger), respectively. Metrocall
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believes that borrowings under the Metrocall Credit Facility and cash flow from
operations will be sufficient to fund Metrocall planned capital expenditures and
working capital and debt service requirements. Metrocall may require additional
financing for future acquisitions and for further expansion of its paging
operations. See "-- Growth Strategy."
The ability of Metrocall to meet its debt service and other obligations
(including compliance with financial covenants) will be dependent upon the
future performance of Metrocall and its cash flow from operations, which will be
subject to financial, business and other factors, certain of which are beyond
its control, such as prevailing economic conditions. If the Merger is
consummated, Metrocall's total indebtedness and debt service requirements will
be substantially increased and Metrocall will be subject to significant
financial restrictions and limitations. The successful implementation of
Metrocall's strategy is necessary for Metrocall to meet its debt service
requirements. No assurance can be given that, in the event Metrocall were to
require additional financing, such additional financing would be available on
terms permitted by agreements relating to existing indebtedness or otherwise
satisfactory to Metrocall. Moreover, there can be no assurance that Metrocall
will be able to generate sufficient cash flow from operating activities to meet
its debt service obligations and working capital requirements. Furthermore, if
Metrocall is unable to satisfy any of the covenants under the Metrocall Credit
Facility, including financial covenants, Metrocall will be unable to borrow
under such facility to fund planned capital expenditures, its ongoing operations
and other permissible uses. Failure to obtain such financing could result in
delays or abandonment of some or all of Metrocall's plans, which could limit the
ability of Metrocall to meet its debt service obligations and could have an
adverse effect on its business.
HISTORY OF LOSSES FROM OPERATIONS
Metrocall sustained losses from operations of $5.8 million and $25.4
million for the years ended December 31, 1995 and 1996, respectively, and $10.4
million for the six months ended June 30, 1997. No assurance can be given that
Metrocall will achieve profitability. In addition, at June 30, 1997, Metrocall's
accumulated stockholders' deficit was approximately $124.0 million. Metrocall's
business requires substantial funds for capital expenditures and acquisitions
that result in significant depreciation and amortization charges. Accordingly,
losses from operations are expected to continue to be incurred in the future. On
a pro forma basis, after giving effect to the Page America Acquisition, the Note
Offering and the Merger, Metrocall's losses from operations would have been
$78.7 million and $39.1 million for the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively. See "Pro Forma Condensed Combined
Financial Statements."
RISKS ASSOCIATED WITH ACQUISITIONS; CHALLENGES OF BUSINESS INTEGRATION
Metrocall recently has completed several acquisitions and is subject to
risks that the paging systems acquired, including assets acquired in the Page
America Acquisition and to be acquired in the Merger, will not perform as
expected and that the returns from such systems will not support indebtedness
assumed or incurred to acquire, or the capital expenditures needed to develop,
such assets. Metrocall's recent acquisitions, and the Merger and any additional
acquisitions, if completed, will require integration of each company's
development, administrative, finance, sales and marketing organizations, as well
as the integration of each company's communication networks and the coordination
of its sales efforts. Further, each company's customers will need to be
reassured that their paging services will continue uninterrupted. The diversion
of management attention and any difficulties encountered in the integration
process could have an adverse impact on the revenue and operating results of
Metrocall. Additionally, attempts to achieve economies of scale through cost
cutting and lay-offs of existing personnel may, at least in the short term, have
an adverse impact upon Metrocall.
Metrocall believes that a key benefit to be realized from the Merger will
be the integration of paging service coverage, which will allow Metrocall to
provide paging services in new markets. The integration of acquired systems with
existing operations entails considerable expenses in advance of anticipated
revenues and may cause substantial fluctuations in Metrocall's operating
results. This may involve, among other things, integration of technical, sales,
marketing, billing, accounting, quality control, management, personnel, payroll,
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<PAGE> 28
regulatory compliance and other systems and operating hardware and software
systems, some of which may be incompatible with Metrocall's existing systems. In
addition, telecommunications providers generally experience higher customer and
employee turnover rates during and after an acquisition. Metrocall is in the
process of integrating the operations of the Page America Acquisition and
expects that, if the Merger is consummated, the integration of ProNet will not
be completed until the end of 1998. There can be no assurance that Metrocall
will be able to integrate such acquisitions successfully. If Metrocall is not
successful in integrating such paging service coverage, the business of
Metrocall will be adversely affected.
GROWTH STRATEGY
Historically, Metrocall has grown substantially through acquisitions.
Metrocall intends to pursue future acquisition opportunities; however, no
assurance can be given that Metrocall will identify, finance and purchase
additional suitable acquisitions on acceptable terms, or that future
acquisitions, if completed, will be successful. Metrocall will likely incur
additional debt to finance any additional acquisitions. Metrocall intends to
pursue internal growth through expansion of its paging operations. Metrocall's
internal growth will depend, in part, upon its ability to attract and retain
skilled employees, its increasing reliance on strategic alliances and the
ability of Metrocall's officers and key employees to maintain effective quality
controls, manage successfully rapid growth and implement appropriate management
information systems and controls. If Metrocall were unable to attract and retain
skilled employees, rely upon its strategic alliances, maintain effective quality
controls, manage successfully rapid growth and/or implement appropriate systems
and controls, Metrocall's operations could be adversely affected.
POSSIBLE IMPACT OF COMPETITION AND TECHNOLOGICAL CHANGE
The Surviving Corporation will face competition from other paging companies
in all markets in which it will operate. The wireless communications industry is
highly competitive, with price being the primary means of differentiation among
providers of numeric messaging services (which account for the substantial
majority of the current revenues of both Metrocall and ProNet), particularly in
the reseller market (which accounts for a majority of ProNet's revenues and an
increasing portion of Metrocall's revenues). Paging companies also compete on
the basis of coverage area, enhanced services, transmission quality, system
reliability and customer service. Some of the Surviving Corporation's
competitors and potential competitors, which include regional and national
paging companies, have substantially greater financial, personnel, technical,
marketing and other resources than those of the Surviving Corporation. In
addition, other entities offering wireless two-way communications technology,
including cellular telephone, specialized mobile radio services and personal
communication services ("PCS"), also compete with the paging services that the
Surviving Corporation will provide. 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 telephone carriers and regional Bell operating companies
are marketing paging services jointly with other telecommunications services.
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 provided 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 PCS. The FCC's rules also provide for the private use of PCS
spectrum on an unlicensed basis. There are two types of PCS: narrowband and
broadband. Narrowband PCS provides enhanced or advanced paging and messaging
capabilities, such as "acknowledgment paging" or "talk-back" paging. Broadband
PCS offers two-way voice communications and messaging services. Broadband PCS
competes with cellular telephone services and enhanced specialized mobile radio
services, as well as with conventional paging services. Several PCS systems are
currently operational. Additionally, other existing or prospective radio
services have the potential to compete with the Surviving Corporation. For
example, the FCC has authorized non-geostationary mobile satellite service
systems in several frequency bands, and has initiated proceedings to consider
making additional licenses in some of those bands available. Licensees in those
satellite services (some of whom have already launched satellites) are permitted
to offer signaling and other mobile services that could compete with terrestrial
paging companies. A recent FCC decision will allow land mobile licensees in the
220-222 MHz
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<PAGE> 29
band to offer commercial paging services. The FCC has also initiated a
rule-making proceeding proposing to allow Multiple Address Systems, a fixed
microwave service in various 900 MHz frequency bands, to offer mobile services.
Any of these services may compete directly or indirectly with the Surviving
Corporation.
Moreover, changes in technology could lower the cost of competitive
services and products to a level at which the Surviving Corporation's services
and products would become less competitive or at which 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.
PENDING LITIGATION
Metrocall/Source One. In April 1996, Metrocall 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, Metrocall advised Source
One that Source One had failed to meet certain conditions to complete 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
removed the action to the United States District Court for the Northern District
of Illinois. Metrocall intends to vigorously defend the claims in this action
and believes it has meritorious defenses to this action. Metrocall has denied
the claim and asserted affirmative defenses and counterclaims based on
misrepresentations and breaches of contract by Source One. The period for fact
discovery has closed; trial is not expected before January 1998.
ProNet Securities Litigation. ProNet and certain of its officers and
directors are defendants in seven separate actions alleging various violations
of federal and state securities laws (the "ProNet Securities Litigation"). These
actions collectively assert claims on behalf of all persons who purchased shares
of ProNet Common Stock in ProNet's public offering of 4,000,000 shares that
commenced on May 31, 1996 and all persons who purchased shares of ProNet Common
Stock in the open market during an alleged class period.
ProNet entered into an agreement effective as of May 14, 1997 to settle the
ProNet Securities Litigation. ProNet, its insurance carriers and its former
underwriters will pay $8.25 million to settle all claims against ProNet, its
officers and directors, and the underwriters. ProNet has agreed to pay $1.7
million of this amount. In addition, ProNet will issue one million shares of
ProNet Common Stock to the class. ProNet will also pay $2 million to the class
if, within two years from final approval of the settlement, the Merger is
completed or ProNet engages in another merger or similar transaction which
results in "change of control" of ProNet. The proposed settlement is subject to
court approval.
On September 24, 1997, the United States District Court for the Northern
District of Texas preliminarily approved the proposed settlement. The Court set
a hearing on the parties' joint motion for entry of a final judgment approving
the settlement for November 19, 1997.
Class Action Suit. On August 13, 1997, ProNet and certain of its directors
were named in a class action complaint filed in the Court of Chancery for the
State of Delaware in and for New Castle County. The case is styled, Jerry Krim
v. ProNet Inc., et al, C.A. No. 15873. In this action, the plaintiff alleges
that ProNet stockholders will receive inadequate consideration in the Merger.
The plaintiffs further allege various breaches by the director defendants in
connection with the Merger. The defendants view the complaint as meritless and
on September 5, 1997 filed a motion to dismiss plaintiff's complaint. That
motion is pending before the Court.
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<PAGE> 30
SUBSCRIBER TURNOVER
The results of operations of paging service providers, such as Metrocall
and ProNet, can be significantly affected by subscriber cancellations and by
subscribers who switch their service to other carriers. 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 the Surviving Corporation's business will be
characterized by high fixed costs, disconnections directly and adversely will
affect the Surviving Corporation's results of operations. 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 has adopted rules
under which it will issue paging licenses on a wide-area basis by competitive
bidding (i.e., auctions). Although Metrocall believes that these 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.
RELIANCE ON KEY PERSONNEL
Metrocall is dependent on the efforts and abilities of a number of its
current key management, sales, support and technical personnel, including
William L. Collins, III, Steven D. Jacoby and Vincent D. Kelly. The success of
the Surviving Corporation will depend to a large extent on 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 effect on the Surviving Corporation's operations.
Metrocall has employment contracts with each of the individuals named above.
ProNet's executive management will not continue with the Surviving Corporation.
See "MANAGEMENT OF THE SURVIVING CORPORATION."
NO ANTICIPATED STOCKHOLDER DISTRIBUTIONS
It is not anticipated that the Surviving Corporation will pay cash
dividends in the foreseeable future. Certain covenants in the Metrocall Credit
Facility, in Metrocall's indentures, and in the ProNet Indenture will limit the
payment of cash dividends on capital stock, and the Metrocall Credit Facility
and the terms of the Series A Preferred Stock and Series B Preferred Stock
prohibit the payment of cash dividends on Metrocall Common Stock. See
"DESCRIPTION OF METROCALL CAPITAL STOCK."
POSSIBLE VOLATILITY OF STOCK PRICE; SHARES ELIGIBLE FOR FUTURE SALE
The value realized by ProNet stockholders 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 $3.75
per share to a high of $29 per share. On June 30, 1997, the closing price of
Metrocall Common Stock was $4.50, which was less than the book value per share
on June 30, 1997 of approximately $5.66. The market price of Metrocall Common
Stock may be volatile due to, among other things, technological innovations
affecting the paging industry, Metrocall's acquisition strategy and the shares
being registered pursuant to this and other registration statements.
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In addition, the value to be realized by ProNet stockholders in the Merger
is subject to the risk that the number of shares of Metrocall Common Stock to be
issued in the Merger, and therefore the Conversion Ratio, will change based on
possible purchase price adjustments. Because the Conversion Ratio adjustments,
if any, will be calculated after the Stockholders Meetings, the exact Conversion
Ratio and the number of shares and value of the Metrocall Common Stock to be
received will not be known at the time Metrocall and ProNet stockholders vote on
the Merger. The Merger is presently expected to be consummated within two weeks
after the Meetings. See "THE MERGER AGREEMENT AND TERMS OF THE MERGER -- Number
of Shares to be Issued; Conversion Ratio Adjustments."
In addition to the shares of Metrocall Common Stock being registered
pursuant to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part, Metrocall currently has filed registration
statements with respect to approximately 23.5 million shares of Metrocall Common
Stock held by certain stockholders of Metrocall, including 2.9 million shares of
Metrocall Common Stock issuable upon the exercise of warrants held by the
holders of Metrocall's Series A Preferred Stock. In addition, the Series A
Preferred Stock and Series B Preferred Stock are convertible in certain
circumstances into shares of Metrocall Common Stock based on the market price of
the Metrocall Common Stock at the time of conversion, and the holders have the
right to require Metrocall to register the Metrocall Common Stock for resale.
Metrocall also is obligated to register shares of Metrocall Common Stock
acquired by certain affiliates of A+ Network in the merger of Metrocall with A+
Network. Furthermore, in connection with that merger, Metrocall also issued
indexed variable common rights ("VCRs") which, in certain circumstances, could
require Metrocall to issue additional shares of Metrocall Common Stock. There
can be no assurance that sales of these shares would not have an adverse effect
on the market price of the Metrocall Common Stock.
ANTI-TAKEOVER AND OTHER PROVISIONS
Metrocall's Amended and Restated Certificate of Incorporation, as amended
(the "Metrocall Certificate"), and Metrocall's Fifth Amended and Restated Bylaws
(the "Metrocall Bylaws") include provisions that could operate to delay, defer
or prevent a change of control of the Surviving Corporation. 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
Metrocall first to negotiate with the Board of Directors of Metrocall. In
addition, each of the Metrocall Credit Facility, Metrocall's indentures, the
ProNet Indenture and the terms of the Series A Preferred Stock and Series B
Preferred Stock include certain covenants limiting the ability of Metrocall to
engage in certain mergers and consolidations or transactions involving a change
of control of Metrocall.
The Metrocall Certificate authorizes 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 Metrocall Certificate generally prohibits Metrocall from purchasing any
shares of Metrocall's stock from any person, entity or group that beneficially
owns 5% 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.
Metrocall is, and the Surviving Corporation will be, subject to Section 203
("Section 203") of the Delaware General Corporation Law (the "DGCL"). Under
Section 203, a corporation may not engage in a business combination with a
person who owns (or within three years prior did own) 15% or more of the
corporation's outstanding voting stock (an "interested stockholder") for a
period of three years after the date such person became an interested
stockholder, unless (i) prior to such date the board of directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder, (ii) upon consummation of the
transaction which resulted in such person becoming an interested stockholder,
the interested stockholder owned at least 85% of the corporation's voting stock
outstanding at the time the transaction commenced, or (iii) on or subsequent to
such date the business combination is approved by the board of directors and
authorized by the affirmative vote of holders of at least two-thirds of the
outstanding voting stock which is not owned by the interested stockholder.
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<PAGE> 32
POTENTIAL CONFLICTS OF INTEREST
Certain members of the Board of Directors of ProNet and senior management
of ProNet have interests in the transactions contemplated under the Merger
Agreement other than as stockholders of ProNet. Certain of such persons have
entered into non-competition and other 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 Boards
of Directors of Metrocall and ProNet were aware of these potential conflicts at
the time of their approval of the Merger Agreement. A summary of these potential
conflicts of interest and certain agreements between Metrocall and ProNet and
certain members of their respective Boards of Directors and senior management is
provided in "THE MERGER AND RELATED TRANSACTIONS -- Interests of Certain Persons
in the Merger."
INTANGIBLE ASSETS
At June 30, 1997, Metrocall's total assets of approximately $646.7 million
included net intangible assets of approximately $440.4 million. Intangible
assets include FCC licenses and certificates, customer lists, debt financing
costs, goodwill and certain other intangibles. Metrocall's intangible assets,
net of accumulated amortization, have increased significantly since June 30,
1997 primarily as a result of the Page America Acquisition. Metrocall will
record, for financial reporting purposes, additional intangible assets in
connection with the Merger. Long-lived assets and identifiable intangibles to be
held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount should be addressed. Impairment
is measured by comparing the book value to the estimated undiscounted future
cash flows expected to result from use of the assets and their eventual
disposition. Metrocall's estimates of anticipated gross revenues, the remaining
estimated lives of tangible and intangible assets, or both, could be reduced
significantly in the future due to changes in technology, regulation, available
financing or competitive pressures in any of Metrocall's individual markets. As
a result, the carrying amount of long-lived assets and intangible assets
including goodwill could be reduced materially in the future.
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. All statements other than statements of historical fact included
in this Joint Proxy Statement/Prospectus including, without limitation, the
statements of Metrocall's, ProNet's or the Surviving Corporation's future
financial results, financial position, business strategy, budgets, projected
costs and plans and objectives of management are forward-looking statements.
Although ProNet and Metrocall believe their respective expectations are based
upon reasonable assumptions, no assurance can be given that actual results may
not differ materially from those in the forward looking statements. 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 this Joint Proxy Statement/Prospectus
generally. For a more detailed discussion of the factors which could cause
actual results to vary from those disclosed in forward-looking statements,
reference is made to the factors discussed above and to the cautionary language
contained in each company's periodic reports that are incorporated herein by
reference. Neither Metrocall, ProNet nor the Surviving Corporation undertakes
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 December
17, 1997, at the Ritz-Carlton, Pentagon City, 1250 South Hayes Street,
Arlington, Virginia. The ProNet Meeting will be held at
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8:00 a.m., central time, on December 17, 1997 at The Westin Hotel-Galleria,
13340 Dallas Parkway, Dallas, Texas.
PURPOSE OF THE MEETINGS
The purpose of the Metrocall Meeting is to consider and act upon the
following proposals: (i) to approve and adopt the Merger Agreement; (ii) to
approve and adopt the Charter Amendment, which increases the authorized shares
of Metrocall Common Stock by 20,000,000 shares, from 60,000,000 shares to
80,000,000 shares; (iii) to approve and adopt the Option Plan Amendment, which
increases the number of shares that may be issued under Metrocall's 1996 Stock
Option Plan by 2,000,000 shares; and (iv) to approve and adopt the ESPP
Amendment, which increases the number of shares that may be issued under
Metrocall's Employee Stock Purchase Plan by 700,000 shares and makes certain
other changes.
The sole purpose of the ProNet Meeting is to consider and act upon the
proposal to approve and adopt the Merger Agreement.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Metrocall Common Stock and holders of record of
ProNet Common Stock at the close of business on the Metrocall Record Date and
the ProNet Record Date, respectively, are entitled to notice of, and to vote at,
the Metrocall Meeting and the ProNet Meeting, respectively.
On the Metrocall Record Date, there were approximately 639 holders of
record of Metrocall Common Stock and 29,112,998 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 ProNet Record Date, there were approximately 200 holders of record
of ProNet Common Stock and 12,926,169 shares of ProNet Common Stock issued and
outstanding. Each share of ProNet Common Stock entitles the holder thereof to
one vote on each matter submitted for stockholder approval.
VOTING AND REVOCATION OF PROXIES
All proxies that are properly executed and returned to Metrocall or ProNet,
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 ProNet 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 Option Plan Amendment and FOR approval and adoption of the ESPP Amendment.
Any proxy may be revoked by any stockholder who attends his or her applicable
Stockholders Meeting and gives notice of his or her intention to vote in person
without compliance with any other formalities. In addition, any Metrocall or
ProNet 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 ProNet, 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 ProNet 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
(29,112,998 shares) is necessary to constitute a quorum at the Metrocall
Meeting. The affirmative vote of the stockholders 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 Option Plan Amendment and the ESPP Amendment will be approved if
the votes cast in favor of the Option Plan Amendment and the ESPP Amendment,
respectively, exceed the votes opposing such actions. Abstentions and broker
non-votes will be
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treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Abstentions will be treated as votes cast
against the Merger Agreement and the Charter Amendment, but will not be counted
for purposes of the Option Plan Amendment or the ESPP Amendment. 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 Option Plan
Amendment or the ESPP Amendment.
On the Metrocall Record Date, directors and executive officers, and their
affiliates, of Metrocall exercised voting control over an aggregate of 9,761,413
shares of the outstanding Metrocall Common Stock (approximately 33.5% of the
shares entitled to vote at the Metrocall Meeting). All directors and executive
officers, and their affiliates, 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, the Option Plan Amendment and the ESPP
Amendment.
Pursuant to the terms of the Stockholders Agreement, certain stockholders
of Metrocall have agreed to vote certain of their shares of Metrocall Common
Stock (which constitute approximately 33% of the issued and outstanding shares
as of the date of the Stockholders Agreement) in favor of the Merger and the
Charter Amendment.
ProNet. The presence, in person or by proxy, of at least a majority of the
shares of ProNet Common Stock outstanding on the ProNet Record Date (12,926,169
shares) is necessary to constitute a quorum at the ProNet Meeting. The
affirmative vote of the stockholders of a majority of the shares of ProNet
Common Stock issued and outstanding on the ProNet Record Date is necessary to
approve and adopt the Merger Agreement. Each share of ProNet 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 ProNet Meeting, but will be equivalent to votes cast against
the Merger Agreement.
On the ProNet Record Date, ProNet's directors and executive officers and
their affiliates exercised voting control over an aggregate of 185,069 shares of
the outstanding ProNet Common Stock (approximately 1.43% of the shares entitled
to vote at the ProNet Meeting). All such directors, executive officers and
affiliates owning shares of ProNet Common Stock have indicated their intention
to vote their shares for approval of the Merger Agreement and the Merger. See
"THE MERGER AND RELATED TRANSACTIONS -- Background of the Merger."
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 ProNet; provided, however, that the filing fee for the
Registration Statement will be borne by Metrocall. In addition to the use of the
mails, proxies may be solicited by officers and directors and employees of
Metrocall or ProNet, without additional remuneration, by personal interviews,
telephone, facsimile or otherwise. Metrocall and ProNet may also request
brokerage firms, nominees, custodians and fiduciaries to forward proxy materials
to beneficial owners of shares of Metrocall Common Stock or ProNet Common Stock,
as the case may be, and will provide reimbursement for the cost of forwarding
the material in accordance with customary charges. ProNet has retained
ChaseMellon Shareholder Services, L.L.C. at an estimated cost of $6,500, plus
reimbursement of expenses, to assist in its solicitation of proxies from
brokers, nominees, institutions and individuals. Metrocall has retained
Corporate Investor Communications, Inc. at an estimated cost of $6,000, 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 ProNet 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 either of the Stockholders Meetings, 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.
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APPRAISAL RIGHTS
Under the DGCL, stockholders of Metrocall and ProNet are not entitled to
dissenters' rights of appraisal in connection with the Merger.
THE MERGER AND RELATED TRANSACTIONS
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
ProNet in accordance with the relevant provisions of the DGCL and receipt of FCC
approval, ProNet will be merged with and into Metrocall and Metrocall will be
the Surviving Corporation. At the Effective Time, each outstanding share of
ProNet Common Stock (other than shares of ProNet Common Stock held by Metrocall
or any of its subsidiaries, which will be canceled) will be converted into the
right to receive that number of shares of Metrocall Common Stock equal to the
Conversion Ratio. Fractional shares of Metrocall Common Stock will not be issued
in connection with the Merger. A holder otherwise entitled to a fractional share
will be paid cash in lieu of such fractional share in an amount equal to the
product of the closing price of a share of Metrocall Common Stock on the trading
day immediately prior to the closing of the Merger multiplied by the fraction of
a share to which such holder would otherwise be entitled. The Conversion Ratio
represents the basic conversion ratio of 0.90 of a share of Metrocall Common
Stock for each share of ProNet Common Stock, subject to adjustment if certain
liabilities of ProNet exceed certain targets, if annualized operating cash flow
(earnings before interest, taxes, depreciation and amortization) of ProNet is
less or more than certain targets, and if new pager inventory of ProNet falls
below certain targets. See "THE MERGER AGREEMENT AND TERMS OF THE
MERGER -- Number of Shares to be Issued; Conversion Ratio Adjustments" for a
description of such adjustments and "DESCRIPTION OF METROCALL COMMON STOCK" for
a description of the Metrocall Common Stock. Pursuant to the Option Agreement
dated August 8, 1997 between Metrocall and ProNet, ProNet has granted Metrocall
an irrevocable option to purchase up to 2,450,000 shares of ProNet Common Stock
at a price of $5.40 per share. The option is only exercisable upon the
occurrence of certain events, and the number of shares issuable upon the
exercise of the option and the exercise price are subject to certain
adjustments. See "-- Option Agreement" for a description of the option.
BACKGROUND OF THE MERGER
In early 1996, Metrocall adopted a three-phase consolidation strategy.
These phases were designed to increase the size and operating scale of
Metrocall's operations and to provide a basis as a long term provider of
wireless messaging products and services. Phase I consisted of a series of
acquisitions of smaller, less-capitalized or privately-owned paging businesses
designed both to enter new strategic and geographic markets and to fold in
existing operations providing operating scale and efficiency. This phase was
implemented through the acquisitions of the assets of Parkway, Satellite, and
Page America, each of which was announced and closed in 1996, except for the
Page America Acquisition, which closed in July 1997. Approximately 440,000
subscribers were added through these acquisitions. Phase II consisted of the
acquisition of a major regional paging company to increase Metrocall's
subscriber base to over 2 million. This phase was implemented through the merger
with A+ Network, and acquisition of its approximately 660,000 subscribers, in
November 1996. Phase III contemplated a major national acquisition which, when
combined with internal growth, would broaden Metrocall's subscriber base to over
3 million. With the closing of the Page America Acquisition in July 1997,
Metrocall essentially completed the first two phases of this plan. In
conjunction with this plan, Metrocall had identified ProNet as a possible
strategic combination partner.
In 1993, ProNet management recognized that its operating expertise,
combined with its presence in major metropolitan markets, presented an
opportunity to capitalize on the growing demand for pagers among business users
and the population at large. ProNet management articulated a three-phase growth
plan to position ProNet as a leading provider of paging services. In the first
phase, ProNet (i) identified its Super Center locations, (ii) targeted
acquisitions that could be executed in a cost-effective manner to create a
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critical mass in each region and (iii) obtained debt and equity capital to fund
the expansion of its operations. In the second phase of the growth plan, ProNet
(i) completed the construction of its Super Center facilities, (ii) integrated
its acquisitions into its Super Center operations and (iii) emphasized internal
growth of its increased subscriber base. As a part of the third phase of the
growth plan, ProNet acquired a nationwide paging license from Motorola, Inc. and
explored larger acquisitions, including its abandoned merger with Teletouch
Communications, Inc. In June 1996, market prices for publicly traded paging
services companies began a substantial decline which continued into 1997. As a
result of this decline, ProNet and other paging companies have been unable to
raise additional capital to fund further growth. In this environment and because
ProNet management believes that consolidation in the paging industry is
continuing, ProNet management began to explore the potential for a strategic
business combination with another large paging services company. ProNet
management had discussions with several large paging companies during the period
from February 1997 to late June 1997. None of these discussions resulted in a
proposal that was acceptable to ProNet.
HISTORY OF THE NEGOTIATIONS
On two separate occasions in 1993 and 1995, Metrocall and ProNet engaged in
preliminary discussions regarding a possible combination of the two companies.
In each case, these discussions were abandoned prior to the parties' reaching
agreement as to the structure or terms of any such combination.
The discussions that eventually resulted in the execution of the Merger
Agreement began in early May 1997. At an industry conference in Florida, William
L. Collins, III, Metrocall's President, Chief Executive Officer and Vice
Chairman of the Board, and Jackie R. Kimzey, ProNet's Chairman of the Board and
Chief Executive Officer, briefly discussed the strategic potential of a
combination of Metrocall and ProNet. Neither Mr. Collins nor Mr. Kimzey proposed
specific terms for such a combination but they agreed to continue the
discussions.
The parties scheduled meetings in late May 1997 at Metrocall's offices in
Alexandria, Virginia to exchange financial and other information regarding the
two companies. The meetings were held on May 28 and 29 and were attended on
Metrocall's behalf by Mr. Collins, Vincent D. Kelly, Metrocall's Chief Financial
Officer, Treasurer and Executive Vice President, and Steven D. Jacoby,
Metrocall's Executive Vice President and Chief Operating Officer, and on
ProNet's behalf by Mr. Kimzey and David J. Vucina, ProNet's President and Chief
Operating Officer. In connection with these meetings, the parties entered into a
confidentiality agreement dated as of May 30, 1997.
Also on May 28, prior to the meeting in Virginia, Messrs. Kimzey and
Vucina, together with Jan E. Gaulding, ProNet's Senior Vice President, Chief
Financial Officer and Treasurer, and Mark A. Solls, ProNet's Vice President,
General Counsel and Secretary, met with ProNet's Board of Directors to advise
them of the discussions with Metrocall. Because this meeting preceded the first
substantive discussions with Metrocall, no specific issues regarding the Merger
were addressed.
On June 2, 1997, Messrs. Collins and Kimzey met at Metrocall's offices in
Alexandria, Virginia to discuss the objectives of the possible combination and
to explore alternatives for structuring the combination.
During June 1997, Metrocall and ProNet and their respective legal and
financial advisors conducted legal and financial due diligence investigations.
On June 23 and 24, in connection with the companies' due diligence
investigations, certain members of Metrocall and ProNet management, including
Messrs. Kelly and Solls and Ms. Gaulding, and their respective financial and
legal advisors met in Washington, D.C. to discuss the companies' recent
operating results, the status of the ProNet Securities Litigation, the
companies' other pending litigation and other related issues.
On June 28, the ProNet Board of Directors met to discuss the status of the
negotiations. This meeting was attended by Messrs. Kimzey and Vucina and Mr.
Solls and Ms. Gaulding. Representatives of Salomon Brothers and Vinson & Elkins
L.L.P., ProNet's legal advisors, were also present. At the meeting, the ProNet
Board of Directors was informed that, although specific economic terms had not
been proposed, management expected that certain members of management would be
asked to enter into non-competition agreements. The
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ProNet Board of Directors was also advised of its fiduciary duties in
considering and entering into a transaction such as the Merger.
On July 9, 1997, the parties met in Washington, D.C. Metrocall, represented
by Mr. Kelly, and representatives of Morgan Stanley and Toronto-Dominion
Securities (USA), Inc., proposed terms for a stock for stock direct merger of
ProNet with Metrocall. ProNet, represented by Messrs. Kimzey, Vucina and Solls
and Ms. Gaulding and representatives of Solomon Brothers, informed the Metrocall
representatives that the proposed exchange ratio and certain other proposed
terms were unacceptable.
On July 17, Messrs. Collins and Kimzey discussed the status of the
negotiations on the telephone and agreed to meet the following week.
On July 24, the parties reconvened at the offices of Salomon Brothers in
New York City and resumed discussions regarding the principal terms and
structure of the proposed combination. At this meeting, the parties tentatively
agreed upon a ratio of 0.90 of a share of Metrocall Common Stock for each share
of ProNet Common Stock, subject to negotiations of other material terms of the
transaction, including adjustments to the conversion ratio. Metrocall indicated
that its willingness to enter into the Merger Agreement would be conditioned on
its receiving an option to purchase up to 19.4% of the issued and outstanding
ProNet Common Stock in the event ProNet accepted an Acquisition Proposal. ProNet
indicated that its agreement would be conditioned on stockholders representing a
substantial block of Metrocall Common Stock agreeing to vote in favor of the
Merger Agreement. The parties agreed to resume the negotiations the following
week.
On July 29 and July 30, senior management of both companies and their
respective financial and legal advisors met in Washington, D.C. to further
negotiate the principal terms of the Merger Agreement, the Stockholders
Agreement and the Option Agreement.
In a series of conference calls from August 4 through August 8, senior
management of both companies and their respective financial and legal advisors
finalized the terms of the Merger Agreement, the Stockholders Agreement and the
Option Agreement. See "THE MERGER AGREEMENT AND TERMS OF THE MERGER" and
"-- Stockholders Agreement" and "-- Option Agreement."
On August 5, a special meeting of ProNet's Board of Directors was convened
for the purpose of considering the approval and adoption of the Merger
Agreement. At this special meeting representatives of Salomon Brothers presented
their fairness opinion to ProNet's Board of Directors and the ProNet Board of
Directors approved and adopted the Merger Agreement, Option Agreement and
Stockholders Agreement and authorized ProNet's executive officers to execute and
deliver such agreements.
At a meeting on August 6, 1997, Metrocall's Board of Directors authorized
management to execute and deliver the Merger Agreement, Option Agreement and
Stockholders Agreement, subject to approval by Metrocall bank lenders and
satisfactory resolution of other open issues. The parties executed definitive
agreements during the evening of August 8, 1997. The agreements were announced
on August 11, 1997.
On August 13, ProNet and certain of its directors were named as defendants
in a class action lawsuit relating to the Merger. See "RISK FACTORS -- Pending
Litigation."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF METROCALL
The Board of Directors of Metrocall has unanimously 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 recommended that the stockholders of Metrocall vote
FOR the approval and adoption of the Merger Agreement.
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METROCALL'S REASONS FOR THE MERGER
In reaching its determination that the Merger Agreement and the
transactions contemplated thereby, are fair to and in the best interests of
Metrocall and its stockholders, the Metrocall Board considered a number of
factors, which factors taken together support such determination, including
without limitation the following:
1. The knowledge of the Metrocall Board of Directors of the business,
operations, properties, assets, financial condition and operating results
of Metrocall.
2. The terms of the Merger Agreement, the Option Agreement and the
Stockholders Agreement, including the consideration in the Merger, the
provisions for adjustment of the Conversion Ratio, and other terms in light
of the likelihood that the Merger would be completed.
3. The review by the Metrocall Board of Directors of recent
transactions involving companies with comparable businesses and the trading
prices of the shares of such companies that are publicly traded.
4. Recent trading prices of Metrocall Common Stock and ProNet Common
Stock.
5. Certain financial data of Metrocall and ProNet, including revenues,
cash flow, leverage and capital structure, and Metrocall management's
assessment of the operating performance and prospects of both companies.
6. The opinion of Morgan Stanley to the effect that, as of August 8,
1997 and based upon and subject to certain matters stated therein, the
Conversion Ratio pursuant to the Merger Agreement is fair from a financial
point of view to Metrocall.
7. The fact that the markets currently covered by ProNet and Metrocall
are complementary and the Surviving Corporation will have a significant
subscriber base with a strong market presence in the Southwest region.
8. The operational synergies that the Board of Directors of Metrocall
believes the Surviving Corporation will realize in development,
administration, marketing and sales, including the ability to realize
savings by locating ProNet's nationwide frequency within Metrocall's
already existing nationwide paging network, and elimination of redundant
back office and corporate functions.
9. Certain business factors relating to ProNet, including its
personnel, FCC licenses, technical strengths and marketing distribution
channels.
10. 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.
11. Metrocall management's view that the Merger would increase its
investor base and market capitalization, thereby increasing liquidity.
12. Pending and potential litigation matters involving ProNet.
The foregoing discussion of the information and factors considered by the
Metrocall Board of Directors is not meant to be exhaustive, but is believed to
include the material factors considered by the Metrocall Board of Directors. In
reaching its determination, the Metrocall Board of Directors took the various
factors into account collectively and the Metrocall Board of Directors did not
perform a factor-by-factor analysis, nor did the Metrocall Board of Directors
consider whether any individual factor was, on balance, positive or negative. In
addition, different members of the Metrocall Board of Directors may have weighed
such factors differently and considered other factors.
THE METROCALL BOARD OF DIRECTORS RECOMMENDS THAT METROCALL STOCKHOLDERS
VOTE FOR THE MERGER AGREEMENT.
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OPINION OF FINANCIAL ADVISOR TO METROCALL
Morgan Stanley was engaged by Metrocall to act as a financial advisor to
the Metrocall Board of Directors in connection with the Merger. At the August 6,
1997 meeting of the Metrocall Board of Directors, Morgan Stanley delivered its
oral opinion to the Metrocall Board of Directors that, as of such date and
subject to certain considerations identified to the Metrocall Board of
Directors, the Conversion Ratio pursuant to the Merger Agreement was fair from a
financial point of view to Metrocall. Morgan Stanley confirmed its oral opinion
in a written opinion dated August 8, 1997 (the "Morgan Stanley Opinion").
A COPY OF THE MORGAN STANLEY OPINION WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN IS ATTACHED HERETO AS
EXHIBIT B. METROCALL STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE MORGAN
STANLEY OPINION CAREFULLY AND IN ITS ENTIRETY. REFERENCES TO THE MORGAN STANLEY
OPINION HEREIN AND THE SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH BELOW ARE
QUALIFIED BY EXHIBIT B, WHICH IS INCORPORATED HEREIN BY REFERENCE. THE MORGAN
STANLEY OPINION IS DIRECTED TO THE METROCALL BOARD OF DIRECTORS AND THE FAIRNESS
OF THE CONVERSION RATIO PURSUANT TO THE MERGER AGREEMENT FROM A FINANCIAL POINT
OF VIEW TO METROCALL, AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER NOR
DOES IT CONSTITUTE A RECOMMENDATION TO ANY METROCALL STOCKHOLDER AS TO HOW TO
VOTE AT THE METROCALL MEETING.
In arriving at its opinion, Morgan Stanley, among other things: (i)
reviewed certain publicly available financial statements and other information
of Metrocall and ProNet, respectively; (ii) reviewed certain internal financial
statements and other financial and operating data concerning Metrocall and
ProNet prepared by the managements of Metrocall and ProNet, respectively; (iii)
analyzed certain financial projections concerning Metrocall and ProNet prepared
by the managements of Metrocall and ProNet, respectively; (iv) discussed the
past and current operations and financial condition and the prospects of
Metrocall and ProNet with the managements of Metrocall and ProNet, respectively;
(v) discussed with Metrocall and ProNet managements their views regarding the
estimates of the business, financial and operational benefits arising from the
Merger; (vi) analyzed the pro forma impact of the Merger on Metrocall's
consolidated capitalization and financial ratios; (vii) reviewed the reported
prices and trading activity of Metrocall Common Stock and ProNet Common Stock;
(viii) compared the financial performance of Metrocall and ProNet and the prices
and trading activity of the Metrocall Common Stock and ProNet Common Stock with
that of certain other comparable publicly-traded companies and their securities;
(ix) reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions; (x) participated in discussions and
negotiations among representatives of ProNet and Metrocall and their financial
and legal advisors; (xi) reviewed the Merger Agreement and certain related
documents; (xii) participated in discussions with Metrocall's accountants
regarding certain aspects of the accounting practices and policies of ProNet;
and (xiii) considered such other factors and performed such other analyses as
Morgan Stanley deemed appropriate.
In connection with its review, Morgan Stanley assumed and relied upon
without independent verification the accuracy and completeness of the
information reviewed by it for purposes of the Morgan Stanley Opinion. With
respect to the financial projections, including estimates of the business,
financial and operating benefits expected to result from the Merger, Morgan
Stanley assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future competitive,
operating and regulatory environments and related financial performance of
Metrocall and ProNet, respectively. Furthermore, Morgan Stanley assumed no
responsibility for conducting a physical inspection of the properties or
facilities of Metrocall or ProNet or for making or obtaining any independent
valuation or appraisal of the assets or liabilities of Metrocall or ProNet, nor
was Morgan Stanley furnished with any such valuations or appraisals. Morgan
Stanley assumed, with the consent of the Metrocall Board, that the transaction
described in the Merger Agreement would be consummated on the terms set forth
therein without waiver of any condition thereof. Morgan Stanley noted that the
Merger is intended to qualify as a reorganization within the meaning of Section
368(a) of the Code. The Morgan Stanley opinion is necessarily based on economic,
market and other conditions as in effect on, and any information and agreements
made available to it as of, the date thereof.
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In conjunction with the August 6, 1997 meeting of the Metrocall Board of
Directors, Morgan Stanley reviewed with the members of the Metrocall Board of
Directors certain analyses performed by Morgan Stanley in connection with the
Morgan Stanley Opinion. The summary set forth below does not purport to be a
complete description of the Morgan Stanley Opinion or Morgan Stanley's analysis
related thereto.
Implied Transaction Valuation. Morgan Stanley reviewed the implied
transaction valuation. The total number of Metrocall Shares to be issued, based
on ProNet shares outstanding of approximately 13.674 million (pro forma for the
issuance of 1.0 million shares to settle the ProNet Securities Litigation) was
approximately 12.3 million. The value of the shares to be issued, based on
Morgan Stanley's estimate of Metrocall's unaffected trading price of $5.375 as
of the close of trading on August 1, 1997 and the Conversion Ratio of 0.9, was
approximately $66 million. In addition, Metrocall will assume ProNet debt of
approximately $180 million. The pro forma ProNet stockholders' ownership of
Metrocall, based on Metrocall's shares outstanding after the Merger of
approximately 41.453 million, was 30%. Morgan Stanley noted that the implied
ProNet valuation was as follows: equity value, $66 million and asset value, $232
million.
Precedent Transaction Analysis. Using publicly available information,
Morgan Stanley reviewed and analyzed selected acquisition transactions involving
other companies in the paging industry that it deemed relevant.
No transaction utilized as a comparison in the precedent transaction
analysis is identical to the Merger in both timing and size. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of ProNet and other factors that would affect the acquisition
value of the companies to which it is being compared. In evaluating precedent
transactions, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial, and
other matters, many of which are beyond the control of ProNet, such as the
impact of competition on ProNet and the industry generally, industry growth and
the absence of any adverse material change in the financial conditions and
prospects of ProNet or the industry or in the financial markets in general.
Mathematical analysis (such as determining the average or median) is not itself
a meaningful method of using comparable transaction data.
Premium to Unaffected Market Price. Morgan Stanley presented an analysis of
the acquisition premium paid in selected paging transactions in relation to the
unaffected market price of certain acquired public companies. The transactions
reviewed by Morgan Stanley included the following, which are listed by acquiror/
target: (i) Metrocall/ProNet; (ii) Metrocall/Page America; (iii) Arch/USA
Mobile; and (iv) Metrocall/ A+ Network. The Morgan Stanley analysis yielded the
following premiums to unaffected market price for each of the above referenced
transactions: Metrocall/ProNet, 3%; Metrocall/Page America, 20%; Metrocall/ A+
Network, 36%; and Arch/USA Mobile, 19%.
Contribution Analysis. Morgan Stanley presented an analysis of the relative
contribution of ProNet and Metrocall to the Surviving Corporation based on
certain statistics. Among the information considered in the analysis were run
rate EBITDA for the second quarter of 1997 and full year 1997 EBITDA estimates.
The relative EBITDA contributions of ProNet and Metrocall on a run rate EBITDA
for the second quarter of 1997 basis and a full year basis were used to derive
an implied exchange ratio. This analysis does not give effect to potential cost
savings and revenue enhancement opportunities from the merger. The range of
exchange ratios implied by EBITDA contribution is 0.80 to 0.95.
ProNet Discounted Cash Flow Analysis. Morgan Stanley performed a five-year
discontinued cash flow analysis of ProNet based upon the internal projections of
the management of ProNet, as well as discussions with Metrocall and ProNet
management regarding the business of ProNet. In conducting the discounted cash
flow analysis, Morgan Stanley assumed discount rates of 12% to 13%, and year
2001 EBITDA multiples of 8.0x to 9.0x, with and without giving effect to
synergies. The assumed discount rates were chosen based upon an analysis of the
weighted average cost of capital of ProNet and certain comparable companies. The
range of exit multiples used reflected different assumptions regarding the
growth and profitability prospects of ProNet beyond the year 2001. Unleveraged
after-tax cash flows were calculated as the after-tax operating earnings of
ProNet plus projected depreciation and amortization, plus (or minus) net changes
in non-cash working capital, minus projected capital expenditures, Morgan
Stanley added to the present value of the cash flows the
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terminal value of ProNet in 2001, discounted back at the same rates. Based on
the aforementioned projections and assumptions, the discounted cash flow
analysis yielded a range of midpoint per share values of approximately $4.70 to
$7.00 per share of ProNet Common Stock.
ProNet Stock Trading Comparison. Morgan Stanley compared the historical
trading prices of the ProNet Common Stock to a composite of paging stocks
(consisting of Paging Network, Inc. ("PageNet"), Arch Communications Group, Inc.
("Arch"), PageMart, Inc. ("PageMart"), and Mobile Telecommunications
Technologies Corp. ("MTel")) and the study showed that for much of the period,
ProNet Common Stock traded at a discount to such composite. Another study showed
that the ProNet Common Stock had, for the most part, traded at a discount to
Metrocall Common Stock.
Comparable Paging Company Trading Analysis. Morgan Stanley analyzed the
trading performance of ProNet, Metrocall and companies in the paging sector (the
"Comparable Public Companies"). The companies analyzed were: PageNet, Arch,
PageMart and MTel. The Comparable Public Companies were selected based on
general business, operating and financial characteristics representative of
companies in the paging industry. Historical financial information used in
connection with the ratios provided below with respect to the Comparable Public
Companies is as of the most recent financial statements publicly available for
each company. Market information used in calculating the financial ratios below
is as of August 1, 1997
Morgan Stanley analyzed the relative performance and value for ProNet by
comparing certain market trading statistics for ProNet with the Comparable
Public Companies. Among the market trading information considered in the
analysis were aggregate value to run rate EBITDA and aggregate value to run rate
sales for the second quarter of 1997. The ratio of aggregate value to run rate
EBITDA for the second quarter of 1997 and aggregate value to run rate sales for
the Comparable Public Companies ranged from 7.1x to 8.5x and 1.8x to 3.0x,
respectively.
Using the financial information provided by management of ProNet and
Metrocall, Morgan Stanley derived an implied aggregate value of Metrocall's
proposed acquisition of ProNet of 7.7x run rate 1997 EBITDA for the second
quarter of 1997 and 2.0x run rate 1997 sales for the second quarter of 1997,
respectively. In addition, Morgan Stanley noted that Metrocall traded at 8.4x
run rate EBITDA for the second quarter of 1997 and 2.3x run rate sales for the
second quarter of 1997.
No company utilized in the Comparable Public Companies analysis as a
comparison is identical to ProNet or Metrocall. In evaluating the Comparable
Public Companies, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of ProNet or
Metrocall, such as the impact of competition on the business of ProNet or
Metrocall and the industry generally, industry growth and the absence of any
material adverse change in the financial condition and prospects of ProNet,
Metrocall, the industry or financial markets in general. Mathematical analysis
(such as determining the average or median) is not, in the opinion of Morgan
Stanley, in itself a meaningful method of using comparable company data.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, Morgan Stanley
believes selecting any portion of Morgan Stanley's analyses, without considering
all analyses, would create an incomplete view of the process underlying its
opinion. In addition, Morgan Stanley may have deemed various assumptions more or
less probable than other assumptions, so that the range of valuations resulting
for any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of ProNet or Metrocall.
In performing its analysis, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ProNet or Metrocall. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as a part of Morgan Stanley's
analysis of the fairness of the Conversion Ratio pursuant to the Merger
Agreement from a financial point of view to Metrocall and was provided to the
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<PAGE> 42
Metrocall Board of Directors in connection with the delivery of the Morgan
Stanley Opinion. The analyses do not purport to be appraisals or to reflect the
prices at which ProNet or Metrocall might actually be sold. In addition, as
described above, Morgan Stanley's opinion and presentation to the Metrocall
Board of Directors was one of many factors taken into consideration by the
Metrocall Board of Directors in making its determination to approve the Merger.
Consequently, the Morgan Stanley analysis described above should not be viewed
as determinative of the opinion of the Metrocall Board of Directors with respect
to the value of ProNet and Metrocall or whether such Board would have been
willing to agree to a different consideration. The Conversion Ratio pursuant to
the Merger Agreement was determined through negotiations between Metrocall and
ProNet and was approved by the Metrocall Board of Directors.
The Metrocall Board of Directors retained Morgan Stanley based upon its
experience and expertise. Morgan Stanley is an internationally recognized
investment banking and advisory firm. Morgan Stanley, as part of its investment
banking business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Morgan Stanley is a full-service securities firm engaged in trading
and brokerage activities, as well as providing investment banking, financing and
financial advisory services. In the ordinary course of its trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions, and may trade or otherwise effect transactions, for its own account
or the accounts of customers, in securities or senior loans of ProNet or
Metrocall. In the past, Morgan Stanley and its affiliates have provided
financial advisory and financing services to Metrocall and have received fees
for the rendering of these services.
Pursuant to a letter agreement dated as of June 16, 1997, Metrocall has
agreed to pay Morgan Stanley a fee of 1% of the aggregate value of the merger in
consideration for its services upon consummation of the transaction. In addition
to the foregoing compensation, Metrocall has agreed to reimburse Morgan Stanley
for its expenses, including fees and expenses of its counsel, and to indemnify
Morgan Stanley for liabilities and expenses arising out of the engagement and
the transactions in connection therewith, including liabilities under federal
securities laws.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF PRONET
The Board of Directors of ProNet approved and adopted the Merger Agreement
and has determined that the Merger is fair to, and in the best interests of,
ProNet and its stockholders. The Board of Directors of ProNet has recommended
that the stockholders of ProNet vote FOR the approval of the Merger Agreement.
PRONET'S REASONS FOR THE MERGER
The ProNet Board of Directors believes that the terms of the Merger
Agreement and the transactions contemplated thereby are in the best interests of
ProNet and its stockholders. Accordingly, the ProNet Board of Directors has
unanimously approved the Merger Agreement and recommends approval of the Merger
Agreement by the stockholders of ProNet. In reaching its determination, the
ProNet Board consulted with ProNet management, as well as its legal counsel, and
its financial advisor, Salomon Brothers, and considered a number of factors
including without limitation the following:
1. The knowledge of the ProNet Board of Directors of ProNet's
business, operations, properties, assets, financial condition and results
of operations.
2. The ability of ProNet stockholders to benefit, through continued
ownership of Metrocall Common Stock, from the enhanced prospects of the
combined companies.
3. The effect on stockholder value of ProNet continuing as a
stand-alone entity compared to its combining with Metrocall, particularly
(i) the belief of the ProNet Board of Directors that consolidation within
the paging industry was continuing and that companies that did not
participate in such consolidation would risk having to compete against
larger and better capitalized companies and, therefore, would have
difficulty executing their strategies and (ii) the effect that limitations
on available capital would have on ProNet's long-term growth strategy,
operations and financial performance and the
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<PAGE> 43
belief that the combined company would have greater access to the capital
markets, would be better able to pursue its long-term growth strategy and
could better withstand competition in its markets.
4. The results of the contacts and discussions between ProNet and
various third parties, including that none of such contacts and discussions
had resulted in a proposal regarding a strategic combination as attractive
as the Merger (see "-- Background of the Merger") and the belief of the
ProNet's executive officers that the Merger offered the best alternative
available to ProNet and its stockholders.
5. ProNet management's expectation that ProNet stockholders would
benefit from the Surviving Corporation's ability to take advantage of
various synergies to increase revenues and cash flow of the Surviving
Corporation such as economies of scale with respect to personnel and
facilities, management information systems and capital expenditures.
6. The financial and other analyses presented by Salomon Brothers,
including the opinion of Salomon Brothers delivered to the ProNet Board of
Directors.
7. Based on recent historical stock prices for ProNet Common Stock and
Metrocall Common Stock, the per share consideration to be received by the
ProNet stockholders represented a premium over recent prices for ProNet
Common Stock.
8. The financial and other terms of the Merger Agreement, including
that the Merger would generally be tax-free to the ProNet stockholders (see
"-- Certain Federal Income Tax Consequences"), the ability of ProNet to
terminate the Merger Agreement in connection with a superior Acquisition
Proposal and the limitation on the potential economic return to Metrocall
pursuant to the Option Agreement.
9. Three current members of the ProNet Board of Directors would become
members of the Metrocall Board of Directors to participate in the strategy
and direction of the Surviving Corporation.
ProNet's Board of Directors also considered, among other factors, (i) the
risk that the benefits sought in the Merger would not be obtained, (ii) the risk
that the Merger would not be consummated, (iii) the effect of the public
announcement of the Merger on ProNet's customer relations, operating results and
ability to retain employees, and the trading price of ProNet Common Stock, (iv)
the substantial management time and effort that will be required to consummate
the Merger and integrate the operations of the two companies, and (v) other
risks described herein under "RISK FACTORS". In the judgment of the ProNet Board
of Directors, the potential benefits of the Merger substantially outweighed the
risks inherent in the Merger.
The foregoing discussion of the information and factors considered by the
ProNet Board of Directors is not intended to be exhaustive but includes the
material factors discussed by the ProNet Board of Directors. In reaching its
determination to approve and recommend the Merger, the ProNet Board of Directors
did not assign any relative or specific weights to the foregoing factors and
individual directors may have given differing weights to different factors. The
ProNet Board of Directors is, however, unanimous in its recommendation that
ProNet stockholders approve the Merger Agreement.
THE PRONET BOARD OF DIRECTORS RECOMMENDS THAT PRONET STOCKHOLDERS VOTE TO
APPROVE THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO PRONET
ProNet retained Salomon Brothers to act as its financial advisor in
connection with the Merger. On August 5, 1997, Salomon Brothers rendered its
opinion to the ProNet Board of Directors to the effect that, based upon and
subject to certain assumptions, factors and limitations set forth in such
written opinion as described below, as of such date, the consideration to be
received by the holders of ProNet Common Stock in the Merger is fair, from a
financial point of view, to such holders.
THE FULL TEXT OF SALOMON BROTHERS' OPINION DATED AUGUST 5, 1997, WHICH SETS
FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED AND MATTERS CONSIDERED BY
SALOMON BROTHERS, IS ATTACHED AS EXHIBIT C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. SALOMON BROTHERS'
OPINION
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DELIVERED TO THE PRONET BOARD OF DIRECTORS WAS DIRECTED ONLY TO THE FAIRNESS,
FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED IN THE
MERGER BY THE HOLDERS OF PRONET COMMON STOCK, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY PRONET STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE PRONET MEETING. THE SUMMARY OF THE SALOMON BROTHERS OPINION SET FORTH IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION. PRONET STOCKHOLDERS ARE URGED TO READ THE
ENTIRE OPINION CAREFULLY.
In connection with rendering its opinion, Salomon Brothers reviewed and
analyzed, among other things: (i) the Merger Agreement and the exhibits thereto
(including the Option Agreement); (ii) certain publicly available information
concerning ProNet; (iii) certain other internal information, primarily financial
in nature, including projections, concerning the business and operations of
ProNet; (iv) certain publicly available information concerning the trading of,
and the trading market for, the ProNet Common Stock; (v) certain publicly
available information concerning Metrocall; (vi) certain other internal
information, primarily financial in nature, including projections, concerning
the business and operations of Metrocall; (vii) certain publicly available
information concerning the trading of, and the trading market for, the Metrocall
Common Stock; (viii) certain publicly available information with respect to
certain other companies that Salomon Brothers believed to be comparable to
ProNet or Metrocall and the trading markets for certain of such other companies'
securities; and (ix) certain publicly available information concerning the
nature and terms of certain other transactions that Salomon Brothers considered
relevant to its inquiry. Salomon Brothers also conducted discussions with
certain officers and employees of Metrocall and ProNet and with the independent
accountants of Metrocall to discuss the foregoing as well as other matters that
Salomon Brothers believed relevant to its inquiry.
In its review and analysis and in arriving at its opinion, Salomon Brothers
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it by Metrocall and ProNet or publicly
available and neither attempted independently to verify nor assumed
responsibility for verifying any of such information. Salomon Brothers did not
conduct any physical inspection of any of the properties or facilities of
Metrocall or ProNet, nor did it make or obtain or assume any responsibility for
making or obtaining any independent evaluations or appraisals of any of such
properties or facilities. With respect to the financial projections of Metrocall
and ProNet, Salomon Brothers assumed that they were consistent with the best
currently available estimates and judgments of the management of Metrocall and
ProNet, respectively, and Salomon Brothers expressed no view with respect to
such financial projections.
In conducting its analysis and in arriving at its opinion, Salomon Brothers
considered such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following: (i) the historical and
current financial position and results of operations of Metrocall and ProNet;
(ii) the business prospects of Metrocall and ProNet; (iii) the historical and
current market for Metrocall Common Stock, for ProNet Common Stock and for the
equity securities of certain other companies that Salomon Brothers believed to
be comparable to Metrocall or ProNet; and (iv) the nature and terms of certain
other transactions that Salomon Brothers believed to be relevant. Salomon
Brothers also took into account its assessment of general economic, market and
financial conditions and its knowledge of the paging industry as well as its
experience in connection with similar transactions and securities valuation
generally.
Salomon Brothers' opinion was necessarily based upon conditions as they
existed and could be evaluated on the date of its opinion and it assumed no
responsibility to update or revise its opinion based upon circumstances or
events occurring after the date of its opinion. Salomon Brothers' opinion was
limited to the fairness, from a financial point of view, of the consideration to
be received by the holders of ProNet Common Stock in the Merger and did not
address ProNet's underlying business decision to effect the Merger or constitute
a recommendation to any holder of ProNet Common Stock as to how such holder
should vote with respect to the Merger. Set forth below is a brief summary of
the material financial analyses which Salomon Brothers provided to the ProNet
Board of Directors at its August 5, 1997 meeting in connection with its opinion
and does not purport to be a complete description of analyses performed by
Salomon Brothers. As described above, Salomon Brothers' opinion and presentation
to the ProNet Board of Directors were among many factors taken into
consideration by the ProNet Board of Directors in making its decision to approve
the
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<PAGE> 45
Merger Agreement. The following quantitative information, to the extent it is
based on market data, is based on such data as it existed at August 1, 1997, and
is not necessarily indicative of current market conditions.
SUMMARY OF ANALYSIS
Historical Conversion Ratio Analysis. Salomon Brothers also reviewed the
average daily closing price of Metrocall Common Stock and ProNet Common Stock
during the one, three and six month periods ending on June 20, 1997 (the trading
day immediately preceding the date of the first formal meeting between ProNet
and Metrocall and their respective financial advisors at which the proposed
Merger was discussed) and August 1, 1997 and the implied historical exchange
ratios obtained by dividing the average price per share of ProNet Common Stock
by the average price per share of Metrocall Common Stock (the "Historical
Conversion Ratio") for each such period. Salomon Brothers calculated that the
Historical Conversion Ratio ranged from a high of 0.81 to a low of 0.75 for the
periods ended June 20, 1997, and ranged from a high of 0.87 to a low of 0.79 for
the periods ended August 1, 1997. The Conversion Ratio is 0.90 subject to
adjustment in certain circumstances.
Contribution Analysis. Salomon Brothers calculated the relative
contribution by ProNet to the pro forma combined company resulting from the
Merger with respect to various financial statistics, including earnings before
interest, taxes, depreciation and amortization ("EBITDA") (based upon
projections provided by ProNet and Metrocall, as well as investment banking
analysts), market capitalization and firm value (defined as equity value plus
debt and certain other liabilities, and less cash). This analysis showed that,
not taking into account synergies and efficiencies potentially realizable from
the transaction, ProNet would contribute between 29.8% and 30.4% of estimated
1997 EBITDA (depending upon the particular estimates used for purposes of the
analysis), between 24.4% and 29.8% of estimated 1998 EBITDA, 29.0% of market
capitalization (based on closing share prices at August 1, 1997) and 29.6% of
firm value. By comparison, based on the Conversion Ratio, ProNet stockholders
would hold 29.7% of the pro forma equity (not including shares issuable upon
exercise of stock options) of the Surviving Corporation upon consummation of the
Merger. Salomon Brothers also noted that the managements of ProNet and Metrocall
expected to realize substantial synergies from the Merger and that, as Metrocall
stockholders, ProNet stockholders would receive a portion of such benefits.
Premium Analysis. Salomon Brothers noted that at assumed trading prices
for the Metrocall Common Stock of $5.00, $5.38 (the closing price on August 1,
1997) and $6.00, the Conversion Ratio would represent a premium (discount) to
(i) the closing price of the ProNet Common Stock at June 20, 1997 of 14.3%,
22.9% and 37.1%, respectively, (ii) the closing price of the ProNet Common Stock
at August 1, 1997 of (4.0%), 3.2% and 15.2%, respectively, (iii) the high
closing price for the 52 weeks ended June 20, 1997 of (64.7%), (62.1%) and
(57.6%), (iv) the high closing price for the 52 weeks ended August 1, 1997 of
(49.7%), (45.9%) and (39.6%), and (v) the low closing price for the 52 weeks
ended June 20, 1997 and August 1, 1997 of 80.0%, 93.5% and 116.0%.
Public Comparables Trading Analysis. Salomon Brothers compared selected
financial data of Metrocall with certain financial data from publicly traded
paging network companies considered by Salomon Brothers to be comparable to
ProNet and Metrocall, specifically American Paging, Arch and PageNet
(collectively, the "Comparable Companies"). Among other things, Salomon Brothers
computed, as of August 1, 1997, the multiples of (i) latest twelve months
("LTM") EBITDA, (ii) latest quarterly annualized EBITDA, (iii) 1997 estimated
EBITDA (based on investment banking analyst estimates) and (iv) 1998 estimated
EBITDA (based on investment banking analyst estimates) represented by the firm
value of ProNet and Metrocall, and compared them to the corresponding multiples
represented by the firm values of the Comparable Companies. Based on this
analysis, Salomon Brothers established for the Comparable Companies (i) a range
of multiples of firm value to LTM EBITDA of 9.0 to 9.6 with a median of 9.3,
(ii) a range of multiples of firm value to latest quarterly annualized EBITDA of
8.8 to 9.7 with a median of 9.2, (iii) a range of multiples of firm value to
1997 estimated EBITDA of 8.2 to 8.9 with a median of 8.4, and (iv) a range of
multiples of firm value to 1998 estimated EBITDA of 6.4 to 7.4 with a median of
6.8. For ProNet and Metrocall, Salomon Brothers determined that (i) the
multiples of firm value to LTM EBITDA were 8.8 and 9.4, respectively, (ii) the
multiples of firm value to latest quarterly annualized EBITDA were 8.1 and 8.7,
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respectively, (iii) the multiples of firm value to 1997 estimated EBITDA were
7.9 and 8.5, respectively, and (iv) the multiples of firm value to 1998
estimated EBITDA were 6.5 and 7.1, respectively. On the basis of this analysis,
Salomon Brothers derived a range of per share reference values for the ProNet
Common Stock and the Metrocall Common Stock, which was used to obtain a range of
reference values for the Conversion Ratio of 0.83 to 0.85 (based on data as of
August 1, 1997) and 0.82 to 0.85 (based on data as of June 20, 1997). Salomon
Brothers believed that the Conversion Ratio of 0.90 was consistent with the
reference ranges obtained through its analysis.
Precedent Transactions Analysis. Salomon Brothers reviewed for
informational purposes four selected merger and acquisition transactions in 1995
and 1996 involving paging network companies with more than 500,000 subscribers
(the "Larger Precedent Transactions"), as well as 23 selected merger and
acquisition transactions involving smaller concerns (the "Smaller Precedent
Transactions"). For the Larger Precedent Transactions, among which the Merger
would have been classified, the multiple of the firm value reflected by the
transaction price to EBITDA ranged from 10.0 to 13.4. For the Smaller Precedent
Transactions, the multiples of the transaction price to EBITDA ranged from 6.0
to 28.5. Salomon Brothers noted, however, that this analysis would not likely
provide meaningful information because, in general, all of the precedent
transactions occurred prior to the difficulties recently experienced in the
paging network industry.
Discounted Cash Flow Analysis. Salomon Brothers also conducted a
discounted cash flow analysis of ProNet and Metrocall using estimates of future
cash flows of the companies. Salomon Brothers used discount rates ranging from
15% to 17% and terminal value EBITDA multiples of 7.0 to 8.0, which in each case
were determined by Salomon Brothers using its experience and judgment. In one
case, Salomon Brothers used projections for ProNet provided by ProNet's
management and projections for Metrocall provided by Metrocall's management to
derive a range of per share reference values for the ProNet Common Stock and the
Metrocall Common Stock. The reference values for the Conversion Ratio determined
on the basis of the resulting range of per share values for the ProNet Common
Stock and the Metrocall Common Stock ranged from 1.00 to 1.13. In a second case,
Salomon Brothers performed the analysis using projections for ProNet and
Metrocall provided only by Metrocall's management. On the basis of this
analysis, Salomon Brothers obtained a range of reference values for the
Conversion Ratio of 0.72 to 0.77. Salomon Brothers believed that the Conversion
Ratio of 0.90 was consistent with the reference ranges obtained through its
analysis.
General. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Furthermore, in arriving at its fairness opinion, Salomon Brothers
did not attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to the significance and relevance
of each analysis and factor. Accordingly, Salomon Brothers believes that its
analyses must be considered as a whole and that considering any portions of such
analyses and of the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
the opinion. Salomon Brothers did not quantify the effect of each factor upon
their valuation. In its analyses Salomon Brothers made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, some of which are beyond the control of Metrocall and ProNet. Any
estimates contained in Salomon Brothers' analysis are not necessarily indicative
of actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth therein. No company or
transaction used in the above analyses as a comparison is directly comparable to
Metrocall or ProNet or the Merger. The analyses performed were prepared solely
as part of Salomon Brothers' analysis of the fairness of the consideration to be
received in the Merger by the holders of ProNet Common Stock in connection with
the delivery by Salomon Brothers' opinion. Because such analyses are inherently
subject to uncertainty, none of ProNet, the ProNet Board of Directors or
management, Salomon Brothers or any other person assumes responsibility if
future events do not conform to judgments reflected in the opinion of Salomon
Brothers.
Engagement of Salomon Brothers. Salomon Brothers was retained by ProNet
based on its experience and expertise as financial advisor in connection with
mergers and acquisitions. Salomon Brothers is an internationally recognized
investment banking firm that provides financial services in connection with a
wide range of business transactions. As part of its business, Salomon Brothers
regularly engages in the valuation of
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companies and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and for other purposes.
ProNet paid Salomon Brothers a fee of $250,000 upon the execution of the
Merger Agreement. ProNet also agreed to pay Salomon Brothers an additional fee
in an amount equal to 0.75% of the Aggregate Consideration (as defined) in
connection with the Merger, such fee being payable upon consummation of the
Merger. ProNet has also agreed to reimburse Salomon Brothers for its reasonable
out-of-pocket expenses and to indemnify Salomon Brothers and certain related
persons against certain liabilities, including liabilities under the federal
securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Board of Directors of ProNet and senior management
of ProNet have interests in the transactions contemplated under the Merger
Agreement that present certain potential conflicts of interest. The Boards of
Directors of Metrocall and ProNet were aware of these potential conflicts at the
time of their consideration of the Merger. A summary of these potential
conflicts of interest and certain agreements between Metrocall and certain
members of ProNet's Board of Directors and senior management is provided below.
Metrocall Board Seats. Pursuant to the Merger Agreement, at the Effective
Time, Metrocall will increase the size of its board from 11 to 14 directors. The
three vacancies will be filled by existing ProNet directors, Max D. Hopper,
Jackie R. Kimzey and Edward E. Jungerman.
Non-Competition Agreements. Pursuant to Noncompetition Agreements, each of
Jackie R. Kimzey and David J. Vucina has agreed, in exchange for payments
totaling, in the aggregate, $421,800 and $317,400, respectively, over a
three-year period following the Effective Time, to refrain from competing in the
business of narrowband one-way or two-way paging services, soliciting employees
of the Surviving Corporation, interfering with any customer, supplier or other
business relationship of the Surviving Corporation, or disclosing confidential
information about ProNet. The obligation not to compete will continue for three
years from the Effective Time, and the nondisclosure obligation will continue
indefinitely. Pursuant to the Noncompetition Agreements, Messrs. Kimzey and
Vucina have agreed to resign voluntarily under their employment agreements with
ProNet, effective as of the Effective Time.
Existing Employment Arrangements. Metrocall has agreed to pay each of
Jackie R. Kimzey and David J. Vucina $800,000 and $700,000, respectively, in
full satisfaction of ProNet's obligations under the "Change of Control"
provisions of their Employment Agreements dated May 18, 1994. In addition,
Metrocall has agreed to pay each of Jan E. Gaulding, Mark A. Solls and Jeffery
A. Owens $228,988, $227,588, and $201,043, respectively, in full satisfaction of
ProNet's obligations under each of their Change of Control Agreements. Ms.
Gaulding's and Mr. Owens' Change of Control Agreements were each entered into
effective as of May 18, 1994. Mr. Solls' Change of Control Agreement was entered
into effective January 17, 1995. Ms. Gaulding and Messrs. Solls and Owens have
each agreed to resign voluntarily as of the Effective Time.
ProNet Options. Each outstanding option (a "ProNet Option") to purchase
ProNet Common Stock granted pursuant to ProNet's 1987 Stock Option Plan, 1995
Long-Term Incentive Plan and Non-employee Director Stock Option Plan
(collectively, the "ProNet Option Plans") that has not vested prior to the
Effective Time will become fully exercisable and vested as of the Effective
Time. ProNet has agreed to use its reasonable best efforts to cause each
optionee to agree to the replacement of those options, effective as of the
Effective Time, with options under Metrocall's 1996 Stock Option Plan to
purchase such number of shares of Metrocall Common Stock equal to the number of
shares of ProNet Common Stock subject to such ProNet Option immediately prior to
the Effective Time multiplied by the Conversion Ratio, with the exercise price
equal to the exercise price for such ProNet Option immediately prior to the
Effective Time divided by the Conversion Ratio. All ProNet Options held by
ProNet directors, by employees whose employment is involuntarily terminated
without cause within six months after the closing date, or by certain other
employees as agreed by Metrocall, will be exercisable until the earlier of (i)
the fourth anniversary of the closing date and (ii) the date on which such
ProNet Options would otherwise have expired if such person had remained a
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director or employee of ProNet. Certain options issued under the 1987 Plan may
be exercisable for longer periods under the terms of the 1987 Plan. Currently
exercisable ProNet options may be exercised and the shares of ProNet Common
Stock received thereby may be exchanged in the Merger.
The following table sets forth, as of October 31, 1997 with respect to the
directors and executive officers of ProNet, assuming a Conversion Ratio of 0.90
of a share of Metrocall Common Stock per share of ProNet Common Stock, (i) the
number of shares of Metrocall Common Stock for which the ProNet Options held by
such director or officer will be exercisable and (ii) the average exercise price
per share of Metrocall Common Stock:
<TABLE>
<CAPTION>
SHARES OF METROCALL COMMON STOCK EXERCISE PRICE
NAME SUBJECT TO OPTIONS PER SHARE
- ------------------------------------------------ ------------------------------------ ----------------
<S> <C> <C>
Harvey B. Cash.................................. 18,000 $ 6.67
2,250 6.25
Jan E. Gaulding................................. 122,400 6.67
9,000 6.39
Max Hopper...................................... 9,000 3.33
Edward E. Jungerman............................. 18,000 6.67
2,250 6.25
Jackie R. Kimzey................................ 175,500 6.67
45,000 6.39
Joseph Y. Lacik................................. 18,000 5.97
Tim Moore....................................... 18,000 3.89
12,523 4.72
George Platt.................................... 9,000 3.33
Jeffery A. Owens................................ 102,150 6.67
5,400 6.39
9,000 5.97
Mark A. Solls................................... 49,500 6.67
David J. Vucina................................. 180,900 6.67
36,000 6.39
2,250 5.97
</TABLE>
Directors' and Officers' Insurance and Indemnification. Metrocall has
agreed to indemnify ProNet's directors, officers, employees and agents against
all claims based on such persons' positions with ProNet or the Merger Agreement
or any of the transactions contemplated thereby. In addition, Metrocall has
agreed to use its reasonable best efforts to maintain ProNet's existing
directors' and officers' liability insurance policy for at least six years after
the Effective Time.
Management Incentive Plan. The Merger Agreement permits incentive payments
to management of ProNet in the event that operating cash flow for the fourth
quarter of 1997 exceeds $8 million. Subject to satisfaction of certain criteria,
such incentive payments will equal 25% of operating cash flow in excess of $8
million.
OPTION AGREEMENT
Pursuant to the Option Agreement, ProNet has granted Metrocall an
irrevocable option to purchase up to 2,450,000 shares of ProNet Common Stock
(equal to approximately 19.4% of the issued and outstanding ProNet Common Stock)
at a price of $5.40 per share (the "Option") subject to certain conditions and
limitations described below. Metrocall may exercise the Option only upon the
occurrence of one of the following "Trigger Events": (i) ProNet's termination of
the Merger Agreement as a result of ProNet's Board of Directors' acceptance of
an Acquisition Proposal; (ii) Metrocall's termination of the Merger Agreement
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because ProNet's Board of Directors has accepted an Acquisition Proposal or
withdrawn its recommendation of the Merger; or (iii) ProNet's acceptance of an
Acquisition Proposal within six months after the stockholders of ProNet
disapprove the Merger. Metrocall may exercise the option for cash or through a
cashless exercise. The Option will terminate upon the earliest to occur of
consummation of the Merger, termination of the Merger Agreement in circumstances
other than upon a Trigger Event, or one year after occurrence of a Trigger
Event, subject to extension in certain circumstances but in no event later than
two years after a Trigger Event.
The Option may not be exercised for a number of shares of ProNet Common
Stock that would, as of the date of exercise, result in Metrocall receiving a
"Notional Total Return" (as defined) of more than 9.9% of the "Total Equity
Value" (as defined) of ProNet as of such date. For purposes of the Option
Agreement, "Notional Total Return" means the sum of (i) the $4 million
termination fee payable by ProNet to Metrocall under the terms of the Merger
Agreement plus (ii) the net cash that Metrocall would receive if it had sold the
shares for which the Option is exercised at the "Current Equity Value" (as
defined) of the ProNet Common Stock on the exercise date minus the exercise
price for such shares. The "Total Equity Value" of ProNet means (i) the Current
Equity Value times the number of issued and outstanding shares of ProNet Common
Stock plus the number of shares of ProNet Common Stock that ProNet has agreed to
issue; plus (ii) the Current Equity Value times any additional shares of ProNet
Common Stock that are issuable pursuant to any rights to acquire ProNet Common
Stock, minus the exercise price for such rights; plus (iii) the fair value of
any other equity securities issued by ProNet or its subsidiaries; plus (iv) the
amount of ProNet's liabilities in excess of certain targets specified in the
Merger Agreement. The "Current Equity Value" means the greater of the current
market price of ProNet Common Stock or the consideration per share offered in
any pending Acquisition Proposal for ProNet.
Metrocall has agreed in the Option Agreement that, during the period
beginning on August 8, 1997 and ending on the earlier of August 8, 1998 and
consummation of an Acquisition Proposal, (i) Metrocall will not (a) solicit
proxies with respect to the ProNet Common Stock 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 ProNet Common Stock, (b) form, join or
in any way participate in a Group (within the meaning of Section 13(d)(3) of the
Exchange Act) with respect to any shares of ProNet Common Stock, (c) in any
manner acquire, agree to acquire or make any proposal to acquire, any securities
of, equity interest in, or any material property of, ProNet or any of ProNet's
subsidiaries (other than pursuant to the Option Agreement or the Merger
Agreement) provided that Metrocall is not prohibited from offering to buy shares
of ProNet Common Stock in the event that a third party submits an Acquisition
Proposal that is not approved or endorsed by ProNet's Board of Directors, and
such party thereafter commences a tender offer or share exchange offer that
constitutes an Acquisition Proposal, (d) seek to control the management, Board
of Directors or policies of ProNet, or (e) advise, assist or encourage any other
person in connection with the foregoing; and (ii) any shares of ProNet Common
Stock acquired pursuant to the Option will be voted pro rata with the ProNet
Common Stock voted by all other stockholders of ProNet (excluding Metrocall and
its affiliates) with respect to all matters presented to the stockholders of
ProNet for approval. During this time period, Metrocall may tender or exchange
shares subject to the Option pursuant to an Acquisition Proposal.
STOCKHOLDERS AGREEMENT
Contemporaneously with the execution of the Merger Agreement, ProNet
entered into the Stockholders Agreement with Ronald V. Aprahamian; Harry L.
Brock, Jr.; Suzanne S. Brock; William L. Collins, III; Francis A. Martin, III;
Ray Russenberger; Elliot H. Singer; UBS Capital LLC; Wilmington Securities,
Inc.; and certain trusts for the benefit of members of the family of Harry L.
Hillman and Elsie Hilliard Hillman (the "Principal Stockholders"). The shares
subject to the Stockholders Agreement aggregate 9,604,873 shares, representing
approximately 33% of the outstanding shares of Metrocall Common Stock on the
date of the Merger Agreement.
Pursuant to the Stockholders Agreement, each Principal Stockholder agreed
during the term of the Stockholders Agreement to vote all shares of Metrocall
Common Stock which such stockholder owns or has voting power in favor of (i)
approval of the Merger Agreement and (ii) the Charter Amendment. Pursuant to
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<PAGE> 50
the Stockholders Agreement, each Principal Stockholder has granted ProNet an
irrevocable proxy to vote each Principal Stockholder's shares in accordance with
the obligations of each Principal Stockholder under the Stockholders Agreement.
The Stockholders Agreement restricts the Principal Stockholders' ability to
transfer or encumber the shares of Metrocall Common Stock subject to the
Stockholders Agreement, subject to exceptions for a portion of the shares owned
by certain Principal Stockholders.
The Stockholders Agreement will terminate on the earliest of (i) the
consummation of the Merger, (ii) the agreement of the parties to the
Stockholders Agreement to terminate the Stockholders Agreement, (iii)
termination of the Merger Agreement pursuant to its terms, and (iv) March 31,
1998.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain Federal income tax consequences
of the Merger to holders of ProNet Common Stock, ProNet and Metrocall. The
discussion does not address all aspects of Federal income taxation that may be
relevant to particular ProNet stockholders and may not be applicable to
stockholders who are not citizens or residents of the United States. This
discussion may not apply to certain classes of taxpayers, including, without
limitation, insurance companies, tax-exempt organizations, financial
institutions, dealers in securities, persons who will acquire their Metrocall
Common Stock pursuant to the exercise or termination of employee stock options
or otherwise as compensation, or persons who will hold their Metrocall Common
Stock in a hedging transaction or as part of a straddle or conversion
transaction. Also, the discussion does not address the effect of any applicable
foreign, state, local or other tax laws. This discussion assumes that ProNet
stockholders hold their ProNet Common Stock as capital assets within the meaning
of Section 1221 of the Code. EACH PRONET 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) of the
Code. As a condition to the consummation of the Merger, the Merger Agreement
provides that each of Metrocall and ProNet will receive an opinion of its
respective counsel to the effect that the Merger will be treated as a tax-free
reorganization under Section 368(a) of the Code. However, no Internal Revenue
Service ("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, no gain or loss will be
recognized by Metrocall or ProNet, and no gain or loss will be recognized by a
ProNet stockholder upon the exchange of shares of ProNet Common Stock for shares
of Metrocall Common Stock, except that a ProNet stockholder who receives cash
proceeds in lieu of a fractional share interest in Metrocall Common Stock will
recognize gain or loss equal to the difference between the cash received and the
tax basis allocated to the fractional share interest.
The receipt of cash in lieu of a fractional share of Metrocall Common Stock
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 share.
A stockholder's basis in the Metrocall Common Stock received in the Merger
will be equal to the stockholder's basis in the shares of ProNet Common Stock
exchanged in the Merger, reduced by any tax basis allocable to a fractional
share interest for which cash is received.
A stockholder's holding period for the Metrocall Common Stock received in
the Merger will include the period during which the shares of ProNet Common
Stock exchanged therefor were held.
Except in the case of a stockholder who owns more than a minimal interest
in Metrocall after the Merger, the gain or loss from receipt of cash in lieu of
a fractional share of Metrocall Common Stock will be capital gain or loss. For
certain noncorporate taxpayers (including individuals), the rate of taxation of
capital gains
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<PAGE> 51
will depend upon (i) the taxpayer's holding period in the capital asset (with
the preferential rates available for capital assets held more than 12 months or
18 months) and (ii) the taxpayer's marginal tax rate for ordinary income.
Taxpayers should consult their tax advisors with respect to applicable rates and
holding periods, and netting rules for offsetting capital losses against capital
gains. If a stockholder holds more than a minimal interest in Metrocall after
the Merger, the receipt of cash in lieu of a fractional share of Metrocall
Common Stock may be dividend income or proceeds from the sale of a capital asset
depending on the applicability of Code Section 302. Stockholders 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 received in the Merger.
Consequences if No Tax-Free Reorganization
Metrocall and ProNet will receive opinions from their respective legal
counsel regarding the tax treatment of the Merger. However, Metrocall and ProNet
do not intend to seek a ruling from the IRS 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 stockholder 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
stockholder's basis in the ProNet Shares exchanged in the Merger. Each
stockholder's holding period in any share of Metrocall Common Stock received in
the Merger would begin on the date of the Merger. The basis of the Metrocall
Common Stock received in the Merger would be the fair market value on the date
of the Merger.
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 ProNet prior to the
Effective Time of the Merger.
GOVERNMENT AND REGULATORY APPROVALS
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
("HSR Act") and the rules promulgated thereunder by the Federal Trade Commission
("FTC"), the Merger may not be consummated unless certain information has been
furnished to the FTC and the Antitrust Division of the Department of Justice
("Antitrust Division") and certain waiting period requirements have been
satisfied. ProNet and Metrocall each filed on September 9, 1997 and September 8,
1997 (as supplemented on September 9, 1997), respectively, with the Antitrust
Division and the FTC a Premerger Notification and Report Form in connection with
the Merger. The waiting period for the Merger terminated on October 9, 1997.
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, FCC rule changes (some of which are subject to pending
petitions for reconsideration), 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 ProNet and Metrocall to conduct their
business, and impose competitive bidding rules for mutually exclusive paging
applications.
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The respective operating subsidiaries of ProNet 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 provides 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
ProNet without the prior consent of the FCC. The prior approval of the FCC must
be obtained to consummate the Merger. Metrocall has filed applications seeking
FCC approval to consummate the Merger. All applications necessary to effectuate
the Merger that are required by the Communications Act to be placed on Public
Notice, have been accepted for filing by FCC Public Notices as of September 16,
1997. The Communications Act provides for a thirty-day protest period from the
date an application is accepted for filing; if an application passes that
thirty-day period without being protested, it is generally granted in a matter
of a few weeks. All protest periods for the transfer applications have ended,
and several of the applications have been granted. Metrocall expects that the
remaining applications will be processed promptly; however, there can be no
guarantees that the FCC will be able to complete processing the remaining
applications in a timely manner. In the event of a challenge or reconsideration
request 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. See "THE MERGER AGREEMENT AND TERMS
OF THE MERGER -- Termination."
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% of such a company or 25% of the parent company of an FCC-licensed
company. Metrocall believes that it and ProNet 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 historically imposed various regulations on the common carrier paging
operations of Metrocall and ProNet. Historically, regulation in some states
required Metrocall and ProNet 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 ProNet provided service, or any changes to
those rates, have also been subject to state regulation. However, under the
federal Budget Reconciliation Act of 1993 (the "Budget Act"), states generally
are preempted from exercising rate and entry regulation of carriers such as
Metrocall and ProNet 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. The FCC has denied all State requests for continued
authority to regulate CMRS rates. The State of Connecticut appealed the FCC's
decision to the U.S. Court of Appeals for the Second Circuit, which affirmed the
FCC's decision in early 1996.
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 can be 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 and ProNet.
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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 ProNet who are deemed to control or be under common control with ProNet
("Affiliates"). Affiliates of ProNet 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.
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 DGCL, ProNet will be merged
with and into Metrocall, the separate existence of ProNet will cease, and
Metrocall will continue its existence as the Surviving Corporation. The
Effective Time of the Merger will be the date and time of the filing of a
certificate of merger with respect to the Merger or other appropriate documents
with the Secretary of State of the State of Delaware.
MANNER AND BASIS OF CONVERTING SHARES
In the Merger, each outstanding share of ProNet Common Stock will be
converted into the right to receive that number of shares of Metrocall Common
Stock equal to the Conversion Ratio. The Conversion Ratio represents a basic
conversion ratio of 0.90 share of Metrocall Common Stock for each share of
ProNet Common Stock, subject to adjustment if certain liabilities of ProNet
exceed certain targets, if operating cash flow (earnings before interest, taxes,
depreciation and amortization) of ProNet is less or more than certain targets,
and if new pager inventory of ProNet falls below certain targets. See "-- Number
of Shares to be Issued; Conversion Ratio Adjustments."
The Surviving Corporation will not issue fractional shares of Metrocall
Common Stock. In lieu of any fractional shares of Metrocall Common Stock, the
holder of a share of ProNet Common Stock converted in the Merger will be
entitled to receive a cash payment determined by multiplying (i) the closing
price of a share of Metrocall Common Stock on the NSM on the trading day prior
to the Closing by (ii) the fraction of a share of Metrocall Common Stock to
which such holder would be entitled.
CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION
The Merger Agreement provides that the Metrocall Certificate and Metrocall
By-Laws will become the Certificate of Incorporation and By-Laws of the
Surviving Corporation. In addition, under the Merger Agreement the directors of
Metrocall plus three former ProNet directors will be the directors of the
Surviving Corporation upon consummation of the Merger and the officers of
Metrocall immediately prior to the Effective Time will become the officers of
the Surviving Corporation upon consummation of the Merger for such term as is
provided in the Metrocall By-Laws. See "MANAGEMENT OF THE SURVIVING
CORPORATION."
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NUMBER OF SHARES TO BE ISSUED; CONVERSION RATIO ADJUSTMENTS
The Conversion Ratio is 0.90 share of Metrocall Common Stock for each share
of ProNet Common Stock, subject to the Liabilities Adjustment, the Operating
Cash Flow Adjustment and the New Pager Inventory Adjustment. Accordingly, based
on the Conversion Ratio of 0.90, Metrocall would issue 12,306,388 shares of
Metrocall Common Stock as consideration for an aggregate of 13,673,765 shares of
ProNet Common Stock that are presently issued and outstanding or which ProNet
has agreed to issue. The number of shares of Metrocall Common Stock issuable in
the Merger is subject to the following adjustments. In the event of any such
adjustments, the Conversion Ratio would be adjusted to equal the number of
shares of Metrocall Common Stock to be issued based on the adjustments, divided
by 13,673,765.
The Conversion Ratio will not be not adjusted based on changes in the
market price of Metrocall Common Stock, and the Merger Agreement contains no
provisions for termination in the event that the trading price of the Metrocall
Common Stock exceeds or falls below any particular level. Changes in the value
of Metrocall Common Stock will change the value of the consideration that ProNet
holders will receive in the Merger. In addition, because the trading price of
Metrocall Common Stock will fluctuate and because the Conversion Ratio
adjustments, if any, will be calculated after the Stockholders Meetings, the
exact Conversion Ratio and the number of shares and value of the Metrocall
Common Stock to be received in the Merger will not be known at the time the
Metrocall and ProNet stockholders vote on the Merger. The Merger is presently
expected to be consummated within two weeks after the Meetings. PRIOR TO THE
MEETING, STOCKHOLDERS MAY OBTAIN A CURRENT ESTIMATE OF THE CONVERSION RATIO AND
THE NUMBER OF SHARES OF METROCALL COMMON STOCK INTO WHICH THEIR PRONET COMMON
STOCK WOULD BE CONVERTED, BY CALLING 1-800-223-2064.
Liabilities Adjustment
If the sum of ProNet's Relevant Net Liabilities at the Measurement Date
exceeds a specified target, the number of shares of Metrocall Common Stock to be
issued in the Merger will be reduced by the excess, divided by $4.875. The
target net liabilities range from $183.2 million on October 31, 1997 to $185.2
million on February 28, 1998. Relevant Net Liabilities were $184.3 million on
September 30, 1997.
Operating Cash Flow Adjustment
If ProNet's Annualized Cash Flow is greater than 110% or less than 90% of
target cash flow, the number of shares of Metrocall Common Stock to be issued in
the Merger will be increased or decreased, whichever is applicable, by a number
equal to eight times the excess over 110% or shortfall below 90%, divided by
$4.875. Target cash flow for this purpose is defined to mean operating cash flow
for the period beginning on July 1, 1997 and ending on the Measurement Date. The
annualized target cash flow amounts range from $31.2 million for the period
ended September 30, 1997 to $31.83 million for the period ended February 28,
1998. For purposes of calculating operating cash flow, the following items are
excluded from expenses: (1) costs associated with employee terminations not to
exceed $239,000; (2) verified costs of deconstructing ProNet's nationwide
network, not to exceed $2,500 per site; and (3) if approved by Metrocall,
expenditures expected to result in a future benefit for the Surviving
Corporation. ProNet's Annualized Cash Flow at September 30, 1997, was $31.3
million.
New Pager Inventory Adjustment
If ProNet's New Pager Inventory at the Measurement Date is less than 50,000
units (45,000 of which must be Motorola pagers), the number of shares of
Metrocall Common Stock to be issued in the Merger will be reduced by the number
of new pagers in inventory below 50,000 (or the number of Motorola pagers below
45,000, if that number is greater) times $50.00, divided by $4.875. At September
30, 1997, ProNet's New Pager Inventory was 64,196 pagers (50,772 of which were
Motorola pagers).
On the basis of ProNet's operating results as of September 30, 1997, ProNet
management currently does not expect that any adjustment to the Conversion Ratio
will be required under the Merger Agreement. However, each of these criteria for
adjustments to the Conversion Ratio may be affected, perhaps materially, by
circumstances beyond ProNet's control. There can be no assurance that (i) ProNet
will meet targets for
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Relevant Net Liabilities, Annualized Cash Flow or New Pager Inventory at the
Measurement Date or (ii) that any adjustments to the Conversion Ratio will not
be material.
Financial Statement Review
Pursuant to the Merger Agreement, ProNet is obligated to deliver to
Metrocall (i) audited consolidated financial statements for the fiscal period
beginning January 1, 1997 and ending September 30, 1997, and (ii) monthly
financial statements for each calendar month after September 30, 1997, certified
as true and correct by the Chief Financial Officer of ProNet. Also pursuant to
the Merger Agreement, ProNet will cause Ernst & Young LLP to perform review
procedures in accordance with Statement on Auditing Standards Number 71 for
months including and after November 1997, and Metrocall is entitled to perform
such investigations as it reasonably deems necessary to confirm whether ProNet's
calculation of Annualized Cash Flow or Relevant Net Liabilities are correct. In
the event of a dispute regarding the correct amount of Annualized Cash Flow or
Relevant Net Liabilities, Metrocall and ProNet will submit the matter to the
Washington, D.C. office of KPMG Peat Marwick LLP, which will determine the
correct amount within ten business days and which conclusion will be binding on
the parties.
TREATMENT OF STOCK OPTIONS
Each outstanding ProNet Option granted pursuant to the ProNet Option Plans
that has not vested prior to the Effective Time will become fully exercisable
and vested as of the Effective Time. ProNet has agreed to use its reasonable
best efforts to cause each optionee to agree to the replacement of those
options, effective as of the Effective Time, with options under Metrocall's 1996
Stock Option Plan to purchase such number of shares of Metrocall Common Stock
equal to the number of shares of ProNet Common Stock subject to such ProNet
Option immediately prior to the Effective Time multiplied by the Conversion
Ratio, with the exercise price equal to the exercise price for such ProNet
Option immediately prior to the Effective Time divided by the Conversion Ratio.
The Merger Agreement provides that all ProNet Options held by any ProNet
director, by employees whose employment is involuntarily terminated without
cause within six months after the Closing Date, or by certain other employees as
agreed by Metrocall, will be exercisable until the earlier of (i) the fourth
anniversary of the Closing Date and (ii) the date on which such ProNet Options
would otherwise have expired if such person had remained a director or employee
of ProNet. The Surviving Corporation will notify ProNet option holders regarding
their rights under ProNet Options as soon as practicable after the Effective
Time. Currently exercisable ProNet Options may be exercised and the shares of
ProNet Common Stock received thereby exchanged in the Merger.
INDEMNIFICATION
The Merger Agreement provides that Metrocall shall, from and after the
Effective Time, to the fullest extent permitted by the DGCL, ProNet's
Certificate of Incorporation, ProNet's 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 ProNet or its subsidiaries, or who are or were serving at
the request of ProNet or any of its subsidiaries as a director, officer,
employee or agent of another corporation, partnership, trust, limited liability
company or other business enterprise against all losses, claims, damages,
liabilities, costs and expenses, judgments, fines, losses and amounts paid in
settlement in connection with any actual or threatened claims, proceedings or
investigations that are based upon or arise out of such person's service as a
director, officer, employee or agent of ProNet 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 ProNet 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
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Surviving Corporation to use all reasonable efforts to maintain directors' and
officers' liability insurance maintained by ProNet (or substantially similar
coverage) for six years after the Effective Time.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, each of ProNet 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 and authorization of the transactions contemplated by
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 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 such party and their
respective subsidiaries, taken as a whole, since December 31, 1996; (vii)
litigation; (viii) transactions with their respective affiliates; (ix)
environmental matters; (x) employee benefit plans and contracts; (xi) taxes; and
(xii) brokers' fees. The representations and warranties contained in the Merger
Agreement do not survive beyond the Effective Time.
CONDUCT OF BUSINESS PENDING THE MERGER
Conduct of Business by ProNet. The Merger Agreement provides that, prior
to the Effective Time, except (x) as otherwise contemplated therein or in the
Option Agreement, or (y) as agreed in writing by Metrocall, (i) the business of
ProNet and its subsidiaries shall be conducted only in, and ProNet and its
subsidiaries will not take any action except in, the ordinary and usual course
of business and consistent with past practice, and ProNet 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) ProNet will not, directly or
indirectly, (A) sell, transfer or pledge or agree to sell, transfer or pledge
any shares of ProNet Common Stock, preferred stock or capital stock of any of
its subsidiaries beneficially owned by it, or (B) split, combine or reclassify
the outstanding shares of ProNet Common Stock, or any outstanding capital stock
of any of the subsidiaries of ProNet; (iii) neither ProNet nor any of its
subsidiaries will (A) amend its organizational documents, (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 ProNet or its
subsidiaries or any other ownership interests (including but not limited to
stock appreciation rights or phantom stock), other than shares of ProNet Common
Stock reserved for issuance on the date of the Merger Agreement pursuant to the
exercise of ProNet Options outstanding on the date of the Merger Agreement, (C)
transfer, lease, license, sell, mortgage, pledge, dispose of or encumber any
material assets individually or in the aggregate for consideration in excess of
$125,000 per fiscal quarter, 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 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) neither ProNet nor any of its subsidiaries will terminate
certain specified agreements, amend or modify certain specified agreements in
any material respect or waive, release or assign any material rights or claims,
except in the ordinary course of business and consistent with past practice; (v)
ProNet will not declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to its capital stock; (vi) each
of ProNet 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 ProNet 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 ProNet pursuant to ProNet's written obligations
on the date of the Merger
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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; (viii) neither ProNet nor any of its subsidiaries will
change any of the accounting methods used by it unless required by generally
accepted accounting principles; (ix) neither ProNet nor any of its subsidiaries
will adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of ProNet
or any of its subsidiaries (other than the Merger); (x) neither ProNet 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; (xi) neither ProNet nor any of its
subsidiaries will (A) increase the compensation or fringe benefits of any of its
directors, officers or employees, provided, that ProNet may increase the
compensation of employees of ProNet or its subsidiaries who are not officers or
directors of ProNet and whose annual compensation as of the date of the Merger
Agreement is less than $50,000, if such increases are made in the ordinary
course of business and consistent with past practice, and provided that ProNet
will promptly advise Metrocall of any increases of compensation of its
employees, (B) grant any severance or termination pay not currently required to
be paid under existing severance plans or agreements to any present or former
director, office or employee of ProNet or any of its subsidiaries, (C) enter
into or modify any employment, consulting or severance agreement with any
present or former director, officer or employee of ProNet or any of its
subsidiaries, (D) 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, employment
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees of ProNet;
(xii) neither ProNet 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 have a material adverse
effect on ProNet and its subsidiaries, taken as a whole; (xiii) neither ProNet
nor any of its subsidiaries will settle or compromise any pending or threatened
suit, action or claim, which settlement or compromise is material to ProNet and
its subsidiaries, taken as a whole, or which relates to the transactions
contemplated by the Merger Agreement; (xiv) neither ProNet 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 ProNet, (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;
(xv) ProNet shall not effect a registration under the Securities Act with
respect to Shares held by any person and entity, other than the registration of
Shares pursuant to registration rights agreements in effect on the date of the
Merger Agreement or pursuant to the Option Agreement; and (xvi) neither ProNet
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 Option Agreement, or (y) as agreed in writing by ProNet, (i) the business
of Metrocall and its subsidiaries will be conducted only in, and Metrocall and
its subsidiaries will not take any action except in, the ordinary and usual
course of business and consistent with past practice, and Metrocall and its
subsidiaries will use all reasonable efforts, consistent with past practice, to
maintain and preserve their business organizations, assets, employees and
advantageous business relations; (ii) Metrocall will not (A) amend its
certificate of incorporation or by-laws, provided that Metrocall's Board will
submit a resolution to approve the Charter Amendment for a vote of the
stockholders at a stockholders meeting, and if the Charter Amendment is approved
at that meeting, Metrocall will so amend its certificate of incorporation, or
(B) redeem, purchase or otherwise acquire directly or indirectly any of its
capital stock, provided, that Metrocall may redeem its Series A Preferred Stock
and Series B Preferred Stock in accordance with the respective terms of such
stock; (iii) 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 except for dividends on the Series A Preferred Stock and the Series B
Preferred Stock payable in shares of such series in accordance with the
respective terms of such stock; (iv) Metrocall will not, directly or indirectly,
split, combine or reclassify the outstanding Metrocall Common Stock; (v) with
the exception of the existing liens in favor of Metrocall's bank lenders,
neither Metrocall nor any of its subsidiaries will issue, sell, pledge, dispose
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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 Metrocall or its subsidiaries, other
than (A) issuances of Metrocall Common Stock reserved for issuance on the date
of the Merger Agreement upon exercise of certain options outstanding on the date
of the Merger Agreement, (B) issuances by Metrocall of Metrocall Common Stock
upon conversion of the Series A Preferred Stock or Series B Preferred Stock in
accordance with the respective terms of such stock, (C) issuances of Series A
Preferred Stock or Series B Preferred Stock as dividends in accordance with the
respective terms of such stock, (D) issuance by Metrocall of Metrocall Common
Stock or other Metrocall securities for the fair market value thereof, provided,
that the issuance of Metrocall Common Stock 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 Metrocall Common Stock to an unaffiliated
third party on terms negotiated on an arms' length basis shall be deemed for
purposes hereof the issuance of Metrocall Common Stock at the fair market value
of such Metrocall Common Stock, and (E) the granting (and issuance of shares
upon exercise) of options pursuant to Metrocall's director and employee stock
option plans as in effect on the date of the Merger Agreement with an exercise
price equal to the fair market value of the Metrocall Common Stock on the date
of grant; (vi) Metrocall will not adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other reorganization of Metrocall or any subsidiary; (vii) Metrocall will use
its reasonable best efforts to maintain the listing of Metrocall Common Stock on
the NSM; and (viii) 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, ProNet and its affiliates are required to
immediately cease all existing discussions or negotiations, if any, with any
parties (other than Metrocall) conducted with respect to any proposal relating
to an Acquisition Proposal.
The Merger Agreement provides that ProNet 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 ProNet or
its affiliates) pursuant to appropriate confidentiality agreements, and may
participate in discussions and negotiate with such party concerning any
Acquisition Proposal, but only if (i) such party has submitted a written
proposal to the Board of Directors of ProNet relating to any such transaction
involving economic consideration per share of ProNet Common Stock that ProNet's
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) ProNet's Board of Directors has made a Fiduciary
Determination (as defined below). ProNet must provide Metrocall notice of and
copies or summaries of all written or oral Acquisition Proposals and keep
Metrocall advised of all such Acquisition Proposals.
Except as permitted by the Merger Agreement, neither ProNet nor any of its
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 ProNet or its 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 ProNet will not recommend that the
stockholders of ProNet tender their shares of ProNet Common Stock in connection
with any tender offer unless ProNet's Board of Directors makes a Fiduciary
Determination.
ProNet will not 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 of ProNet then in office reasonably determine in good faith, based
upon the advice of ProNet's outside counsel, that the taking of action or the
failure to take action (or to withdraw or modify any recommendation) is required
to properly discharge such directors' fiduciary duties to stockholders of ProNet
under the DGCL.
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CONDITIONS TO THE MERGER
Under the Merger Agreement, the respective obligations of Metrocall and
ProNet 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 and,
in the case of Metrocall, the Charter Amendment, has been approved and adopted
by the stockholders of ProNet 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 have been obtained and are in effect at the Effective
Time, except where the failure to have obtained any such order or approval would
not have a material adverse effect on the Surviving Corporation and its
subsidiaries, taken as a whole, after the Effective Time; (iii) there is no
order or injunction of a foreign or domestic court or other governmental
authority in effect precluding, restraining, enjoining or prohibiting
consummation of the Merger; (iv) a final order permitting the Merger to be
consummated has been received from the FCC, and orders permitting the Merger to
be consummated have been received from any requisite state governmental
authorities; (v) the expiration or early termination of any waiting period under
the HSR Act has occurred; and (vi) the Registration Statement has been declared
effective and no stop order is in effect with respect thereto.
The obligation of ProNet 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 of its 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 are
true and correct in all material respects on the Closing Date, except for
representations made as of a certain date; (iii) except for the transactions
contemplated by the Merger Agreement, 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 had a material adverse effect on Metrocall and its
subsidiaries, taken as a whole; (iv) receipt by ProNet of a certificate from
Metrocall attesting to compliance with the conditions set forth in clauses (i),
(ii) and (iii) above; (v) receipt by ProNet of the opinion of Metrocall's legal
counsel with respect to the due authorization and issuance of Metrocall Common
Stock to be issued in the Merger; (vi) the Metrocall Common Stock to be issued
in the Merger has been admitted for quotation on the NSM; and (vii) receipt by
ProNet of the opinion from its legal counsel to the effect that the Merger will
be treated as a tax-free reorganization within the meaning of section 368(a) of
the Code.
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) ProNet has performed or complied in all material respects with
all of its obligations and agreements under the Merger Agreement; (ii) the
representations and warranties of ProNet contained in the Merger Agreement were
true and correct in all material respects at the time when made and are true and
correct in all material respects on the Closing Date, except for representations
made as of a certain date; (iii) except for the transactions contemplated by the
Merger Agreement and the Option Agreement, and except for matters which affect
generally the economy or the industry in which ProNet 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 ProNet or its
subsidiaries which has had a material adverse effect on ProNet and its
subsidiaries, taken as a whole; (iv) receipt by Metrocall of a certificate from
ProNet attesting to compliance with the conditions set forth in clauses (i),
(ii) and (iii) above; (v) Metrocall has received audited consolidated financial
statements for the fiscal period beginning January 1, 1997 and ended September
30, 1997, and monthly financial statements for each calendar month after
September 30, 1997, certified as true and correct by the Chief Financial Officer
of ProNet; for months including and after November 1997, Ernst & Young has
performed SAS 71 review procedures with respect to monthly financial statements
for each calendar month after September 30, 1997; Metrocall has had the
opportunity to perform such investigations as it has reasonably deemed necessary
to confirm whether ProNet's calculation of Annualized Cash Flow (as defined in
the Merger Agreement) or Relevant Net Liabilities (as defined in the Merger
Agreement) were correct; ProNet
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has represented that the foregoing financial statements were prepared from, and
are in accordance with, the books and records of ProNet and its consolidated
subsidiaries, comply in all material respects with applicable accounting
requirements, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto), and present fairly the consolidated
financial position and the consolidated results of operations and cash flows of
ProNet and its consolidated subsidiaries as at the dates thereof or for the
periods presented therein; (vi) (A) the settlement of the ProNet Plaintiffs'
Litigation has not been modified in any material respect, (B) such settlement
has been approved by final order of all courts having jurisdiction thereof and
(C) the time for any appeals of such orders has expired, or any appeals thereof
that have been or may be taken could not reasonably result in a material adverse
effect to ProNet and its subsidiaries, taken as a whole; plaintiffs representing
no more than 90,000 ProNet Shares have opted out of the ProNet Plaintiffs'
Settlement; (vii) the settlement of the litigation brought against ProNet by
certain underwriters has been consummated in accordance with the terms of a
letter between counsel for ProNet and counsel for the underwriters; (viii)
annualized operating cash flow was at least 80% of target cash flow for the
Measurement Date prior to the Closing Date; and (ix) Metrocall has received a
written opinion from its legal counsel to the effect that the Merger will be
treated as a tax-free reorganization within the meaning of section 368(a) of the
Code.
TERMINATION
The Merger Agreement provides that it may be terminated prior to the
Effective Time, whether before or after stockholder approval, by the mutual
written consent of Metrocall and ProNet. The Merger Agreement may also be
terminated prior to the Effective Time, whether before or after stockholder
approval, by either ProNet 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
the Merger 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 March
31, 1998, and the failure of the terminating party to fulfill any obligation
under the Merger Agreement in any material respect was not the proximate cause
or did not result in the failure of the Merger to occur by March 31, 1998.
The Merger Agreement may also be terminated prior to the Effective Time,
whether before or after stockholder approval, by ProNet (i) if (A) there has
been a breach by Metrocall of any representation or warranty contained in the
Merger Agreement which would have or would be reasonably likely to have a
material adverse effect on Metrocall and its subsidiaries, taken as a whole, or
(B) Metrocall or any of its subsidiaries has failed to perform and comply in any
material respect with Metrocall's obligations and agreements under the Merger
Agreement or the Option Agreement (and such failure has not been cured within
the 30-day cure period provided for in the Merger Agreement); (ii) if the Merger
Agreement and the Charter Amendment have not been approved and adopted by the
requisite vote of the holders of the capital stock of Metrocall; or (iii) if (A)
pursuant to a Fiduciary Determination, the Board of Directors of ProNet has
resolved to accept an Acquisition Proposal, (B) ProNet has paid Metrocall a
termination fee equal to $4 million in cash, and (C) ProNet is otherwise in
compliance with its obligations under the non-solicitation provisions of the
Merger Agreement.
The Merger Agreement may also be terminated prior to the Effective Time,
whether before or after stockholder approval, by Metrocall (i) if (A) there has
been a breach by ProNet of any representation or warranty contained in the
Merger Agreement which would have or would be reasonably likely to have a
material adverse effect on ProNet and its subsidiaries, taken as a whole, or (B)
ProNet or any of its subsidiaries has failed to perform and comply in any
material respect with ProNet's obligations and agreements under the Merger
Agreement (and such failure has not been cured within the 30-day cure period
provided for in the Merger Agreement); (ii) if the Merger Agreement has not been
adopted by the requisite vote of the holders of the capital stock of ProNet;
(iii) if the Board of Directors of ProNet (A) has 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 has failed to reject any other
Acquisition Proposal within ten business days after receipt by the Board of
Directors of ProNet of such proposal, or ProNet has executed an agreement in
principle (or similar
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agreement) or definitive agreement relating to an Acquisition Proposal (or the
Board of Directors of ProNet has resolved to do any of the foregoing); or (iv)
annualized operating cash flow determined as of any two Measurement Dates is
less than 80% of target cash flow for such Measurement Dates.
TERMINATION FEES
The Merger Agreement provides that if it is terminated by ProNet because
the Merger Agreement and the Charter Amendment have not been approved and
adopted by the requisite vote of the holders of capital stock of Metrocall, then
Metrocall will immediately pay to ProNet a termination fee equal to $4 million
in cash.
The Merger Agreement also provides that if it is terminated (i) by ProNet
because its Board of Directors has resolved to accept an Acquisition Proposal
pursuant to a Fiduciary Determination, and ProNet has otherwise been in
compliance with its obligations under the non-solicitation provisions of the
Merger Agreement or (ii) by Metrocall because the Merger Agreement was not
approved and adopted by the requisite vote of the holders of capital stock of
ProNet, or because ProNet's Board of Directors (A) has 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 after receipt by the Board of
Directors of ProNet of such proposal or ProNet has executed an agreement in
principle (or similar agreement) or definitive agreement relating to an
Acquisition Proposal (or the Board of Directors of ProNet has resolved to do any
of the foregoing), then ProNet will immediately pay to Metrocall a termination
fee equal to $4 million in cash. In addition, termination of the Merger
Agreement as described in (i) or (ii) constitutes a "Trigger Event" under the
Option Agreement, entitling Metrocall to exercise the Option. See "THE MERGER
AND RELATED TRANSACTIONS -- Option Agreement."
AMENDMENT
The Merger Agreement provides that it may be amended, whether before or
after any vote of the stockholders of ProNet and Metrocall, except that after
the approval of the Merger Agreement by the stockholders of ProNet and
Metrocall, no such amendment may be made which by law requires further approval
of stockholders without obtaining such further approval.
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DESCRIPTION OF METROCALL CAPITAL STOCK
The authorized capital stock of Metrocall consists of 60,000,000 shares of
Metrocall Common Stock and 1,000,000 shares of preferred stock, par value $0.01
per share (the "Metrocall Preferred Stock"), of which 810,000 shares have been
designated as Series A Preferred Stock and 9,000 shares have been designated
Series B Preferred Stock. As of the Metrocall Record Date, there were 29,112,998
shares of Metrocall Common Stock, 170,772 shares of Series A Preferred Stock and
1,500 shares of Series B Preferred Stock outstanding. In addition, warrants to
purchase 2,915,254 shares of Metrocall Common Stock (the "Warrants") were issued
and outstanding as of the Metrocall Record Date.
COMMON STOCK
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 of
Metrocall. 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 interests remaining after
payment of liabilities and the liquidation preference of any then outstanding
Metrocall Preferred Stock.
The Metrocall Certificate authorizes Metrocall's 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 authorized the
Series A Preferred Stock and the Series B Preferred Stock. Because of its broad
discretion with respect to the creation and issuance of additional shares 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 directly by other than United States citizens or
entities. Metrocall must comply with the 20% limitation only insofar as it
applies for or holds FCC licenses. The 20% limitation applies to Metrocall in
connection with the Merger because, pursuant to the Merger, ProNet, an FCC
license holder, will merge directly into Metrocall. The Metrocall Certificate
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.
The Metrocall Certificate provides that all actions taken by Metrocall
stockholders must be taken at an annual or special meeting of stockholders or by
unanimous written consent. The Metrocall By-laws provide that special meetings
of the stockholders may be called only by a majority of the members of the Board
of Directors, the Chairman or the holders of not less than 35% of the voting
stock of Metrocall. Stockholders are required to comply with certain advance
notice provisions with respect to any nominations of candidates for election to
Metrocall's Board of Directors or other proposals submitted for stockholder
vote. The Metrocall Certificate and the Metrocall By-laws 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 Metrocall
Certificate and the Metrocall By-laws.
The Metrocall Certificate provides for the division of the members of the
Board of Directors elected by holders of Metrocall Common Stock into three
classes of directors serving staggered three-year terms. The
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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 the Metrocall Certificate and the Metrocall By-laws 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 proposal 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. 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 the stockholder 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 the holders 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% of more of the corporation's outstanding voting stock,
and the affiliates and associates of such person.
The Metrocall Certificate authorizes Metrocall's 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.
The Metrocall Certificate prohibits Metrocall from purchasing any shares of
Metrocall's stock from any person, entity or group that beneficially owns five
percent or more of Metrocall's stock at a price exceeding the average closing
price for the 20 business days prior to the purchase date, unless a majority of
Metrocall's disinterested stockholders approve the transaction, or as may be
necessary to protect Metrocall's regulatory licenses. This restriction on
purchases by Metrocall does not apply to any offer to purchase shares of a class
of Metrocall's stock which is made on the same terms and conditions to all
holders of that class of stock, to any purchase of stock owned by such a
five-percent stockholder occurring more than two years after such stockholder's
last acquisition of Metrocall's stock, to any purchase of Metrocall's stock in
accordance with the terms of any stock option or employee benefit plan or to any
purchase at prevailing market prices pursuant to a stock purchase program.
Metrocall's Board of Directors has approved and recommended that the
stockholders approve the Charter Amendment, which provides for an amendment to
the Metrocall Certificate increasing the number of shares of Metrocall Common
Stock to 80,000,000 shares. The Charter Amendment will be submitted to the
stockholders for approval in connection with the Merger.
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SERIES A PREFERRED STOCK
The following summary of the designations, rights and preferences of the
Series A Preferred Stock sets forth the material terms of the Series A Preferred
Stock, but is not a complete description of its terms. This summary is qualified
in its entirety by reference to the Certificate of Designation, Number, Powers,
Preferences and Relative, Participating, Optional and Other Rights (the "Series
A Certificate of Designation") of the Series A Preferred Stock, which is filed
as an exhibit to documents incorporated herein by reference. See "INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE."
Each share of Series A Preferred Stock has a stated value of $250 per
share. Each share has a liquidation preference over shares of Metrocall Common
Stock equal to the stated value plus accrued and unpaid dividends to the date of
liquidation. The Series A Preferred Stock carries a dividend of 14% of the
stated value per year, payable semi-annually in cash or in additional shares of
Series A Preferred Stock, at Metrocall's option. Upon the occurrence of a
"Triggering Event" and so long as the Triggering Event continues, the dividend
rate increases to 16% per year. "Triggering Events" include, among other things,
(i) Metrocall's issuing or incurring indebtedness or equity securities senior
with respect to payment of dividends or distributions on liquidation or
redemption to the Series A Preferred Stock in violation of limitations set forth
in the Series A Certificate of Designation, and (ii) default on the payment of
indebtedness of Metrocall in an amount of $5,000,000 or more.
Holders of Series A Preferred Stock have the right, beginning on November
15, 2001, to convert their Series A Preferred Stock (including shares issued as
dividends) into shares of Metrocall Common Stock based on the market price of
Metrocall Common Stock at the time of conversion. Series A Preferred Stock may,
at the option of holders, be converted sooner upon a change of control of
Metrocall, as defined in the Series A Certificate of Designation. The Series A
Preferred Stock must be redeemed on November 15, 2008 for an amount equal to the
stated value plus accrued and unpaid dividends.
The Series A Preferred Stock may also be redeemed by Metrocall in whole or
in part (subject to certain minimums) beginning November 15, 1999. Prior to
then, the Series A Preferred Stock may be redeemed by Metrocall in whole in
connection with a sale of Metrocall (as described in the Series A Certificate of
Designation) unless the holders have exercised their rights to convert to
Metrocall Common Stock in connection with the transaction. The redemption price
prior to November 15, 2001, is equal to the stated value of the shares of Series
A Preferred Stock, plus accrued and unpaid dividends, and a redemption premium.
The redemption premium to be received by a holder for its shares would be
calculated as the excess, if any, of the amount that would provide a specified
internal rate of return on the holder's purchase price of $250 per unit for the
shares of Series A Preferred Stock and Warrants it initially acquired, over (i)
the stated value of shares received as dividends in respect of the shares
originally issued (including dividends on such dividends) plus (ii) except for
redemptions prior to November 15, 1997, the excess of the then-current market
price of Metrocall Common Stock over the exercise price of the shares of
Metrocall Common Stock represented by the Warrants issued in conjunction with
the shares of Series A Preferred Stock originally issued. The applicable
internal rates of return are 20% for redemptions on and after November 15, 2000
and before November 15, 2001; 25% for redemptions on and after November 15, 1999
and before November 15, 2000; and 30% for redemptions before November 15, 1999
except that, for redemptions prior to November 15, 1997, the redemption premium
will be calculated so that holders receive a rate of return of 30% as though the
shares were held through November 15, 1997 without including the excess of the
market price of Metrocall Common Stock over the exercise under the Warrants in
calculating the redemption premium. After November 15, 2001, the Series A
Preferred Stock may be redeemed for the stated value of $250 per share, plus
accrued and unpaid dividends, without premium. Metrocall may not exercise its
redemption right between November 15, 2001, and January 15, 2002 or with respect
to any shares as to which the holders have delivered a notice of conversion into
Metrocall Common Stock.
Holders of the Series A Preferred Stock have the right to elect two
directors of Metrocall. One such director is to be chosen by one of the initial
three purchasers of the Series A Preferred Stock (or subsequent holders of a
majority of shares initially issued to such purchaser) and the other is to be
chosen by the other two initial purchasers (or subsequent holders of a majority
of shares initially issued to such purchasers). If a
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Triggering Event has occurred and is continuing, the holders of Series A
Preferred Stock shall have the right to elect an additional number of directors
so that such directors shall constitute no less than 40% of the members of the
Board of Directors. Metrocall also is required to obtain approval of holders of
not less than 75% of the issued and outstanding Series A Preferred Stock before
undertaking: (i) any changes in the Metrocall Certificate and Bylaws that
adversely affect the rights of holders of the Series A Preferred Stock, (ii) a
liquidation, winding up or dissolution of Metrocall or the purchase of shares of
capital stock of Metrocall from holders of over 5% of the issued and outstanding
voting securities of Metrocall, (iii) any payment of dividends or redemption on
Metrocall Common Stock; or (iv) issuance of any additional shares of Series A
Preferred Stock (except in payment of dividends) or any shares of capital stock
having preferences on liquidation or dividends that are equal to the Series A
Preferred Stock. Metrocall is also required to obtain approval of holders of not
less than a majority of the issued and outstanding Series A Preferred Stock
before undertaking: (i) any acquisition involving consideration having a value
equal to or greater than 50% of the market capitalization of Metrocall at the
time of such acquisition, or (ii) any sale of Metrocall unless Metrocall redeems
the Series A Preferred Stock as described above.
Metrocall has agreed to register under the Securities Act the resale of
shares that may be obtained upon conversion of Series A Preferred Stock. The
obligation to register does not arise until the shares may be converted, and
Metrocall is required to use its best efforts to maintain the effectiveness of
the registration until such time as all the shares of Metrocall Common Stock
acquired upon conversion of the Series A Preferred Stock either have been
transferred pursuant to the registration or are eligible to be sold pursuant to
Rule 144 under the Securities Act without regard to any restrictions pursuant to
Rule 144(k) thereunder.
SERIES B PREFERRED STOCK
The following summary of the designations, rights and preferences of the
Series B Preferred Stock sets forth the material terms of the Series B Preferred
Stock, but is not a complete description of its terms. This summary is qualified
in its entirety by reference to the Certificate of Designation, Number, Powers,
Preferences and Relative, Participating, Optional and Other Rights (the "Series
B Certificate of Designation") of the Series B Preferred Stock, which is filed
as an exhibit to documents incorporated herein by reference. See "INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE."
Each share of Series B Preferred Stock has a Stated Value of $10,000 per
share. Each share has a liquidation preference equal to its Stated Value, which
is junior to the Series A Preferred Stock but senior to shares of Metrocall
Common Stock. The Series B Preferred Stock carries a dividend of 14% of the
Stated Value per year, payable semi-annually in cash or in additional shares of
Series B Preferred Stock, at Metrocall's option.
Beginning on each of September 1, 1997, December 1, 1997, March 1, 1998 and
June 1, 1998, the holders of Series B Preferred Stock have the right to convert
up to 25% of the number of Series B Preferred Stock initially issued (plus
shares of Series B Preferred Stock issued as dividends on such shares, and as
dividends on such dividends) into that number of shares of Common Stock equal to
the Stated Value divided by the average of the closing price of the Metrocall
Common Stock for the 10 trading days prior to each conversion date. The
conversion price will be subject to adjustment based on stock splits, stock
dividends, issuance of securities below current market price and other events.
The Series B Preferred Stock must be redeemed on the twelfth anniversary of
its initial issuance for an amount equal to the Stated Value, plus accrued and
unpaid dividends. The Series B Preferred Stock may also be redeemed by Metrocall
in whole or in part at any time for an amount equal to the Stated Value of the
shares to be redeemed plus accrued and unpaid dividends. If Metrocall elects to
redeem Series B Preferred Stock, the holders thereof will have the right to
convert any Series B Preferred Stock which was then convertible into Metrocall
Common Stock within 15 business days after receipt of notice of redemption.
Metrocall is required to obtain the approval of holders of a majority of
the issued and outstanding Series B Preferred Stock before undertaking: (i) any
changes in the Metrocall Certificate and By-Laws that adversely affect the
rights of the holders of Series B Preferred Stock; and (ii) any changes in the
Series B Certificate of Designation. The Series B Preferred Stock also contains
restrictions on the ability of Metrocall
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to incur any debt or issue securities (other than the Series A Preferred Stock)
which are senior to the Series B Preferred Stock.
WARRANTS
Metrocall has issued 159,600 Warrants to purchase Metrocall Common Stock.
Each Warrant represents the right of the holder to purchase 18.266 shares of
Metrocall Common Stock, or an aggregate of approximately 2.9 million shares. The
exercise price per share is $7.40. The Warrants contain certain provisions for
adjustment in the exercise price in the event that, in a private transaction,
Metrocall issues Metrocall Common Stock for a price that is less than 80% of the
then-current Warrant exercise price, or options, warrants, or other securities
convertible into or exchangeable for Metrocall Common Stock with an exercise
price which is less than the then-current exercise price of the Warrants. In
addition, the Warrants contain certain customary anti-dilution provisions
requiring adjustment in the exercise price and the number of shares for which
the Warrants are exercisable in certain circumstances. The Warrants expire
November 15, 2001. Metrocall has registered under the Securities Act the resale
of shares that may be obtained upon exercise of the Warrants.
INDEXED VARIABLE COMMON RIGHTS
Approximately 8.1 million VCRs are outstanding. Each VCR represents the
right to receive payment of up to $5 in Metrocall Common Stock or cash, at
Metrocall's option, if the trading price of Metrocall shares at November 15,
1997, is less than a target price initially set at $21.10. The target price will
be indexed downward, but not above, the initial target price of $21.10, based on
changes in the average trading prices of Arch Communications Group, Inc., Mobile
Media Communications, Inc., and ProNet since the announcement of Metrocall's
merger with A+ Network. If changes in the index cause the target price to fall
below a floor price of $16.10 (which is not indexed), the VCR payment will be
zero regardless of the price at which shares of Metrocall Common Stock are
trading. As of November 4, 1997, the target price was below $16.10, and no
payment on the VCRs would be made if they had expired on that date. Metrocall
has the right to extend the maturity date of the VCRs for an additional year, in
which event the target price and the amount of the potential VCR payment would
increase.
COMPARATIVE RIGHTS OF METROCALL STOCKHOLDERS
AND PRONET STOCKHOLDERS
If the Merger is approved, ProNet stockholders, whose rights are currently
governed by the DGCL, the Restated Certificate of Incorporation of ProNet and
the Restated Bylaws of ProNet (the "ProNet Certificate" and "ProNet Bylaws,"
respectively), will become stockholders of Metrocall, a Delaware corporation.
Accordingly, immediately after the consummation of the Merger, their rights will
be governed by the DGCL, the Metrocall Certificate, and the Metrocall Bylaws.
Certain differences in stockholder rights arise from differences in the
ProNet Certificate and the ProNet Bylaws and the Metrocall Certificate and the
Metrocall Bylaws. 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 respective corporate documents of ProNet and Metrocall.
AUTHORIZED CAPITAL STOCK
Metrocall. The authorized capital stock of Metrocall currently consists of
60,000,000 shares of Metrocall Common Stock, and 1,000,000 shares of the
Metrocall Preferred Stock, of which 810,000 shares have been designated as
Series A Preferred Stock and 9,000 shares have been designated as Series B
Preferred Stock. All shares of Metrocall Common Stock are entitled to one vote
per share. See "DESCRIPTION OF METROCALL CAPITAL STOCK -- Common Stock."
Pursuant to this Joint Proxy Statement/Prospectus, Metrocall is seeking
stockholder approval for the Charter Amendment, which will increase the number
of authorized shares of Metrocall Common Stock to 80,000,000 shares.
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ProNet. The authorized capital stock of ProNet currently consists of
20,000,000 shares of ProNet Common Stock and 5,000,000 shares of preferred
stock, par value $1.00 per share (the "ProNet Preferred Stock"), of which
150,000 shares have been designated Series A Junior Participating Preferred
Stock ("ProNet Series A Preferred Stock"). No shares of ProNet Preferred Stock
are currently outstanding. All shares of ProNet Common Stock are entitled to one
vote per share.
PREFERRED STOCK
Metrocall. For a description of the Metrocall Preferred Stock, see
"DESCRIPTION OF METROCALL CAPITAL STOCK -- Series A Preferred Stock; -- Series B
Preferred Stock." The terms of the Metrocall Preferred Stock that may be issued
after the date of this Joint Proxy Statement/Prospectus, including dividend
rates, conversion prices, voting rights, redemption prices, maturity dates and
similar matters, are determined by the Metrocall Board of Directors.
ProNet. The ProNet Certificate authorizes the issuance of 5,000,000 shares
of ProNet Preferred Stock. 150,000 shares of ProNet Preferred Stock have been
designated as ProNet Series A Preferred Stock in connection with the adoption of
ProNet's Rights Agreement. See "-- Stockholder Rights Plan." Currently, no such
shares are outstanding. The terms of any other series of ProNet Preferred Stock,
including dividend rates, conversion prices, voting rights, redemption prices,
maturity dates and similar matters, are determined by the ProNet Board of
Directors.
PREEMPTIVE RIGHTS
Under the DGCL, security holders of a corporation have only such preemptive
rights as may be provided in the corporation's certificate of incorporation.
Neither the Metrocall Certificate nor the ProNet Certificate grants any such
preemptive rights to security holders.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
Delaware Law. Under the DGCL, unless otherwise provided in a corporation's
certificate of incorporation, any action that may be taken at any annual or
special meeting of stockholders may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. All such
consents must be signed and delivered to the corporation within sixty days after
the earliest date such consent is delivered to the corporation.
The Metrocall Certificate and the ProNet Certificate do not deny or limit
the ability of their respective stockholders to act by written consent.
VOTING REQUIREMENTS AND QUORUM FOR STOCKHOLDER MEETINGS
Delaware Law. Under the DGCL, a majority of the issued and outstanding
shares of stock entitled to vote at any meeting of stockholders shall constitute
a quorum for the transaction of business at such meeting, unless the certificate
of incorporation or bylaws specifies a different percentage, but in no event may
a quorum consist of less than one-third of the shares entitled to vote at the
meeting. Under the DGCL, the affirmative vote of the majority of shares present
in person or represented by proxy at a duly held meeting at which a quorum is
present and entitled to vote on the subject matter is deemed to be the act of
the stockholders, unless the DGCL, the certificate of incorporation or the
bylaws specify a different voting requirement.
Metrocall. The Metrocall Bylaws provide that, except as otherwise provided
by the DGCL or by the Metrocall Certificate, the holders of a majority of the
stock issued and outstanding and entitled to vote at a 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. If a quorum
exists, action on a matter (other than the election of directors) is approved if
the votes cast for the action exceed the votes cast against the action, unless
the Metrocall Certificate or the DGCL requires a greater number of affirmative
votes.
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ProNet. The ProNet Bylaws provide that, except as otherwise provided in
the ProNet Certificate, the holders of a majority of the shares entitled to vote
at a meeting and represented in person or by proxy, shall constitute a quorum at
such meeting. The ProNet Bylaws further state that if a quorum is present, the
vote by a majority of the shares entitled to vote, shall be the act of the
stockholders meeting unless the ProNet Certificate or the DGCL requires a higher
percentage of affirmative votes.
BUSINESS CONDUCTED AT STOCKHOLDER MEETINGS; PROPOSALS
Metrocall. The Metrocall Bylaws provide that 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 Metrocall Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Metrocall Board of Directors or (c) 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 of Metrocall. To be timely, a stockholder's notice must be
received at the principal executive offices of Metrocall no later than the date
designated for receipt of stockholders' proposals in a prior public disclosure
made by Metrocall. 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 Metrocall not less than sixty days nor more
than ninety days prior to the annual meeting; provided, however, that in the
event that less than seventy days' notice of the date of an annual 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 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 (i) 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, (ii) the name and address,
as they appear on Metrocall's books, of the stockholder proposing such business,
(iii) the class and number of shares of Metrocall which are beneficially owned
by the stockholder, (iv) any material interest of the stockholder in such
business and (v) the same information required by clauses (ii), (iii) and (iv)
above with respect to any other stockholder that, to the knowledge of the
stockholder proposing such business, supports such proposal. 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 the meeting in
accordance with the Metrocall Bylaws, 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.
ProNet. The ProNet Bylaws provide that at an annual meeting or special
meeting of the stockholders, only such business shall be conducted as shall have
been brought before the meeting (i) by or at the direction of the ProNet Board
of Directors or (ii) by any stockholder of ProNet entitled to vote at such
annual or special meeting who complies with certain notice procedures. For
business to be properly brought before an annual or special meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the secretary of ProNet. To be timely, a stockholder's notice must be received
at the principal executive offices of ProNet not less than sixty days prior to
the meeting; provided, however, that if less than forty days' notice or prior
public disclosure of the date of the meeting is given to the stockholders,
notice by the stockholder to be timely must be 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 or special meeting was mailed or such public disclosure was made.
Such stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the annual or special meeting (i) a brief
description of the business desired to be brought before the annual or special
meeting and the reasons for conducting such business at the annual or special
meeting; (ii) the name and address, as they appear on ProNet's books, of such
stockholder; (iii) the class and number of shares of ProNet that are
beneficially owned by such stockholder; and (iv) any material interest of such
stockholder in such business. The chairman of an annual or special meeting
shall, if the facts warrant, determine that business was not properly brought
before the meeting in accordance with the ProNet Bylaws and so declare to
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the meeting and any such business not properly brought before the meeting shall
not be transacted. Notwithstanding the foregoing provisions, a stockholder
seeking to have a proposal included in the corporation's proxy statement shall
comply with the requirements of Regulation 14A under the Exchange Act
(including, but not limited to, Rule 14a-8 or its successor provision).
RIGHTS OF STOCKHOLDERS TO CALL SPECIAL MEETINGS
Delaware Law. The DGCL provides that special meetings of stockholders may
be called by the board of directors and by such other person or persons
authorized to do so by the corporation's certificate of incorporation or bylaws.
Metrocall. Pursuant to the Metrocall Bylaws, special meetings of
stockholders of Metrocall may be called by (a) the chairman, (b) a majority of
directors in office, whether or not a quorum, or (c) stockholders holding not
less than 85% of the total number of votes of the then outstanding shares of
stock of Metrocall entitled to vote generally in the election of directors.
Business transacted at any special meeting of stockholders is limited to the
purposes stated in the notice.
ProNet. Pursuant to the ProNet Bylaws, special meetings of the
stockholders of ProNet may be called by (a) the Chief Executive Officer, (b) the
President, or (c) the ProNet Board of Directors.
BOARD OF DIRECTORS
Delaware Law. Under the DGCL, the minimum number of directors is one. The
DGCL permits the board of directors to change the authorized number or the range
of directors by amendment to the bylaws, unless the directors are not authorized
in the certificate of incorporation to amend the bylaws or the number of
directors is fixed in the certificate of incorporation, in which case a change
in the number of directors may be made only upon approval of such change by the
stockholders. The DGCL permits, but does not require, a classified board of
directors, with staggered terms under which one-half to one-third of the
directors elected by a class of voting stock are elected for terms of two or
three years, respectively.
Metrocall. The Metrocall Bylaws provide for a variable number of directors
of between three and eleven, with the number currently fixed by the Metrocall
Board of Directors at eleven. Nine members of the Metrocall Board of Directors
are elected by the holders of Metrocall Common Stock and are divided into three
classes, with the three-year term of each class expiring in a different year.
The holders of Series A Preferred Stock are entitled to elect two members and in
certain circumstances may be entitled to elect additional members. See
"DESCRIPTION OF METROCALL CAPITAL STOCK -- Series A Preferred Stock." Pursuant
to the Merger Agreement, the number of Metrocall directors will be increased to
fourteen, with one director added to each class elected by the Metrocall Common
Stock, and the Metrocall Bylaws will be correspondingly amended. Neither the
Metrocall Certificate nor the Metrocall Bylaws set forth specific qualification
requirements for directors.
ProNet. The ProNet Certificate provides that the number of directors of
ProNet will be determined by the ProNet Board of Directors. The size of the
ProNet Board of Directors is currently set at six members. The members of the
ProNet Board of Directors are not divided into classes and hold office until a
director's successor is elected and qualified. Neither the ProNet Certificate
nor the ProNet Bylaws set forth specific requirements regarding the
qualification or number of directors.
NOMINATION AND ELECTION OF DIRECTORS
Metrocall. The Metrocall Bylaws provide that, except as otherwise provided
in the Metrocall Bylaws, directors elected by the holders of Metrocall Common
Stock are elected only by stockholders at an annual meeting of stockholders and
by a plurality of the votes cast by the shares entitled to vote in the election
(provided a quorum exists). The Metrocall Bylaws provide that, except as
otherwise provided in the Metrocall Bylaws, nominations of persons for election
by the holders of Metrocall Common Stock to the Metrocall Board of Directors may
be made by the Metrocall Board of Directors, or by any stockholder of Metrocall
entitled to vote for the election of directors at the annual meeting who
complies with the notice procedures set
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forth in the Metrocall Bylaws. Nominations by stockholders shall be made
pursuant to timely notice in writing to the secretary of Metrocall. To be
timely, a stockholder's notice shall be received at the principal executive
offices of Metrocall no later than the date designated for receipt of
stockholders' proposals in a prior public disclosure made by Metrocall. If there
has been no such prior public disclosure, then to be timely, a stockholder's
nomination must be delivered to or mailed and received at the principal
executive offices of Metrocall not less than sixty days nor more than ninety
days prior to the annual meeting; provided, however, that in the event that less
than seventy 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
Metrocall 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 Exchange Act (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
Metrocall's books, of the stockholder proposing such nomination, and (ii) the
class and number of shares of Metrocall which are beneficially owned by the
stockholder. No person shall be eligible for election as a director of Metrocall
unless nominated in accordance with the procedures set forth in the Metrocall
Bylaws. 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 Metrocall Bylaws, and if the chairman should so determine, the chairman
shall so declare to the meeting and the defective nomination shall be
disregarded.
ProNet. The ProNet Bylaws provide that the directors shall be elected at
the annual meeting of the stockholders, except as otherwise provided in the
ProNet Bylaws, and shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at such meeting which are entitled to
vote on the election of directors.
REMOVAL OF DIRECTORS
Delaware Law. The DGCL allows any director or the entire board of
directors to be removed, with or without cause, by the vote of holders of a
majority of the shares entitled to vote. A director of a corporation with a
classified board of directors, however, can be removed only for cause, unless
the certificate of incorporation provides otherwise.
The DGCL provides that unless otherwise provided in the certificate of
incorporation or bylaws, vacancies, including those due to removal without
cause, and newly created directorships may be filled by a majority vote of the
directors then in office, even if the number of directors then in office is less
than a quorum, or by a sole remaining director. In addition, if, at the time of
filling any vacancy of newly created directorship the directors then in office
constitute less than a majority of the whole board, the Delaware Court of
Chancery may, upon application of stockholders holding at least 10% of the
shares outstanding at the time and entitled to vote, summarily order an election
to be held to fill any such vacancies or newly created directorships, or to
replace the directors chosen by the directors then in office. Such elections are
to be conducted in accordance with the procedures provided by the DGCL for
holding stockholder meetings.
Metrocall. Pursuant to the Metrocall Certificate, directors of Metrocall
may be removed from office at any time, but only for cause at a special meeting
called for such purpose and only upon the affirmative 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 Metrocall Bylaws provide that, except as otherwise provided therein,
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,
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<PAGE> 71
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.
ProNet. Pursuant to the ProNet Bylaws, at any meeting of stockholders
called expressly for the purpose of removing a director, a director of ProNet
maybe removed, with or without cause, by a vote of the holders of a majority of
the shares then entitled to vote in an election of directors.
The ProNet Bylaws provide that any vacancy occurring in the ProNet Board of
Directors may be filled by the affirmative vote of a majority of the remaining
directors, even though less than a quorum. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office. Any
directorship to be filled by reason of an increase in the number of directors
may be filled by the affirmative vote of a majority of the directors.
INDEMNIFICATION AND LIMITATIONS ON MANAGEMENT'S LIABILITY
Delaware Law. Under the DGCL, 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 person 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. The DGCL 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 the DGCL, 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.
Metrocall. The Metrocall Certificate contains a provision mirroring the
DGCL provisions described above.
ProNet. The ProNet Certificate and ProNet Bylaws provide that ProNet will
indemnify its directors, officers and employees to the fullest extent permitted
by law.
ProNet has entered into indemnity agreements with certain directors and
executive officers, providing for indemnification and advancement of expenses.
The indemnity agreements provide for certain limitations on indemnification
including the limitations under the DGCL stated above.
AMENDMENT OF CERTIFICATE OF INCORPORATION; AMENDMENT OF BYLAWS
Delaware Law. Under the DGCL, an amendment to a corporation's certificate
of incorporation requires the approval of the board of directors and the
approval of a majority of the outstanding stock of each class entitled to vote
thereon. Under the DGCL, the holders of the outstanding shares of a class are
entitled to vote as a class on a proposed amendment that would increase or
decrease the aggregate number of authorized shares of such class, increase or
decrease the par value of the shares of such class or alter or change the
powers, preferences or special rights of the shares of such class so as to
affect them adversely. Under the
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<PAGE> 72
DGCL, a provision in a corporation's certificate of incorporation requiring a
super-majority vote of the board of directors or stockholders may be amended
only by such super-majority vote. Under the DGCL, an amendment to a
corporation's bylaws requires the approval of the stockholders entitled to vote.
The certificate of incorporation may confer the power to amend the bylaws upon
the board of directors, but the stockholders may not be divested of their power
to amend the bylaws.
Metrocall. The Metrocall Certificate provides that, to amend the Metrocall
Certificate in certain respects, the affirmative vote of 66 2/3% of the total
number of votes of the then outstanding shares of capital stock of Metrocall
entitled to vote generally in the election of directors, voting together as a
single class, is required. In addition, the approval of 75% of all outstanding
shares of Series A Preferred Stock and a majority of all outstanding shares of
Series B Preferred Stock are required to amend the Metrocall Certificate in
certain respects.
The Metrocall Certificate provides that the Metrocall Board of Directors is
authorized and empowered to adopt, amend and repeal the Metrocall Bylaws,
subject to the right of the stockholders entitled to vote to amend or repeal the
Metrocall Bylaws adopted by the Metrocall Board of Directors and, in particular,
subject to the approval of 75% of all outstanding shares of Series A Preferred
Stock and a majority of all outstanding shares of Series B Preferred Stock for
adoption, amendment or repeal of certain Metrocall Bylaws. See "DESCRIPTION OF
METROCALL CAPITAL STOCK -- Series A Preferred Stock; -- Series B Preferred
Stock." As set forth in the Metrocall Bylaws, for the Metrocall Board to adopt,
amend or repeal the Metrocall Bylaws, such action requires the affirmative vote
of at least a majority of the directors then in office. If stockholders are
entitled to vote to amend or repeal the Metrocall Bylaws, the affirmative vote
of 66 2/3% of the total number of votes of the then outstanding shares of
capital stock of Metrocall entitled to vote generally in the election of
directors, shall be required for the amendment or repeal of the Metrocall Bylaws
by the stockholders of Metrocall.
ProNet. The ProNet Certificate does not provide for its amendment. Thus,
the general provisions of the DGCL apply. To amend the ProNet Bylaws, the ProNet
Certificate grants the ProNet Board of Directors the authority to amend or
repeal the ProNet Bylaws by the affirmative vote of a majority of the ProNet
Board of Directors at any regular or special meeting of the ProNet Board of
Directors, subject to repeal or change at any regular or special meeting of
stockholders at which a quorum is present by the affirmative vote of not less
than a majority of the shares entitled to vote at such meeting and present or
represented thereat, voting together as a single class, provided notice of the
proposed repeal or change is contained in the notice of such meeting of
stockholders.
DIVIDENDS AND OTHER DISTRIBUTIONS
Delaware Law. The DGCL permits a corporation to declare and pay dividends
out of surplus (defined as net assets minus capital) or, if there is no surplus,
out of net profits for the fiscal year in which the dividend is declared and/or
for the preceding fiscal year. Dividends out of net profits may not be paid when
the capital of the corporation following the declaration and payment of the
dividend is less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, the DGCL generally provides that a
corporation may redeem or repurchase its shares only if such redemption or
repurchase would not impair the capital of the corporation.
Metrocall. The Metrocall Certificate does not contain any restrictions on
the payment of dividends. However, the Series A Preferred Stock prohibits
payment of dividends to holders of Metrocall Common Stock (other than dividends
consisting of Metrocall Common Stock or rights with respect to Metrocall Common
Stock) without the consent of the holders of such stock. See "DESCRIPTION OF
METROCALL CAPITAL STOCK -- Series A Preferred Stock."
ProNet. The ProNet Certificate does not contain any restrictions on the
payment of dividends.
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CHANGE OF CONTROL
The DGCL and the Metrocall Certificate contain provisions (described under
"RISK FACTORS -- Anti-Takeover and Other Provisions" and "DESCRIPTION OF
METROCALL CAPITAL STOCK -- Common Stock") that could operate to delay, defer or
prevent a change of control of the Surviving Corporation including Delaware's
business combination statute, provisions in the Metrocall Certificate permitting
the Metrocall Board of Directors 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 5% or more of the capital stock of Metrocall.
Neither the ProNet Certificate nor the ProNet Bylaws includes provisions
relating to Delaware's business combination statute or to factors the ProNet
Board of Directors should consider in evaluating a business combination.
STOCKHOLDER RIGHTS PLAN
ProNet. On March 30, 1995, the ProNet Board of Directors declared a
dividend of one preferred share purchase right for each outstanding share of
ProNet Common Stock (a "Right"). Each Right entitles the registered holder to
purchase from ProNet one-thousandth of a share of ProNet Series A Preferred
Stock at a price of $105 per one one-thousandth of a share, subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement between ProNet and Chemical Shareholder Services Group, Inc., as
Rights Agent.
Detachment of Rights; Exercise. Initially, the Rights were attached to all
ProNet Common Stock certificates representing outstanding shares, and no
separate right certificates were distributed. Rights are also attached to each
share of ProNet Common Stock issued subsequent to March 30, 1995. The Rights
will separate from the ProNet Common Stock and a "Distribution Date" will occur
upon the earlier of (i) ten business days following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") has
acquired beneficial ownership of 20% or more of the outstanding Voting Shares
(as defined in the Rights Agreement) of ProNet, or (ii) ten business days
following the commencement or announcement of an intention to commence a tender
offer or exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of such outstanding Voting Shares.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on April 10, 2005 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or the Rights are earlier redeemed or exchanged by
ProNet as described below.
If a person or group were to acquire 20% or more of the Voting Shares of
ProNet, each Right then outstanding (other than Rights beneficially owned by the
Acquiring Person which would become null and void) would become a right to buy
that number of shares of ProNet Common Stock (or under certain circumstances,
the equivalent number of one one-thousandths of a share of ProNet Series A
Preferred Stock) that at the time of such acquisition would have a market value
of two times the purchase price of the Right.
If ProNet were acquired in a merger or other business combination
transaction or more than 50% of its consolidated assets or earning power were
sold, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the then
current purchase price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction would have a market
value of two times the purchase price of the Right.
ProNet Series A Preferred Stock. The dividend and liquidation rights and
the non-redemption feature of the ProNet Series A Preferred Stock are designed
so that the value of one one-thousandth of a share of ProNet Series A Preferred
Stock purchasable upon exercise of each Right will approximate the value of one
share of ProNet Common Stock. The shares of ProNet Series A Preferred Stock
issuable upon exercise of the Rights will be non-redeemable and rank junior to
all other series of ProNet Preferred Stock. Each whole share of ProNet Series A
Preferred Stock will be entitled to receive a quarterly preferential dividend in
an amount per share equal to the greater of (i) $1.00 in cash, or (ii) in the
aggregate, 1,000 times the dividend declared
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on the ProNet Common Stock. In the event of liquidation, the holders of the
ProNet Series A Preferred Stock will be entitled to receive a preferential
liquidation payment equal to the greater of (i) $1,000 per share, or (ii) in the
aggregate, 1,000 times the payment made on the ProNet Common Stock. In the event
of any merger, consolidation or other transaction in which shares of ProNet
Common Stock are exchanged for or changed into other stock or securities, cash
or other property, each whole share of ProNet Series A Preferred Stock will be
entitled to receive 1,000 times the amount received per share of ProNet Common
Stock. Each whole share of ProNet Series A Preferred Stock shall be entitled to
1,000 votes on all matters submitted to a vote of the stockholders of ProNet,
and the ProNet Series A Preferred Stock shall generally vote together as one
class with the ProNet Common Stock and any other capital stock on all matters
submitted to a vote of stockholders of ProNet.
Exchange Option. At any time after the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 20% or more of the
outstanding Voting Shares of ProNet and before the acquisition by a person or
group of 50% or more of the outstanding Voting Shares of ProNet, the ProNet
Board may, at its option, issue ProNet Common Stock in mandatory redemption of,
and in exchange for, all or part of the then outstanding and exercisable Rights
(other than Rights owned by such person or group which would become null and
void) at an exchange ratio of one share of ProNet Common Stock (or one one-
thousandth of a share of ProNet Series A Preferred Stock) for each two shares of
ProNet Common Stock for which each Right is then exercisable, subject to
adjustment.
Redemption of Rights. At any time prior to the first public announcement
that a person or group has become the beneficial owner of 20% or more of the
outstanding Voting Shares, the ProNet Board may redeem all but not less than all
the then outstanding Rights at a price of $0.01 per Right (the "Redemption
Price"). The redemption of the Rights may be made effective at such time, on
such basis and with such conditions as the ProNet Board of Directors in its sole
discretion may establish. Immediately upon the action of the ProNet Board of
Directors ordering redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
No Rights as Stockholder. Until a Right is exercised, the holder thereof,
as such, will have no rights as a stockholder of ProNet, including, without
limitation, the right to vote or to receive dividends.
Termination. On August 5, 1997, the ProNet Board of Directors adopted a
resolution authorizing an amendment to the Rights Plan that provides that the
Rights shall terminate and be of no further force or effect at the Effective
Time.
Metrocall. 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 directly by other than United States citizens or
entities. Metrocall must comply with the 20% limitation only insofar as it
applies for or holds FCC licenses. The 20% limitation applies to Metrocall in
connection with the Merger because, pursuant to the Merger, ProNet, an FCC
license holder, will merge directly into Metrocall. The Metrocall Certificate
authorizes the Metrocall 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) its fair market value or (ii) such holder's
purchase price (if the stock was purchased within one year of such redemption).
The ProNet Certificate contains no such limitation on share ownership.
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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.............. 62 Chairman of the Board (term expires in 1999)
William L. Collins, III.......... 47 President, Chief Executive Officer and Vice
Chairman of the Board (term expires in 2000)
Ronald V. Aprahamian............. 51 Director (term expires in 1998)
Max D. Hopper.................... 62 Director (term expires in 1998)
Ryal R. Poppa.................... 63 Director (term expires in 1998)
Elliott H. Singer................ 56 Director (term expires in 1998)
Harry L. Brock, Jr. ............. 62 Director (term expires in 1999)
Jackie R. Kimzey................. 45 Director (term expires in 1999)
Ray D. Russenberger.............. 43 Director (term expires in 1999)
Michael Greene................... 35 Director (term expires in 1999)
Royce R. Yudkoff................. 42 Director (term expires in 1999)
Suzanne S. Brock................. 59 Director (term expires in 2000)
Edward E. Jungerman.............. 54 Director (term expires in 2000)
Francis A. Martin, III........... 54 Director (term expires in 2000)
Steven D. Jacoby................. 39 Chief Operating Officer and Executive Vice
President
Vincent D. Kelly................. 38 Chief Financial Officer, Treasurer and Executive
Vice President
</TABLE>
Pursuant to the Merger Agreement, Messrs. Hopper, Kimzey and Jungerman, who
are currently directors of ProNet, will be appointed to the Board of Directors
of Metrocall for the terms indicated above. As a result, Metrocall will amend
the Metrocall Bylaws to provide for a total maximum number of directors of 14.
The holders of Series A Preferred Stock have the right to designate two
directors of Metrocall. Michael Greene and Royce Yudkoff have been designated by
such holders.
Set forth below is certain biographical information regarding the directors
and executive officers of the Surviving Corporation.
Ronald V. Aprahamian is a private investor and has been a member of the
Board of Directors of Metrocall since May 1995. Mr. Aprahamian 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. Mr. Aprahamian was
Chairman and Chief Executive Officer of The Compucare Company, a healthcare
computer software services firm, from January 1988 to October 1996. Mr.
Aprahamian's son, Tom Aprahamian, is Vice President of Financial Reporting of
Metrocall and receives an annual salary of approximately $93,500.
Harry L. Brock, Jr. founded Metrocall and served as Chairman of the Board
(through January 1996) and President (through August 1995). Mr. Brock has been 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.
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 was employed by Metrocall and its predecessor companies from 1965
through May 1996. 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
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<PAGE> 76
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., a national communications
marketing and management company.
Michael Greene has been a director of Metrocall since January 1997. He is a
Managing Director of UBS Capital LLC, which is the private equity subsidiary of
the Union Bank of Switzerland ("UBS"). Mr. Greene has worked in UBS' private
equity and leveraged finance businesses since he joined UBS in 1990. Mr. Greene
serves on the board of directors of CBP Resources Inc.
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 -- Investments of The
Hillman Company since 1970 and a director of The Hillman Company since 1994. Mr.
Johnston serves on the board of directors of Novosote Corporation.
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. Mr. Martin previously served as President and Chief Executive
Officer of Chronicle Broadcasting Company, a publicly-held television
broadcasting company.
Ryal R. Poppa is a private investor and has been a director of Metrocall
since November 1996. Mr. Poppa served as Chairman of the Board, President and
Chief Executive Officer of Storage Technology Corporation, an international
company that manufactures, markets and services information storage and
retrieval services for high performance computers, from January 1985 through
June 1996. Mr. Poppa serves on the board of directors of Semitool, Inc. and
Carrier Access, Inc.
Ray D. Russenberger has been a director of Metrocall since November 1996.
Mr. Russenberger was Vice Chairman of A+ Network from October 1995 through the
merger of A+ Network into Metrocall in November 1996. He served as Chairman of
the Board and Chief Executive Officer of Network Paging Corporation ("Network")
(which was merged with A+ Communications, Inc. in 1995 to form A+ Network) since
December 1988. From 1985 to 1990, he founded and was President of Network Paging
Corporation, a paging company sold to Mobile Communications Corporation of
America, a wholly-owned subsidiary of BellSouth Corporation, in 1990. Mr.
Russenberger was elected to the board of directors pursuant to Metrocall's
merger agreement with A+ Network. Mr. Russenberger serves on the board of
directors of the First American Bank of Pensacola.
Elliott H. Singer has been a director of Metrocall since November 1996. Mr.
Singer was Chairman of the Board of A+ Communications, Inc. from its formation
in 1985 and was chairman of A+ Network from October 1995 until its merger with
Metrocall in November 1996, 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. Mr. Singer was elected to the board of directors pursuant
to Metrocall's merger agreement with A+ Network.
Royce R. Yudkoff has been a director of Metrocall since April 1997. Mr.
Yudkoff is the Managing Partner of ABRY Partners, Inc., a private equity
investment firm which invests in the communications and media industries. Prior
to co-founding ABRY in 1988, Mr. Yudkoff was a partner at Bain & Company
("Bain"), an international management consulting firm where he had significant
responsibility for Bain's media practice. Mr. Yudkoff serves on the board of
directors of Sullivan Broadcasting Company, Pinnacle Towers and several other
private companies.
Max D. Hopper has been a director of ProNet since May 1997. Since 1995, Mr.
Hopper has been the President of Max D. Hopper Associates, a consulting firm
that specializes in creating benefits for the strategic use of advanced
information technologies. Prior to 1995, Mr. Hopper spent 20 years in several
positions with AMR Corporation, American Airlines' parent company.
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Jackie R. Kimzey is a founder of ProNet and has been a director ProNet
since 1983. Mr. Kimzey has been Chairman of the Board of ProNet since March 1990
and Chief Executive Officer of ProNet since May 1983. Mr. Kimzey served as
President of ProNet from May 1983 until May 1991.
Edward E. Jungerman has been a director ProNet since May 1992. Mr.
Jungerman has been President of Impulse Telecommunications Corporation, a
strategic telecommunications consulting firm, since 1986. He has over 25 years
experience in the telecommunications field, including senior executive positions
at Northern Telecom, Inc. and private, start-up ventures in the specialized
advanced telecommunications services field.
Steven D. Jacoby has been Chief Operating Officer and Vice President of
Metrocall since September 1994. Mr. Jacoby was appointed Executive Vice
President in February 1997. Mr. Jacoby joined Metrocall from FirstPAGE USA, Inc.
where he had served as Chief Operating Officer, Vice President and Secretary
since 1988. Mr. Jacoby was a director of Metrocall from September 1994 until
November 1996.
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 and was appointed Executive Vice President in February 1997. Mr.
Kelly served as Chief Operating Officer and Chief Financial Officer of Metrocall
from February 1993 through August 31, 1994, when Metrocall acquired FirstPAGE
USA, Inc. Mr. Kelly was a director of Metrocall from 1990 until November 1996.
Mr. Kelly is a certified public accountant.
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 ProNet.
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PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed combined balance sheet under
the heading "Pro Forma Metrocall, Page America and Note Offering" gives effect
to (a) the Page America Acquisition for (i) cash of approximately $26 million
(after adjustments under the terms of that acquisition agreement and including
direct acquisition costs of approximately $1.2 million), (ii) approximately 3.9
million shares of Metrocall Common Stock at $4.8125 per share, and (iii) 1,500
shares of Series B Preferred Stock having a stated value of $15 million and
bearing dividends at 14% per year and (b) the issuance of $200 million in 9 3/4%
Senior Subordinated Notes due 2007 pursuant to the Note Offering, as if those
transactions had occurred on June 30, 1997. The unaudited pro forma condensed
combined balance sheet under the heading "Pro Forma Metrocall, Page America,
Note Offering and ProNet" also gives effect to the Merger as if the Merger had
occurred on June 30, 1997. The consideration to be received by stockholders of
ProNet in the Merger will be based upon a Conversion Ratio of 0.90, which is
subject to adjustment in certain circumstances. The actual consideration to be
received by stockholders of ProNet in the Merger, therefore, is subject to
change, which may be material, based on the financial performance of ProNet
prior to closing. See "THE MERGER AGREEMENT AND TERMS OF THE MERGER -- Number of
Shares to be Issued; Conversion Ratio Adjustments".
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 1996 under the heading "Pro Forma Metrocall" gives
effect to Metrocall's 1996 acquisitions including Parkway for approximately
$28.0 million, Satellite for consideration of 1.8 million shares of Metrocall
Common Stock, and A+ Network for approximately $284.4 million, including 8.1
million shares of Metrocall Common Stock together with the issuance of $39.9
million in liquidation preference of Series A Preferred Stock and the
refinancing of A+ Network's long-term debt, as if each transaction had occurred
on January 1, 1996. The unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1996 also gives effect to the Page
America Acquisition and the Note Offering, under the heading "Pro Forma
Metrocall, Page America and Note Offering" and to the Merger under the heading
"Pro Forma Metrocall, Page America, Note Offering and ProNet" as if those
transactions had occurred on January 1, 1996.
The unaudited pro forma condensed combined statement of operations for the
six months ended June 30, 1997 gives effect to the Page America Acquisition and
the Note Offering under the heading "Pro Forma Metrocall, Page America and Note
Offering" as if each such transaction had occurred on January 1, 1996. The
unaudited pro forma condensed combined statement of operations for the six
months ended June 30, 1997 also gives effect to the Merger under the heading
"Pro Forma Metrocall, Page America, Note Offering and ProNet" as if the Merger
had occurred on January 1, 1996.
Each of the recent and pending acquisitions has been or 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 the 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
incorporated by reference herein and the Metrocall and ProNet Consolidated
Financial Statements included herewith. The unaudited pro forma condensed
combined financial statements 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 statements.
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METROCALL, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------
OTHER
HISTORICAL ASSETS AND PAGE
------------------- LIABILITIES AMERICA
PAGE NOT ACQUIRED PRO FORMA NOTE
METROCALL AMERICA OR ASSUMED(A) ADJUSTMENTS OFFERING
--------- -------- --------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short term investments..... $ 20,749 $ 623 $ (623) $ -- $ --
Accounts receivable, net.............................. 24,041 673 -- -- --
Prepaid expenses and other current assets............. 7,396 523 (439) -- --
--------- -------- --------------- ----------- --------
Total current assets............................ 52,186 1,819 (1,062) -- --
Furniture and equipment, net............................ 151,831 4,867 -- -- --
Intangibles, net........................................ 440,356 31,172 -- 26,895(B) 7,000(M)
Other assets............................................ 2,355 788 (473) -- --
--------- -------- --------------- ----------- --------
Total assets.................................... $646,728 $ 38,646 $ (1,535) $ 26,895 $7,000
========= ======== ============ =========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations........... $ 965 $ 52,430 $ (52,430) $ -- $ --
Accounts payable and accrued expenses................. 38,939 6,430 (5,183) -- --
Deferred revenues and subscriber deposits............. 6,457 1,723 -- -- --
Other current liabilities............................. -- 4,335 (4,335) -- --
--------- -------- --------------- ----------- --------
Total current liabilities....................... 46,361 64,918 (61,948) -- --
Capital lease obligations............................... 4,717 -- -- -- --
Long-term obligations................................... 343,571 39 (39) 26,000(D) 7,000(M)
Deferred income taxes................................... 75,249 -- -- -- --
Minority interest....................................... 511 -- -- -- --
--------- -------- --------------- ----------- --------
Total liabilities............................... 470,409 64,957 (61,987) 26,000 7,000
Redeemable preferred stock.............................. 34,401 -- -- 15,000(E) --
Total stockholders' equity (deficit).................... 141,918 (26,311) 60,452 (14,105)(F) --
--------- -------- --------------- ----------- --------
Total liabilities, redeemable preferred stock and
stockholders' equity.................................. $646,728 $ 38,646 $ (1,535) $ 26,895 $7,000
========= ======== ============ =========== =======
<CAPTION>
PRO FORMA PRO FORMA
METROCALL, METROCALL,
PAGE PAGE
AMERICA AMERICA,
AND PRO NOTE
NOTE FORMA OFFERING
OFFERING PRONET ADJUSTMENTS AND PRONET
--------- -------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short term investments..... $ 20,749 $ 3,817 $ -- $ 24,566
Accounts receivable, net.............................. 24,714 11,189 -- 35,903
Prepaid expenses and other current assets............. 7,480 5,300 -- 12,780
--------- -------- ----------- ----------
Total current assets............................ 52,943 20,306 -- 73,249
Furniture and equipment, net............................ 156,698 75,505 -- 232,203
Intangibles, net........................................ 505,423 211,380 57,006(B) 773,809
Other assets............................................ 2,670 -- -- 2,670
--------- -------- ----------- ----------
Total assets.................................... $717,734 $307,191 $ 57,006 $1,081,931
========== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations........... $ 965 $ -- $ -- $ 965
Accounts payable and accrued expenses................. 40,186 31,698 1,600(C) 73,484
Deferred revenues and subscriber deposits............. 8,180 4,000 -- 12,180
Other current liabilities............................. -- -- -- --
--------- -------- ----------- ----------
Total current liabilities....................... 49,331 35,698 1,600 86,629
Capital lease obligations............................... 4,717 -- -- 4,717
Long-term obligations................................... 376,571 170,226 -- 546,797
Deferred income taxes................................... 75,249 -- 76,682(B) 151,931
Minority interest....................................... 511 -- -- 511
--------- -------- ----------- ----------
Total liabilities............................... 506,379 205,924 78,282 790,585
Redeemable preferred stock.............................. 49,401 -- 49,401
Total stockholders' equity (deficit).................... 161,954 101,267 (21,276)(F) 241,945
--------- -------- ----------- ----------
Total liabilities, redeemable preferred stock and
stockholders' equity.................................. $717,734 $307,191 $ 57,006 $1,081,931
========== ======== =========== ==========
</TABLE>
See accompanying notes to this unaudited statement.
68
<PAGE> 80
METROCALL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------
A+ PRO FORMA
METROCALL PARKWAY(G) SATELLITE(G) NETWORK(G) ADJUSTMENTS
--------- ---------- ------------ ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service, rent & maintenance revenues.... $ 124,029 $5,302 $6,564 $ 78,994 $ --
Product sales........................... 25,928 860 801 5,408 --
--------- ----- ----- ---------- -----------
Total revenues................... 149,957 6,162 7,365 84,402 --
Net book value of products sold......... (21,633) (934) (805) (7,435) 220(H)
--------- ----- ----- ---------- -----------
128,324 5,228 6,560 76,967 220
Service, rent & maintenance expense..... 38,347 1,417 2,418 17,016 --
Selling, marketing, general and
administrative......................... 57,226 2,305 2,449 43,329 (1,087)(I)
Depreciation & amortization............. 58,196 586 447 24,882 16,181(J)
Other................................... -- -- 12 396 --
--------- ----- ----- ---------- -----------
Total operating expenses......... 153,769 4,308 5,326 85,623 15,094
--------- ----- ----- ---------- -----------
(Loss) income from operations........... (25,445) 920 1,234 (8,656) (14,874)
Interest expense, net................... (21,031) (274) (713) (11,844) 3,289(K)
--------- ----- ----- ---------- -----------
Net (loss) income before income
taxes.............................. (46,476) 646 521 (20,500) (11,585)
Benefit (provision) for income taxes.... 1,021 (229) -- -- 4,822(L)
--------- ----- ----- ---------- -----------
Net (loss) income.................... $ (45,455) $ 417 $ 521 $(20,500) $ (6,763)
========= =========== =========== =========== ===========
Net loss per share...................... $ (2.80)
=========
Shares used in computing net loss per
share.................................. 16,253
=========
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------
OTHER PRO FORMA
PAGE METROCALL,
AMERICA PAGE
OPERATIONS PRO AMERICA
PRO FORMA PAGE NOT FORMA NOTE AND NOTE
METROCALL AMERICA ACQUIRED(A) ADJUSTMENTS OFFERING OFFERING PRONET
--------- ------- ----------- -------- -------- --------- --------
<S> <C> <C>
Service, rent & maintenance revenues.... $ 214,889 $20,074 $ -- $ -- $ -- $234,963 $ 87,239
Product sales........................... 32,997 1,910 -- -- -- 34,907 15,817
--------- ------- ----- -------- -------- --------- --------
Total revenues................... 247,886 21,984 -- -- -- 269,870 103,056
Net book value of products sold......... (30,587) (1,284) -- -- -- (31,871) (13,244)
--------- ------- ----- -------- -------- --------- --------
217,299 20,700 -- -- -- 237,999 89,812
Service, rent & maintenance expense..... 59,198 5,318 -- -- -- 64,516 25,924
Selling, marketing, general and
administrative......................... 104,222 10,258 -- -- -- 114,480 39,090
Depreciation & amortization............. 100,292 6,173 -- 2,514 (J) -- 108,979 40,624
Other................................... 408 -- -- -- -- 408 8,809
--------- ------- ----- -------- -------- --------- --------
Total operating expenses......... 264,120 21,749 -- 2,514 -- 288,383 114,447
--------- ------- ----- -------- -------- --------- --------
(Loss) income from operations........... (46,821) (1,049) -- (2,514) -- (50,384) (24,635)
Interest expense, net................... (30,573) (7,061) 6,153 (2,080) (K) (16,463)(N) (50,024) (15,085)
--------- ------- ----- -------- -------- --------- --------
Net (loss) income before income
taxes.............................. (77,394) (8,110) 6,153 (4,594) (16,463) (100,408) (39,720)
Benefit (provision) for income taxes.... 5,614 -- -- -- -- 5,614 (323)
--------- ------- ----- -------- -------- --------- --------
Net (loss) income.................... $ (71,780) $(8,110) $ 6,153 $(4,594) $(16,463) $(94,794) $(40,043)
========= ======== =========== =========== ========= ========== =========
Net loss per share...................... $ (2.87) $ (3.28)
========= ==========
Shares used in computing net loss per
share.................................. 24,978 28,890
========= ==========
<CAPTION>
PRO FORMA
METROCALL,
PAGE
AMERICA,
NOTE
OFFERING
PRO FORMA AND
ADJUSTMENTS PRONET
----------- ---------
Service, rent & maintenance revenues.... $ -- $ 322,202
Product sales........................... -- 50,724
----------- ---------
Total revenues................... -- 372,926
Net book value of products sold......... -- (45,115)
----------- ---------
-- 327,811
Service, rent & maintenance expense..... -- 90,440
Selling, marketing, general and
administrative......................... -- 153,570
Depreciation & amortization............. 3,695(J) 153,298
Other................................... -- 9,217
----------- ---------
Total operating expenses......... 3,695 406,525
----------- ---------
(Loss) income from operations........... (3,695) (78,714)
Interest expense, net................... -- (65,109)
----------- ---------
Net (loss) income before income
taxes.............................. (3,695) (143,823)
Benefit (provision) for income taxes.... 5,112(L) 10,403
----------- ---------
Net (loss) income.................... $ 1,417 $(133,420)
=========== ==========
Net loss per share...................... $ (3.24)
==========
Shares used in computing net loss per
share.................................. 41,196
==========
</TABLE>
See accompanying notes to this unaudited statement.
69
<PAGE> 81
METROCALL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------- PRO FORMA
OTHER METROCALL,
HISTORICAL PAGE PAGE
---------------------- AMERICA AMERICA
PAGE OPERATIONS NOT PRO FORMA NOTE AND NOTE
METROCALL AMERICA ACQUIRED(A) ADJUSTMENTS OFFERING OFFERING
--------- ---------- --------------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Service, rent & maintenance revenue........... $118,537 $ 8,669 $ -- $ -- $ -- $127,206
Product sales................................. 18,513 658 -- -- -- 19,171
--------- ---------- ------ ----------- -------- ---------
Total revenues........................ 137,050 9,327 -- -- -- 146,377
Net book value of products sold............... (13,682) (425) -- -- -- (14,107)
--------- ---------- ------ ----------- -------- ---------
123,368 8,902 -- -- -- 132,270
Service, rent & maintenance expense........... 35,440 2,635 -- -- -- 38,075
Selling, marketing, general and
administrative.............................. 54,749 4,849 -- -- -- 59,598
Depreciation & amortization................... 43,549 2,310 -- 1,257(J) -- 47,116
Other......................................... -- -- -- -- -- --
--------- ---------- ------ ----------- -------- ---------
Total operating expenses.............. 133,738 9,794 -- 1,257 -- 144,789
--------- ---------- ------ ----------- -------- ---------
(Loss) income from operations................. (10,370) (892) -- (1,257) -- (12,519)
Interest expense, net......................... (15,847) (3,211) 3,046 (1,040)(K) (2,259) (N) (19,311)
--------- ---------- ------ ----------- -------- ---------
Net (loss) income before income
taxes............................... (26,217) (4,103) 3,046 (2,297) (2,259) (31,830)
Benefit (provision) for income taxes.......... 2,165 (26) -- -- -- 2,139
--------- ---------- ------ ----------- -------- ---------
Net (loss) income..................... $(24,052) $ (4,129) $ 3,046 $(2,297) $(2,259) $(29,691)
========= =========== =============== =========== ======= ==========
Net loss per share............................ $ (0.96) $ (1.03)
========= ==========
Shares used in computing net loss per share... 24,978 28,890
========= ==========
<CAPTION>
PRO FORMA
METROCALL,
PAGE
AMERICA,
NOTE
OFFERING
PRO FORMA AND
PRONET ADJUSTMENTS PRONET
-------- ----------- ---------
<S> <C> <C> <C>
Service, rent & maintenance revenue........... $ 48,562 $ -- $175,768
Product sales................................. 10,430 -- 29,601
-------- ----------- ---------
Total revenues........................ 58,992 -- 205,369
Net book value of products sold............... (7,183) -- (21,290)
-------- ----------- ---------
51,809 -- 184,079
Service, rent & maintenance expense........... 15,351 -- 53,426
Selling, marketing, general and
administrative.............................. 21,571 -- 81,169
Depreciation & amortization................... 33,117 1,848(J) 82,081
Other......................................... 6,550 -- 6,550
-------- ----------- ---------
Total operating expenses.............. 76,589 1,848 223,226
-------- ----------- ---------
(Loss) income from operations................. (24,780) (1,848) (39,147)
Interest expense, net......................... (8,619) --(K) (27,930)
-------- ----------- ---------
Net (loss) income before income
taxes............................... (33,399) (1,848) (67,077)
Benefit (provision) for income taxes.......... (167) 2,556(L) 4,528
-------- ----------- ---------
Net (loss) income..................... $(33,566) $ 708 $(62,549)
======== =========== ==========
Net loss per share............................ $ (1.52)
==========
Shares used in computing net loss per share... 41,196
==========
</TABLE>
See accompanying notes to this unaudited statement.
70
<PAGE> 82
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements assume a
per share price of $6.50 for Metrocall Common Stock to be issued in connection
with the Merger. The consideration for the Merger will be based upon a
Conversion Ratio of 0.90 of a share of Metrocall Common Stock per share of
ProNet Common Stock, which is subject to adjustment in certain circumstances.
The actual consideration for the ProNet Merger, therefore, is subject to change,
which may be material, based upon the financial performance of ProNet prior to
closing.
(A) Reflects those assets not acquired and liabilities not assumed of Page
America in the asset purchase transaction including cash, certain prepaid
expenses and other assets, and substantially all debt and related
obligations (including accrued but unpaid dividends).
Reflects those revenues, expenses and results of operations not assumed of
Page America including interest related to debt not assumed.
(B) Reflects fair values assigned to intangible assets acquired which consist
of the following (in thousands):
<TABLE>
<CAPTION>
PAGE AMERICA PRONET
------------ ---------
<S> <C> <C>
FCC Licenses.................................................. $ 29,356 $ 148,342
Subscriber Lists.............................................. 28,711 52,776
Goodwill...................................................... -- 67,268
Less: Historical Intangibles.................................. (31,172) (211,380)
------------ ---------
$ 26,895 $ 57,006
========== =========
</TABLE>
The Merger is structured as a tax free reorganization. The deferred income
tax liability represents the tax effect of the difference between the
amounts allocated to assets acquired and their tax basis.
(C) Reflects estimated accruals for direct acquisition costs related to the
Merger.
(D) Reflects the cash payment and direct acquisition costs of approximately
$26.0 million related to the Page America Acquisition, which was financed
with long-term debt.
(E) Reflects the issuance of 1,500 shares of Series B Preferred Stock having a
stated value of $15.0 million bearing dividends at 14% per year.
(F) Reflects the issuance of 3,911,856 shares of Metrocall Common Stock at
$4.8125 per share in connection with the Page America Acquisition, net of
historical amounts.
Also reflects the estimated issuance of approximately 12,306,388 shares of
Metrocall Common Stock in the Merger, subject to adjustment based on
changes in ProNet's financial position, net of historical amounts.
(G) Historical statements for Parkway, Satellite and A+ Network in 1996 are
through July 16, 1996, August 30, 1996, and November 15, 1996,
respectively, which are the dates the respective acquisitions were
completed. Subsequent to completion of the acquisitions, all financial
reporting data are included in the historical Metrocall data.
(H) Reflects the estimated difference in the net book value of products sold
based upon Metrocall's estimated useful lives of subscriber equipment.
(I) Reflects the elimination of certain executive salaries and bonuses for
Parkway, Satellite and A+ Network executives terminated upon completion of
the respective acquisitions in July, August and November 1996.
(J) 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, 25 years for FCC licenses and
15 years for goodwill.
(K) Represents the estimated incremental interest at a rate of 8.0% that would
have been incurred assuming all acquisitions were completed on January 1,
1996.
71
<PAGE> 83
(L) Represents the tax benefit resulting from the amortization of acquired
intangibles for ProNet, A+ Network and Parkway assuming an effective tax
rate of 40%.
(M) Estimated net proceeds of the Note Offering of $193.0 million used to repay
outstanding indebtedness under the Metrocall Credit Facility. Estimated
Note Offering costs, including underwriting discounts of the Note Offering,
are $7.0 million.
(N) Estimated incremental increase to interest expense as a result of the Note
Offering as if the Note Offering had been completed at January 1, 1996.
Also, includes amortization of estimated deferred debt offering costs of
$700,000 and $350,000 for the year ended December 31, 1996 and six months
ended June 30, 1997.
72
<PAGE> 84
RECENT DEVELOPMENTS REGARDING METROCALL
PENDING LITIGATION
Metrocall entered into an agreement in April 1996 to purchase certain
assets of 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 complete 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 removed the action to the United States District Court
for the Northern District of Illinois. Metrocall believes it has meritorious
defenses to this action and intends to vigorously defend the claims in this
action. Metrocall has denied the claim and asserted affirmative defenses and
counterclaims based on misrepresentations and breaches of contract by Source
One. The period for fact discovery has closed, and pre-trial order is expected
to be entered in open court on November 24, 1997. Metrocall's legal counsel
believes that trial is not likely to be set for a time earlier than January
1998.
ACQUISITION OF PAGE AMERICA ASSETS
On July 1, 1997, Metrocall completed the acquisition of substantially all
the assets of Page America. Pursuant to this transaction, (i) Metrocall acquired
substantially all of the assets and assumed substantially all of Page America's
accounts payable and certain obligations under various office and equipment
leases and (ii) Page America received (a) approximately $25 million in cash, (b)
1,500 shares of Series B Preferred Stock with a liquidation value of $15 million
and (c) 3,997,458 shares of Metrocall Common Stock (subsequently adjusted to
3,911,856 shares). Metrocall financed the cash portion of the purchase price,
including transactions fees and expenses, with borrowings of $26 million under
the Metrocall Credit Facility. The Page America Acquisition will be accounted
for as a purchase for financial reporting purposes.
NOTE OFFERING
On October 21, 1997, Metrocall sold $200 million aggregate principal amount
of 9 3/4% Senior Subordinated Notes due 2007 in a private placement. The notes
will bear interest, payable semi-annually, at a rate of 9.75% and will mature on
November 1, 2007. The notes will be callable beginning November 1, 2002. The
notes will be unsecured obligations of Metrocall, subordinated to all present
and future senior indebtedness of Metrocall. Metrocall used the net proceeds of
the Note Offering to repay outstanding indebtedness under the Metrocall Credit
Facility. Metrocall also agreed to certain registration rights with respect to
the notes: if the notes are not exchanged for a registered series of notes with
identical terms, or a shelf registration statement does not become effective
with respect to such notes, by April 21, 1998, the interest rate on the notes
will increase by .5% per annum until registration is completed.
METROCALL CREDIT FACILITY
Metrocall and its bank lenders executed an amended and restated Metrocall
Credit Facility on October 21, 1997. In addition to restructuring the available
borrowings, the amended and restated agreement includes approval of the Merger.
Under the Metrocall Credit Facility, as amended, subject to certain conditions,
Metrocall may borrow up to $300.0 million under two loan facilities. The first
facility is a $175.0 million reducing revolving credit facility, and the second
facility is a $125.0 million reducing credit facility. At October 31, 1997,
after application of proceeds of the Note Offering, a total of approximately
$50.9 million was outstanding under the Metrocall Credit Facility. Pursuant to
the terms of the loan agreement, based on Metrocall's operating results (pro
forma for cash balances on hand, the Page America Acquisition, the Note Offering
and the Merger) for the quarter ended June 30, 1997, total additional borrowings
available to Metrocall under the credit facility would be approximately $40.0
million. The Metrocall 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.
73
<PAGE> 85
The Metrocall Credit Facility, as amended, 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
6.0 to 1.0 through December 31, 1998 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 Metrocall Credit Facility). The covenants also 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 Metrocall during the term of the Metrocall Credit Facility. The
Metrocall Credit Facility also prohibits certain changes in ownership control of
Metrocall, as defined, during the term of the Metrocall Credit Facility.
RECENT DEVELOPMENTS REGARDING PRONET
LITIGATION
ProNet Securities Litigation. ProNet and certain of its officers and
directors are defendants in the ProNet Securities Litigation. The ProNet
Securities Litigation asserts claims on behalf of all persons who purchased
shares of ProNet Common Stock in ProNet's public offering of 4,000,000 shares
that commenced on May 31, 1996 and all persons who purchased shares of ProNet
Common Stock in the open market during an alleged class period.
ProNet entered in an agreement effective as of May 14, 1997 to settle the
ProNet Securities Litigation. ProNet, its insurance carriers and its former
underwriters will pay $8.25 million to settle all claims against ProNet, its
officers and directors, and the underwriters. ProNet has agreed to pay $1.7
million of this amount. In addition, ProNet will issue one million shares of
ProNet Common Stock to the class. ProNet will also pay $2 million to the class
if, within two years from final approval of the settlement, the Merger is
completed or ProNet engages in another merger or similar transaction which
results in a "change of control" of ProNet. The proposed settlement is subject
to court approval.
On September 24, 1997, the United States District Court for the Northern
District of Texas preliminarily approved the proposed settlement. The Court set
a hearing on the parties' joint motion for entry of a final judgment approving
the settlement for November 19, 1997.
Class Action Suit. On August 13, 1997, ProNet and certain of its directors
were named in a class action complaint filed in the Court of Chancery for the
State of Delaware in and for New Castle County. The case is styled, Jerry Krim
v. ProNet Inc., et al., C.A. No. 15873. In this action, the plaintiff alleges
that ProNet stockholders will receive inadequate consideration in the Merger.
The plaintiffs further allege various breaches by the director defendants in
connection with the Merger. The defendants view the complaint as meritless and
on September 5, 1997 filed a motion to dismiss plaintiff's complaint. That
motion is pending before the Court.
74
<PAGE> 86
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 20,000,000
shares, from 60,000,000 shares to 80,000,000 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 necessary to complete,
and is a condition to completion of, the Merger.
APPROVAL BY THE METROCALL STOCKHOLDERS OF THE PROPOSED INCREASE IN
AUTHORIZED COMMON STOCK WILL CONSTITUTE ADOPTION OF THE AMENDMENT.
As of the Metrocall Record Date, 32,185,710 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
12,306,388 additional shares of Metrocall Common Stock will be issued in the
Merger. In addition, 18,500,000 shares of Metrocall Common Stock have been
reserved for issuance upon conversion of the Series A Preferred and the Series B
Preferred. Further, 2,915,254 shares of Metrocall Common Stock have been
reserved for issuance upon the exercise of Warrants. See "DESCRIPTION OF
METROCALL CAPITAL STOCK -- Warrants." 4,000,000 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"), 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 Employee
Stock Purchase Plan (see "AMENDMENT TO METROCALL'S EMPLOYEE STOCK PURCHASE
PLAN"). Accordingly, the additional shares will be necessary to complete the
Merger and other recent acquisitions and to reserve shares under Metrocall's
1996 Stock Option Plan and Metrocall's Employee Stock Purchase Plan.
The Metrocall 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 Metrocall 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.
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 NSM 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 Metrocall 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.
75
<PAGE> 87
AMENDMENT TO INCREASE THE NUMBER OF SHARES THAT MAY BE ISSUED
UNDER METROCALL'S 1996 STOCK OPTION PLAN
The Board of Directors of Metrocall proposes that the stockholders of
Metrocall approve an amendment (the "Option Plan Amendment") to the Metrocall,
Inc. 1996 Stock Option Plan, as amended (the "Plan"). The Plan became effective
April 5, 1996, pursuant to the approval of the stockholders of Metrocall. On
February 5, 1997, the Metrocall Board adopted a restated and amended version of
the Plan, which was approved by the stockholders. The Option Plan Amendment,
attached hereto as Exhibit E, increases the number of shares of Metrocall Common
Stock authorized for issuance under the Plan from 2,000,000 shares to 4,000,000
shares to provide sufficient stock to honor options granted by ProNet 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 Plan is qualified in its entirety by reference to the full text of the Plan
which is included in an exhibit incorporated by reference herein.
GENERAL
Purpose. The 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
nonemployee directors ("Eligible Directors") are eligible to participate in the
Plan. As of June 30, 1997, there were 2,059 employees and seven Eligible
Directors eligible to receive grants under the Plan.
Shares Available Under the Plan. As amended, subject to stockholder
approval, the Plan authorizes the issuance of up to 4,000,000 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 Common Stock. If any option granted under the 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 Plan is administered by the Metrocall Board of
Directors or the Compensation Committee of the Metrocall Board (the
"Committee"). The Committee has the 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 Plan. For
incentive stock options, the option price will 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
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employee receiving the option is a more than 10% owner of Metrocall Common
Stock, the option price will 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-qualified options, the option price will 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 the NSM on October 24, 1997 was
$6.5625.
Formula Options Granted to Directors. All options granted to Eligible
Directors will be non-qualified 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 Metrocall 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 will become fully vested six months after the date of
grant. The exercise price for options granted to Eligible Directors will be the
fair market value of the Metrocall Common Stock on the date the option is
granted.
Discretionary Grants to Directors. The Plan provides that the full
Metrocall Board of Directors can make grants to any and all directors in its
discretion. The full Metrocall Board of Directors is also given the authority to
amend formula grants as it deems appropriate.
Exercise. Options granted under the 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
will 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 Metrocall Board of Directors may amend or terminate the Plan at any
time and from time to time; provided, however, that no amendment may, without
the approval of a majority of the stockholders of Metrocall, amend the
provisions governing incentive stock options other than as permitted under the
Code. The Plan will terminate no later than 10 years after its effective date.
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TAX CONSEQUENCES
The following generally describes the federal income tax consequences under
current provisions and interpretations of the Code of options granted under the
Plan. It does not purport to be complete. In particular, this general
description does not discuss the applicability of the income tax laws of any
state or foreign country.
There are no federal income tax consequences to optionees or Metrocall upon
the grant of an option under the Plan. Generally, upon the exercise of a
nonqualified stock option (an "NQSO"), an optionee will recognize ordinary
compensation income equal to the fair market value of the Metrocall Common Stock
at the time of exercise minus the exercise price of the option, and Metrocall
generally can take an equal federal income tax deduction. When the optionee
sells shares acquired by exercising an NQSO, the optionee generally will realize
a short-term or long-term capital gain or loss, depending on the length of the
holding period, but Metrocall cannot take any tax deduction in connection with
such sale.
Optionees will not be subject to federal income taxation when exercising
incentive stock options ("ISOs") granted under the Plan, and Metrocall will not
receive a federal income tax deduction by reason of such exercise. However, the
amount by which the fair market value of the shares at the time of exercise
exceeds the exercise price is an item of tax preference as to which the optionee
might have to pay alternative minimum tax. An optionee who sells shares acquired
by exercising an ISO after the later of one year after the exercise or two years
after the grant of the ISO generally will have long-term capital gain or loss
upon sale equaling the difference between the amount realized on the sale and
the exercise price, but Metrocall cannot take any tax deduction in connection
with such sale.
If the optionee sells the ISO stock in a "disqualifying disposition" (that
is, within one year from the date of exercise of the ISO or within two years
from the date of the ISO grant), the optionee generally will recognize ordinary
compensation income equal to the lesser of (i) the fair market value of the
shares on the date of exercise of the option minus the exercise price or (ii)
the amount realized on the sale of the shares minus the exercise price. In the
case of a disqualifying disposition where a loss, if sustained, would not be
recognized (i.e., a gift), the optionee will recognize ordinary income equal to
the fair market value of the shares on the date of exercise minus the exercise
price. Any amount realized on a disqualifying disposition in excess of the
amount treated as ordinary compensation income (or any loss realized) will be a
long-term or a short-term capital gain (or loss), depending upon the length of
time the optionee held the shares. Metrocall can generally take a tax deduction
on a disqualifying disposition corresponding to the ordinary compensation income
the optionee recognizes but cannot deduct the amount of the capital gains.
If an optionee pays the exercise price of either an NQSO or an ISO by
turning in previously-owned shares, the optionee will not realize additional
gain or loss because of the surrender, but (i) the number of new shares received
equal to the number of shares surrendered will retain the existing tax basis and
holding period of the surrendered shares; (ii) if the option so exercised is an
NQSO, the amount of both the optionee's ordinary compensation income and
Metrocall's deduction will equal the fair market value of the additional shares
received (less any cash paid upon such exercise), and the optionee's tax basis
in these additional shares will equal their fair market value; (iii) if the
option so exercised is an ISO, the additional shares received will have a tax
basis of zero unless cash was paid to complete such exercise, in which case the
optionee's tax basis in the additional shares received will equal the cash the
optionee paid upon such exercise; and (iv) the optionee's holding period for the
additional shares received will begin on the day after the date of exercise for
capital gain purposes (regardless of the type of option being exercised) and
will begin upon the date of transfer of the additional shares to the optionee
for purposes of the ISO period requirements. If, in exercising an ISO, an
optionee surrenders shares received upon a previous exercise of an ISO before
the applicable incentive stock option holding period for such shares has been
satisfied, the surrender of such shares will be treated as a disqualifying
disposition, and the rules governing such dispositions, as described above, will
apply to determine the amount of the optionee's income and Metrocall's
deduction.
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STOCKHOLDER APPROVAL
Approval of the Option Plan Amendment will require that the votes cast in
favor of the Option Plan Amendment exceed the votes cast against the Option Plan
Amendment. Abstentions and broker non-votes will not be counted for purposes of
the Option Plan Amendment. Failure of the stockholders to approve the Option
Plan Amendment will cause the rescission of the Option Plan Amendment.
NEW PLAN BENEFITS
No additional options or awards have been granted under the Plan that are
conditioned upon the approval of the Option Plan Amendment.
The Board of Directors of Metrocall has recommended that the stockholders
vote FOR the proposal to approve the Option Plan Amendment.
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AMENDMENT TO METROCALL'S EMPLOYEE STOCK PURCHASE PLAN
The Metrocall Board of Directors proposes that the stockholders of
Metrocall approve an amendment (the "ESPP Amendment") to the Metrocall, Inc.
Employee Stock Purchase Plan (the "ESPP"). The ESPP Amendment, attached hereto
as Exhibit F, increases the number of shares of Metrocall Common Stock
authorized for issuance under the ESPP from 300,000 shares to 1,000,000 shares,
extends the term of the ESPP to December 31, 2007, increases administrative
flexibility, and makes certain other changes, incorporated into a complete
restatement. The following is a summary of the ESPP, as amended (the "Amended
ESPP"). This summary description is a fair and complete summary of the ESPP;
however, it is qualified in its entirety by reference to the full text of the
ESPP.
General
Purpose. The ESPP offers eligible employees the opportunity to purchase
shares of Metrocall Common Stock through after-tax payroll withholding. The ESPP
is intended to permit employees 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 ESPP may be used for any general corporate purpose.
Eligibility. All common law employees of Metrocall and certain
subsidiaries (including part-time and seasonal employees other than employees
who are employed by Metrocall for less than one month at the beginning of the
Payroll Deduction Period) and holders of more than 5% of the common stock of
Metrocall and its subsidiaries, either directly or by attribution are eligible
to participate in the ESPP. As of June 30, 1997, there were approximately 2,059
employees currently eligible to participate in the ESPP.
Shares Available Under the ESPP. As amended, subject to stockholder
approval, the ESPP authorizes the issuance of up to 1,000,000 shares of
Metrocall Common Stock from authorized but unissued shares or from stock owned
by Metrocall, including stock purchased on the market. The number of shares
issuable under the ESPP will be adjusted for stock dividends, stock splits,
reclassifications and other changes affecting the Metrocall Common Stock.
Because the ESPP permits participants to choose their own level of
participation, subject to overall tax and program limits, the specific amounts
to be granted to particular persons cannot be determined in advance.
Administration. The ESPP is administered by the Compensation Committee of
the Metrocall Board of Directors (the "Compensation Committee"). The
Compensation Committee has the authority and discretion to specify the terms and
conditions of options granted to employees (within the limitations of the ESPP)
and to otherwise interpret and construe the terms of the ESPP and any agreements
governing options granted under the ESPP. Under the Amended ESPP, the
Compensation Committee (or the Metrocall Board of Directors) can lengthen or
shorten the Payroll Deduction Periods, increase the purchase price for shares,
or make other administrative adjustments. The Amended ESPP also specifically
provides for indemnification of the Compensation Committee, other directors, and
agents for actions taken with respect to the ESPP.
Options Granted Under the ESPP
General. All options granted under the ESPP will be evidenced by
participation agreements. The Committee has broad discretion to determine the
timing, amount, exercisability, and other terms and conditions of options
granted to employees. No options granted or funds accumulated under the ESPP are
assignable or transferable, other than by will or in accordance with the laws of
descent and distribution. Payroll Deduction Periods for the ESPP are
semi-annual.
Election to Participate. Employees must elect before the beginning of a
given Payroll Deduction Period to participate.
Exercise Price. The exercise price for options under the ESPP will be
equal to the lesser of 85% of the fair market value on the first day of the
Payroll Deduction Period and 85% of the fair market value on the last day of the
Payroll Deduction Period or such higher price as the Compensation Committee sets
before a Payroll Deduction Period begins. No participant can purchase more than
$25,000 worth of Metrocall
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Common Stock in all Payroll Deduction Periods ending during the same calendar
year. The closing price of a share of Metrocall Common Stock, as reported on
October 24, 1997 was $6.5625.
Exercise. Options granted under the ESPP to employees will be
automatically exercised as of the last day of the Payroll Deduction Period,
unless the participant has requested withdrawal of his payroll contributions at
least thirty days earlier. The number of shares to be purchased will be
determined by dividing the dollars accumulated through payroll withholding by
the exercise price and rounding down to the nearest whole number of shares.
Termination of Service. If an employee's employment ends for any reason,
including death, the employee's account will be distributed, and the employee
will immediately cease to participate in the ESPP.
Stockholder Approval. In general, stockholder approval is only required
for changes to the extent necessary to preserve the ESPP's status as a plan
under Section 423 of the Code.
Amendment or Termination of the ESPP
Subject to the foregoing, the Board of Directors may amend or terminate the
ESPP at any time and from time to time. Absent extension by the Board with
stockholder approval, the ESPP will terminate no later than December 31, 2007
(extended by the amendment from April 1, 2001).
TAX CONSEQUENCES
The following summarizes certain federal income tax consequences of
participation in the ESPP. It does not cover employment taxes except as
specified, nor does it cover other federal, state, local, or foreign tax
consequences, if any.
Rights granted under the ESPP are intended to quality for the favorable
federal income tax treatment provided by an employee stock purchase plan that
qualifies under Section 423 of the Code.
A participant's withheld compensation will be post-tax. In other words, the
participant will be taxed on amounts withheld for the purchase of shares of
Metrocall Common Stock as if he had instead received his full salary or wages.
Other than this, no income will be taxable to a participant until disposition of
the shares acquired, and the method of taxation will depend upon how long the
shares were held before disposition.
If the purchased shares of Common Stock are disposed of more than two years
after the beginning of the applicable Payroll Deduction Period (July 1 or
January 1) and more than one year after the exercise date or if the participant
dies at any time while holding the stock, then the lesser of (a) the excess of
the fair market value of the stock at the time of such disposition or death over
the purchase price or (b) 15% of fair market value of the stock as of the
beginning of the applicable offering period will be treated as ordinary income.
Any further gain or any loss will be taxed as a long-term capital gain or loss.
Net long-term capital gains for individuals are currently subject to a maximum
marginal federal income tax rate that is less than the maximum marginal rate for
ordinary income.
If the participant sells or disposes of the stock before the expiration of
either of the holding periods described above (a 'disqualifying disposition'),
then the excess of the fair market value of the stock on the exercise date over
the exercise price will be treated as ordinary income at the time of such
disposition. Metrocall may, in the future, be required to withhold income taxes
relating to such ordinary income from other payments made to the participant.
The balance of any gain on a sale will be treated as capital gain. Even if the
stock is sold for less than its fair market value on the exercise date, the same
amount of ordinary income is attributed to the participant, and a capital loss
is recognized equal to the difference between the sales price and the fair
market value of the stock on the exercise date. Any capital gain or loss will be
long- or short-term depending on whether the stock has been held for more than
one year.
There are no federal income tax consequences to Metrocall by reason of the
grant or exercise of rights under the Plan. Metrocall will, in general, be
entitled to a deduction to the extent amounts are taxed as ordinary income to a
participant by reason of a disqualifying disposition of the purchased shares of
stock, but will not be entitled to a deduction in respect of the ordinary income
realized by a participant upon a later
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disposition, or realized upon death. Metrocall's deduction may be limited under
Code Section 162(m) and may be subject to disallowance for failure to report the
optionee's income (which could arise if an optionee does not notify Metrocall of
the sale of stock in a disqualifying disposition).
New Plan Benefits
Benefits to be awarded under the ESPP to employees vary depending upon the
elections of the participants as to their level of participation. No
non-employee directors are eligible to participate. No additional benefits have
been granted under the ESPP that are conditioned upon approval of the ESPP
Amendment.
STOCKHOLDER APPROVAL
Approval of the ESPP Amendment will require that the votes cast in favor of
the ESPP Amendment exceed the votes cast against the ESPP Amendment. Abstentions
and broker non-votes will not be counted for purposes of the ESPP Amendment.
Failure of the stockholders to approve the Employee Plan Amendment will cause
the rescission of the Employee Plan Amendment.
The Board of Directors of Metrocall has recommended that the stockholders
vote FOR the proposal to approve the ESPP Amendment.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, Metrocall and
ProNet are not aware of any matters, other than those referred to herein, to be
presented for action by the stockholders at the respective Stockholders
Meetings. If, however, any other appropriate business should properly be
presented at the respective Stockholders Meetings, the persons named in the
proxies will vote the shares represented thereby, pursuant to their
discretionary authority, in accordance with their best judgment.
LEGAL MATTERS
Wilmer, Cutler and Pickering, Washington, D.C. will render an opinion with
respect to the validity of the Metrocall Common Stock to be issued to ProNet's
stockholders in connection with the Merger and will pass upon certain other
legal matters on behalf of Metrocall. Vinson & Elkins L.L.P., Dallas, Texas will
pass upon the Federal income tax consequences in connection with the Merger on
behalf of ProNet.
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EXPERTS
The consolidated financial statements of Metrocall included in this
registration statement to the extent and for the periods indicated in their
reports have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports. Metrocall expects that representatives of
Arthur Andersen LLP will be present at the Metrocall Meeting, will have the
opportunity to make a statement if they so desire, and will be available to
respond to appropriate questions.
The consolidated financial statements of ProNet Inc. and its subsidiaries
at December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, incorporated by reference and included herein, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing. ProNet anticipates that representatives of Ernst & Young LLP will be
present at the ProNet Meeting, will have the opportunity to make a statement if
they desire to do so, and will be available to respond to appropriate questions.
The combined financial statements of O.R. Estman, Inc. and Dana Paging,
Inc. incorporated by reference in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of Parkway Paging, Inc. incorporated by reference
in the registration statement have been audited by Hutton, Patterson & Company,
independent accountants, as set forth in their report thereon, and are
incorporated herein in reliance upon the authority of said firm as experts in
giving said reports.
The consolidated financial statements of A+ Network, Inc. and subsidiaries
as of December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995 incorporated in this prospectus by reference from the
Current Report on Form 8-K/A of Metrocall, Inc. filed on October 1, 1996, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and has been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of Network Paging Corporation as of December 31,
1994 and 1993 and for each of the two years in the period ended December 31,
1994 incorporated by reference in this registration statement have been so
incorporated in reliance on the report of Price Waterhouse LLP independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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<PAGE> 96
EXHIBIT A
================================================================================
AGREEMENT AND PLAN OF MERGER
BETWEEN
METROCALL, INC.
AND
PRONET INC.
AUGUST 8, 1997
================================================================================
<PAGE> 97
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
THE MERGER........................................................................... 1
Section 1.1 The Merger............................................................. 1
Section 1.2 Effective Time......................................................... 2
Section 1.3 Certificate of Incorporation and By-Laws............................... 2
Section 1.4 Directors and Officers of Surviving Corporation........................ 2
ARTICLE II
CONVERSION OF SHARES; EXCHANGE PROCEDURES............................................ 2
Section 2.1 Conversion of Shares................................................... 2
Section 2.2 Conversion Ratio....................................................... 3
Section 2.3 Exchange of Certificates............................................... 3
Section 2.4 PN Option Plans........................................................ 4
Section 2.5 PN Subordinated Notes.................................................. 5
Section 2.6 Termination of Rights Plan............................................. 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PN................................................. 5
Section 3.1 Organization........................................................... 5
Section 3.2 Capitalization......................................................... 6
Section 3.3 Authorization; Validity of Agreement; PN Action........................ 6
Section 3.4 Consents and Approvals; No Violations; Licenses........................ 7
Section 3.5 SEC Reports and Financial Statements................................... 8
Section 3.6 No Undisclosed Liabilities............................................. 8
Section 3.7 Absence of Certain Changes............................................. 9
Section 3.8 Employee Benefit Plans; ERISA; Labor................................... 9
Section 3.9 Litigation............................................................. 10
Section 3.10 No Default; Compliance with Applicable Laws........................... 10
Section 3.11 Taxes................................................................. 11
Section 3.12 Environmental Matters................................................. 11
Section 3.13 Insurance............................................................. 12
Section 3.14 Proxy Statement; Registration Statement; Other Information............ 12
Section 3.15 Transactions with Affiliates.......................................... 12
Section 3.16 Share Ownership....................................................... 12
Section 3.17 Brokers............................................................... 12
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MC................................................. 12
Section 4.1 Organization........................................................... 13
Section 4.2 Capitalization......................................................... 13
Section 4.3 Authorization; Validity of Agreement; MC Action........................ 14
Section 4.4 Consents and Approvals; No Violations; Licenses........................ 14
Section 4.5 SEC Reports and Financial Statements................................... 15
Section 4.6 No Undisclosed Liabilities............................................. 15
Section 4.7 Absence of Certain Changes............................................. 16
Section 4.8 Employee Benefit Plans; ERISA; Labor................................... 16
Section 4.9 Litigation............................................................. 17
Section 4.10 No Default; Compliance with Applicable Laws........................... 17
Section 4.11 Taxes................................................................. 18
Section 4.12 Environmental Matters................................................. 18
Section 4.13 Insurance............................................................. 18
Section 4.14 Proxy Statement; Registration Statement; Other Information............ 18
Section 4.15 Transactions with Affiliates.......................................... 19
Section 4.16 Share Ownership....................................................... 19
Section 4.17 Brokers............................................................... 19
ARTICLE V
COVENANTS............................................................................ 19
Section 5.1 Interim Operations of PN and MC........................................ 19
Section 5.2 Stockholder Approval; Meetings; Etc. .................................. 21
Section 5.3 Proxy Statement, Registration Statement, Etc. ......................... 22
Section 5.4 Compliance with the Securities Act..................................... 22
Section 5.5 Nasdaq Listing......................................................... 23
Section 5.6 Approvals and Consents; Cooperation.................................... 23
Section 5.7 Access to Information.................................................. 23
Section 5.8 [Reserved.]............................................................ 24
Section 5.9 No Solicitation by PN.................................................. 24
Section 5.10 Brokers or Finders.................................................... 25
Section 5.11 Publicity............................................................. 25
Section 5.12 Notification of Certain Matters....................................... 25
Section 5.13 Directors' and Officers' Insurance and Indemnification................ 25
Section 5.14 Expenses.............................................................. 26
Section 5.15 Further Assurances.................................................... 26
ARTICLE VI
CONDITIONS........................................................................... 27
Section 6.1 Conditions to Each Party's Obligation To Effect the Merger............. 27
Section 6.2 Conditions to Obligations of PN to Effect the Merger................... 27
Section 6.3 Conditions to Obligations of MC to Effect the Merger................... 28
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE VII
TERMINATION.......................................................................... 29
Section 7.1 Termination............................................................ 29
Section 7.2 Termination Fee........................................................ 30
Section 7.3 Effect of Termination.................................................. 30
ARTICLE VIII
MISCELLANEOUS........................................................................ 31
Section 8.1 Amendment.............................................................. 31
Section 8.2 Nonsurvival of Representations and Warranties.......................... 31
Section 8.3 Notices................................................................ 31
Section 8.4 Headings............................................................... 32
Section 8.5 Interpretation......................................................... 32
Section 8.6 Counterparts........................................................... 32
Section 8.7 Entire Agreement; Third Party Beneficiaries............................ 32
Section 8.8 Governing Law.......................................................... 32
Section 8.9 Assignment............................................................. 32
Section 8.10 Further Assurances.................................................... 32
</TABLE>
ANNEXES
Annex A
Directors of the Surviving Corporation
Annex B
Conversion Ratio Adjustments
iii
<PAGE> 100
SCHEDULES
<TABLE>
<S> <C> <C>
PN DISCLOSURE LETTER:
Schedule 3.1 -- Subsidiaries of PN
Schedule 3.2(a) -- PN Capitalization
Schedule 3.2(b) -- Liens
Schedule 3.4(a) -- PN Consents and Approvals
Schedule 3.4(c) -- PN FCC Authorizations
Schedule 3.5(a) -- SEC Reports
Schedule 3.5(b) -- June 30 Financial Statements
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 PN
MC DISCLOSURE LETTER:
Schedule 4.1 -- Subsidiaries of MC
Schedule 4.2(a) -- MC Capitalization
Schedule 4.2(b) -- Liens
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 4.16 -- Share Ownership
Schedule 4.17 -- MC Financial Advisors
Schedule 5.1(b) -- Permitted Activities by MC
</TABLE>
iv
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Affiliates............................................................................. 22
Amendment Proposal..................................................................... 21
Annualized Cash Flow................................................................... B-2
CERCLA................................................................................. 11
Change of Control...................................................................... 23
Claim.................................................................................. 25
Closing................................................................................ 1
Closing Date........................................................................... 2
Code................................................................................... 1
Communications Act..................................................................... 7
Confidentiality Agreement.............................................................. 24
Conversion Ratio....................................................................... 3
D&O Insurance.......................................................................... 26
Deferred Settlement Costs.............................................................. B-2
DGCL................................................................................... 1
Effective Time......................................................................... 2
Environmental Law...................................................................... 11
ERISA.................................................................................. 9
Exchange Act........................................................................... 7
Exchange Agent......................................................................... 3
FCC.................................................................................... 7
Final Regulatory Order................................................................. 27
GAAP................................................................................... 8
Governmental Entity.................................................................... 7
HSR Act................................................................................ 7
Indemnified Party...................................................................... 25
Indenture.............................................................................. 5
IRS.................................................................................... 9
Material Adverse Effect................................................................ 5
Materials of Environmental Concern..................................................... 12
MC..................................................................................... 1
MC Benefit Plans....................................................................... 16
MC ERISA Affiliate..................................................................... 16
MC Fairness Opinion.................................................................... 14
MC Financial Advisor................................................................... 14
MC Financial Statements................................................................ 15
MC Licenses............................................................................ 15
MC Material Agreements................................................................. 14
MC Option Plan......................................................................... 4
MC Options............................................................................. 13
MC Replacement Options................................................................. 4
MC SEC Documents....................................................................... 15
MC Shares.............................................................................. 1
MC Voting Agreement.................................................................... 1
Measurement Date....................................................................... B-2
Meeting................................................................................ 21
Merger................................................................................. 1
Merger Consideration................................................................... 2
Merger Documents....................................................................... 2
</TABLE>
v
<PAGE> 102
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Merger Proposal........................................................................ 21
New Pager Inventory Requirement........................................................ B-2
Notes.................................................................................. 5
Plaintiff Class........................................................................ 2
Plaintiffs' Settlement................................................................. 2
Plaintiffs' Litigation................................................................. 2
PN..................................................................................... 1
PN Acquisition Proposal................................................................ 24
PN Benefit Plans....................................................................... 9
PN Certificates........................................................................ 3
PN Employee Agreements................................................................. 9
PN ERISA Affiliate..................................................................... 9
PN Fairness Opinion.................................................................... 7
PN Financial Advisor................................................................... 7
PN Financial Statements................................................................ 8
PN Licenses............................................................................ 7
PN Material Agreements................................................................. 7
PN Option.............................................................................. 4
PN Option Agreement.................................................................... 1
PN Option Plans........................................................................ 4
PN Shares.............................................................................. 1
Proxy Statement........................................................................ 12
Registration Statement................................................................. 12
Regulatory Filings..................................................................... 23
Regulatory Order....................................................................... 27
Relevant Net Liabilities............................................................... B-2
Rights................................................................................. 1
Rights Plan............................................................................ 1
Scheduled Shares....................................................................... 6
SEC.................................................................................... 8
Securities Act......................................................................... 6
Series A Preferred..................................................................... 13
Series B Preferred..................................................................... 13
State Authority........................................................................ 7
Subsidiary............................................................................. 5
Surviving Corporation.................................................................. 2
Target Cash Flow....................................................................... B-2
Target Net Liabilities................................................................. B-2
Tax Return............................................................................. 11
Taxes.................................................................................. 11
Voting Debt............................................................................ 6
</TABLE>
vi
<PAGE> 103
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 8, 1997 (this
"Agreement"), between METROCALL, INC., a Delaware corporation ("MC"), and PRONET
INC., a Delaware corporation ("PN").
WHEREAS, the Boards of Directors of MC and PN have determined that it is in
the best interests of their respective stockholders to consummate a strategic
combination of their respective businesses upon the terms and subject to the
conditions set forth herein;
WHEREAS, it is intended that the strategic business combination be
accomplished by a merger of PN with and into MC (the "Merger") pursuant to which
each issued and outstanding share of common stock of PN, $.01 par value (the "PN
Shares"), will be converted into shares of common stock of MC, $.01 par value
("MC Shares");
WHEREAS, in furtherance of the strategic business combination, and as a
condition to MC entering into this Agreement and incurring the obligations set
forth herein, concurrently with the execution and delivery of this Agreement, MC
and PN have entered into an Option Agreement (the "PN Option Agreement")
pursuant to which PN has agreed, on the terms and subject to the conditions
thereof, to grant MC an option to purchase certain PN Shares;
WHEREAS, as a condition to PN'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") agreeing to vote for the Merger and
related transactions;
WHEREAS, the Board of Directors of PN has (i) adopted this Agreement,
resolved to submit this Agreement for approval by the stockholders of PN
pursuant to Section 251 of the Delaware General Corporation Law (the "DGCL"),
and resolved to recommend that all stockholders of PN approve and adopt this
Agreement and the Merger, (ii) duly approved the business combination
contemplated by this Agreement and the PN Option Agreement so as to render
inapplicable thereto the provisions of Section 203 of the DGCL; and (iii)
resolved to amend the Rights Agreement, dated as of April 5, 1995, between PN
and Chemical Shareholder Services Group, Inc., as Rights Agent (the "PN Rights
Plan"), to provide that the PN Rights Plan and the preferred share purchase
rights ("Rights") issued thereunder shall terminate and be of no further force
or effect upon the consummation of the Merger;
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 251 of the 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 PN
Option 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 MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in Article VI hereof, and in accordance with the DGCL, PN 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
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be delivered at the Closing); provided, that in no event will the Closing occur
before November 16, 1997. The date on which the Closing occurs is hereinafter
referred to as the "Closing Date." The Closing will be held at 10:00 a.m., local
time, on the Closing Date at the offices of Wilmer, Cutler & Pickering, 2445 M
Street, N.W., Washington, D.C. 20037. Following the Merger, the separate
corporate existence of PN 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 PN.
Section 1.2 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 a certificate 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 DGCL (the
date and time of such filing being referred to herein as the "Effective Time").
The Merger shall have the effects set forth in Section 251 of the DGCL.
Section 1.3 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 1.4 Directors and Officers of Surviving Corporation. (a) Upon the
Effective Time, the directors of the Surviving Corporation, and their
classification, shall be as set forth in Annex A.
(b) PN agrees to request that the Board of Directors of PN, at a
meeting duly called and held, unanimously approve the election of directors
designated pursuant to this Section 1.4 and PN agrees to use its best efforts to
cause the election of such designees to be approved by the affirmative vote of
at least 66 2/3% of the members of the Board of Directors of PN who were
directors on the date that was two years prior to the date of this Agreement (or
whose election or nomination for election was previously so approved) and to
supply MC with a certificate of vote attesting to the foregoing. Failure of such
designees to be so approved shall be deemed to constitute a failure by PN to
perform and comply with an obligation hereunder sufficient to permit MC to
terminate this Agreement pursuant to Section 7.1 (d)(iii).
(c) The officers of MC shall be the officers of the Surviving
Corporation and shall hold their offices from the Effective Time for such term
as is provided in the MC By-Laws.
ARTICLE II
CONVERSION OF SHARES; EXCHANGE PROCEDURES
Section 2.1 Conversion of Shares. (a) Each PN Share that is 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) plus (ii) cash, if any, for fractional MC Shares pursuant to
Section 2.3(f) (collectively, the "Merger Consideration").
(b) Each PN Share (i) held in the treasury of PN or by any Subsidiary
of PN 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 canceled and retired and cease to exist, and no Merger
Consideration shall be issued in respect thereof.
(c) Any rights to receive a PN Share which is required to be issued,
and has not been issued prior to the Effective Time, pursuant to Section 2.b of
the Memorandum of Understanding dated May 14, 1997 ("Plaintiffs' Settlement"),
between certain classes of Plaintiffs ("Plaintiff Class") and certain defendants
in the litigation in In re ProNet Inc. 1934 Act Securities Litigation, Master
File No. 3-96CV2116-P (N.D. Tex.); In re ProNet Inc. 1933 Act Securities
Litigation, Master File No. 3-96CV1795-P (N.D. Tex.); and Geatano Rainone, et
al. v. ProNet Inc., et al., No. 96-06509 (D.Ct., 14th Dist., Tex.)
(collectively, the "Plaintiffs' Litigation") shall be converted at the Effective
Time into the right to receive the same Merger Consideration as an outstanding
PN Share is entitled to receive under Section 2.1(a). MC agrees to cause the
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<PAGE> 105
Surviving Corporation to perform PN's obligations to the Plaintiff Class
pursuant to Section 2.d of the Plaintiffs' Settlement.
Section 2.2 Conversion Ratio. "Conversion Ratio" shall mean .90 as
adjusted pursuant to the adjustment provisions set forth in Annex B hereto. In
the event that, between the date of this Agreement and the Effective Time, the
number of issued and outstanding PN 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.
Section 2.3 Exchange of Certificates. (a) Prior to the Effective Time, PN
and MC shall appoint ChaseMellon Shareholder Services, L.L.C. (or any other
commercial bank or trust company which shall be reasonably acceptable to PN and
MC) to act as exchange agent (the "Exchange Agent") to effect the exchange of
certificates representing the PN Shares as set forth in Section 2.1
(collectively, the "PN Certificates") for the Merger Consideration. The
Surviving Corporation shall deposit, or shall cause to be deposited, with the
Exchange Agent for the benefit of the holders of PN Shares for exchange in
accordance with this Article II, certificates representing MC Shares issuable
pursuant to Section 2.1 and funds in amounts necessary to make any cash payments
pursuant to Section 2.3(f).
Additionally, subject to the provisions of this Section 2.3(a), MC shall,
if and when a payment date has occurred with respect to a dividend or
distribution that has been declared subsequent to the Effective Time, deposit
with the Exchange Agent an amount in cash (or property of like kind to that
which is the subject of such dividend or distribution) equal to the dividend or
distribution per MC Share times the number of MC Shares evidenced by
certificates issued in respect of PN Shares pursuant to Section 2.1 that have
not theretofore been surrendered for exchange as provided herein.
(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 PN Certificate (i) a letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to an PN
Certificate shall pass, upon (and only upon) proper delivery to 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 PN Certificate in exchange for a certificate
representing MC Shares to which such holder is entitled to pursuant to this
Article II. Upon surrender of a PN Certificate, together with such letter of
transmittal duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be reasonably required
pursuant to such instructions, the holder of such PN Certificate shall be
entitled to receive in exchange therefor, as soon as practicable after the
Effective Time, (i) a certificate representing that number of MC Shares to which
such holder of PN Shares shall have become entitled pursuant to the provisions
of this Article II, and (ii) if applicable, a check representing the amount of
cash to which such holder of PN Shares shall have become entitled pursuant to
the provisions of Section 2.3(f), and the PN Certificate so surrendered shall
forthwith be canceled. All payments in respect of PN 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 PN Shares.
(c) No dividends or other distributions declared with respect to MC
Shares and payable to the holders of record thereof after the Effective Time
shall be paid to the holder of any unsurrendered PN Certificate until the holder
thereof shall surrender such PN Certificate in accordance with Section 2.3(b).
Subject to the effect, if any, of applicable law, after the surrender and
exchange of a PN Certificate, there shall be paid to the holder of the
certificates evidencing MC Shares issued in exchange therefor, without interest,
(i) promptly following the surrender of such certificate and in addition to the
amount of any cash payable with respect to a fractional PN Share to which such
holder is entitled pursuant to Section 2.3(f), the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such MC Shares and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date occurring after surrender payable with
respect to such MC Shares.
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(d) If any portion of the Merger Consideration (whether a certificate
representing MC Shares 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 PN
Certificate surrendered in exchange therefor is registered, it shall be a
condition to the issuance thereof that the PN 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 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 PN Certificate surrendered, or
required for any other reason, or shall establish to the reasonable 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 PN
shall be closed and there shall be no further registration of transfers of the
PN Shares which were outstanding immediately prior to the Effective Time; the PN
Certificates representing PN Shares shall cease to have any rights with respect
to such PN Shares except as otherwise provided for herein or by applicable law;
and the MC Shares into which PN 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 PN
Certificates as specified herein.
(f) No certificates or scrip representing fractional MC Shares shall
be issued upon the surrender or exchange of PN Certificates, and, except
pursuant to this Section 2.3(f), no dividend, distribution or other payment with
respect to MC Shares shall be payable on or with respect to any fractional MC
Share and such fractional MC Share shall not entitle the owner thereof to vote
or to any other rights of a stockholder or creditor of PN. In lieu of any such
fractional MC Share, the Surviving Corporation shall pay to each stockholder of
PN who otherwise would be entitled to receive a fractional MC Share an amount in
cash determined by multiplying (i) the closing price of an MC Share on the
Nasdaq Stock Market on the trading day prior to the Closing by (ii) the
fractional MC Share interest to which such holder would otherwise be entitled.
(g) At any time following the first anniversary of the Effective Time,
the Surviving Corporation may terminate its agreement with the Exchange Agent,
and thereafter holders of PN 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 PN 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 PN
Certificate for consideration delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
Section 2.4 PN Option Plans. (a) Each outstanding option to purchase PN
Shares (each, a "PN Option") granted pursuant to PN's 1987 Stock Option Plan,
1995 Long-Term Incentive Plan and Non-Employee Director Stock Option Plan
(collectively, the "PN Option Plans"), and which has 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, each PN Option then
outstanding and not exercised shall be converted into an option to purchase a
number of MC Shares equal to the number of PN Shares subject to such PN Option
immediately prior to the Effective Time multiplied by the Conversion Ratio with
an exercise price equal to the exercise price for such PN Option immediately
prior to the Effective Time divided by the Conversion Ratio. PN will use its
reasonable best efforts to cause each holder of PN Options to agree to convert
his or her PN Options into options ("MC Replacement Options") issued under MC's
1996 Stock Option Plan (the "MC Option Plan"). Notwithstanding any other
provision of the PN Option Plans or the MC Option Plan, all PN Options held by
any PN director whose status as a director ends upon the Effective Time, by
employees whose employment is involuntarily terminated without cause within six
months after the Closing Date, or by other employees as agreed by MC, will be
exercisable until the earlier of (i) the fourth anniversary of the Closing Date
and (ii) the date on which such PN Options would otherwise have expired if such
person had remained a director or employee of PN.
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<PAGE> 107
(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 MC Replacement Options appropriate notices setting forth such
holders' rights pursuant to MC Replacement Options.
Section 2.5 PN Subordinated Notes. After the Effective Time, MC will
comply with applicable terms of the Indenture (the "Indenture") dated as of June
15, 1995 between PN and First Interstate Bank of Texas, N.A. for PN's 11 7/8%
Senior Subordinated Notes due 2005 (the "Notes"), including causing the
obligations under the Notes and the Indenture to be assumed by the Surviving
Corporation in accordance with the Indenture.
Section 2.6 Termination of Rights Plan. The Board of Directors of PN has
adopted a resolution approving an amendment to the Rights Plan to provide that
the Rights Plan shall terminate and the Rights shall be canceled upon the
consummation of the Merger. PN shall not redeem the Rights prior to the
Effective Time unless required to do so by a court of competent jurisdiction;
provided that nothing herein shall prohibit PN from taking any action with
respect to the Rights Plan after the Board of Directors of PN has made a
determination in accordance with Section 5.9(f).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PN
PN represents and warrants to MC as follows (in each case as qualified by
matters reflected on the disclosure letter dated as of the date of this
Agreement and delivered by PN to MC on or prior to the date of this Agreement
(the "PN Disclosure Letter") which is made a part hereof by reference, each such
matter qualifying each representation and warranty, as applicable,
notwithstanding any specific Section or Schedule reference or lack thereof).
Section 3.1 Organization. (a) Except as set forth on Schedule 3.1 to the
PN Disclosure Letter, each of PN 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 PN 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 or would likely be 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). Each of PN and 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 PN and its Subsidiaries,
taken as a whole, or prevent PN from consummating any of the transactions
contemplated hereby.
(b) PN has heretofore made available to MC a complete and correct copy
of the Certificate of Incorporation and By-Laws or other organizational
documents of PN 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 PN or any Subsidiary.
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<PAGE> 108
(c) Schedule 3.1 to the PN Disclosure Letter identifies all the
Subsidiaries of PN.
Section 3.2 Capitalization. (a) The authorized capital stock of PN
consists of 20,000,000 shares of common stock, par value $.01 per share, and
5,000,000 shares of preferred stock, par value $1.00 per share. Schedule 3.2 to
the PN Disclosure Letter sets forth as of the date hereof (i) the number of
issued and outstanding PN Shares; (ii) the number of PN Shares that would be
issuable by PN upon the exercise of all unexpired PN Options granted pursuant to
PN Option Plans, including the name of each holder of PN Options, the number of
PN Options held by such holder, and the date of grant, date of vesting, and
exercise price for all such PN Options; and (iii) all other PN 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 are
issued and outstanding or held in the treasury of PN, and 406,450 PN Shares are
held in the treasury of PN. PN has taken all necessary corporate and other
action to authorize and reserve and to permit it to issue PN Shares which may be
issued pursuant to PN Options or the transactions contemplated hereby. All the
outstanding shares of PN's capital stock are, and all shares which may be issued
pursuant to the exercise of PN 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. Schedule
3.2(a) describes all agreements currently in effect pursuant to which any person
or entity has the right to cause PN to register any PN Shares under the
Securities Act of 1933, as amended (the "Securities Act"). There are no bonds,
debentures, notes or other indebtedness having general voting rights (or
convertible into securities having such rights) ("Voting Debt") of PN or any of
its Subsidiaries issued and outstanding. Except as set forth in Schedule 3.2(a)
to the PN Disclosure Letter and for the Rights, as of the date hereof, (i) there
are no shares of capital stock of PN 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 PN or any of its
Subsidiaries, obligating PN 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, PN or any of its Subsidiaries or
securities convertible into or exchangeable for such shares or equity interest
or obligations of PN or any of its Subsidiaries, and (iii) there are no
outstanding contractual obligations of PN or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any PN Shares, or capital stock of PN or
any Subsidiary or affiliate of PN.
(b) Except as set forth on Schedule 3.2(b) to the PN Disclosure
Letter, all of the outstanding shares of capital stock of each of PN's
Subsidiaries are beneficially owned by PN, 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.
(c) There are no voting trusts or other agreements or understandings
to which PN or any of its Subsidiaries is a party with respect to the voting of
the capital stock of PN or any of its Subsidiaries. Other than as contemplated
herein, none of PN or its Subsidiaries is required to redeem, repurchase or
otherwise acquire shares of capital stock of PN, or any of its Subsidiaries,
respectively, as a result of the transactions contemplated by this Agreement.
(d) At the time of issuance, the PN Shares issued pursuant to the PN
Option Agreement will be duly authorized and validly issued, and, upon payment
of the exercise price as set forth in the PN Option Agreement, such PN Shares
will be fully paid and nonassessable and not subject to preemptive (or similar)
rights.
Section 3.3 Authorization; Validity of Agreement; PN Action. (a) PN has
full corporate power and authority to execute and deliver this Agreement and the
PN Option Agreement and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by PN of this Agreement and the
PN Option Agreement, and the consummation by it of the transactions contemplated
hereby and thereby, have been duly authorized by the Board of Directors of PN,
and no other corporate action on the part of PN is necessary to authorize the
execution and delivery by PN of this Agreement and the PN Option Agreement and
the consummation by it of the transactions contemplated hereby and thereby
(other
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<PAGE> 109
than the approval of this Agreement by the affirmative vote of the holders of a
majority of the outstanding PN Shares). This Agreement and the PN Option
Agreement have been duly executed and delivered by PN and (assuming due and
valid authorization, execution and delivery hereof and thereof by the other
parties hereto and thereto) are valid and binding obligations of PN enforceable
against PN 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 PN has approved the transactions contemplated
by this Agreement, the MC Voting Agreement and the PN Option Agreement so as to
render inapplicable thereto the provisions of Section 203 of the DGCL.
(c) PN has received the written opinion of Salomon Brothers Inc (the "PN
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 PN
Shares pursuant to the Merger is fair to such holders from a financial point of
view (the "PN Fairness Opinion"). PN has delivered to MC a copy of the PN
Fairness Opinion for informational purposes only.
Section 3.4 Consents and Approvals; No Violations; Licenses. (a) Neither
the execution, delivery or performance of this Agreement, the MC Voting
Agreement or the PN Option Agreement by PN, nor the consummation by PN of the
transactions contemplated hereby or thereby, nor compliance by PN 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 PN or of any of its Subsidiaries, (ii) require on
the part of PN 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 Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the Federal Communication
Commission (the "FCC"), the Communications Act of 1934, as amended (the
"Communications Act"), state public utility or public service laws, the
Securities Act, the DGCL, state or foreign laws relating to takeovers, state
securities or blue sky laws, and the laws of other states in which PN 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 PN
and its Subsidiaries, taken as a whole, or prevent PN from consummating the
transactions contemplated hereby or thereby, (iii) except as disclosed on
Schedule 3.4(a) to the PN Disclosure Letter, 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 PN 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 or is
required to be included as an exhibit to PN's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (the "PN Material Agreements") or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to PN, 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 PN and its Subsidiaries, taken as a whole, or prevent PN from
consummating the transactions contemplated hereby.
(b) PN 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 PN's business (each, a "State Authority"), that are required for the conduct
of its 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
PN and its Subsidiaries taken as a whole (collectively, "PN Licenses").
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The PN Licenses are valid and in full force and effect, and the terms of said PN
Licenses are not subject to any restrictions or conditions that materially limit
or would materially limit the operations of the business of PN or any of its
Subsidiaries as presently conducted, other than restrictions or conditions
generally applicable to licenses of that type. The PN 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 PN, complaints or petitions by
others, or threatened proceedings, before the FCC or any other Governmental
Entity relating to the business or operations of PN or any of its Subsidiaries
or the PN 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 PN Licenses, in either
case that would, individually or in the aggregate, have a Material Adverse
Effect on PN and its Subsidiaries, taken as a whole, or prevent PN from
consummating the transactions contemplated hereby or to impose any fines,
forfeitures or other penalties on PN or its Subsidiaries that would,
individually or in the aggregate, have a Material Adverse Effect on PN and its
Subsidiaries, taken as a whole.
(c) Schedule 3.4(c) to the PN Disclosure Letter contains a true and
complete list of each FCC permit and FCC license issued in the name of PN, or
any of its Subsidiaries, as of August 1, 1997. 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.
Section 3.5 SEC Reports and Financial Statements. Except as disclosed in
Schedule 3.5(a) of the PN Disclosure Letter, since July 1, 1995, PN and its
Subsidiaries have filed with the Securities and Exchange Commission ("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 "PN SEC Documents"), have included as exhibits
all material contracts, and have filed all other exhibits required to be filed
with the PN SEC Documents other than any exhibits (excluding material contracts)
that the failure to file would not, individually or in the aggregate, have a
Material Adverse Effect on PN and its Subsidiaries, taken as a whole. As of
their respective dates or, if amended, as of the date of the last such
amendment, the PN 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 PN'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 consolidated financial statements of PN for the fiscal year ended December
31, 1996 (including the related notes thereto) included in PN's Annual Report on
Form 10-K and the consolidated financial statements of PN for the six months
ended June 30, 1997, copies of which have been provided to MC (together, the "PN
Financial Statements"), have been prepared from, and are in accordance with, the
books and records of PN and its consolidated Subsidiaries, comply in all
material respects with applicable accounting requirements and comply (or as to
the PN Financial Statements for the six months ended June 30, 1997, will comply)
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 present fairly
the consolidated financial position and the consolidated results of operations
and cash flows of PN and its consolidated Subsidiaries as at the dates thereof
or for the periods presented therein. The financial statements that will be
reported in PN's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 will include the financial statements for the six months ended June 30,
1997 included as Schedule 3.5(b) to the PN Disclosure Letter.
Section 3.6 No Undisclosed Liabilities. Except (i) as disclosed in the PN
SEC Documents, (ii) as set forth in Schedule 3.6 to the PN Disclosure Letter,
and (iii) 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 PN and its Subsidiaries, taken as a whole), since December 31,
1996, neither PN nor any of its Subsidiaries has incurred any liabilities or
obligations of any nature (whether accrued,
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absolute, contingent or otherwise) which would be required by GAAP to be
reflected on a consolidated balance sheet of PN and its Subsidiaries (including
the notes thereto), and, which individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect on PN and its Subsidiaries, taken as a
whole.
Section 3.7 Absence of Certain Changes. Except as contemplated by this
Agreement or as disclosed in the PN SEC Documents or in Schedule 3.7 hereto,
since December 31, 1996, (i) PN 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 PN or its Subsidiaries which
has had a Material Adverse Effect on PN and its Subsidiaries, taken as a whole,
and (iii) there has not been any action taken by PN or its Subsidiaries of a
type described in clauses (ii) through (xvi) of Section 5.1(a).
Section 3.8 Employee Benefit Plans; ERISA; Labor. (a) Schedule 3.8 to the
PN Disclosure Letter 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 PN,
any of its Subsidiaries or any trade or business, whether or not incorporated (a
"PN ERISA Affiliate"), which together with PN would be deemed a "single
employer" within the meaning of section 4001(b)(1) of ERISA ("PN Benefit Plans")
and (ii) all employment, retention, and severance agreements with employees of
PN and its Subsidiaries ("PN Employee Agreements"). True and complete copies of
all current PN Benefit Plans and PN Employee Agreements have been provided to MC
by PN.
(b) With respect to each PN 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 PN Benefit Plan to lose such qualification or exemption, and no such
plan holds "employer securities" as defined in Section 407(d)(1) of ERISA; (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 PN, or, to PN's knowledge, by any other person,
have occurred that might reasonably be expected to give rise to material
liability on the part of PN or any PN ERISA Affiliate; (iv) no disputes are
pending, or, to the knowledge of PN, threatened that might reasonably be
expected to give rise to material liability on the part of PN or any PN 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 PN or any PN 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 PN's knowledge, no PN 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 PN Benefit Plan under the IRS's Voluntary
Compliance Resolution program, its Closing Agreement Program, or other similar
programs; and (viii) all monies withheld from employees with respect to PN
Benefit Plans have been transferred to the appropriate plan in accordance with
the terms of such plan and applicable law.
(c) No PN Benefit Plan is a "multiemployer plan," as defined in section
3(37) of ERISA and no PN Benefit Plan is or has been subject to Title IV of
ERISA.
(d) No liability under Title IV of ERISA has been incurred by PN or any PN
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 PN or any PN ERISA Affiliate
of incurring a material liability under such Title. No PN 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 PN Benefit Plan that is a "welfare plan" (as
defined in section 3(1) of ERISA), no such plan provides material medical or
death benefits with respect to current or former employees of PN or any of its
Subsidiaries beyond their termination of employment (other than to the extent
required by applicable law). All group health plans of PN and any PN ERISA
Affiliates have been operated in material compliance with the requirements of
Section 4980B (and its predecessor) and 5000 of the Code,
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and PN and the PN ERISA Affiliates have provided, or will have provided prior to
the Effective Date, to individuals entitled thereto all notices and coverage
pursuant to Section 4980B required before such date, 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 PN and its
Subsidiaries, taken as a whole.
(f) Except as required by applicable law, no PN Benefit Plan, plan
documentation or agreement, summary plan description or other written
communication distributed generally to employees of PN or its Subsidiaries by
its terms prohibits the amendment or termination of any such PN Benefit Plan.
(g) As of the date hereof, except for PN Employee Agreements and PN Option
Plans or as described in Schedule 3.8 to the PN Disclosure Letter, PN and its
Subsidiaries are not parties to any (i) agreement with any director, executive
officer or other key employee of PN 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 PN 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 PN or its Subsidiaries that would 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 PN 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 PN or its Subsidiaries or is currently under negotiation,
and no current employees of PN or its Subsidiaries are represented by any labor
union. As of the date hereof, to PN's knowledge, no labor representation effort
exists with respect to PN or its Subsidiaries.
(i) Since December 31, 1996, PN has not paid any bonuses or agreed to pay
any bonuses to any employee except as disclosed on Schedule 3.8 to the PN
Disclosure Letter.
Section 3.9 Litigation. Schedule 3.9 to the PN Disclosure Letter sets
forth each suit, action or proceeding pending (as to which PN has received
notice), or, to the knowledge of PN, threatened against PN, any of its
Subsidiaries, or any of their properties or assets on the date hereof. Except as
set forth on Schedule 3.9 to the PN Disclosure Letter, there is no suit, action
or proceeding pending (as to which PN has received notice), or, to the knowledge
of PN, threatened against PN, any of its Subsidiaries or any of their properties
or assets that individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on PN and its Subsidiaries, taken as a whole, if
resolved adversely to PN or its Subsidiaries. Neither PN 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 PN and its Subsidiaries, taken as a
whole, or which would prevent PN from consummating the transactions contemplated
hereby.
Section 3.10 No Default; Compliance with Applicable Laws. Neither PN nor
any of its Subsidiaries is in default (or would be in default after passage of
time or giving of notice) 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 PN 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 PN 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 PN and its Subsidiaries, taken as a whole, or prevent
PN from consummating the transactions contemplated hereby.
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Section 3.11 Taxes. Except as set forth on Schedule 3.11 to the PN
Disclosure Letter:
(a) PN 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 PN 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 PN 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 PN or any of its
Subsidiaries (excluding extensions for filings that have been timely obtained),
and no power of attorney granted by either PN or any of its Subsidiaries with
respect to any Taxes is currently in force.
(d) Neither PN 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 IRS 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, 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) PN 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 PN and
its Subsidiaries, taken as a whole. There is no pending or, to the knowledge of
PN, 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
PN 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 PN and its
Subsidiaries, taken as a whole, there have been no releases of any
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Materials of Environmental Concern (as defined below) into the environment by PN
or any of its Subsidiaries, or, to the knowledge of PN, by any other party at
any parcel of real property or any facility formerly or currently owned,
operated or controlled by PN 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. PN and its Subsidiaries maintain adequate
insurance with respect to their respective businesses and are in compliance with
all material requirements and provisions thereof.
Section 3.14 Proxy Statement; Registration Statement; Other
Information. The information supplied or to be supplied by PN with respect to
PN, its officers and directors and its Subsidiaries (i) to be contained in the
definitive joint Proxy Statement (the "Proxy Statement") to be furnished to the
respective stockholders of PN and 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 which will constitute a prospectus of MC with
respect to the MC Shares to be issued in the Merger, and (ii) to be contained in
the Registration Statement will not, on the respective dates on which (A) the
Proxy Statement is first mailed to stockholders of PN and MC, (B) the Meetings
(as defined in Section 5.2) are held (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. 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 PN, 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, PN 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.
Section 3.15 Transactions with Affiliates. Except as set forth in the PN
SEC Documents or on Schedule 3.15 to the PN Disclosure Letter, since December
31, 1996, neither PN nor any of its Subsidiaries has entered into any
transaction with any current director or officer of PN 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 Share Ownership. As of the date hereof, neither PN nor any
of its Subsidiaries or affiliates beneficially owns any MC Shares.
Section 3.17 Brokers. Other than the PN Financial Advisor, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission from PN in connection with the transactions contemplated by this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MC
MC represents and warrants to PN as follows (in each case as qualified by
matters reflected on the disclosure letter dated as of the date of this
Agreement and delivered by MC to PN on or prior to the date of this Agreement
(the "MC Disclosure Letter") and made a part hereof by reference, each such
matter
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qualifying each representation and warranty, as applicable, notwithstanding any
specific Section or Schedule reference or lack thereof).
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. Each of MC and 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 PN 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 to the MC Disclosure Letter identifies all the
Subsidiaries of MC.
Section 4.2 Capitalization. (a) The authorized capital stock of MC
consists of 60,000,000 shares of common stock, par value $.01 per share, and
1,000,000 shares of preferred stock, par value $.01 per share, of which 810,000
shares have been designated as Series A Convertible Preferred Stock ("Series A
Preferred") and 9,000 shares have been designated as Series B Junior Convertible
Preferred Stock ("Series B Preferred"). Schedule 4.2(a) to the MC Disclosure
Letter sets forth as of the date hereof (i) the number of issued and outstanding
MC Shares; (ii) the number of issued and outstanding shares of Series A
Preferred; (iii) the number of issued and outstanding shares of Series B
Preferred; (iv) 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; and (v) 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 MC Shares, shares of Series A Preferred or
shares of Series B Preferred are held in the treasury of MC. Subject to
stockholder approval of an amendment to MC's Certificate of Incorporation to
increase the number of authorized MC Shares to 80,000,000, 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. All the outstanding shares of MC's capital
stock are, and all shares which may be issued pursuant to the exercise of MC
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 is no Voting Debt of MC or any of its
Subsidiaries issued and outstanding. Except as set forth in Schedule 4.2(a) to
the MC Disclosure Letter, 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) Except as set forth on Schedule 4.2(b) to the MC Disclosure Letter, 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.
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(c) 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. Other than as contemplated
herein, 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.
(d) At the time of issuance, the MC Shares issued pursuant to the Merger
will be duly authorized and validly issued, and such MC Shares will be fully
paid and nonassessable and not subject to preemptive (or similar) rights.
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
PN Option Agreement and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by MC of this Agreement and the
PN Option 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 PN Option Agreement and
the consummation by it of the transactions contemplated hereby and thereby
(other than approval of this Agreement by the affirmative vote of the holders of
a majority of the outstanding MC Shares). This Agreement and the PN Option
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 has approved the transactions contemplated
by this Agreement, the PN Option Agreement and the MC Voting Agreement so as to
render inapplicable thereto the provisions of Section 203 of the DGCL.
(c) MC has received the written opinion of Morgan Stanley & Co. (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 to the holders of PN
Shares pursuant to the Merger is fair to the holders of MC Shares from a
financial point of view (the "MC Fairness Opinion"). MC has delivered to PN a
copy of the MC Fairness Opinion for informational purposes only.
Section 4.4 Consents and Approvals; No Violations; Licenses. (a) Neither
the execution, delivery or performance of this Agreement or the PN Option
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, 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 or thereby, (iii) except as disclosed on
Schedule 4.4 to the MC Disclosure Letter, 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, 1996 (the
"MC Material
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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 its 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 and 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, in either case 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. Since July 1, 1995, 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"), have included as exhibits all material contracts, and
have filed all exhibits required to be filed with the MC SEC Documents other
than any exhibits (excluding material contracts) that the failure to file would
not, individually or in the aggregate, have a Material Adverse Effect on MC and
its Subsidiaries, taken as a whole. As of their respective dates or, if amended,
as of the date of the last such amendment, the 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 consolidated financial
statements of MC for the fiscal year ended December 31, 1996 (including the
related notes thereto) included in MC's Annual Report on Form 10-K and the
consolidated financial statements of MC for the six months ended June 30, 1997,
copies of which have been provided to PN (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 comply (or as to the MC Financial
Statements for the six months ended June 30, 1997, will comply) 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 present
fairly 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 the MC
SEC Documents, (ii) as set forth in Schedule 4.6 to the MC Disclosure Letter,
and (iii) 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,
1996, neither
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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, or as disclosed in the MC SEC Documents or in Schedule 4.7 to the MC
Disclosure Letter, since December 31, 1996, (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 (vi) of Section 5.1(b).
Section 4.8 Employee Benefit Plans; ERISA; Labor. (a) Schedule 4.8 to the
MC Disclosure Letter 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 provided to PN by MC.
(b) Except as provided in Schedule 4.8 to the MC Disclosure Letter, 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, and no such plan holds "employer securities" as
defined in Section 407(d)(1) of ERISA; (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 MC Benefit Plan under
the IRS's Voluntary Compliance Resolution program, its Closing Agreement
Program, or other similar programs; and (viii) all monies withheld from
employees with respect to MC Benefit Plans have been transferred to the
appropriate plan in accordance with the terms of such plan and applicable law.
(c) No MC Benefit Plan is a "multiemployer plan," as defined in section
3(37) of ERISA and 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.
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(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 material 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 any 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 the MC
ERISA Affiliates have provided, or will have provided prior to the Effective
Date, to individuals entitled thereto all notices and coverage pursuant to
Section 4980B required before such date, 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) Except as required by applicable law, 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 MC Benefit Plan.
(g) As of the date hereof, except for MC Employee Agreements and MC Option
Plans or as described in Schedule 4.8 to the MC Disclosure Letter, 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 would 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 any of their
properties or assets on the date hereof. Except as set forth on Schedule 4.9 to
the MC Disclosure Letter, there is no 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 any of their properties or assets that,
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 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 would be in default after passage of
time or giving of notice) 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
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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 to the MC
Disclosure Letter:
(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 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 its Subsidiaries maintain adequate
insurance with respect to their respective businesses and are in compliance with
all material requirements and provisions thereof.
Section 4.14 Proxy Statement; Registration Statement; Other
Information. The information supplied or to be supplied by MC with respect to
MC, its officers and directors and its Subsidiaries (i) to be contained in the
Proxy Statement; and (ii) to be contained in the Registration Statement will
not, on the respective dates on which (A) the Proxy Statement is first mailed to
stockholders of PN and MC, (B) the Meetings are held (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. 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
Registration Statement or 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 PN and such event shall be so described
in an amendment or supplement to Proxy
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Statement or the Registration 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.
Section 4.15 Transactions with Affiliates. Except as set forth in the MC
SEC Documents or on Schedule 4.15 to the MC Disclosure Letter, since December
31, 1996, 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 Share Ownership. Except as set forth in Schedule 4.16 to the
MC Disclosure Letter, as of the date hereof, neither MC nor any of its
Subsidiaries or affiliates beneficially owns any PN Shares.
Section 4.17 Brokers. Except as set forth on Schedule 4.17 to the MC
Disclosure Letter, other than the MC Financial Advisor, 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.
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of PN and MC. (a) PN covenants and agrees
that, except (x) as contemplated by this Agreement or the PN Option Agreement,
(y) as set forth in Schedule 5.1(a) to the PN Disclosure Letter, or (z) as
agreed in writing by MC, after the date hereof and prior to the Effective Time:
(i) the business of PN and its Subsidiaries shall be conducted only
in, and PN and its Subsidiaries shall not take any action except in, the
ordinary and usual course of business and consistent with past practice,
and PN 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;
(ii) PN will not, directly or indirectly, (A) sell, transfer or pledge
or agree to sell, transfer or pledge any PN Shares, preferred stock of PN,
or capital stock of any of its Subsidiaries either directly or indirectly;
or (B) split, combine or reclassify the outstanding PN Shares or any
outstanding capital stock of any of the Subsidiaries of PN;
(iii) neither PN nor any of its Subsidiaries shall (A) amend its
organizational documents; (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 PN or its Subsidiaries or any
other ownership interests (including but not limited to stock appreciation
rights or phantom stock), other than PN Shares reserved for issuance on the
date hereof pursuant to the exercise of PN Options outstanding on the date
hereof; (C) transfer, lease, license, sell, mortgage, pledge, dispose of,
or encumber any material assets individually or in the aggregate for
consideration in excess of $125,000 per fiscal quarter, 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 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) neither PN nor any of its Subsidiaries shall terminate any PN
Material Agreement, modify or amend any PN Material Agreements in any
material respect or waive, release or assign any material rights or claims
except in the ordinary course of business and consistent with past
practice;
(v) PN will not declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock;
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(vi) each of PN 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 are usually
carried by persons engaged in the same or similar businesses;
(vii) neither PN 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 PN pursuant to PN'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 transaction with respect
to any of the foregoing;
(viii) neither PN nor any of its Subsidiaries shall change any of the
accounting methods used by it unless required by GAAP;
(ix) neither PN nor any of its Subsidiaries will adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of PN or any of its
Subsidiaries (other than the Merger);
(x) neither PN 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;
(xi) neither PN nor any of its Subsidiaries will (A) increase the
compensation or fringe benefits of any of its directors, officers or
employees, provided, that PN may increase the compensation of employees of
PN or its Subsidiaries who are not officers or directors of PN and whose
annual compensation as of the date hereof is less than $50,000, if such
increases are made in the ordinary course of business and consistent with
past practice, and provided that PN will promptly advise MC of any
increases of compensation of its employees, (B) grant any severance or
termination pay not currently required to be paid under existing severance
plans or agreements to any present or former director, office or employee
of PN or any of its Subsidiaries, (C) enter into or modify any employment,
consulting or severance agreement with any present or former director,
officer or employee of PN or any of its Subsidiaries, (D) 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, employment termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any directors, officers or employees of PN;
(xii) neither PN 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 have a Material
Adverse Effect on PN and its Subsidiaries, taken as a whole;
(xiii) neither PN nor any of its Subsidiaries will settle or
compromise any pending or threatened suit, action or claim, which
settlement or compromise is material to PN and its Subsidiaries, taken as a
whole, or which relates to the transactions contemplated hereby;
(xiv) neither PN 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
PN Financial Statements, (B) incurred in the ordinary course of business
and consistent with past practice or (C) incurred in a manner not otherwise
prohibited under this Section 5.1(a);
(xv) PN shall not effect a registration under the Securities Act with
respect to PN Shares held by any person or entity, other than the
registration of PN Shares pursuant to registration rights agreements in
effect on the date hereof and described in Schedule 3.2(a) to the PN
Disclosure Letter, or pursuant to the PN Option Agreement; and
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(xvi) neither PN 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 PN Option Agreement, (x) as set forth in Schedule 5.1(b) to the
MC Disclosure Letter, or (y) as agreed in writing by PN, after the date hereof
and prior to the Effective Time:
(i) the business of MC and its Subsidiaries shall be conducted only
in, and MC and its Subsidiaries shall not take any action except in, the
ordinary and usual course of business and consistent with past practice,
and MC and its Subsidiaries shall use all reasonable effects, consistent
with past practice, to maintain and preserve their business organizations,
assets, employees and advantageous business relations;
(ii) MC will not (A) amend its Certificate of Incorporation or
By-Laws; provided, that the Board of Directors of MC shall submit a
resolution to approve the Amendment Proposal for a vote of the stockholders
at the Meeting, and if such amendment is approved at the Meeting, MC shall
so amend its Certificate of Incorporation or (B) redeem, purchase or
otherwise acquire directly or indirectly any of its capital stock,
provided, that MC may redeem Series A Preferred or Series B Preferred in
accordance with the respective terms of such stock;
(iii) 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 except for dividends on the Series A Preferred and the Series B
Preferred payable in shares of such series in accordance with the
respective terms of such stock;
(iv) MC will not, directly or indirectly, split, combine or reclassify
the outstanding MC Shares;
(v) with the exception of the existing liens described in Schedule
4.2(b) to the MC Disclosure Letter, 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 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
upon conversion of the Series A Preferred or Series B Preferred in
accordance with the respective terms of such stock, (C) issuances of Series
A Preferred or Series B Preferred as dividends in accordance with the
respective terms of such stock, (D) 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 (E) 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;
(vi) 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;
(vii) MC will use its reasonable best efforts to maintain the listing
of MC Shares on the Nasdaq Stock Market;
(viii) 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. Each of PN and MC will
take all action necessary in accordance with applicable law, the rules of
Nasdaq, this Agreement and its respective Certificate of Incorporation and
By-Laws to convene a meeting of its stockholders (each, a "Meeting") as promptly
as practicable after the date hereof to consider and vote upon a proposal to
approve and adopt this Agreement (the "Merger Proposal") and, in the case of MC,
to consider and vote upon a proposal to amend MC's Certificate of Incorporation
to increase the authorized number of MC Shares to 80,000,000 (the "Amend-
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ment Proposal"). The Boards of Directors of each of PN (subject to a
determination of the Board of Directors of PN made in accordance with Section
5.9(f)) and MC will (i) recommend that their respective stockholders vote in
favor of the Merger Proposal and, in the case of MC, the Amendment Proposal and
(ii) use their respective reasonable best efforts to cause to be solicited
proxies from stockholders of PN or MC, as the case may be, to be voted at their
Meetings in favor of the Merger Proposal and, in the case of MC, the Amendment
Proposal and to take all other actions necessary or advisable to secure the vote
or consent of stockholders required to effect the Merger.
Section 5.3 Proxy Statement, Registration Statement, Etc. (a) PN and MC
shall promptly prepare and file with the SEC under the Exchange Act, and shall
use their reasonable 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). The Proxy
Statement shall be mailed to stockholders of each of PN and MC, as the case may
be, at least 20 business days in advance of the date of its Meeting. MC shall
furnish PN, and PN shall furnish MC, with all information and shall take such
other action as PN or MC, as the case may be, may reasonably request in
connection with the Proxy Statement. The Proxy Statement shall contain the
recommendation of each Board of Directors (subject to a determination of the
Board of Directors of PN made in accordance with Section 5.9(f)) that
stockholders of PN and MC, as the case may be, approve and adopt the Merger
Proposal, and, in the case of MC, the Amendment Proposal. PN and MC shall cause
their respective Financial Advisers to provide their written consent to the
inclusion of or reference to their respective Fairness Opinions in the Proxy
Statement and Registration Statement.
(b) MC shall promptly prepare and file with the SEC under the Securities
Act the Registration Statement with respect to MC Shares to be issued in the
Merger and shall use its reasonable best efforts to have the Registration
Statement declared effective by the SEC as promptly as practicable. MC will not
enter into any transaction that would result in any material delay in filing or
declaration of effectiveness of the Registration Statement due to the need to
provide additional financial statements or pro forma financial statements. 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 in the Merger. PN
shall furnish MC with all information and shall take such other action as MC may
reasonably request in connection with any such action.
(c) PN 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 PN, 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 PN's or MC's
stockholders, as the case may be, such amendment or supplement.
Section 5.4 Compliance with the Securities Act. (a) Prior to the
Effective Time, PN shall cause to be delivered to MC a list identifying all
stockholders of PN who are, at the time of the PN Meeting, considered by PN to
be "affiliates" of PN for purposes of Rule 145 under the Securities Act (the
"Affiliates").
(b) PN shall use reasonable efforts to cause each person who is identified
as an Affiliate 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 the 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 such Affiliate pursuant to the terms of this Agreement may only
be sold, transferred or otherwise conveyed, pursuant to an effective
registration statement under the Securities Act or in accordance with the
provisions of
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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.
Section 5.5 Nasdaq Listing. MC shall use its reasonable best efforts to
cause MC Shares to be issued in the Merger to be admitted for quotation on the
Nasdaq Stock Market.
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 this
Agreement, and to cooperate with each other 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; (v) to cause the Merger and the actions contemplated herein not to
constitute a "Change of Control" as defined in and solely for the purposes of
the Indenture; and (vi) to fulfill all conditions to this Agreement. For
purposes of the foregoing, the obligations of MC and PN 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) PN 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 or 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 PN 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 PN 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 PN Licenses, and
counsel to MC shall be responsible for preparing, with the advice and consent of
counsel to PN, the transferee's portion of such submissions. Counsel to PN shall
also be responsible for preparing, with the advice and consent of counsel to MC,
any pro forma transfer applications with respect to the PN Licenses that are
required to permit the Merger. All filing fees associated with Regulatory
Filings pursuant to this Section 5.6(c) shall be shared equally by MC and PN.
Each party shall bear its own counsel fees in connection with the Regulatory
Filings.
(d) Notwithstanding any provision of this Agreement or the PN Option
Agreement to the contrary, MC shall not assume, either directly or indirectly,
de jure or de facto control of PN without the prior consent of the FCC and any
State Authority of competent jurisdiction. Nothing contained herein shall,
without the prior consent of the FCC and any State Authority of competent
jurisdiction, give MC any control or responsibility for (i) PN'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.
Section 5.7 Access to Information. Upon reasonable notice, each of PN 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 PN, as the case may be, access, during normal business hours during the
period
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prior to the Effective Time, to all its officers, employees, properties,
facilities, books, contracts, commitments and records and, during such period,
each of PN and MC shall (and shall cause each of its Subsidiaries to) furnish
promptly to MC or PN, 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 PN, as
the case may be, may reasonably request. Each of MC and PN will hold any such
information which is nonpublic in confidence in accordance with the provisions
of the Confidentiality Agreement between PN and MC, dated on or about May 30,
1997 (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.
Section 5.8 [Reserved.]
Section 5.9 No Solicitation by PN. In light of the consideration given by
the Board of Directors of PN prior to the execution of this Agreement to, among
other things, the transactions contemplated hereby, and the merits of the
strategic business combination contemplated hereby, and in light of advice
received from the PN Financial Advisor, PN, 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 PN Acquisition Proposal. For
purposes of this Agreement, "PN Acquisition Proposal" shall mean any proposal
relating to (i) a possible acquisition of PN, whether by way of merger, purchase
of all or substantially all of the assets of PN, or any similar transaction, or
(ii) a tender offer for more than 5% of the PN Shares.
(b) PN 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
PN 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 PN Acquisition
Proposal, but only if (i) such party has submitted a written proposal to the
Board of Directors of PN relating to any such transaction involving economic
consideration per PN Share that the Board of Directors of PN 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 PN Acquisition Proposal and (ii) the Board of Directors of PN has made
a determination in accordance with Section 5.9(f). PN shall notify MC
immediately if any written or oral PN Acquisition Proposal is made, and in any
event no less than two business days prior to responding to such offer, shall
keep MC promptly advised of all written or oral PN Acquisition Proposals, and
shall provide a copy of any written PN Acquisition Proposal and provide in
writing the terms of all oral PN Acquisition Proposals.
(c) Except as set forth in this Section 5.9, neither PN 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 PN 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 PN Acquisition
Proposal; and the Board of Directors of PN shall not recommend that the
stockholders of PN tender their PN Shares in connection with any tender offer
unless the Board of Directors of PN makes a determination in accordance with
Section 5.9(f).
(d) PN agrees not to release any third party from, or waive any provisions
of, any confidentiality or standstill agreement to which PN is a party, unless
the Board of Directors of PN makes a determination in accordance with Section
5.9(f). PN will use all reasonable efforts to have all copies of all nonpublic
information it or PN 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 PN or its Board of
Directors from taking and disclosing to PN's stockholders a position with
respect to a tender or exchange offer by a third party pursuant
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to Rules 14d-9 and 14e-2 promulgated under the Exchange Act or from making such
disclosure to PN's stockholders or otherwise if the Board of Directors makes a
determination in accordance with Section 5.9(f).
(f) For purposes of this Agreement, a determination of directors made in
accordance with this Section 5.9(f) shall mean that directors constituting a
majority of all directors of PN then in office shall have reasonably determined
in good faith, based upon the advice of PN's outside counsel, that, the taking
of action or the failure to take action (or to withdraw or modify a
recommendation) is required to properly discharge such directors' fiduciary
duties to stockholders of PN under Delaware law.
Section 5.10 Brokers or Finders. Each of MC and PN 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 PN
Financial Advisor, whose fees and expenses will be paid by PN in accordance with
its agreement with such firm, the MC Financial Advisor, whose fees and expenses
will be paid by MC in accordance with MC's agreement with such firm, and as
disclosed in Schedule 4.17 of the MC Disclosure Letter. Each of MC and PN 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 5.11 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release acceptable to MC and
PN. Thereafter, so long as this Agreement is in effect, neither PN, 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 5.12 Notification of Certain Matters. PN shall give prompt notice
to MC and MC shall give prompt notice to PN 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 in any material respect at or prior to the Effective Time and (ii)
any failure of PN 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 in any material respect, provided, however, that the delivery of any
notice pursuant to this Section 5.12 (a) is not required until an executive
officer of PN 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 5.13 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, PN's Certificate of Incorporation, 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 PN or any of its
Subsidiaries, or who are or were serving at the request of PN 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, 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 PN 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 it, and MC (or prior to the Effective Time, PN) shall
advance the fees
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and expenses of such counsel for the Indemnified Party in accordance with
the applicable indemnification provision of the PN Certificate of
Incorporation, PN Bylaws and any applicable indemnification agreements.
(b) MC and PN 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 than those provided
in PN's Certificate of Incorporation 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 5.13 shall impair any
rights or obligations of any present or former directors or officers of PN.
(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 5.13, 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 5.13
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 reasonable best efforts
to maintain PN'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 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 its reasonable best efforts to obtain substantially similar D&O
Insurance to the extent available.
Section 5.14 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 shall be borne by MC, 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 PN and one-half by MC. The
payment of costs and expenses by MC or PN shall not reduce any consideration
paid in the Merger. Notwithstanding the foregoing, the costs and expenses
incurred in connection with the PN Option Agreement and the MC Voting Agreement
will be paid in accordance with the terms of such Agreements.
Section 5.15 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, subject to MC's repayment of PN's indebtedness
under that certain Second Amended and Restated Credit Agreement dated as of June
14, 1996, as amended (the "PN Credit Agreement"), PN 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 and any other required Lenders (as
defined in the PN Credit Agreement) immediately prior to or concurrently with
the Effective Time, including executing and delivering for filing appropriate
UCC-3 statements and other necessary documents for release or assignment of such
liens.
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ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions:
(a) Stockholder Approval. This Merger Proposal and, in the case of
MC, the Amendment Proposal, shall have been approved and adopted by the
requisite vote of the holders of capital stock of MC and PN in accordance
with the DGCL and the respective Certificates of Incorporation and By-Laws
of MC and PN;
(b) Statutes; Consents. No statute, rule, order, decree or regulation
shall have been enacted or promulgated by any Government Entity preventing
the consummation of the Merger, and all orders and approvals from
Governmental Entities required for the consummation of the Merger shall
have been obtained and shall be in effect at the Effective Time, except
where the failure to have obtained any such order or approval would not
have a Material Adverse Effect on the Surviving Corporation and its
Subsidiaries, taken as a whole, after the Effective Time;
(c) 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;
(d) Regulatory Approval. A Final Regulatory Order permitting the
Merger to be consummated shall have been received from the FCC (or at the
election of the parties hereto, 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. "Regulatory Order"
shall mean an action taken or order issued by the FCC or a State Authority
with respect to the PN Licenses as to which (i) no request for stay by the
FCC or a State Authority 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 or a State Authority granting consent to
the Merger, such consent shall be without material adverse conditions,
other than conditions that have been agreed to by PN 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;
(e) HSR Act. The expiration or early termination of any waiting
period under the HSR Act shall have occurred; and
(f) Registration Statement. The Registration Statement shall have
been declared effective and no stop order with respect thereto shall be in
effect at the Effective Time; and
Section 6.2 Conditions to Obligations of PN to Effect the Merger. The
obligation of PN 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 and
correct in all material respects as of such date, except for changes
specifically permitted by this Agreement;
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(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 condition, cash flows, operations, licenses,
franchises or results of operations of MC or its Subsidiaries that has had
a Material Adverse Effect on MC and its Subsidiaries, taken as a whole;
(d) PN shall have received a certificate from MC, signed on behalf of
MC by the Chief Executive Officer and Chief Financial Officer of MC, dated
the Closing Date, to the effect that the conditions set forth in paragraphs
(a), (b) and (c) above have been satisfied;
(e) PN shall have received the opinion of Wilmer, Cutler & Pickering,
dated the Closing Date and in a form reasonably acceptable to PN, to the
effect that MC Shares to be issued in the Merger have been duly authorized,
and when issued in accordance with this Agreement will be validly issued
and 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 rights or rights to subscribe for MC Shares;
(f) The MC Shares to be issued in the Merger shall have been admitted
for quotation on the Nasdaq Stock Market; and
(g) PN shall have received a written opinion from Vinson & Elkins
L.L.P. (based on certain factual representations received from MC and PN,
as reasonably requested by such firm) to the effect that the Merger will be
treated as a tax-free reorganization within the meaning of section 368(a)
of the Code.
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) PN 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 PN contained in this
Agreement and the PN Option 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 and correct 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
PN Option Agreement, and except for matters which affect generally the
economy or the industry in which PN 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 PN or its
Subsidiaries that has had a Material Adverse Effect on PN and its
Subsidiaries, taken as a whole;
(d) MC shall have received a certificate from PN, signed on behalf of
PN by the Chief Executive Officer and Chief Financial Officer of PN, dated
the Closing Date, to the effect that the conditions set forth in paragraph
(a), (b) and (c) above have been satisfied;
(e) PN shall have delivered to MC audited consolidated financial
statements for the fiscal period beginning January 1, 1997 and ended
September 30, 1997. PN shall have delivered monthly financial statements
for each calendar month after September 30, 1997, certified as true and
correct by the Chief Financial Officer of PN and, for months including and
after November 1997, SAS 71 review procedures with respect to such monthly
statements shall have been performed by Ernst & Young, and PN shall have
afforded MC the opportunity to perform such investigations as MC reasonably
deems necessary to confirm whether PN's calculation of Annualized Cash Flow
(as defined in Annex B) or Relevant Net
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<PAGE> 131
Liabilities (as defined in Annex B) are correct. PN shall have represented,
as of the Closing Date, that the foregoing financial statements described
in the previous sentence were prepared from, and are in accordance with,
the books and records of PN and its consolidated Subsidiaries, comply in
all material respects with applicable accounting requirements, shall 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 present fairly the consolidated financial position and the
consolidated results of operations and cash flows of PN and its
consolidated Subsidiaries as at the dates thereof or for the periods
presented therein. In the event of a dispute regarding the correct amount
of Annualized Cash Flow or Relevant Net Liabilities, the parties shall
submit the matter to the Washington office of KPMG Peat Marwick which shall
determine the correct amount within ten (10) business days and whose
conclusions shall be binding on the parties;
(f) (i) The settlement of the Plaintiffs' Litigation shall not have
been modified in any material respect, (ii) such settlement shall have been
approved by final order of all courts having jurisdiction thereof and (iii)
the time for any appeals of such orders shall have expired, or any appeals
thereof that have been or may be taken could not reasonably result in a
Material Adverse Effect to ProNet and its Subsidiaries, taken as a whole.
Plaintiffs representing no more than 90,000 PN Shares shall have opted out
of the Plaintiffs' Settlement.
(g) The settlement of the Lehman Brothers, Inc. v. ProNet Inc., No.
97-602688 (N.Y. Sup. Ct.) shall have been consummated in accordance with
the terms of the letter dated July 15, 1997 from Fletcher L. Yarbrough to
Charles W. Schwartz.
(h) Annualized Cash Flow shall be at least 80% of Target Cash Flow (as
defined in Annex B) for the Measurement Date (as defined in Annex B) prior
to the Closing Date; and
(i) MC shall have received a written opinion from Wilmer, Cutler &
Pickering (based on certain factual representations received from MC and
PN, as reasonably requested by such firm) to the effect that the Merger
will be treated as a tax-free reorganization within the meaning of section
368(a) of the Code.
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 PN.
(b) By either PN or MC:
(i) If (A) MC shall not have received requisite approval from its
lenders of the Merger as described in Schedule 4.6 by August 22, 1997;
(ii) any Governmental Entity shall have issued an order, decree or
ruling or taken any other action (which order, decree or other action in
the parties hereto shall use their reasonable 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
(iii) If the Merger shall not have occurred by March 31, 1998,
provided, 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
in any material respect has been the proximate cause of or resulted in
the failure of the Merger to occur on or before March 31, 1998.
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<PAGE> 132
(c) By PN:
(i) if (A) there has been a breach by MC of any representation or
warranty contained in this Agreement which would have or would be
reasonably likely to have a Material Adverse Effect on MC and its
Subsidiaries, taken as a whole, or (B) MC or any of its subsidiaries
shall have failed to perform and comply in any material respect with the
obligations and agreements required to be performed and complied with by
it under this Agreement or the PN Option Agreement, which failure to
perform, if curable, shall not have been cured prior to the expiration
of thirty (30) days following notice of such failure;
(ii) if the Merger Proposal or the Amendment 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
(iii) if, (A) pursuant to a determination in accordance with
Section 5.9(f), the Board of Directors of PN shall have resolved to
accept a PN Acquisition Proposal, (B) PN pays MC a termination fee equal
to Four Million Dollars ($4,000,000), and (C) PN shall otherwise be in
compliance with its obligations under Section 5.9.
(d) By MC:
(i) if (A) there has been a breach by PN of any representation or
warranty contained in this Agreement which would have or would be
reasonably likely to have a Material Adverse Effect on PN and its
Subsidiaries, taken as a whole, or (B) PN or any of its Subsidiaries
shall have failed to perform and comply in any material respect with the
obligations and agreements required to be performed and complied with by
it under this Agreement which failure to perform, if curable, shall not
have been cured prior to the expiration of thirty (30) days following
notice of each failure;
(ii) if the Merger Proposal shall not have been approved and
adopted by the requisite vote of the holders of capital stock of PN in
accordance with the DGCL and the Certificate of Incorporation and
By-Laws of PN at a Meeting held for that purpose (including any
adjournment thereof); or
(iii) if the Board of Directors of PN shall have (A) withdrawn or
modified or changed, in any manner adverse to MC, its approval or
recommendation of this Agreement or the Merger or (B) shall have failed
to recommend against a PN Acquisition Proposal involving a tender offer
or failed to reject any other PN Acquisition Proposal within ten
business days after receipt by the Board of Directors of PN of such
proposal or PN shall have executed an agreement in principle (or similar
agreement) or definitive agreement relating to an PN Acquisition
Proposal (or the Board of Directors of PN resolves to do any of the
foregoing).
(iv) Annualized Cash Flow determined as of any two Measurement
Dates shall be less than 80% of Target Cash Flow for such Measurement
Dates.
Section 7.2 Termination Fee. (a) If this Agreement is terminated by PN
pursuant to Section 7.1(c)(ii), then MC will immediately pay to PN a termination
fee equal to Four Million Dollars $4,000,000 in cash.
(b) If this Agreement is terminated by PN pursuant to Section
7.1(c)(iii), or by MC pursuant to Section 7.1(d)(ii) or (d)(iii), then PN
will immediately pay to MC a termination fee equal to Four Million Dollars
($4,000,000) 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
30
<PAGE> 133
Sections 5.14 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 PN except for misrepresentation or material
breach of this Agreement, and nothing herein shall prejudice the ability of the
non-breaching party to seek damages from the other party for any breach of this
Agreement, including without limitation attorneys' fees and the right to pursue
any remedy at law or in equity.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Amendment. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors, at any time
before or after approval of matters presented in connection with Merger by the
stockholders of MC and PN, but after any such stockholder approval, no amendment
shall be made which by law requires the further approval of stockholders without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
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 upon (x) personal delivery, (y)
electronic confirmation of delivery by telecopy or telegraph, or (z) the next
business day following being sent by an overnight courier service, 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:
6677 Richmond Highway
Alexandria, VA 22306
Attention: Chief Financial Officer
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 PN, to:
3640 LBJ Freeway
Dallas, Texas 75240
Attention: Chief Executive Officer
General Counsel
Telecopy No.: (972) 774-0651
with a copy (which shall not constitute
notice) to:
Vinson & Elkins, L.L.P.
Attention: Jeffrey A. Chapman and Mark Early
2001 Ross Avenue
Suite 3700
Dallas, Texas 75201
Telecopy No.: (214) 220-7716
31
<PAGE> 134
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 party, it being understood that both
parties need not sign the same counterpart.
Section 8.7 Entire Agreement; Third Party Beneficiaries. This Agreement,
the PN Disclosure Letter, the MC Disclosure Letter, the PN Option Agreement, the
MC Voting Agreement and the Confidentiality Agreement: (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 Section 2.4 and Section 5.13 shall
confer on the third parties contemplated thereby the benefits thereof.
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. 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.
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<PAGE> 135
IN WITNESS WHEREOF, MC and PN 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/ WILLIAM L. COLLINS, III
------------------------------------
Name: William L. Collins, III
Title: Chief Executive Officer and
President
PRONET INC.
By: /s/ JACKIE R. KIMZEY
------------------------------------
Name: Jackie R. Kimzey
Title: Chairman & CEO
33
<PAGE> 136
ANNEX A
Directors Of The Surviving Corporation
Term Expiring in 1998
Ronald V. Aprahamian
Ryal R. Poppa
Elliott H. Singer
Max D. Hopper
Terms Expiring in 1999
Harry L. Brock, Jr.
Richard M. Johnston, Chairman of the Board
Ray D. Russenberger
Jackie R. Kimzey
Term Expiring in 2000
Suzanne S. Brock
William L. Collins, III
Francis A. Martin, III
Edward E. Jungerman
Designated by Series A Preferred Stock
Michael Greene
Royce Yudkoff
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<PAGE> 137
ANNEX B
CONVERSION RATIO ADJUSTMENTS
The Conversion Ratio represents a basic conversion ratio of .90 MC Shares
for each PN Share. Based on 13,673,765 PN Shares outstanding or issuable
pursuant to existing agreements (other than employee stock options), the Merger
Consideration would consist of 12,306,388 MC Shares. The Conversion Ratio is
subject to adjustment if certain liabilities of PN exceed certain targets, if
operating cash flow (earnings before interest, taxes, depreciation and
amortization) is less or more than certain targets, and if new pager inventory
falls below certain targets. The Conversion Ratio shall be determined in
accordance with the following formulas which adjust the number of MC Shares
representing the Merger Consideration and therefore the Conversion Ratio:
<TABLE>
<S> <C> <C>
Conversion Ratio = Adjusted MC Merger Shares / 13,673,765
Adjusted MC Merger Shares = 12,306,388
- Liability Adjustment
- Negative Cash Flow Adjustment
(If greater than zero)
+ Positive Cash Flow Adjustment
(If greater than zero)
- New Pager Inventory Adjustment
Liability Adjustment = (Relevant Net Liabilities - Target Net
Liabilities)
(If greater than zero)
/ $4.875
Negative Cash Flow Adjustment = ([.9 X Target Cash Flow] - Annualized Cash
Flow)
(If greater than zero)
X 8.00
/ $4.875
Positive Cash Flow Adjustment = (Annualized Cash Flow - [1.1 X Target Cash
Flow])
(If greater than zero)
X 8.00
/ $4.875
New Pager Inventory Adjustment = (New Pager Inventory Shortfall X $50.00)
/ $4.875
</TABLE>
The conversion ratio as adjusted shall be expressed to the fourth decimal place.
Definitions:
For purposes of this Annex C, the following terms shall have the meanings
set forth below. Capitalized terms not otherwise defined will have the meanings
given such terms in the Merger Agreement.
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<PAGE> 138
"Annualized Cash Flow" shall mean for the period beginning July 1, 1997,
and ending on a Measurement Date: (i) the sum of (A) "Consolidated Cash Flow" of
PN, as such term is defined in the Indenture (including the other defined terms
incorporated therein) plus, in each case to the extent included, (1) costs
associated with employee terminations not to exceed $239,000 (to the extent
included in expenses in calculating Annualized Cash Flow); (2) verified costs of
deconstructing PN's nationwide network, not to exceed $2,500 per site, and (3)
if approved by MC, expenditures generating a future benefit for the Surviving
Corporation, (ii) divided by the number of months in such period and (iii)
multiplied by 12.
"Measurement Date" shall mean the last day of each calendar month prior to
the Closing.
"Target Cash Flow" shall mean for each Measurement Date, the amount
specified below:
<TABLE>
<CAPTION>
TARGET ANNUALIZED
MONTHS IN ANNUALIZATION CASH FLOW
MEASUREMENT DATE OF CASH FLOW (MILLIONS)
- ---------------- ----------------------- -----------------
<S> <C> <C>
9/30/97 3 $31.200
10/31/97 4 $31.350
11/30/97 5 $31.488
12/31/97 6 $31.600
1/31/98 7 $31.714
2/28/98 8 $31.830
</TABLE>
"Relevant Net Liabilities" means at a Measurement Date, the sum of (i) all
"Debt" of PN, as such term is defined in the Indenture (including the other
defined terms incorporated therein and excluding the "Deferred Settlement
Costs"), plus (ii) the amount, if greater than zero, by which consolidated
current liabilities of PN exceed consolidated current assets of PN; or minus
(iii) the amount, if greater than zero, by which consolidated current assets of
PN exceeds consolidated current liabilities of PN; provided, however, if PN
achieves at least 100% of its Target Cash Flow for a Measurement Date and upon
the consent of MC, which shall not be unreasonably withheld, the consolidated
current liabilities of PN shall not include the accounts payable by PN incurred
in connection with PN's agreement with the State of Texas.
"Deferred Settlement Costs" means the accounting accrual of the value of
the 1 million PN Shares to be issued in conjunction with the Plaintiffs'
Settlement.
"Target Net Liabilities" means for any Measurement Date, the amounts set
forth below:
<TABLE>
<CAPTION>
TARGET NET LIABILITIES
MEASUREMENT DATE (MILLIONS)
- ---------------- ----------------------
<S> <C>
10/31/97 $183.2
11/30/97 $184.2
12/31/97 $185.2
1/31/98 $185.2
2/28/98 $185.2
</TABLE>
"New Pager Inventory Shortfall" means, at a Measurement Date, if PN has
less than 50,000 new pagers in inventory (45,000 of which must be Motorola
pagers), the greater of (i) the number of all new pagers in inventory below
50,000 or (ii) the number of Motorola pagers below 45,000.
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<PAGE> 139
EXHIBIT B
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
August 8, 1997
Board of Directors
Metrocall, Inc.
6677 Richmond Highway
Alexandria, VA 22306
Members of the Board:
We understand that Metrocall, Inc. ("Metrocall" or the "Buyer") and ProNet,
Inc. ("ProNet" or the "Company"), have entered into an Agreement and Plan of
Merger, dated August 8, 1997 (the "Merger Agreement"), which provides, among
other things, for the merger (the "Merger") of ProNet with and into Metrocall,
with Metrocall as the surviving corporation in the Merger. Pursuant to the
Merger, the separate existence of ProNet will cease and each issued and
outstanding share of Common Stock, par value $0.01 per share, of ProNet (the
"ProNet Common Stock"), other than shares of ProNet held in treasury or held by
Metrocall or any subsidiary of Metrocall or ProNet will be converted in the
right to receive 0.9 shares (the "Exchange Ratio") of Common Stock, par value
$0.01 per share, of Metrocall (the "Metrocall Common Stock"), subject to
adjustment in certain circumstances pursuant to the terms of the Merger
Agreement. The terms and conditions of the Merger are more fully set forth in
the Merger Agreement.
You have asked for our opinion as to whether, as of the date hereof, the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to Metrocall.
In connection with our opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Metrocall and ProNet respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning Metrocall and ProNet prepared by
the managements of Metrocall and ProNet, respectively;
(iii) analyzed certain financial projections concerning Metrocall and
ProNet prepared by the managements of Metrocall and ProNet, respectively;
(iv) discussed the past and current operations and financial condition
and the prospects of Metrocall and ProNet with the managements of Metrocall
and ProNet, respectively;
(v) discussed with Metrocall and ProNet managements their views
regarding the estimates of the business, financial and operational benefits
arising from the Merger;
(vi) analyzed the pro forma impact of the Merger on Metrocall's
consolidated capitalization and financial ratios;
(vii) reviewed the reported prices and trading activity of Metrocall
Common Stock and ProNet Common Stock;
(viii) compared the financial performance of Metrocall and ProNet and
the prices and trading activity of the Metrocall Common Stock and ProNet
Common Stock with that of certain other comparable publicly-traded
companies and their securities;
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<PAGE> 140
(ix) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(x) participated in discussions and negotiations among representatives
of ProNet and Metrocall and their financial and legal advisors;
(xi) reviewed the Merger Agreement and certain related documents;
(xii) participated in discussions with Metrocall's accountants
regarding certain aspects of the accounting practices and policies of
ProNet; and
(xiii) considered such other factors and performed such other analyses
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for purposes of this
opinion. With respect to the financial projections, including estimates of the
business, financial and operational benefits expected to result from the Merger,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future competitive and
operating environments and related financial performance of Metrocall and
ProNet, respectively. We have not assumed responsibility for conducting a
physical inspection of the properties or facilities of Metrocall or ProNet or
for making or obtaining an independent valuation or appraisal of the assets or
liabilities of Metrocall or ProNet, nor have we been furnished with such
valuations or appraisals. We note that the Merger is intended to qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended, and we have assumed with your consent that the Merger will
so qualify. We have assumed that the transactions described in the Merger
Agreement will be consummated on the terms set forth therein, without waiver of
any of the conditions thereof. Our opinion is necessarily based on economic,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Metrocall
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Metrocall and have received fees
for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Metrocall and, except for inclusion of this letter in its entirety
in any filing with the Securities and Exchange Commission in connection with the
Merger, may not be used or quoted for any other purpose without our prior
written consent. In addition, we express no opinion or recommendation to any
shareholder as to how such shareholder should vote at the shareholders' meeting
to be held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion, on the date
hereof, the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to Metrocall.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ PAUL J. TAUBMAN
------------------------------------
Paul J. Taubman
Managing Director
2
<PAGE> 141
EXHIBIT C
------------------------------
SALOMON BROTHERS
---------------------------
SALOMON BROTHERS INC
Seven World Trade Center
New York, New York 10048
212-783-7000
August 5, 1997
Board of Directors
ProNet Inc.
6340 LBJ Freeway
Dallas, Texas 75240
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of shares of common stock, $.01
par value per share (the "Company Common Stock"), of ProNet Inc. (the "Company")
of the consideration to be received by such shareholders in the proposed merger
(the "Merger") of the Company with Metrocall, Inc. ("Metrocall") pursuant to an
Agreement and Plan of Merger (the "Agreement") to be entered into between
Metrocall and the Company.
As more specifically set forth in the Agreement, in the Merger each issued
and outstanding share of the Company Common Stock will be converted into the
right to receive 0.9 of one share of common stock, $.01 par value per share, of
Metrocall ("Metrocall Common Stock"), subject to certain adjustments.
As you are aware, Salomon Brothers Inc has acted as financial advisor to
the Company in connection with the Merger and will receive a fee for services, a
substantial portion of which is contingent upon consummation of the Merger.
Salomon Brothers Inc has previously served as an underwriter in connection with
equity offerings by each of the Company and Metrocall, for which we received
customary compensation. In addition, in the ordinary course of our business, we
actively trade the debt securities of the Company for our own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) a draft version of the Agreement,
including the Exhibits and Schedules thereto; (ii) certain publicly available
information concerning the Company, including the Annual Reports on Form 10-K of
the Company for each of the years in the five year period ended December 31,
1996 and the Quarterly Report on Form 10-Q of the Company for the quarter ended
March 31, 1997; (iii) certain other internal information, primarily financial in
nature, including projections, concerning the business and operations of the
Company furnished to us by the Company for purposes of our analysis; (iv)
certain publicly available information concerning the trading of, and the
trading market for, the Company Common Stock; (v) certain publicly available
information concerning Metrocall, including the Annual Reports on Form 10-K of
Metrocall for each of the years in the five year period ended December 31, 1996
and the Quarterly Report on Form 10-Q of Metrocall for the quarter ended March
31, 1997; (vi) certain other internal information, primarily financial in
nature, including projections, concerning the business and operations of
Metrocall furnished to us by Metrocall for purposes of our analysis; (vii)
certain publicly available information concerning the trading of, and the
trading market for, the Metrocall Common Stock; (viii) certain publicly
available information with respect to certain other companies that we believe to
be comparable to the Company or Metrocall and the trading markets for certain of
such other companies' securities; and (ix) certain publicly available
information concerning the nature and terms of certain other transactions that
we consider relevant to our inquiry. We have also considered such other
information, financial studies, analysis, investigations and financial, economic
and market criteria that we deemed relevant. We have also met with certain
officers and employees of the Company and Metrocall to discuss the foregoing as
well as other matters we believe relevant to our inquiry.
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<PAGE> 142
---------------------------------
SALOMON BROTHERS INC SALOMON BROTHERS
------------------------------
In 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 us or publicly available and have neither attempted
independently to verify nor assumed responsibility for verifying any of such
information. We have not conducted a physical inspection of any of the
properties or facilities of the Company or Metrocall, nor have we made or
obtained or assumed any responsibility for making or obtaining any independent
evaluations or appraisals of any of such properties or facilities. With respect
to projections, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of the Company and Metrocall as to the respective future financial
performance of the Company and Metrocall and we express no view with respect to
such projections or the assumptions on which they were based. We further have
assumed that each of the Agreement and the other agreements which are attached
as Exhibits to the Agreement, when executed and delivered, will not differ
materially from the drafts which we have reviewed.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company and Metrocall; (ii) the business prospects of the Company and Metrocall;
(iii) the historical and current market for the Company Common Stock, the
Metrocall Common Stock and the equity securities of certain other companies that
we believe to be comparable to the Company or Metrocall; and (iv) the nature and
terms of certain other acquisition transactions that we believe to be relevant.
We have also taken into account our assessment of general economic, market and
financial conditions and our knowledge of the telecommunications industry as
well as our experience in connection with similar transactions and securities
valuation generally. Our opinion necessarily is based upon conditions as they
exist and can be evaluated on the date hereof and we assume no responsibility to
update or revise opinion based upon circumstances or events occurring after the
date hereof. Our opinion as expressed below does not constitute an opinion or
imply any conclusions as to the likely trading range for the Metrocall Common
Stock following consummation of the Merger. Our opinion is, in any event,
limited to the fairness, from a financial point of view, of the consideration to
be received by the holders of the Company Common Stock in the Merger and does
not address the Company's underlying business decision to effect the Merger or
constitute a recommendation to any holder of Company Common Stock as to how such
holder should vote with respect to the Merger.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that the consideration to be received by the holders of the
Company Common Stock in the Merger is fair, from a financial point of view, to
such holders.
Very truly yours,
SALOMON BROTHERS INC
By: /s/ SALOMON BROTHERS INC
--------------------------------------
2
<PAGE> 143
EXHIBIT D
PROPOSED AMENDMENT TO
METROCALL, INC.
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
The proposed amendment to Article 4.1 of Metrocall's Amended and Restated
Certificate of Incorporation is as follows (the proposed additions are
underlined and in bold type and the proposed deletions are in brackets and
italicized type):
4.1 AUTHORIZED SHARES.
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 81,000,000 [61,000,000]
shares, of which 1,000,000 shares shall be Preferred Stock, having a par
value of $0.01 per share (the "Preferred Stock") and 80,000,000
[60,000,000] 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.
1
<PAGE> 144
EXHIBIT E
PROPOSED AMENDMENT TO THE
METROCALL, INC.
1996 STOCK OPTION PLAN
The proposed amendment to Section 3 of the Metrocall, Inc. 1996 Stock
Option Plan is as follows (the proposed additions are underlined and in bold
type and the proposed deletions are in brackets and italicized type):
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
4,000,000 [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.
1
<PAGE> 145
EXHIBIT F
METROCALL, INC.
AMENDED EMPLOYEE STOCK PURCHASE PLAN
PURPOSE The Metrocall, Inc. Amended Employee Stock Purchase
Plan (the "ESPP" or the "Amended Plan") provides
employees of Metrocall, Inc. (the "Company") and
selected Company Subsidiaries with an opportunity
to become owners of the Company through the
purchase of shares of the Company's common stock
(the "Common Stock"). The Company intends this
Plan, as amended, to continue to qualify as an
employee stock purchase plan under Section 423 of
the Internal Revenue Code of 1986, as amended (the
"Code"), and its terms should be construed
accordingly. The Amended Plan is effective as of
January 1, 1998.
ELIGIBILITY An Employee whom the Company or an Eligible
Subsidiary has employed for at least one full month
as of the first day of a Payroll Deduction Period
is eligible to participate in the ESPP for that
Payroll Deduction Period; provided, however, that
an Employee may not make a purchase under the ESPP
if such purchase would result in the Employee's
owning Common Stock possessing 5% or more of the
total combined voting power or value of the
Company's outstanding stock. For purposes of
determining an individual's amount of stock
ownership, any options to acquire shares of Company
Common Stock are counted as shares of stock, and
the attribution rules of Section 424(d) of the Code
apply.
Employee means any person employed as a common law
employee of the Company or an Eligible Subsidiary.
Employee excludes anyone who, with respect to any
particular period of time, was not treated
initially on the payroll records as a common law
employee.
ADMINISTRATOR The Compensation Committee of the Board of
Directors of the Company, or such other committee
as the Board designates (the "Committee"), will
administer the ESPP. The Committee is vested with
full authority and discretion to make, administer,
and interpret such rules and regulations as it
deems necessary to administer the ESPP (including
rules and regulations deemed necessary in order to
comply with the requirements of Section 423 of the
Code). Any determination or action of the Committee
in connection with the administration or
interpretation of the ESPP shall be final and
binding upon each Employee, Participant and all
persons claiming under or through any Employee or
Participant.
Without shareholder consent and without regard to
whether the actions might adversely affect
Participants, the Committee (or the Board) may
change the Payroll Deduction Periods,
limit or increase the frequency and/or number
of changes in the amounts withheld during a
Payroll Deduction Period,
establish the exchange ratio applicable to
amounts withheld in a currency other than U.S.
dollars,
<PAGE> 146
permit payroll withholding in excess of the
amount the Participant designated to adjust
for delays or mistakes in the Company's
processing of properly completed withholding
elections,
establish reasonable waiting and adjustment
periods and/or accounting and crediting
procedures to ensure that amounts applied
toward the purchase of Common Stock for each
Participant properly correspond with amounts
withheld from the Participant's Compensation,
delegate its functions (other than those with
respect to setting Payroll Deduction Periods
or determining the price of stock and the
number of shares to be offered under the Plan)
to officers or employees of the Company; and
establish such other limitations or procedures
as it determines in its sole discretion
advisable and consistent with the Plan.
The Committee may also increase the price provided
in Step 2 under GRANTING OF OPTIONS (by decreasing
the discount and/or by designating that the price
is determined as of either the beginning or the
ending date of a Payroll Deduction Period rather
than as of the lower of both) for Payroll Deduction
Periods beginning after committee action.
PAYROLL DEDUCTION
PERIOD Payroll Deduction Periods are successive six month
periods beginning January 1 and July 1, and the
first such period under the Amended Plan will begin
on January 1, 1998.
PARTICIPATION An eligible Employee may become a "Participant" for
a Payroll Deduction Period by completing an
authorization notice and delivering it to the
Committee through the Company's Human Resources
Department within a reasonable period of time
before the first day of such Payroll Deduction
Period. The Committee will send to each new
Employee who satisfies the rules in ELIGIBILITY
above a notice advising the Employee of his right
to participate in the ESPP for the following
Payroll Deduction Period. All Participants
receiving options under the ESPP will have the same
rights and privileges.
METHOD OF PAYMENT A Participant may contribute to the ESPP through
payroll deductions, as follows:
The Participant must elect on an authorization
notice to have deductions made from his
Compensation for each payroll period during the
Payroll Deduction Period at a rate of at least 1%
but not more than 15% of his Compensation.
Compensation under the Plan means an Employee's
regular compensation, including overtime, bonuses,
and commissions, from the Company or an Eligible
Subsidiary paid during a Payroll Deduction Period.
All payroll deductions will be credited to the
Participant's account under the ESPP and will
accrue interest at a rate and in a manner
designated by the Committee. Any such interest will
be credited to the Participant's account and used
to increase the amount available for purchases.
Payroll deductions will begin on the first payday
coinciding with or following the first day of each
Payroll Deduction Period and will end with the last
payday preceding or coinciding with the end of that
Payroll
<PAGE> 147
Deduction Period, unless the Participant sooner
withdraws as authorized under WITHDRAWALS below.
A Participant may not alter the rate of payroll
deductions during the Payroll Deduction Period.
The Company may use the consideration it receives
for general corporate purposes.
GRANTING OF OPTIONS On the first day of each Payroll Deduction Period,
a Participant will receive options to purchase a
number of shares of Common Stock with funds
withheld from his Compensation. Such number of
shares will be determined at the end of the Payroll
Deduction Period according to the following
procedure:
Step 1 -- Determine the amount the Company
withheld from Compensation since the beginning
of the Payroll Deduction Period;
Step 2 -- Determine the "Purchase Price" to be
the amount that represents 85% of the lower of
Fair Market Value of a share of Common Stock
on the (I) first day of the Payroll Deduction
Period, or (II) the last day of the Payroll
Deduction Period; and
Step 3 -- Divide the amount determined in Step
1 by the amount determined in Step 2 and round
down the quotient to the nearest whole number.
FAIR MARKET VALUE The Fair Market Value of a share of Common Stock
for purposes of the Plan as of each date described
in Step 2 will be determined as follows:
if the Common Stock is traded on a national
securities exchange, the closing sale price on
that date;
if the Common Stock is not traded on any such
exchange, the closing sale price as reported
by the National Association of Securities
Dealers, Inc. Automated Quotation System
("Nasdaq") for such date;
if no such closing sale price information is
available, the average of the closing bid and
asked prices as reported by Nasdaq for such
date;
if there are no such closing bid and asked
prices, the average of the closing bid and
asked prices as reported by any other
commercial service for such date; or
if there is no established market for the
Common Stock, the value as determined in good
faith by the Committee.
For January 1 and any other date described in Step
2 that is not a trading day, the Fair Market Value
of a share of Common Stock for such date shall be
determined by using the closing sale price or the
average of the closing bid and asked prices, as
appropriate, for the immediately preceding trading
day.
No Participant shall receive options:
if, immediately after the grant, that
Participant would own shares, or hold
outstanding options to purchase shares, or
both, possessing
<PAGE> 148
5% or more of the total combined voting power
or value of all classes of shares of the
Company or any Subsidiaries; or
that permit the Participant to purchase shares
under all employee stock purchase plans of the
Company and any Subsidiary with a Fair Market
Value (determined at the time the options are
granted) that exceeds $25,000 in any calendar
year.
EXERCISE OF OPTION Unless a Participant effects a timely withdrawal
pursuant to the WITHDRAWAL paragraph below, his
option for the purchase of shares of Common Stock
during a Payroll Deduction Period will be
automatically exercised as of the last day of the
Payroll Deduction Period for the purchase of the
maximum number of full shares that the sum of the
payroll deductions credited to the Participant's
account during such Payroll Deduction Period can
purchase pursuant to the formula specified in
GRANTING OF OPTIONS.
Any payroll deductions credited to a Participant's
account during the Payroll Deduction Period that
are not used for the purchase of shares will be
treated as follows:
If the Participant has elected to withdraw
from the ESPP as of the end of the Payroll
Deduction Period, the Company will deliver the
amount of the payroll deductions to the
Participant.
The amount of any other excess payroll
deductions will be applied to the purchase of
shares in the immediately succeeding Payroll
Deduction Period.
DELIVERY OF COMMON
STOCK As soon as administratively feasible after the
options are used to purchase Common Stock, the
Company will deliver to each Participant or, in the
alternative, to an agent or custodian that the
Committee designates, the shares of Common Stock
the Participant purchased upon the exercise of the
option. If delivered to an agent or custodian, the
agent or custodian may hold the shares in nominee
name and may commingle shares held in its custody
in a single account or stock certificate without
identification as to individual Participants. If
shares are delivered to a custodian, the
Participant may elect at any time thereafter to
take possession of the shares or to have the
Committee deliver the shares to any brokerage firm.
The Committee may, in its discretion, establish a
program for cashless sales of Common Stock received
under the ESPP.
SUBSEQUENT OFFERINGS A Participant will be deemed to have elected to
participate in each subsequent Payroll Deduction
Period following his initial election to
participate in the ESPP, unless the Participant
files a written withdrawal notice with the Human
Resources Department at least ten days before the
beginning of the Payroll Deduction Period as of
which the Participant desires to withdraw from the
ESPP.
WITHDRAWAL FROM THE
PLAN A Participant may withdraw all, but not less than
all, payroll deductions credited to his account for
a Payroll Deduction Period before the end of such
Payroll Deduction Period by delivering a written
notice to the Human Resources Department on behalf
of the Committee at least thirty days before the
end of such Payroll Deduction Period. A Participant
who for any reason, including retirement,
termination of employment, or death, ceases to be
an Employee before the last day of any
<PAGE> 149
Payroll Deduction Period will be deemed to have
withdrawn from the ESPP as of the date of such
cessation.
Upon the withdrawal of a Participant from the ESPP,
his outstanding options under the ESPP will
immediately terminate.
If a Participant withdraws from the ESPP for any
reason, the Company will pay to the Participant all
payroll deductions credited to his account or, in
the event of death, to the persons designated as
provided in DESIGNATION OF BENEFICIARY, as soon as
administratively feasible after the date of such
withdrawal and no further deductions will be made
from the Participant's Compensation.
A Participant who has elected to withdraw from the
ESPP may resume participation in the same manner
and pursuant to the same rules as any Employee
making an initial election to participate in the
ESPP, i.e., he may elect to participate in the next
following Payroll Deduction Period so long as he
files the authorization form by the deadline for
that Payroll Deduction Period. Any Participant who
is subject to Section 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and
who withdraws from the ESPP for any reason will
only be permitted to resume participation in a
manner that will permit transactions under the ESPP
to continue to be exempt within the meaning of Rule
16b-3, as issued under the Exchange Act.
STOCK SUBJECT TO PLAN The shares of Common Stock that the Company will
sell to Participants under the ESPP will be shares
of authorized but unissued Common Stock or shares
held as treasury stock. The maximum number of
shares made available for sale under the ESPP will
be 1,000,000 (subject to the provisions in
ADJUSTMENTS UPON CHANGES IN CAPITAL STOCK). If the
total number of shares for which options are to be
exercised in a Payroll Deduction Period exceeds the
number of shares then available under the ESPP, the
Company will make, so far as is practicable, a pro
rata allocation of the shares available.
A Participant will have no interest in shares
covered by his option until the Participant
exercises the option.
Shares that a Participant purchases under the ESPP
will be registered in the name of the Participant
or, at the Participant's election, in street name.
The Company will not issue fractional shares
pursuant to the ESPP, but the Committee may, in its
discretion, direct the Company to make a cash
payment in lieu of fractional shares.
REPORTS Individual accounts will be maintained for each
Participant. Statements of account will be given to
Participants at least annually, and those
statements will set forth the amount of payroll
deductions, the exercise price, interest credited,
the number of shares purchased, and the remaining
cash balance, if any.
ADJUSTMENTS UPON
CHANGES IN CAPITAL
STOCK Subject to any required action by the Company
(which it shall promptly take) or its stockholders,
and subject to the provisions of applicable
corporate law, if, during a Payroll Deduction
Period,
the outstanding shares of Common Stock
increase or decrease or change into or are
exchanged for a different number or kind of
<PAGE> 150
security by reason of any recapitalization,
reclassification, stock split, reverse stock
split, combination of shares, exchange of
shares, stock dividend, or other distribution
payable in capital stock, or
some other increase or decrease in such Common
Stock occurs without the Company's receiving
consideration,
the Committee will make a proportionate and
appropriate adjustment in the number of shares of
Common Stock underlying the options, so that the
proportionate interest of the Participant
immediately following such event will, to the
extent practicable, be the same as immediately
before such event. Any such adjustment to the
options will not change the total price with
respect to shares of Common Stock underlying the
Participant's election but will include a
corresponding proportionate adjustment in the price
of the Common Stock, to the extent consistent with
Section 424 of the Code.
The Committee will make a commensurate change to
the maximum number and kind of shares provided in
the STOCK SUBJECT TO PLAN section.
Any issue by the Company of any class of preferred
stock, or securities convertible into shares of
common or preferred stock of any class, will not
affect, and no adjustment by reason thereof will be
made with respect to, the number of shares of
Common Stock subject to any options or the price to
be paid for stock except as this ADJUSTMENTS
section specifically provides. The grant of an
option under the Plan will not affect in any way
the right or power of the Company to make
adjustments, reclassifications, reorganizations or
changes of its capital or business structure, or to
merge or to consolidate, or to dissolve, liquidate,
sell, or transfer all or any part of its business
or assets.
Substantial Corporate
Change Upon a Substantial Corporate Change, the Plan and
the offering will terminate unless provision is
made in writing in connection with such transaction
for
the assumption or continuation of outstanding
elections, or
the substitution for such options or grants of
any options covering the stock or securities
of a successor employer corporation, or a
parent or subsidiary of such successor, with
appropriate adjustments as to the number and
kind of shares of stock and prices, in which
event the options will continue in the manner
and under the terms so provided.
If an option would otherwise terminate pursuant to
the preceding sentence, the optionee will have the
right, at such time before the consummation of the
transaction causing such termination as the Board
reasonably designates, to exercise any unexercised
portions of the option. However, the Board may
determine that allowing such exercise before the
end of the Payroll Deduction Period will not occur
if the election would render unavailable "pooling
of interest" accounting for any reorganization,
merger, or consolidation of the Company.
A Substantial Corporate Change means the
dissolution or liquidation of the Company,
<PAGE> 151
merger, consolidation, or reorganization of
the Company with one or more corporations in
which the Company is not the surviving
corporation,
the sale of substantially all of the assets of
the Company to another corporation, or
any transaction (including a merger or
reorganization in which the Company survives)
approved by the Board that results in any
person or entity (other than any affiliate of
the Company as defined in Rule 144(a)(1) under
the Securities Act) owning 100% of the
combined voting power of all classes of stock
of the Company.
DESIGNATION OF
BENEFICIARY A Participant may file with the Committee a written
designation of a beneficiary who is to receive any
payroll deductions credited to the Participant's
account under the ESPP or any shares of Common
Stock owed to the Participant under the ESPP if the
Participant dies. A Participant may change a
beneficiary at any time by filing a notice in
writing with the Human Resources Department on
behalf of the Committee.
Upon the death of a Participant and upon receipt by
the Committee of proof of the identity and
existence of the Participant's designated
beneficiary, the Company shall deliver such cash or
shares, or both, to the beneficiary. If a
Participant dies and is not survived by a
beneficiary that the Participant designated in
accordance with the immediate preceding paragraph,
the Company will deliver such cash or shares, or
both, to the personal representative of the estate
of the deceased Participant. If, to the knowledge
of the Committee, no personal representative has
been appointed within 90 days following the date of
the Participant's death, the Committee, in its
discretion, may direct the Company to deliver such
cash or shares, or both, to the surviving spouse of
the deceased Participant, or to any one or more
dependents or relatives of the deceased
Participant, or if no spouse, dependent or relative
is known to the Committee, then to such other
person as the Committee may designate.
No designated beneficiary may acquire any interest
in such cash or shares before the death of the
Participant.
SUBSIDIARY EMPLOYEES Employees of Company Subsidiaries will be entitled
to participate in the ESPP, except as otherwise
designated by the Board of Directors or the
Committee.
Eligible Subsidiary means each of the Company's
Subsidiaries, except as the Board otherwise
specifies. Subsidiary means any corporation (other
than the Company) in an unbroken chain of
corporations beginning with the Company if, at the
time an option is granted to a Participant under
the ESPP, each of the corporations (other than the
last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting
power of all classes of stock in one of the other
corporations in such chain.
TRANSFERS,
ASSIGNMENTS,
AND PLEDGES A Participant may not assign, pledge, or otherwise
dispose of payroll deductions credited to the
Participant's account or any rights to exercise an
option or to receive shares of Common Stock under
the ESPP other than by will or the laws of descent
and distribution or pursuant to a
<PAGE> 152
qualified domestic relations order, as defined in
the Employee Retirement Income Security Act. Any
other attempted assignment, pledge or other
disposition will be without effect, except that the
Company may treat such act as an election to
withdraw under the WITHDRAWAL section.
AMENDMENT OR
TERMINATION OF PLAN The Board of Directors of the Company or the
Committee may at any time terminate or amend the
ESPP. Any amendment of the ESPP that (i) materially
increases the benefits to Participants, (ii)
materially increases the number of securities that
may be issued under the ESPP, or (iii) materially
modifies the eligibility requirements for
participation in the ESPP must be approved by the
shareholders of the Company to take effect. The
Company shall refund to each Participant the amount
of payroll deductions credited to his account as of
the date of termination as soon as administratively
feasible following the effective date of the
termination.
NOTICES All notices or other communications by a
Participant to the Committee or the Company shall
be deemed to have been duly given when the Human
Resources Department or the Secretary of the
Company receives them or when any other person the
Company designates receives the notice or other
communication in the form the Company specifies.
GENERAL ASSETS Any amounts the Company invests or otherwise sets
aside or segregates to satisfy its obligations
under this ESPP will be solely the Company's
property (except as otherwise required by Federal
or state wage laws), and the optionee's claim
against the Company under the ESPP, if any, will be
only as a general creditor. The optionee will have
no right, title, or interest whatever in or to any
investments that the Company may make to aid it in
meeting its obligations under the ESPP. Nothing
contained in the ESPP, and no action taken pursuant
to its provisions, will create or be construed to
create an implied or constructive trust of any kind
or a fiduciary relationship between the Company and
any Employee, Participant, former Employee, former
Participant, or any beneficiary.
PRIVILEGES OF STOCK
OWNERSHIP No Participant and no beneficiary or other person
claiming under or through such Participant will
have any right, title, or interest in or to any
shares of Common Stock allocated or reserved under
the Plan except as to such shares of Common Stock,
if any, that have been issued to such Participant.
TAX WITHHOLDING To the extent that a Participant realizes ordinary
income in connection with a sale or other transfer
of any shares of Common Stock purchased under the
Plan or the crediting of interest to an account,
the Company may withhold amounts needed to cover
such taxes from any payments otherwise due to the
Participant. Any Participant who sells or otherwise
transfers shares purchased under the Plan within
two years after the beginning of the Payroll
Deduction Period in which he purchased the shares
must, within 30 days of such transfer, notify the
Company's Payroll Department in writing of such
transfer.
LIMITATIONS ON
LIABILITY Notwithstanding any other provisions of the ESPP,
no individual acting as a director, employee, or
agent of the Company shall be liable to any
Employee, Participant, former Employee, former
Participant, or any spouse or beneficiary for any
claim, loss, liability, or expense incurred in
connection with the ESPP, nor shall such individual
be personally liable because of any contract or
other instrument he executes in such other
<PAGE> 153
capacity. The Company will indemnify and hold
harmless each director, employee, or agent of the
Company to whom any duty or power relating to the
administration or interpretation of the ESPP has
been or will be delegated, against any cost or
expense (including attorneys' fees) or liability
(including any sum paid in settlement of a claim
with the Metrocall Board's approval) arising out of
any act or omission to act concerning this ESPP
unless arising out of such person's own fraud or
bad faith.
NO EMPLOYMENT
CONTRACT Nothing contained in this Plan constitutes an
employment contract between the Company or an
Eligible Subsidiary and any Employee. The ESPP does
not give an Employee any right to be retained in
the Company's employ, nor does it enlarge or
diminish the Company's right to terminate the
Employee's employment.
DURATION OF ESPP Unless the Metrocall Board extends the Plan's term,
no Payroll Deduction Period will begin after
December 31, 2007.
APPLICABLE LAW The laws of the Commonwealth of Virginia (other
than its choice of law provisions) govern the ESPP
and its interpretation.
LEGAL COMPLIANCE The Company will not issue any shares of Common
Stock under the Plan until the issuance satisfies
all applicable requirements imposed by Federal and
state securities and other laws, rules, and
regulations, and by any applicable regulatory
agencies or stock exchanges. To that end, the
Company may require the optionee to take any
reasonable action to comply with such requirements
before issuing such shares. No provision in the
Plan or action taken under it authorizes any action
that Federal or state laws otherwise prohibit.
The Plan is intended to conform to the extent
necessary with all provisions of the Securities Act
of 1933 ("Securities Act") and the Securities
Exchange Act of 1934 and all regulations and rules
the Securities and Exchange Commission issues under
those laws, including specifically Rule 16b-3.
Notwithstanding anything in the Plan to the
contrary, the Committee and the Board must
administer the Plan, and Participants may purchase
Common Stock, only in a way that conforms to such
laws, rules, and regulations. To the extent
permitted by applicable law, the Plan and any
offers will be deemed amended to the extent
necessary to conform to such laws, rules, and
regulations.
APPROVAL OF
SHAREHOLDERS The ESPP must be submitted to the shareholders of
the Company for their approval within 12 months
after the Board of Directors of the Company adopts
the ESPP. The adoption of the ESPP is conditioned
upon the approval of the shareholders of the
Company, and failure to receive their approval will
render the ESPP and any outstanding options
thereunder void and of no effect.
<PAGE> 154
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
METROCALL, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheet at December 31, 1995 and 1996.............................. F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and
1996................................................................................ F-4
Consolidated Statement of Stockholders' Equity for the years ended December 31, 1994,
1995 and 1996....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
Condensed Consolidated Balance Sheets, December 31, 1996 and June 30, 1997............ F-28
Condensed Consolidated Statements of Operations for the three months ended June 30,
1996 and 1997....................................................................... F-29
Condensed Consolidated Statements of Operations for the six months ended June 30, 1996
and
1997................................................................................ F-30
Condensed Consolidated Statement of Stockholders' Equity for the six months ended June
30,
1997................................................................................ F-31
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1996
and
1997................................................................................ F-32
Notes to Condensed Consolidated Financial Statements.................................. F-33
PRONET INC. AND SUBSIDIARIES:
Report of Independent Auditors........................................................ F-39
Consolidated Balance Sheets at December 31, 1996 and 1995............................. F-40
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and
1994................................................................................ F-41
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994................................................................................ F-42
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996,
1995 and 1994....................................................................... F-43
Notes to Consolidated Financial Statements............................................ F-44
Consolidated Balance Sheets at June 30, 1997 and December 31, 1996.................... F-60
Consolidated Statements of Operations for the three and six months ended June 30, 1997
and 1996............................................................................ F-61
Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and
1996................................................................................ F-62
Notes to Consolidated Financial Statements............................................ F-63
</TABLE>
F-1
<PAGE> 155
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, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. 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, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington D.C.
February 13, 1997
F-2
<PAGE> 156
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $123,574 $ 10,917
Accounts receivable, less allowance for doubtful accounts of $968 and
$2,961 as of December 31, 1995 and 1996, respectively.............. 9,785 25,796
Prepaid expenses and other current assets............................. 1,908 5,681
-------- --------
Total current assets.......................................... 135,267 42,394
-------- --------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements............................ 9,900 12,694
Furniture, office equipment and vehicles.............................. 12,794 29,742
Paging and plant equipment............................................ 103,427 188,236
Less -- Accumulated depreciation and amortization..................... (50,175) (77,260)
-------- --------
75,946 153,412
-------- --------
INTANGIBLE ASSETS, net of accumulated amortization of approximately
$8,875 and $20,926 as of December 31, 1995 and 1996, respectively..... 129,085 452,639
OTHER ASSETS............................................................ 316 3,023
-------- --------
TOTAL ASSETS............................................................ $340,614 $651,468
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.................................. $ 252 $ 700
Accounts payable...................................................... 9,390 17,194
Accrued expenses and other current liabilities........................ 7,666 18,940
Deferred revenues and subscriber deposits............................. 1,950 12,827
-------- --------
Total current liabilities..................................... 19,258 49,661
CAPITAL LEASE OBLIGATIONS, less current maturities (Note 6)............. 2,849 3,244
CREDIT FACILITY AND OTHER LONG-TERM DEBT, less current maturities (Note
6).................................................................... 954 171,314
SENIOR SUBORDINATED NOTES, due 2005 and 2007 (Note 6)................... 150,000 152,534
DEFERRED INCOME TAX LIABILITY........................................... 11,814 76,687
MINORITY INTEREST IN PARTNERSHIP........................................ 501 499
-------- --------
Total liabilities............................................. 185,376 453,939
-------- --------
SERIES A CONVERTIBLE PREFERRED STOCK, 14% cumulative; par value $.01 per
share; 810,000 shares authorized; zero and 159,600 shares issued and
outstanding as of December 31, 1995 and 1996, respectively and a
liquidation preference of $40,598 at December 31, 1996 (Note 8)....... -- 31,231
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 8):
Common stock, par value $.01 per share; 33,500,000 shares authorized;
14,626,255 and 24,521,135 shares issued and outstanding as of
December 31, 1995 and 1996, respectively........................... 146 245
Additional paid-in capital............................................ 201,956 262,827
Accumulated deficit................................................... (46,864) (96,774)
-------- --------
155,238 166,298
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................. $340,614 $651,468
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 157
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Service, rent and maintenance........................ $ 49,716 $ 92,160 $ 124,029
Product sales........................................ 8,139 18,699 25,928
---------- ----------- -----------
Total revenues............................... 57,855 110,859 149,957
Net book value of products sold...................... (6,962) (15,527) (21,633)
---------- ----------- -----------
50,893 95,332 128,324
OPERATING EXPENSES:
Service, rent and maintenance........................ 14,014 27,258 38,347
Selling and marketing................................ 7,412 15,656 24,228
General and administrative........................... 13,315 24,647 32,998
Depreciation and amortization........................ 13,829 31,504 58,196
Management reorganization charge (Note 5)............ -- 2,050 --
---------- ----------- -----------
48,570 101,115 153,769
---------- ----------- -----------
Income (loss) from operations................ 2,323 (5,783) (25,445)
INTEREST AND OTHER INCOME (EXPENSE)(Note 6)............ 161 314 (607)
INTEREST EXPENSE....................................... (3,726) (12,533) (20,424)
---------- ----------- -----------
LOSS BEFORE INCOME TAX BENEFIT AND EXTRAORDINARY
ITEM................................................. (1,242) (18,002) (46,476)
INCOME TAX BENEFIT..................................... 152 595 1,021
---------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM......................... (1,090) (17,407) (45,455)
EXTRAORDINARY ITEM: Write-off of unamortized debt
financing costs in 1994 and 1995, and costs of debt
refinancing in 1996, net of income tax benefit of
$36, $0 and $0, respectively (Note 6)................ (1,309) (2,695) (3,675)
---------- ----------- -----------
Net loss..................................... (2,399) (20,102) (49,130)
---------- ----------- -----------
PREFERRED DIVIDENDS (Notes 6 and 8).................... -- -- (780)
---------- ----------- -----------
Loss attributable to common stockholders............. $ (2,399) $ (20,102) $ (49,910)
========== =========== ===========
LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:
Loss per share before extraordinary item attributable
to common stockholders............................... $ (0.14) $ (1.49) $ (2.84)
Extraordinary item, net of income tax benefit.......... (0.16) (0.23) (0.23)
---------- ----------- -----------
Loss per share attributable to common stockholders..... $ (0.30) $ (1.72) $ (3.07)
---------- ----------- -----------
Weighted-average common shares outstanding............. 8,127,679 11,668,140 16,252,782
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 158
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
--------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993................. $ -- $ 71 $ 38,021 $ (24,363) $ 13,729
Shares issued in acquisition of FirstPAGE
(Note 3).............................. -- 29 45,161 -- 45,190
Shares issued in acquisition of
MetroPaging (Note 3).................. -- 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 3)................... -- -- (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 5).............................. -- -- 285 -- 285
Net loss................................. -- -- -- (20,102) (20,102)
---- ---- -------- -------- --------
BALANCE, December 31, 1995................. -- 146 201,956 (46,864) 155,238
Issuance of shares in employee stock
purchase plan (Note 8)................ -- -- 110 -- 110
Shares issued in Satellite acquisition
(Note 3).............................. -- 18 10,408 -- 10,426
Exercise of stock options (Note 8)....... -- -- 5 -- 5
Shares issued in merger with A+ Network
(Note 3).............................. -- 81 42,477 -- 42,558
Warrants issued in connection with Series
A Convertible Preferred Stock (Note
8).................................... -- -- 7,871 -- 7,871
Preferred dividends (Note 8)............. -- -- -- (780) (780)
Net loss................................. -- -- -- (49,130) (49,130)
---- ---- -------- -------- --------
BALANCE, December 31, 1996................. $ -- $245 $ 262,827 $ (96,774) $166,298
==== ==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 159
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (2,399) $ (20,102) $ (49,130)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization.......................... 13,829 31,504 58,196
Compensation on amendment of stock options in
management reorganization............................ -- 285 --
Amortization of debt financing costs................... 296 595 620
Decrease in deferred income taxes...................... (200) (686) (1,483)
Write-off of deferred acquisition costs................ -- -- 388
Minority interest in loss of investments............... -- -- 207
Writedown of equity investment......................... -- -- 238
Interest expense in excess of lease payment............ 27 -- --
Loss (gain) on sale of equipment....................... 19 3 (1,188)
Extraordinary item..................................... 1,309 2,695 3,675
Cash provided by (used in) changes in current assets and
liabilities, net of effects from acquisitions:
Accounts receivable.................................... (1,721) (3,554) (2,626)
Prepaid expenses and other current assets.............. (236) (1,070) (1,579)
Accounts payable....................................... 652 2,050 5,841
Deferred revenues and subscriber deposits.............. 91 (1,458) 2,126
Other current liabilities.............................. 129 3,738 323
-------- -------- --------
Net cash provided by operating activities......... 11,796 14,000 15,608
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired.......... 497 -- (260,600)
Purchases of property and equipment, net.................. (19,091) (44,058) (62,110)
Additions to intangibles.................................. (641) (1,895) (3,853)
Equity investments........................................ -- -- (685)
Cash escrow for Source One Wireless, Inc. (Note 9)........ -- -- (1,000)
Proceeds from sale of equipment........................... -- 1,166 1,301
Other assets.............................................. 8 259 (957)
-------- -------- --------
Net cash used in investing activities............. (19,227) (44,528) (327,904)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock................ -- 107,024 115
Net proceeds from preferred stock offering (Note 8)....... -- -- 38,323
Proceeds from long-term debt.............................. 24,781 163,000 194,904
Principal payments on long-term debt...................... (12,788) (113,790) (25,464)
Debt tender and consent solicitation costs................ -- -- (3,675)
Deferred debt financing costs............................. (2,879) (4,984) (4,562)
Increase (decrease) in minority interest in partnership... 76 79 (2)
-------- -------- --------
Net cash provided by financing activities......... 9,190 151,329 199,639
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 1,759 120,801 (112,657)
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,014 2,773 123,574
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 2,773 $ 123,574 $ 10,917
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 160
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND RISK FACTORS
Metrocall, Inc. and subsidiaries (the "Company" or "Metrocall"), is a
leading provider of local, regional and nationwide paging and other wireless
messaging services. The Company's selling efforts are concentrated in 32 markets
in five operating regions: (i) the Northeast (Massachusetts through Delaware),
(ii) the Mid-Atlantic (Maryland and the Washington, D.C. metropolitan area),
(iii) the Southeast (including Virginia, the Carolinas, Georgia, Florida,
Alabama, Louisiana, Mississippi and Tennessee), (iv) the Southwest (primarily
Texas) and (v) the West (primarily California, Nevada and Arizona). Through its
Nationwide Network, the Company provides coverage to over 1,000 cities
representing the top 100 Standard Metropolitan Statistical Areas.
On July 16, 1996, the Company acquired Parkway Paging, Inc. of Plano, Texas
("Parkway"). On August 30, 1996, the Company acquired substantially all the
assets of Satellite Paging of Fairfield, New Jersey and Message Network of Boca
Raton, Florida (together, "Satellite"). On November 15, 1996, the Company
acquired A+ Network, Inc. of Pensacola, Florida ("A+ Network"). The Company
acquired the operations of A+ Network through a merger of A+ Network with and
into Metrocall. On August 31, and November 29, 1994, Metrocall acquired
FirstPAGE USA, Inc. ("FirstPAGE") and MetroPaging Inc. ("MetroPaging," formerly
AllCity Paging, Inc.), respectively. The consolidated statements of operations
include the results of acquired companies since their respective acquisition
dates.
Risks and Other Important Factors
The Company sustained net losses of $2.4 million, $20.1 million, and $49.1
million for the years ended December 31, 1994, 1995 and 1996, respectively. The
Company's loss from operations for the year ended December 31, 1996 was $25.4
million. In addition, at December 31, 1996, the Company has an accumulated
deficit of $96.8 million and a deficit in working capital of $7.3 million. The
Company's losses from operations and its net losses are expected to continue for
additional periods in the future. There can be no assurance that the Company's
operations will become profitable.
The Company's operations require the availability of substantial funds to
finance the maintenance and growth of its existing paging operations and
customer base, development and construction of future wireless communications
networks, expansion into new markets, and the acquisition of other wireless
communication companies. At December 31, 1996, the Company had incurred
approximately $328 million in long-term debt and capital leases. Amounts
available under the Company's credit facility are subject to certain financial
covenants and other restrictions such that as of January 1, 1997, approximately
$46.5 million of additional borrowings were available to the Company under its
credit facility. The Company's ability to borrow additional amounts in the
future is dependent on its ability to comply with the provisions of its credit
facility. On January 14, 1997, the Company increased borrowings outstanding
under its credit facility by $10.0 million.
The Company is also subject to certain additional risks and uncertainties
including changes in technology, business integration, competition and
regulation (see also Notes 2 and 14).
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 that hold
certain of the Company's regulatory licenses issued by the Federal
Communications Commission (the "FCC").
F-7
<PAGE> 161
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Beacon Communications owns the building that 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 investment 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 $501,000 and $499,000 as of
December 31, 1995 and 1996, respectively. Beacon Communications has a
partnership deficit as of both December 31, 1995 and 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.
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.
New pagers are depreciated using the half-year convention upon acquisition.
Betterments to acquired pagers are charged to depreciation expense.
F-8
<PAGE> 162
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Purchases of property and equipment in the accompanying consolidated
statements of cash flows are reflected net of the 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
-------------------- PERIOD IN
1995 1996 YEARS
-------- -------- ------------
<S> <C> <C> <C>
State certificates and FCC licenses.......... $ 65,095 $217,914 5-40
Goodwill..................................... 43,754 180,454 15-25
Customer lists............................... 13,886 40,945 2-6
Debt financing costs......................... 4,937 8,890 8-12
Other........................................ 1,413 4,436 3-7
-------- --------
$129,085 $452,639
======== ========
</TABLE>
Debt financing costs represent fees and other costs incurred in connection
with the issuance of long-term debt. These costs are amortized to interest
expense over the term of the related debt using the effective interest rate
method.
Long-Lived Assets
Long-lived assets and identifiable intangibles to be held and used are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount should be addressed. Impairment is measured by
comparing the book value to the estimated undiscounted future cash flows
expected to result from use of the assets and their eventual disposition. At
December 31, 1996, the market value of the Company's Common Stock was $5.016 per
share and the net book value was $6.78 per share. However, the Company has
determined that there has been no permanent impairment in the carrying value of
long-lived assets reflected in the accompanying balance sheet.
Effective July 1, 1996, the Company changed the estimated useful lives of
certain intangibles acquired in 1994, including goodwill and regulatory licenses
issued by the FCC recorded in the acquisitions of FirstPAGE USA, Inc., and
MetroPaging, Inc., from 40 years to 15 years for goodwill and from 40 years to
25 years for FCC licenses. The impact of these changes was to increase
amortization expense for the year ended December 31, 1996, by approximately $1.3
million.
Loss Per Common Share Attributable to Common Stockholders
Loss per common share attributable to common stockholders for the years
ended December 31, 1994, 1995 and 1996, is based upon the weighted-average
number of common equivalent shares outstanding during the period. The effect of
outstanding options and warrants on net loss per share for the years ended
December 31, 1994, 1995, and 1996, is not included because such options and
warrants would be antidilutive (see Note 8).
F-9
<PAGE> 163
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Reclassifications
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the current year's presentation.
3. ACQUISITIONS
1994 Acquisitions
On August 31, 1994, the Company acquired 100% of the outstanding common
stock of FirstPAGE by means of a merger of FPGE Acquisition Corp., Inc.,
formerly a wholly owned subsidiary of Metrocall formed to effect the FirstPAGE
merger, with and into FirstPAGE, leaving FirstPAGE a wholly owned subsidiary of
the Company. The acquisition was financed through the issuance of 2,869,190
shares of the Company's Common Stock and options to purchase 47,387 shares of
the Company's Common Stock and an assumption of substantially all liabilities of
FirstPAGE.
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.
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.
Parkway Paging, Inc.
On July 16, 1996, the Company acquired all the outstanding common stock of
Parkway for cash and the assumption of certain long-term obligations together
totaling approximately $28.0 million. The acquisition was financed through
drawings on the Company's credit facility.
Satellite Paging and Message Network
On August 30, 1996, the Company acquired substantially all the assets of
Satellite for cash, the assumption of certain liabilities and the issuance of
shares of the Company's Common Stock. The total number of shares to be issued
under the terms of the agreement has not been finalized and will fluctuate based
on the Company's stock price and final capital expenditures and working capital
amounts. As of December 31, 1996, the Company had issued 1,771,869 shares of
Metrocall Common Stock. The cash paid in the acquisition was financed through
drawings on the Company's credit facility.
A+ Network, Inc.
On November 15, 1996, the Company completed its merger with A+ Network of
Pensacola, Florida pursuant to an Agreement and Plan of Merger dated May 16,
1996. The total purchase price was approximately $286.4 million, consisting of
approximately 8.1 million shares of the Company's Common Stock valued at
approximately $42.6 million ($5.25 per share), 8.1 million indexed Variable
Common Rights ("VCRs"), approximately $91.8 million paid in a cash tender offer
completed in July 1996, indebtedness refinanced under the Company's existing
credit facility of approximately $122.5 million, and other assumed indebtedness,
estimated future liabilities and transaction fees, but excluding deferred income
tax liabilities of approximately $57.4 million recorded in the merger.
F-10
<PAGE> 164
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS -- (CONTINUED)
Prior to November 15, 1996, the Company acquired approximately 40% of the
A+ Network common stock outstanding in a cash tender offer completed in July
1996. For financial reporting purposes, the Company accounted for its investment
in A+ Network under the equity method. As such, the Company recorded its share
of A+ Network's net loss of approximately $4.1 million through November 15,
1996, which has been classified as Other Expense in the accompanying statement
of operations for the year ended December 31, 1996.
In addition, the Company repurchased approximately 40% of all options
outstanding to acquire A+ Network common stock for $13.98 per share or
approximately $4.0 million including related payroll taxes. The remaining A+
Network options, with an exercise price of $6.04 per common share, were assumed
by the Company and exchanged for Metrocall options (see Note 8).
Cash payments made in the merger were financed through the Company's credit
facility.
All of the Company's acquisitions have been accounted for as purchases for
financial reporting purposes. The purchase prices for the 1994 acquisitions and
the 1996 acquisitions of Parkway, Satellite and A+ Network transactions have
been allocated as follows (in thousands):
<TABLE>
<CAPTION>
1994
ACQUISITIONS PARKWAY SATELLITE A+ NETWORK
------------ ------- --------- ----------
<S> <C> <C> <C> <C>
Plant and equipment................. $ 22,872 $ 1,606 $ 1,425 $ 55,790
Accounts receivable and other
assets............................ 6,441 931 1,170 21,040
Noncompete agreements............... -- 1 -- 2,503
Customer lists...................... 17,785 2,795 2,920 25,646
FCC licenses and state
certificates...................... 66,699 19,536 20,506 115,913
Goodwill............................ 44,384 13,618 3,514 122,893
Liabilities assumed................. (84,986) (680) (932) (23,192)
Direct acquisition costs............ (3,800) (1,468) (628) (8,318)
Deferred income tax liability....... (12,700) (8,932) -- (57,424)
------------ ------- --------- ----------
$ 56,695 $27,407 $ 27,975 $254,851
========= ======= ======= =========
</TABLE>
The purchase price allocations for 1996 acquisitions may be subject to
adjustment for changes in estimates related to costs to be incurred to close
duplicate facilities and to settle pending legal contingencies. The resolution
of these matters is not expected to have a material impact on the Company's
financial condition or its results of future operations.
The unaudited pro forma information presented below reflects the
acquisitions of Parkway, Satellite and A+ Network as if each had occurred on
January 1, 1995. The results are not necessarily indicative of future
F-11
<PAGE> 165
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS -- (CONTINUED)
operating results or of what would have occurred had the acquisitions actually
been consummated on that date (in thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Revenues................................................ $218,741 $247,886
Loss attributable to common stockholders before
extraordinary item.................................... (66,289) (77,530)
Loss attributable to common stockholders................ (65,360) (81,205)
Loss per share attributable to common stockholders
before extraordinary item............................. (3.00) (3.09)
Loss per common share attributable to common
stockholders.......................................... (2.96) (3.23)
</TABLE>
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
The amounts included in prepaid expenses and other current assets at
December 31, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------ ------
<S> <C> <C>
Prepaid advertising........................................ $ 398 $1,490
Refunds due................................................ -- 1,129
Prepaid taxes.............................................. -- 969
Prepaid insurance.......................................... 108 243
Prepaid rents.............................................. 29 118
Interest receivable........................................ 493 18
Other...................................................... 880 1,714
------ ------
$1,908 $5,681
====== ======
</TABLE>
5. OTHER CURRENT LIABILITIES
The amounts included in other current liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------ -------
<S> <C> <C>
Accrued severance, payroll and payroll taxes............... $2,763 $ 8,684
Accrued interest payable................................... 3,893 4,522
Accrued state and local taxes.............................. 220 1,616
Accrued insurance claims................................... 300 1,224
Accrued legal and litigation costs......................... -- 1,200
Other...................................................... 490 1,694
------ -------
$7,666 $18,940
====== =======
</TABLE>
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 were
F-12
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METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER CURRENT LIABILITIES -- (CONTINUED)
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 nonsales employees were terminated and related
severance costs were included in the management reorganization charge. Severance
costs included 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. As of
December 31, 1996, the balance of accrued but unpaid severance costs included in
the accompanying balance sheet was approximately $544,000.
6. LONG-TERM LIABILITIES
Long-Term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Senior Subordinated Notes, bearing interest at 10 3/8%,
Notes due in 2007..................................... $150,000 $150,000
Senior Subordinated Notes, bearing interest at 11 7/8%,
Notes due in 2005..................................... -- 2,534
Credit agreement, interest at a floating rate, defined
below, with principal payments beginning March 2000... -- 169,904
Industrial development revenue note, interest at 70% of
prime rate plus 1/2% (6.5% and 6.3%, respectively),
principal of $6 plus interest, payable monthly to
December 2008, secured by the Company's headquarters
building.............................................. 1,026 914
Promissory note payable, bearing interest at 7.5%,
principal and interest payable monthly to June 2005,
secured by letter of credit........................... -- 623
-------- --------
151,026 323,975
Less -- Current portion................................. 72 127
-------- --------
Long-term portion....................................... $150,954 $323,848
======== ========
</TABLE>
Senior Subordinated Notes
10 3/8% 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 semiannually 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.
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 sheets as of December
31, 1995 and 1996.
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METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM LIABILITIES -- (CONTINUED)
The Notes contain various covenants that, among other restrictions, limit
the ability of the Company to incur additional 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.
11 7/8% SENIOR SUBORDINATED NOTES
In connection with the merger with A+ Network, the Company offered to
purchase all $125.0 million of A+ Network's 11 7/8% Senior Subordinated Notes
due 2005 (the "A+ Notes") for $1,005 per $1,000 principal amount plus accrued
and unpaid interest (the "Offer"). Concurrent with the Offer, the Company
solicited consents to amend the indenture governing the A+ Notes to eliminate
substantially all restrictive covenants and certain related events of default
contained therein in exchange for a payment of $5.00 for each $1,000 principal
amount of the A+ Notes. Of the total outstanding, approximately $122.5 million
were validly tendered and retired. Tendered notes were financed under the
Company's credit facility. Additionally, sufficient consents were received so
that substantially all restrictive covenants and related events of default were
eliminated. The principal balance of the notes untendered, $2.5 million, has
been assumed by the Company. Interest on the notes is payable semi-annually in
May and November. The Company incurred fees of approximately $3.7 million in
connection with the tender and consent process which has been recorded as an
extraordinary item for the year ended December 31, 1996.
The A+ Notes may be redeemed at the Company's option after November 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 November 1
of the years indicated below:
<TABLE>
<CAPTION>
YEARS PERCENTAGE
------------------------------------------------------------------ ----------
<S> <C>
2000.............................................................. 104.5%
2001.............................................................. 103.0%
2002.............................................................. 101.5%
2003 and thereafter............................................... 100.0%
</TABLE>
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 monthly rents of $37,500. In January 1997, the Company acquired
additional office space under the Lease Agreement. Initial monthly payments will
increase to approximately $68,000 beginning January 1997. The Lease Agreement
will continue to be treated as a capital lease for financial reporting purposes.
The Lease Agreement continues for an initial period of ten years
F-14
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METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM LIABILITIES -- (CONTINUED)
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 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.
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 has
been accounted for as a capital lease for financial reporting purposes.
Aggregate maturities of long-term debt and capital lease obligations as of
December 31, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
LONG-TERM CAPITAL LEASE
DEBT OBLIGATIONS
--------- -------------
<S> <C> <C>
1997.................................................. $ 127 $ 573
1998.................................................. 131 645
1999.................................................. 136 503
2000.................................................. 141 336
2001.................................................. 146 387
Thereafter............................................ 323,294 1,373
--------- -------------
$323,975 $ 3,817
======== ==========
</TABLE>
New Credit Facility
On September 20, 1996, the Company entered into an agreement 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"). The New
Credit Facility has a term of eight years and is secured by substantially all
the assets of the Company. Required quarterly principal repayments begin on
March 31, 2000 and continue through December 31, 2004. At December 31, 1996, a
total of $169,904,000 was outstanding under the New Credit Facility. On January
14, 1997, the Company increased its borrowings outstanding under the New Credit
Facility by $10,000,000.
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 6.0 to 1.0
from January 1, 1997 to December 31, 1997, and declining thereafter), senior
debt to annualized operating cash flow, annualized operating cash flow to pro
forma debt service, total sources of cash to total uses of cash, and operating
cash flow to interest expense (in each case, as such terms are defined in the
agreement relating to the New Credit Facility). The New Credit Facility also
requires the Company to raise additional equity (approximately $10,000,000) if
its ratio of cash flow to interest expense is less than 2.0 to 1.0 for the
quarter ended June 30, 1997. The covenants also limit additional indebtedness
and future mergers and acquisitions (other than the pending transaction
discussed in Note 14) without the approval of the lenders and restrict the
payment of cash dividends and other stockholders distributions by Metrocall
during the term of the
F-15
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METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM LIABILITIES -- (CONTINUED)
agreement. The New Credit Facility also prohibits certain changes in ownership
control of Metrocall, as defined.
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 0.875% 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. 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. Pursuant to the terms of 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 this requirement. At December 31, 1996, the
obligation to obtain interest rate protection had not commenced and accordingly
the Company had not entered into any interest rate protection agreements.
The Company incurred loan origination fees and direct financing costs in
connection with the New Credit Facility of approximately $4.5 million which will
be amortized and charged to interest expense over the term of the New Credit
Facility.
The weighted-average balances outstanding under all credit facilities
outstanding for the years ended December 31, 1994, 1995 and 1996, were
approximately $35,818,000, $108,222,000 and $39,902,000, respectively. The
highest outstanding borrowings under these facilities for the years ended
December 31, 1994, 1995 and 1996, were approximately $100,320,000, $113,320,000
and $169,904,000, respectively. For the years ended December 31, 1994, 1995 and
1996, interest expense relating to these facilities was approximately
$3,458,000, $7,630,000 and $3,737,000, respectively, at weighted-average
interest rates of 9.7%, 7.0% and 9.4%, respectively. The effective interest
rates as of December 31, 1995 and 1996 were 8.5% and 8.0%, respectively.
Former 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 Note 3), as well as capital
expenditures and general corporate requirements. On September 20, 1996, the
Company amended and restated the Agreement with an agreement for the New Credit
Facility discussed above.
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 then existing unamortized debt financing costs of $2.7
million in the year ended December 31, 1995. The Company also incurred breakage
fees of approximately $1.7 million associated with the termination of the
interest rate swap agreements which have been recorded as interest and other
income (expense) in the 1995 consolidated statement of operations.
Prior 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.
F-16
<PAGE> 170
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM LIABILITIES -- (CONTINUED)
Borrowings under the Credit Facility were used to refinance balances outstanding
under a previous credit agreement. 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.
Promissory Note Payable
The Company assumed indebtedness in the A+ Network merger of approximately
$627,000. The promissory note is payable as consideration for an acquisition
completed by A+ Network in May 1996. The promissory note bears interest at 7.5%
with monthly principal and interest payments of $8,333 through June 2005.
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 DECEMBER 31, 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
10 3/8% Senior Subordinated Notes
due 2007.......................... $150,000 $159,773 $150,000 $127,500
11 7/8% Senior Subordinated Notes
due 2005.......................... -- -- 2,534 2,331
Industrial development revenue
note.............................. 1,026 1,093 914 780
Promissory note payable............. -- -- 623 565
</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 and the promissory note payable is based on the Company's
incremental borrowing rate.
8. STOCK AND STOCK RIGHTS
The authorized capital stock of Metrocall consists of 33,500,000 shares of
common stock, par value $0.01 per share ("Metrocall Common Stock" or "Common
Stock") and 1,000,000 shares of preferred stock, par value $0.01 per share
("Preferred Stock"), of which 810,000 shares have been designated as Series A
Convertible Preferred Stock ("Series A Preferred Stock"), 9,000 shares will be
designated Series B Convertible Preferred Stock ("Series B Preferred Stock") and
4,000 shares will be designated as Common Stock Equivalent Preferred Stock ("CSE
Preferred Stock").
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.
F-17
<PAGE> 171
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK AND STOCK RIGHTS -- (CONTINUED)
At the Company's annual meeting of the Company's stockholders in May 1996,
the Company's stockholders approved an increase in the authorized number of
shares of Common Stock from 20,000,000 to 26,000,000. Additionally, at a special
meeting of the Company's stockholders in November 1996, the stockholders
increased the authorized number of shares of Common Stock from 26,000,000 to
33,500,000. The Company intends to seek approval from its stockholders at its
annual meeting in May 1997 to increase the number of authorized shares of Common
Stock to 60,000,000.
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 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.
Series A Preferred Stock
The Board of Directors has designated 810,000 shares of Preferred Stock as
Series A Preferred Stock. On November 15, 1996, the Company issued 159,600
shares of Series A Preferred Stock, together with the warrants discussed below,
for $250 per share or $39.9 million. The Company incurred fees of approximately
$1.6 million. Net proceeds from the Series A Preferred Stock ($38.3 million)
were used to reduce outstanding bank indebtedness ($25 million) and to fund
existing working capital requirements ($13.3 million). Each share of Series A
Preferred Stock has a stated value of $250 per share and has a liquidation
preference over shares of the Company's Common Stock equal to the stated value.
The Series A Preferred Stock carries a dividend of 14% of the stated value per
year, payable semiannually in cash or in additional shares of Series A Preferred
Stock, at the Company's option. Upon the occurrence of a triggering event, as
defined in the certificate of designation for Series A Preferred Stock, and so
long as the triggering event continues, the dividend rate increases to 16% per
year. Triggering events include, among other things, (i) the failure of the
stockholders of Metrocall to approve an increase in the number of authorized
shares of Common Stock to at least 50,000,000 on or prior to June 1, 1997, (ii)
the Company issues or incurs indebtedness or equity securities senior with
respect to payment of dividends or distributions on liquidation or redemption to
the Series A Preferred Stock in violation of limitations set forth in the
certificate of designation, and (iii) default on the payment of indebtedness in
an amount of $5,000,000 or more. So long as a triggering event described in (i)
above is continuing, dividends must be paid in cash to the extent permitted by
the terms of agreements relating to the Company's debt. At December 31, 1996,
accrued but unpaid dividends were approximately $698,000.
Holders of Series A Preferred Stock have the right, beginning five years
from the date of issuance, to convert their Series A Preferred Stock (including
shares issued as dividends) into shares of Metrocall Common Stock based on the
market price of the Common Stock at the time of conversion. Series A Preferred
Stock may, at the holders' option, be converted sooner upon a change of control
of Metrocall, as defined in the certificate of designation. The Series A
Preferred Stock must be redeemed on November 15, 2008, for an amount equal to
the stated value plus accrued and unpaid dividends.
The Series A Preferred Stock may be redeemed by the Company in whole or in
part (subject to certain minimums) beginning November 15, 1999. Prior to then,
the Series A Preferred Stock may be redeemed by the Company in whole in
connection with a sale of the Company (as described in the Series A Preferred
Stock certificate of designation) unless the holders have exercised their rights
to convert to Metrocall Common Stock in connection with the transaction. The
redemption price prior to November 15, 2001, is equal to the stated value of the
shares of Series A Preferred Stock, plus accrued and unpaid dividends, and a
redemption
F-18
<PAGE> 172
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK AND STOCK RIGHTS -- (CONTINUED)
premium, as defined. After November 15, 2001, the Series A Preferred Stock may
be redeemed for the stated value of $250 per share, without premium.
Holders of Series A Preferred Stock have the right to elect two members to
the Company's Board of Directors. If a triggering event has occurred and is
continuing, the holders of Series A Preferred Stock have the right to elect
additional directors so that directors elected by such holders shall constitute
no less than 40% of the members of the Board of Directors. The Company is
required to obtain the approval of the holders of not less than 75% of the
Series A Preferred Stock before undertaking (i) any changes in the Metrocall
Certificate of Incorporation and Bylaws that adversely affect the rights of
holders of the Series A Preferred Stock, (ii) a liquidation, winding up or
dissolution of the Company or the purchase of shares of capital stock of
Metrocall from holders of over 5% of the issued and outstanding voting
securities, (iii) any payment of dividends on or redemption of Metrocall Common
Stock; or (iv) issuance of any additional shares of Series A Preferred Stock
(except in payment of dividends) or any shares of capital stock having
preferences on liquidation or dividends ranking equally to the Series A
Preferred Stock. The Company is also required to obtain approval of holders of
not less than a majority of the issued and outstanding Series A Preferred Stock
before undertaking (i) any acquisition involving consideration having a value
equal to or greater than 50% of the market capitalization of the Company or (ii)
any sale of the Company unless Metrocall redeems the Series A Preferred Stock.
Series B Preferred Stock
In connection with the Page America transaction (see Note 14), the Board of
Directors has authorized the designation of 9,000 shares of Preferred Stock as
Series B Preferred Stock. Each share of Series B Preferred Stock will have a
stated value of $10,000 per share and a liquidation preference, which is junior
to the Series A Preferred Stock but senior to the shares of Metrocall Common
Stock, equal to its stated value. The Series B Preferred Stock will carry a
dividend of 14% of the stated value per year, payable semiannually in cash or in
additional shares of Series B Preferred Stock, at the Company's option. The
Company has agreed to issue 1,500 shares of Series B Preferred Stock pursuant to
the Amended Page America Agreement (see Note 14).
Subject to the approval of the conversion rights by holders of the
Metrocall Common Stock, beginning on September 1, 1997, and quarterly
thereafter, the holders of Series B Preferred Stock will have the right to
convert up to 25% of the number of Series B Preferred Stock initially issued
(plus shares of Series B Preferred Stock issued as dividends on such shares, and
as dividends on such dividends) into shares of Metrocall Common Stock at the
current market value of the Common Stock, as defined.
The Series B Preferred Stock must be redeemed on the twelfth anniversary of
the initial issuance for an amount equal to the stated value, plus accrued and
unpaid dividends. The Series B Preferred Stock may also be redeemed by the
Company in whole or in part at any time for an amount equal to the stated value
of the sales to be redeemed plus accrued and unpaid dividends. If Metrocall
elects to redeem Series B Preferred Stock, the holders thereof will have the
right to convert any Series B Preferred stock that was then convertible into
Metrocall Common Stock within 15 business days after receipt of notice of
redemption.
The Company is required to obtain the approval of holders of a majority of
the issued and outstanding Series B Preferred Stock before undertaking (i) any
changes in the Metrocall Certificate of Incorporation and Bylaws that adversely
affect the rights of the holders of Series B Preferred Stock and (ii) any
changes in the Series B Certificate of Designation. The Series B Preferred Stock
also contains restrictions on the ability of Metrocall to incur any debt or
issue securities (other than the Series A Preferred Stock) that are senior to
the Series B Preferred Stock.
F-19
<PAGE> 173
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK AND STOCK RIGHTS -- (CONTINUED)
Common Stock Equivalent Preferred Stock
In connection with the Page America transaction (see Note 14), the Board of
Directors has authorized the designation of 4,000 shares of Preferred Stock as
Common Stock Equivalent Preferred Stock. Pursuant to the Amended Page America
Agreement (see Note 14), Page America may receive CSE Preferred Stock. Each
share of CSE Preferred Stock will equal .001 shares of a series of preferred
stock. Each share of CSE Preferred Stock will have one vote per share on all
matters submitted to a vote of holders of Metrocall Common Stock, will be
entitled to receive a dividend equal to any dividend declared and paid with
respect to the Metrocall Common Stock, will have a liquidation preference equal
to that of the Metrocall Common Stock and will be automatically converted into
Metrocall Common Stock when sufficient shares have been approved by the
Company's stockholders. In the event sufficient shares of Metrocall Common Stock
are not available and the Company's stockholders have not approved an increase
in the authorized number of shares of Metrocall Common Stock to 60,000,000 by
June 1, 1997, the CSE Preferred Stock will be automatically converted into that
number of shares of Series B Preferred Stock equal to the total share value of
the CSE Preferred Stock (as of the closing of the Page America transaction)
divided by $10,000.
Warrants
In connection with the issuance of the Series A Preferred Stock, discussed
above, the Company issued on November 15, 1996, warrants to purchase Metrocall
Common Stock. Each warrant represents the right of the holder to purchase 18.266
shares of Metrocall Common Stock or an aggregate of 2,915,254 shares of
Metrocall Common Stock. The exercise price per share is $7.40. The warrants
expire November 15, 2001.
The total value allocated to the warrants for financial reporting purposes,
$7.9 million or $2.70 per share, will be accreted over the term of the Series A
Preferred Stock as preferred dividends.
Variable Common Rights
As part of the merger consideration, stockholders of A+ Network received
VCRs equal to the number of shares of Metrocall Common Stock they received in
the merger. Each VCR entitles the holder to receive a payment of up to $5.00 in
either the Company's Common Stock or cash, at the Company's option, if the
market value, as defined, of the Company's Common Stock at November 15, 1997, is
less than a specified target price. The target price will be adjusted downward,
but not upward, based on changes in an index composed of the average closing bid
prices of three other companies in the paging industry since the announcement of
the merger. If changes in the index cause the target price to be lower than a
floor price of $16.10 (which is not indexed and therefore not adjusted
downward), the VCR payment will be zero without regard to the trading value of
the Company's Common Stock. At November 15, 1996, the date the merger was
completed, the target price was estimated to be approximately $5.97 per share.
For financial reporting purposes, no value has been assigned to the VCRs. As of
December 31, 1996, the target price was below the fixed floor price of $16.10
per share.
Stock Option Plans
In 1993, the Company adopted a Stock Option Plan (the "1993 Plan"). Under
the 1993 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 1993 Plan limits the maximum number of shares that may be granted to any
person eligible under the 1993 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 1993 Plan become fully vested and exercisable on the
second anniversary of the date of grant. Each option granted under the 1993 Plan
will terminate no later than ten years after the date the option was granted.
Effective with the approval of the
F-20
<PAGE> 174
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK AND STOCK RIGHTS -- (CONTINUED)
Metrocall 1996 Stock Option Plan in May 1996, discussed below, no additional
options will be granted under the 1993 Plan.
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"). Options issued under the Directors Plan vest fully on the six-month
anniversary of the date of grant. Each Eligible Director was also 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 May 1996, the Company's stockholders approved the Metrocall 1996 Stock
Option Plan (as amended, the "1996 Plan") an amendment to which was approved by
the stockholders in November 1996. Under the 1996 Plan, options to purchase up
to an aggregate of 2,000,000 shares of Common Stock were reserved for grant to
key employees, officers and nonemployee directors who have never been employed
by the Company ("Qualified Director"). The 1996 Plan limits the maximum number
of shares that may be granted to any person eligible under the 1996 Plan to
750,000. If any option granted under the 1996 Plan expires or terminates prior
to exercise in full, the shares subject to that option shall be available for
future grants under the 1996 Plan. All employees of the Company and Qualified
Directors of the Company are eligible to participate in the 1996 Plan. Each
option granted under the 1996 Plan will terminate no later than ten years after
the date the option was granted.
Under the 1996 Plan, both incentive stock options and nonstatutory stock
options are available for employees. For incentive stock options, the option
price shall not be less than the fair market value of a share of Metrocall
Common Stock on the date the option is granted. For nonstatutory options, the
option price shall not be less than the par value of Metrocall Common Stock. All
options granted to Qualified Directors shall be nonstatutory options. Upon
approval of the 1996 Plan, each Qualified Director was granted an initial option
to purchase 10,000 shares of Metrocall Common Stock. Thereafter, every Qualified
Director will be granted an initial option to purchase 10,000 shares of
Metrocall Common Stock at the time the Qualified Director commences service on
the board of directors. Subsequently, each Qualified 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 a Qualified Director on each
anniversary date. Options granted to Qualified Directors shall become fully
vested six months after the date of grant. The exercise price for options
granted to Qualified Directors shall be the fair market value of Metrocall
Common Stock on the date the option is granted or the date of shareholder
approval of the 1996 Plan, if later.
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 approximately $1.04 per common share. Of the total
options exchanged, 23,219 were unexercised at December 31, 1996.
In connection with the merger of Metrocall and A+ Network, Metrocall
exchanged options to purchase shares of Metrocall Common Stock with former A+
Network option holders. These options are fully vested and exercisable and have
an exercise price of approximately $6.04 per common share. Of the total options
exchanged, none had been exercised through December 31, 1996.
F-21
<PAGE> 175
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK AND STOCK RIGHTS -- (CONTINUED)
Pursuant to the stock option plans discussed above, the Board of Directors
has approved the issuances of the following Common Stock options.
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
YEAR ENDED DECEMBER EXERCISE EXERCISE EXERCISE
31, 1994 PRICE 1995 PRICE 1996 PRICE
- ------------------- ------------- --------- -------------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of
period........... 316,500 $ 19.47 529,387 $ 15.75 798,958 $ 17.75
Granted............ 170,500 13.05 303,500 20.24 656,216 17.70
Canceled........... (5,000) 19.50 (12,500) 20.10 (172,337) 18.11
Issued in FirstPAGE
merger........... 47,387 1.04 -- -- -- --
Issued in A+
Network merger... -- -- -- -- 468,904 6.04
Exercised.......... -- -- (21,429) 2.21 (4,739) 1.04
------------- --------- -------------- --------- -------------- ---------
Outstanding, end of
period........... 529,387 $ 15.75 798,958 $ 17.75 1,747,002 $ 8.18
============ ======= ============= ======= ============= =======
Options
exercisable...... 50,387 339,958 966,417
Option price
range -- options
outstanding...... $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
approved a change in the exercise price for substantially all outstanding Common
Stock options for current employees and officers. The new exercise price was
$7.94 per share, the fair market value on the date of the change. On February 5,
1997, the Compensation Committee of the Board of Directors approved a change in
the exercise price for substantially all outstanding options for current
employees, officers and directors. The new exercise price was $6.00 per share,
the fair market value on the date of the change. Repricing of options for
nonemployee directors is subject to stockholder approval.
Employee Stock Purchase Plan
In May 1996, the Company's stockholders approved the Metrocall, Inc.
Employee Stock Purchase Plan (the "Stock Purchase Plan"). Substantially all
full-time employees are eligible to participate in the Stock Purchase Plan.
Participants in the Stock Purchase Plan may elect to purchase shares of
Metrocall Common Stock at the lesser of 85% of the fair market value on either
the first or last trading day of each payroll deduction period. No employee may
purchase in one calendar year shares of Common Stock having an aggregate fair
market value in excess of $25,000. Total shares authorized for issuance under
the Stock Purchase Plan are 300,000. In July 1996, 11,942 shares were issued
under the Stock Purchase Plan for $9.24 per share. At December 31, 1996, 35,203
shares were due to participants in the Stock Purchase Plan at a price of $4.14
per share. The weighted-average fair value of shares sold in 1996 was $6.56 per
share.
SFAS No. 123, "Accounting for Stock-Based Compensation"
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option and stock purchase plans. Since the Company has
granted options to acquire Common Stock at an exercise
F-22
<PAGE> 176
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK AND STOCK RIGHTS -- (CONTINUED)
price equal to the fair value of the Common Stock on the date of grant, no
compensation cost has been recognized for its stock option and stock purchase
plans other than for approximately $285,000 of compensation expense recognized
in 1995 upon amending option agreements with certain former employees (see Note
5). Had compensation cost for the Company's stock-based compensation plans been
determined for 1995 and 1996 grants using the fair value at the grant dates for
awards under those plans consistent with the method of SFAS Statement No. 123,
the Company's loss and loss per share information would have been increased to
the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C> <C>
Loss before extraordinary item attributable to As reported $(17,407) $(46,235)
common stockholders............................... Pro forma (17,779) (49,589)
Loss attributable to common stockholders............ As reported (20,102) (49,910)
Pro forma (20,474) (53,264)
Loss per share before extraordinary item As reported (1.49) (2.84)
attributable to common stockholders............... Pro forma (1.52) (3.05)
Loss per share attributable to common As reported (1.72) (3.07)
stockholders...................................... Pro forma (1.75) (3.28)
</TABLE>
Because the Statement No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The weighted-average fair value of options granted in 1995 and 1996 was
$7.34 and $5.89, respectively, after the effect of repricing discussed above.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996: risk free rate of 6.43%, expected
lives of ten years and expected volatility of 60.6%.
9. COMMITMENTS AND CONTINGENCIES
Legal and Regulatory Matters
The Company is subject to certain legal and regulatory matters in the
normal course of business. In the opinion of management, the outcome of such
assertions will not have a material adverse effect on the financial position or
the results of the operations of the Company.
In April 1996, the Company entered into an agreement to purchase certain of
the assets of Source One Wireless, Inc. ("Source One") and placed $1 million
cash in escrow. On June 26, 1996, the Company advised Source One that Source One
had failed to meet certain conditions to completion of the transaction and
terminated the agreement. On September 20, 1996, Source One filed an action in
the Circuit Court of Cook County, Illinois, claiming that the Company had
breached the agreement and seeking specific performance of the purchase
agreement or unspecified damages in excess of $80 million. The Company intends
to vigorously defend the claims in this action and believes it has meritorious
defenses to this action.
The Company has received communications from a seller in connection with an
acquisition that occurred in 1994 asserting damages resulting from alleged
misrepresentations in connection with the acquisition. The seller, who received
shares of the Company's Common Stock as acquisition consideration, is seeking to
receive additional shares of Common Stock and participation on the Company's
board of directors, among other requests. To date, no claim has been filed;
however, if necessary, management will vigorously defend any legal actions that
might arise from such assertions.
F-23
<PAGE> 177
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Leases
The Company has various leasing arrangements (as lessee) for office space
and communications equipment sites. Rental expense related to operating leases
was approximately $2,627,000, $4,818,000, and $8,612,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
Minimum rental payments as of December 31, 1996, 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>
1997............................................................... $11,867
1998............................................................... 9,456
1999............................................................... 6,364
2000............................................................... 4,286
2001............................................................... 2,431
Thereafter......................................................... 4,347
-------
$38,751
=======
</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 $215,000, $359,000 and $334,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
The Company leases office and warehouse space from a company owned by a
director of the Company. The annual rental commitment under these leases, which
expire in 1998, is approximately $520,000. The Company believes the terms of
these leases are at least as favorable as those that could be obtained from a
non-affiliated party.
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 that covers substantially all full-time employees. The Plan
qualifies under section 401(k) of the Internal Revenue Code (the "IRC"). Under
the Plan, participating employees may elect to voluntarily contribute on a
pretax 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 $200,000, $93,000, and $112,000 for the years ended December 31,
1994, 1995 and 1996, respectively.
10. EQUITY INVESTMENT
The Company acquired a 33 1/3% interest in Solo America, a national sales
and marketing distribution company. In its relationship with Solo America, the
Company has agreed to advance $1 million to Solo America, payable in three
installments, in exchange for Solo America's efforts to market the Company's
paging products and services. Through December 31, 1996, the Company has made
equity installments totaling $666,666. The Company recorded a charge of
approximately $207,000 to recognize the Company's share of Solo America's net
loss in the year ended December 31, 1996. The Company has recorded a further
reserve against the investment in Solo America at December 31, 1996 of
approximately $238,000.
F-24
<PAGE> 178
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
As of December 31, 1996, the Company had net operating loss and investment
tax credit carryforwards of approximately $122.8 million and $1.1 million,
respectively, which expire in the years 1999 through 2011. 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. To the extent that acquired net operating losses are
utilized in future periods, the benefit will first be recognized to reduce
acquired intangible assets before reducing the provision for income taxes.
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, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.................... $ 386 $ 502
Management reorganization.......................... 590 217
New pagers on hand................................. 633 971
Intangibles........................................ -- 2,182
Other.............................................. 572 887
Net operating loss carryforwards................... 27,055 48,979
-------- --------
Total deferred tax assets..................... 29,236 53,738
======== ========
Deferred tax liabilities:
Basis differences attributable to purchase
accounting....................................... (11,814) (76,687)
Depreciation and amortization expense.............. (5,288) (9,449)
Other.............................................. (388) (143)
-------- --------
Total deferred tax liabilities................ (17,490) (86,279)
======== ========
Net deferred tax asset (liability)...................... 11,746 (32,541)
Less: Valuation allowance............................... (23,560) (44,146)
-------- --------
$(11,814) $(76,687)
======== ========
</TABLE>
F-25
<PAGE> 179
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES -- (CONTINUED)
The income tax benefit for the years ended December 31, 1994, 1995 and
1996, is primarily the result of the amortization of the basis differences
attributable to purchase accounting and is composed of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1994 1995 1996
---- ---- ------
<S> <C> <C> <C>
Income tax (provision) benefit
Current --
Federal...................................... $(35) $(36) $ --
State........................................ (13) (55) (447)
Deferred.......................................... 200 686 1,468
---- ---- ------
$152 $595 $1,021
==== ==== ======
</TABLE>
The benefit for income taxes for the years ended December 31, 1994, 1995
and 1996, results in effective rates that differ from the Federal statutory rate
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Statutory Federal income tax rate...................... 35.0% 35.0% 35.0%
Effect of graduated rates.............................. (1.0) (1.0) (1.0)
State income taxes, net of Federal tax benefit......... 2.8 2.8 4.6
Net operating losses for which no tax benefit is
currently available.................................. (12.5) (30.6) (24.6)
Permanent differences.................................. (12.1) (2.6) (11.8)
----- ----- -----
12.2% 3.6% 2.2%
===== ===== =====
</TABLE>
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company made cash payments for interest of $2,576,000, $9,538,000 and
$19,082,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
The Company made cash payments for income taxes of $48,000, $55,000 and $264,000
for the years ended December 31, 1994, 1995 and 1996, respectively.
A capital lease obligation of $3.2 million was incurred when the Company
entered into a lease for new office space in 1994 (see Note 6). In 1996, the
Company executed a lease agreement for computer equipment which is treated as a
capital lease obligation for financial reporting purposes of $1.1 million.
F-26
<PAGE> 180
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. INTERIM FINANCIAL DATA (UNAUDITED)
The following table of quarterly financial data has been prepared from the
financial records of the Company, without audit, and reflects all adjustments
that 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
------------------ ------------------- ------------------- --------------------
1995 1996 1995 1996 1995 1996 1995 1996
------- ------- ------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $25,796 $29,939 $27,640 $ 32,048 $27,978 $ 36,622 $ 29,445 $ 51,348
Income (loss) from operations..... 766 (4,770) 612 (8,093) (721) (7,118) (6,440) (5,464)
Loss before extraordinary item
attributable to common
stockholders.................... (1,690) (7,689) (2,038) (10,955) (3,370) (14,315) (10,309) (13,276)
Loss attributable to common
stockholders.................... (1,690) (7,689) (2,038) (10,955) (3,370) (14,315) (13,004) (16,951)
Loss per share before
extraordinary item attributable
to common stockholders.......... (0.16) (0.53) (0.19) (0.75) (0.31) (0.94) (0.71) (0.65)
Loss per share attributable to
common
stockholders.................... (0.16) (0.53) (0.19) (0.75) (0.31) (0.94) (0.89) (0.83)
</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 charge described in Note 5.
Net loss for the three months ended December 31, 1995 and 1996, includes charges
for extraordinary items, net of applicable tax benefit, if any, for the
write-off of deferred financing costs of $2,695,000 ($0.23 per share) and costs
associated with the repurchase of the A+ Notes of $3,675,000 ($0.23 per share),
respectively, discussed in Note 6.
14. PENDING ACQUISITION
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"). The Page America Agreement was subsequently amended on
January 30, 1997 (the "Amended Page America Agreement"). Pursuant to the Amended
Page America Agreement, as subsequently modified, (i) Metrocall will acquire
substantially all of the assets and assume substantially all of Page America's
accounts payable and certain obligations under various office and equipment
leases and (ii) Page America will receive (a) $25 million in cash subject to
reduction for amounts payable for pagers provided by the Company, (b)1,500
shares of Series B Preferred Stock with a stated value of $15 million, (c)
762,960 shares of the Company's Common Stock and (d) additional shares of the
Company's Common Stock or other equity securities (CSE Preferred Stock, see Note
8) having a value equal to $15 million, subject to adjustment based on certain
changes in Page America's working capital and service revenues. Consummation of
the Page America acquisition is subject to a number of conditions including, but
not limited to, receipt of all necessary regulatory approvals and approval by
the Page America stockholders. There can be no assurance that such approvals
will be obtained. The pending transaction, if consummated, will be accounted for
as a purchase.
F-27
<PAGE> 181
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
JUNE 30,
1997
DECEMBER 31, -----------
1996
------------ (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 10,917 $ 20,749
Accounts receivable, less allowance for doubtful accounts of $2,961 as of
December 31, 1996 and $3,031 as of June 30, 1997......................... 18,223 24,041
Prepaid expenses and other current assets.................................. 5,681 7,396
-------- --------
Total current assets................................................ 34,821 52,186
-------- --------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements................................. 12,694 15,799
Furniture, office equipment and vehicles................................... 29,742 36,279
Paging and plant equipment................................................. 188,236 195,369
Less -- Accumulated depreciation and amortization.......................... (77,260) (95,616)
-------- --------
153,412 151,831
-------- --------
INTANGIBLE ASSETS, net of accumulated amortization of approximately $20,926
as of December 31, 1996 and $38,258 as of June 30, 1997.................... 452,639 440,356
OTHER ASSETS................................................................. 3,023 2,355
-------- --------
TOTAL ASSETS................................................................. $643,895 $ 646,728
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt....................................... $ 700 $ 965
Accounts payable........................................................... 17,194 20,246
Accrued expenses and other current liabilities............................. 18,940 18,693
Deferred revenues and subscriber deposits.................................. 5,254 6,457
-------- --------
Total current liabilities........................................... 42,088 46,361
-------- --------
CAPITAL LEASE OBLIGATIONS, net of current portion............................ 3,244 4,717
CREDIT FACILITY AND OTHER LONG-TERM DEBT, less current maturities............ 171,314 191,037
SENIOR SUBORDINATED NOTES, due 2005 and 2007................................. 152,534 152,534
DEFERRED INCOME TAX LIABILITY................................................ 76,687 75,249
MINORITY INTEREST IN PARTNERSHIP............................................. 499 511
-------- --------
Total liabilities................................................... 446,366 470,409
-------- --------
SERIES A CONVERTIBLE PREFERRED STOCK, 14% cumulative; par value $.01 per
share; 810,000 shares authorized; 159,600 shares and 170,772 shares issued
and outstanding as of December 31, 1996 and June 30, 1997, and a
liquidation preference of $40,598 and $43,440 at December 31, 1996 and June
30, 1997, respectively..................................................... 31,231 34,401
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; authorized 1,000,000 shares;
none issued and outstanding.............................................. -- --
Common stock, par value $.01 per share; authorized 60,000,000 shares;
24,521,135 and 25,074,001 shares issued and outstanding as of December
31, 1996 and June 30, 1997, respectively................................. 245 251
Additional paid-in capital................................................. 262,827 265,662
Accumulated deficit........................................................ (96,774) (123,995)
-------- --------
Total stockholders' equity.......................................... 166,298 141,918
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................... $643,895 $ 646,728
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-28
<PAGE> 182
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------------
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Service, rent and maintenance revenues............................. $ 25,079 $ 60,021
Product sales...................................................... 6,969 10,276
---------- ----------
Total revenues............................................. 32,048 70,297
Net book value of products sold.................................... (5,910) (7,525)
---------- ----------
26,138 62,772
---------- ----------
OPERATING EXPENSES:
Service, rent and maintenance expenses............................. 8,305 18,189
Selling and marketing.............................................. 5,399 13,001
General and administrative......................................... 6,920 14,693
Depreciation and amortization...................................... 13,607 22,831
---------- ----------
34,231 68,714
---------- ----------
Loss from operations....................................... (8,093) (5,942)
INTEREST EXPENSE..................................................... (4,191) (7,867)
INTEREST AND OTHER INCOME............................................ 1,157 143
---------- ----------
LOSS BEFORE INCOME TAX BENEFIT....................................... (11,127) (13,666)
INCOME TAX BENEFIT................................................... 172 1,362
---------- ----------
Net loss................................................... (10,955) (12,304)
PREFERRED DIVIDENDS.................................................. -- (1,609)
---------- ----------
Loss attributable to common stockholders................... $ (10,955) $ (13,913)
========= =========
Loss per share attributable to common stockholders................... $ (0.75) $ (0.55)
========= =========
Weighted-average common shares outstanding........................... 14,626,255 25,074,059
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-29
<PAGE> 183
METROCALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Service, rent and maintenance revenues............................. $ 48,829 $ 118,537
Product sales...................................................... 13,158 18,513
---------- ----------
Total revenues............................................. 61,987 137,050
Net book value of products sold.................................... (10,560) (13,682)
---------- ----------
51,427 123,368
---------- ----------
OPERATING EXPENSES:
Service, rent and maintenance expenses............................. 16,498 35,440
Selling and marketing.............................................. 9,992 24,913
General and administrative......................................... 12,702 29,836
Depreciation and amortization...................................... 25,098 43,549
---------- ----------
64,290 133,738
---------- ----------
Loss from operations....................................... (12,863) (10,370)
INTEREST EXPENSE..................................................... (8,401) (15,907)
INTEREST AND OTHER INCOME............................................ 2,511 60
---------- ----------
LOSS BEFORE INCOME TAX BENEFIT....................................... (18,753) (26,217)
INCOME TAX BENEFIT................................................... 107 2,165
---------- ----------
Net loss................................................... (18,646) (24,052)
---------- ----------
PREFERRED DIVIDENDS.................................................. -- (3,169)
---------- ----------
Loss attributable to common stockholders................... $ (18,646) $ (27,221)
========= =========
Loss per share attributable to common stockholders................... $ (1.27) $ (1.09)
========= =========
Weighted-average common shares outstanding........................... 14,626,255 24,977,724
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-30
<PAGE> 184
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL
SHARES PAR PAID-IN ACCUMULATED
OUTSTANDING VALUE CAPITAL DEFICIT TOTAL
----------- ----- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996................. 24,521,135 $ 245 $ 262,827 $ (96,774) $166,298
Issuance of shares in employee stock
purchase plan............................ 34,770 1 143 -- 144
Adjustment to consideration for 1996
acquisition.............................. 21,921 -- (209) -- (209)
Issuance of common stock in the acquisition
of Radio and Communications Consultants,
Inc. and Advanced Cellular Telephone,
Inc...................................... 494,279 5 2,899 -- 2,904
Issuance of shares under option
agreement................................ 1,896 -- 2 -- 2
Preferred dividends........................ -- -- -- (3,169) (3,169)
Net loss................................... -- -- -- (24,052) (24,052)
----------- ----- --------- ---------- --------
BALANCE, June 30, 1997 (unaudited)......... 25,074,001 $ 251 $ 265,662 $ (123,995) $141,918
========= ==== ======== ========= ========
</TABLE>
See notes to condensed consolidated financial statements.
F-31
<PAGE> 185
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................. $(18,646) $(24,052)
Adjustments to reconcile net loss to net cash provided by operating
activities-- Depreciation and amortization......................... 25,098 43,549
Amortization of debt financing costs............................... 176 498
Decrease in deferred income taxes.................................. (343) (2,692)
Write-off of deferred acquisition costs............................ 388 --
Equity in loss of A+ Network, Inc. ................................ 153 --
Cash provided by (used in) changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Accounts receivable................................................ (1,002) (6,566)
Prepaid expenses and other current assets.......................... (113) (1,016)
Accounts payable................................................... 8,068 3,196
Deferred revenues and subscriber deposits.......................... 809 1,679
Other current liabilities.......................................... (665) (298)
-------- --------
Net cash provided by operating activities..................... 13,923 14,298
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired...................... -- (798)
Proceeds from sale of telemessaging operations........................ -- 10,300
Purchases of property and equipment, net.............................. (39,065) (32,501)
Additions to intangibles.............................................. (35,265) (678)
Equity investment in A+ Network, Inc. ................................ (13,671) --
Other................................................................. 3 (297)
-------- --------
Net cash used in investing activities......................... (87,998) (23,974)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.......................................... -- 20,000
Principal payments on long-term debt.................................. (122) (650)
Net proceeds from issuance of common stock............................ -- 146
Increase in minority interest in partnership.......................... -- 12
-------- --------
Net cash (used in) provided by financing activities........... (122) 19,508
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................... (74,197) 9,832
CASH AND CASH EQUIVALENTS, beginning of period.......................... 123,574 10,917
-------- --------
CASH AND CASH EQUIVALENTS, end of period................................ $ 49,377 $ 20,749
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest............................................ $ 7,956 $ 13,024
Cash payments for income taxes........................................ $ 236 $ 527
</TABLE>
See notes to condensed consolidated financial statements.
F-32
<PAGE> 186
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION AND RISK FACTORS
Metrocall, Inc. ("Metrocall" or the "Company"), provides local, regional
and nationwide paging and other wireless messaging services. The Company's
selling efforts are concentrated in 32 markets in five operating regions: (i)
the Northeast (Massachusetts through Delaware), (ii) the Mid-Atlantic (Maryland,
Virginia and the Washington, D. C. metropolitan area), (iii) the Southeast
(including Virginia, the Carolinas, Georgia, Florida, Alabama, Louisiana,
Mississippi and Tennessee), (iv) the Southwest (primarily Texas) and (v) the
West (primarily California, Nevada and Arizona). Through its Nationwide Network,
the Company provides coverage to over 1,000 cities representing the top 100
Standard Metropolitan Statistical Areas.
Risks and Other Important Factors
The Company sustained net losses of $2.4 million, $20.1 million, $49.1
million, and $24.1 million for each of the years ended December 31, 1994, 1995,
1996 and the six months ended June 30, 1997, respectively. The Company's loss
from operations for the six months ended June 30, 1997 was $10.4 million. In
addition, at June 30, 1997, the Company had an accumulated deficit of
approximately $124.0 million. The Company's losses from operations and its net
losses are expected to continue for additional periods in the future. There can
be no assurance that the Company's operations will become profitable.
The Company's operations require the availability of substantial funds to
finance the maintenance and growth of its existing paging operations and
customer base, development and construction of future wireless communications
networks, expansion into new markets, and the acquisition of other wireless
communications companies. At June 30, 1997, the Company had incurred
approximately $349.3 million in long-term debt and capital leases. Amounts
available under the Company's credit facility are subject to certain financial
covenants and other restrictions such that as of June 30, 1997, approximately
$76.8 million of additional borrowings were available to the Company under its
credit facility. On July 1, 1997, the Company incurred additional borrowings of
$26.0 million in the Page America transaction discussed in Note 9. The Company's
ability to borrow additional amounts in the future is dependent on its ability
to comply with the provisions of its credit facility.
The Company is also subject to certain additional risks and uncertainties
including, but not limited to, changes in technology, business integration,
competition, regulatory, legal and subscriber turnover.
2. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC") and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes, however,
that its disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1996 Annual Report on Form 10-K, as amended. The
results of operations for the three and six-month periods ended June 30, 1997,
are not necessarily indicative of the results to be expected for the full year.
F-33
<PAGE> 187
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. 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 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. 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. New
pagers are depreciated using the half-year convention upon acquisition.
Betterments to acquired pagers are charged to depreciation expense.
Long-Lived Assets
Long-lived assets and identifiable intangibles to be held and used are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount should be addressed. Impairment is measured by
comparing the book value to the estimated undiscounted future cash flows
expected to result from use of the assets and their eventual disposition. At
June 30, 1997, the market value of the Company's common stock was $4.50 per
share and the net book value was $5.66 per share. However, the Company has
determined that there has been no permanent impairment in the carrying value of
long-lived assets reflected in the accompanying balance sheet.
Effective July 1, 1996, the Company changed the estimated useful lives of
certain intangibles acquired in 1994, including goodwill and regulatory licenses
issued by the Federal Communications Commission ("FCC") recorded in the
acquisitions of FirstPAGE USA, Inc. and MetroPaging, Inc. from 40 years to 15
years for goodwill and from 40 years to 25 years for FCC licenses. The impact of
these changes was to increase amortization expense for the three and six-month
periods ended June 30, 1997 by approximately $650,000 and $1.3 million,
respectively.
F-34
<PAGE> 188
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Reclassifications
Certain amounts in the prior period's consolidated financial statements
have been reclassified to conform with the current period's presentation.
4. LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Loss per share attributable to common stockholders for the three and
six-month periods ended June 30, 1996 and 1997, is based upon the
weighted-average number of common equivalent shares outstanding during the
period. The effect of outstanding options and warrants on loss per share
attributable to common stockholders for the three and six-month periods ended
June 30, 1996 and 1997, is not included because such options and warrants would
be antidilutive.
New Accounting Pronouncement
On March 3, 1997, the Financial Accounting Standards Board released
Statement No. 128, "Earnings Per Share." Statement 128 requires dual
presentation of basic and diluted earnings per share on the face of the income
statement for all periods presented. Basic earnings per share excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted earnings per share is computed similarly
to fully diluted earnings per share pursuant to Accounting Principles Bulletin
No. 15. Statement 128 is effective for reporting periods ending after December
15, 1997, and when adopted, it will require restatement of prior periods'
earnings per share.
Since the effect of outstanding options and warrants is antidilutive, they
have been excluded from the Company's computation of net loss per share.
Accordingly, management does not believe that Statement 128 will have an impact
upon historical net loss per share as reported.
5. ACQUISITION
On February 5, 1997, the Company acquired 100% of the outstanding common
stock of Radio and Communications Consultants, Inc. and Advanced Cellular
Telephone, Inc. (collectively, "RCC") by means of a merger of Metrocall of
Shreveport, Inc., a wholly owned subsidiary of Metrocall formed to effect the
merger with RCC. The merger was financed through the issuance of 494,279 shares
of the Company's common stock, approximately $800,000 in cash and assumed
liabilities of approximately $200,000. The Company also recorded a deferred tax
liability of approximately $1.3 million in connection with this transaction. The
RCC acquisition has been accounted for as a purchase for financial accounting
purposes.
6. STOCK AND STOCK RIGHTS
Capital Stock
The authorized capital stock of Metrocall consists of 60,000,000 shares of
common stock, par value $.01 per share and 1,000,000 shares of preferred stock,
par value $0.01 per share, of which 810,000 shares have been designated as
Series A Convertible Preferred Stock and 9,000 shares have been designated
Series B Convertible Preferred Stock ("Series B Preferred Stock").
F-35
<PAGE> 189
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCK AND STOCK RIGHTS -- (CONTINUED)
Series A Preferred
On November 15, 1996, the Company issued 159,600 shares of Series A
Convertible Preferred Stock ("Series A Preferred"), together with warrants,
discussed below, for $250 per share or $39.9 million. Each share of Series A
Preferred has a stated value of $250 per share and has a liquidation preference
over shares of the Company's common stock equal to the stated value. The Series
A Preferred carries a dividend of 14% of the stated value per year, payable
semiannually on May 15 and November 15 in cash or in additional shares of Series
A Preferred, at the Company's option. Preferred dividends accrued for the three
and six-month periods ended June 30, 1997 were approximately $1.4 million and
$2.8 million, respectively. The payment of dividends due May 15, 1997 was made
in 11,172 additional Series A Preferred shares.
In connection with the Series A Preferred, the Company issued warrants to
purchase the Company's common stock. Each warrant represents the right of the
holder to purchase 18.266 shares of common stock or an aggregate of 2,915,254
shares. The exercise price is $7.40 per share. The warrants expire November 15,
2001. The total value allocated to the warrants for financial reporting
purposes, $7.9 million or $2.70 per share, is being accreted over the term of
the Series A Preferred as preferred dividends or approximately $164,000 and
$328,000 for the three and six-month periods ended June 30, 1997, respectively.
Series B Preferred Stock
In connection with the Page America transaction (see Note 9), the Board of
Directors authorized the designation of 9,000 shares of preferred stock as
Series B Preferred Stock. The Company issued 1,500 shares of Series B Preferred
Stock pursuant to the Amended Page America Agreement. Each share of Series B
Preferred Stock has a stated value of $10,000 per share and a liquidation
preference, which is junior to the Series A Preferred Stock but senior to the
shares of Metrocall common stock, equal to its stated value. The Series B
Preferred Stock carries a dividend of 14% of the stated value per year, payable
semiannually in cash or in additional shares of Series B Preferred Stock, at the
Company's option.
Stock Option Plans
At December 31, 1996, 1,747,002 options were issued and outstanding with a
weighted-average exercise price of approximately $8.18 per share, expiring on
various dates ranging from 2003 through 2006. On February 5, 1997, the
Compensation Committee of the Board of Directors approved a change in the
exercise price for substantially all outstanding options for current employees,
officers and directors. The new exercise price was $6.00 per share, the fair
market value on the date of the change.
During the six months ended June, 30, 1997, the Board of Directors approved
grants of options to purchase 626,500 shares of Metrocall common stock to
current officers, employees and directors with exercise prices ranging from
$4.50 to $6.00 per share with a weighted-average exercise price of $5.97 per
share. All options were granted with exercise prices equal to or greater than
the fair market value on the date of grant.
Employee Stock Purchase Plan
On May 1, 1996, the stockholders of the Company approved the Metrocall,
Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"), which offers
eligible employees the opportunity to purchase an aggregate of 300,000 shares of
Metrocall common stock through payroll deductions. Each eligible employee may
elect to purchase shares of Metrocall common stock at the lesser of 85% of the
fair market value of Metrocall common stock on either the first or last trading
day for each payroll deduction period. On January 1, 1997, the Company issued
34,770 shares of Company common stock under the Stock Purchase Plan with a
purchase price of approximately $4.14 per share. For the payroll deduction
period ended June 30, 1997, the
F-36
<PAGE> 190
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCK AND STOCK RIGHTS -- (CONTINUED)
Company issued 74,977 shares of common stock effective July 1, 1997 with a
purchase price of approximately $3.80 per share.
7. COMMITMENTS AND CONTINGENCIES
Legal and Regulatory Matters
The Company is subject to certain legal and regulatory matters in the
normal course of business. In the opinion of management, the outcome of such
assertions will not have a material adverse effect on the financial position or
results of operations of the Company.
In April 1996, the Company entered into an agreement to purchase certain of
the assets of Source One Wireless, Inc. ("Source One") and placed $1 million
cash in escrow. On June 26, 1996, the Company advised Source One that Source One
had failed to meet certain conditions to complete the transaction and terminated
the agreement. On September 20, 1996, Source One filed an action in the Circuit
Court of Cook County, Illinois, claiming that the Company had breached the
agreement and seeking specific performance of the purchase agreement or
unspecified damages in excess of $80 million. The Company intends to vigorously
defend the claims in this action and believes it has meritorious defenses to
this action. The Company has denied the claim and asserted affirmative defenses
and counterclaims based on misrepresentations and breaches of contract by Source
One. The matter is now in discovery, which is scheduled to be completed by the
end of October 1997; trial is not expected before January 1998.
8. SALE OF TELEMESSAGING ASSETS
On May 9, 1997, the Company completed the sale of the assets of the
telemessaging business acquired in the merger with A+ Network in November 1996
pursuant to the terms of an Asset Purchase Agreement (the "Purchase Agreement")
between Metrocall and Procommunications, Inc. dated April 30, 1997. Pursuant to
the terms of the Purchase Agreement, the Company received proceeds totaling
$11.0 million in cash, net of a cash escrow of $700,000. For the six month
period ended June 30, 1997, the telemessaging business generated net revenues of
approximately $3.7 million and operating income of approximately $0.1 million.
No gain or loss was recognized upon the sale for financial reporting purposes as
net assets sold approximate the net proceeds received.
9. SUBSEQUENT EVENTS
Page America Group, Inc.
On July 1, 1997, the Company completed its acquisition of substantially all
the assets of Page America Group, Inc. and subsidiaries ("Page America"). The
total purchase price of approximately $63.2 million included consideration of
$25 million in cash, 1,500 shares of Series B Preferred Stock (see Note 6)
having a value upon liquidation of $15,000,000, 3,997,458 shares of Metrocall
common stock, assumed liabilities of approximately $3.1 million plus transaction
fees and expenses. The cash portion of the purchase price was funded through
borrowings of $26 million under the Company's credit facility. The Page America
acquisition will be accounted for as a purchase for financial reporting
purposes.
ProNet Inc.
On August 11, 1997, the Company and ProNet Inc. ("ProNet") announced the
signing of a definitive merger agreement dated August 8, 1997, whereby ProNet
would be merged with and into the Company. Under the terms of the merger
agreement, the Company will issue .90 shares of Metrocall common stock for each
share of ProNet common stock, subject to adjustment based on certain defined
operating performance criteria and debt and pager inventory targets. In
connection with the merger, the Company will assume
F-37
<PAGE> 191
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUBSEQUENT EVENTS -- (CONTINUED)
ProNet's 11 7/8% senior subordinated notes due 2005 totaling $100 million and
expects to refinance indebtedness outstanding under ProNet's credit facility
with the Company's own credit facility. The Company anticipates the merger will
be accounted for as a purchase for financial reporting purposes. The merger is
subject to approval by regulatory agencies including the Federal Communications
Commission, Federal Trade Commission and each company's stockholders.
Credit Facility
The Company has requested that its lenders amend the loan agreement
governing its bank credit facility by increasing available borrowings under the
facility by $25.0 million from $350 million to $375 million. In addition to
increasing available borrowings, the requested amendment includes approval of
the ProNet transaction discussed above and changes to certain financial
covenants including total leverage and interest coverage beginning January 1,
1998. The lenders have approved this amendment subject to completion of loan
documentation.
F-38
<PAGE> 192
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
ProNet Inc.
We have audited the accompanying consolidated balance sheets of ProNet Inc.
and subsidiaries as of December 31, 1996 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, 1996. 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 consolidated financial position of
ProNet Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 5, 1997,
except for Note N, as to which the date is
March 4, 1997
F-39
<PAGE> 193
PRONET INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 2,286 $ 10,154
Trade accounts receivable, less allowance for doubtful accounts of
$939 and $1,018 as of December 31, 1996 and 1995, respectively..... 13,747 7,498
Federal income tax receivable......................................... 497 990
Inventories........................................................... 2,760 1,574
Other current assets.................................................. 2,499 1,937
-------- --------
21,789 22,153
-------- --------
EQUIPMENT:
Pagers................................................................ 59,003 36,789
Communications equipment.............................................. 49,134 26,051
Security systems' equipment........................................... 12,897 11,866
Office and other equipment............................................ 11,454 7,179
-------- --------
132,488 81,885
Less allowance for depreciation....................................... (50,718) (34,203)
-------- --------
81,770 47,682
-------- --------
GOODWILL AND OTHER ASSETS, net of accumulated amortization of $22,297
and $9,266 as of December 31, 1996 and 1995, respectively............. 208,157 117,134
-------- --------
$311,716 $186,969
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables........................................................ $ 10,452 $ 8,387
Other accrued expenses and liabilities................................ 13,264 10,524
-------- --------
23,716 18,911
LONG-TERM DEBT.......................................................... 148,691 99,319
DEFERRED CREDITS........................................................ 5,660 19,183
STOCKHOLDERS' EQUITY:
Common stock, $ .01 par value:
Authorized shares--20,000
Issued shares--12,871
Outstanding shares--12,473......................................... 129 70
Additional capital.................................................... 180,694 56,617
Retained deficit...................................................... (45,714) (5,671)
Less treasury stock at cost........................................... (1,460) (1,460)
-------- --------
133,649 49,556
-------- --------
$311,716 $186,969
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-40
<PAGE> 194
PRONET INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
REVENUES
Service revenues.............................................. $ 87,239 $56,108 $33,079
Product sales................................................. 15,817 10,036 6,639
-------- -------- -------
Total revenues........................................ 103,056 66,144 39,718
Net book value of products sold............................... (13,244) (9,421) (6,644)
-------- -------- -------
89,812 56,723 33,074
COST OF SERVICES
Pager lease and access services............................... 24,508 13,218 7,972
Security systems' equipment services.......................... 1,416 1,178 1,213
-------- -------- -------
25,924 14,396 9,185
-------- -------- -------
Gross margin.......................................... 63,888 42,327 23,889
EXPENSES
Sales and marketing........................................... 15,680 8,256 6,737
General and administrative.................................... 23,410 15,679 5,389
Depreciation and amortization................................. 40,624 18,662 8,574
Nonrecurring charges.......................................... 8,809 -- --
-------- -------- -------
88,523 42,597 20,700
-------- -------- -------
Operating income (loss)............................... (24,635) (270) 3,189
OTHER INCOME (EXPENSE)
Interest and other income..................................... 285 1,291 173
Interest expense.............................................. (15,370) (8,640) (1,774)
-------- -------- -------
(15,085) (7,349) (1,601)
-------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES............................... (39,720) (7,619) 1,588
INCOME TAX EXPENSE.............................................. 323 78 895
-------- -------- -------
Net income (loss)..................................... $(40,043) $(7,697) $ 693
======== ======== =======
Net income (loss) per share..................................... $ (4.07) $ (1.23) $ 0.16
======== ======== =======
Weighted average shares......................................... 9,840 6,267 4,393
======== ======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-41
<PAGE> 195
PRONET INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).......................................... $ (40,043) $ (7,697) $ 693
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 40,624 18,662 8,574
Amortization of discount................................ 72 36 --
Deferred tax provision.................................. (688) -- 293
Recoverable FIT......................................... 257 -- --
Provision for losses on accounts receivable............. 1,712 1,034 570
Changes in operating assets and liabilities:
Increase in trade accounts receivable................. (5,858) (1,788) (585)
Increase in inventories............................... (1,829) (542) (282)
Increase in other current assets...................... (2,546) (190) (342)
Decrease in other assets.............................. 4,088 -- --
Increase in trade payables and other accrued expenses
and liabilities.................................... 4,371 2,955 3,031
-------- -------- --------
Net cash provided by operating activities.......... 160 12,470 11,952
-------- -------- --------
INVESTING ACTIVITIES:
Purchase of equipment, net................................. (14,534) (9,773) (2,811)
Purchase of pagers, net of disposals....................... (28,251) (6,998) (4,901)
Acquisitions, net of cash acquired......................... (97,514) (70,189) (36,828)
Computer system software, product enhancements and other
intangible assets....................................... (1,663) (1,591) (812)
Other...................................................... (531) (455) (21)
-------- -------- --------
Net cash used in investing activities.............. (142,493) (89,006) (45,373)
-------- -------- --------
FINANCING ACTIVITIES:
Senior subordinated debt offering-net...................... -- 95,583 --
Sale of common stock-net................................... 94,644 -- 28,916
Bank debt.................................................. 97,300 39,900 35,100
Payments on bank debt...................................... (48,000) (49,400) (29,000)
Exercise of incentive stock options for common stock....... 65 1,494 267
Debt financing costs....................................... (9,422) (1,469) (1,449)
Other...................................................... (122) (84) (277)
-------- -------- --------
Net cash provided by financing activities.......... 134,465 86,024 33,557
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (7,868) 9,488 136
CASH AND CASH EQUIVALENTS:
Beginning of year....................................... 10,154 666 530
-------- -------- --------
End of year............................................. $ 2,286 $ 10,154 $ 666
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-42
<PAGE> 196
PRONET INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
PAR VALUE $0.01
--------------- RETAINED- TREASURY STOCK
SHARES PAR ADDITIONAL EARNINGS -----------------
ISSUED VALUE CAPITAL (DEFICIT) SHARES COST
------ ----- ---------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE at December 31, 1993.............. 4,156 $ 42 $ 20,414 $ 1,333 397 $(1,430)
Net income.............................. 693
Exercise of incentive stock options..... 47 267
Sale of common stock.................... 2,300 23 28,893
------ ----- ---------- --------- ------ -------
BALANCE at December 31, 1994.............. 6,503 65 49,574 2,026 397 (1,430)
Net loss................................ (7,697)
Exercise of incentive stock options..... 258 3 1,491 1 (30)
Common stock issued for acquisitions.... 216 2 5,443
Common stock issued for Employee Stock
Purchase Plan........................ 10 109
------ ----- ---------- --------- ------ -------
BALANCE at December 31, 1995.............. 6,987 70 56,617 (5,671) 398 (1,460)
Net loss................................ (40,043)
Sale of common stock.................... 4,000 40 94,604
Exercise of incentive stock options..... 7 65
Common stock issued for acquisitions.... 1,854 19 29,125
Common stock issued for Employee Stock
Purchase Plan........................ 23 283
------ ----- ---------- --------- ------ -------
BALANCE at December 31, 1996.............. 12,871 $ 129 $ 180,694 $ (45,714) 398 $(1,460)
====== ==== ======== ======== ===== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-43
<PAGE> 197
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE A -- ACCOUNTING POLICIES
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 periods. Actual results could differ from those
estimates.
Consolidation: The consolidated financial statements include the accounts
of ProNet Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Cash Equivalents: Cash equivalents are recorded at cost, which
approximates market, and include investments in financial instruments having
maturities of three months or less at the time of purchase.
Inventories: Inventories are valued at the lower of first-in, first-out
(FIFO) cost or market and consist primarily of finished goods.
Equipment: Equipment is recorded at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets.
Communication equipment and security systems' equipment are depreciated over a
ten-year period. Pagers and office equipment are depreciated over a three- to
five-year in-service period.
Other Assets: Other assets include goodwill, noncompetition agreements,
debt financing costs, customer lists, patents, software purchased for internal
use and other intangible assets, all of which are amortized using the
straightline method over five- to fifteen-year periods. Goodwill, currently
being amortized on a straight-line basis over a fifteen-year period, is net of
accumulated amortization of $15.6 million and $5.7 million at December 31, 1996
and 1995, respectively. The noncompetition agreements are amortized using the
straight-line method over the terms of the agreements, generally five years.
Debt financing costs consist of costs incurred in connection with the Company's
senior subordinated notes and revolving line of credit and are being amortized
over periods not to exceed the terms of the related agreements. Amortization of
the FCC licenses is deferred while the related system is not operational.
Management regularly reviews remaining goodwill and other assets with
consideration toward recovery through future operating results (undiscounted) at
the current rate of amortization.
Revenue Recognition: Revenue is recognized as earned over the contract
terms.
Federal Income Taxes: Taxes are reported under the liability method;
accordingly, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Net Income (Loss) Per Share: Net income (loss) per share is based on the
weighted average number of common and common equivalent shares outstanding
during each period. Stock options are considered common stock equivalents, if
dilutive, for purposes of computing weighted average shares outstanding.
Concentration of Credit Risk: The Company provides paging services to
businesses, individual consumers, medical institutions and health care
professionals and specialized security devices to financial institutions, most
of which are in major metropolitan areas. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
significant collateral. Receivables generally are due within 30 days. Credit
losses relating to its customers consistently have been within management's
expectations.
Sources of Supply of Material: The Company does not manufacture any of the
transmitting and computer equipment or pagers used in providing its paging
services, but instead purchases such equipment and
F-44
<PAGE> 198
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- ACCOUNTING POLICIES -- (CONTINUED)
pagers from multiple sources. The Company anticipates that such equipment and
pagers will continue to be available in the foreseeable future, subject to
normal manufacturing and delivery lead times. Because of the high degree of
compatibility among different models of transmitters, computers and other paging
equipment manufactured by multiple suppliers, the Company is able to design its
systems without depending upon any single source of equipment. The Company
continuously evaluates new developments in paging technology in connection with
the design and enhancement of its paging systems and the selection of products
and services to be offered to its subscribers.
In order to achieve significant cost savings from volume purchases, the
Company currently purchases most of its pagers from Motorola. The Company
purchases its transmitters from two competing sources and its paging terminals
from Glenayre, a manufacturer of mobile communications equipment. The paging
system equipment in existing markets has significant capacity for future growth.
All equipment used in the security systems business is assembled by the
Company with some sub-assemblies manufactured to Company specifications by
outside vendors. The materials required for TracPacs and other tracking
equipment are readily available from several sources.
Derivative Financial Instruments: The Company has only limited involvement
with derivative financial instruments and does not use them for trading
purposes. Derivative financial instruments are only used to manage interest rate
risks.
The Company may from time to time enter into interest rate swap agreements
which would be accounted for as a hedge of an obligation and, accordingly, the
net swap settlement amount would be recorded as an adjustment to interest
expense in the period incurred (see Note C -- Long Term Debt). Gains and losses
upon settlement of a swap agreement would be deferred and amortized over the
remaining term of the agreement.
Reclassification of Financial Statements: The 1994 and 1995 financial
statements have been reclassified to conform to the 1996 financial statement
presentation.
NOTE B -- BALANCE SHEET DETAIL
Other current assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Security transmitter TracPacs....................................... $1,273 $1,217
Other............................................................... 1,226 720
------ ------
$2,499 $1,937
====== ======
</TABLE>
F-45
<PAGE> 199
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- BALANCE SHEET DETAIL -- (CONTINUED)
Goodwill and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Goodwill........................................................ $164,786 $108,153
Noncompetition agreements....................................... 9,804 4,750
Debt financing costs............................................ 11,034 6,980
FCC licenses.................................................... 34,665 150
Other........................................................... 10,165 6,367
-------- --------
230,454 126,400
Less accumulated amortization................................... 22,297 9,266
-------- --------
$208,157 $117,134
======== ========
</TABLE>
Other accrued expenses and liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Deferred revenue.................................................. $ 6,205 $ 4,891
Customer deposits................................................. 2,857 2,604
Accrued interest.................................................. 1,285 1,002
Other............................................................. 2,917 2,027
------- -------
$13,264 $10,524
======= =======
</TABLE>
NOTE C -- LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- -------
<S> <C> <C>
Senior subordinated notes........................................ $ 99,391 $99,319
Revolving line of credit......................................... 49,300 --
-------- -------
148,691 99,319
Less current maturities.......................................... -- --
-------- -------
$148,691 $99,319
======== =======
</TABLE>
In June 1995, the Company completed a Rule 144A Offering of $100 million
principal amount of its 11 7/8% senior subordinated notes due 2005. Proceeds to
the Company from the sale of the 1995 Notes, after deducting discounts,
commissions and offering expenses, were approximately $95.6 million. The Company
used approximately $49.4 million of the net proceeds to repay all indebtedness
outstanding under the 1995 Credit Facility. The Company used the remaining
proceeds to pursue the Company's acquisition strategy, to purchase frequency
rights, to make capital expenditures for buildout of the Company's regional
paging systems and for enhanced services, and for working capital and general
corporate purposes. The fair value of the 1995 Notes at December 31, 1996 was
$93.5 million based on a quoted market price.
The 1995 Notes are general unsecured obligations of the Company and are
subordinated to all existing and future senior debt of the Company. The
Indenture provides that the Company may not incur any debt that is subordinate
in right of payment to the senior debt and senior in right of payment to the
1995 Notes. The
F-46
<PAGE> 200
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- LONG-TERM DEBT -- (CONTINUED)
Indenture also contains certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to incur indebtedness, pay
dividends, engage in transactions with affiliates, sell assets and engage in
certain other transactions. Interest on the 1995 Notes is payable in cash
semi-annually each June 15 and December 15, commencing December 15, 1995. The
1995 Notes are not redeemable at the Company's option prior to June 15, 2000.
The Company filed the 1995 S-4 on July 7, 1995 to register the 1995 Notes
with the SEC under the Securities Act. On October 6, 1995, the SEC declared the
1995 S-4 effective.
In June 1995, the Company entered into an agreement with The First National
Bank of Chicago, as Agent, making available a $125 million revolving line of
credit for working capital purposes and for acquisitions approved by the Lender.
Under the terms of the 1995 Credit Facility, the revolving line of credit would
have converted in February 1997 to a five and one-half year term loan maturing
in July 2002. Borrowings were secured by all assets of the Company and its
subsidiaries. The 1995 Credit Facility required maintenance of certain specified
financial and operating covenants and prohibited the payment of dividends or
other distributions on the Company's Common Stock. The 1995 Credit Facility also
permitted the issuance of senior subordinated notes and stated that in the event
of an issuance of subordinated indebtedness of the Company or an equity issuance
(other than the common stock offering which occurred in 1994), the Lender could
request that some portion of the proceeds be used to pay down outstanding
borrowings under the 1995 Credit Facility.
In June 1996, the Company repaid the $48 million outstanding under the 1995
Credit Facility with proceeds from the Offering.
Also in June 1996, the Company entered into a new agreement with the Lender
for $300 million senior secured credit facilities, to be used to finance
non-hostile acquisitions of paging businesses, capital expenditures and general
corporate purposes. The Former Credit Facilities were amended in September 1996
reducing the amount of credit available from $300 million under the Former
Credit Facilities to $150 million under the Credit Facilities. The $150 million
under the Credit Facilities consist of a $25 million revolving line of credit
maturing December 31, 2003. The borrowings bear interest, at the Company's
designation, at either (i) the ABR plus a margin of up to 1.5%, or (ii) the
Eurodollar Base Rate plus a margin of up to 2.75%. The term loan will be payable
in quarterly installments, based on the principal amount outstanding on the
conversion date, in amounts ranging from 7% initially to 20%. Loans bearing
interest based on ABR may be prepaid at any time, and loans bearing interest
based on the Eurodollar Rate may not be paid prior to the last day of the
applicable interest period. A commitment fee of either .375% or .5% on the
average daily unused portion of the Credit Facilities is required to be paid
quarterly. Borrowings are secured by all assets of the Company and its
subsidiaries. The Credit Facilities require maintenance of certain specified
financial and operating covenants and prohibit the payment of dividends on the
Common Stock. The Credit Facilities also state that in the event of an issuance
of subordinated indebtedness of the Company or an equity issuance (other than
the Offering), the Lender can require that some portion of the proceeds be used
to make payments on outstanding borrowings under the Credit Facilities.
At December 31, 1996, the Company had approximately $9.9 million of
available funds under the Credit Facilities, based on financial and operating
covenants.
Effective August 13, 1996, the Lender began requiring interest exchange or
insurance agreements or other financial accommodations with one or more
financial institutions providing for an agreed upon fixed rate of interest on at
least 50% of the total indebtedness. At December 31, 1996, approximately 67% of
the total indebtedness was at a fixed rate of interest.
F-47
<PAGE> 201
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- LONG-TERM DEBT -- (CONTINUED)
The weighted average interest rate on the outstanding 1995 Notes and line
of credit during 1996 and 1995 was 11.5% and 12.9%, respectively. Total interest
paid was $15.0 million, $7.8 million and $1.7 million for 1996, 1995 and 1994,
respectively.
NOTE D -- DEFERRED CREDITS
Deferred credits consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ -------
<S> <C> <C>
Deferred payments.................................................. $5,660 $18,495
Deferred tax liability............................................. -- 688
------ -------
$5,660 $19,183
====== =======
</TABLE>
At December 31, 1996, the Company had deferred payments outstanding related
to the Page One and SigNet Raleigh acquisitions of $4.86 million and $800,000,
respectively, which are due and payable one year from the closing of the
respective transactions. In January 1997, the Company paid $4.9 million in cash
and issued 46,232 shares of its Common Stock in payment of $5.7 million of the
Page One and SigNet Raleigh deferred payments, respectively. The balances are
payable, at the Company's discretion, either in cash or shares of the Company's
Common Stock based on current market value at the date of payment.
In 1995, the Company issued 44,166 shares of its Common Stock to ChiComm in
payment of the $950,000 deferred portion of the purchase price of ChiComm and
deferred $18.5 million in payments related to various acquisitions. In 1996, the
Company paid $1.0 million in cash and issued 769,664 shares of its Common Stock
in payment of $18.5 million of various deferred payments and deferred $5.7
million in payments related to various acquisitions.
In July 1995, the Company filed a Form S-3 Registration Statement (the
"1995 S-3") to register the resale of 2,000,000 shares of the Common Stock
issued in payment of the purchase prices or deferred payments related to the
purchase prices for the Company's acquisitions.
In October 1996, the Company filed a Form S-3 Registration Statement (the
"1996 S-3") to register the resale of 1,500,000 shares of its Common Stock in
payment of the purchase prices or deferred payments related to the purchase
prices for the Company's acquisitions.
NOTE E -- INCOME TAXES
At December 31, 1996, net operating loss carry forwards of $45.7 million
were available to reduce income taxes and expire in years 2005 through 2011.
The valuation allowance increased during 1996 in recognition of the
Company's 1996 operating losses and management's belief that the realization of
the deferred tax asset in the near term is remote.
F-48
<PAGE> 202
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- INCOME TAXES -- (CONTINUED)
Significant components of deferred tax liabilities and assets are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation........................................... $(3,197) $(2,343)
Other -- net......................................................... (1,002) (575)
------- -------
Total deferred tax liabilities.................................. (4,199) (2,918)
Deferred tax assets:
Net operating loss carry forwards.................................... 15,540 3,727
Alternative minimum tax credit....................................... 652 225
Investment tax credit................................................ 69 147
Other -- net......................................................... 1,442 2,236
------- -------
Total deferred tax assets....................................... 17,703 6,335
Valuation allowance for deferred tax assets.......................... (13,504) (4,105)
------- -------
Net of valuation allowance........................................... 4,199 2,230
------- -------
Net deferred tax liabilities.............................................. $ 0 $ (688)
======= =======
</TABLE>
Significant components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
Federal current tax expense............................................ $ -- $ -- $506
Current benefits from investment tax credits........................... -- -- --
Federal deferred tax expense (benefit)................................. (688) -- 293
State income taxes..................................................... 1,011 78 96
------ ---- ----
$ 323 $ 78 $895
====== ==== ====
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- ----
<S> <C> <C> <C>
Tax expense (benefit) at U.S. statutory rates..................... $(13,505) $(2,590) $540
Non-deductible goodwill amortization.............................. 1,036 633 298
Net operating losses with no benefit(1)........................... 12,469 1,138 --
Change in valuation allowance..................................... (688) 1,323 (19)
State income taxes, net of Federal benefit........................ 1,011 51 63
Other............................................................. -- (477) 13
-------- ------- ----
$ 323 $ 78 $895
======== ======= ====
</TABLE>
- ---------------
(1) Excludes benefit from stock options exercised.
Federal income tax paid amounted to $0, $132,000 and $755,000 in 1996, 1995
and 1994, respectively. Payments made in 1995 were refunded to the Company in
the first quarter of 1996. In 1996, 1995 and 1994, $65,000, $156,000 and
$112,000 in state income taxes were paid, respectively.
F-49
<PAGE> 203
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- STOCKHOLDERS' EQUITY
Twenty million shares of common stock, $.01 par value, and five million
shares of preferred stock, $1.00 par value, were authorized to be issued at
December 31, 1996 and 1995. As of December 31, 1996, no shares of preferred
stock had been issued.
In July 1995, the Company filed the 1995 S-3 to register the resale of
2,000,000 shares of its Common Stock issued in payment of various purchase
prices and deferred payments related to acquisitions. In August 1995, the
Company issued 44,166 shares of Common Stock in payment of the $950,000 deferred
payment to ChiComm. In December 1995, the Company issued 172,282 shares of
Common Stock in payment for $4.5 million of the purchase price of Apple. In
1996, the Company issued 181,524 shares of Common Stock in payment for $4.9
million of the purchase price of various acquisitions, 769,664 shares of Common
Stock in payment of $17.4 million of deferred payments of various acquisitions
and 5,000 shares of Common Stock in payment of consulting services relating to
an acquisition.
In June 1996, the Company issued four million shares of its Common Stock at
a price of $25 per share in an underwriters public offering. If this offering
had occurred as of the beginning of 1996, net loss per share would have been
$3.48 for the year ended December 31, 1996.
In October 1996, the Company filed the 1996 S-3 to register the resale of
1,500,000 shares of its Common Stock issued in payment of the purchase prices or
deferred payments related to the purchase prices for the Company's acquisitions.
In October 1996, the Company issued 897,771 shares of Common Stock in payment
for $6.8 million of the purchase price of CalPage.
Total shares of common stock reserved for future issuance under stock
option plans, the 1995 S-3 and the 1996 S-3 were 3,338,661 and 3,722,615 at
December 31, 1996 and 1995, respectively.
NOTE G -- STOCK OPTION PLANS
The 1987 Stock Option Plan
Under the 1987 Stock Option Plan, as amended ("1987 Plan"), the Board of
Directors may grant incentive and non-incentive stock options to key employees
for the purchase of up to 1.2 million shares of Common Stock at the fair market
value of a share of Common Stock on the date the option is granted, and the term
of each option will not exceed ten years. Due to a reduction in the trading
price of the Common Stock, in December 1996 all outstanding options with an
exercise price greater than $6.00 were re-priced at $6.00 to provide further
incentive to the Company's employees.
At December 31, 1996, incentive stock options for 40,325 shares which vest
over a three-year period, 5,000 shares which vest over a four-year period and
764,100 shares which vest over a five-year period were outstanding. These
outstanding options had a weighted average remaining contractual life of 6.2
years and weighted average exercise price of $5.80. There were 811,657 and
818,777 shares of Common Stock reserved for future issuance and exercise of
outstanding options under the 1987 Plan at December 31, 1996 and 1995,
respectively. Of the outstanding options, 448,925 and 334,045 shares were
exercisable at December 31, 1996 and 1995, respectively.
F-50
<PAGE> 204
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- STOCK OPTION PLANS -- (CONTINUED)
Stock option activity was as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Options outstanding at December 31, 1993..................... 696,130 $2.75-$7.63
Options granted......................................... 395,000 11.00-14.75
Options exercised....................................... (39,570) 2.75-7.63
Options canceled........................................ (37,250) 5.38-7.63
---------
Options outstanding at December 31, 1994..................... 1,014,310 2.75-14.75
Options granted......................................... 39,500 14.25-20.25
Options exercised....................................... (258,065) 2.75-11.13
Options canceled........................................ (17,900) 5.38-11.00
---------
Options outstanding at December 31, 1995..................... 777,845 2.75-20.25
Options granted......................................... 53,000 20.875
Options exercised....................................... (7,120) 5.38-14.75
Options canceled........................................ (14,300) 7.63-18.50
---------
Options outstanding at December 31, 1996..................... 809,425 2.75-6.00
========
</TABLE>
THE NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Non-Employee Director Stock Option Plan, approved in July 1991,
authorized 37,500 shares of Common Stock for issuance under the plan and
provides for a one-time grant of options for the purchase of 7,500 shares of
Common Stock to non-employee directors of the Company.
The per share exercise price for shares subject to each option is the fair
market value of the Common Stock at the date of grant. The option shall be
exercisable in full after the completion of six months of continuous service on
the Board of Directors after the date of grant, and the term of each option is
ten years. At December 31, 1996, there were options outstanding and exercisable
for 15,000 shares at an option price per share of $6.00. At December 31, 1996,
these outstanding options had a weighted average remaining contractual life of
5.0 years. At December 31, 1995, there were options outstanding and exercisable
for 15,000 shares at an option price per share of $7.63 and 7,500 shares at an
option price per share of $6.88.
In May 1991, under a separate agreement, a one-time grant of options for
the purchase of 7,500 shares of Common Stock was made to a non-employee
director. The options became fully exercisable at the date of grant and were
outstanding at December 31, 1996 and 1995, with per share prices of $6.00 and
$7.63, respectively. At December 31, 1996, these outstanding options had a
weighted average remaining contractual life of 4.5 years.
Due to a reduction in the trading price of the Common Stock, in December
1996 all outstanding options with an exercise price greater than $6.00 were
repriced at $6.00 to provide further incentive to the Company's non-employee
directors.
1994 Employee Stock Purchase Plan
In May 1994, the Company's Board of Directors and stockholders approved an
Employee Stock Purchase Plan ("Stock Purchase Plan") that became effective July
1, 1994. A total of 100,000 shares of Common Stock are reserved for issuance
under the Stock Purchase Plan. Employees who work at least 20 hours per week and
more than five months in a calendar year are eligible to participate in the
Stock Purchase Plan and may contribute up to 15% of their base pay. At the end
of each six-month offering period, participants may
F-51
<PAGE> 205
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- STOCK OPTION PLANS -- (CONTINUED)
purchase the Company's common stock at a 15% discount of the fair market value
of the stock on the first or last day of the offering period, whichever is
lower.
In 1995, 4,244 and 5,470 shares were purchased with payroll deductions
withheld during the six month offering periods ending December 31, 1994 and June
30, 1995, respectively. In 1996, 6,571 and 16,304 shares were purchased with
payroll deductions withheld during the six month offering periods ending
December 31, 1995 and June 30, 1996, respectively. On January 3, 1997, 47,834
shares were purchased with payroll deductions withheld during the six month
offering period ending December 31, 1996.
1995 Long-Term Incentive Plan
In May 1995, the Company's Board of Directors and Stockholders approved the
1995 Long-Term Incentive Plan (the "1995 Plan") under which the Board of
Directors may grant incentive and non-incentive stock options, restricted stock
awards and stock appreciation rights to key employees and non-incentive stock
options to non-employee directors of the Company totaling 1,000,000 shares of
Common Stock to be issued. Grants to key employees will expire ten years after
the date of grant. Incentive stock options will have an exercise price of the
fair value of a share of Common Stock at the date the option is granted.
Non-incentive stock options, restrictive stock awards and stock appreciation
rights will have an exercise price as specified in their award agreement.
Under the 1995 Plan, on an annual basis each non-employee director of the
Company will be automatically granted non-incentive stock options to purchase
2,500 shares of Common Stock, beginning in 1995. The per share exercise price
for shares subject to each option is the fair market value of the Common Stock
at the date of grant. The option shall become vested and exercisable over a
three year period, and the term of each option is ten years.
Due to a reduction in the trading price of the Common Stock in December
1996, all outstanding options with an exercise price greater than $6.00 were
repriced at $6.00 to provide further incentive to the Company's employees.
At December 31, 1996, incentive stock options for 177,000 shares which vest
over a one year period, 45,000 shares which vest over a three year period and
396,000 shares which vest over a five year period were outstanding. These
outstanding options had a weighted average remaining contractual life of 9.5
years and a weighted average exercise price of $6.00. There were 1,000,000
shares of Common Stock reserved for future issuance and exercise of outstanding
options under the 1995 Plan at both December 31, 1996 and 1995. Of the
outstanding options, 2,499 shares were exercisable at December 31, 1996. None of
the outstanding options were exercisable at December 31, 1995.
F-52
<PAGE> 206
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- STOCK OPTION PLANS -- (CONTINUED)
Stock option activity was as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Options outstanding at December 31, 1994.............. -- --
Options granted.................................. 10,000 $18.25
Options exercised................................ -- --
Options canceled................................. -- --
--------- ------------
Options outstanding at December 31, 1995.............. 10,000 18.25
Options granted.................................. 649,500 5.63-27.50
Options exercised................................ -- --
Options canceled................................. (41,500) 7.56-23.38
--------- ------------
Options outstanding at December 31, 1996.............. 618,000 5.63-6.00
======== =========
</TABLE>
Fair Value of Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options, because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"),
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock option equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1996
and 1995, respectively: risk-free interest rates of 6.1% and 7.2%; no dividend
yield; a volatility factor of the expected market price of the Company's Common
Stock of 0.6; and a weighted-average expected life of the option of 5.5 years.
The weighted average grant-date fair value and exercise price of options granted
during 1996 was $2.61 and $5.63, respectively, for options whose exercise price
equals the market price of the Company's Common Stock on the date of grant, and
$1.98 and $6.00, respectively, for options whose exercise price exceeds the
market price of the Company's Common Stock on the date of grant. The weighted
average grant-date fair value and exercise price of options granted during 1995
was $9.21 and $15.83, respectively, with all option exercise prices equaling the
fair value of the Company's Common Stock on the date of grant.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different than those of the traded Common Stock, and because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable measure of the fair value of its employees stock options.
F-53
<PAGE> 207
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- STOCK OPTION PLANS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
unaudited pro forma information follows (in thousands except for per share
information):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
--------- --------
<S> <C> <C>
Net loss............................................... $(40,417) $(7,761)
Net loss per share..................................... (4.11) (1.24)
</TABLE>
These pro forma disclosures are not likely to be representative of the effects
on reported net income(loss) for future years, as these calculations only
include options granted in 1995 and thereafter as required by FAS 123. The
effect of the stock option repricing in December 1996 is not shown due to its
immateriality.
NOTE H -- EMPLOYEE SAVINGS PLAN
The Company sponsors an employee savings plan that covers all employees who
have worked for the Company for more than one year. Employee contributions range
from 2% to 10%, up to the limits defined by Section 401(k) of the Internal
Revenue Code. In 1996, 1995 and 1994, the Company contributed $130,000, $71,000
and $43,000, respectively, to the plan which represents 25%, 20% and 15% of all
employee contributions.
NOTE I -- SEGMENT INFORMATION
The Company provides communication products and enhanced services to
organizations and individuals requiring wireless communication applications. The
Company provides these specialized products through two distinct operating
segments: the paging systems' operations and the security systems' operations.
The paging systems' operations provide paging services to businesses, medical
institutions and individual consumers in major metropolitan areas of the United
States. The security systems' operations provide specialized security services
to financial institutions and retail operations throughout the United States.
TOTAL REVENUES: Total revenues consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Service revenues:
Pager lease and access fees................................ $ 81,368 $50,805 $28,015
Security systems' equipment fees........................... 5,871 5,303 5,064
-------- ------- -------
87,239 56,108 33,079
Product sales:
Pager and paging equipment................................. 15,776 9,899 6,506
Other security systems' income............................. 41 137 133
-------- ------- -------
15,817 10,036 6,639
-------- ------- -------
Total revenues............................................. $103,056 $66,144 $39,718
======== ======= =======
</TABLE>
Operating income is revenue less expenses exclusive of general corporate
expenses, corporate related depreciation and amortization and other income
(expense). Identifiable assets are those assets used in the operations of each
business segment. Corporate assets consist primarily of short-term cash
investments, software, debt financing costs and corporate office equipment.
During 1994, the Company restructured its technical, sales and operational
functions into its decentralized SuperCenter strategy. Certain costs that were
F-54
<PAGE> 208
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- SEGMENT INFORMATION -- (CONTINUED)
previously classified as general corporate expenses in 1994 were classified as
paging systems' or security systems' expenses in 1995. Thus, operating income
before general corporate expenses for paging systems' and security systems'
operations decreased in 1995 from 1994 as costs were allocated from general
corporate expenses. Segment data at and for the years ended December 31, 1996,
1995 and 1994 follows (in thousands).
<TABLE>
<CAPTION>
PAGING SECURITY ADJUSTMENTS
SYSTEMS' SYSTEMS' AND
OPERATIONS OPERATIONS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
1996
Total revenues............................... $ 97,144 $ 5,912 $ -- $103,056
Cost of products sold........................ (13,238) (6) (13,244)
-------- ------- ------ --------
$ 83,906 $ 5,906 $ -- $ 89,812
Operating income (loss) before general
corporate expenses......................... $ (18,253) $ 2,809 $ -- $(15,444)
General corporate expenses................... (9,191)
Interest and other income.................... 285
Interest expense............................. (15,370)
--------
Income before income taxes................... $(39,720)
========
Identifiable assets at December 31, 1996..... $ 278,983 $ 12,307 $ -- $291,290
Corporate assets............................. 20,426
--------
Total assets at December 31, 1996............ $311,716
========
Capital expenditures......................... $ 13,602 $ 932 $ -- $ 14,534
Depreciation and amortization................ 36,896 1,450 2,278 40,624
1995
Total revenues............................... $ 60,704 $ 5,440 $ -- $ 66,144
Cost of products sold........................ (9,357) (64) -- (9,421)
-------- ------- ------ --------
$ 51,347 $ 5,376 $ -- $ 56,723
Operating income before general corporate
expenses................................... $ 4,384 $ 2,295 $ -- $ 6,679
General corporate expenses................... (6,949)
Interest and other income.................... 1,291
Interest expense............................. (8,640)
--------
Loss before income taxes..................... $ (7,619)
========
Identifiable assets at December 31, 1995..... $ 153,825 $ 10,678 $ -- $164,503
Corporate assets............................. 22,466
--------
Total assets at December 31, 1995............ $186,969
========
Capital expenditures......................... $ 8,425 $ 1,348 $ -- $ 9,773
Depreciation and amortization................ 16,159 1,454 1,049 18,662
</TABLE>
F-55
<PAGE> 209
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
PAGING SECURITY ADJUSTMENTS
SYSTEMS' SYSTEMS' AND
OPERATIONS OPERATIONS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
1994
Total revenues............................... $ 34,521 $ 5,197 $ -- $ 39,718
Cost of products sold........................ (6,605) (39) -- (6,644)
-------- ------- ------ --------
$ 27,916 $ 5,158 $ -- $ 33,074
Operating income before general corporate
expenses................................... $ 7,021 $ 2,512 $ -- $ 9,533
General corporate expenses................... (6,344)
Interest and other income.................... 173
Interest expense............................. (1,774)
--------
Income before income taxes................... $ 1,588
========
Identifiable assets at December 31, 1994..... $ 59,878 $ 9,721 $ -- $ 69,599
Corporate assets............................. 3,674
--------
Total assets at December 31, 1994............ $ 73,273
========
Capital expenditures......................... $ 2,082 $ 729 $ -- $ 2,811
Depreciation and amortization................ $ 6,393 $ 1,226 $ 955 $ 8,574
</TABLE>
NOTE J -- COMMITMENTS
The Company leases office space and transmitter sites under operating
leases expiring through 2003. Rent expense was $8,822,000, $4,514,000 and
$2,422,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Future minimum payments under non-cancelable operating leases are as follows (in
thousands):
<TABLE>
<S> <C>
1997....................................................................... $ 6,429
1998....................................................................... 4,500
1999....................................................................... 3,273
2000....................................................................... 2,358
2001....................................................................... 926
-------
$17,486
=======
</TABLE>
F-56
<PAGE> 210
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- QUARTERLY DATA (UNAUDITED)
The following summarizes the quarterly operating results of the Company for
the years ended December 31, 1996 and 1995 (in thousands except per share
amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1996
Total revenues............................. $24,162 $ 24,815 $25,477 $ 28,602
Operating loss............................. (2,492) (10,246) (3,714) (8,183)
Loss before income taxes................... (6,124) (14,047) (7,364) (12,185)
Net loss................................... (6,124) (14,147) (7,488) (12,284)
Net loss per share......................... (.89) (1.76) (.65) (.98)
1995
Total revenues............................. $12,684 $ 15,877 $17,759 $ 19,824
Operating income (loss).................... 769 630 573 (2,242)
Income (loss) before income taxes.......... 424 (796) (1,914) (5,333)
Net income (loss).......................... 66 (400) (2,030) (5,333)
Net income (loss) per share................ .01 (.06) (.32) (.86)
</TABLE>
NOTE L -- ACQUISITIONS
The Completed Acquisitions, which were all accounted for as purchases, consisted
of the following:
<TABLE>
<CAPTION>
PAGERS IN
ACQUISITION LOCATION(S) DATE CLOSED SERVICE (1) PURCHASE PRICE
- -------------------------------- ------------------ --------------- ----------- --------------
<S> <C> <C> <C> <C>
Contact......................... New York City March 1994 91,000 $19.0 million
Radio Call...................... New York City August 1994 57,000 7.8 million
ChiComm......................... Chicago August 1994 30,000 9.8 million
High Tech....................... Chicago and Texas December 1994 2,000 0.9 million
Signet Charlotte................ Charlotte March 1995 30,000 9.0 million
Carrier......................... New York City April 1995 31,200 6.5 million
Metropolitan.................... Houston May 1995 150,000 21.0 million
All City........................ Milwaukee May 1995 20,000 6.3 million
Americom........................ Houston July 1995 80,000 17.5 million
Lewis........................... Georgia September 1995 15,000 5.6 million
Gold Coast...................... Florida September 1995 6,000 2.3 million
Paging & Cellular............... Houston October 1995 0(2) 9.5 million
Apple........................... Chicago December 1995 41,500 13.0 million
Sun............................. Florida January 1996 12,000 2.3 million
SigNet Raleigh.................. Raleigh January 1996 13,000 8.7 million
Page One........................ Georgia January 1996 30,000 19.7 million
AGR............................. Florida February 1996 50,000 6.5 million
Total........................... Florida February 1996 13,000 2.2 million
Williams........................ Florida February 1996 6,500 2.7 million
Georgialina..................... Georgia October 1996 27,000 11.4 million
CalPage......................... California October 1996 45,000 17.2 million
----------- --------------
Total Completed Acquisitions.... 750,200 $198.9 million
======== ============
</TABLE>
- ---------------
(1) At the date the acquisition closed.
(2) Paging & Cellular was the Company's largest reseller serving more than
40,000 subscribers in Texas.
F-57
<PAGE> 211
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- ACQUISITIONS -- (CONTINUED)
In 1996, the Company signed a definitive agreement involving the merger of
the Company and Teletouch. The Company also signed a letter of intent to
purchase substantially all of the assets of Ventures in Paging, L.C. ("VIP"). In
the third quarter of 1996, the Company along with Teletouch announced the
decision to terminate the Teletouch merger. Under the terms of the $120 million
10 7/8% senior subordinated notes due 2006 (the "1996 Notes"), the proceeds from
the sale of the 1996 Notes were held in escrow upon completion of the offering
in June 1996. The proceeds of such offering could only be used in connection
with the Teletouch merger, and accordingly, were not recorded on the Company's
financial statements pending the finalization of the merger. As a result of the
termination of the merger agreement with Teletouch, the escrow funds were used
to redeem the notes at 101% of the principal amount of the 1996 Notes at
maturity, plus accrued interest to the date of redemption. Nonrecurring charges
of approximately $8.8 million incurred by the Company in connection with the
proposed Teletouch merger were recorded during the year ended December 31, 1996.
These charges consist primarily of underwriting, advisory, legal and accounting
fees and merger financing costs. The Company also elected not to pursue the
acquisition of the assets of VIP.
The Completed Acquisition's results of operations have been included in the
consolidated results of operations since the date of acquisition. The following
table presents the unaudited pro forma results of operations as if the
acquisitions had occurred at the beginning of each respective period presented.
The pro forma adjustments to sales and marketing and general and administrative
expenses represent expenses that either would or would not have been incurred
had the acquisitions occurred at the beginning of the periods presented. Pro
forma adjustments reflect additional depreciation and amortization expense based
on the fair value of the assets acquired as if the acquisitions had occurred at
the beginning of the periods presented. Pro forma adjustments also reflect
additional interest expense due to additional borrowings required to fund the
cash portion of the purchase price of each acquisition.
The following unaudited pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisitions been made as of those dates or of results which
may occur in the future (in thousands except for per share information):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Total revenues.................................................. $112,529 $111,086
Net loss........................................................ (42,246) (17,854)
Net loss per share.............................................. (3.47) (1.55)
</TABLE>
In 1996, the Company signed a definitive agreement to purchase all of the
outstanding capital stock of Modern. As further discussed in Note
N -- Subsequent Events, this acquisition was completed in March 1997 and was
accounted for as a purchase for an approximate cost of $9.2 million. Such
acquisition is not included in the pro forma results as shown above.
NOTE M -- LITIGATION
The Company, its directors, and certain of its officers have been sued in
eight separate actions brought in the United States District Court for the
Northern District of Texas and the District Courts of Dallas County, Texas. The
actions pending in federal court are captioned: WERNER V. PRONET INC., AT AL.,
No. 3-96CV1795-P; MOLINA V. PRONET INC., ET AL., No. 3-96CV1972-R; SMITH, ET AL.
V. LEHMAN BROTHERS, ET AL., No. 3-96CV2116-H; L.L. CAPITAL PARTNERS L.P. V.
PRONET INC., ET AL., No. 3-96-CV-02197-D. The actions pending in state court are
captioned: DENNIS V. PRONET INC., ET AL., No. 96-06509; GREENFIELD V. PRONET
INC., ET AL., No. 96-06782-B; and DRUCKER V. PRONET INC., ET AL., No.
96-06786-L.
F-58
<PAGE> 212
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- LITIGATION -- (CONTINUED)
Each of these cases purports to be a class action on behalf of a class of
purchasers of the Company's stock. The actions, taken as a group, allege that
the Company violated the Securities Act of 1933, the Securities Exchange Act of
1934 (and Rule 10b-5 thereunder), and certain state statutes and common law
doctrines. All of the actions were filed after the price of the Company's stock
decreased in June 1996. Certain of the actions pertain to an alleged class of
plaintiffs who purchased shares in the Company's $100 million public offering,
which closed on June 5, 1996. Other actions purport to include claims on behalf
of all purchasers of the Company's Common Stock during an alleged class period.
The state cases have been consolidated into a single action, which alleges
violation of the Securities Act of 1933 in connection with the Company's
Offering. The federal actions have been consolidated into two separate actions,
depending upon the nature of the claim raised. The court had previously
appointed a lead plaintiff in both actions, as that term is used in the Private
Securities Litigation Reform Act of 1995. That plaintiff has recently moved to
be relieved of that position, and the Company expects the court to appoint a new
lead plaintiff. In the meantime, the Company anticipates that its responsibility
to answer, plead or otherwise move against the pending federal complaints will
be deferred until a new lead plaintiff is appointed by the court.
The Company will vigorously defend the actions. The Company anticipates
that the plaintiffs will claim substantial damages. Because these cases are in
the early stages of discovery, the Company cannot predict the amount of damages,
if any. The final outcome of the issues that are the subject of these actions
could have a material adverse effect on the Company's results of operations in
1997 and in the future.
NOTE N -- SUBSEQUENT EVENTS
In January 1997, the Company paid $4.9 million in cash and issued 46,232
shares of its Common Stock in payment of $5.7 million of various deferred
payments.
On March 4, 1997, the Company announced the completion of the acquisition
of Modern, which added more than 18,000 subscribers. The acquisition was
completed for approximately $9.2 million, comprised of approximately $8.9
million in cash and 50,000 shares of the Company's Common Stock paid at closing.
This acquisition was accounted for as a purchase, and the cash portion was
funded by borrowings under the Company's Credit Facilities.
F-59
<PAGE> 213
PRONET INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 3,817 $ 2,286
Trade accounts receivable, net of allowance for doubtful
accounts........................................................ 11,189 13,747
Federal income tax receivable...................................... 469 497
Inventories........................................................ 2,505 2,760
Other current assets............................................... 2,326 2,499
-------- --------
20,306 21,789
-------- --------
EQUIPMENT
Pagers............................................................. 57,973 59,003
Communications equipment........................................... 56,418 49,134
Security systems' equipment........................................ 13,918 12,897
Office and other equipment......................................... 13,041 11,454
-------- --------
141,350 132,488
Less allowance for depreciation.................................... (65,845) (50,718)
-------- --------
75,505 81,770
-------- --------
GOODWILL AND OTHER ASSETS, net of amortization....................... 211,380 208,157
-------- --------
$ 307,191 $311,716
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables..................................................... $ 19,410 $ 10,452
Other accrued expenses and liabilities............................. 12,288 13,264
-------- --------
31,698 23,716
-------- --------
LONG-TERM DEBT....................................................... 170,226 148,691
DEFERRED CREDITS..................................................... 4,000 5,660
STOCKHOLDERS' EQUITY
Common stock....................................................... 130 129
Additional capital................................................. 181,991 180,694
Retained deficit................................................... (79,279) (45,714)
Less treasury stock at cost........................................ (1,575) (1,460)
-------- --------
101,267 133,649
-------- --------
$ 307,191 $311,716
======== ========
</TABLE>
See notes to consolidated financial statements.
F-60
<PAGE> 214
PRONET INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Service revenues.................................. $ 24,505 $ 20,926 $ 48,562 $ 41,942
Product sales..................................... 5,554 3,889 10,430 7,035
-------- -------- -------- --------
Total revenues............................ 30,059 24,815 58,992 48,977
Net book value of products sold................... (3,644) (3,355) (7,183) (6,136)
-------- -------- -------- --------
26,415 21,460 51,809 42,841
-------- -------- -------- --------
COST OF SERVICES
Pager lease and access services................... 7,264 5,712 14,450 11,224
Security systems' equipment services.............. 470 315 901 590
-------- -------- -------- --------
7,734 6,027 15,351 11,814
-------- -------- -------- --------
Gross margin.............................. 18,681 15,433 36,458 31,027
-------- -------- -------- --------
EXPENSES
Sales and marketing............................... 4,258 3,876 8,482 7,915
General and administrative........................ 6,728 6,004 13,089 11,344
Depreciation and amortization..................... 17,107 8,425 33,117 17,132
Nonrecurring charges.............................. 6,550 7,374 6,550 7,374
-------- -------- -------- --------
34,643 25,679 61,238 43,765
-------- -------- -------- --------
Operating loss............................ (15,962) (10,246) (24,780) (12,738)
OTHER INCOME (EXPENSE)
Interest and other income......................... 54 187 137 214
Interest expense.................................. (4,329) (3,988) (8,756) (7,646)
-------- -------- -------- --------
(4,275) (3,801) (8,619) (7,432)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES............................ (20,237) (14,047) (33,399) (20,170)
INCOME TAX EXPENSE.................................. 67 100 167 100
-------- -------- -------- --------
Net loss.................................. $(20,304) $(14,147) $(33,566) $(20,270)
======== ======== ======== ========
Net loss per share.................................. $ (1.61) $ (1.76) $ (2.66) $ (2.65)
======== ======== ======== ========
Weighted average shares............................. 12,618 8,404 12,601 7,657
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-61
<PAGE> 215
PRONET INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................................ $ (33,566) $ (20,270)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation..................................................... 25,183 10,589
Amortization..................................................... 7,934 6,543
Amortization of discount......................................... 36 36
Provision for losses on accounts receivable...................... 961 696
Provision for settlement costs................................... 4,000 --
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable................. 1,513 (2,629)
Decrease in inventories.......................................... 261 401
(Increase) decrease in other current assets...................... 201 (3,915)
(Increase) decrease in other assets.............................. (758) 7,374
Increase (decrease) in trade payables and other accrued expenses
and liabilities................................................. 7,737 (3,141)
----------- -----------
Net cash provided by (used in) operating activities......... 13,502 (4,316)
----------- -----------
INVESTING ACTIVITIES:
Purchase of equipment, net.......................................... (6,745) (10,519)
Purchase of pagers, net of disposals................................ (9,254) (18,221)
Acquisitions, net of cash acquired.................................. (14,114) (32,503)
Computer system software, product enhancements and other intangible
assets........................................................... (3,790) (668)
Other............................................................... 380 (121)
----------- -----------
Net cash used in investing activities....................... (33,523) (62,032)
----------- -----------
FINANCING ACTIVITIES:
Bank debt........................................................... 21,500 48,000
Sale of common stock--net........................................... -- 94,800
Payment on bank debt................................................ -- (48,000)
Exercise of incentive stock options for common stock................ -- 66
Debt financing costs................................................ -- (8,768)
Other............................................................... 52 (348)
----------- -----------
Net cash provided by financing activities................... 21,552 85,750
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS................................. 1,531 19,402
CASH AND CASH EQUIVALENTS:
Beginning of period................................................. 2,286 10,154
----------- -----------
End of period....................................................... $ 3,817 $ 29,556
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-62
<PAGE> 216
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
NOTE A -- ACCOUNTING POLICIES
Basis of Presentation: The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with 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 six month period
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto included herein.
Goodwill and Other Assets: Goodwill and other assets consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31,
1997 1996
-------- -----------
<S> <C> <C>
Goodwill.............................................. $171,927 $ 164,786
FCC licenses.......................................... 34,674 34,665
Other................................................. 35,383 31,003
-------- --------
241,984 230,454
Less accumulated amortization......................... (30,604) (22,297)
-------- --------
$211,380 $ 208,157
======== ========
</TABLE>
Goodwill is amortized using the straight-line method over a fifteen year
term. Amortization of the FCC licenses is deferred while the related system is
not operational.
Net Loss Per Share: Net loss per share is based on the weighted average
number of common shares and common equivalent shares outstanding during each
period. Stock options are considered common stock equivalents, if dilutive, for
purposes of computing weighted average shares outstanding.
Reclassification of Financial Statements: The 1996 financial statements
have been reclassified to conform to the 1997 financial statement presentation.
New Accounting Pronouncements: In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, Earnings per Share, which is required
to be adopted on December 31, 1997. At that time, the Company will be required
to change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The impact of
Statement No. 128 on the calculation of primary and fully diluted earnings per
share is not expected to be material.
F-63
<PAGE> 217
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Senior subordinated notes............................. $ 99,426 $ 99,391
Revolving line of credit.............................. 70,800 49,300
-------- ------------
170,226 148,691
Less current maturities............................... -- --
-------- ------------
$170,226 $148,691
======== ==========
</TABLE>
NOTE C -- DEFERRED CREDITS
Deferred credits consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Deferred payments....................................... $ -- $5,660
Settlement costs........................................ 4,000 --
-------- ------------
$4,000 $5,660
====== ==========
</TABLE>
At December 31, 1996, the Company had deferred payments outstanding related
to the Cobbwells, Inc. dba Page One ("Page One") and SigNet Paging of Raleigh,
Inc. ("SigNet Raleigh") acquisitions of $4.9 million and $800,000, respectively,
which were due and payable one year from the closing of the respective
transactions. The balances were payable, at the Company's discretion, either in
cash or shares of the Company's Common Stock based on current market value at
the date of payment. In January 1997, the Company paid $4.9 million in cash and
issued 46,232 shares of its Common Stock in payment of $5.7 million of the Page
One and SigNet Raleigh deferred payments, respectively. On May 15, 1997, the
Company announced that it had entered into an agreement in principle to settle
the securities class actions pending against the Company in state and Federal
courts. As part of the settlement, the Company agreed to issue one million
shares of the Company's Common Stock to the plaintiff. See "Note
F -- Litigation."
NOTE D -- ACQUISITIONS
In early 1993, the Company announced its plans to commence a program of
acquiring businesses that serve the commercial paging market and offer
operational synergies when integrated within the Company's SuperCenters. During
1994, 1995 and 1996, the Company completed 21 acquisitions at a total cost of
$198.9 million and the purchase of a nationwide license (931.9125 MHz Radio
Common Carrier frequency) and associated system equipment (the "Nationwide
License") for $43 million. Effective March 1, 1997, the Company acquired all of
the outstanding capital stock of Modern Communication Corp. and Personal
Communications, Inc. ("Modern") for $9.2 million. The completed acquisitions
were accounted for as purchases and funded by borrowings under the Company's
revolving line of credit, proceeds from the sale of the senior subordinated
notes and issuances of shares of the Common Stock.
The pro forma unaudited results of operations for the six months ended June
30, 1997 are not materially different from the historical results and therefore
are not presented. The pro forma unaudited results of operations for the six
months ended June 30, 1996, (which include acquisitions closed as of June 30,
1997),
F-64
<PAGE> 218
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- ACQUISITIONS -- (CONTINUED)
assuming consummation of the purchases at January 1, 1996, are as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
----------------
<S> <C>
Total revenues.............................................. $ 57,779
Net loss.................................................... (21,594)
Net loss per common share................................... (2.80)
</TABLE>
The 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 resulted had the acquisitions been made as of January 1, 1996 or of
results which may occur in the future. In the second quarter of 1996, the
Company signed a definitive agreement to merge with Teletouch Communications,
Inc. ("Teletouch"). In the third quarter of 1996, the Company announced the
termination of the pending Teletouch merger. Nonrecurring charges of
approximately $7.4 million were recorded in the second quarter of 1996 as a
result of the Teletouch merger termination. These charges consist primarily of
underwriting, advisory, legal and accounting costs and merger financing costs.
NOTE E -- INCOME TAXES
For the three and six months ended June 30, 1997, the primary differences
between the U.S. Federal statutory tax rate and the effective tax rate in the
Company's historical financial statements are state income taxes, net operating
losses with no benefit and the amortization of goodwill related to stock
acquisitions, which is not deductible for tax purposes.
NOTE F -- LITIGATION
The Company, its directors, and certain of its officers have been sued in
eight separate actions brought in the United States District Court for the
Northern District of Texas and the District Courts of Dallas County, Texas. The
actions pending in federal court are captioned: Werner v. ProNet Inc., et al.,
No. 3-96CV1795-P; Molina v. ProNet Inc., et al., No. 3-96CV1972-R; Smith, et al.
v. Lehman Brothers, et al., No. 3-96CV2116-H; L.L. Capital Partners L.P. v.
ProNet Inc., et al., No. 3-96-CV-02197-D. The actions pending in state court are
captioned: Dennis v. ProNet Inc., et al., No. 96-06509; Greenfield v. ProNet
Inc., et al., No. 96-06782-B; and Drucker v. ProNet Inc., et al., No.
96-06786-L.
Each of these cases purports to be a class action on behalf of a class of
purchasers of the Company's stock. The actions, taken as a group, allege that
the Company violated the Securities Act of 1933, the Securities Exchange Act of
1934 (and Rule 10b-5 thereunder), and certain state statutes and common law
doctrines. All of the actions were filed after the price of the Company's stock
decreased in June 1996. Certain of the actions pertain to an alleged class of
plaintiffs who purchased shares in the Company's $100 million public offering,
which closed on June 5, 1996. Other actions purport to include claims on behalf
of all purchasers of the Company's Common Stock during an alleged class period.
The state cases have been consolidated into a single action, which alleges
violation of the Securities Act of 1933 in connection with the Company's
Offering. The federal actions have been consolidated into two separate actions,
depending upon the nature of the claim raised. The Company has been served in
each action. The Company has also accepted service on behalf of the individuals
named in the relevant actions. The Company and the individual defendants have
filed answers in each of the state cases. Two orders have been entered
appointing lead plaintiffs in the federal cases as provided for in the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). The plaintiffs have
filed consolidated complaints. The Company recently filed motions to dismiss the
complaints in
F-65
<PAGE> 219
PRONET INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- LITIGATION -- (CONTINUED)
the federal cases. Under the provisions of the Reform Act, the federal cases are
stayed until the motions to dismiss are resolved.
The Company has entered into an agreement in principle to settle the
securities class actions pending against the Company and its officers and
directors in state and federal courts in Dallas. The Company has also entered
into an agreement with its former underwriters that terminates the Company's
potential liability to its former underwriters.
The Company and its insurance carriers will pay $5 million to settle all
claims against the Company and its officers and directors. The Company will also
pay an additional $400,000 to the plaintiffs, as part of its agreement with its
former underwriters. The Company will assign to the plaintiffs certain rights
against one of its insurers and will issue one million shares of ProNet stock to
the class upon final court approval of the settlement. The Company will also pay
$2 million to the class if, within two years from final approval of the
settlement, the Company engages in a merger or similar transaction in which
control of the Company changes. The proposed settlement is subject to execution
of a definitive settlement agreement and court approval.
The proposed settlements will resolve all disputes among the parties to the
litigation.
NOTE G -- SUBSEQUENT EVENT
On August 8, 1997, the Company signed a definitive agreement ("the Merger
Agreement") to merge into Metrocall, Inc. ("Metrocall"). Metrocall will issue
approximately 12.3 million shares of Metrocall common stock, which will be
converted at a ratio of 0.9 Metrocall shares per ProNet share, as adjusted.
Total value of the merger is approximately $73.8 million. Metrocall will also
assume approximately $170.2 million in the Company's debt.
This transaction is subject to the approval of the Company's and
Metrocall's stockholders, and approval of Metrocall's stockholders of an
increase in Metrocall's authorized common shares to 80 million. The Merger
Agreement is also subject to other terms and conditions, including regulatory
approvals, consents by Metrocall's banks and approval of certain pending
securities litigation settlements involving the Company in accordance with
previously announced settlements.
For additional information regarding the transactions contemplated in the
Merger Agreement, reference is made to the Agreement and Plan of Merger and
certain other documents entered into in connection with the Merger Agreement,
copies of which are incorporated herein by reference through Metrocall's Form
8-K dated August 11, 1997.
F-66
<PAGE> 220
APPENDIX A
METROCALL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder hereby constitutes and appoints the Proxy
Committee comprised of Suzanne S. Brock and Ronald V. Aprahamian 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 December 17, 1997, at 9:00 a.m., local time, and at any adjournment 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 stockholder may revoke this proxy at any time before it is
voted by delivering to the Assistant Secretary of Metrocall, Inc. 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
VOTES AS IN THIS
EXAMPLE.
- --------
X ------------------------------------------------------------------------
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.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Approval and adoption of an amendment to the Amended and Restated
Certificate of Incorporation increasing the number of authorized shares
of Metrocall Common Stock from 60,000,000 shares to 80,000,000 shares.
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
2,000,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Approval and adoption of an amendment to the Metrocall Employee Stock
Purchase Plan (the "ESPP") increasing the number of shares that may be
issued thereunder by 700,000 shares, to extend the term of the ESPP to
December 31, 2007, to increase administrative flexibility, and to make
certain other changes.
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
December 17, 1997
Ritz-Carlton, Pentagon City
1250 South Hayes Street
Arlington, Virginia
<PAGE> 221
APPENDIX B
PRONET INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder hereby constitutes and appoints each of Jackie
R. Kimzey and Mark A. Solls (the "Proxies") as the true and lawful agent and
proxy with full power of substitution, to represent the undersigned at the
Special Meeting of Stockholders of ProNet Inc. to be held at the The Westin
Hotel-Galleria, 13340 Dallas Parkway, Dallas, Texas on December 17, 1997, at
8:00 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 PROXIES CANNOT VOTE
YOUR SHARE(S) UNLESS YOU SIGN AND RETURN THIS CARD.
The undersigned stockholder may revoke this proxy at any time before it is
voted by delivering to the Secretary of ProNet Inc. 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
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE FOLLOWING
PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL.
1. Approval and adoption of the Agreement and Plan of Merger.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In its discretion, the Proxies are 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
PRONET INC.
Special Meeting of Stockholders
December 17, 1997
The Westin Hotel -- Galleria
13340 Dallas Parkway
Dallas, Texas
<PAGE> 222
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the 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 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.
II-1
<PAGE> 223
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C> <C>
(a) Exhibits
2.1 Agreement and Plan of Merger dated as of August 8, 1997, between
Metrocall, Inc. and ProNet Inc.(a)
2.2 Option Agreement dated as of August 8, 1997, between Metrocall, Inc. and
ProNet Inc.(a)
2.3 Amendment to Option Agreement dated as of August 29, 1997, between
Metrocall, Inc., and ProNet Inc.(b)
2.4 Stockholders Voting Agreement dated as of August 8, 1997, among ProNet
Inc. and certain stockholders of Metrocall, Inc. listed therein.(a)
3.1 Amended and Restated Certificate of Incorporation of Metrocall, Inc.*
3.2 Form of Certificate of Amendment of Certificate of Incorporation of
Metrocall, Inc.*
3.3 Fifth Amended and Restated Bylaws of Metrocall, Inc.*
4.1 Specimen Certificate representing Metrocall, Inc. Common Stock.(c)
4.2 Indenture for 10 3/8% Senior Subordinated Notes due 2007 dated September
27, 1995, including form of Notes.(d)
4.3 Indenture for A+ Network, Inc. 11 7/8% Senior Subordinated Notes due 2005
dated October 24, 1995 ("A+ Notes").(e)
4.4 First Supplemental Indenture dated November 14, 1996, for A+ Notes.(f)
4.5 Second Supplemental Indenture dated November 15, 1996, for A+ Notes.(f)
4.6 Indenture for 9 3/4% Senior Subordinated Notes Due 2007, dated October 21,
1997, including form of Notes.(g)
5.1 Opinion of Wilmer, Cutler & Pickering as to the legality of the Metrocall,
Inc. Common Stock being registered.*
8.1 Opinion of Wilmer, Cutler & Pickering as to certain tax matters.
8.2 Opinion of Vinson & Elkins L.L.P. as to certain tax matters.
10.1 Noncompetition Agreement dated as of August 8, 1997, between Metrocall,
Inc. and Jackie R. Kimzey.*
10.2 Noncompetition Agreement dated as of August 8, 1997, between Metrocall,
Inc. and David J. Vucina.*
10.3 Letter Agreement dated August 8, 1997, between Metrocall, Inc. and Jackie
R. Kimzey.*
10.4 Letter Agreement dated August 8, 1997, between Metrocall, Inc. and David
J. Vucina.*
10.5 Letter Agreement dated August 8, 1997, between Metrocall, Inc. and Jan E.
Gaulding.*
10.6 Letter Agreement dated August 8, 1997, between Metrocall, Inc. and Mark A.
Solls.*
10.7 Letter Agreement dated August 8, 1997, between Metrocall, Inc. and Jeffery
A. Owens.*
10.8 Metrocall 1996 Stock Option Plan, as amended.(h)
10.9 Metrocall Inc. Amended Employee Stock Purchase Plan.*
10.10 Second Amended and Restated Loan Agreement ("Loan Agreement") dated as of
October 21, 1997, among Metrocall, Inc., the financial institutions
signatory thereto, and Toronto-Dominion (Texas), Inc. as "Administrative
Agent", as corrected.
23.1 Consent of Wilmer, Cutler & Pickering (included in Exhibits 5.1 and 8.1).
23.2 Consent of Morgan Stanley & Co. Incorporated as financial adviser to
Metrocall, Inc.*
23.3 Consent of Arthur Andersen LLP, as independent public accountants for
Metrocall, Inc.
23.4 Consent of Arthur Andersen LLP, as independent public accountants for O.R.
Estman, Inc. and Dana Paging, Inc. dba Satellite Paging.
23.5 Consent of Hutton, Patterson & Company, as independent public accountants
for Parkway Paging, Inc.
23.6 Consent of Deloitte & Touche LLP, as independent public accountants for A+
Network, Inc.
23.7 Consent of Price Waterhouse LLP, as independent public accountants for
Network Paging Corporation.
</TABLE>
II-2
<PAGE> 224
<TABLE>
<S> <C> <C>
23.8 Consent of Ernst & Young LLP, as independent auditors for ProNet Inc.
23.9 Consent of Salomon Brothers Inc as financial adviser to ProNet Inc.
23.10 Consent of Vinson & Elkins L.L.P. (included in Exhibit 8.2).
24.1 Power of Attorney (included in signature pages of this Registration
Statement).
</TABLE>
-----------------------
(a) Incorporated by reference to Metrocall's Current Report on Form 8-K
filed with the Commission on August 12, 1997.
(b) Incorporated by reference to Metrocall's Current Report on Form 8-K,
as amended, filed with the Commission on September 8, 1997.
(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 Registration Statement on
Form S-1, as amended (File No. 33-96042), filed with the Commission
on September 27, 1995.
(e) Incorporated by reference to the Registration Statement on Form S-1
of A+ Communications, Inc., as amended (File No. 33-95208), filed
with the Commission on September 18, 1995.
(f) Incorporated by reference to Metrocall's Annual Report on Form 10-K
for the year ended December 31, 1996, filed with the Commission on
March 31, 1997.
(g) Incorporated by reference to Metrocall's Current Report on Form 8-K
filed with the Commission on October 23, 1997.
(h) Incorporated by reference to Metrocall's Proxy Statement filed for
the Annual Meeting of Stockholders to be held on May 7, 1997.
* Previously filed.
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 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 as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by other terms of the applicable form.
II-3
<PAGE> 225
(e) The registrant hereby undertakes that every prospectus: (i) that is
filed pursuant to paragraph (d) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes 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.
(f) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 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 November 5, 1997.
METROCALL, INC.
By: /s/ VINCENT D. KELLY
------------------------------------
Name: Vincent D. Kelly
Title: Executive Vice President and
CFO
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY DATE
- ------------------------------------ ------------------------------------ -----------------
<C> <C> <S>
* President, Chief Executive Officer November 5, 1997
- ------------------------------------ and
WILLIAM L. COLLINS, III Director (Principal Executive
Officer)
/s/ VINCENT D. KELLY Executive Vice President, Treasurer November 5, 1997
- ------------------------------------ and Chief Financial Officer
VINCENT D. KELLY (Principal Financial and Accounting
Officer)
* Chairman of the Board November 5, 1997
- ------------------------------------
RICHARD M. JOHNSTON
* Director November 5, 1997
- ------------------------------------
RONALD V. APRAHAMIAN
* Director November 5, 1997
- ------------------------------------
HARRY L. BROCK, JR.
* Director November 5, 1997
- ------------------------------------
SUZANNE S. BROCK
* Director November 5, 1997
- ------------------------------------
FRANCIS A. MARTIN, III
* Director November 5, 1997
- ------------------------------------
RYAL R. POPPA
* Director November 5, 1997
- ------------------------------------
RAY D. RUSSENBERGER
* Director November 5, 1997
- ------------------------------------
ELLIOTT H. SINGER
* Director November 5, 1997
- ------------------------------------
MICHAEL GREENE
* Director November 5, 1997
- ------------------------------------
ROYCE YUDKOFF
*By: /s/ VINCENT D. KELLY
- ------------------------------------
VINCENT D. KELLY
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE> 227
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of August 8, 1997, between
Metrocall, Inc. and ProNet Inc.(a)
2.2 Option Agreement dated as of August 8, 1997, between Metrocall, Inc. and
ProNet Inc.(a)
2.3 Amendment to Option Agreement dated as of August 29, 1997, between
Metrocall, Inc., and ProNet Inc.(b)
2.4 Stockholders Voting Agreement dated as of August 8, 1997, among ProNet
Inc. and certain stockholders of Metrocall, Inc. listed therein.(a)
3.1 Amended and Restated Certificate of Incorporation of Metrocall, Inc.*
3.2 Form of Certificate of Amendment of Certificate of Incorporation of
Metrocall, Inc.*
3.3 Fifth Amended and Restated Bylaws of Metrocall, Inc.*
4.1 Specimen Certificate representing Metrocall, Inc. Common Stock.(c)
4.2 Indenture for 10 3/8% Senior Subordinated Notes due 2007, dated
September 27, 1995 including form of Notes.(d)
4.3 Indenture for A+ Network, Inc. 11 7/8% Senior Subordinated Notes due
2005 dated October 24, 1995 ("A+ Notes").(e)
4.4 First Supplemental Indenture dated November 14, 1996, for A+ Notes.(f)
4.5 Second Supplemental Indenture dated November 15, 1996, for A+ Notes.(f)
4.6 Indenture for 9 3/4% Senior Subordinated Notes due 2007 dated October
21, 1997, including form of Notes.(g)
5.1 Opinion of Wilmer, Cutler & Pickering as to the legality of the
Metrocall, Inc. Common Stock being registered.*
8.1 Opinion of Wilmer, Cutler & Pickering as to certain tax matters.
8.2 Opinion of Vinson & Elkins L.L.P. as to certain tax matters.
10.1 Noncompetition Agreement dated as of August 8, 1997, between Metrocall,
Inc. and Jackie R. Kimzey.*
10.2 Noncompetition Agreement dated as of August 8, 1997, between Metrocall,
Inc. and David J. Vucina.*
10.3 Letter Agreement dated August 8, 1997, between Metrocall, Inc. and
Jackie R. Kimzey.*
10.4 Letter Agreement dated August 8, 1997, between Metrocall, Inc. and David
J. Vucina.*
10.5 Letter Agreement dated August 8, 1997, between Metrocall, Inc. and Jan
E. Gaulding.*
10.6 Letter Agreement dated August 8, 1997, between Metrocall, Inc. and Mark
A. Solls.*
10.7 Letter Agreement dated August 8, 1997, between Metrocall, Inc. and
Jeffery A. Owens.*
10.8 Metrocall 1996 Stock Option Plan, as amended.(h)
10.9 Metrocall Inc. Amended Employee Stock Purchase Plan.*
10.10 Second Amended and Restated Loan Agreement ("Loan Agreement") dated as
of October 21, 1997, among Metrocall, Inc., the financial institutions
signatory thereto, and Toronto-Dominion (Texas), Inc. as "Administrative
Agent", as corrected.
23.1 Consent of Wilmer, Cutler & Pickering (included in Exhibits 5.1 and
8.1).
23.2 Consent of Morgan Stanley & Co. Incorporated as financial adviser to
Metrocall, Inc.*
23.3 Consent of Arthur Andersen LLP, as independent public accountants for
Metrocall, Inc.
23.4 Consent of Arthur Andersen LLP, as independent public accountants for
O.R. Estman, Inc. and Dana Paging, Inc. dba Satellite Paging.
23.5 Consent of Hutton, Patterson & Company, as independent public
accountants for Parkway Paging, Inc.
23.6 Consent of Deloitte & Touche LLP, as independent public accountants for
A+ Network, Inc.
</TABLE>
<PAGE> 228
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
23.7 Consent of Price Waterhouse LLP, as independent public accountants for
Network Paging Corporation.
23.8 Consent of Ernst & Young LLP, as independent auditors for ProNet Inc.
23.9 Consent of Salomon Brothers Inc as financial adviser to ProNet Inc.
23.10 Consent of Vinson & Elkins L.L.P. (included in Exhibit 8.2).
24.1 Power of Attorney (included in signature pages of this Registration
Statement).
</TABLE>
----------------------
(a) Incorporated by reference to Metrocall's Current Report on Form 8-K
filed with the Commission on August 12, 1997.
(b) Incorporated by reference to Metrocall's Current Report on Form 8-K,
as amended, filed with the Commission on September 8, 1997.
(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 Registration Statement on
Form S-1, as amended (File No. 33-96042), filed with the Commission
on September 27, 1995.
(e) Incorporated by reference to the Registration Statement on Form S-1
of A+ Communications, Inc., as amended (File No. 33-95208), filed
with the Commission on September 18, 1995.
(f) Incorporated by reference to Metrocall's Annual Report on Form 10-K
for the year ended December 31, 1996, filed with the Commission on
March 31, 1997.
(g) Incorporated by reference to Metrocall's Current Report on Form 8-K
filed with the Commission on October 23, 1997.
(h) Incorporated by reference to Metrocall's Proxy Statement filed for
the Annual Meeting of Stockholders to be held on May 7, 1997.
* Exhibit previously filed.
<PAGE> 1
EXHIBIT 8.1
WILMER, CUTLER & PICKERING
2445 M STREET, N.W.
WASHINGTON, D.C. 20037-1420
Telephone: (202)663-6000
Facsimile: (202)663-6363
November 5, 1997
Metrocall, Inc.
6677 Richmond Highway
Alexandria, Virginia 22306
Ladies and Gentlemen:
We have acted as special counsel in connection with the planned merger
(the "Merger") of ProNet, Inc., a Delaware corporation ("ProNet"), with and
into Metrocall, Inc., a Delaware corporation ("Metrocall"), pursuant to the
Agreement and Plan of Merger (the "Agreement"), dated as of August 8, 1997, by
and between Metrocall and ProNet. Capitalized terms used but not defined
herein shall have the meanings specified in the Registration Statement or the
appendices thereto (including the Agreement).
We have assumed with your consent that (1) the Merger will be
consummated solely in compliance with the material terms and conditions of the
Agreement and none of the material terms and conditions thereof have been or
will be waived or modified and (2) that the Merger will qualify as a statutory
merger under the applicable laws of Delaware. For purposes of rendering this
opinion, we have reviewed the Agreement, the Form S-4 Registration Statement
filed with the Securities and Exchange Commission on or about November 5, 1997
(the "Registration Statement"), and such other documents as we have considered
appropriate. We have also relied on the initial and continuing accuracy of the
representations contained in the Registration Statement and the letters of
representation from Metrocall and ProNet to us dated November 5, 1997 and
November 5, 1997, respectively.
<PAGE> 2
Metrocall, Inc.
November 5, 1997
Page 2
On the basis of the foregoing, and our consideration of such other
matters of fact and law as we have deemed necessary or appropriate, it is our
opinion, under presently applicable federal income tax law, that the Merger
will constitute a reorganization under Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that:
(i) no gain or loss will be recognized by Metrocall or
ProNet as a result of the consummation of the merger;
(ii) no gain or loss will be recognized for federal income
tax purposes by ProNet stockholders upon the exchange in the Merger of
shares of ProNet stock solely for Metrocall stock (except with respect
to cash received in lieu of a fractional share interest in Metrocall
stock);
(iii) the basis of Metrocall stock received in the Merger
by ProNet stockholders (including the basis of any fractional share
interest in Metrocall stock) will be the same as the basis of the
shares of ProNet stock surrendered in exchange therefor;
(iv) the holding period of Metrocall stock received in the
Merger by ProNet stockholders (including the holding period of any
fractional share interest in Metrocall stock) will include the period
during which the shares of ProNet stock surrendered in exchange
therefor were held by the ProNet stockholder, provided such shares of
ProNet stock were held as capital assets; and
(v) the payment of cash to a ProNet stockholder in lieu
of a fractional share interest in Metrocall Common Stock will be
treated as if the fractional share had been distributed as part of the
exchange and then redeemed by Metrocall. The cash payment will be
treated as having been received as a distribution in payment for the
Metrocall Common Stock hypothetically redeemed as provided in Section
302 of the Code and, to the extent that such redemption is
"substantially disproportionate" with respect to the ProNet
stockholder or is not treated as "essentially equivalent to a
dividend" after giving effect to the relevant constructive ownership
rules of the Code, generally should result in the recognition of
capital gain or loss measured by the difference between the amount of
cash received and the tax basis of the fractional share of Metrocall
Common Stock hypothetically redeemed.
<PAGE> 3
Metrocall, Inc.
November 5, 1997
Page 3
This opinion does not address all aspects of Federal income taxation
that may be relevant to particular ProNet stockholders and may not be
applicable to stockholders who are not citizens or residents of the United
States. This opinion may not apply to certain classes of taxpayers, including,
without limitation, insurance companies, tax-exempt organizations, financial
institutions, dealers in securities, persons who will acquire their Metrocall
Common Stock pursuant to the exercise or termination of employee stock options
or otherwise as compensation, or persons who will hold their Metrocall Common
Stock in a hedging transaction or as a part of a straddle or conversion
transaction.
This opinion is based on relevant provisions of the Code, the Treasury
Regulations promulgated thereunder, and interpretations of the foregoing as
expressed in court decisions and administrative determinations, as currently in
effect. We undertake no obligation to update or supplement this opinion to
reflect any changes in laws that may occur.
This opinion has been prepared solely for your use in connection with
the filing of the Registration Statement and should not be quoted in whole or
in part or otherwise be referred to, nor otherwise be filed with or furnished
to any governmental agency or other person or entity, without our express prior
written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this opinion in the
Registration Statement. In giving this consent, we do not hereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
WILMER, CUTLER & PICKERING
By: /s/ WILLIAM J. WILKINS
---------------------------
William J. Wilkins
A Partner
<PAGE> 1
EXHIBIT 8.2
[VINSON & ELKINS LOGO]
ATTORNEYS AT LAW
VINSON & ELKINS L.L.P.
3700 TRAMMELL CROW CENTER
2001 ROSS AVENUE
DALLAS, TEXAS 75201-2975
WRITER'S TELEPHONE WRITER'S EMAIL WRITER'S FAX
(214) 220-7721 [email protected] (214) 999-7721
November 5, 1997
ProNet Inc.
6340 LBJ Freeway
Dallas, Texas 75340
Gentlemen:
You have requested our opinion with respect to certain federal income
tax consequences of the planned merger (the "Merger") of ProNet Inc. ("ProNet")
with and into Metrocall, Inc. ("Metrocall") pursuant to an Agreement and Plan
of Merger dated as of August 8, 1997 (the "Merger Agreement"). Defined terms
used in the Merger Agreement have the same meaning when used herein, unless
otherwise defined herein.
In rendering this opinion, we have examined and are relying upon
(without any independent investigation or review thereof) the truth and
accuracy at all relevant times of the statements, covenants, and
representations contained in (i) the Merger Agreement (including all disclosure
schedules thereto), (ii) the Joint Proxy Statement/Prospectus (which was
included in the Registration Statement, as amended, filed by Metrocall and
ProNet with the Securities and Exchange Commission (the "Registration
Statement")), and (iii) the officers' certificates of even date herewith which
were provided to us by Metrocall and ProNet. Any inaccuracy in any of the
aforementioned statements, representations, and assumptions or breach of any of
the aforementioned covenants could adversely affect our opinion.
On the basis of and subject to the foregoing, and subject to the
limitations set forth below, it is our opinion that, under presently applicable
federal income tax law, the Merger will be treated as a reorganization within
the meaning of section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and ProNet and Metrocall will each be a party to that
reorganization within the meaning of Section 368(b) of the Code. As a result,
the following U.S. federal income tax consequences will occur:
HOUSTON DALLAS WASHINGTON, D.C. AUSTIN MOSCOW LONDON SINGAPORE
<PAGE> 2
ProNet Inc.
November 5, 1997
Page 2
(a) no gain or loss will be recognized by ProNet or
Metrocall in connection with the Merger;
(b) no gain or loss will be recognized by ProNet
stockholders upon their exchange of ProNet Common Stock for Metrocall
Common Stock, except that a ProNet stockholder who receives cash
proceeds in lieu of a fractional share interest in Metrocall Common
Stock will recognize gain or loss equal to the difference between the
amount of cash received and the tax basis allocated to the fractional
share interest;
(c) the tax basis of the Metrocall Common Stock received
by a ProNet stockholder in exchange for his or her ProNet Common Stock
will be the same as such stockholder's tax basis in the ProNet Common
Stock surrendered in such exchange therefor, reduced by any tax basis
allocated to a fractional share interest in Metrocall Common Stock for
which cash is received; and
(d) the holding period of the Metrocall Common Stock
received by a ProNet stockholder will include the period during which
the ProNet Common Stock surrendered in exchange therefor was held,
provided that such ProNet Common Stock was held by such ProNet
stockholder as a capital asset within the meaning of Section 1221 of
the Code at the Effective Date.
Our opinion is based on our interpretation of the Code, applicable
Treasury regulations, judicial authority, and administrative rulings and
practice, all as in effect as of the date hereof. There can be no assurance
that future legislative, judicial or administrative changes or interpretations
will not adversely affect the accuracy of the conclusions set forth herein. We
do not undertake to advise you as to any such future changes or interpretations
unless we are specifically retained to do so. Our opinion will not be binding
upon the Internal Revenue Service (the "IRS"), and the IRS will not be
precluded from adopting a contrary position.
No opinion is expressed as to any matter not specifically addressed
above, including, without limitation, the tax consequences of the Merger under
any foreign, state, or local tax law. Moreover, tax consequences which are
different from or in addition to those described herein may apply to holders of
ProNet Common Stock who are subject to special treatment under the U.S.
federal income tax laws, such as persons who acquired their shares in
compensatory transactions in exchange for services rendered.
<PAGE> 3
ProNet Inc.
November 5, 1997
Page 3
If the IRS successfully challenged the status of the Merger as a
reorganization, a holder of ProNet Common Stock would recognize gain or loss in
an amount equal to the difference between the stockholder's tax basis in his or
her shares and the fair market value, as of the Effective Time, of Metrocall
Common Stock received in exchange therefor. In such event, the stockholder's
tax basis in Metrocall Common Stock so received would be equal to its fair
market value as of the Effective Time and the holding period for such stock
would begin on the day after the Effective Time.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. This opinion is being delivered to you solely for that
purpose, and may be relied upon by ProNet as provided in the Registration
Statement. It may not be relied upon or used for any other purpose and may not
otherwise be distributed or made available to anyone without our prior written
consent.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
---------------------------
Vinson & Elkins L.L.P.
<PAGE> 1
EXHIBIT 10.10
SECOND
AMENDED AND RESTATED LOAN AGREEMENT
among
METROCALL, INC.,
the "Borrower";
The Financial Institutions Signatory Hereto;
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" for the Banks
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 Definitions 2
ARTICLE 2 Credit Facilities 17
Section 2.1 Commitments. 17
Section 2.2 Manner of Borrowing and Disbursement 18
Section 2.3 Interest 20
Section 2.4 Commitment Fees 21
Section 2.5 Mandatory Commitment Reductions 21
Section 2.7 Prepayments and Repayments 23
Section 2.8 Notes; Loan Accounts 24
Section 2.9 Manner of Payment 24
Section 2.10 Reimbursement 25
Section 2.11 Pro Rata Treatment 25
Section 2.12 Capital Adequacy 26
Section 2.13 Bank Tax Forms 26
ARTICLE 3 Conditions Precedent 26
Section 3.1 Conditions Precedent to Effectiveness of Agreement 26
Section 3.2 Conditions Precedent to Each Advance 27
Section 3.3 Conditions Precedent to Effectiveness of Increase in Facility A Commitment and
Effectiveness of Facility B Commitment. 28
ARTICLE 4 Representations and Warranties 29
Section 4.1 Representations and Warranties 29
Section 4.2 Survival of Representations and Warranties, etc. 34
ARTICLE 5 General Covenants 34
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
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<S> <C>
Section 5.1 Preservation of Existence and Similar Matters 34
Section 5.2 Business; Compliance with Applicable Law 34
Section 5.3 Maintenance of Properties 34
Section 5.4 Accounting Methods and Financial Records 34
Section 5.5 Insurance 35
Section 5.6 Payment of Taxes and Claims 35
Section 5.7 Compliance with ERISA 35
Section 5.8 Visits and Inspections 36
Section 5.9 Payment of Indebtedness; Loans 37
Section 5.10 Use of Proceeds 37
Section 5.11 Indemnity 37
Section 5.12 Interest Rate Hedging 38
Section 5.13 Covenants Regarding Formation of Subsidiaries and Acquisitions 38
Section 5.14 Payment of Wages 38
Section 5.15 Further Assurances 39
Section 5.16 License Subs 39
ARTICLE 6 Information Covenants 39
Section 6.1 Quarterly Financial Statements and Information 39
Section 6.2 Annual Financial Statements and Information 40
Section 6.3 Performance Certificates 40
Section 6.4 Copies of Other Reports 40
Section 6.5 Notice of Litigation and Other Matters 41
ARTICLE 7 Negative Covenants 42
Section 7.1 Indebtedness of the Borrower and its Subsidiaries 42
Section 7.2 Limitation on Liens 43
Section 7.3 Amendment and Waiver 43
Section 7.4 Liquidation, Merger, or Disposition of Assets 43
Section 7.5 Limitation on Guaranties 44
Section 7.6 Investments and Acquisitions 44
Section 7.7 Restricted Payments and Purchases 45
Section 7.8 Senior Leverage Ratio 45
Section 7.10 Annualized Operating Cash Flow to Pro Forma Debt Service Ratio. 46
Section 7.11 Total Sources to Total Uses Ratio 46
Section 7.12 Operating Cash Flow to Net Cash Interest Expense Ratio 46
Section 7.13 Affiliate Transactions 46
Section 7.15 ERISA Liabilities 47
Section 7.16 Unrestricted Subsidiaries 47
Section 7.17 No Limitation on Upstream Dividends by Subsidiaries 47
ARTICLE 8 Default 48
</TABLE>
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<PAGE> 3
<TABLE>
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<S> <C>
Section 8.1 Events of Default 48
Section 8.2 Remedies 50
Section 8.3 Payments Subsequent to Declaration of Event of Default 51
ARTICLE 9 The Administrative Agent 52
Section 9.1 Appointment and Authorization 52
Section 9.2 Interest Holders 52
Section 9.3 Consultation with Counsel 52
Section 9.4 Documents 52
Section 9.5 Administrative Agent and Affiliates 52
Section 9.6 Responsibility of the Administrative Agent 53
Section 9.7 Security Documents 53
Section 9.8 Action by the Administrative Agent 53
Section 9.9 Notice of Default or Event of Default 53
Section 9.10 Responsibility Disclaimed 54
Section 9.11 Indemnification 54
Section 9.12 Credit Decision 54
Section 9.13 Successor Administrative Agent 55
Section 9.14 Delegation of Duties 55
Section 9.15 Co Agents 55
ARTICLE 10 Change in Circumstances Affecting Eurodollar Advances 55
Section 10.1 Eurodollar Basis Determination Inadequate or Unfair 55
Section 10.2 Illegality 55
Section 10.3 Increased Costs 56
Section 10.4 Effect On Other Advances 57
ARTICLE 11 Miscellaneous 57
Section 11.1 Notices 57
Section 11.2 Expenses 58
Section 11.3 Waivers 58
Section 11.4 Set-Off 59
Section 11.5 Assignment 59
Section 11.6 Accounting Principles 61
Section 11.7 Counterparts 61
Section 11.8 Governing Law 61
Section 11.9 Severability 61
Section 11.10 Interest 61
Section 11.11 Table of Contents and Headings 62
Section 11.12 Amendment and Waiver 62
Section 11.13 Entire Agreement 62
</TABLE>
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<PAGE> 4
<TABLE>
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<S> <C>
Section 11.14 Other Relationships 62
Section 11.15 Directly or Indirectly 62
Section 11.16 Reliance on and Survival of Various Provisions 62
Section 11.17 Senior Debt 62
Section 11.18 Obligations Several 63
ARTICLE 12 Waiver of Jury Trial 63
Section 12.1 Waiver of Jury Trial 63
</TABLE>
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<PAGE> 5
EXHIBITS
<TABLE>
<S> <C>
Exhibit A - Form of Borrower's Pledge Agreement
Exhibit B - Form of Borrower Security Agreement
Exhibit C - Form of Certificate of Financial Condition
Exhibit D-1 - Form of Facility A Note
Exhibit D-2 - Form of Facility B Note
Exhibit E - Form of Request for Advance
Exhibit F - Form of Trademark Security Agreement
Exhibit G - Form of Use of Proceeds Letter
Exhibit H - Form of Borrower's Loan Certificate
Exhibit I - Form of Subsidiary Loan Certificate
Exhibit J - Form of Subsidiary Security Agreement
Exhibit K - Form of Subsidiary Guaranty
Exhibit L - Form of Subsidiary Pledge Agreement
Exhibit M - Form of Assignment and Assumption Agreement
</TABLE>
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1 - Licenses
Schedule 2 - Purchase Money Security Interests as of Agreement Date
Schedule 3 - [RESERVED]
Schedule 4 - Real Estate Partnerships
Schedule 5 - Subsidiaries
Schedule 6 - Exceptions to Representations and Warranties
Schedule 7 - License Subs
Schedule 8 - Litigation
Schedule 9 - Agreements with Affiliates
Schedule 10 - Indebtedness for Money Borrowed Outstanding After Agreement Date
Schedule 11 - Amendments and Waivers to Charter and Subordinated Debt Documents
Schedule 12 - Proposed Real Estate Acquisition
</TABLE>
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<PAGE> 6
SECOND
AMENDED AND RESTATED LOAN AGREEMENT
METROCALL, INC.,
the "Borrower";
The Financial Institutions Signatory Hereto;
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" for the Banks,
agree as follows as of the 21st day of October, 1997:
WHEREAS, the Borrower, the Administrative Agent and certain of the
Banks are all parties to that certain Amended and Restated Loan Agreement dated
as of September 20, 1996, as amended by that certain First Amendment to Amended
and Restated Loan Agreement dated as of April 30, 1997, and that certain Second
Amendment to Amended and Restated Loan Agreement dated as of August 11, 1997,
and that certain Consent and Amendment dated as of October 16, 1997
(collectively, the "Prior Loan Agreement"); and
WHEREAS, the Borrower has requested that the Administrative Agent
and the Banks consent to certain amendments to the Prior Loan Agreement, as
more fully set forth in this Second Amended and Restated Loan Agreement; and
WHEREAS, the Administrative Agent and the Banks have agreed to amend
and restate the Prior Loan Agreement in its entirety as set forth herein; and
WHEREAS, the Borrower acknowledges and agrees that the Security
Interest (as defined in the Prior Loan Agreement) granted to the Administrative
Agent, for itself and on behalf of the Banks pursuant to the Prior Loan
Agreement and the Loan Documents (as defined in the Prior Loan Agreement)
executed in connection therewith shall remain outstanding and in full force and
effect in accordance with the Prior Loan Agreement and shall continue to secure
the Obligations (as defined herein); and
WHEREAS, the Borrower acknowledges and agrees that (i) the
Obligations (as defined herein) represent, among other things, the amendment,
restatement, renewal, extension, consolidation and modification of the
Obligations (as defined in the Prior Loan Agreement) arising in connection with
the Prior Loan Agreement and the other Loan Documents (as defined in the Prior
Loan Agreement) executed in connection therewith; (ii) the parties hereto
intend that the Prior Loan Agreement and the other Loan Documents (as defined
in the Prior Loan Agreement) executed in connection therewith and the
collateral pledged thereunder shall secure, without interruption or impairment
of any kind, all existing Indebtedness under the Prior Loan Agreement and the
other Loan Documents (as defined in the Prior Loan Agreement) executed in
connection therewith as so amended, restated, restructured, renewed, extended,
consolidated and modified hereunder, together with all other Obligations
hereunder; (iii) all Liens evidenced by the Prior Loan Agreement and the other
Loan Documents (as defined in the Prior Loan Agreement) executed in connection
therewith are hereby ratified, confirmed and continued; and (iv) the Loan
Documents (as defined herein) are intended to restructure, restate, renew,
extend, consolidate, amend and modify the Prior Loan Agreement and the other
Loan Documents (as defined in the Prior Loan Agreement)
<PAGE> 7
executed in connection therewith; and
WHEREAS, the parties hereto intend that (i) the provisions of the
Prior Loan Agreement and the other Loan Documents (as defined in the Prior Loan
Agreement) executed in connection therewith, to the extent restructured,
restated, renewed, extended, consolidated, amended and modified hereby, are
hereby superseded and replaced by the provisions hereof and of the Loan
Documents (as defined herein): and (ii) the Notes (as hereinafter defined)
amend, renew, extend, modify, replace, are substituted for and supersede in
their entirety, but do not extinguish the indebtedness arising under, the
promissory notes issued pursuant to the Prior Loan Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, the
parties hereby amend and restate the Prior Loan Agreement as follows:
ARTICLE 1
Definitions
For the purposes of this Agreement:
"A+ Indenture" shall mean that certain Indenture dated as of October
24, 1995 as modified by First Supplemental Indenture dated as of November 14,
1996 and Second Supplemental Indenture dated as of November 15, 1996 between
the Borrower (as successor to A+ Communications, Inc.) and IBJ Schroder Bank &
Trust Company) with respect to the 11-7/8% Senior Subordinated Notes Due 2005
of the Borrower (as successor to A+ Network, Inc.).
"Acquisition" shall mean (whether by purchase, lease, exchange,
issuance of stock or other equity or debt securities, merger, reorganization or
any other method) (i) any acquisition by the Borrower or any of its Restricted
Subsidiaries of any other Person, which Person shall then become consolidated
with the Borrower or any such Restricted Subsidiary in accordance with GAAP, or
(ii) any acquisition by the Borrower or any of its Restricted Subsidiaries of
all or any substantial part of the assets of any other Person.
"Administrative Agent" shall mean Toronto Dominion (Texas), Inc., in
its capacity as Administrative Agent for the Banks or any successor
Administrative Agent appointed pursuant to Section 9.13 of this Agreement.
"Administrative Agent's Office" shall mean the office of the
Administrative Agent located at 909 Fannin, Suite 900, Houston, Texas 77010, or
such other office as may be designated pursuant to the provisions of Section
11.1 of this Agreement.
"Advance" shall mean amounts advanced by the Banks to the Borrower
pursuant to Article 2 hereof on the occasion of any borrowing and having the
same Interest Rate Basis and Interest Period; and "Advances" shall mean more
than one Advance.
"Affiliate" shall mean, with respect to a Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with, such first Person. For purposes of this definition, "control" when used
with respect to any Person includes, without limitation, the direct or indirect
beneficial ownership of more than ten percent (10%) of the voting securities or
voting equity of such Person or the power to direct or cause the
-2-
<PAGE> 8
direction of the management and policies of such Person whether by contract or
otherwise.
"Agreement" shall mean this Second Amended and Restated Loan
Agreement, together with all Exhibits and Schedules hereto.
"Agreement Date" shall mean the date as of which this Agreement is
dated.
"Annualized Operating Cash Flow" shall mean, as of any date, the
product of (a) Operating Cash Flow for the most recently completed fiscal
quarter, times (b) four (4).
"Applicable Law" shall mean, in respect of any Person, all
provisions of constitutions, statutes, rules, regulations and orders of
governmental bodies or regulatory agencies applicable to such Person,
including, without limiting the foregoing, the Licenses, the Communications Act
and all Environmental Laws, and all orders, decisions, judgments and decrees of
all courts and arbitrators in proceedings or actions to which the Person in
question is a party or by which it is bound.
"Applicable Margin" shall mean the interest rate margin applicable
to Base Rate Advances and Eurodollar Advances, as the case may be, in each case
determined in accordance with Section 2.3(f) hereof.
"Asset Disposition" shall mean any transfer, conveyance, sale, lease
or other disposition by the Borrower or any of the Restricted Subsidiaries
(including a consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to another Person in a transaction in which such
Subsidiary ceases to be a Subsidiary, but excluding a disposition by a
Restricted Subsidiary to the Borrower or a wholly-owned Restricted Subsidiary
of the Borrower or by the Borrower to a wholly-owned Restricted Subsidiary, and
excluding the creation of a Lien) of (i) shares of Capital Stock or other
ownership interests of a Restricted Subsidiary, (ii) substantially all of the
assets of the Borrower or any of the Restricted Subsidiaries representing a
division or line of business or (iii) other assets or rights of the Borrower or
any of the Restricted Subsidiaries outside of the ordinary course of business,
in any case where the consideration received by the Borrower or a Restricted
Subsidiary or the fair market value of the assets subject to such disposition
exceeds $1,000,000.
"Authorized Signatory" shall mean such senior personnel of a Person
as may be duly authorized and designated in writing by such Person to execute
documents, agreements and instruments on behalf of such Person.
"Banks" shall mean those financial institutions whose names appear
as "Banks" on the signature pages to this Agreement, together with any
assignees thereof pursuant to Section 11.5 hereof; and "Bank" shall mean any
one of the foregoing Banks.
"Base Rate" shall mean, at any time, the higher of (a) the rate of
interest adopted by The Toronto- Dominion Bank, New York Branch as its
reference rate for the determination of interest rates for loans of varying
maturities in United States dollars to United States residents of varying
degrees of creditworthiness and being quoted at such time by such bank as its
"prime rate" or "base rate," or (b) the Federal Funds Rate plus one-half of one
percent (1/2%) per annum. The Base Rate is not necessarily the lowest rate of
interest charged to borrowers of The Toronto-Dominion Bank, New York Branch.
"Base Rate Advance" shall mean an Advance which the Borrower
requests to be made as a Base Rate Advance or is reborrowed as a Base Rate
Advance, in accordance with the provisions of Section 2.2 hereof, and which
shall be in a principal amount of at least $1,000,000, and in an integral
multiple of $500,000.
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<PAGE> 9
"Base Rate Basis" shall mean a simple interest rate equal to the sum
of (i) the Base Rate and (ii) the Applicable Margin. The Base Rate Basis shall
be adjusted automatically as of the opening of business on the effective date
of each change in the Base Rate to account for such change, and shall also be
changed to reflect changes in the Applicable Margin.
"Board of Directors" when used with reference to the Borrower, shall
mean the Board of Directors of the Borrower, or the Executive Committee of the
Board of Directors of the Borrower.
"Borrower" shall mean Metrocall, Inc., a Delaware corporation.
"Borrower's Pledge Agreements" shall mean, collectively, that
certain Amended and Restated Borrower's Pledge Agreement dated as of September
20, 1996, that certain First Supplemental Borrower's Pledge Agreement dated as
of November 15, 1996, and that certain Second Supplemental Borrower's Pledge
Agreement dated as of February 5, 1997, between the Borrower and the
Administrative Agent, or any other similar agreement substantially in the form
of Exhibit A attached hereto, pursuant to which the Borrower has pledged to the
Administrative Agent, for itself and on behalf of the Banks, all of the
Borrower's Capital Stock ownership in any Restricted Subsidiaries existing on
the Agreement Date or formed or acquired by the Borrower after the Agreement
Date.
"Borrower Security Agreements" shall mean, collectively, that
certain Amended and Restated Borrower Security Agreement dated as of September
20, 1996 between the Borrower and the Administrative Agent, or any other
similar agreement substantially in the form of Exhibit B attached hereto.
"Business Day" shall mean a day on which banks and foreign exchange
markets are open for the transaction of business required for this Agreement in
Houston, Texas, New York, New York and London, England, as relevant to the
determination to be made or the action to be taken.
"Capital Expenditures" shall mean, in respect of any Person,
expenditures for the purchase of assets of long-term use which would be
required to be capitalized on the balance sheet of such Person in accordance
with GAAP.
"Capital Stock" shall mean, as applied to any Person, any capital
stock of such Person, regardless of class or designation, and all warrants,
options, purchase rights, conversion or exchange rights, voting rights, calls
or claims of any character with respect thereto.
"Capitalized Lease Obligation" shall mean that portion of any
obligation of a Person as lessee under a lease which at the time would be
required to be capitalized on the balance sheet of such lessee in accordance
with GAAP.
"Cash Equivalents" shall mean investments in (i) certificates of
deposit and other interest bearing deposits or accounts with U.S. commercial
banks having, or whose parent corporation has, a combined capital and surplus
of at least $300,000,000, which mature within one year from the date of
investment, (ii) obligations issued or unconditionally guaranteed by the U.S.
government, or issued by an agency thereof and backed by the full faith and
credit of the U.S. government, which obligations mature within one year from
the date of investment, (iii) direct obligations issued by any U.S. state or
political subdivision thereof, which mature within one year from the date of
investment and have the highest rating obtainable from Standard & Poor's
Corporation or Moody's Investors Service on the date of investment, or (iv)
commercial paper which has the highest rating obtainable from Standard & Poor's
Ratings Group, a division of McGraw Hill, Inc., or any successor, or Moody's
Investors Service, or any successor,
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<PAGE> 10
on the date of investment.
"Certificate of Financial Condition" shall mean a certificate,
substantially in the form of Exhibit C attached hereto, signed by the chief
financial officer of the Borrower, together with any schedules, exhibits or
annexes appended thereto.
"Change in Control Event" shall mean the occurrence of any of the
following events or the existence of any of the following conditions: (i) a
person or entity or group (as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) of persons or entities shall have
become the beneficial owner of a majority (by voting power or otherwise) of the
securities of the Borrower ordinarily having the right to vote in the election
of directors, (ii) during any consecutive three-year period commencing on or
after September 27, 1995, individuals who at the beginning of such period
constituted the Board of Directors of the Borrower (together with any directors
who are members of such Board of Directors of the Borrower on September 27,
1995 and any new directors whose election by such Board of Directors of the
Borrower or whose nomination for election by the stockholders of the Borrower
was approved by a vote of 66-2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Borrower then in office,
(iii) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, the assets of the
Borrower to any person or entity or group (as defined above in this definition)
of persons or entities (other than any wholly owned Subsidiary of the
Borrower), (iv) the merger or consolidation of the Borrower with or into
another corporation or the merger of another corporation into the Borrower with
the effect that immediately after such transaction any person or entity or
group (as defined above in this definition) of persons or entities shall have
become the beneficial owner of securities of the surviving corporation of such
merger or consolidation representing a majority of the combined voting power of
the outstanding securities of the surviving corporation ordinarily having the
right to vote in the election of directors, (v) the adoption of a plan leading
to the liquidation or dissolution of the Borrower or (vi) or any "change of
control" or "change of control event," however designated or denominated, shall
have been deemed to have occurred under any agreement of the Borrower or any of
its Subsidiaries having an aggregate economic value to such Person exceeding
$5,000,000; provided, however, that none of the following, in itself,
constitutes or will constitute a Change in Control Event within the meaning of
this Agreement: (A) the existence of the Voting Agreement dated as of August
31, 1994, among the Borrower and the other parties thereto, as in effect on
September 27, 1995 (the "Voting Agreement"); (B) any termination of the Voting
Agreement; (C) any amendment or modification of the Voting Agreement that does
not (x) add any Person as a party to the Voting Agreement, (y) increase the
number of directors who may be designated by any Person or group thereunder, or
(z) purport to bind the Borrower, its Board of Directors or any member of the
Borrower's Board of Directors to cause or use efforts to cause any Person to be
elected or appointed to serve as an officer of the Borrower or to constitute or
appoint any Person to any committee of the Board of Directors of the Borrower
(in either case at any time after the Effective Time (as defined in the Voting
Agreement)), or otherwise to direct or influence the policies of the Borrower
by any means other than the election of directors or the designation of Persons
to stand for election as directors; (D) the beneficial ownership by the
Stockholders (as such term is defined in the Voting Agreement), collectively,
of a majority of the outstanding shares of Common Stock; (E) the sale or
disposition of any securities of the Borrower by, or other decrease in the
percentage ownership in any class of such securities of, any Stockholder or
Stockholders; or (F) the purchase or acquisition of any securities of the
Borrower by, or other increase in the percentage ownership in any class of such
securities of, any Stockholder or Stockholders; provided further, however,
that, notwithstanding the foregoing, (1) the beneficial ownership by any
individual Stockholder, by the Metrocall Group or the FirstPAGE Group (as such
terms are defined in the Voting Agreement), respectively, or by any other group
(as defined above) of which any Stockholder is a part, of a majority (by voting
power or otherwise) of securities of the Borrower ordinarily having the right
to vote in the election of directors, or (2) any
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<PAGE> 11
transaction or event that constitutes a "Rule 13e-3 transaction" within the
meaning of Rule 13e-3(a)(3) of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended (or what would constitute such a
Rule 13e-3 transaction if the Person effecting such transaction was an
affiliate of the Borrower within the meaning of such rule), shall nevertheless
constitute a Change in Control Event for all purposes of this Agreement.
"Co-Agents" shall mean, collectively, First Union National Bank,
Fleet National Bank, Royal Bank of Canada, PNC Bank, National Association and
NationsBank of Texas, N.A.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985 and any amendments thereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean any property of any kind constituting
collateral for the Obligations under any of the Loan Documents.
"Commitment Ratio" shall mean, with respect to any Bank for any
Commitment, the percentage equivalent of the ratio which such Bank's portion of
such Commitment bears to the aggregate amount of such Commitment (as each may
be adjusted from time to time as provided herein); and 'Commitment Ratios'
shall mean, with respect to any Commitment, the Commitment Ratios of all of the
Banks with respect to such Commitment. As of the Agreement Date, the
Commitment Ratios of the Banks party to this Agreement are as follows:
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<PAGE> 12
<TABLE>
<CAPTION>
Facility A Facility B Total
Facility A Commitment Facility B Commitment Dollar
Banks Commitment Ratio Commitment Ratio Commitment
<S> <C> <C> <C> <C> <C>
The Toronto- $17,833,041.73 10.1903095686% $12,737,886.96 10.1903095686% $30,570,928.69
Dominion
Bank
BankBoston, $17,833,041.73 10.1903095600% $ 2,737,886.97 2.1903095760% $20,570,928.70
N.A
First Union $17,333,479.13 9.9048452143% $12,381,056.52 9.9048452143% $29,714,535.65
National Bank
Fleet National $17,333,479.13 9.9048452143% $ 2,381,056.52 1.9048452160% $19,714,535.65
Bank
Royal Bank of $17,333,479.13 9.9048452143% $ 0.00 0% $17,333,479.13
Canada
PNC Bank, $12,500,000.00 7.1428571429% $ 8,928,571.43 7.1428571429% $21,428,571.43
National
Association
NationsBank $22,333,479.13 12.7619880756% $15,952,485.08 12.7619880640% $38,285,964.21
of Texas, N.A
Riggs Bank $ 7,500,000.01 4.2857142889% $ 5,357,142.86 4.2857142889% $12,857,142.87
N.A
SunTrust $ 7,500,000.01 4.2857142889% $ 5,357,142.86 4.2857142889% $12,857,142.87
Bank, Central
Florida,
National
Association
Van Kampen $17,500,000.00 10.0000000000% $12,500,000.00 10.0000000000% $30,000,000.00
American
Prime Rate
Income Trust
Finova Capital $17,500,000.00 10.0000000000% $12,500,000.00 10.000000000% $30,000,000.00
Corporation
Commercial $ 2,500,000.00 1.4285714311% $24,166,770.80 19.3334166400% $26,666,770.80
Loan Funding
Trust I
CypressTree $ 0.00 0% $10,000,000.00 8.000000000% $10,000,000.00
Investment
Partners I,
Ltd.
</TABLE>
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<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C>
TOTALS: $175,000,000.00 100% $125,000,000.00 100% $300,000,000.00
</TABLE>
"Commitments" shall mean, collectively, the Facility A Commitment
and the Facility B Commitment.
"Common Stock" shall mean, in respect of any Person, Capital Stock
of such Person that does not rank prior, as to the payment of dividends or as
to the distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Communications Act" shall mean the Communications Act of 1934, and
any similar or successor federal statute, and the rules and regulations of the
FCC thereunder, all as the same may be in effect from time to time.
"Consent Letter" shall mean that certain Consent Letter dated as of
October 21, 1997 given by certain of the Banks under the Prior Loan Agreement.
"Default" shall mean any Event of Default, and any of the events
specified in Section 8.1, regardless of whether there shall have occurred any
passage of time or giving of notice, or both, that would be necessary in order
to constitute such event an Event of Default.
"Default Rate" shall mean a simple per annum interest rate equal to
the sum of (a) the Base Rate, plus (b) the Applicable Margin for Base Rate
Advances, plus (c) two percent (2%).
"Employee Pension Plan" shall mean any Plan which (a) is maintained
by the Borrower, any of its Subsidiaries or any ERISA Affiliate and (b) is
subject to Part 3 of Title I of ERISA.
"Environmental Laws" shall mean all applicable federal, state or
local laws, statutes, rules, regulations or ordinances, codes, common law,
consent agreements, orders, decrees, judgments or injunctions issued,
promulgated, approved or entered thereunder relating to public health, safety
or the pollution or protection of the environment, including, without
limitation, those relating to releases, discharges, emissions, spills,
leaching, or disposals to air, water, land or ground water, to the withdrawal
or use of ground water, to the use, handling or disposal of polychlorinated
biphenyls, asbestos or urea formaldehyde, to the treatment, storage, disposal
or management of hazardous substances (including, without limitation,
petroleum, crude oil or any fraction thereof, or other hydrocarbons),
pollutants or contaminants, to exposure to toxic, hazardous or other
controlled, prohibited, or regulated substances, including, without limitation,
any such provisions under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et
seq.), or the Resource Conservation and Recovery Act of 1976, as amended (42
U.S.C. Section 6901 et seq.).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as in effect from time to time.
"ERISA Affiliate" shall mean any Person, including a Subsidiary or
an Affiliate of the Borrower, that is a member of any group of organizations
(within the meaning of Code Sections 414(b), 414(c), 414(m), or 414(o)) of
which the Borrower is a member.
"Eurodollar Advance" shall mean an Advance which the Borrower
requests to be made as a Eurodollar Advance or which is reborrowed as a
Eurodollar Advance, in accordance with the provisions of Section 2.2 hereof,
and which shall be in a principal amount of at least $1,000,000 and in an
integral multiple of $500,000.
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<PAGE> 14
"Eurodollar Basis" shall mean a simple per annum interest rate
(rounded upward, if necessary, to the nearest one-hundredth (1/100th) of one
percent) equal to the sum of (a) the quotient of (i) the Eurodollar Rate
divided by (ii) one minus the Eurodollar Reserve Percentage, if any, stated as
a decimal, plus (b) the Applicable Margin. The Eurodollar Basis shall apply to
Interest Periods of one (1), two (2), three (3), six (6), and twelve (12)
months, and, once determined, shall remain unchanged during the applicable
Interest Period, except for changes to reflect adjustments in the Eurodollar
Reserve Percentage and the Applicable Margin as adjusted pursuant to Section
2.3(f) hereof. The Eurodollar Basis for any Eurodollar Advance shall be
adjusted as of the effective date of any change in the Eurodollar Reserve
Percentage. The Borrower may not elect an Interest Period in excess of six (6)
months unless the Administrative Agent has notified the Borrower that each of
the Banks has funds available to it for such Bank's portion of the proposed
Advance which are not required for other purposes, and that such funds are
available to each Bank at a rate (exclusive of reserves and other adjustments)
at or below the Eurodollar Rate for such proposed Advance and Interest Period.
"Eurodollar Rate" shall mean, for any Interest Period, the average
of the interest rates per annum at which deposits in United States Dollars for
such Interest Period are offered to The Toronto-Dominion Bank, New York Branch
in the Eurodollar market at approximately 11:00 a.m. (New York time) two (2)
Business Days before the first day of such Interest Period, in an amount
approximately equal to the principal amount of, and for a length of time
approximately equal to the Interest Period for, the Eurodollar Advance sought
by the Borrower.
"Eurodollar Reserve Percentage" shall mean the percentage which is
in effect from time to time under Regulation D of the Board of Governors of the
Federal Reserve System, as such regulation may be amended from time to time, as
the maximum reserve requirement applicable with respect to Eurocurrency
Liabilities (as that term is defined in Regulation D), whether or not any Bank
has any such Eurocurrency Liabilities subject to such reserve requirement at
that time.
"Event of Default" shall mean any of the events specified in Section
8.1, provided that any requirement for notice or lapse of time has been
satisfied.
"Excess Cash Flow" shall mean, with respect to the Borrower and the
Restricted Subsidiaries on a consolidated basis, as of the end of the second
(2nd) and fourth (4th) fiscal quarters of the Borrower based on the quarterly
financial statements required to be provided under Section 6.1 hereof with
respect to such relevant quarters, the remainder of (a) Operating Cash Flow for
the two (2) most recently completed fiscal quarters, minus (b) the sum of the
following: (i) Capital Expenditures made by such Persons during such fiscal
quarters; (ii) income taxes estimated to be payable in cash by such Persons for
such fiscal quarters; (iii) Net Cash Interest Expense incurred during such
fiscal quarters; (iv) scheduled principal payments made in respect of
Indebtedness for Money Borrowed paid by such Persons during such fiscal
quarters (including imputed principal payments with respect to Capitalized
Lease Obligations); and (v) Restricted Payments and Restricted Purchases made
during such quarters.
"Facility A Commitment" shall mean the several obligations of the
Banks to fund their respective portions of Loans to the Borrower in accordance
with their respective Commitment Ratios in an aggregate amount of up to
$175,000,000 pursuant to the terms hereof and as such obligations may be
reduced from time to time pursuant to the terms hereof.
"Facility A Notes" shall mean, collectively, those certain
promissory notes in an aggregate original principal amount of $175,000,000, and
issued to each of the Banks by the Borrower with respect to the Facility A
Commitment, each one substantially in the form of Exhibit D-1 attached hereto,
any other promissory notes issued by the Borrower to evidence the Loans under
the Facility A Commitment, and any extensions, renewal or
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<PAGE> 15
amendments to, or replacements of, the foregoing.
"Facility B Commitment" shall mean, collectively, (a) the several
obligations of the Banks which funded an aggregate amount of $125,000,000
pursuant to the Prior Loan Agreement of which $50,000,000 is outstanding on the
Agreement Date and (b) the several obligations of the Banks to fund their
respective portions of additional Loans to the Borrower in accordance with
their respective Commitment Ratios in an aggregate amount of up to an
additional $75,000,000 pursuant to the terms hereof, on and after the ProNet
Merger Date but prior to the Facility B Commitment Termination Date, in each
case as such obligations may be reduced from time to time pursuant to the terms
hereof.
"Facility B Commitment Termination Date" shall mean January 31,
1998.
"Facility B Notes" shall mean, collectively, those certain
promissory notes in an aggregate original principal amount equal to the
Facility B Commitment, and issued to each of the Banks by the Borrower with
respect to the Facility B Commitment, each one substantially in the form of
Exhibit D-2 attached hereto, any other promissory notes issued by the Borrower
to evidence the Loans under the Facility B Commitment, and any extensions,
renewals, or amendments to, or replacement of, the foregoing.
"FCC" shall mean the Federal Communications Commission, or any other
similar or successor agency of the federal government administering the
Communications Act.
"Federal Funds Rate" shall mean, as of any date, the weighted
average of the rates on overnight federal funds transactions with the members
of the Federal Reserve System arranged by federal funds brokers, as published
for such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a Business Day, the average of the quotations
for such day on such transactions received by the Administrative Agent from
three (3) federal funds brokers of recognized standing selected by the
Administrative Agent.
"GAAP" shall mean, as in effect from time to time in the United
States, generally accepted accounting principles, consistently applied.
"Guaranty" or "Guaranteed," as applied to an obligation, shall mean
and include (a) a guaranty, direct or indirect, in any manner, of all or any
part of such obligation, and (b) any agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of non-performance) of all
or any part of such obligation, including, without limiting the foregoing, any
reimbursement obligations as to amounts drawn down by beneficiaries of
outstanding letters of credit or capital call requirements.
"Indebtedness" shall mean, with respect to any Person, and without
duplication, (a) all items, except items of shareholders' and partners' equity
or capital stock or surplus or general contingency or deferred tax reserves,
which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such Person,
including, without limitation, to the extent of the higher of the book value or
fair market value of the property or asset securing such obligation (if less
than the amount of such obligation), secured non-recourse obligations of such
Person, (b) all direct or indirect obligations of any other Person secured by
any Lien to which any property or asset owned by such Person is subject, but
only to the extent of the higher of the fair market value or the book value of
the property or asset subject to such Lien (if less than the amount of such
obligation) if the obligation secured thereby shall not have been assumed, (c)
to the extent not otherwise included,
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<PAGE> 16
all Capitalized Lease Obligations of such Person and all obligations of such
Person with respect to leases constituting part of a sale and lease-back
arrangement, (d) all reimbursement obligations with respect to outstanding
letters of credit, and (e) to the extent not otherwise included, all
obligations subject to Guaranties of such Person or its Subsidiaries, and (f)
all obligations of such Person under Interest Rate Hedge Agreements.
"Indebtedness for Money Borrowed" shall mean, with respect to any
Person, Indebtedness for money borrowed and Indebtedness represented by notes
payable and drafts accepted representing extensions of credit, all obligations
evidenced by bonds, debentures, notes or other similar instruments, all
Indebtedness upon which interest charges are customarily paid, all Capitalized
Lease Obligations, all reimbursement obligations with respect to outstanding
letters of credit, all Indebtedness issued or assumed as full or partial
payment for property or services (other than trade payables arising in the
ordinary course of business, but only if and so long as such accounts are
payable on customary trade terms), whether or not any such notes, drafts,
obligations or Indebtedness represent Indebtedness for money borrowed, and,
without duplication, Guaranties of any of the foregoing. For purposes of this
definition, interest which is accrued but not paid on the scheduled due date
for such interest shall be deemed Indebtedness for Money Borrowed.
"Indemnitee" shall have the meaning ascribed thereto in
Section 5.11 hereof.
"Interest Expense" shall mean, for any period, all cash interest
paid (including imputed interest with respect to Capitalized Lease Obligations)
with respect to any Indebtedness for Money Borrowed of the Borrower and the
Restricted Subsidiaries on a consolidated basis during such period pursuant to
the terms of such Indebtedness for Money Borrowed, together with all fees paid
in respect of such Indebtedness for Money Borrowed during such period (but
specifically excluding fees paid during previous periods but amortized during
such period in accordance with GAAP), and all cash dividend payments made in
respect of any preferred stock or convertible preferred securities of the
Borrower during such period all as calculated in accordance with GAAP (except
as specifically provided herein).
"Interest Rate Hedge Agreements" shall mean the obligations of any
Person pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
Person calculated by applying a fixed or a floating rate of interest on the
same notional amount and shall include, without limitation, interest rate
swaps, caps, floors, collars and similar arrangements.
"Interest Period" shall mean (a) in connection with any Base Rate
Advance, the period beginning on the date such Advance is made and ending on
the last day of the calendar quarter in which such Advance is made, provided,
however, that if a Base Rate Advance is made on the last day of any calendar
quarter, it shall have an Interest Period ending on, and its Payment Date shall
be, the last day of the following calendar quarter, and (b) in connection with
any Eurodollar Advance, the term of such Advance selected by the Borrower or
otherwise determined in accordance with this Agreement, provided, that any Base
Rate Advance or any Eurodollar Advance prepaid pursuant to Section 2.7(a) below
shall have an Interest Period ending on, and its Payment Date shall be, the
date of prepayment.
"Interest Rate Basis" shall mean the Base Rate Basis or the
Eurodollar Basis, as appropriate.
"known to the Borrower" or "to the knowledge of the Borrower" shall
mean known by or reasonably should have been known by the executive officers of
the Borrower (which shall include, without limitation, the
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<PAGE> 17
chairman/president, the chief executive officer, the chief financial officer,
the chief operating officer, the treasurer, the secretary and any in-house
general counsel).
"License Subs" shall mean the wholly-owned Restricted Subsidiaries
of the Borrower formed to hold the Licenses.
"Licenses" shall mean any radio, telephone, microwave, paging or
other license, authorization, certificate of compliance or convenience,
franchise, approval or permit, granted or issued by the FCC or any other
governmental authority and held by the Borrower or any of the Restricted
Subsidiaries, all of which are listed as of the Agreement Date on Schedule 1
hereto.
"Lien" shall mean, with respect to any property, any mortgage, lien,
pledge, negative pledge or other agreement not to pledge, assignment, charge,
security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of any kind in respect of such
property, whether created by statute, contract, the common law or otherwise,
and whether or not choate, vested or perfected.
"Loan Documents" shall mean this Agreement, the Notes, the Security
Documents, all subordination agreements entered into by creditors of the
Borrower or any of the Restricted Subsidiaries with respect to Indebtedness for
Money Borrowed of the Borrower or any of the Restricted Subsidiaries, all legal
opinions or reliance letters issued by counsel to the Borrower or any of the
Restricted Subsidiaries, all fee letters, all Requests for Advance, all
Interest Rate Hedge Agreements between the Borrower or any Restricted
Subsidiary, on the one hand, and the Administrative Agent and the Banks, or any
of them, on the other hand, and all other documents and agreements executed or
delivered in connection with or contemplated by this Agreement.
"Loans" shall mean, collectively, the amounts advanced by the Banks
to the Borrower under the Commitments, not to exceed the aggregate amount of
the Commitments, and evidenced by the Notes.
"Majority Banks" shall mean Banks the total of whose Commitment
Ratios equals or exceeds fifty-one percent (51%) of the Commitment Ratios of
all Banks entitled to vote hereunder.
"Managing Agents" shall mean, collectively, The Toronto-Dominion
Bank and The First National Bank of Boston.
"Materially Adverse Effect" shall mean (a) any material adverse
effect upon the business, assets, liabilities, financial condition, results of
operations, properties, or business prospects of the Borrower or any of the
Restricted Subsidiaries, or (b) a material adverse effect upon the binding
nature, validity, or enforceability of this Agreement or any of the Notes, or
upon the ability of the Borrower or any of its Subsidiaries to perform the
payment obligations or other material obligations under this Agreement or any
other Loan Document, or upon the value of the Collateral or upon the rights,
benefits or interests of the Banks in and to the Loans or the rights of the
Administrative Agent and the Banks in the Collateral; in either case, whether
resulting from any single act, omission, situation, status, event or
undertaking, or taken together with other such acts, omissions, situations,
statuses, events or undertakings.
"Maturity Date" shall mean December 31, 2004 or as the case may be,
such earlier date as payment of the Obligations shall be due (whether by
acceleration, reduction of the Commitments to zero or otherwise).
"Multiemployer Plan" shall mean a multiemployer pension plan as
defined in Section 3(37) of ERISA to
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<PAGE> 18
which the Borrower, any of its Subsidiaries or any ERISA Affiliate is or has
been required to contribute subsequent to September 25, 1980.
"Necessary Authorizations" shall mean all approvals and licenses
from, and all filings and registrations with, any governmental or other
regulatory authority, including, without limiting the foregoing, the Licenses
and all approvals, licenses, filings and registrations under the Communications
Act, necessary in order to enable the Borrower and the Restricted Subsidiaries
to own, construct, maintain, and operate paging systems and to invest in other
Persons who own, construct, maintain, and operate paging systems.
"Net Available Proceeds" from any Asset Disposition by any Person
shall mean cash or Cash Equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Indebtedness for Money Borrowed or other obligations relating to
such properties or assets or received in any other noncash form) therefrom by
such Person, net of (i) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred and all federal, state,
provincial, foreign and local taxes required to be accrued as a liability as a
consequence of such Asset Disposition, (ii) all payments made by such Person or
its Subsidiaries on any Indebtedness for Money Borrowed which is secured by the
assets subject to such Asset Disposition in accordance with the terms of any
Lien upon or with respect to such assets or which must by the terms of such
Lien, or in order to obtain a necessary consent to such Asset Disposition or by
Applicable Law, be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments made to minority interest holders in
Subsidiaries of such Person or joint ventures, if any, as a result of such
Asset Disposition and (iv) a reasonable reserve for the after-tax costs of any
indemnification payments (fixed or contingent) attributable to the seller's
indemnities to the purchaser undertaken by the Borrower or any of its
Subsidiaries in connection with such Asset Disposition.
"Net Cash Interest Expense" shall mean for the Borrower and the
Restricted Subsidiaries on a consolidated basis for any period, Interest
Expense, minus interest earned by the Borrower and the Restricted Subsidiaries
on investments as determined in accordance with GAAP.
"Net Income" shall mean, for the Borrower and the Restricted
Subsidiaries on a consolidated basis, for any period, net income determined in
accordance with GAAP.
"Net Purchase Price" shall mean the aggregate fair market value of
all cash or other property, of whatever nature, paid or transferred or to be
paid or transferred by the Borrower or any of the Restricted Subsidiaries,
directly or indirectly, in respect of any Acquisition, including, without
limitation, fees and other transaction costs and all amounts paid in escrow or
subject to any deferral or contingency, but excluding the fair market value of
any Capital Stock of the Borrower issued as part of the purchase price for such
Acquisition.
"1995 Indenture" shall mean that certain Indenture dated as of
September 27, 1995 between the Borrower and First Union National Bank of
Virginia, as trustee with respect to the Borrower's 10-3/8% Senior Subordinated
Notes due 2007.
"1997 Indenture" shall mean that certain Indenture dated as of
October 21, 1997 between the Borrower and First Union National Bank of
Virginia, as trustee with respect to the Borrower's 9-3/4% Senior Subordinated
Notes due 2007.
"Notes" shall mean, collectively, the Facility A Notes and the
Facility B Notes, any other promissory notes issued by the Borrower to evidence
the Loans, and any extensions, renewals or amendments to, or replacements of,
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<PAGE> 19
the foregoing."
"Obligations" shall mean all payment and performance obligations of
every kind, nature and description of the Borrower, its Subsidiaries, and any
other obligors to the Banks or the Administrative Agent, or any of them, under
this Agreement and the other Loan Documents (including any interest, fees and
other charges on the Loans or otherwise under the Loan Documents that would
accrue but for the filing of a bankruptcy action with respect to the Borrower
or any of its Subsidiaries, whether or not such claim is allowed in such
bankruptcy action and including Obligations to the Administrative Agent or any
of the Banks under any Interest Rate Hedge Agreements) as they may be amended
from time to time, or as a result of making the Loans, whether such obligations
are direct or indirect, absolute or contingent, due or not due, contractual or
tortious, liquidated or unliquidated, arising by operation of law or otherwise,
now existing or hereafter arising.
"Office Building Acquisition Agreement" shall mean that certain
Option and Purchase Agreement of Sale dated April 14, 1994 between Douglas
Jemal and Joyce Jemal and the Borrower with respect to the acquisition by the
Borrower for a purchase price not to exceed $2,900,000 of a 51% interest in the
office complex located at 6910 Richmond Highway, Alexandria, Virginia 23306,
as such agreement may be amended, modified or supplemented from time to time,
together with all exhibits, schedules and appendices thereto, all of which
shall be in form and substance reasonably satisfactory to the Managing Agents.
"Office Building Acquisition Date" shall mean the date on which the
Borrower acquires the Office Building Assets pursuant to the Office Building
Acquisition Agreement.
"Office Building Assets" shall mean the interest in the office
complex located at 6910 Richmond Highway, Alexandria, Virginia 22306 to be
acquired by the Borrower pursuant to the Office Building Acquisition Agreement.
"Office Building Partnership" shall mean 6910 Richmond Highway
Associates, a Virginia general partnership, or any successor or other entity to
which the Borrower contributes the Office Building Assets in accordance with
Section 8(g) of the Office Building Acquisition Agreement.
"Operating Cash Flow" shall mean, with respect to the Borrower and
the Restricted Subsidiaries on a consolidated basis for any fiscal quarter, the
sum of (a) Net Income for such quarter (after eliminating any extraordinary
gains and losses, including gains and losses from the sale of assets, other
than sales of pagers and other products or services in the ordinary course of
business, and any deferred tax benefits), plus (b) to the extent deducted in
determining Net Income, the sum of the following for such period: (i)
depreciation and amortization expense, (ii) Interest Expense plus the amount of
fees paid in respect of Indebtedness for Money Borrowed during prior periods
but amortized during such period in accordance with GAAP, (iii) tax expense,
and (iv) other non-cash charges, all as determined in accordance with GAAP.
For purposes of determining the Senior Leverage Ratio and the Total Leverage
Ratio, Operating Cash Flow attributable to any Acquisition will be included in
the foregoing calculation from the first day of the fiscal quarter during which
such Acquisition occurs to the extent that the calculation of such Operating
Cash Flow is based on audited financial statements of the Person acquired or
whose assets are acquired by the Borrower or any of the Restricted
Subsidiaries, as applicable, or other such financial statements which are
satisfactory to the Managing Agents and which are certified by the chief
financial officer of the Borrower to be true, complete and correct and prepared
in accordance with GAAP, provided that for purposes of calculating Operating
Cash Flow attributable to an Acquisition, the Borrower may make pro forma
adjustments acceptable to the Managing Agents to reflect reductions in costs of
the Acquisition effective at or near the time of the Acquisition.
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<PAGE> 20
"Payment Date" shall mean the last day of any Interest Period.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Permitted Liens" shall mean, as applied to any Person:
(a) Any Lien in favor of the Administrative Agent or
any Bank given to secure the Obligations;
(b) (i) Liens on real estate or other property for
taxes, assessments, governmental charges or levies not yet delinquent and (ii)
Liens for taxes, assessments, judgments, governmental charges or levies or
claims the non-payment of which is being diligently contested in good faith by
appropriate proceedings and for which adequate reserves have been set aside on
such Person's books, but only so long as no foreclosure, distraint, sale or
similar proceedings have been commenced with respect thereto;
(c) Liens of carriers, warehousemen, mechanics,
laborers and materialmen incurred in the ordinary course of business for sums
not yet due or being diligently contested in good faith, if reserves or
appropriate provisions shall have been made therefor;
(d) Liens incurred in the ordinary course of
business in connection with worker's compensation and unemployment insurance;
(e) Restrictions on the transfer of the Licenses or
assets of such Person imposed by any of the Licenses as presently in effect or
by the Communications Act and any regulations thereunder;
(f) Easements, rights-of-way, and other similar
encumbrances on the use of real property which do not materially interfere with
the ordinary conduct of the business of such Person or the use of such
property;
(g) Liens reflected by Uniform Commercial Code
financing statements filed in respect of Capitalized Lease Obligations
permitted pursuant to Section 7.1(h) hereof and true leases of the Borrower or
any of its Subsidiaries;
(h) Purchase money security interests securing
Indebtedness described on Schedule 2 attached hereto and other Indebtedness in
an aggregate principal amount not to exceed $500,000 at any time outstanding;
and
(i) Liens securing other Indebtedness in an
aggregate principal amount not to exceed $10,000,000, provided that such Liens
do not attach to assets of such Person which constitute "margin stock," as that
term is defined in Regulations G and U.
"Person" shall mean an individual, corporation, limited liability
company, association, partnership, joint venture, trust or estate, an
unincorporated organization, a government or any agency or political
subdivision thereof, or any other entity.
"Plan" shall mean an employee benefit plan within the meaning of
Section 3(3) of ERISA or any other employee benefit plan maintained for
employees of any Person or any affiliate of such Person.
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<PAGE> 21
"Prior Loan Agreement" shall have the meaning ascribed to such term
in the preamble to this Agreement.
"Pro Forma Debt Service" shall mean with respect to the Borrower and
the Restricted Subsidiaries, on a consolidated basis, with respect to the next
succeeding complete twelve (12) month period following the calculation date,
and after giving effect to any Interest Rate Hedge Agreements and Eurodollar
Advances, the amount of all (i) scheduled payments of principal on Indebtedness
for Money Borrowed for such period (including imputed principal payments with
respect to Capitalized Lease Obligations), determined on the basis of the
aggregate amount of Indebtedness for Money Borrowed outstanding as of the date
of calculation and giving effect to any mandatory reductions in the Commitments
and the operation of the other terms of this Agreement (or other instruments or
agreements governing Indebtedness for Money Borrowed) during such next
succeeding twelve (12) month period, (ii) cash interest payable (including
imputed interest with respect to Capitalized Lease Obligations) with respect to
Indebtedness for Money Borrowed of such Persons, (iii) fees payable under this
Agreement and the other Loan Documents (but specifically excluding fees paid
during previous periods but amortized during such period in accordance with
GAAP), and (iv) other payments (including fees) payable by such Persons during
such period in respect of Indebtedness for Money Borrowed (other than voluntary
prepayments under Section 2.7 hereof). For purposes of this definition, where
interest payments for the twelve (12) month period immediately succeeding the
calculation date are not fixed by way of Interest Rate Hedge Agreements,
Eurodollar Advances, or otherwise for the entire period, interest shall be
calculated on such Indebtedness for Money Borrowed for periods for which
interest payments are not so fixed at the Eurodollar Basis (as determined on
the date of calculation and based on the then current adjustment under Section
2.3(f) hereof) for a Eurodollar Advance having an Interest Period of twelve
(12) months; provided, however, that if such Eurodollar Basis cannot be
determined in the reasonable opinion of the Administrative Agent, such interest
shall be calculated using the Base Rate Basis as then in effect.
"ProNet Credit Facility" shall mean the credit facility provided to
ProNet Inc. pursuant to that certain Second Amended and Restated Credit
Agreement dated as of June 14, 1996, as amended, between ProNet Inc. and First
National Bank of Chicago as agent for the lenders.
"ProNet Indenture" shall mean that certain Indenture dated as of
June 15, 1995 between ProNet Inc. and First Interstate Bank of Texas, N.A., as
trustee.
"ProNet Merger" shall mean that certain merger of ProNet Inc., a
Delaware corporation, with and into the Borrower, with the Borrower being the
survivor of such merger.
"ProNet Merger Date" shall mean the date on which the Managing
Agents receive evidence satisfactory to them that the ProNet Merger has been
consummated.
"Regulation G" shall mean Regulation G of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Reportable Event" shall mean, with respect to any Employee Pension
Plan, an event described in Section 4043(b) of ERISA.
"Request for Advance" shall mean a certificate designated as a
"Request for Advance," signed by an Authorized Signatory of the Borrower
requesting an Advance hereunder, which shall be in substantially the form of
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<PAGE> 22
Exhibit E attached hereto, and shall, among other things, (i) specify the
Commitment under which such Advance is to be made, the date of the Advance,
which shall be a Business Day, the amount of the Advance, the type of Advance
(Eurodollar or Base Rate), and, with respect to Eurodollar Advances, the
Interest Period selected by the Borrower, (ii) state that there shall not exist
a Default as of the date of such Advance and after giving effect thereto, and
(iii) provide calculations demonstrating compliance with Sections 7.8, 7.9 and
7.10 hereof, after giving effect to the proposed Advance, and the Applicable
Margin related thereto.
"Restricted Payment" shall mean (a) any direct or indirect
distribution, dividend or other payment to any Person (other than to the
Borrower or any wholly-owned Restricted Subsidiary of the Borrower) on account
of any general or limited partnership interest in, or shares of Capital Stock
or other securities of, the Borrower or any of its Subsidiaries (other than
dividends payable solely in the Capital Stock of such Person and stock splits),
including, without limitation, any direct or indirect distribution, dividend or
other payment to any Person (other than to the Borrower or any wholly-owned
Restricted Subsidiary of the Borrower) on account of any warrants or other
rights or options to acquire shares of Capital Stock of the Borrower or any of
its Subsidiaries; (b) any payment of principal of, or interest on, or payment
into a sinking fund for the retirement of, or any defeasance of Subordinated
Debt; and (c) any management, consulting or similar fees, or any interest
thereon, payable by the Borrower or any of its Subsidiaries to any Affiliate.
"Restricted Purchase" shall mean any payment (including, without
limitation, any sinking fund payment, prepayment or installment payment) on
account of the purchase, redemption, defeasance or other acquisition or
retirement of any general or limited partnership interest in, or shares of
Capital Stock of or other securities or Subordinated Debt of the Borrower or
any of the Borrower's Subsidiaries, including, without limitation, any warrants
or other rights or options to acquire shares of Capital Stock of the Borrower
or of any of the Borrower's Subsidiaries or any loan, advance, release or
forgiveness of Indebtedness by the Borrower or any of its Subsidiaries to any
partner, shareholder or Affiliate of any such Person.
"Restricted Subsidiary" shall mean each Subsidiary of the Borrower
which is not an Unrestricted Subsidiary.
"Security Documents" shall mean the Borrower's Pledge Agreements,
the Borrower Security Agreements, the Subsidiary Guaranties, the Subsidiary
Pledge Agreements, the Subsidiary Security Agreements, the Trademark Security
Agreements, any other agreement or instrument providing Collateral for the
Obligations whether now or hereafter in existence, and any filings,
instruments, agreements, and documents related thereto or to this Agreement,
and providing the Administrative Agent, for the benefit of itself and the
Banks, with Collateral for the Obligations.
"Security Interest" shall mean all Liens in favor of the
Administrative Agent, for the benefit of itself and the Banks, created
hereunder or under any of the Security Documents to secure the Obligations.
"Senior Debt" shall mean Total Debt minus Subordinated Debt which is
permitted to be outstanding in accordance with the terms of Section 7.1 hereof.
"Senior Leverage Ratio" shall mean, as of any date, the ratio of (a)
the Senior Debt on such date to (b) Annualized Operating Cash Flow as of the
end of the fiscal quarter being tested or the most recently completed fiscal
quarter for which financial statements are required to have been delivered to
the Banks pursuant to Section 6.1 or 6.2 hereof, as applicable.
"Subordinated Debt" shall mean the Indebtedness for Money Borrowed
of the Borrower issued pursuant to
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the 1995 Indenture, the A+ Indenture, the 1997 Indenture, following the ProNet
Merger Date, the ProNet Indenture and any other Indebtedness for Money Borrowed
of the Borrower or any of the Restricted Subsidiaries which is expressly
subordinated to the payment of the Obligations.
"Subsidiary" shall mean, as applied to any Person, (a) any
corporation of which more than fifty percent (50%) of the outstanding stock
(other than directors' qualifying shares) having ordinary voting power to elect
a majority of its board of directors, regardless of the existence at the time
of a right of the holders of any class or classes of securities of such
corporation to exercise such voting power by reason of the happening of any
contingency, or any partnership of which more than fifty percent (50%) of the
outstanding partnership interests, is at the time owned directly or indirectly
by such Person, or by one or more Subsidiaries of such Person, or by such
Person and one or more Subsidiaries of such Person, or (b) any other entity
which is directly or indirectly controlled or capable of being controlled by
such Person, or by one or more Subsidiaries of such Person, or by such Person
and one or more Subsidiaries of such Person, except that, other than Beacon
Peak Associates and Beacon Communications Associates, Ltd., the partnerships
set forth on Schedule 4 attached hereto shall not constitute Subsidiaries of
the Borrower. Beacon Peak Associates and Beacon Communications Associates,
Ltd. shall constitute Subsidiaries of the Borrower but shall be subject to the
provisions set forth in the first footnote to Schedule 5 attached hereto. The
Subsidiaries of the Borrower as of the Agreement Date are set forth on Schedule
5 attached hereto.
"Subsidiary Guaranties" shall mean, collectively, that certain
Amended and Restated Master Subsidiary Guaranty dated as of September 20, 1996,
that certain First Supplemental Master Subsidiary Guaranty dated as of November
15, 1996 and that certain Subsidiary Guaranty by Metrocall of Shreveport, Inc.
dated as of February 5, 1997, in favor of the Administrative Agent and the
Banks given by each Restricted Subsidiary of the Borrower, and shall include
any similar agreements substantially in the form of Exhibit K attached hereto.
"Subsidiary Pledge Agreements" shall mean those certain Subsidiary
Pledge Agreements between each Restricted Subsidiary of the Borrower having one
or more of its own Subsidiaries, on the one hand, and the Administrative Agent,
on the other hand, and shall include that certain Subsidiary Pledge Agreement
of Florida Network USA, Inc. dated as of November 15, 1996, and any similar
agreements substantially in the form of Exhibit L attached hereto.
"Subsidiary Security Agreements" shall mean, collectively, that
certain Amended and Restated Master Subsidiary Security Agreement dated as of
September 20, 1996, that certain First Supplemental Master Subsidiary Security
Agreement dated as of November 15, 1996, and that certain Subsidiary Security
Agreement for Metrocall of Shreveport, Inc., dated as of February 5, 1997,
among each of the Restricted Subsidiaries and the Administrative Agent, and
shall include any similar agreements substantially in the form of Exhibit J
attached hereto.
"Total Debt" shall mean with respect to the Borrower and the
Restricted Subsidiaries on a consolidated basis, as of any date, determined in
accordance with GAAP, the difference between (a) the aggregate amount of
Indebtedness for Money Borrowed, minus (b) the aggregate amount of cash or Cash
Equivalents then held by the Borrower and the Restricted Subsidiaries.
"Total Leverage Ratio" shall mean, as of any date, the ratio of (a)
Total Debt on such date to (b) Annualized Operating Cash Flow as of the end of
the fiscal quarter being tested or the most recently completed fiscal quarter
for which financial statements are required to have been delivered to the Banks
pursuant to Section 6.1 or 6.2 hereof, as applicable.
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<PAGE> 24
"Total Sources" shall mean, with respect to the Borrower and the
Restricted Subsidiaries on a consolidated basis for the most recently completed
fiscal quarter, the sum of (a) Operating Cash Flow; (b) the amount of equity
contributed to the Borrower in cash during such period; (c) the amount of any
Net Available Proceeds from any Asset Dispositions during such period; (d) the
amount, if greater than or equal to zero, by which Indebtedness for Money
Borrowed outstanding as at the end of such period exceeds the amount of
Indebtedness for Money Borrowed outstanding as at the end of the preceding such
period; (e) the aggregate amount of additional Advances the Borrower would then
be permitted to borrow under the Commitments and remain in compliance with
Sections 7.8, 7.9 and 7.10 hereof; and (f) cash and Cash Equivalents on hand as
of the beginning of such period.
"Total Uses" shall mean, with respect to the Borrower and the
Restricted Subsidiaries on a consolidated basis for the most recently completed
fiscal quarter, the sum of (a) the amount, if greater than or equal to zero, by
which Indebtedness for Money Borrowed outstanding as at the end of the
preceding such period exceeds the amount of Indebtedness for Money Borrowed
outstanding as at the end of such period; (b) the amount of Net Cash Interest
Expense for such period; (c) the amount of Capital Expenditures made during
such period; (d) cash taxes paid during such period; (e) the Net Purchase Price
of any Acquisitions made during such period; and (f) the amount of any
Restricted Payments and Restricted Purchases made during such period.
"Trademark Security Agreements" shall mean, collectively, that
certain Amended and Restated Borrower Trademark Security Agreement dated as of
September 20, 1996, that certain Subsidiary Trademark Security Agreement dated
as of February 5, 1997, between the Borrower and the Administrative Agent, and
any other similar agreement substantially in the form of Exhibit F attached
hereto.
"Transponder Lease Agreement" shall mean any agreement by and
between the Borrower or any of the Restricted Subsidiaries and any other Person
for the license, lease or other agreement to use telecommunications satellites
in the operation of the business of the Borrower or such Subsidiaries and any
other agreement related thereto.
"Unrestricted Subsidiary" shall mean such other Subsidiaries of the
Borrower as have been designated as "Unrestricted Subsidiaries" by the Borrower
with the prior written consent of the Majority Banks.
"Use of Proceeds Letters" shall mean those certain Use of Proceeds
Letters, substantially in the form of Exhibit G attached hereto, to be
delivered to the Administrative Agent and the Banks on the date of any Advance
hereunder.
"Voting Agreement" shall have the meaning ascribed to such term in
the definition of "Change in Control Event."
Each definition of an agreement in this Article 1 shall include such
agreement as modified, amended or supplemented from time to time in accordance
herewith.
ARTICLE 2
Credit Facilities
Section 2.1 Commitments.
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<PAGE> 25
(a) Facility A Commitment. The Banks agree,
severally, in accordance with their respective Commitment Ratios, and not
jointly, upon the terms and subject to the conditions of this Agreement, to
lend to the Borrower, prior to the Maturity Date, an amount not to exceed at
any one time outstanding, in the aggregate, the Facility A Commitment. The
Borrower hereby acknowledges that all "Obligations" in respect of "Advances"
outstanding on the Agreement Date under the "Facility A Commitment" (as such
terms are defined in the Prior Loan Agreement) shall be deemed to have been
made to the Borrower as Advances under the Facility A Commitment hereunder and
shall constitute a portion of the Obligations. Subject to the terms and
conditions hereof, Advances under the Facility A Commitment may be repaid and
reborrowed from time to time on a revolving basis.
(b) Facility B Commitment. The Banks which issued a
"Facility B Commitment" under and as defined in the Prior Loan Agreement have
previously lent to the Borrower the amount in the aggregate of $125,000,000 of
which $50,000,000 is outstanding on the Agreement Date. The Borrower hereby
acknowledges that all "Obligations" in respect of "Advances" outstanding under
the "Facility B Commitment" (as such terms are defined in the Prior Loan
Agreement) shall be deemed to have been made to the Borrower as Advances of the
Facility B Commitment hereunder and shall constitute a portion of the
Obligations. The Banks agree, severally, in accordance with their respective
Commitment Ratios, and not jointly, upon the terms and subject to the
conditions of this Agreement, to lend to the Borrower, on a single date on or
after the ProNet Merger Date but prior to the Facility B Commitment Termination
Date, an additional amount not to exceed, in the aggregate, $75,000,000. The
obligation of the Banks to fund the additional $75,000,000 under the Facility B
Commitment shall be automatically terminated in the event the ProNet Merger
Date fails to occur on or prior to the Facility B Commitment Termination Date.
Subject to the terms and conditions hereof, Advances under the Facility B
Commitment may be repaid and reborrowed to effect a change in the Interest Rate
Basis or Interest Periods relating thereto; provided, however, there shall be
no increase in the principal amount outstanding under the Facility B Commitment
following the making of the Advance under the Facility B Commitment in
connection with the ProNet Merger in an amount not to exceed $75,000,000.
Section 2.2 Manner of Borrowing and Disbursement.
(a) Choice of Interest Rate, Etc. Any Advance
shall, at the option of the Borrower, be made as a Base Rate Advance or a
Eurodollar Advance; provided, however, that at such time as there shall have
occurred and be continuing a Default hereunder, the Borrower shall not have the
right to receive a Eurodollar Advance. Any notice given to the Administrative
Agent in connection with a requested Advance hereunder shall be given to the
Administrative Agent prior to 11:00 a.m. (New York time) in order for such
Business Day to count toward the minimum number of Business Days required.
(b) Base Rate Advances.
(i) Advances. The Borrower shall give
the Administrative Agent irrevocable prior written notice prior to
11:00 a.m. (New York time) on the date of any requested Base Rate
Advance in the form of a Request for Advance, or telephonic notice
followed immediately by a Request for Advance; provided, however,
that the Borrower's failure to confirm any telephonic notice with a
Request for Advance shall not invalidate any notice so given if
acted upon by the Administrative Agent. Upon receipt of such notice
from the Borrower, the Administrative Agent shall promptly notify
each Bank by telephone or telecopy of the contents thereof.
(ii) Repayments and Reborrowings. The
Borrower may repay or prepay a Base Rate Advance without regard to
its Payment Date and (A) upon irrevocable prior written notice prior
to 11:00
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<PAGE> 26
a.m. (New York time) on the date of any requested repayment and
reborrowing, reborrow all or a portion of the principal amount
thereof as a Base Rate Advance, (B) upon at least three (3) Business
Days' irrevocable prior written notice, reborrow all or a portion of
the principal thereof as one or more Eurodollar Advances, or (C) not
reborrow all or any portion of such Base Rate Advance. On the date
indicated by the Borrower, such Base Rate Advance shall be so repaid
and, as applicable, reborrowed. The failure to give timely notice
hereunder with respect to the Payment Date of any Base Rate Advance
shall be deemed a request for a Base Rate Advance.
(c) Eurodollar Advances.
(i) Advances. Upon request, the
Administrative Agent, whose determination shall be conclusive, shall
determine the available Eurodollar Bases and shall notify the
Borrower of such Eurodollar Bases. The Borrower shall give the
Administrative Agent in the case of Eurodollar Advances at least
three (3) Business Days' irrevocable prior written notice in the
form of a Request for Advance, or telephonic notice followed
immediately by a Request for Advance; provided, however, that the
Borrower's failure to confirm any telephonic notice with a Request
for Advance shall not invalidate any notice so given if acted upon
by the Administrative Agent. Upon receipt of such notice from the
Borrower, the Administrative Agent shall promptly notify each Bank
by telephone or telecopy of the contents thereof.
(ii) Repayments and Reborrowings. At least three (3)
Business Days prior to the Payment Date for each Eurodollar Advance,
the Borrower shall give the Administrative Agent written notice
specifying whether all or a portion of such Eurodollar Advance (A)
is to be repaid and then reborrowed in whole or in part as one or
more Eurodollar Advances, (B) is to be repaid and then reborrowed in
whole or in part as a Base Rate Advance, or (C) is to be repaid and
not reborrowed. The failure to give such notice shall preclude the
Borrower from reborrowing such Advance as a Eurodollar Advance on
its Payment Date and shall be deemed a request for a Base Rate
Advance. Upon such Payment Date such Eurodollar Advance will,
subject to the provisions hereof, be so repaid and, as applicable,
reborrowed.
(d) Notification of Banks. Upon receipt of a
Request for Advance, or a notice from the Borrower with respect to any
outstanding Advance prior to the Payment Date for such Advance, the
Administrative Agent shall promptly notify each Bank by telephone or telecopy
of the contents thereof and the amount of such Bank's portion of the Advance.
Each Bank shall, not later than 12:00 noon (New York time) on the date of
borrowing specified in such notice, make available to the Administrative Agent
at the Administrative Agent's Office, or at such account as the Administrative
Agent shall designate, the amount of its portion of any Advance which
represents an additional borrowing hereunder in immediately available funds.
(e) Disbursement.
(i) Prior to 2:00 p.m. (New York time) on
the date of an Advance hereunder, the Administrative Agent shall,
subject to the satisfaction of the conditions set forth in Article 3
hereof, disburse the amounts made available to the Administrative
Agent by the Banks in like funds by (a) transferring the amounts so
made available by wire transfer pursuant to the Borrower's
instructions, or (b) in the absence of such instructions, crediting
the amounts so made available to the account of the Borrower
maintained with the Administrative Agent.
(ii) Unless the Administrative Agent shall
have received notice from a Bank prior to 12:00 noon (New York time)
on the date of any Advance that such Bank will not make available to
the
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<PAGE> 27
Administrative Agent such Bank's ratable portion of such Advance,
the Administrative Agent may assume that such Bank has made or will
make such portion available to the Administrative Agent on the date
of such Advance and the Administrative Agent may in its sole
discretion and in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the
extent the Bank does not make such ratable portion available to the
Administrative Agent, such Bank agrees to repay to the
Administrative Agent on demand such corresponding amount together
with interest thereon, for each day from the date such amount is
made available to the Borrower until the date such amount is repaid
to the Administrative Agent, at the Federal Funds Rate.
(iii) If such Bank shall repay to the
Administrative Agent such corresponding amount, such amount so
repaid shall constitute such Bank's portion of the applicable
Advance for purposes of this Agreement. If such Bank does not repay
such corresponding amount immediately upon the Administrative
Agent's demand therefor, the Administrative Agent shall notify the
Borrower and the Borrower shall immediately pay such corresponding
amount to the Administrative Agent, with interest at the Federal
Funds Rate. The failure of any Bank to fund its portion of any
Advance shall not relieve any other Bank of its obligation, if any,
hereunder to fund its respective portion of the Advance on the date
of such borrowing, but no Bank shall be responsible for any such
failure of any other Bank.
(iv) In the event that, at any time when
the Borrower is not in Default and has otherwise satisfied each of
the conditions in Section 3.2 hereof, a Bank for any reason fails or
refuses to fund its portion of such Advance, then, until such time
as such Bank has funded its portion of such Advance (which late
funding shall not absolve such Bank from any liability it may have
to the Borrower), or all other Banks have received payment in full
from the Borrower (whether by repayment or prepayment) or otherwise
of the principal and interest due in respect of such Advance, such
non-funding Bank shall not have the right (A) to vote regarding any
issue on which voting is required or advisable under this Agreement
or any other Loan Document, and such Bank's portion of the Loans
shall not be counted as outstanding for purposes of determining
"Majority Banks" hereunder, or (B) to receive payments of principal,
interest or fees from the Borrower, the Administrative Agent or the
other Banks in respect of its portion of the Loans.
Section 2.3 Interest.
(a) On Base Rate Advances. Interest on each Base
Rate Advance shall be computed on the basis of a year of 365/366 days for the
actual number of days elapsed and shall be payable at the Base Rate Basis for
such Advance, in arrears on the applicable Payment Date. Interest on Base Rate
Advances then outstanding shall also be due and payable on the Maturity Date.
(b) On Eurodollar Advances. Interest on each
Eurodollar Advance shall be computed on the basis of a 360-day year for the
actual number of days elapsed and shall be payable at the Eurodollar Basis for
such Advance, in arrears on the applicable Payment Date, and, in addition, if
the Interest Period for a Eurodollar Advance exceeds three (3) months, interest
on such Eurodollar Advance shall also be due and payable in arrears on every
three-month anniversary of the beginning of such Interest Period. Interest on
Eurodollar Advances then outstanding shall also be due and payable on the
Maturity Date.
(c) Interest if no Notice of Selection of Interest
Rate Basis. If the Borrower fails to give the Administrative Agent timely
notice of its selection of a Eurodollar Basis, or if for any reason a
determination of a
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<PAGE> 28
Eurodollar Basis for any Advance is not timely concluded, the Base Rate Basis
shall apply to such Advance.
(d) Interest Upon Default. Immediately upon the
occurrence of an Event of Default hereunder, the outstanding Obligations (to
the extent permitted by Applicable Law) shall bear interest at the Default
Rate. Such interest shall be payable on demand by the Majority Banks and shall
accrue until the earlier of (i) waiver or cure of the applicable Event of
Default, (ii) agreement by the Majority Banks (or, if applicable to the
underlying Event of Default, all of the Banks) to rescind the charging of
interest at the Default Rate, or (iii) payment in full of the Obligations.
(e) Eurodollar Rate Contracts. At no time may the
number of outstanding Eurodollar Advances exceed eight (8).
(f) Applicable Margin. The Applicable
Margin shall be determined by the Administrative Agent with respect to any
Advance based upon the Total Leverage Ratio as of the end of the fiscal quarter
most recently ended, effective as of the fifth (5th) Business Day after the
financial statements referred to in Section 6.1 or 6.2 hereof, as the case may
be, are furnished to the Administrative Agent and each Bank for such fiscal
quarter, as follows:
<TABLE>
<CAPTION>
Total Base Rate Advance Eurodollar Advance
Leverage Ratio Applicable Margin Applicable Margin
-------------- ----------------- -----------------
<S> <C> <C> <C>
A. Greater than 5.50:1 1.375% 2.500%
B. Greater than 5.00:1, but less 1.250% 2.375%
than or equal to 5.50:1
C. Greater than 4.50:1, but less 1.000% 2.125%
than or equal to 5.00:1
D. Greater than 4.00:1, but less 0.750% 1.875%
than or equal to 4.50:1
E. Greater than 3.50:1, but less 0.500% 1.625%
than or equal to 4.00:1
F. Greater than 3.00:1, but less 0.250% 1.375%
than or equal to 3.50:1
G. Greater than 2.50:1, but less 0.125% 1.250%
than or equal to 3.00:1
H. Less than or equal to 2.50:1 0.000% 0.875%
</TABLE>
Notwithstanding the foregoing, if the Borrower
shall fail timely to deliver the Administrative Agent the financial statements
required for the calculation of the Total Leverage Ratio for any fiscal
quarter, then commencing with the fifth (5th) Business Day after the date such
financial statements were due and continuing through the fifth (5th) Business
Day following the date of delivery thereof, the Total Leverage Ratio for such
period shall be conclusively presumed to be, and the Applicable Margin shall be
calculated based upon, the Total Leverage Ratio which is one level greater than
the Total Leverage Ratio in effect for the immediately
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<PAGE> 29
preceding fiscal quarter for which financial statements were delivered or were
due to be delivered, provided that such Total Leverage Ratio for any such
period shall be recalculated upon delivery to the Administrative Agent of the
delinquent financial statements and an appropriate adjustment shall be made by
the Administrative Agent to the Applicable Margin, based upon the Total
Leverage Ratio reflected in the delinquent financial statements, retroactive to
the first day for which the presumed Total Leverage Ratio was applied.
Section 2.4 Commitment Fees.
(a) The Borrower agrees to pay each of the Banks, in
accordance with their respective Commitment Ratios for the applicable
Commitment, a commitment fee on the aggregate unborrowed balance of the
Facility A Commitment for each day from the Agreement Date until the Maturity
Date and the Facility B Commitment for each day from the Agreement Date until
the Facility B Termination Date (i) at all times during which the Total
Leverage Ratio is greater than or equal to 4.50:1, at the rate of three-eighths
of one percent (3/8%) per annum, and (ii) at all times during which the Total
Leverage Ratio is less than 4.50:1, at the rate of one-quarter of one percent
(1/4%) per annum.
(b) Such commitment fees shall be computed on the
basis of a year of 365/366 days for the actual number of days elapsed, shall be
payable quarterly in arrears on the last day of each calendar quarter, and
shall be fully earned when due and non-refundable when paid. A final payment
of all commitment fees then payable shall also be due and payable on the
Maturity Date.
Section 2.5 Mandatory Commitment Reductions.
(a) Scheduled Reductions in Facility A Commitment.
Commencing March 31, 2000 and at the end of each calendar quarter thereafter,
the Facility A Commitment shall be automatically and permanently reduced by an
amount equal to the percentage of the Facility A Commitment as in effect on the
Agreement Date, as set forth below:
<TABLE>
<CAPTION>
Amount of
Dates of Facility A Commitment Reductions Each Reduction
----------------------------------------- ---------------
<S> <C>
March 31, 2000, June 30, 2000,
September 30, 2000 and December 31, 2000 2.500%
March 31, 2001, June 30, 2001,
September 30, 2001 and December 31, 2001 3.750%
March 31, 2002, June 30, 2002,
September 30, 2002 and December 31, 2002 5.000%
March 31, 2003, June 30, 2003,
September 30, 2003 and December 31, 2003 6.250%
March 31, 2004, June 30, 2004,
September 30, 2004 and December 31, 2004 7.500%
</TABLE>
(b) Excess Cash Flow Recapture. Commencing on March 31, 2000
and on each March 31st
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<PAGE> 30
and September 30th occurring thereafter during the term of this Agreement, the
Facility A Commitment shall be automatically and permanently reduced by an
amount equal to fifty percent (50%) of Excess Cash Flow, determined for the two
(2) consecutive fiscal quarters then ended.
(c) Reductions in Facility B Commitment from
Subordinated Debt Proceeds. The Facility B Commitment shall be automatically
and permanently reduced in an amount equal to the aggregate amount of any
Subordinated Debt (net of reasonable and customary transaction costs) issued by
the Borrower or any of its Restricted Subsidiaries on or after the Agreement
Date immediately upon the issuance thereof.
The Borrower shall make a repayment of the Loans outstanding under the
applicable Commitment, together with accrued interest thereon, on or before the
effective date of each reduction in such Commitment under this Section 2.5,
such that the aggregate principal amount of the Loans outstanding under such
Commitment at no time exceeds such Commitment as so reduced. Any remaining
unpaid principal and interest under the Commitments shall be due and payable in
full on the Maturity Date, and the Commitments shall thereupon terminate to the
extent not previously terminated.
Section 2.6 Voluntary Commitment Reductions. The Borrower
shall have the right, at any time and from time to time after the Agreement
Date, upon at least three (3) Business Days' prior written notice to the
Administrative Agent, without premium or penalty, to cancel or reduce
permanently all or a portion of the Facility A Commitment on the basis of the
respective Commitment Ratios of the Banks applicable to the Facility A
Commitment; provided, however, that any such partial reduction shall be made in
an amount not less than $5,000,000 and in integral multiples of $1,000,000. As
of the date of cancellation or reduction set forth in such notice, the Facility
A Commitment shall be permanently reduced to the amount stated in the
Borrower's notice for all purposes herein, and the Borrower shall pay to the
Administrative Agent for the Banks the amount necessary to reduce the principal
amount of the Loans then outstanding under Facility A Commitment to not more
than the amount of Facility A Commitment as so reduced, together with accrued
interest on the amount so prepaid and commitment fees accrued through the date
of the reduction with respect to the amount reduced.
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<PAGE> 31
Section 2.7 Prepayments and Repayments.
(a) Prepayment. The principal amount of any Base
Rate Advance may be prepaid in full or ratably in part at any time, without
penalty and without regard to the Payment Date for such Advance. Eurodollar
Advances may be prepaid prior to the applicable Payment Date, upon three (3)
Business Days' prior written notice to the Administrative Agent, provided that
the Borrower shall reimburse the Banks and the Administrative Agent, on the
earlier of demand by the applicable Bank or the Maturity Date, for any loss or
out-of-pocket expense incurred by any Bank or the Administrative Agent in
connection with such prepayment, as set forth in Section 2.10 hereof. Any
prepayment hereunder shall be in amounts of not less than $1,000,000 and in
integral multiples thereof. Amounts prepaid pursuant to this Section may be
reborrowed, subject to the terms and conditions hereof. Prepayments of
Advances under the Facility B Commitment after the Facility B Commitment
Termination Date shall be applied to amounts outstanding thereunder in inverse
order of maturity. Amounts prepaid pursuant to this Section may be reborrowed,
subject to the terms and conditions hereof.
(b) Repayments.
(i) Loans in Excess of Commitments. If,
at any time, the amount of the Loans then outstanding under any
Commitment shall exceed the applicable Commitment, the Borrower
shall, on such date and subject to Section 2.10 hereof, make a
repayment of the principal amount of the Loans in an amount equal to
such excess, together with any accrued interest and fees with
respect thereto.
(ii) Scheduled Repayments under Facility B
Commitment. Commencing March 31, 2000, the principal balance then
outstanding under the Facility B Commitment shall be amortized in
quarterly installments equal to the percentage of the principal
balance outstanding under the Facility B Commitment on the Facility
B Commitment Termination Date set forth below on the dates set forth
below:
<TABLE>
<CAPTION>
Repayment Dates Percentage
--------------- ----------
<S> <C>
March 31, 2000, June 30, 2000,
September 30, 2000 and December 31, 2000 2.500%
March 31, 2001, June 30, 2001,
September 30, 2001 and December 31, 2001 3.750%
March 31, 2002, June 30, 2002,
September 30, 2002 and December 31, 2002 5.000%
March 31, 2003, June 30, 2003,
September 30, 2003 and December 31, 2003 6.250%
March 31, 2004, June 30, 2004,
September 30, 2004 and December 31, 2004 7.500%
</TABLE>
(iii) Equity Proceeds. The Borrower shall
repay Loans outstanding under the Facility A Commitment, with the
proceeds of any equity issued by the Borrower on or after the
Agreement Date, net of reasonable and customary transaction costs.
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<PAGE> 32
(ii) Asset Sale Proceeds. The Borrower
shall repay the Loans outstanding under the Commitments as set forth
in Section 7.4(a) hereof. On and after the Facility B Commitment
Termination Date any such payments in respect of the Facility B
Commitment shall be applied to Loans outstanding thereunder in
inverse order of maturity.
(v) Maturity Date. In addition to the
foregoing, a final payment of all Obligations then outstanding shall
be due and payable on the Maturity Date.
Section 2.8 Notes; Loan Accounts.
(a) The Loans shall be repayable in accordance with
the terms and provisions set forth herein and shall be evidenced by the Notes.
One Facility A Note and one Facility B Note shall be payable to the order of
each Bank for such Commitment, in accordance with such Bank's respective
Commitment Ratio for the applicable Commitment. The Notes shall be issued by
the Borrower to the Banks and shall be duly executed and delivered by one or
more Authorized Signatories.
(b) Each Bank may open and maintain on its books in
the name of the Borrower a loan account with respect to its portion of the
Loans and interest thereon. Each Bank which opens such a loan account shall
debit such loan account for the principal amount of its portion of each Advance
made by it and accrued interest thereon, and shall credit such loan account for
each payment on account of principal of or interest on its Loans. The records
of a Bank with respect to the loan account maintained by it shall be prima
facie evidence of its portion of the Loans and accrued interest thereon absent
manifest error, but the failure of any Bank to make any such notations or any
error or mistake in such notations shall not affect the Borrower's repayment
obligations with respect to such Loans.
Section 2.9 Manner of Payment.
(a) Each payment (including any prepayment) by the
Borrower on account of the principal of or interest on the Loans, commitment
fees and any other amount owed to the Banks or the Administrative Agent or any
of them under this Agreement or the Notes shall be made not later than 1:00
p.m. (New York time) on the date specified for payment under this Agreement to
the Administrative Agent at the Administrative Agent's Office, for the account
of the Banks or the Administrative Agent, as the case may be, in lawful money
of the United States of America in immediately available funds. Any payment
received by the Administrative Agent after 1:00 p.m. (New York time) shall be
deemed received on the next Business Day. Receipt by the Administrative Agent
of any payment intended for any Bank or Banks hereunder prior to 1:00 p.m. (New
York time) on any Business Day shall be deemed to constitute receipt by such
Bank or Banks on such Business Day. In the case of a payment for the account
of a Bank, the Administrative Agent will promptly thereafter distribute the
amount so received in like funds to such Bank. If the Administrative Agent
shall not have received any payment from the Borrower as and when due, the
Administrative Agent will promptly notify the Banks accordingly. In the event
that the Administrative Agent shall fail to make distribution to any Bank as
required under this Section 2.9, the Administrative Agent agrees to pay such
Bank interest from the date such payment was due until paid at the Federal
Funds Rate.
(b) The Borrower agrees to pay principal, interest,
fees and all other amounts due hereunder or under the Notes without set-off or
counterclaim or any deduction whatsoever and free and clear of all taxes,
levies and withholding. If the Borrower is required by Applicable Law to
deduct any taxes from or in respect of any
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<PAGE> 33
sum payable to the Administrative Agent or any Bank hereunder, under any Note
or under any other Loan Document: (i) the sum payable hereunder or thereunder,
as applicable, shall be increased to the extent necessary to provide that,
after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.9(b)), the Administrative Agent or
such Bank, as applicable, receives an amount equal to the sum it would have
received had no such deductions been made; (ii) the Borrower shall make such
deductions from such sums payable hereunder or thereunder, as applicable, and
pay the amount so deducted to the relevant taxing authority as required by
Applicable Law; and (iii) the Borrower shall provide the Administrative Agent
or such Bank, as applicable, with evidence satisfactory to the Administrative
Agent or such Bank, as applicable, that such deducted amounts have been paid to
the relevant taxing authority.
(c) Prior to the declaration of an Event of Default
under Section 8.2 hereof, if some but less than all amounts due from the
Borrower are received by the Administrative Agent with respect to the
Obligations, the Administrative Agent shall distribute such amounts in the
following order of priority, all in accordance where applicable with the
respective Commitment Ratios of the Banks for the applicable Commitment: (i)
to the payment of any fees or expenses then due and payable to the
Administrative Agent and the Banks, or any of them; (ii) to the payment of
interest then due and payable on the Loans; (iii) to the payment of all other
amounts not otherwise referred to in this Section 2.9(c) then due and payable
to the Administrative Agent and the Banks, or any of them, hereunder or under
the Notes or any other Loan Document; (iv) to the payment of principal then due
and payable on the Loans made under the Facility B Commitment; and (v) to the
payment of principal then due and payable on the Loans made under the Facility
A Commitment.
(d) Subject to any contrary provisions in the
definition of Interest Period, if any payment under this Agreement or any of
the other Loan Documents is specified to be made on a day which is not a
Business Day, it shall be made on the next Business Day, and such extension of
time shall in such case be included in computing interest and fees, if any, in
connection with such payment.
Section 2.10 Reimbursement.
(a) Whenever any Bank shall sustain or incur any
losses or out-of-pocket expenses in connection with (i) failure by the Borrower
to borrow any Eurodollar Advance after having given notice of its intention to
borrow in accordance with Section 2.2 hereof (whether by reason of the
Borrower's election not to proceed or the non-fulfillment of any of the
conditions set forth in Article 3), or (ii) prepayment (or failure to prepay
after giving notice thereof) of any Eurodollar Advance in whole or in part for
any reason, the Borrower agrees to pay to such Bank, upon the earlier of such
Bank's demand or the Maturity Date, an amount sufficient to compensate such
Bank for all such losses and out-of-pocket expenses other than any lost margin
on the Loans. Such Bank's good faith determination of the amount of such
losses or out-of-pocket expenses, as set forth in writing and accompanied by
calculations in reasonable detail demonstrating the basis for its demand, shall
be conclusively correct absent manifest error.
(b) Losses subject to reimbursement hereunder shall
include, without limiting the generality of the foregoing, expenses incurred by
any Bank or any participant of such Bank permitted hereunder in connection with
the re-employment of funds prepaid, paid, repaid, not borrowed, or not paid, as
the case may be, and will be payable as a result of acceleration of the
Obligations.
Section 2.11 Pro Rata Treatment.
(a) Advances. Each Advance from the Banks under any
Commitment shall be made pro rata
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<PAGE> 34
on the basis of the respective Commitment Ratios of the Banks applicable to the
particular Commitment.
(b) Payments. Except as provided in Section 2.2(e)
and Article 10 hereof, each payment and prepayment of principal of the Loans
and each payment of interest on the Loans, shall be made to the Banks pro rata
on the basis of their respective unpaid principal amounts outstanding under the
Notes immediately prior to such payment or prepayment. If any Bank shall
obtain any payment (whether involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Loans in excess of its ratable share
of the Loans under its Commitment Ratio, such Bank shall forthwith purchase
from the other Banks such participations in the portion of the Loans made by
them as shall be necessary to cause such purchasing Bank to share the excess
payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Bank, such purchase from each Bank shall be rescinded and such Bank shall repay
to the purchasing Bank the purchase price to the extent of such recovery. The
Borrower agrees that any Bank so purchasing a participation from another Bank
pursuant to this Section 2.11(b) may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Bank were the direct creditor
of the Borrower in the amount of such participation.
Section 2.12 Capital Adequacy. If after the date hereof, the
adoption of any Applicable Law regarding the capital adequacy of banks or bank
holding companies, or any change in Applicable Law (whether adopted before or
after the Agreement Date) or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by
such Bank with any directive regarding capital adequacy (whether or not having
the force of law) of any such governmental authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on any Bank's or any Bank's holding company's capital as a consequence of its
obligations hereunder with respect to the Loans and the Commitments to a level
below that which it could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies with respect to
capital adequacy immediately before such adoption, change or compliance and
assuming that such Bank's capital was fully utilized prior to such adoption,
change or compliance) by an amount reasonably deemed by such Bank to be
material, then, upon the earlier of demand by such Bank or the Maturity Date,
the Borrower shall promptly pay to such Bank such additional amounts as shall
be sufficient to compensate such Bank for such reduced return, together with
interest on such amount from the fourth (4th) day after the date of demand or
the Maturity Date, as applicable, until payment in full thereof at the Default
Rate. A certificate of such Bank setting forth the amount to be paid to such
Bank by the Borrower as a result of any event referred to in this paragraph and
supporting calculations in reasonable detail shall be presumptively correct
absent manifest error.
Section 2.13 Bank Tax Forms. On or prior to the Agreement
Date and on or prior to the first Business Day of each calendar year
thereafter, to the extent available under Applicable Law, each Bank which is
organized in a jurisdiction other than the United States shall provide each of
the Administrative Agent and the Borrower with a properly executed original of
Forms 4224 or 1001 (or any successor form) prescribed by the Internal Revenue
Service or other documents satisfactory to the Borrower and the Administrative
Agent, and a properly executed Internal Revenue Service Form W-8 or W-9, as the
case may be, certifying (i) as to such Bank's status for purposes of
determining exemption from United States withholding taxes with respect to all
payments to be made to such Bank hereunder and under the Notes or (ii) that all
payments to be made to such Bank hereunder and under the Notes are subject to
such taxes at a rate reduced to zero by an applicable tax treaty. Each such
Bank agrees to provide the Administrative Agent and the Borrower with new forms
prescribed by the Internal Revenue Service upon the expiration or obsolescence
of any previously delivered form, or after the occurrence of any event
requiring a change in the most recent forms delivered by it to the
Administrative Agent and the Borrower, to the extent available under Applicable
Law.
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<PAGE> 35
ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to Effectiveness of
Agreement. The obligation of the Banks to undertake the Facility A Commitment
and the Facility B Commitment and the effectiveness of this Agreement are
subject to the prior or contemporaneous fulfillment of each of the following
conditions:
(a) The Administrative Agent and the Banks shall have
received each of the following:
(i) the certificate of the Borrower dated
as of the Agreement Date, confirming the effectiveness of the
Security Documents.
(ii) a certificate of each Restricted
Subsidiary of the Borrower (including all License Subs existing as
of the Agreement Date) dated as of the Agreement Date, confirming
the effectiveness of the Security Documents.
(iii) duly executed Notes;
(iv) legal opinions of Wilmer, Cutler &
Pickering, special corporate, local and securities counsel to the
Borrower and its Subsidiaries; each addressed to each Bank and the
Administrative Agent, and dated as of the Agreement Date;
(v) all such other documents as the
Administrative Agent or any Bank may reasonably request, certified
by an appropriate governmental official or an Authorized Signatory
if so requested.
(b) The Administrative Agent and the Banks shall
have received evidence satisfactory to them that all Necessary Authorizations,
including all necessary consents to the closing of this Agreement and the other
Loan Documents, have been obtained or made, are in full force and effect and
are not subject to any pending or, to the knowledge of the Borrower, threatened
reversal or cancellation, and the Administrative Agent and the Banks shall have
received a certificate of an Authorized Signatory so stating.
(c) The Borrower shall certify to the Administrative
Agent and the Banks that each of the representations and warranties in Article
4 hereof and each other Loan Document are true and correct as of the Agreement
Date and that no Default or Event of Default then exists or is continuing.
(d) There shall not exist as of the Agreement Date
any action, suit, proceeding or investigation pending against, or, to the
knowledge of the Borrower, threatened against or in any manner relating
adversely to, the Borrower, any of its Subsidiaries, any of their respective
properties, the ProNet Merger or the transactions contemplated hereby, which
could be expected to have a Materially Adverse Effect.
(e) No event shall have occurred and no condition
shall exist which, in the judgment of the Administrative Agent, has had or
could be expected to have a materially adverse effect on the business, assets
or financial condition of the Borrower or any of its Subsidiaries from that
reflected in the audited annual financial statements for the fiscal year ending
December 31, 1996 or the Form 10-Q for the fiscal quarter ending June 30,
-30-
<PAGE> 36
1997 of the Borrower, each as delivered to the Administrative Agent and the
Banks.
(f) The Managing Agents shall have received evidence
reasonably satisfactory to them that at least $150,000,000 of Subordinated Debt
has been issued under the 1997 Indenture and the net proceeds thereof have been
applied to repay the Loans under the Prior Loan Agreement in accordance with
the Consent Letter.
Section 3.2 Conditions Precedent to Each Advance. The
obligation of the Banks to make each Advance after the Agreement Date is
subject to the fulfillment of each of the following conditions immediately
prior to or contemporaneously with such Advance:
(a) All of the representations and warranties of the
Borrower under this Agreement and the other Loan Documents (including, without
limitation, all representations and warranties with respect to the Borrower's
Subsidiaries), which, pursuant to Section 4.2 hereof, are made at and as of the
time of such Advance, shall be true and correct at such time in all material
respects, both before and after giving effect to the application of the
proceeds of such Advance, and after giving effect to any updates to information
provided to the Banks in accordance with the terms of such representations and
warranties, and no Default hereunder shall then exist or be caused thereby;
(b) With respect to Advances which, if funded, would
increase the aggregate principal amount of the Loans outstanding hereunder, the
Administrative Agent and the Banks shall have received a certificate of the
Borrower stating that there is no default or event of default, and no event or
condition exists which could give rise to any put right or other right of
prepayment under, any of the agreements evidencing Indebtedness for Money
Borrowed of the Borrower or any of its Subsidiaries, both before and after
giving effect to the proposed Advance of the Loans hereunder.
(c) With respect to Advances which, if funded, would
increase the aggregate principal amount of Loans outstanding hereunder, the
Administrative Agent shall have received a duly executed Request for Advance
and a Use of Proceeds Letter;
(d) Each of the Administrative Agent and the Banks
shall have received all such other certificates, reports, statements, opinions
of counsel (if such Advance is in connection with an Acquisition) or other
documents as the Administrative Agent or any Bank may reasonably request;
(e) With respect to any Advance relating to any
Acquisition or the formation of any Subsidiary which is permitted hereunder,
the Administrative Agent and the Banks shall have received such documents and
instruments relating to such Acquisition or formation of such new Subsidiary as
are described in Section 5.13 hereof or otherwise required herein; and
(f) No event shall have occurred and no condition
shall exist which, in the judgment of the Majority Banks, has had or may be
expected to have a Materially Adverse Effect on the business, assets or
financial condition of the Borrower or any of its Subsidiaries.
Section 3.3 Conditions Precedent to the Banks' Obligation to
Fund an Additional $75,000,000 under Facility B Commitment. The effectiveness
of the Banks' obligations to make the additional Loan under Facility B
Commitment is subject to the fulfillment of each of the following conditions
immediately prior thereto or contemporaneously therewith:
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(a) No Default shall then exist or shall be caused
by the making of the Additional Loan under the increased portion of the
Facility B Commitment, and the Administrative Agent and the Banks shall have
received a certificate of an Authorized Signatory so stating.
(b) The Managing Agents shall have received evidence
satisfactory to them that the ProNet Merger has been consummated pursuant to
terms and conditions satisfactory to the Managing Agents.
(c) The Managing Agents shall have received evidence
satisfactory to them that all Necessary Authorizations in respect of the ProNet
Merger have been obtained or made, are in full force and effect and are not
subject to any pending or, to the knowledge of the Borrower, threatened
reversal or cancellation, and the Managing Agents shall have received a
certificate of an Authorized Signatory so stating.
(d) The Managing Agents shall have received opinions
of FCC and special corporate counsel to the Borrower with respect to the ProNet
Merger, which opinions shall be in form and substance satisfactory to the
Managing Agents.
(e) The Managing Agents shall have received
certification to the Agents and the Banks of the Borrower's compliance with
Sections 7.8, 7.9, 7.10, 7.11 and 7.12 of this Agreement after giving effect to
the ProNet Merger together with any calculations necessary to demonstrate such
compliance.
(f) The Managing Agents shall have received
certification to the Agents and the Banks that a Default does not exist and
will not be caused by the ProNet Merger.
(g) The Managing Agents shall have received all
documentation required under Section 5.13 of this Agreement with respect to the
ProNet Merger.
(h) The Managing Agents shall have received copies
of the ProNet Merger Agreement and all other documents related to the ProNet
Merger, including, without limitation, lien search results from appropriate
jurisdictions, all of which shall be certified by an Authorized Signatory to be
true, complete and correct as of the date of the ProNet Merger, together with
duly executed UCC-1 financing statements and other collateral documentation
deemed reasonably necessary by the Managing Agents to reflect or perfect the
Security Interest of the Administrative Agent (for itself and on behalf of the
Banks) in such assets.
(i) The Managing Agents shall have received reliance
letters regarding opinions of counsel to ProNet, in form and substance
satisfactory to the Managing Agents and its special counsel.
(j) The Administrative Agent and the Banks shall
have received all such other certificates, reports, statements, opinions of
counsel or other documents as the Administrative Agent or any Bank may
reasonably request, including, without limitation, Security Documents.
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties. The Borrower
hereby agrees, represents and warrants, upon the Agreement Date, and at all
times thereafter as required pursuant to the terms hereof, in favor of the
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Administrative Agent and each Bank that:
(a) Organization; Ownership; Power; Qualification.
The Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Borrower has the
corporate power and authority to own its properties and to carry on its
business as now being and as proposed hereafter to be conducted. Each
Subsidiary of the Borrower is a corporation or partnership duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or formation, as the case may be, and has the corporate or
partnership power, as the case may be, and authority to own its properties and
to carry on its business as now being and as proposed hereafter to be
conducted. The Borrower and each of its Subsidiaries are duly qualified, in
good standing and authorized to do business in each jurisdiction in which the
character of their respective properties or the nature of their respective
businesses requires such qualification or authorization.
(b) Authorization; Enforceability. The Borrower has
the corporate power and has taken all necessary corporate action to authorize
it to borrow hereunder, to execute, deliver and perform this Agreement and each
of the other Loan Documents to which it is a party in accordance with their
respective terms, and to consummate the transactions contemplated hereby and
thereby. This Agreement has been duly executed and delivered by the Borrower
and is, and each of the other Loan Documents to which the Borrower is party is,
a legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, subject, as to enforcement of remedies,
to the following qualifications: (i) an order of specific performance and an
injunction are discretionary remedies and, in particular, may not be available
where damages are considered an adequate remedy at law, and (ii) enforcement
may be limited by bankruptcy, insolvency, liquidation, reorganization,
reconstruction and other similar laws affecting enforcement of creditors'
rights generally (insofar as any such law relates to the bankruptcy, insolvency
or similar event of the Borrower).
(c) Subsidiaries: Authorization; Enforceability.
The Borrower's Subsidiaries and the Borrower's direct and indirect ownership
thereof as of the Agreement Date are as set forth on Schedule 5 attached
hereto, and to the extent such Subsidiaries are corporations, the Borrower has
the unrestricted right to vote the issued and outstanding shares of the
Subsidiaries shown thereon and such shares of such Subsidiaries have been duly
authorized and issued and are fully paid and nonassessable. Each Subsidiary of
the Borrower has the corporate or partnership power and has taken all necessary
corporate or partnership action to authorize it to execute, deliver and perform
each of the Loan Documents to which it is a party in accordance with their
respective terms and to consummate the transactions contemplated by this
Agreement and by such Loan Documents. Each of the Loan Documents to which any
Subsidiary of the Borrower is party is a legal, valid and binding obligation of
such Subsidiary enforceable against such Subsidiary in accordance with its
terms, subject, as to enforcement of remedies, to the following qualifications:
(i) an order of specific performance and an injunction are discretionary
remedies and, in particular, may not be available where damages are considered
an adequate remedy at law, and (ii) enforcement may be limited by bankruptcy,
insolvency, liquidation, reorganization, reconstruction and other similar laws
affecting enforcement of creditors' rights generally (insofar as any such law
relates to the bankruptcy, insolvency or similar event of any such Subsidiary).
Except as set forth on Schedule 5, attached hereto, the Borrower's ownership
interest in each of its Subsidiaries represents a direct or indirect
controlling interest of such Subsidiary for purposes of directing or causing
the direction of the management and policies of each Subsidiary.
(d) Compliance with Other Loan Documents and
Contemplated Transactions. The execution, delivery and performance, in
accordance with their respective terms, by the Borrower of this Agreement and
the Notes, and by the Borrower and its Subsidiaries of each of the other Loan
Documents to which they are respectively party, and the consummation of the
transactions contemplated hereby and thereby, do not and will not (i) require
any consent or approval, governmental or otherwise, not already obtained, (ii)
violate any Applicable
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Law respecting the Borrower or any Subsidiary of the Borrower, (iii) conflict
with, result in a breach of, or constitute a default under the certificate or
articles of incorporation or by-laws or partnership agreement, as the case may
be, as amended, of the Borrower or of any Subsidiary of the Borrower, or under
any indenture, agreement, or other instrument, including without limitation the
Licenses, to which the Borrower or any of its Subsidiaries is a party or by
which any of them or their respective properties may be bound, or (iv) result
in or require the creation or imposition of any Lien upon or with respect to
any property now owned or hereafter acquired by the Borrower or any of its
Subsidiaries, except for Permitted Liens.
(e) Business. The Borrower, together with its
Subsidiaries, is engaged solely in the business of owning, constructing,
managing, operating, and investing in paging service systems and communications
businesses incidental or directly relating thereto.
(f) Licenses, etc. Except as set forth on Schedule
6 attached hereto, the Licenses have been duly issued are in full force and
effect and, as of the Agreement Date, are held by License Subs as set forth on
Schedule 7 attached hereto. The Borrower and the Restricted Subsidiaries are
in compliance in all material respects with all of the provisions thereof. The
Borrower and the Restricted Subsidiaries have secured all Necessary
Authorizations and all such Necessary Authorizations are in full force and
effect. Neither any License nor any Necessary Authorization is the subject of
any pending or, to the best of the Borrower's knowledge, threatened revocation.
The sole assets of each License Sub are Licenses used in the operation and
construction of the paging business of the Borrower and the Restricted
Subsidiaries and management agreements with the Borrower and such of the
Restricted Subsidiaries as operate the portion of the paging system subject to
the License held by it.
(g) Compliance with Law. The Borrower and its
Subsidiaries are in compliance in all material respects with all Applicable
Law.
(h) Title to Assets. The Borrower and the
Restricted Subsidiaries have good, legal and marketable title to, or a valid
leasehold interest in, all of the assets referred to in the audited annual
financial statements of the Borrower and the Restricted Subsidiaries for the
fiscal year ended December 31, 1996 delivered to the Banks prior to the
Agreement Date (or such later date as a balance sheet is delivered pursuant to
Article 6 hereof). None of the properties or assets of the Borrower or any of
the Restricted Subsidiaries is subject to any Liens, except for Permitted
Liens. Except for financing statements evidencing Permitted Liens, no
financing statement under the Uniform Commercial Code as in effect in any
jurisdiction and no other filing which names the Borrower or any of its
Subsidiaries as debtor or which covers or purports to cover any of the assets
of the Borrower or any of the Restricted Subsidiaries is currently effective
and on file in any state or other jurisdiction, and neither the Borrower nor
any of the Restricted Subsidiaries has signed any such financing statement or
filing or any security agreement authorizing any secured party thereunder to
file any such financing statement or filing.
(i) Litigation. There is no action, suit,
proceeding or investigation pending against, or, to the best of the Borrower's
knowledge, threatened against or in any other manner relating adversely to, the
Borrower or any of its Subsidiaries or, any of their respective properties,
including without limitation the Licenses, in any court or before any
arbitrator of any kind or before or by any governmental body (including without
limitation the FCC) except as set forth on Schedule 8 attached hereto (as such
schedule may be updated with the consent of the Majority Banks from time to
time). No such action, suit, proceeding or investigation (i) calls into
question the validity of this Agreement or any other Loan Document, or (ii)
individually or collectively involves the possibility of any judgment or
liability not fully covered by insurance which, if determined adversely to the
Borrower or any of its Subsidiaries, would have a Materially Adverse Effect.
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(j) Taxes. All federal, state and other tax returns
of the Borrower and each of its Subsidiaries required by law to be filed have
been duly filed and all federal, state and other taxes, including, without
limitation, withholding taxes, assessments and other governmental charges or
levies required to be paid by the Borrower or any of its Subsidiaries or
imposed upon the Borrower or any of its Subsidiaries or any of their respective
properties, income, profits or assets, which are due and payable, have been
paid, except any such taxes (i) (x) the payment of which the Borrower or any of
its Subsidiaries is diligently contesting in good faith by appropriate
proceedings, (y) for which adequate reserves have been provided on the books of
the Borrower or the Subsidiary of the Borrower involved, and (z) as to which no
Lien other than a Permitted Lien has attached and no foreclosure, distraint,
sale or similar proceedings have been commenced, or (ii) which may result from
audits not yet conducted. The charges, accruals and reserves on the books of
the Borrower and each of its Subsidiaries in respect of taxes are, in the
judgment of the Borrower, adequate.
(k) Financial Statements. The Borrower has
furnished or caused to be furnished to the Administrative Agent and the Banks
the audited financial statements for the Borrower and its Subsidiaries on a
consolidated basis for the fiscal year ended December 31, 1996, and unaudited
financial statements for the fiscal quarter ended June 30, 1997, all of which,
together with other financial statements furnished to the Banks subsequent to
the Agreement Date have been prepared in accordance with GAAP and present
fairly in all material respects the financial position of the Borrower and the
Restricted Subsidiaries on a consolidated and consolidating basis, as the case
may be, on and as at such dates and the results of operations for the periods
then ended (subject, in the case of unaudited financial statements, to normal
year-end and audit adjustments). Neither the Borrower nor any of the
Restricted Subsidiaries has any material liabilities, contingent or otherwise,
other than as disclosed in the financial statements referred to in the
preceding sentence or as set forth or referred to in this Agreement, and there
are no material unrealized losses of the Borrower or any of the Restricted
Subsidiaries and no material anticipated losses of the Borrower or any of the
Restricted Subsidiaries other than those which have been previously disclosed
in writing to the Administrative Agent and the Banks and identified as such.
(l) No Material Adverse Change. Since December 31,
1996, there has occurred no event which has had or which could reasonably be
expected to have a Materially Adverse Effect.
(m) ERISA. The Borrower and each Subsidiary of the
Borrower and each of their respective Plans are in compliance with ERISA and
the Code and neither the Borrower nor any of its ERISA Affiliates, including
its Subsidiaries, has incurred any accumulated funding deficiency with respect
to any such Plan within the meaning of ERISA or the Code. The Borrower, each
of its Subsidiaries, and each other ERISA Affiliate have complied with all
requirements of COBRA. Neither the Borrower nor any of its Subsidiaries has
made any promises of retirement or other benefits to employees, except as set
forth in the Plans, in written agreements with such employees, or in the
Borrower's employee handbook and memoranda to employees. Neither the Borrower
nor any of its ERISA Affiliates, including its Subsidiaries, has incurred any
material liability to PBGC in connection with any such Plan. The assets of
each such Plan which is subject to Title IV of ERISA are sufficient to provide
the benefits under such Plan, the payment of which PBGC would guarantee if such
Plan were terminated, and such assets are also sufficient to provide all other
"benefit liabilities" (within the meaning of Section 4041 of ERISA) due under
the Plan upon termination. No Reportable Event has occurred and is continuing
with respect to any such Plan. No such Plan or trust created thereunder, or
party in interest (as defined in Section 3(14) of ERISA), or any fiduciary (as
defined in Section 3(21) of ERISA), has engaged in a "prohibited transaction"
(as such term is defined in Section 406 of ERISA or Section 4975 of the Code)
which would subject such Plan or any other Plan of the Borrower or any of its
Subsidiaries, any trust created thereunder, or any such party in interest or
fiduciary, or any party dealing with any such Plan or any such trust, to the
tax or penalty on "prohibited transactions" imposed by Section 502 of ERISA or
Section 4975 of the Code. Neither the Borrower nor any of its ERISA
Affiliates,
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including its Subsidiaries, is or has been obligated to make any payment to a
Multiemployer Plan.
(n) Compliance with Regulations G, T, U and X.
Neither the Borrower nor any of the Borrower's Subsidiaries is engaged
principally in or has as one of its important activities the business of
extending credit for the purpose of purchasing or carrying, and neither the
Borrower nor any of the Borrower's Subsidiaries owns or presently intends to
acquire, any "margin security" or "margin stock" as defined in Regulations G,
T, U, and X (12 C.F.R. Parts 207, 220, 221 and 224) of the Board of Governors
of the Federal Reserve System (herein called "margin stock") other than the A+
Shares. Except with respect to the A+ Shares, none of the proceeds of the
Loans will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin stock or for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry margin stock or
for any other purpose which might constitute this transaction a "purpose
credit" within the meaning of said Regulations G, T, U, and X. The Borrower
has not taken, caused or authorized to be taken, and will not take any action
which might cause this Agreement or the Notes to violate Regulation G, T, U, or
X or any other regulation of the Board of Governors of the Federal Reserve
System or to violate the Securities Exchange Act of 1934, in each case as now
in effect or as the same may hereafter be in effect. If so requested by the
Administrative Agent, the Borrower will furnish the Administrative Agent with
(i) a statement or statements in conformity with the requirements of Federal
Reserve Forms G-3 and/or U-1 referred to in Regulations G and U of said Board
of Governors and (ii) other documents evidencing its compliance with the margin
regulations, reasonably requested by the Administrative Agent. Neither the
making of the Loans nor the use of proceeds thereof will violate, or be
inconsistent with, the `rovisions of Regulation G, T, U, or X of said Board of
Governors.
(o) Investment Company Act. Neither the Borrower
nor any of its Subsidiaries is required to register under the provisions of the
Investment Company Act of 1940, as amended, and neither the entering into or
performance by the Borrower and its Subsidiaries of this Agreement and the Loan
Documents nor the issuance of the Notes violates any provision of such Act or
requires any consent, approval or authorization of, or registration with, the
Securities and Exchange Commission or any other governmental or public body or
authority pursuant to any provisions of such Act.
(p) Governmental Regulation. Neither the Borrower
nor any of its Subsidiaries is required to obtain any consent, approval,
authorization, permit or license which has not already been obtained from, or
effect any filing or registration which has not already been effected with, any
federal, state or local regulatory authority in connection with the execution
and delivery of this Agreement or any other Loan Document. Neither the
Borrower nor any of its Subsidiaries is required to obtain any consent,
approval, authorization, permit or license which has not already been obtained
from, or effect any filing or registration which has not already been effected
with, any federal, state or local regulatory authority in connection with the
performance, in accordance with their respective terms, of this Agreement or
any other Loan Document.
(q) Absence of Default, Etc. The Borrower and its
Subsidiaries are in compliance in all respects with all of the provisions of
their respective partnership agreements, Certificates or Articles of
Incorporation and By-Laws, as the case may be, and no event has occurred or
failed to occur (including, without limitation, any matter which could create a
Default hereunder by cross-default) which has not been remedied or waived, the
occurrence or non-occurrence of which constitutes, (i) a Default or (ii) a
material default by the Borrower or any of its Subsidiaries, or an event or
condition giving rise to any put right or other prepayment right of any holder
of Indebtedness, under any indenture, agreement or other instrument relating to
Indebtedness of the Borrower or any of its Subsidiaries (other than as set
forth on Schedule 6 attached hereto), or a default under any License (which
Default could reasonably be expected to result in an Event of Default under
Section 8.1(m) hereof), or a default under any judgment, decree or order to
which the Borrower or any of its Subsidiaries is a party or by
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which the Borrower or any of its Subsidiaries or any of their respective
properties may be bound or affected. Neither the Borrower nor any of its
Subsidiaries is a party to or bound by any contract or agreement continuing
after the Agreement Date, or bound by any Applicable Law, the performance of
which or the compliance with which, as applicable, could have a Materially
Adverse Effect or result in the loss of any License issued by the FCC.
(r) Accuracy and Completeness of Information. All
information, reports, prospectuses and other papers and data relating to the
Borrower or any of its Subsidiaries or, to the best of the Borrower's
knowledge, A+ Network, Inc., a Tennessee corporation, or any of its
Subsidiaries and furnished by or on behalf of the Borrower or any of its
Subsidiaries to the Administrative Agent or the Banks were, at the time
furnished, true, complete and correct in all material respects to the extent
necessary to give the Administrative Agent and the Banks true and accurate
knowledge of the subject matter.
(s) Agreements with Affiliates. Except for
agreements or arrangements with Affiliates wherein the Borrower or one or more
of the Restricted Subsidiaries provides services to such Affiliates for fair
consideration and which are set forth on Schedule 9 attached hereto, neither
the Borrower nor any of the Restricted Subsidiaries has (i) any agreements or
arrangements of any kind with any Affiliate or (ii) any management or
consulting agreements of any kind with any Affiliate.
(t) Payment of Wages. The Borrower and each of the
Restricted Subsidiaries are in compliance with the Fair Labor Standards Act, as
amended, in all material respects, and such Persons have paid all minimum and
overtime wages required by law to be paid to their respective employees.
(u) Priority. The Security Interest is a valid and
perfected first priority security interest in the Collateral in favor of the
Administrative Agent, for the benefit of itself and the Banks, securing, in
accordance with the terms of the Security Documents, the Obligations, and the
Collateral is subject to no Liens other than Permitted Liens. The Liens
created by the Security Documents are enforceable as security for the
Obligations in accordance with their terms with respect to the Collateral
subject, as to enforcement of remedies, to the following qualifications: (i)
an order of specific performance and an injunction are discretionary remedies
and, in particular, may not be available where damages are considered an
adequate remedy at law, and (ii) enforcement may be limited by bankruptcy,
insolvency, liquidation, reorganization, reconstruction and other similar laws
affecting enforcement of creditors' rights generally (insofar as any such law
relates to the bankruptcy, insolvency or similar event of the Borrower or any
of its Subsidiaries, as the case may be). The fair market value of all
partnership interests owned by the Borrower or any of its Subsidiaries which do
not constitute Collateral is less than $5,000,000 in the aggregate.
(v) Indebtedness for Money Borrowed. Except as
described on Schedule 10 attached hereto, neither the Borrower nor any of its
Subsidiaries has outstanding, as of the Agreement Date, and after giving effect
to the initial Advances hereunder on the Agreement Date, any Indebtedness for
Money Borrowed.
(w) Solvency. As of the Agreement Date and after
giving effect to the transactions contemplated by the Loan Documents and, both
before and after giving effect to the ProNet Merger, (i) the property of the
Borrower, at a fair valuation, will exceed its debt; (ii) the capital of the
Borrower will not be unreasonably small to conduct its business; (iii) the
Borrower will not have incurred debts, or have intended to incur debts, beyond
its ability to pay such debts as they mature; and (iv) the present fair salable
value of the assets of the Borrower will be materially greater than the amount
that will be required to pay its probable liabilities (including debts) as they
become absolute and matured. For purposes of this Section, "debt" means any
liability on a claim, and "claim" means (i) the right to payment, whether or
not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, undisputed, legal, equitable, secured or
unsecured, or (ii) the
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right to an equitable remedy for breach of performance if such breach gives
rise to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, undisputed, secured
or unsecured.
Section 4.2 Survival of Representations and Warranties, etc.
All representations and warranties made under this Agreement and any other Loan
Document shall be deemed to be made, and shall be true and correct, at and as
of the Agreement Date and on the date of each Advance except to the extent
previously fulfilled in accordance with the terms hereof and to the extent
relating specifically to the Agreement Date. All representations and
warranties made under this Agreement and the other Loan Documents shall
survive, and not be waived by, the execution hereof by the Banks and the
Administrative Agent, any investigation or inquiry by any Bank or the
Administrative Agent, or the making of any Advance under this Agreement.
ARTICLE 5
General Covenants
So long as any of the Obligations is outstanding and unpaid or the
Banks have an obligation to fund Advances hereunder (whether or not the
conditions to borrowing have been or can be fulfilled), and unless the Majority
Banks, or such greater number of Banks as may be expressly provided herein,
shall otherwise consent in writing:
Section 5.1 Preservation of Existence and Similar Matters.
Except as permitted under Section 7.4(b) below and except with respect to
Subsidiaries which are created solely for the purpose of effecting Acquisitions
permitted hereby which are dissolved immediately following the subject
Acquisitions, the Borrower will, and will cause each of the Restricted
Subsidiaries to:
(i) preserve and maintain its existence, and its
material rights, franchises, licenses and privileges in
the state of its incorporation, including, without
limiting the foregoing, the Licenses and all other
Necessary Authorizations; and
(ii) qualify and remain qualified and authorized to do
business in each jurisdiction in which the character of
its properties or the nature of its business requires such
qualification or authorization.
Section 5.2 Business; Compliance with Applicable Law. The
Borrower will, and will cause each of its Subsidiaries to, (a) engage solely in
the business of owning, constructing, managing, operating and investing in
paging service systems and communications businesses incidental or directly
relating thereto, and (b) comply in all material respects with the requirements
of all Applicable Law.
Section 5.3 Maintenance of Properties. The Borrower will,
and will cause each of the Restricted Subsidiaries to, maintain or cause to be
maintained in the ordinary course of business in good repair, working order and
condition (reasonable wear and tear excepted) all properties used in their
respective businesses (whether owned or held under lease), other than obsolete
equipment or unused assets, and from time to time make or cause to be made all
needed and appropriate repairs, renewals, replacements, additions, betterments
and improvements thereto.
Section 5.4 Accounting Methods and Financial Records. The
Borrower will, and will cause each of the Restricted Subsidiaries on a
consolidated and consolidating basis to, maintain a system of accounting
established
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and administered in accordance with GAAP, keep adequate records and books of
account in which complete entries will be made in accordance with GAAP and
reflecting all transactions required to be reflected by GAAP, and keep accurate
and complete records of their respective properties and assets. The Borrower
and the Restricted Subsidiaries will maintain a fiscal year ending on December
31.
Section 5.5 Insurance. The Borrower will, and will cause
each of the Restricted Subsidiaries to:
(a) Maintain insurance including, but not limited
to, business interruption coverage and public liability coverage insurance from
responsible companies in such amounts and against such risks to the Borrower
and each of the Restricted Subsidiaries as is prudent for similarly situated
companies engaged in the paging and wireless communications industry.
(b) Keep their respective assets insured by insurers
on terms and in a manner acceptable to the Administrative Agent against loss or
damage by fire, theft, burglary, loss in transit, explosions and hazards
insured against by extended coverage, in amounts which are prudent for the
paging and wireless communications industry and satisfactory to the
Administrative Agent, all premiums thereon to be paid by the Borrower and the
Restricted Subsidiaries.
(c) Require that each insurance policy provide for
at least thirty (30) days' prior written notice to the Administrative Agent of
any termination of or proposed cancellation or nonrenewal of such policy, and
name the Administrative Agent as additional named lender loss payee and, as
appropriate, additional insured, to the extent of the Obligations.
Section 5.6 Payment of Taxes and Claims. The Borrower will,
and will cause each of its Subsidiaries to, pay and discharge all taxes,
including, without limitation, withholding taxes, assessments and governmental
charges or levies required to be paid by them or imposed upon them or their
income or profits or upon any properties belonging to them, prior to the date
on which penalties attach thereto, and all lawful claims for labor, materials
and supplies which, if unpaid, might become a Lien or charge upon any of their
properties; except that no such tax, assessment, charge, levy or claim need be
paid which is being diligently contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside on the
appropriate books, but only so long as such tax, assessment, charge, levy or
claim does not become a Lien or charge other than a Permitted Lien and no
foreclosure, distraint, sale or similar proceedings shall have been commenced.
The Borrower will, and will cause each of its Subsidiaries to, timely file all
information returns required by federal, state or local tax authorities.
Section 5.7 Compliance with ERISA.
(a) The Borrower shall, and shall cause its
Subsidiaries to, make all contributions to any Employee Pension Plan when such
contributions are due and not incur any "accumulated funding deficiency" within
the meaning of Section 412(a) of the Code, whether or not waived, and will
otherwise comply in all material respects with the requirements of the Code and
ERISA with respect to the operation of all Plans.
(b) The Borrower shall, and shall cause its
Subsidiaries to, comply in all material respects with the requirements of COBRA
with respect to any Plans subject to the requirements thereof.
(c) The Borrower shall furnish to the Administrative
Agent and the Banks (i) within thirty (30) days after any officer of the
Borrower obtains knowledge that a "prohibited transaction" (within the meaning
of
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Section 406 of ERISA or Section 4975 of the Code) has occurred with respect to
any Plan of the Borrower or its ERISA Affiliates, including its Subsidiaries,
that any Reportable Event has occurred with respect to any Employee Pension
Plan or that PBGC has instituted or will institute proceedings under Title IV
of ERISA to terminate any Employee Pension Plan or to appoint a trustee to
administer any Employee Pension Plan, a statement setting forth the details as
to such prohibited transaction, Reportable Event or termination or appointment
proceedings and the action which it (or any other Employee Pension Plan sponsor
if other than the Borrower) proposes to take with respect thereto, together
with a copy of the notice of such Reportable Event given to PBGC if a copy of
such notice is available to the Borrower, any of its Subsidiaries or any of its
ERISA Affiliates, (ii) promptly after receipt thereof, a copy of any notice the
Borrower, any of its Subsidiaries or any of its ERISA Affiliates or the sponsor
of any Plan receives from PBGC, or the Internal Revenue Service or the
Department of Labor which sets forth or proposes any action or determination
with respect to such Plan, (iii) promptly after the filing thereof, any annual
report required to be filed pursuant to ERISA in connection with each Plan
maintained by the Borrower or any of its ERISA Affiliates, including the
Subsidiaries, and (iv) promptly upon the Administrative Agent's or any Bank's
request therefor, such additional information concerning any such Plan as may
be reasonably requested by the Administrative Agent or any Bank.
(d) The Borrower will promptly notify the
Administrative Agent and the Banks of any excise taxes which have been assessed
or which the Borrower, any of its Subsidiaries or any of its ERISA Affiliates
has reason to believe may be assessed against the Borrower, any of its
Subsidiaries or any of its ERISA Affiliates by the Internal Revenue Service or
the Department of Labor with respect to any Plan of the Borrower or its ERISA
Affiliates, including its Subsidiaries.
(e) Within the time required for notice to the PBGC
under Section 302(f)(4)(A) of ERISA, the Borrower will notify the
Administrative Agent and the Banks of any lien arising under Section 302(f) of
ERISA in favor of any Plan of the Borrower or its ERISA Affiliates, including
its Subsidiaries.
(f) The Borrower will not, and will not permit any
of its Subsidiaries or any of its ERISA Affiliates to take any of the following
actions or permit any of the following events to occur if such action or event
together with all other such actions or events would subject the Borrower, any
of its Subsidiaries, or any of its ERISA Affiliates to any tax, penalty, or
other liabilities which could have a Materially Adverse Effect:
(i) engage in any transaction in
connection with which the Borrower, any of its Subsidiaries or any
ERISA Affiliate could be subject to either a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975
of the Code;
(ii) terminate any Employee Pension Plan
in a manner, or take any other action, which could result in any
liability of the Borrower, any of its Subsidiaries or any ERISA
Affiliate to the PBGC;
(iii) fail to make full payment when due of
all amounts which, under the provisions of any Plan, the Borrower,
any of its Subsidiaries or any ERISA Affiliate is required to pay as
contributions thereto, or permit to exist any accumulated funding
deficiency within the meaning of Section 412(a) of the Code, whether
or not waived, with respect to any Employee Pension Plan; or
(iv) permit the present value of all
benefit liabilities under all Employee Pension Plans which are
subject to Title IV of ERISA to exceed the present value of the
assets of such Plans allocable to such benefit liabilities (within
the meaning of Section 4041 of ERISA), except as may be
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permitted under actuarial funding standards adopted in accordance
with Section 412 of the Code.
Section 5.8 Visits and Inspections. The Borrower will, and
will cause each of its Subsidiaries to, permit representatives of the
Administrative Agent and any of the Banks, upon reasonable notice, to (i) visit
and inspect the properties of the Borrower or any of its Subsidiaries during
business hours, (ii) inspect and make extracts from and copies of their
respective books and records, and (iii) discuss with their respective principal
officers their respective businesses, assets, liabilities, financial positions,
results of operations and business prospects. The Borrower and each of its
Subsidiaries will also permit representatives of the Administrative Agent and
any of the Banks to discuss with their respective accountants the Borrower's
and the Borrower's Subsidiaries' businesses, assets, liabilities, financial
positions, results of operations and business prospects.
Section 5.9 Payment of Indebtedness; Loans. Subject to any
provisions herein or in any other Loan Document, the Borrower will, and will
cause each of the Restricted Subsidiaries to, pay any and all of their
respective Indebtedness when and as it becomes due or to the extent of trade
payables of such Persons otherwise in accordance with ordinary business
practices customary for the wireless communications industry, other than
amounts diligently disputed in good faith and for which adequate reserves have
been set aside in accordance with GAAP.
Section 5.10 Use of Proceeds. The Borrower will use the
aggregate proceeds of all Advances under the Facility A Commitment directly or
indirectly: (a) to fund Capital Expenditures of the Borrower and the Restricted
Subsidiaries; (b) for working capital needs and other general corporate
purposes of the Borrower and the Restricted Subsidiaries which do not otherwise
conflict with this Section 5.10 (including, without limitation, the payment of
fees and expenses incurred in connection with the execution and delivery of
this Agreement and the other Loan Documents); and (c) subject to compliance
with Section 5.13 hereof, to finance Acquisitions permitted pursuant to Section
7.6 hereof. The Borrower will use the aggregate proceeds of all Advances of
the additional $75,000,000 under the Facility B Commitment to refinance
Indebtedness for Money Borrowed of ProNet Inc. arising under the ProNet Credit
Facility and other costs associated with the ProNet Merger.
No proceeds of Advances hereunder shall be used for the purchase or carrying or
the extension of credit for the purpose of purchasing or carrying, any margin
stock within the meaning of Regulations G, T, U, and X of the Board of
Governors of the Federal Reserve System.
Section 5.11 Indemnity. The Borrower for itself and on
behalf of each of the Restricted Subsidiaries jointly and severally agrees to
indemnify and hold harmless each Bank, the Administrative Agent, the Managing
Agents, the Documentation Agent, the Syndication Agent and each of their
respective affiliates, employees, representatives, shareholders, officers,
directors and counsel (any of the foregoing shall be an "Indemnitee") from and
against any and all claims, liabilities, losses, damages, actions, attorneys'
fees and expenses (as such fees and expenses are incurred) and demands by any
party, including the costs of investigating and defending such claims, whether
or not the Borrower, any Subsidiary or the Person seeking indemnification is
the prevailing party (a) resulting from any breach or alleged breach by the
Borrower or any Subsidiary of the Borrower of any representation or warranty
made hereunder; or (b) otherwise arising out of (i) the Commitments or
otherwise under this Agreement, any Loan Document or any transaction
contemplated hereby or thereby, including, without limitation, the use of the
proceeds of Loans hereunder in any fashion by the Borrower or the performance
of their respective obligations under the Loan Documents by the Borrower or any
of its Subsidiaries, (ii) allegations of any participation by the Banks, the
Managing Agents, the Documentation Agent, the Syndication Agent and the
Administrative Agent, or any of them, in the affairs of the Borrower or any of
its Subsidiaries, or allegations that any of them has any joint liability with
the Borrower or any of its Subsidiaries for any reason, (iii) any claims
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<PAGE> 47
against the Banks, the Managing Agents, the Documentation Agent, the
Syndication Agent and the Administrative Agent, or any of them, by any
shareholder or other investor in or lender to the Borrower or any Subsidiary,
by any brokers or finders or investment advisers or investment bankers retained
by the Borrower or by any other third party, arising out of the Commitments or
otherwise under this Agreement; or (c) in connection with taxes (not including
federal or state income taxes or other taxes based solely upon the revenues of
such Persons), fees, and other charges payable in connection with the Loans, or
the execution, delivery, and enforcement of this Agreement, the Security
Documents, the other Loan Documents, and any amendments thereto or waivers of
any of the provisions thereof; unless the Person seeking indemnification
hereunder is determined in such case to have acted with gross negligence or
willful misconduct, in any case, by a final, non-appealable judicial order of a
court of competent jurisdiction. The obligations of the Borrower and the
Restricted Subsidiaries under this Section 5.11 are in addition to, and shall
not otherwise limit, any liabilities which the Borrower might otherwise have in
connection with any warranties or similar obligations of the Borrower or any of
its Subsidiaries in any other Loan Document.
Section 5.12 Interest Rate Hedging. The Borrower shall at
all times maintain one or more Interest Rate Hedge Agreements with respect to
the Borrower's interest obligations on an aggregate principal amount of not
less than fifty percent (50%) of the principal amount of Total Debt outstanding
from time to time. Such Interest Rate Hedge Agreements shall provide interest
rate protection in conformity with ISDA standards and for a period of at least
three (3) years from the date of such Interest Rate Hedge Agreements or, if
earlier, until the Maturity Date on terms acceptable to the Managing Agents,
such terms to include consideration of the creditworthiness of the other party
to the proposed Interest Rate Hedge Agreement. Interest Rate Hedge Agreements
required hereby may be in the form of (i) an "on-market" interest rate swap,
(ii) an interest rate cap having a cap not higher than two percent (2%) per
annum above the prevailing interest rate for U.S. Treasury securities having a
term approximately equal to the term of the interest rate cap in question, or
(iii) any other interest rate hedging product satisfactory to the Managing
Agents. Indebtedness for Money Borrowed of the Borrower and the Restricted
Subsidiaries which bears interest at a fixed rate shall be deemed to be subject
to an Interest Rate Hedge Agreement for purposes of this Section. Subject to
compliance with Section 7.1(d) hereof, the Borrower may also enter into
interest rate floors corresponding to any interest rate caps it has entered
into in accordance with this Agreement, so long as (i) the floors are lower in
rate than the corresponding caps, (ii) such floors have terms no longer than
the corresponding caps, and (iii) such floors conform to ISDA standards. All
Obligations of the Borrower to the Administrative Agent or any of the Banks
pursuant to any Interest Rate Hedge Agreement permitted hereunder and all Liens
granted to secure such Obligations shall rank pari passu with all other
Obligations and Liens securing such other Obligations; and any Interest Rate
Hedge Agreement between the Borrower and any other Person shall be unsecured.
Section 5.13 Covenants Regarding Formation of Subsidiaries
and Acquisitions. At the time of (i) any Acquisition permitted hereunder or
(ii) the formation of any new Restricted Subsidiary of the Borrower or any of
its Subsidiaries which is permitted under this Agreement, including, without
limitation, the formation of any License Sub, the Borrower will, and will cause
its Subsidiaries, as appropriate, to (a) provide to the Administrative Agent
(1) an executed Master Subsidiary Security Agreement for such new Restricted
Subsidiary, in substantially the form of Exhibit J attached hereto, together
with appropriate UCC-1 financing statements, (2) an executed Subsidiary
Guaranty for such new Restricted Subsidiary, in substantially the form of
Exhibit K attached hereto, and (3), to the extent applicable, a Trademark
Security Agreement, substantially in the form of Exhibit F attached hereto,
together with other appropriate documentation, all of which shall constitute
both Security Documents and Loan Documents for purposes of this Agreement, as
well as a loan certificate for such new Restricted Subsidiary, substantially in
the form of Exhibit I attached hereto, together with appropriate attachments;
(b) pledge to the Administrative Agent all of the Capital Stock of such
Subsidiary or Person which is acquired or formed, beneficially owned by the
Borrower or any of the Borrower's Subsidiaries, as the case may be, as
additional Collateral for the Obligations to be held by the Administrative
Agent in accordance with the terms of the Borrower's Pledge Agreement, an
existing Subsidiary
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<PAGE> 48
Pledge Agreement, or a new Subsidiary Pledge Agreement in substantially the
form of Exhibit L attached hereto, and execute and deliver to the
Administrative Agent all such other documentation for such pledge as, in the
opinion of the Administrative Agent, is appropriate; and (c) provide revised
financial projections for the remainder of the fiscal year and for each
subsequent year until the Maturity Date which reflect such Acquisition or
formation, certified by the chief financial officer of the Borrower, together
with a statement by such Person that no Default exists or would be caused by
such Acquisition or formation, and all other documentation, including one or
more opinions of counsel, which are satisfactory to the Administrative Agent
and which in its opinion is appropriate with respect to such Acquisition or the
formation of such Subsidiary. Any document, agreement or instrument executed
or issued pursuant to this Section 5.13 shall be a "Loan Document" for purposes
of this Agreement.
Section 5.14 Payment of Wages. The Borrower shall and shall
cause each of the Restricted Subsidiaries to at all times comply, in all
material respects, with the requirements of the Fair Labor Standards Act, as
amended, including, without limitation, the provisions of such Act relating to
the payment of minimum and overtime wages as the same may become due from time
to time.
Section 5.15 Further Assurances. The Borrower will promptly
cure, or cause to be cured, defects in the creation and issuance of any of the
Notes and the execution and delivery of the Loan Documents (including this
Agreement), resulting from any acts or failure to act by the Borrower or any of
the Borrower's Subsidiaries or any employee or officer thereof. The Borrower
at its expense will promptly execute and deliver to the Administrative Agent
and the Banks, or cause to be executed and delivered to the Administrative
Agent and the Banks, all such other and further documents, agreements, and
instruments in compliance with or accomplishment of the covenants and
agreements of the Borrower in the Loan Documents, including this Agreement, or
to correct any omissions in the Loan Documents, or more fully to state the
obligations set out herein or in any of the Loan Documents, or to obtain any
consents, all as may be necessary or appropriate in connection therewith and as
may be reasonably requested.
Section 5.16 License Subs. Promptly (and in any event within
one hundred eighty (180) days) after the consummation of any Acquisition
permitted hereunder, the Borrower shall cause each of the Licenses held by the
Borrower or any of the Restricted Subsidiaries to be transferred to one or more
License Subs, each of which License Subs shall have as its sole asset or assets
the Licenses of the Borrower or any of the Restricted Subsidiaries and a
management agreement with the Borrower and such of the Restricted Subsidiaries
as operates the portion of the paging system of the Borrower and the Restricted
Subsidiaries subject to such License or Licenses, such that from and after such
applicable date neither the Borrower nor the Restricted Subsidiaries (other
than License Subs) shall hold any Licenses other than through one or more duly
created and existing License Subs. The Borrower shall not permit the License
Subs to have any business activities, operations, assets, Indebtedness,
Guaranties or Liens (other than pursuant to a Subsidiary Guaranty and Master
Subsidiary Security Agreement issued in connection herewith). At the time of
the transfer of the Licenses to the License Subs, the Borrower shall provide to
the Administrative Agent copies of any required consents to such transfer from
the FCC and any other governmental authority, together with a certificate of an
Authorized Signatory stating that all Necessary Authorizations relating to such
transfer have been obtained or made, are in full force and effect and are not
subject to any pending or threatened reversal or cancellation.
ARTICLE 6
Information Covenants
So long as any of the Obligations is outstanding and unpaid or the
Banks have an obligation to fund
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Advances hereunder (whether or not the conditions to borrowing have been or can
be fulfilled) and unless the Majority Banks shall otherwise consent in writing,
the Borrower will furnish or cause to be furnished to each Bank and the
Administrative Agent, at their respective offices:
Section 6.1 Quarterly Financial Statements and Information.
Within forty-five (45) days after the last day of each of the first three (3)
fiscal quarters of the Borrower during any fiscal year, a copy of the Form 10-Q
of the Borrower for such quarter, and, to the extent not contained therein, the
balance sheets of the Borrower on a consolidated and consolidating basis with
its Restricted Subsidiaries, and of the Unrestricted Subsidiaries on a
stand-alone basis, as at the end of such quarter and as of the end of the
preceding fiscal year, and the related statements of operations and the related
statements of cash flows of the Borrower on a consolidated and consolidating
basis with its Restricted Subsidiaries, and of the Unrestricted Subsidiaries on
a stand-alone basis, for such quarter and for the elapsed portion of the year
ended with the last day of such quarter, which shall set forth in comparative
form such figures as at the end of and for such quarter and appropriate prior
period, shall provide consolidated and consolidating figures with respect to
any Acquisitions consummated during such period, and shall be certified by the
chief financial officer of the Borrower to have been prepared in accordance
with GAAP and to present fairly in all material respects the financial position
of the Borrower on a consolidated and consolidating basis with its Restricted
Subsidiaries, and of the Unrestricted Subsidiaries on a stand-alone basis, as
at the end of such period and the results of operations for such period, and
for the elapsed portion of the year ended with the last day of such period,
subject only to normal year-end and audit adjustments.
Section 6.2 Annual Financial Statements and Information.
Within ninety (90) days after the end of each fiscal year of the Borrower, a
copy of the Form 10-K of the Borrower for such year, and, to the extent not
contained therein, the audited consolidated and consolidating balance sheets of
the Borrower and the its Restricted Subsidiaries, and of the Unrestricted
Subsidiaries on a stand-alone basis, as of the end of such fiscal year and the
related audited consolidated and consolidating statements of operations of the
Borrower and the Restricted Subsidiaries, and of the Unrestricted Subsidiaries
on a stand-alone basis, for such fiscal year and for the previous fiscal year,
the related audited consolidated and consolidating statements of cash flow and
stockholders' equity of the Borrower and the Restricted Subsidiaries, and of
the Unrestricted Subsidiaries on a stand-alone basis, for such fiscal year and
for the previous fiscal year, which shall be accompanied by an opinion of
independent certified public accountants of recognized national standing
acceptable to the Administrative Agent, together with a statement of such
accountants that in connection with their audit, nothing came to their
attention that caused them to believe that the Borrower was not in compliance
with or was otherwise in Default under the terms, covenants, provisions or
conditions of Articles 7 and 8 hereof insofar as they relate to accounting or
financial matters.
Section 6.3 Performance Certificates. At the time the
financial statements are furnished pursuant to Sections 6.1 and 6.2, a
certificate of the president or chief financial officer of the Borrower as to
its financial performance:
(a) setting forth as and at the end of such
quarterly period or fiscal year, as the case may be, the arithmetical
calculations required to establish (i) any adjustment to the Applicable
Margins, as provided for in Section 2.3(f), and (ii) whether or not the
Borrower was in compliance with the requirements of Sections 7.8, 7.9, 7.10,
7.11 and 7.12; and
(b) stating that no Default has occurred as at the
end of such quarterly period or year, as the case may be, or, if a Default has
occurred, disclosing each such Default and its nature, when it occurred,
whether it is continuing and the steps being taken by the Borrower with respect
to such Default.
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Section 6.4 Copies of Other Reports.
(a) Promptly upon receipt thereof, copies of all
reports, if any, submitted to the Borrower by the Borrower's independent public
accountants regarding the Borrower, including, without limitation, any
management report prepared in connection with the annual audit referred to in
Section 6.2.
(b) Promptly upon receipt thereof, copies of any
material adverse notice or report regarding any License from the FCC or any
other governmental authority.
(c) From time to time and promptly upon each
request, such data, certificates, reports, statements, documents or further
information regarding the business, assets, liabilities, financial position,
projections, results of operations or business prospects of the Borrower or any
of its Subsidiaries or, to the extent available to the Borrower, ProNet Inc. or
any of its Subsidiaries, as the Administrative Agent or any Bank may reasonably
request.
(d) Annually, certificates of insurance indicating
that the requirements of Section 5.5 hereof remain satisfied for such fiscal
year, together with copies of any new or replacement insurance policies
obtained during such year.
(e) Prior to January 31 of each year, an annual
budget for the Borrower and the Restricted Subsidiaries, containing information
and in a form substantially similar to that shown in the budget delivered to
the Banks in connection with the execution of this Agreement.
(f) Promptly after the sending thereof, copies of
all statements, reports and other information which the Borrower or any of its
Subsidiaries sends to security holders of the Borrower generally or files with
the Securities and Exchange Commission or any national securities exchange.
(g) Within thirty (30) days after the last day of
each month prior to the delivery of financial statements of the Borrower and
the Restricted Subsidiaries for the fiscal quarter ending September 30, 1996 as
required pursuant to Section 6.2 hereof, the balance sheet of the Borrower on a
consolidated basis with the Restricted Subsidiaries as at the end of such
month, and the related statements of operations and cash flows of the Borrower
on a consolidated basis with the Restricted Subsidiaries, certified by the
chief financial officer of the Borrower to have been prepared in accordance
with GAAP and to present fairly in all material respects the financial position
of the Borrower and the Restricted Subsidiaries on a consolidated basis as at
the end of such month and the results of operations for such month, subject
only to normal year-end and audit adjustments.
Section 6.5 Notice of Litigation and Other Matters. Notice
specifying the nature and status of any of the following events, promptly, but
in any event not later than fifteen (15) days after the occurrence of any of
the following events becomes known to the Borrower:
(i) the commencement of all proceedings
and investigations by or before any governmental body and all
actions and proceedings in any court or before any arbitrator
against, or to the extent known to the Borrower, in any other way
relating materially adversely to the Borrower or any Subsidiary of
the Borrower or ProNet Inc. or any of its Subsidiaries, officers,
directors or principal shareholders, or any of their respective
properties, assets or businesses or any License;
(ii) any material adverse change with
respect to the business, assets, liabilities,
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<PAGE> 51
financial position, results of operations or business prospects of
the Borrower or any Subsidiary of the Borrower or A+ Network, Inc.
or any of its Subsidiaries, other than changes in the ordinary
course of business which have not had and would not reasonably be
expected to have a Materially Adverse Effect;
(iii) any material amendment or change to
the financial projections or annual budget provided to the Banks by
the Borrower;
(iv) any Default or the occurrence or
non-occurrence of any event (A) which constitutes, or which with the
passage of time or giving of notice or both would constitute a
default by the Borrower or any Subsidiary of the Borrower, or an
event or condition which gives rise to any put right or other
prepayment right of any holder of Indebtedness, under any material
agreement other than this Agreement and the other Loan Documents to
which the Borrower or any Subsidiary of the Borrower is party or by
which any of their respective properties may be bound, or (B) which
could have a Materially Adverse Effect, giving in each case the
details thereof and specifying the action proposed to be taken with
respect thereto;
(v) the occurrence of any Reportable
Event or a "prohibited transaction" (as such term is defined in
Section 406 of ERISA or Section 4975 of the Code) with respect to
any Plan of the Borrower or any of its Subsidiaries or the
institution or threatened institution by PBGC of proceedings under
ERISA to terminate or to partially terminate any such Plan or the
commencement or threatened commencement of any litigation regarding
any such Plan or naming it or the trustee of any such Plan with
respect to such Plan or any action taken by the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate of the Borrower to
withdraw or partially withdraw from any Plan or to terminate any
Plan; and
(vi) the occurrence of any event
subsequent to the Agreement Date which, if such event had occurred
prior to the Agreement Date, would have constituted an exception to
the representation and warranty in Section 4.1(m) of this Agreement.
ARTICLE 7
Negative Covenants
So long as any of the Obligations is outstanding and unpaid or the
Banks have an obligation to fund Advances hereunder (whether or not the
conditions to borrowing have been or can be fulfilled) and unless the Majority
Banks, or such greater number of Banks as may be expressly provided herein,
shall otherwise give their prior consent in writing:
Section 7.1 Indebtedness of the Borrower and its
Subsidiaries. The Borrower shall not, and shall not permit any of the
Restricted Subsidiaries to, create, assume, incur or otherwise become or remain
obligated in respect of, or permit to be outstanding, any Indebtedness except:
(a) the Obligations (other than the Obligations
described in Section 7.1(d) below);
(b) operating accounts payable, accrued expenses and
customer advance payments incurred in the ordinary course of business;
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(c) Indebtedness secured by Permitted Liens;
(d) Obligations under Interest Hedge Agreements
having a notional principal amount of not more than $125,000,000 in the
aggregate;
(e) Indebtedness of the Borrower or any of the
Restricted Subsidiaries to the Borrower or any other Restricted Subsidiary so
long as the corresponding debt instruments are pledged to the Administrative
Agent as security for the Obligations;
(f) Indebtedness for Money Borrowed of the Borrower
which is pari passu with the Obligations in an aggregate principal amount not
to exceed $100,000,000, provided that (i) such Indebtedness for Money Borrowed
is issued under and governed by this Agreement pursuant to an amendment to this
Agreement which is in form and substance satisfactory to the Majority Banks and
(ii) both before and after giving effect to the incurrence of such Indebtedness
for Money Borrowed, the Borrower shall be in compliance with the terms of this
Agreement, including, without limitation, Sections 7.8, 7.9, 7.10, 7.11 and
7.12 hereof;
(g) Unsecured Subordinated Debt of the Borrower
issued pursuant to the 1995 Indenture, the A+ Indenture, the 1997 Indenture,
following the ProNet Merger Date, unsecured Subordinated Debt of ProNet Inc.
under the ProNet Indenture and other unsecured Subordinated Debt (including,
without limitation, seller notes issued in conjunction with Acquisitions
permitted under Section 7.6 hereof), provided that (i) such Subordinated Debt
is subordinated to the prior payment and performance of the Obligations on
terms satisfactory to the Majority Banks, (ii) under the terms of such
Subordinated Debt there shall be no payment or prepayment of principal in
respect thereof prior to the first anniversary of the Maturity Date, and (iii)
both before and after giving effect to the incurrence of such Subordinated
Debt, the Borrower shall be in compliance with the terms of this Agreement,
including, without limitation, Sections 7.8, 7.9, 7.10, 7.11 and 7.12 hereof,
and the Borrower shall have delivered to the Banks pro forma projections
satisfactory to the Majority Banks demonstrating such compliance through the
Maturity Date; and
(h) Other unsecured Indebtedness, including, without
limitation, Indebtedness under Capitalized Lease Obligations which does not
exceed $10,000,000 in the aggregate at any one time outstanding.
Section 7.2 Limitation on Liens. The Borrower shall not,
and shall not permit any of the Restricted Subsidiaries to, create, assume,
incur or permit to exist or to be created, assumed, incurred or permitted to
exist, directly or indirectly, any Lien on any of its properties or assets,
whether now owned or hereafter acquired, except for Permitted Liens.
Section 7.3 Amendment and Waiver. Except as set forth on
Schedule 11 attached hereto, the Borrower shall not, and shall not permit any
of the Restricted Subsidiaries to, enter into any amendment of, or agree to or
accept or consent to any waiver of any of the provisions of (a) its articles or
certificate of incorporation or partnership agreement or by-laws, as
appropriate (other than immaterial amendments relating to corporate governance
which could not reasonably be expected to have an adverse effect on the
Administrative Agent or any Bank or any of their rights or claims under any of
the Loan Documents), (b) the documents relating to the ProNet Merger, or (c)
any documents relating to Subordinated Debt.
Section 7.4 Liquidation, Merger, or Disposition of Assets.
(a) Disposition of Assets. The Borrower shall not,
and shall not permit any Restricted
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Subsidiary to, make any Asset Disposition in one or more transactions involving
Net Available Proceeds of $10,000,000 or more, individually or in the aggregate
with all other Asset Dispositions, during each fiscal year of the Borrower,
without the prior written consent of the Majority Banks. Further, the Borrower
shall not make, and shall not permit any Restricted Subsidiary to make, any
Asset Disposition in one or more transactions, unless: (i) the Borrower (or
such Subsidiary, as the case may be) receives consideration at the time of such
Asset Disposition at least equal to the fair market value of the assets sold or
disposed of as determined by the Board of Directors of the Borrower; (ii) at
least 80% of the consideration for such Asset Disposition consists of cash or
Cash Equivalents or the assumption of Indebtedness for Money Borrowed of the
Borrower to the extent that the Borrower is released from all liability on such
Indebtedness for Money Borrowed; and (iii) all Net Available Proceeds of such
Asset Disposition, less any amounts invested within 180 days of such Asset
Disposition in assets related to the business of the Borrower (or invested
within one year of such Asset Disposition in assets related to the business of
the Borrower, pursuant to an agreement to make such investment entered into
within 180 days of such Asset Disposition), are applied within such 180- (or
360-) day period to repay Loans then outstanding.
If, within 180 days after an Asset Disposition, the
Borrower or a Restricted Subsidiary enters into a contract providing for the
investment of Net Available Proceeds in assets relating to the business of the
Borrower and such contract is terminated without fault on the part of the
Borrower or such Subsidiary prior to the making of such investment, the
Borrower or such Subsidiary, as the case may be, shall within 90 days after the
termination of such agreement, or within 180 days after such Asset Disposition,
whichever is later, invest or otherwise apply the funds that were to be
invested pursuant to such agreement in accordance with the preceding paragraph,
and any funds so invested or applied shall for all purposes hereof be deemed to
have been so invested or applied within the 180- (or 360-) day period provided
for in such paragraph.
(b) Liquidation or Merger. The Borrower shall not,
and shall not permit any of the Restricted Subsidiaries to, at any time
liquidate or dissolve itself (or suffer any liquidation or dissolution) or
otherwise wind up, or enter into any merger, other than (i) a merger or
consolidation among the Borrower and one or more of its Restricted
Subsidiaries, provided the Borrower is the surviving corporation, or (ii) a
merger between or among two or more Restricted Subsidiaries of the Borrower, or
(iii) in connection with an Acquisition permitted hereunder effected by a
merger in which the Borrower is the surviving corporation or, in a merger in
which the Borrower is not a party, where the surviving corporation is a
Restricted Subsidiary.
Section 7.5 Limitation on Guaranties. The Borrower shall
not, and shall not permit any of the Restricted Subsidiaries to, at any time
Guaranty, assume, be obligated with respect to, or permit to be outstanding any
Guaranty of, any obligation of any other Person other than (a) a guaranty by
endorsement of negotiable instruments for collection in the ordinary course of
business, or (b) obligations under agreements of the Borrower or any of the
Restricted Subsidiaries entered into in connection with leases of real property
or the acquisition of services, supplies and equipment in the ordinary course
of business of the Borrower or any of Restricted Subsidiaries, (c) Guaranties
of Indebtedness incurred as permitted pursuant to Section 7.1 hereof, or (d) as
may be contained in any Loan Document including, without limitation, the
Subsidiary Guaranty.
Section 7.6 Investments and Acquisitions. The Borrower
shall not, and shall not permit any of the Restricted Subsidiaries to, directly
or indirectly, make any loan or advance, or otherwise acquire for consideration
evidences of Indebtedness, Capital Stock or other securities of any Person or
other assets or property (other than assets or property in the ordinary course
of business), or make any Acquisition, except that so long as no Default then
exists or would be caused thereby:
(a) The Borrower and the Restricted Subsidiaries
may, directly or through a brokerage
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account (i) purchase marketable, direct obligations of the United States of
America, its agencies and instrumentalities maturing within three hundred
sixty-five (365) days of the date of purchase, (ii) purchase commercial paper
issued by corporations, each of which shall have a combined net worth of at
least $100 million and each of which conducts a substantial part of its
business in the United States of America, maturing within two hundred seventy
(270) days from the date of the original issue thereof, and rated "P-2" or
better by Moody's Investors Service, Inc., or any successor, or "A-2" or better
by Standard and Poor's Ratings Group, a division of McGraw Hill, Inc., or any
successor, and (iii) purchase repurchase agreements, bankers' acceptances, and
certificates of deposit maturing within three hundred sixty-five (365) days of
the date of purchase which are issued by, or time deposits maintained with, a
United States national or state bank the deposits of which are insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation and having capital, surplus and undivided profits totaling more
than $100 million and rated "A" or better by Moody's Investors Service, Inc.,
or any successor, or Standard and Poor's Ratings Group, a division of McGraw
Hill, Inc., or any successor;
(b) Subject to compliance with Section 5.13 hereof,
the Borrower may own Capital Stock of any License Sub as permitted by Section
5.16 hereof;
(c) Provided that the Borrower complies with Section
5.13 hereof in connection therewith, and provides to the Administrative Agent
and the Banks financial projections and calculations, in form and substance
satisfactory to the Managing Agents, specifically demonstrating the Borrower's
compliance with Sections 7.8, 7.9, 7.10, 7.11 and 7.12 hereto and its ability
to meet its repayment obligations hereunder through the Maturity Date, after
giving effect thereto, the Borrower may make the following Acquisitions:
(i) the ProNet Merger;
(ii) Acquisitions of paging companies for
an aggregate Net Purchase Price not to exceed $50,000,000 during the term of
this Agreement;
(iii) additional Acquisitions of paging
companies so long as the Total Leverage Ratio, after giving effect to the
proposed Acquisition, is less than 5.00 to 1; and
(iv) other Acquisitions with the prior
written consent of the Majority Banks.
(d) The Borrower may make investments in wireless
communications ventures in an aggregate amount not to exceed, during the term
of this Agreement, the sum of (i) $25,000,000 plus (ii) sixty percent (60%) of
the amount of all proceeds (net of reasonable and customary transaction costs)
from the issuance by the Borrower of additional equity on or after the
Agreement Date in excess of $25,000,000; provided that (a) all ownership
interests of the Borrower or any of its Subsidiaries in such ventures, of
whatever nature, are pledged to the Administrative Agent as Collateral for the
Obligations pursuant to documentation satisfactory to the Majority Banks, and
(b) all recourse to the Borrower or any of its Subsidiaries with respect to any
such venture shall be limited to the amount of the investment made therein by
the Borrower in accordance herewith.
Section 7.7 Restricted Payments and Purchases. The Borrower
shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly declare or make any Restricted Payment or Restricted Purchase,
except that so long as no Default hereunder then exists or would be caused
thereby, the Borrower may make (a) scheduled payments of accrued interest in
respect of Subordinated Debt incurred in accordance with Section 7.1 hereof,
and (b) dividend payments in respect of any preferred stock or convertible
preferred securities of the Borrower in an
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aggregate amount not to exceed $10,000,000 in any calendar year.
Section 7.8 Senior Leverage Ratio. (a) As of the end of any
calendar quarter, (b) at the time of any Advance hereunder (after giving effect
to such Advance), (c) upon the incurrence by the Borrower of any Subordinated
Debt (after giving effect thereto), (d) at the time of any Asset Disposition by
the Borrower or any Restricted Subsidiary, and (e) at the time of any
acquisition or investment by the Borrower or any Restricted Subsidiary, the
Borrower shall not permit the Senior Leverage Ratio to exceed the ratios set
forth below during the periods indicated:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Agreement Date through
December 31, 1997 4.00:1
January 1, 1998 through
December 31, 1998 3.50:1
January 1, 1999 through
December 31, 1999 3.25:1
January 1, 2000 and thereafter 3.00:1
</TABLE>
Section 7.9 Total Leverage Ratio. (a) As of the end of any
calendar quarter, (b) at the time of any Advance hereunder (after giving effect
to such Advance), (c) upon the incurrence by the Borrower of any Subordinated
Debt (after giving effect thereto), (d) at the time of any proposed Asset
Disposition by the Borrower or any Restricted Subsidiary, and (e) at the time
of any acquisition or investment by the Borrower or any Restricted Subsidiary,
the Borrower shall not permit the Total Leverage Ratio to exceed the ratios set
forth below during the periods indicated:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
January 1, 1997 through
December 31, 1998 6.00:1
January 1, 1999 through
December 31, 1999 5.75:1
January 1, 2000 through
December 31, 2000 5.25:1
January 1, 2001 through
December 31, 2001 4.50:1
January 1, 2002 and thereafter 4.00:1
</TABLE>
Section 7.10 Annualized Operating Cash Flow to Pro Forma Debt
Service Ratio. (a) As of the end of
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any calendar quarter, (b) at the time of any Advance hereunder (after giving
effect to such Advance), (c) upon the incurrence by the Borrower of any
Subordinated Debt (after giving effect thereto), (d) at the time of any Asset
Disposition by the Borrower or any Restricted Subsidiary, and (e) at the time
of any acquisition or investment by the Borrower or any Restricted Subsidiary,
the Borrower shall not permit the ratio of (i) Annualized Operating Cash Flow
(for the calendar quarter end being tested in the case of Section 7.10(a)
hereof, or for the most recently completed fiscal quarter end for which
financial statements are required to have been delivered pursuant to Section
6.1 or 6.2 hereof, as the case may be, in the case of Sections 7.10(b), (c),
(d) and (e) hereof) to (ii) Pro Forma Debt Service to be less than 1.25:1.
Section 7.11 Total Sources to Total Uses Ratio. The Borrower
shall not permit the ratio of (a) Total Sources to (b) Total Uses as of any
date to be less than or equal to 1.05 to 1.
Section 7.12 Operating Cash Flow to Net Cash Interest Expense
Ratio. (a) As of the end of any calendar quarter, (b) at the time of any
Advance, (c) upon the incurrence by the Borrower of any Subordinated Debt, (d)
at the time of any proposed Asset Disposition by the Borrower or any Restricted
Subsidiary, and (e) at the time of any acquisition or investment by the
Borrower or any Restricted Subsidiary, the Borrower shall not permit the ratio
of (i) Operating Cash Flow for the most recently completed fiscal quarter
(calculated as of the end of the fiscal quarter being tested in the case of
Section 7.12(a) hereof, or as of the end of the most recently completed fiscal
quarter for which financial statements are required to have been delivered
pursuant to Section 6.1 or 6.2 hereof, as the case may be, in the case of
Sections 7.12(b), (c), (d) and (e) hereof) to (ii) Net Cash Interest Expense
for such fiscal quarter to be less than or equal to the ratios set forth below
for the periods indicated:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
April 1, 1997 through
December 31, 1999 1.75:1
January 1, 2000 through
December 31, 2000 2.00:1
January 1, 2001
and thereafter 2.25:1
</TABLE>
Section 7.13 Affiliate Transactions. Except as set forth on
Schedule 9 attached hereto, the Borrower shall not, and shall not permit any of
the Restricted Subsidiaries to, at any time engage in any transaction with an
Affiliate, or make an assignment or other transfer of any of its properties or
assets to any Affiliate (other than to the Borrower or a Restricted
Subsidiary), on terms less advantageous to the Borrower or such Subsidiary than
would be the case if such transaction had been effected with a non-Affiliate.
Section 7.14 Real Estate. Except as set forth on Schedule 12
attached hereto, neither the Borrower nor any of the Restricted Subsidiaries
shall purchase any real estate or enter into any sale/leaseback transaction.
Notwithstanding the foregoing, the Borrower may purchase the Office Building
Assets pursuant to the Office Building Acquisition Agreement provided that (a)
at all times prior to contribution of the Office Building Assets to the Office
Building Partnership (i) the Borrower grants a negative pledge on the Office
Building Assets to the Administrative Agent and delivers to the Administrative
Agent all other documentation, including, without
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limitation, opinions of counsel, an appraisal and a Phase I environmental audit
which in the reasonable opinion of the Managing Agents is appropriate with
respect to such grant, including any documentation requested by the Banks
(collectively, the "Office Building Documents") and (ii) not less than five (5)
days prior to the Office Building Acquisition Date, the Borrower shall have
provided the Managing Agents with copies of the Office Building Acquisition
Agreement, the Office Building Documents and all other documents related to the
transfer of the Office Building Assets to the Borrower, including, without
limitation, lien search results from appropriate jurisdictions with respect to
the Office Building Assets, all of which shall be certified by an Authorized
Signatory to be true, complete and correct, and all of which shall be in form
and substance satisfactory to the Managing Agents; (b) prior to or
simultaneously with the contribution of the Office Building Assets to the
Office Building Partnership, (i) the Borrower shall have provided the Managing
Agents with all documentation required by Section 5.13 hereof and (ii) the
Borrower shall have provided the Managing Agents with replacement Office
Building Documents pursuant to which the Office Building Partnership grants a
negative pledge on the Office Building Assets to the Administrative Agent all
of which replacement Office Building Documents shall be form and substance
saisfactory to the Managing Agents and (c) the Borrower shall promptly cause
the contribution of the Office Building Assets to the Office Building
Partnership.
Section 7.15 ERISA Liabilities. The Borrower shall not, and
shall cause each of its ERISA Affiliates not to, (i) permit the assets of any
of their respective Plans to be less than the amount necessary to provide all
accrued benefits under such Plans, or (ii) enter into any Multiemployer Plan.
Section 7.16 Unrestricted Subsidiaries. The Borrower may
form or otherwise acquire Unrestricted Subsidiaries with the prior written
consent of the Majority Banks. The Borrower shall not permit any Unrestricted
Subsidiary to: (a) create, assume, incur or otherwise become or remain
obligated in respect of or permit to be outstanding any Indebtedness, other
than Indebtedness which is non-recourse to the Borrower and the Restricted
Subsidiaries; (b) create, assume, incur or permit to exist or to be created,
any Lien on any of its properties or assets, whether now owned or hereafter
acquired, other than Liens securing Indebtedness which is non-recourse to the
Borrower and the Restricted Subsidiaries; (c) Guaranty, assume, be obligated
with respect to, or permit to be outstanding any Guaranty of, any obligation of
any other Person other than Guaranties which are non-recourse to the Borrower
and the Restricted Subsidiaries; or (d) own any assets or conduct any business
or other activities without the prior written consent of the Majority Banks.
In addition, the Borrower shall not and shall not permit any of its
Subsidiaries to: (x) pledge or permit the pledge of the Capital Stock or other
ownership interests of any Unrestricted Subsidiary to any Person (other than to
the Administrative Agent as additional Collateral for the Obligations); (y)
make any loan or advance to, or Guaranty any obligations of, any Unrestricted
Subsidiary or otherwise acquire for consideration evidences of Indebtedness,
Capital Stock or other securities of any Unrestricted Subsidiary, other than
investments permitted under Section 7.6 hereof and other than intercompany
loans and advances among the Unrestricted Subsidiaries; or (z) transfer any
assets to any Unrestricted Subsidiary. The Borrower shall not permit the net
worth of any Unrestricted Subsidiary, after giving effect to all contingent
liabilities and as otherwise determined in accordance with GAAP, to be less
than zero at any time.
Section 7.17 No Limitation on Upstream Dividends by
Subsidiaries. The Borrower shall not permit any Restricted Subsidiary to enter
into or agree, or otherwise become subject, to any agreement, contract or other
arrangement with any Person pursuant to the terms of which (a) such Restricted
Subsidiary is or would be prohibited from or limited in declaring or paying any
cash dividends or distributions on any class of its Capital Stock or any other
ownership interests owned directly or indirectly by the Borrower or from making
any other distribution on account of any class of any such Capital Stock or
ownership interests (herein referred to as "Upstream Dividends") or (b) the
declaration or payment of Upstream Dividends by a Restricted Subsidiary to the
Borrower or to another Restricted Subsidiary, on an annual or cumulative or
other basis, is or would be otherwise
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limited or restricted.
ARTICLE 8
Default
Section 8.1 Events of Default. Each of the following shall
constitute an Event of Default, whatever the reason for such event and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment or order of any court or any order, rule or regulation
of any governmental or non-governmental body:
(a) Any representation or warranty made under this
Agreement or any other Loan Document shall prove incorrect or misleading in any
material respect when made or deemed to be made pursuant to Section 4.2 hereof;
or
(b) The Borrower shall default in the payment of:
(i) any interest under any of the Notes or fees or other amounts payable to the
Banks and the Administrative Agent under any of the Loan Documents, or any of
them, when due and such default is not cured within three (3) Business Days
after the occurrence thereof; or (ii) any principal under any of the Notes when
due; or
(c) The Borrower shall default in the performance or
observance of any agreement or covenant contained in Sections 5.2(a), 5.10,
5.13, or 5.16 or in Articles 6 or 7 hereof; or
(d) The Borrower shall default in the performance or
observance of any other agreement or covenant contained in this Agreement not
specifically referred to elsewhere in this Section 8.1, and such default shall
not be cured within a period of thirty (30) days from the occurrence of such
default; or
(e) There shall occur any default in the performance
or observance of any agreement or covenant or breach of any representation or
warranty contained in any of the Loan Documents (other than this Agreement or
as otherwise provided in Section 8.1 of this Agreement) by the Borrower, any of
its Subsidiaries, or any other obligor thereunder, which shall not be cured
within a period of thirty (30) days from the occurrence of such default; or
(f) There shall be entered and remain unstayed a
decree or order for relief in respect of the Borrower or any of the Borrower's
Subsidiaries under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable Federal or state bankruptcy law or
other similar law, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or similar official of the Borrower or any of the
Borrower's Subsidiaries, or of any substantial part of their respective
properties; or ordering the winding-up or liquidation of the affairs of the
Borrower, or any of the Borrower's Subsidiaries; or an involuntary petition
shall be filed against the Borrower or any of the Borrower's Subsidiaries and a
temporary stay entered, and (i) such petition and stay shall not be diligently
contested, or (ii) any such petition and stay shall continue undismissed for a
period of sixty (60) consecutive days; or
(g) The Borrower or any of the Borrower's
Subsidiaries shall file a petition, answer or consent seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable Federal or state bankruptcy law or other similar law, or
the Borrower or any of the Borrower's
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<PAGE> 59
Subsidiaries shall consent to the institution of proceedings thereunder or to
the filing of any such petition or to the appointment or taking of possession
of a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Borrower or any of the Borrower's Subsidiaries or of
any substantial part of their respective properties, or the Borrower or any of
the Borrower's Subsidiaries shall fail generally to pay their respective debts
as they become due or shall be adjudicated insolvent; the Borrower shall
suspend or discontinue its business; the Borrower or any of the Borrower's
Subsidiaries shall have concealed or removed any of its property with the
intent to hinder or defraud its creditors or shall have made a fraudulent or
preferential transfer under any applicable fraudulent conveyance or bankruptcy
law, or the Borrower or any of the Borrower's Subsidiaries shall take any
action in furtherance of any such action; or
(h) A judgment not covered by insurance shall be
entered by any court against the Borrower or any of the Borrower's Subsidiaries
for the payment of money which exceeds singly or in the aggregate with other
such judgments, $500,000, or a warrant of attachment or execution or similar
process shall be issued or levied against property of the Borrower or any of
the Borrower's Subsidiaries which, together with all other such property of the
Borrower or any of the Borrower's Subsidiaries subject to other such process,
exceeds in value $500,000 in the aggregate, and if, within thirty (30) days
after the entry, issue or levy thereof, such judgment, warrant or process shall
not have been paid or discharged or stayed pending appeal or removed to bond,
or if, after the expiration of any such stay, such judgment, warrant or process
shall not have been paid or discharged or removed to bond; or
(i) There shall be at any time any "accumulated
funding deficiency," as defined in ERISA or in Section 412 of the Code, with
respect to any Plan maintained by the Borrower or any of its Subsidiaries or
any ERISA Affiliate, or to which the Borrower or any of its Subsidiaries or any
ERISA Affiliate has any liabilities, or any trust created thereunder; or a
trustee shall be appointed by a United States District Court to administer any
such Plan; or PBGC shall institute proceedings to terminate any such Plan; or
the Borrower or any of its Subsidiaries or any ERISA Affiliate shall incur any
liability to PBGC in connection with the termination of any such Plan; or any
Plan or trust created under any Plan of the Borrower or any of its Subsidiaries
or any ERISA Affiliate shall engage in a "prohibited transaction" (as such term
is defined in Section 406 of ERISA or Section 4975 of the Code) which would
subject any such Plan, any trust created thereunder, any trustee or
administrator thereof, or any party dealing with any such Plan or trust to the
tax or penalty on "prohibited transactions" imposed by Section 502 of ERISA or
Section 4975 of the Code; or
(j) Any event not referred to elsewhere in this
Section 8.1 shall occur which has a Materially Adverse Effect; or
(k) There shall occur (i) any default under (A) the
1995 Indenture, (B) following the ProNet Merger, the ProNet Indenture, (C) the
1997 Indenture or (D) any other document, instrument or agreement relating to
any Indebtedness of the Borrower or any of the Borrower's Subsidiaries having
an aggregate principal amount exceeding $5,000,000; or (ii) any event which
directly or indirectly causes the Borrower or any of its Subsidiaries to be
required to offer to prepay any Indebtedness or which directly or indirectly
gives any holder of any Indebtedness of the Borrower or any of its Subsidiaries
the right to require the Borrower or any of its Subsidiaries to prepay any such
Indebtedness under the 1995 Indenture, the ProNet Indenture, the 1997 Indenture
or any other document, instrument or agreement relating to any Indebtedness of
the Borrower or any of the Borrower's Subsidiaries having an aggregate
principal amount exceeding $5,000,000; or (iii) any default under any Interest
Rate Hedge Agreement having a notional principal amount of $1,000,000 or more;
or
(l) The FCC shall deliver to the Borrower or any of
its Subsidiaries an order to show cause why an order of revocation should not
be issued based upon any alleged attribution of "alien ownership" (within the
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meaning of 47 U.S.C. Section 310(b) and any interpretation of the FCC
thereunder) to the Borrower or any of its Subsidiaries and (i) the Borrower
shall fail to respond thereto in accordance with such order and Applicable Law
within thirty (30) days after such delivery (or such shorter period specified
by such order or Applicable Law), or (ii) such order shall not have been
rescinded within one hundred eighty (180) days after such delivery; or
(m) One or more Licenses shall be terminated or
revoked or substantially adversely modified such that the Borrower and the
Restricted Subsidiaries are no longer able to operate the related paging system
or portions thereof and retain the revenue received therefrom, if any, or any
such License shall fail to be renewed at the stated expiration thereof such
that the Borrower and the Restricted Subsidiaries are no longer able to operate
the related paging system or portions thereof and retain the revenue received
therefrom, if any, and, in either case, there shall be any loss of revenue or
forecast revenue of the Borrower or any of the Restricted Subsidiaries as a
direct or indirect result thereof; or
(n) Any Loan Document or any material provision
thereof, shall at any time and for any reason be declared by a court of
competent jurisdiction to be null and void, or a proceeding shall be commenced
by the Borrower or any of the Borrower's Subsidiaries or any shareholder, or by
any governmental authority having jurisdiction over the Borrower or any of the
Borrower's Subsidiaries or any shareholder, seeking to establish the invalidity
or unenforceability thereof (exclusive of questions of interpretation of any
provision thereof), or the Borrower or any of the Borrower's Subsidiaries shall
deny that it has any liability or obligation for the payment of principal or
interest purported to be created under any Loan Document; or
(o) Any Security Document shall for any reason, fail
or cease (except by reason of lapse of time) to create a valid and perfected
and first-priority Lien on or Security Interest in any portion of the
Collateral purported to be covered thereby, subject only to Permitted Liens; or
(p) Any Change in Control Event shall occur or
exist; or
(q) All or substantially all of the Capital Stock of
the Borrower shall be held by a holding company or parent company; or
(r) There shall occur any default by the Borrower or
any Restricted Subsidiary under or a cancellation of, without replacement, any
Transponder Lease Agreement which default is not cured within any applicable
cure period.
Section 8.2 Remedies.
(a) If an Event of Default specified in Section 8.1
(other than an Event of Default under Section 8.1(f) or Section 8.1(g)) shall
have occurred and shall be continuing, the Administrative Agent, at the request
of the Majority Banks subject to Section 9.8(a) hereof, shall (i) terminate the
Commitments, and/or (ii) declare the principal of and interest on the Loans and
the Notes and all other amounts owed to the Banks and the Administrative Agent
under this Agreement, the Notes and any other Loan Documents to be forthwith
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived, anything in this Agreement, the
Notes or any other Loan Document to the contrary notwithstanding, and the
Commitments shall thereupon forthwith terminate.
(b) Upon the occurrence and continuance of an Event
of Default specified in Section 8.1(f) or Section 8.1(g), all principal,
interest and other amounts due hereunder and under the Notes, and all other
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Obligations, shall thereupon and concurrently therewith become due and payable
and the Commitments shall forthwith terminate and the principal amount of the
Loans outstanding hereunder shall bear interest at the Default Rate, all
without any action by the Administrative Agent or the Banks, or the Majority
Banks, or any of them, and without presentment, demand, protest or other notice
of any kind, all of which are expressly waived, anything in this Agreement or
in the other Loan Documents to the contrary notwithstanding.
(c) Upon acceleration of the Notes, as provided in
subsection (a) or (b) of this Section 8.2, above, the Administrative Agent and
the Banks shall have all of the post-default rights granted to them, or any of
them, as applicable, under the Loan Documents and under Applicable Law.
(d) Following acceleration of the Notes as provided
in subsection (a) or (b) of this Section 8.2, provided the Majority Banks elect
to initiate (or direct the Administrative Agent to initiate) either (i) a civil
proceeding for the appointment of a receiver with respect to the Borrower's
assets or (ii) an involuntary bankruptcy (or similar) petition against the
Borrower, the Majority Banks shall have the right, but not the obligation, to
direct the Administrative Agent, to the extent permitted under Applicable Law,
to take possession of and to operate the paging systems of the Borrower and the
Restricted Subsidiaries during the "Pre-receivership Period," as defined below,
in accordance with the terms of the Licenses and pursuant to the terms and
subject to any limitations contained in the Security Documents and, within
guidelines established by the Majority Banks prior to such action, to make any
and all payments and expenditures necessary or desirable in connection
therewith, including, without limitation, payment of wages as required under
the Fair Labor Standards Act, as amended, and any necessary withholding taxes
to state or federal authorities. In the event the guidelines referred to in
the preceding sentence do not contemplate payments or expenditures that
subsequently arise in the ordinary course after the Administrative Agent has
begun to operate the systems, the Administrative Agent may, after giving three
(3) Business Days' notice to the Banks of its intention to do so, make such
payments and expenditures as it deems reasonable and advisable in its sole
discretion to maintain the normal day-to-day operation of such systems. All
payments and expenditures incurred in connection with this provision in excess
of receipts shall constitute costs and expenses of performance and/or
collection reimbursable by the Borrower pursuant to Section 11.2 hereof, which
until paid by the Borrower shall be reimbursed to the Administrative Agent by
the Banks pursuant to Section 9.11 hereof. No exercise by the Administrative
Agent and the Majority Banks of the rights granted to any of them under this
Section 8.2(d) shall constitute a waiver of any other rights and remedies
granted to the Administrative Agent and the Banks, or any of them, under this
Agreement or any other Loan Document or at law. The Borrower hereby
irrevocably appoints the Administrative Agent, as collateral agent for the
Banks, the true and lawful attorney of the Borrower, in its name and stead and
on its behalf, to execute, receipt for or otherwise act in connection with any
and all contracts, instruments or other documents in connection with the
completion and operating of such systems in the exercise of the Administrative
Agent and Banks' rights under this Section 8.2(d). Such power of attorney is
coupled with an interest and is irrevocable. The rights of the Administrative
Agent and the Banks under this Section 8.2(d) shall be subject to the prior
compliance with the Communications Act and the FCC rules and policies
promulgated thereunder to the extent applicable to the exercise of such rights.
If the Administrative Agent (or the Banks) take possession of the systems
pursuant to this Section 8.2(d) prior to initiation of the actions described in
the first sentence of this Section, the Administrative Agent shall initiate
such action within the time period established by the Majority Banks prior to
such action. The "Pre-receivership Period" referred to in the first sentence
of this Section 8.2(d) shall mean the time period beginning on the date of the
first possession of the systems by the Administrative Agent (or the Banks) and
ending upon the earlier of (i) the taking of possession of the systems by a
receiver appointed by a court of competent jurisdiction or (ii) the taking of
possession of the systems by a trustee or by the Borrower as
debtor-in-possession following the entry of an order for relief in a case of
the Borrower pending under the United States Bankruptcy Code.
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(e) Upon acceleration of the Notes, as provided in
subsection (a) or (b) of this Section 8.2, the Administrative Agent, upon
request of the Majority Banks, shall have the right to the appointment of a
receiver for the properties and assets of the Borrower and the Restricted
Subsidiaries, and the Borrower, for itself and on behalf of the Restricted
Subsidiaries, hereby consents to such rights and such appointment and hereby
waives any objection the Borrower or any Subsidiary may have thereto or the
right to have a bond or other security posted by the Administrative Agent on
behalf of the Banks, in connection therewith. The rights of the Administrative
Agent under this Section 8.2(e) shall be subject to its prior compliance with
the Communications Act and the FCC rules and policies promulgated thereunder to
the extent applicable to the exercise of such rights.
(f) The rights and remedies of the Administrative
Agent and the Banks hereunder shall be cumulative, and not exclusive.
Section 8.3 Payments Subsequent to Declaration of Event of
Default. Subsequent to the acceleration of the Loans under Section 8.2 hereof,
payments and prepayments under this Agreement made to any of the Administrative
Agent and the Banks or otherwise received by any of such Persons (from
realization on Collateral for the Obligations or otherwise) shall be paid over
to the Administrative Agent (if necessary) and distributed by the
Administrative Agent as follows: first, to the Administrative Agent's
reasonable costs and expenses, if any, incurred in connection with the
collection of such payment or prepayment, including, without limitation, any
reasonable costs incurred by it in connection with the sale or disposition of
any Collateral for the Obligations and all amounts under Section 11.2(b) and
(c); second, to the Banks and the Administrative Agent for any fees hereunder
or under any of the other Loan Documents then due and payable; third, to the
Banks pro rata on the basis of their respective unpaid principal amounts
(except as provided in Section 2.2(e)), to the payment of any unpaid interest
which may have accrued on the Obligations; fourth, to the Banks pro rata until
all Loans have been paid in full (and, for purposes of this clause, obligations
under Interest Rate Hedge Agreements with the Banks or any of them shall be
paid on a pro rata basis with the Loans); fifth, to the Banks pro rata on the
basis of their respective unpaid amounts, to the payment of any other unpaid
Obligations; and sixth, to the Borrower or as otherwise required by law.
ARTICLE 9
The Administrative Agent
Section 9.1 Appointment and Authorization. Each Bank hereby
irrevocably appoints and authorizes, and hereby agrees that it will require any
transferee of any of its interest in its portion of the Loans and in its Notes
irrevocably to appoint and authorize, the Administrative Agent to take such
actions as its agent on its behalf and to exercise such powers hereunder and
under the other Loan Documents as are delegated by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto.
Neither the Administrative Agent nor any of its directors, officers, employees,
agents or counsel, shall be liable for any action taken or omitted to be taken
by it or them hereunder or in connection herewith, except for its or their own
gross negligence or willful misconduct as determined by a final, non-appealable
judicial order of a court of competent jurisdiction.
Section 9.2 Interest Holders. The Administrative Agent may
treat each Bank, or the Person designated in the last notice filed with the
Administrative Agent, as the holder of all of the interests of such Bank in its
portion of the Loans and in its Notes until written notice of transfer, signed
by such Bank (or the Person designated in the last notice filed with the
Administrative Agent) and by the Person designated in such written notice of
transfer, in form and substance satisfactory to the Administrative Agent, shall
have been filed with the Administrative Agent.
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Section 9.3 Consultation with Counsel. The Administrative
Agent may consult with Powell, Goldstein, Frazer & Murphy, Atlanta, Georgia,
special counsel to the Administrative Agent, or with other legal counsel
selected by it and shall not be liable for any action taken or suffered by it
in good faith in consultation with such counsel and in reasonable reliance on
such consultations.
Section 9.4 Documents. The Administrative Agent shall be
under no duty to examine, inquire into, or pass upon the validity,
effectiveness or genuineness of this Agreement, any Note, any other Loan
Document, or any instrument, document or communication furnished pursuant
hereto or in connection herewith, and the Administrative Agent shall be
entitled to assume that they are valid, effective and genuine, have been signed
or sent by the proper parties and are what they purport to be.
Section 9.5 Administrative Agent and Affiliates. With
respect to the Commitments and the Loans, the Bank which is an affiliate of the
Administrative Agent shall have the same rights and powers hereunder as any
other Bank and the Administrative Agent and affiliates of the Administrative
Agent may accept deposits from, lend money to and generally engage in any kind
of business with the Borrower, any of its Subsidiaries or any Affiliates of, or
Persons doing business with, the Borrower, as if they were not affiliated with
the Administrative Agent and without any obligation to account therefor.
Section 9.6 Responsibility of the Administrative Agent. The
duties and obligations of the Administrative Agent under this Agreement are
only those expressly set forth in this Agreement. The Administrative Agent
shall be entitled to assume that no Default or Event of Default has occurred
and is continuing unless it has actual knowledge, or has been notified in
writing by the Borrower, of such fact, or has been notified by a Bank in
writing that such Bank considers that a Default or an Event of Default has
occurred and is continuing, and such Bank shall specify in detail the nature
thereof in writing. The Administrative Agent shall not be liable hereunder for
any action taken or omitted to be taken except for its own gross negligence or
willful misconduct as determined by a final, non-appealable judicial order of a
court of competent jurisdiction. The Administrative Agent shall provide each
Bank with copies of such documents received from the Borrower as such Bank may
reasonably request.
Section 9.7 Security Documents. The Administrative Agent is
hereby authorized to act on behalf of the Banks, in its own capacity and
through other agents and sub-agents appointed by it, under the Security
Documents, provided that the Administrative Agent shall not agree to the
release of any Collateral, or any property encumbered by any mortgage, pledge
or security interest, except in compliance with Section 11.12 hereof.
Section 9.8 Action by the Administrative Agent.
(a) The Administrative Agent shall be entitled to
use its discretion with respect to exercising or refraining from exercising any
rights which may be vested in it by, and with respect to taking or refraining
from taking any action or actions which it may be able to take under or in
respect of, this Agreement, unless the Administrative Agent shall have been
instructed by the Majority Banks to exercise or refrain from exercising such
rights or to take or refrain from taking such action; provided that the
Administrative Agent shall not exercise any rights under Section 8.2(a) of this
Agreement without the request of the Majority Banks (or, where expressly
required, all the Banks) unless time is of the essence. The Administrative
Agent shall incur no liability under or in respect of this Agreement with
respect to anything which it may do or refrain from doing in the reasonable
exercise of its judgment or which may seem to it to be necessary or desirable
in the circumstances, except for its gross negligence or willful misconduct as
determined by a final, non-appealable judicial order of a court of competent
jurisdiction.
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(b) The Administrative Agent shall not be liable to
the Banks or to any Bank or the Borrower or any of the Borrower's Subsidiaries
in acting or refraining from acting under this Agreement or any other Loan
Document in accordance with the instructions of the Majority Banks (or, where
expressly required, all the Banks), and any action taken or failure to act
pursuant to such instructions shall be binding on all Banks. The
Administrative Agent shall not be obligated to take any action which is
contrary to law or which would in the Administrative Agent's reasonable opinion
subject the Administrative Agent to liability.
Section 9.9 Notice of Default or Event of Default. In the
event that the Administrative Agent or any Bank shall acquire actual knowledge,
or shall have been notified, of any Default or Event of Default, the
Administrative Agent or such Bank shall promptly notify the Banks and the
Administrative Agent, as applicable (provided failure to give such notice shall
not result in any liability on the part of such Bank or the Administrative
Agent), and the Administrative Agent shall take such action and assert such
rights under this Agreement and the other Loan Documents as the Majority Banks
shall request in writing, and the Administrative Agent shall not be subject to
any liability by reason of its acting pursuant to any such request. If the
Majority Banks shall fail to request the Administrative Agent to take action or
to assert rights under this Agreement or any other Loan Documents in respect of
any Default or Event of Default within ten (10) days after their receipt of the
notice of any Default or Event of Default from the Administrative Agent or any
Bank, or shall request inconsistent action with respect to such Default or
Event of Default, the Administrative Agent may, but shall not be required to,
take such action and assert such rights (other than rights under Article 8
hereof) as it deems in its discretion to be advisable for the protection of the
Banks, except that, if the Majority Banks have instructed the Administrative
Agent not to take such action or assert such right, in no event shall the
Administrative Agent act contrary to such instructions.
Section 9.10 Responsibility Disclaimed. The Administrative
Agent shall not be under any liability or responsibility whatsoever as
Administrative Agent:
(a) To the Borrower or any other Person as a
consequence of any failure or delay in performance by or any breach by, any
Bank or Banks of any of its or their obligations under this Agreement;
(b) To any Bank or Banks, as a consequence of any
failure or delay in performance by, or any breach by, (i) the Borrower of any
of its obligations under this Agreement or the Notes or any other Loan
Document, or (ii) any Subsidiary of the Borrower or any other obligor under any
other Loan Document;
(c) To any Bank or Banks, for any statements,
representations or warranties in this Agreement, or any other document
contemplated by this Agreement or any information provided pursuant to this
Agreement, any other Loan Document, or any other document contemplated by this
Agreement, or for the validity, effectiveness, enforceability or sufficiency of
this Agreement, the Notes, any other Loan Document, or any other document
contemplated by this Agreement; or
(d) To any Person for any act or omission other than
that arising from gross negligence or willful misconduct of the Administrative
Agent as determined by a final, non-appealable judicial order of a court of
competent jurisdiction.
Section 9.11 Indemnification. The Banks agree to indemnify
the Administrative Agent, the Managing Agents, the Syndication Agent and the
Documentation Agent (to the extent not reimbursed by the Borrower) pro rata
according to their respective Commitment Ratios, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including fees and expenses of experts, agents,
consultants and counsel), or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by
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or asserted against the Administrative Agent, the Managing Agents, the
Syndication Agent and the Documentation Agent in any way relating to or arising
out of this Agreement, any other Loan Document, or any other document
contemplated by this Agreement or any other Loan Document or any action taken
or omitted by the Administrative Agent, the Managing Agents, the Syndication
Agent and the Documentation Agent under this Agreement, any other Loan
Document, or any other document contemplated by this Agreement, except that no
Bank shall be liable to the Administrative Agent, the Managing Agents, the
Syndication Agent and the Documentation Agent for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses, or disbursements resulting from the gross negligence or
willful misconduct of such Person as determined by a final, non-appealable
judicial order of a court of competent jurisdiction.
Section 9.12 Credit Decision. Each Bank represents and
warrants to each other and to the Administrative Agent that:
(a) In making its decision to enter into this
Agreement and to make its portion of the Loans it has independently taken
whatever steps it considers necessary to evaluate the financial condition and
affairs of the Borrower and that it has made an independent credit judgment,
and that it has not relied upon the Administrative Agent or information
provided by the Administrative Agent (other than information provided to the
Administrative Agent by the Borrower and forwarded by the Administrative Agent
to the Banks); and
(b) So long as any portion of the Loans remains
outstanding or such Bank has an obligation to make its portion of Advances
hereunder, it will continue to make its own independent evaluation of the
Collateral and of the financial condition and affairs of the Borrower.
Section 9.13 Successor Administrative Agent. Subject to the
appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving written notice
thereof to the Banks and the Borrower and may be removed at any time for cause
by the Majority Banks. Upon any such resignation or removal, the Majority
Banks shall have the right to appoint a successor Administrative Agent, which
appointment shall, prior to a Default, be subject to the consent of the
Borrower, acting reasonably. If no successor Administrative Agent shall have
been so appointed by the Majority Banks and shall have accepted such
appointment within thirty (30) days after the retiring Administrative Agent
gave notice of resignation or the Majority Banks' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Banks, appoint a successor Administrative Agent which shall be any Bank or
a commercial bank organized under the laws of the United States of America or
any political subdivision thereof which has combined capital and reserves in
excess of $250,000,000. Such appointment shall, prior to a Default, be subject
to the consent of the Borrower, acting reasonably. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges, duties and obligations
of the retiring Administrative Agent and the retiring Administrative Agent
shall be discharged from its duties and obligations hereunder and under the
other Loan Documents. After any retiring Administrative Agent's resignation or
removal hereunder as Administrative Agent the provisions of this Article shall
continue in effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was acting as the Administrative Agent.
Section 9.14 Delegation of Duties. The Administrative Agent
may execute any of its duties under the Loan Documents by or through agents or
attorneys selected by it using reasonable care, and shall be entitled to advice
of counsel concerning all matters pertaining to such duties.
Section 9.15 Co-Agents. The Co-Agents shall have no duties
or obligations under this Agreement or
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the other Loan Documents in their capacities as Co-Agents.
ARTICLE 10
Change in Circumstances
Affecting Eurodollar Advances
Section 10.1 Eurodollar Basis Determination Inadequate or
Unfair. If with respect to any proposed Eurodollar Advance for any Interest
Period, the Administrative Agent determines after consultation with the Banks
that deposits in dollars (in the applicable amount) are not being offered to
each of the Banks in the relevant market for such Interest Period, the
Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such situation no longer exist, the
obligations of any affected Bank to make its portion of such type of Eurodollar
Advances shall be suspended.
Section 10.2 Illegality. If after the date hereof, the
adoption of any Applicable Law, or any change in any Applicable Law (whether
adopted before or after the Agreement Date), or any change in interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank with any directive (whether or not having the force of
law) of any such authority, central bank or comparable agency, shall make it
unlawful or impossible for any Bank to make, maintain or fund its portion of
Eurodollar Advances, such Bank shall so notify the Administrative Agent, and
the Administrative Agent shall forthwith give notice thereof to the other Banks
and the Borrower. Before giving any notice to the Administrative Agent
pursuant to this Section 10.2, such Bank shall designate a different lending
office if such designation will avoid the need for giving such notice and will
not, in the sole judgment of such Bank, be otherwise materially disadvantageous
to such Bank. Upon receipt of such notice, notwithstanding anything contained
in Article 2 hereof, the Borrower shall repay in full the then outstanding
principal amount of such Bank's portion of each affected Eurodollar Advance,
together with accrued interest thereon, on either (a) the last day of the then
current Interest Period applicable to such affected Eurodollar Advances if such
Bank may lawfully continue to maintain and fund its portion of such Eurodollar
Advance to such day or (b) immediately if such Bank may not lawfully continue
to fund and maintain its portion of such affected Eurodollar Advances to such
day. Concurrently with repaying such portion of each affected Eurodollar
Advance, the Borrower may borrow a Base Rate Advance from such Bank, and such
Bank shall make such Advance, if so requested, in an amount such that the
outstanding principal amount of the affected Note held by such Bank shall equal
the outstanding principal amount of such Note or Notes immediately prior to
such repayment.
Section 10.3 Increased Costs.
(a) If after the date hereof, the adoption of any
Applicable Law, or any change in any Applicable Law (whether adopted before or
after the Agreement Date), or any interpretation or change in interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof or
compliance by any Bank with any directive (whether or not having the force of
law) of any such authority, central bank or comparable agency:
(1) shall subject any Bank to any tax,
duty or other charge with respect to its obligation to make its
portion of Eurodollar Advances, or its portion of existing Advances,
or shall change the basis of taxation of payments to any Bank of the
principal of or interest on its portion of Eurodollar Advances or in
respect of any other amounts due under this Agreement, in respect of
its portion of
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Eurodollar Advances or its obligation to make its portion of
Eurodollar Advances (except for changes in the rate or method of
calculation of tax on the overall net income of such Bank); or
(2) shall impose, modify or deem
applicable any reserve (including, without limitation, any imposed
by the Board of Governors of the Federal Reserve System, but
excluding any included in an applicable Eurodollar Reserve
Percentage), special deposit, capital adequacy, assessment or other
requirement or condition against assets of, deposits with or for the
account of, or commitments or credit extended by, any Bank or shall
impose on any Bank or the London interbank borrowing market any
other condition affecting its obligation to make its portion of such
Eurodollar Advances or its portion of existing Advances;
and the result of any of the foregoing is to increase the cost to such Bank of
making or maintaining any of its portion of Eurodollar Advances, or to reduce
the amount of any sum received or receivable by such Bank under this Agreement
or under its Note with respect thereto, then, on the earlier of a date within
ten (10) days after demand by such Bank or the Maturity Date, the Borrower
agrees to pay to such Bank such additional amount or amounts as will compensate
such Bank for such increased costs. Each Bank will promptly notify the
Borrower and the Administrative Agent of any event of which it has knowledge,
occurring after the date hereof, which will entitle such Bank to compensation
pursuant to this Section 10.3 and will designate a different lending office if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole judgment of such Bank made in good
faith, be otherwise disadvantageous to such Bank.
(b) Any Bank claiming compensation under this
Section 10.3 shall provide the Borrower with a written certificate setting
forth the additional amount or amounts to be paid to it hereunder and
calculations therefor in reasonable detail. Such certificate shall be
presumptively correct absent manifest error. In determining such amount, such
Bank may use any reasonable averaging and attribution methods. If any Bank
demands compensation under this Section 10.3, the Borrower may at any time,
upon at least five (5) Business Days' prior notice to such Bank, prepay in full
such Bank's portion of the then outstanding Eurodollar Advances, together with
accrued interest thereon to the date of prepayment, along with any
reimbursement required under Section 2.10 hereof. Concurrently with prepaying
such portion of Eurodollar Advances the Borrower may borrow a Base Rate
Advance, or a Eurodollar Advance not so affected, from such Bank, and such Bank
shall, if so requested, make such Advance in an amount such that the
outstanding principal amount of the affected Note or Notes held by such Bank
shall equal the outstanding principal amount of such Note or Notes immediately
prior to such prepayment.
Section 10.4 Effect On Other Advances. If notice has been
given pursuant to Section 10.1, 10.2 or 10.3 suspending the obligation of any
Bank to make its portion of any type of Eurodollar Advance, or requiring such
Bank's portion of Eurodollar Advances to be repaid or prepaid, then, unless and
until such Bank notifies the Borrower that the circumstances giving rise to
such repayment no longer apply, all amounts which would otherwise be made by
such Bank as its portion of Eurodollar Advances shall, unless otherwise
notified by the Borrower, be made instead as Base Rate Advances.
ARTICLE 11
Miscellaneous
Section 11.1 Notices.
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(a) Except as otherwise expressly provided herein,
all notices and other communications under this Agreement and the other Loan
Documents (unless otherwise specifically stated therein) shall be in writing
and shall be deemed to have been given three (3) Business Days after deposit in
the mail, designated as certified mail, return receipt requested,
postage-prepaid, or one (1) Business Day after being entrusted to a reputable
commercial overnight delivery service for next day delivery, or when sent on a
Business Day prior to 5:00 p.m. (New York time) by telecopy addressed to the
party to which such notice is directed at its address determined as provided in
this Section 11.1. All notices and other communications under this Agreement
shall be given to the parties hereto at the following addresses:
(i) If to the Borrower, to it at:
Metrocall, Inc.
6677 Richmond Highway
Alexandria, Virginia 22306
Attn: Vincent D. Kelly
Telecopy No.: (703) 768-3958
with a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Attn: George P. Stamas, Esq. and
Thomas W. White, Esq.
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(ii) If to the Administrative Agent, to it at:
Toronto Dominion (Texas), Inc.
909 Fannin, Suite 1700
Houston, Texas 77010
Attn: Sophia Sgarbi
Telecopy No.: (713) 951-9921
with a copy to:
Powell, Goldstein, Frazer & Murphy
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Cindy A. Brazell, Esq.
(iii) If to the Banks, to them at the addresses set
forth beside their names on the signature pages
hereof.
Copies shall be provided to persons other than parties hereto only in the case
of notices under Article 8 hereof and the failure to provide such copies shall
not affect the validity of the notice given to the primary recipient.
(b) Any party hereto may change the address to which
notices shall be directed under this Section 11.1 by giving ten (10) days'
prior written notice of such change to the other parties.
Section 11.2 Expenses. The Borrower will promptly pay, or
reimburse:
(a) all out-of-pocket expenses of the Administrative
Agent, the Managing Agents, the Syndication Agent and the Documentation Agent
in connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents, and the transactions contemplated
hereunder and thereunder and the making of the initial Advance hereunder
(whether or not such Advance is made), including, but not limited to, the fees
and disbursements of Powell, Goldstein, Frazer & Murphy, special counsel for
the Administrative Agent;
(b) all out-of-pocket expenses of the Administrative
Agent, the Managing Agents, the Syndication Agent and the Documentation Agent
in connection with the restructuring and "work out" of the transactions
contemplated in this Agreement or the other Loan Documents, and the
preparation, negotiation, execution and delivery of any waiver, amendment or
consent by the Administrative Agent and the Banks, or any of them, relating to
this Agreement or the other Loan Documents, including, but not limited to, the
fees and disbursements of any experts, agents or consultants and of special
counsel for the Administrative Agent; and
(c) all out-of-pocket costs and expenses of
obtaining performance under this Agreement or the other Loan Documents and all
out-of-pocket costs and expenses of collection if an Event of Default occurs in
the payment of the Notes, which in each case shall include fees and
out-of-pocket expenses of counsel for the Administrative Agent, the Managing
Agents, the Syndication Agent and the Documentation Agent and the Banks.
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Section 11.3 Waivers. The rights and remedies of the
Administrative Agent and the Banks under this Agreement and the other Loan
Documents shall be cumulative and not exclusive of any rights or remedies which
they would otherwise have. No failure or delay by the Administrative Agent,
the Majority Banks, or the Banks, or any of them, in exercising any right,
shall operate as a waiver of such right. The Administrative Agent and the
Banks expressly reserve the right to require strict compliance with the terms
of this Agreement in connection with any future funding of a Request for
Advance. In the event the Banks decide to fund a Request for Advance at a time
when the Borrower is not in strict compliance with the terms of this Agreement,
such decision by the Banks shall not be deemed to constitute an undertaking by
the Banks to fund any further Request for Advance or preclude the Banks or the
Administrative Agent from exercising any rights available under the Loan
Documents or at law or equity. Any waiver or indulgence granted by the
Administrative Agent, the Banks, or the Majority Banks, or any of them, shall
not constitute a modification of this Agreement or any other Loan Document,
except to the extent expressly provided in such waiver or indulgence, or
constitute a course of dealing at variance with the terms of this Agreement or
any other Loan Document such as to require further notice of their intent to
require strict adherence to the terms of this Agreement or any other Loan
Document in the future.
Section 11.4 Set-Off. In addition to any rights now or
hereafter granted under Applicable Law and not by way of limitation of any such
rights, upon the occurrence of an Event of Default and during the continuation
thereof, the Administrative Agent and each of the Banks are hereby authorized
by the Borrower at any time or from time to time, without notice to the
Borrower or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and to apply any and all deposits (general or
special, time or demand, including, but not limited to, Indebtedness evidenced
by certificates of deposit, in each case whether matured or unmatured) and any
other Indebtedness at any time held or owing by any Bank or the Administrative
Agent, to or for the credit or the account of the Borrower or any of its
Subsidiaries, against and on account of the obligations and liabilities of the
Borrower to the Banks and the Administrative Agent, including, but not limited
to, all Obligations and any other claims of any nature or description arising
out of or connected with this Agreement, the Notes or any other Loan Document,
irrespective of whether (a) any Bank or the Administrative Agent shall have
made any demand hereunder or (b) any Bank or the Administrative Agent shall
have declared the principal of and interest on the Loans and other amounts due
hereunder to be due and payable as permitted by Section 8.2 and although such
obligations and liabilities or any of them shall be contingent or unmatured.
Upon direction by the Administrative Agent with the consent of the Banks, each
Bank holding deposits of the Borrower or any of its Subsidiaries shall exercise
its set-off rights as so directed.
Section 11.5 Assignment.
(a) The Borrower may not assign or transfer any of
its rights or obligations hereunder, under the Notes or under any other Loan
Document without the prior written consent of each Bank.
(b) Each Bank may sell assignments or participations
of one hundred percent (100%) of its interests hereunder to (A) one or more
affiliates of such Bank, or (B) any Federal Reserve Bank as collateral security
pursuant to Regulation A of the Board of Governors of the Federal Reserve
System and any Operating Circular issued by such Federal Reserve Bank without
limitation.
(c) Each of the Banks may at any time enter into
assignment agreements or participations with one or more other banks or other
Persons pursuant to which such Bank may assign or participate its interests
under this Agreement and the other Loan Documents, including its interest in
any particular Advance or portion thereof, provided, that all assignments and
participations (other than assignments to another Bank, which may be made
without limitation, whether as to dollar amount or otherwise, so long as, if
such assignment takes place after
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the occurrence of an Event of Default such assignment is made with the prior
written consent of the Administrative Agent, which consent shall not be
unreasonably withheld, and other assignments and participations described in
Section 11.5(b) which may be made without any limitation whatsoever) shall be
in minimum principal amounts of $5,000,000, and shall be subject to the
following additional terms and conditions:
(i) No assignment shall be sold without
the prior consent of the Administrative Agent and, prior to the
occurrence of an Event of Default, the consent of the Borrower,
which consents shall not be unreasonably withheld;
(ii) Any Person purchasing a participation
or an assignment of any portion of the Loans from any Bank shall be
required to represent and warrant that its purchase shall not
constitute a "prohibited transaction" (as defined in Section 4.1(m)
hereof);
(iii) Assignments permitted hereunder
(including the assignment of any Advance or portion thereof) may be
made with all voting rights, and shall be made pursuant to an
Assignment and Assumption Agreement substantially in the form of
Exhibit M attached hereto;
(iv) An administrative fee of $2,500 shall
be payable to the Administrative Agent by the assigning Bank at the
time of any assignment hereunder;
(v) [RESERVED];
(vi) No participation agreement shall
confer any rights under this Agreement or any other Loan Document to
any purchaser thereof, or relieve any issuing Bank from any of its
obligations under this Agreement, and all actions hereunder shall be
conducted as if no such participation had been granted; provided,
however, that any participation agreement may confer on the
participant the right to approve or disapprove decreases in the
interest rate, increases in the principal amount of the Loans
participated in by such participant, decreases in fees, extensions
of the Maturity Date or other principal payment date for the Loans
or of a scheduled reduction of either Commitment or releases of
Collateral or any Subsidiary Guaranty;
(vii) Each Bank agrees to provide the
Administrative Agent and the Borrower with prompt written notice of
any issuance of participations in or assignments of its interests
hereunder;
(viii) No assignment, participation or other
transfer of any rights hereunder or under the Notes shall be
effected that would result in any interest requiring registration
under the Securities Act of 1933, as amended, or qualification under
any state securities law;
(ix) No such assignment may be made to any
bank or other financial institution (x) with respect to which a
receiver or conservator (including, without limitation, the Federal
Deposit Insurance Corporation, the Resolution Trust Company or the
Office of Thrift Supervision) has been appointed or (y) that is not
"adequately capitalized" (as such term is defined in Section
131(b)(1)(B) of the Federal Deposit Insurance Corporation
Improvement Act as in effect on the Agreement Date); and
(x) If applicable, each Bank shall, and
shall cause each of its assignees to, provide to the Administrative
Agent on or prior to the effective date of any assignment an
appropriate Internal Revenue Service form as required by Applicable
Law supporting such Bank's or assignee's position that no
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withholding by the Borrower or the Administrative Agent for U.S.
income tax payable by such Bank or assignee in respect of amounts
received by it hereunder is required. For purposes of this
Agreement, an appropriate Internal Revenue Service form shall mean
Form 1001 (Ownership Exemption or Reduced Rate Certificate of the
U.S. Department of Treasury), or Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct
of a Trade or Business in the United States), or any successor or
related forms adopted by the relevant U.S. taxing authorities.
(d) Except as specifically set forth in Section
11.5(c) hereof, nothing in this Agreement or the Notes, expressed or implied,
is intended to or shall confer on any Person other than the respective parties
hereto and thereto and their successors and assignees permitted hereunder and
thereunder any benefit or any legal or equitable right, remedy or other claim
under this Agreement or the Notes.
(e) In the case of any participation, all amounts
payable by the Borrower under the Loan Documents shall be calculated and made
in the manner and to the parties hereto as if no such participation had been
sold.
(f) The provisions of this Section 11.5 shall not
apply to any purchase of participations among the Banks pursuant to Section
2.11 hereof.
Section 11.6 Accounting Principles. All references in this
Agreement to GAAP shall be to such principles as in effect from time to time.
All accounting terms used herein without definition shall be used as defined
under GAAP. All references to the financial statements of the Borrower and to
its Net Income, Operating Cash Flow, Senior Debt, Total Debt, Interest Expense,
Pro Forma Debt Service, and other such terms shall be deemed to refer to such
items of the Borrower and the Restricted Subsidiaries, on a fully consolidated
basis.
Section 11.7 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original,
but all such separate counterparts shall together constitute but one and the
same instrument.
Section 11.8 Governing Law. This Agreement and the Notes
shall be construed in accordance with and governed by the internal laws of the
State of New York applicable to agreements made and to be performed in New
York. If any action or proceeding shall be brought by the Administrative Agent
or any Bank hereunder or under any other Loan Document in order to enforce any
right or remedy under this Agreement or under any Note or any other Loan
Document, the Borrower hereby consents and will, and the Borrower will cause
each Subsidiary to, submit to the jurisdiction of any state or federal court of
competent jurisdiction sitting within the area comprising the Southern District
of New York on the date of this Agreement. The Borrower, for itself and on
behalf of its Subsidiaries, hereby agrees that service of the summons and
complaint and all other process which may be served in any such suit, action or
proceeding may be effected by mailing by registered mail a copy of such process
to the offices of the Borrower at the address given in Section 11.1 hereof and
that personal service of process shall not be required. Nothing herein shall
be construed to prohibit service of process by any other method permitted by
law, or the bringing of any suit, action or proceeding in any other
jurisdiction. The Borrower agrees that final judgment in such suit, action or
proceeding shall be conclusive and may be enforced in any other jurisdiction by
suit on the judgment or in any other manner provided by Applicable Law.
Section 11.9 Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any
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other jurisdiction.
Section 11.10 Interest.
(a) In no event shall the amount of interest due or
payable hereunder or under the Notes exceed the maximum rate of interest
allowed by Applicable Law, and in the event any such payment is inadvertently
made by the Borrower or inadvertently received by the Administrative Agent or
any Bank, then such excess sum shall be credited as a payment of principal,
unless the Borrower shall notify the Administrative Agent or such Bank, in
writing, that it elects to have such excess sum returned forthwith. It is the
express intent hereof that the Borrower not pay and the Administrative Agent
and the Banks not receive, directly or indirectly in any manner whatsoever,
interest in excess of that which may legally be paid by the Borrower under
Applicable Law.
(b) Notwithstanding the use by the Banks of the Base
Rate and the Eurodollar Rate as reference rates for the determination of
interest on the Loans, the Banks shall be under no obligation to obtain funds
from any particular source in order to charge interest to the Borrower at
interest rates related to such reference rates.
Section 11.11 Table of Contents and Headings. The Table of
Contents and the headings of the various subdivisions used in this Agreement
are for convenience only and shall not in any way modify or amend any of the
terms or provisions hereof, nor be used in connection with the interpretation
of any provision hereof.
Section 11.12 Amendment and Waiver. Neither this Agreement
nor any term hereof may be amended orally, nor may any provision hereof be
waived orally but only by an instrument in writing signed by the Majority Banks
and the Administrative Agent and, in the case of an amendment, by the Borrower,
except that in the event of (a) any increase in the amount of any Commitment,
(b) any delay or extension in the terms of repayment of the Loans or any
mandatory reductions in either Commitment provided in Sections 2.5 or 2.7
hereof, (c) any reduction in principal, interest or fees due hereunder or
postponement of the payment thereof without a corresponding payment by the
Borrower, (d) any release of any portion of the Collateral for the Loans,
except in connection with a merger, sale or other disposition otherwise
permitted hereunder (in which case such release shall require no further
approval by the Banks), (e) any waiver of any Default due to the failure by the
Borrower to pay any sum due to any of the Banks hereunder, (f) any release of
any Guaranty of all or any portion of the Obligations, except in connection
with a merger, sale or other disposition otherwise permitted hereunder (in
which case, such release shall require no further approval by the Banks), or
(g) any amendment of this Section 11.12, of the definition of Majority Banks,
or of any Section herein to the extent that such Section requires action by all
Banks, any amendment or waiver or consent may be made only by an instrument in
writing signed by each of the Banks and the Administrative Agent and, in the
case of an amendment, by the Borrower. Any amendment to any provision
hereunder governing the rights, obligations, or liabilities of the
Administrative Agent may be made only by an instrument in writing signed by the
Administrative Agent and by each of the Banks.
Section 11.13 Entire Agreement. Except as otherwise expressly
provided herein, this Agreement and the other documents described or
contemplated herein will embody the entire agreement and understanding among
the parties hereto and thereto and supersede all prior agreements and
understandings relating to the subject matter hereof and thereof.
Section 11.14 Other Relationships. No relationship created
hereunder or under any other Loan Document shall in any way affect the ability
of the Administrative Agent and each Bank to enter into or maintain business
relationships with the Borrower or any of its Affiliates beyond the
relationships specifically contemplated by this Agreement and the other Loan
Documents.
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<PAGE> 74
Section 11.15 Directly or Indirectly. If any provision in
this Agreement refers to any action taken or to be taken by any Person, or
which such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person, whether or
not expressly specified in such provision.
Section 11.16 Reliance on and Survival of Various Provisions.
All covenants, agreements, statements, representations and warranties made
herein or in any certificate delivered pursuant hereto (i) shall be deemed to
have been relied upon by the Administrative Agent and each of the Banks
notwithstanding any investigation heretofore or hereafter made by any of them,
and (ii) shall survive the execution and delivery of the Notes and shall
continue in full force and effect so long as any Note is outstanding and
unpaid. Any right to indemnification hereunder, including, without limitation,
rights pursuant to Sections 2.10, 2.12, 5.11, 10.3 and 11.2 hereof, shall
survive the termination of this Agreement and the payment and performance of
all Obligations.
Section 11.17 Senior Debt. The Obligations are secured by the
Security Documents and are intended by the parties hereto to be senior in right
of payment to all other Indebtedness of the Borrower.
Section 11.18 Obligations Several. The obligations of the
Administrative Agent and each of the Banks hereunder are several, not joint.
ARTICLE 12
Waiver of Jury Trial
Section 12.1 Waiver of Jury Trial. THE BORROWER, FOR ITSELF
AND ON BEHALF OF THE SUBSIDIARIES, AND EACH OF THE ADMINISTRATIVE AGENT AND THE
BANKS, HEREBY AGREE TO WAIVE AND HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY IN
ANY COURT AND IN ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH THE BORROWER,
ANY OF THE BORROWER'S SUBSIDIARIES, ANY OF THE BANKS, THE ADMINISTRATIVE AGENT,
OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS IS A PARTY, AS TO ALL MATTERS
AND THINGS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT, ANY OF THE
NOTES OR THE OTHER LOAN DOCUMENTS AND THE RELATIONS AMONG THE PARTIES LISTED IN
THIS SECTION 12.1. EXCEPT AS PROHIBITED BY LAW, EACH PARTY TO THIS AGREEMENT
WAIVES ANY RIGHTS IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO
IN THIS SECTION, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR
ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH PARTY TO THIS
AGREEMENT (i) CERTIFIES THAT NEITHER ANY REPRESENTATIVE, AGENT OR ATTORNEY OF
THE ADMINISTRATIVE AGENT OR ANY BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT THE ADMINISTRATIVE AGENT OR ANY BANK WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. THE
PROVISIONS OF THIS SECTION HAVE BEEN FULLY DISCLOSED BY AND TO THE PARTIES AND
THE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY
AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS
SECTION WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
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[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
or caused it to be executed by their duly authorized officers, all as of the
day and year first above written.
<TABLE>
<S> <C>
METROCALL, INC., a Delaware corporation
By: (s) Steven D. Jacoby
Name: Steven D. Jacoby
Title: Chief Operating Officer
[CORPORATE SEAL] Attest: (s) Vincent D. Kelly
Name: Vincent D. Kelly
Title: Chief Financial Officer
</TABLE>
<PAGE> 77
<TABLE>
<S> <C>
TORONTO DOMINION (TEXAS), INC., as Administrative Agent
By:(s) Sophia D. Sgarbi
Name: Sophia D. Sgarbi
Title: Vice President
Address: 909 Fannin, Suite 1700
Houston, TX 77010
</TABLE>
<PAGE> 78
<TABLE>
<S> <C>
THE TORONTO-DOMINION BANK, as Documentation Agent, a
Managing Agent, and a Bank
By:(s) Sophia D. Sgarbi
Name: Sophia D. Sgarbi
Title: Mgr. Syndications & Credit Admin
Address: 31 West 52nd Street
New York, NY 10019-6101
</TABLE>
<PAGE> 79
<TABLE>
<S> <C>
BANKBOSTON, N.A., as Syndication Agent, a Managing Agent, and
a Bank
By: (s) Julie V. Jalelian
Name: Julie V. Jalelian
Title: Vice President
Address: 100 Federal Street
Boston, MA 02110
</TABLE>
<PAGE> 80
<TABLE>
<S> <C>
FIRST UNION NATIONAL BANK (formerly known as FIRST
UNION NATIONAL BANK OF NORTH CAROLINA), as a Bank
By: (s) Jim Redmen
Name: Jim Redmen
Title: Senior Vice President
Address: 301 South College Street
Charlotte, NC 28288-0735
</TABLE>
<PAGE> 81
<TABLE>
<S> <C>
FLEET NATIONAL BANK, as a Bank
By: (s) Alexander G. Ivanov
Name: Alexander G. Ivanov
Title: Vice President
Address: Media & Communications Group
Mail Code MA OF D03D
One Federal Street, 3rd Floor
Boston, MA 02110
</TABLE>
<PAGE> 82
<TABLE>
<S> <C>
ROYAL BANK OF CANADA, as a Bank
By: (s) Andy Cozewith
Name: Andy Cozewith
Title: Manager
Address: Financial Square, 24th Floor
Telecommunications Group
New York, NY 10005-3531
</TABLE>
<PAGE> 83
<TABLE>
<S> <C>
PNC BANK, NATIONAL ASSOCIATION, as a Bank
By: (s) Thomas A. Coates
Name: Thomas A. Coates
Title: Vice President
Address: 1600 Market Street, 21st Floor
Philadelphia, PA 19102
</TABLE>
<PAGE> 84
<TABLE>
<S> <C>
NATIONSBANK OF TEXAS, N.A.
By: (s) Jennifer F. Zydney
Name: Jennifer F. Zydney
Title: Vice President
Address: 901 Main Street, 64th Floor
Dallas, TX 75202
</TABLE>
<PAGE> 85
<TABLE>
<S> <C>
RIGGS BANK N.A., as a Bank
By: (s) Ana G. Tejblum
Name: Ana G. Tejblum
Title: Vice President
Address: 808 17th Street, N.W.
Washington, DC 20074-0650
</TABLE>
<PAGE> 86
<TABLE>
<S> <C>
SUNTRUST BANK, CENTRAL FLORIDA, N.A., as a Bank
By: (s) Janet P. Sammons
Name: Janet P. Sammons
Title: Vice President
Address: 200 S. Orange Avenue
Orlando, FL 32801
</TABLE>
<PAGE> 87
<TABLE>
<S> <C>
VAN KAMPEN AMERICAN CAPITAL PRIME RATE I
INCOME TRUST, as a Bank
By: (s) Jeffrey W. Maillet
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
Address: One Parkview Plaza
Oak Brook Terrace, IL 60181
</TABLE>
<PAGE> 88
<TABLE>
<S> <C>
FINOVA CAPITAL CORPORATION, as a Bank
By: (s) Andrew J. Pluta
Name: Andrew J. Pluta
Title: Assistant Vice President
Address: Communications Finance
311 S. Wacker Drive, Suite 4400
Chicago, IL 60606-6618
</TABLE>
<PAGE> 89
<TABLE>
<S> <C>
COMMERCIAL LOAN FUNDING TRUST I, as a Bank
By: LEHMAN COMMERCIAL PAPER, INC., not in its
individual capacity but solely as Administrative Agent
By: (s) Michele Swanson
Name: Michele Swanson
Title: Authorized Signatory
Address: c/o Lehman Brothers
3 World Financial Center, 10th Floor
New York, NY 10285
with a copy to: c/o Texas Commerce Bank National
Associates
600 Travis Street, 8th Floor
Houston, TX 77002-8039
</TABLE>
<PAGE> 90
<TABLE>
<S> <C>
CYPRESSTREE INVESTMENT PARTNERS I, LTD., a limited
liability company, as a Bank
By: CYPRESSTREE INVESTMENT MANAGEMENT
COMPANY, INC., as Portfolio Manager
By:(s) John W. Fraser
Name: John W. Fraser
Title: Managing Director
Address: 125 High Street
Boston, MA 02110
</TABLE>
<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
--------------------------------------
ARTHUR ANDERSEN LLP
Washington, D.C.
November 4, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated April 24, 1996, on
the combined financial statements of O.R. Estman, Inc., and Dana Paging, Inc.,
included in Metrocall, Inc.'s Form 8-K/A filed on October 1, 1996, for the year
ended December 31, 1995, and to all references to our Firm included in or made a
part of this Registration Statement filed on Form S-4.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
November 4, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Amendment No. 2
to the Registration Statement on Form S-4 (Registration No. 333-36079) of
Metrocall, Inc. 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. which is appearing in the Current Report on Form 8-K/A
filed on October 1, 1996, of Metrocall, Inc. We also consent to the references
to us under the heading "Experts" in such Registration Statement.
/s/ HUTTON PATTERSON & COMPANY
--------------------------------------
HUTTON PATTERSON & COMPANY
Dallas, Texas
November 5, 1997
<PAGE> 1
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 333-36079 of Metrocall, Inc. of our report dated
February 28, 1996 appearing in the Current Report on Form 8-K/A of Metrocall,
Inc. filed on October 1, 1996 and to the reference to us under the heading
"Experts" in the Prospectus.
/s/ DELOITTE & TOUCHE LLP
--------------------------------------
DELOITTE & TOUCHE LLP
Nashville, Tennessee
November 4, 1997
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this Amendment No. 2
of the Registration Statement on Form S-4 of Metrocall, Inc., of our report
dated February 3, 1995, except as to the first paragraph of Note 8, for which
the date is August 31, 1995, relating to the financial statements of Network
Paging Corporation. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PRICE WATERHOUSE LLP
--------------------------------------
PRICE WATERHOUSE LLP
Tampa, Florida
November 5, 1997
<PAGE> 1
EXHIBIT 23.8
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 5, 1997, except for Note N, as to which the
date is March 4, 1997, with respect to the consolidated financial statements of
ProNet Inc. and its subsidiaries included in its Annual Report on Form 10-K for
the year ended December 31, 1996 and are incorporated by reference (and included
herein) in Amendment No. 2 to the Registration Statement (Form S-4 No.
333-36079) and Prospectus of Metrocall, Inc. for the registration of 12,306,388
shares of its common stock.
/s/ ERNST & YOUNG LLP
--------------------------------------
ERNST & YOUNG LLP
Dallas, Texas
November 5, 1997
<PAGE> 1
EXHIBIT 23.9
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of our name and to the description of our
opinion letter, dated August 5, 1997, under the caption "The Merger and Related
Transactions -- Opinion of Financial Advisor to ProNet" in, and to the inclusion
of such opinion letter as Exhibit C to, the Joint Proxy Statement/Prospectus
included in the Registration Statement on Form S-4 of Metrocall, Inc. By giving
such consent we do not thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term "expert" as
used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
SALOMON BROTHERS INC
By /s/ SALOMON BROTHERS INC
------------------------------------
New York, New York
November 5, 1997
