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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-21924
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METROCALL, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 54-1215634
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6677 RICHMOND HIGHWAY, ALEXANDRIA, VIRGINIA 22306
(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, including area code: (703) 660-6677
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
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Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
Common Stock ($.01 Par Value)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] NO [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or any
amendment to this Form 10-K/A. [X]
Based on the closing sales price of February 28, 1997, the aggregate market
value of the voting stock held by non-affiliates of the Registrant was
approximately $88,500,000.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
CLASS FEBRUARY 28, 1997
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Common stock, $.01 par value 25,050,617
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Annual Meeting of the Registrant to
be held May 7, 1997, which will be filed with the Commission within 120 days
after the close of the fiscal year, are incorporated by reference into Part III.
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This amended and restated Annual Report on Form 10-K/A amends the following
items in the registrant's Annual Report on Form 10-K filed on March 31, 1997: 1)
Item 5: Market for the Registrant's Common Stock and Related Security Holder
Matters, is amended by adding information on unregistered securities; 2) Item 6:
Selected Financial Data, and Item 8: Financial Statements and Supplementary
Data, are amended to reflect a change in the treatment in the statement of
operations for 1995 of breakage fees for termination of interest rate swap
agreements; 3) Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations, is amended and restated in certain
respects; and Item 14(c): Exhibits, is amended to update the list of exhibits.
PART I
ITEM 1. BUSINESS
GENERAL
Metrocall, Inc. ("Metrocall" or the "Company") is the fifth largest paging
company in the United States, based on 2,142,351 pagers in service at December
31, 1996, providing local, regional and nationwide paging and other wireless
messaging services. While the Company operates regional and nationwide paging
networks throughout the United States, the Company's selling efforts are
currently concentrated in 32 markets and 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 and (primarily Texas); and (v) the West
(primarily California, Nevada and Arizona). Through the Metrocall Nationwide
Wireless Network ("Nationwide Network"), the Company provides service to over
1,000 U.S. cities representing the top 100 Standard Metropolitan Statistical
Areas ("SMSAs").
Set forth below is a table showing the Company's subscribers by geographic
region and number of units in service as of December 31, 1994, 1995 and 1996.
NUMBER OF PAGERS IN SERVICE
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1994(1) 1995 1996(2)
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Northeast...................................................... 230,830 283,391 415,800
Mid-Atlantic................................................... 178,008 200,370 202,777
Southeast...................................................... 108,775 133,232 926,387
Southwest...................................................... -- -- 181,229
West........................................................... 237,933 327,020 416,158
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Total..................................................... 755,546 944,013 2,142,351
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(1) Includes approximately 420,000 pagers in service acquired in the FirstPAGE
and MetroPaging acquisitions.
(2) Includes approximately 900,000 pagers in service acquired in the Parkway,
Satellite Paging, Message Network and A+ Network acquisitions.
From December 31, 1993 to December 31, 1996, the Company has increased its
base of pagers in service from less than 250,000 to more than 2.1 million. This
growth has been accomplished through a combination of internal growth and a
program of mergers and acquisitions. In July, August, and November 1996,
Metrocall completed the Parkway Paging, Inc. ("Parkway"), Satellite Paging,
Message Network and A+ Network, Inc. ("A+ Network") acquisitions, respectively.
As a result of these acquisitions, Metrocall added approximately 900,000
subscribers to its base of pagers in service. In addition to the acquisitions,
the Company's total pagers in service grew approximately 32% through internal
growth in 1996. During 1995, the Company's total pagers in service grew
approximately 25%, exclusively through internal growth. In August and November
1994, Metrocall completed the FirstPAGE and the MetroPaging acquisitions,
respectively. As a result of the 1994 acquisitions, Metrocall added
approximately 420,000 subscribers to its base of pagers in service, more than
doubling its total pagers in service during 1994 alone.
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The Company's long-term strategy is to continue to expand its business by
providing paging and other wireless communication services to an increasingly
broad base of subscribers throughout the United States, while increasing total
revenues and EBITDA and de-emphasizing that portion of the business which has
historically leased pagers. The Company is seeking to increase its base of
subscribers by expanding its operations in existing, contiguous and other
markets, through start-up operations and internal growth. The Company has
significantly expanded its geographic coverage and subscriber base through four
acquisitions in 1996. Furthermore, the Company has signed a definitive
acquisition agreement to acquire the assets of Page America Group, Inc. ("Page
America").
The Company's growth and expansion into new markets, whether internal or
through acquisitions, require significant capital investment for the
installation of paging equipment and technical infrastructure. The Company
incurred significant expenditures throughout the first three quarters of 1996
while it completed the expansion and build-out of its nationwide network.
The Company's focus is now on integrating the 1996 acquisitions and
increasing the utilization of its networks completed during 1996. As a result of
the completion of the Company's nationwide network and an emphasis on
distribution channels through which pagers are generally sold rather than
leased, capital expenditures are expect to be reduced in 1997. While the Company
currently has no outstanding commitments with the exception of the Page America
transaction, the Company will continue to evaluate strategic acquisition targets
in the future. Potential future acquisitions will be evaluated on significant
strategic opportunities such as geographic coverage and regulatory licenses and
other factors including overall valuation, consideration and availability of
financing.
Metrocall's paging operations are subject to regulation by the FCC and
various state regulatory agencies. Metrocall was incorporated under the laws of
the State of Delaware in 1982. Its executive offices are located at 6677
Richmond Highway, Alexandria, Virginia 22306, and its telephone number is (703)
660-6677.
BUSINESS STRATEGY
The primary elements of the Company's business strategy are described
below.
Distribution Strategy
The Company's distribution strategy is designed to increase revenues,
EBITDA and subscribers in markets which have an existing sales presence. This
strategy entails: (i) pursuit of small- and mid-sized accounts; (ii) greater
emphasis on value-added, more profitable service offerings; (iii) expansion of
distribution channels, focusing on the increased use of indirect sales channels;
(iv) maintenance of a low cost operating structure, and (v) selling rather than
leasing pagers.
- Pursuit of small- and mid-sized accounts. The Company has historically
focused its direct selling efforts on small accounts (historically those
with less than 25 units in service) in order to minimize its dependence
on any single customer and because the Company believes that smaller
accounts are generally more profitable than larger accounts. Given
increased operating efficiencies, the Company has been able to
economically justify the pursuit of larger accounts, offering volume
discounts where competition warrants. This strategy should facilitate
growth of the customer base while maintaining operating margins.
- Emphasis on value-added service offerings. The Company continually
develops and introduces enhanced services to increase average monthly
revenue per unit ("ARPU") and attract new subscribers. A key feature of
most of these services is that they can be made available to existing
subscribers without the need for new customer equipment. During 1996, the
Company adjusted its sales force's commission structure to focus on
monthly recurring revenue as opposed to unit placements and the sale of
customer owned and maintained ("COAM") units, which is an incentive to
sell additional enhanced paging services and reduces capital expenditures
requirements.
- Expansion of distribution channels. Given the growing appeal of the
paging product to consumers, Metrocall continues to expand its
distribution channels to access as wide a range of potential
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subscribers as possible. Database marketing efforts have expanded as well
as new initiatives involving strategic alliances, franchising, and
multi-level marketing, all designed to ultimately lower distribution
costs. These new channels have allowed the Company to access subscribers
that would not typically be targeted by the direct sales force and
ensures efficient utilization of technical capacity by maximizing the
number of subscribers on the Company's network. The importance of these
indirect channels in the Company's subscriber base is growing, comprising
approximately 50% of the Company's subscriber base at December 31, 1996.
The Company believes that as the appeal of the paging product to the
consumer segment grows, retail and direct response distribution will
become an increasingly important focus of its marketing strategy. The
consumer segment is particularly attractive because these customers
typically buy, rather than lease, pagers, allowing the Company to more
quickly recover capital invested in inventory, and rarely require
discounts on service rates (although discounts for one year lump sum
payments are common). Through the acquisitions of Parkway, Satellite
Paging, Message Network and A+ Network, the Company inherited over 80
company-owned retail stores. These new outlets allow the Company
continued access to the retail market place.
With a renewed focus on both local and nationwide small business and
consumer markets, the Company has begun entering into strategic
partnerships with selected companies that have large customer bases such
as long-distance providers and cable companies. This approach, which
seeks to establish a mutually beneficial relationship for both parties,
provides access to a market that is predisposed toward the Company's
products and services. The Company expects these partnerships to become
an increasingly important component of its distribution strategy in the
future.
- Maintenance of low cost operating structure. The Company is able to
compete effectively and price its services competitively due to its low
cost operating structure and its efficient use of capital. Administrative
functions are consolidated in a national operations center which handles
all back-office functions including management information systems,
billing and inventory management. Acquisitions closed during 1996 more
than doubled the size of the Company. The timely integration of these
transactions into the Company's existing back-office systems will provide
increased economies of scale and operating leverage in future periods.
- Sale versus lease. The Company has focused virtually all of its new
strategic initiatives on the sale rather than lease of paging units
resulting in lower capital and debt requirements for unit growth. As the
1996 acquisitions are integrated and operating margins begin to expand,
the Company believes its focus on COAM delineation will provide
significant progress toward the Company's ultimate objective of
generating free cash flow.
Integration Strategy
The Company's integration strategy is based upon the belief that certain
functions are best performed and managed centrally and that others are best
managed on a decentralized basis. During 1996, the Company has directed
significant resources and management attention to the integration of the
Parkway, Satellite Paging, Message Network and A+ Network acquisitions.
The Company's integration strategy is designed to consolidate the acquired
companies into Metrocall and create a homogenous company focused on the
corporate mission of growing revenue, EBITDA while expanding its base of
subscribers. In order to maximize operating efficiencies, certain functions must
be performed centrally. The Company also believes that in order to maximize
opportunity for acquisition of new customers and retention of existing
customers, certain functions must be performed on a decentralized basis.
Functional areas the Company believes should be performed centrally are
accounting, finance, cash management, accounts payable, accounts receivable,
payroll, inventory, billing systems, information systems management, network
engineering, human resource and employee benefit management. Functional areas
that the Company believes should be managed in a decentralized environment in
order to better respond to customer and competitive demands are sales,
marketing, customer service and technical maintenance.
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During 1996 the Company directed significant resources toward integrating
and consolidating centralized functions of Parkway, Satellite, Message Network
and A+ Network properties. By year end, the Company had completely consolidated
and centralized all accounting and financial functions, human resources,
inventory and network engineering of Parkway, Satellite Paging and Message
Network. The process of consolidating these functions has begun for the A+
Network. Decentralized functions such as sales and customer service at A+
Network, Parkway Paging, Satellite Paging and Message Network adopted
Metrocall's operating practices and standards to form a fully integrated sales
and service organization. Both Parkway and A+ Network utilized the same billing
platform as the Company bringing significant synergies to the integration
effort. Subsequent to year end, Message Network's billing system was converted
into the Company's leaving only Satellite's billing system to be converted.
The Company gained operating synergies through the consolidation of
duplicative functions and the elimination of job functions and people resources.
Vendor consolidation for purchases of services, materials and products have
resulted in savings through increased volume discounts and economies of scale.
Technical Infrastructure and Broadcast Spectrum
The Company believes that a major point of competitive differentiation is
the quality of its paging networks. The Company has developed a state-of-the-art
paging system deploying current technology which achieves optimal building
penetration, wide-area coverage and the ability to deliver new and enhanced
paging services. During 1996, the Company added more than 1,000 transmitter
sites to its paging networks though internal construction and acquisitions.
Through its 1996 acquisitions, the Company has also increased its total
available broadcast spectrum in the Northeast, Southeast and Southwest regions
of the United States. The Company has existing paging transmission equipment and
spectrum capacity sufficient to support anticipated future growth.
The Company's exclusive 929.5125 MHz nationwide network provides signal
coverage on a common frequency in each of the top 100 SMSAs in the United
States. The network is operated through Company owned transmitters and provides
nationwide service coverage in approximately 1,000 cities. The Company incurred
significant expenditures throughout the first three quarters of 1996 while it
completed the expansion and build-out of this nationwide network. The network
allows the Company to provide subscribers with low cost, price competitive
nationwide paging service, and also provides the Company a platform from which
to enter new markets cost effectively by using the existing nationwide network
infrastructure to carry a local frequency during the start-up period. In this
way, the Company can place a local or regional frequency in a pre-existing
nationwide transmitter and thus begin service in a new market at low incremental
cost without delay. Customers in new markets opened in this way can be
economically serviced by the National Customer Operations Center until such time
as a local sales office is established.
The Company has a second exclusive nationwide network which has been fully
constructed on the 929.1875 MHz frequency. Ownership of this second nationwide
frequency ensures the Company has the flexibility to expand its operations
without potential capacity constraints.
Together, the Company has over 1,150 transmitters on its two nationwide
networks with capacity to serve over one million additional subscribers. Each of
the Company's nationwide networks is fully compatible with the Motorola
InFlexion technology designed for high speed transmission and signaling. The
Company has more than 2,750 transmitters sites operating on a local, regional
and nationwide basis.
NEW PRODUCTS AND SERVICES
The Company differentiates itself from its competitors by offering its
customers a variety of value-added services packaged to reflect the specific
subscriber's business or personal needs. Value-added services are billed as an
enhancement to the basic service and tend to result in higher ARPU. Two of these
valued added services, "One Touch" and "Metrocall Nationwide," are currently
available.
One Touch Service(TM). In June of 1995, the Company introduced its "One
Touch" (sometimes referred to as a "virtual office") advanced messaging service.
Each One Touch subscriber is assigned a personal
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"1-800" telephone number and voice mailbox for a monthly fee. Through one
telephone number, customers can have calls routed to a home, office or cellular
phone and enjoy voice messaging and fax storage and forwarding services, all
with instant notification of mailbox activity via their pager. One Touch
services are offered either separately or in individualized packages designed to
meet the needs of special markets or affinity groups. The Company will, in the
near future, bill customers on a per-transaction basis (e.g., per page for
faxes) where appropriate, which should serve to increase per unit revenues. The
Company also will, in the near future, offer long distance service connection as
part of the One Touch service options. All One Touch services are available to
new and existing customers. An existing subscriber who desires One Touch
services does not require new equipment.
Metrocall Nationwide. Through its Nationwide Network the Company is able
to offer low-priced nationwide paging services in approximately 1,000 cities in
the top 100 SMSAs. Coverage is currently available in heavily traveled areas in
each location (e.g., airports, central business districts) and can be expanded
by the Company as warranted by customer demand for regional and nationwide
service.
PCS Strategy. During 1994, the FCC auctioned 1,237.5 KHz of narrowband
personal communication services ("PCS"') spectrum. The Company believes this
spectrum will allow paging operators to offer a broad array of new products and
services which heretofore were impossible to offer given the limited spectrum
allocated to traditional paging. These products include voice pagers, high speed
alphanumeric pagers and pagers which will allow subscribers to acknowledge the
receipt of messages. Several PCS systems are currently operational. The Company
elected not to participate in the spectrum auctions because the Company believes
that there will be ample PCS spectrum available which it can use to resell PCS
services to its existing customers. For example, the Company, through its
acquisition of A+ Network, has a minority ownership interest in CONXUS (formerly
PCS Development Corporation), a nationwide narrowband PCS license holder, and
has signed a memorandum of understanding to act as a co-developer of technology,
co-carrier of signal and distributor of services. The Company's affiliation with
CONXUS should enable it to offer its subscribers narrowband PCS services without
the licensing or capital cost associated with the construction of a narrowband
PCS network. The Company is pursuing similar relationships with other PCS
developers and operators. The Company believes that the current generation of
narrowband PCS product offerings are untested and subject to speculation and
uncertainty regarding competitive performance and financial viability. The
Company believes that until such performance and viability measures have been
proven, it will only offer such PCS services on a resale basis electing not to
incur the capital investment in equipment and broadcast spectrum.
PAGING OPERATIONS
Subscribers and Services. The Company currently provides four basic types
of paging services: (i) digital display pagers, which permit a subscriber to
receive a telephone number or other numeric coded information and to store
several such numeric messages that the customer can recall when desired; (ii)
alphanumeric display pagers, which allow the subscriber to receive and store
text messages; (iii) tone-only pagers, which notify the subscriber that a call
has been received by vibrating or emitting a beeping sound; and (iv)
tone-plus-voice pagers, which emit a beeping sound followed by a brief voice
message. The Company provides digital display, alphanumeric display and
tone-only service in all its markets, and provides tone-plus-voice service in a
few markets. Digital display paging service, which was introduced by the paging
industry over 10 years ago, has in recent years grown at a faster rate than
tone-only or tone-plus-voice service. A substantial majority of the Company's
pagers in service at December 31, 1996 were digital display pagers.
Alphanumeric display service, which was introduced in the mid-1980s, has
grown at increasing rates as users and dispatch centers overcome technical and
operational obstacles to data input. For example, the Company now markets, under
its service mark "Notesender," a computer program designed for use in
transmitting alphanumeric messages from personal computers to pagers.
Alphanumeric paging access is also available via the Company's internet website,
www.metrocall.com, where any internet user can access our on-line alphanumeric
paging software. The Company also provides enhancements and ancillary services
such as
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personalized automated answering services, message protection, annual loss
protection and maintenance service on equipment. Personalized automated
answering services allow the subscriber to record a message that greets callers
who reach the subscriber's voice mailbox. Message protection allows a subscriber
to retrieve any calls that come in during the period when the subscriber was
beyond the reach of the Company's radio transmitters. Annual loss protection
allows subscribers who lease pagers to limit their costs of replacement upon
loss or destruction of the pager. Maintenance services are offered to
subscribers who own their own pagers.
The Company's subscribers either lease or buy their pagers and purchase
either local, regional, multi-regional or nationwide service. Contracts with
large unit volume subscribers are typically for two to three year terms, while
contracts with smaller volume subscribers generally have one year terms with
annual renewals. The Company receives additional revenue for enhanced services
such as voice mail, personalized greetings and One Touch service. Volume
discounts on lease costs and service fees are typically offered to large unit
volume subscribers. In some instances, the Company's subscribers are resellers
that purchase services at substantially discounted rates, but are responsible
for marketing, billing and collection and related costs with respect to their
customers.
The following table sets forth as of December 31, 1994, 1995 and 1996 the
respective numbers and percentages of pagers that are (i) serviced and owned by
the Company, (ii) serviced by the Company and owned by subscribers, (iii)
serviced by the Company and owned by subscribers sold through Company-owned
retail stores, (iv) serviced by the Company through resellers and owned by the
resellers or their subscribers, (v) serviced by the Company through other paging
carriers and owned by the carrier or their subscribers and (vi) serviced by the
Company and owned by subscribers who acquire equipment and service through
retailers.
OWNERSHIP OF PAGERS IN SERVICE
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1994(1) 1995 1996(2)
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Direct Channels:
Company owned and leased to subscribers..... 319,565 42% 380,951 40% 690,382 32%
Subscriber owned (COAM)..................... 171,605 23 170,019 18 271,837 13
Company-owned retail stores................. -- -- -- -- 114,192 5
Indirect Channels:
Resellers................................... 223,172 30 339,556 36 865,221 41
Strategic partners and affiliates........... -- -- -- -- 130,142 6
Retail...................................... 41,204 5 53,487 6 70,577 3
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Total.................................... 755,546 100% 944,013 100% 2,142,351 100%
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(1) Includes approximately 420,000 pagers in service acquired in the FirstPAGE
and MetroPaging acquisitions.
(2) Includes approximately 900,000 pagers in service acquired in the Parkway,
Satellite Paging, Message Network and A+ Network acquisitions.
Sales and Marketing. Subscribers who use paging services have
traditionally included small business operators and employees, professionals,
medical personnel, sales and service providers, construction and tradespeople,
and real estate brokers and developers. However, paging's appeal to the mass
market is growing, and the service is increasingly being adopted by individuals
for private, nonbusiness uses such as communicating with family members and
friends.
While the Company historically has relied on its direct sales force to
obtain paging customers, it has implemented a strategy to capitalize on the
growing mass market appeal of paging products. This sales and marketing strategy
incorporates a multi-tiered distribution system that utilizes the following
distribution channels to access different market segments: (i) the Company's own
direct sales staff that concentrates on business accounts; (ii) database
telemarketing conducted by Company-employed professional sales staff
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which utilizes computerized lead management and professional telemarketing
techniques to identify primarily small businesses and professionals as potential
subscribers; (iii) Company-owned retail stores, designed to sell higher ARPU
products and services to the consumer market; (iv) resellers, who purchase bulk
paging services and resell them to their own subscribers generally on a private
label basis; (v) retail outlets that sell pagers to the emerging consumer
market; (vi) independent dealers, representatives and agents, who use their own
sales forces to sell Metrocall paging equipment and services to their
established customer bases; (vii) strategic alliances, who market the Company's
products and services to established customer bases; and (viii) affiliates, who
offer expanded coverage options to their customers utilizing a Company-owned
frequency. As of December 31, 1996, the Company, through its 130 sales and
administrative offices, employed a sales force of 870 sales representatives,
including the Company's direct sales staff, telemarketing professionals and
sales representatives who call on retailers and resellers. The Company's
distribution channels are described briefly below.
Direct Distribution Channels
- Direct Sales. Direct sales personnel sell primarily to businesses,
placing special emphasis on key accounts, which are accounts that are of
strategic importance to the Company. The businesses targeted by the
Company's direct sales personnel are generally those that have highly
mobile employees or employees with multiple work locations. Examples
include hospitals, sales and service organizations, specialty trades,
transportation, construction and manufacturing companies and government
agencies. Direct sales personnel are compensated based on a percentage of
sales contract value (plus certain quota incentives), reduced by any
cancellations within the first 120 days of a contract. As previously
discussed, sales compensation plans are designed to motivate direct sales
personnel to increase sales of higher revenue products, such as
nationwide service, alphanumeric service, voice mail, One Touch and other
value-added services.
- Database Telemarketing. The Company's internal, professionally-trained
staff uses computerized lead management and telemarketing techniques
combined with the Company's proprietary lead screening and development
protocol to generate sales. Using acquired lists to focus their effort,
the internal staff targets groups of consumers and small businesses who
have a propensity to use paging services but are either in a region where
the Company does not have a direct sales effort or are not reached by
other distribution channels. Telemarketing salespeople are compensated on
a salary plus commission basis. The cost to add a new subscriber through
this channel is lower than the cost through the direct sales channel.
- Company-Owned Retail Stores. Through the transactions with Parkway,
Satellite Paging, Message Network and A+ Network, the Company acquired
over 80 Company-owned retail outlets. These outlets are designed to sell
higher ARPU services to the consumer market segment directly while
providing a point of presence for the Company to enhance its brand
recognition. These retail outlets take a variety of forms such as,
in-line mall stores, kiosks, mall carts, retail merchandising units and
strip center locations. Product offerings sold to consumers at these
locations are paging, messaging, cellular, long distance, PCS and related
accessories. Many of these locations function as customer service and
payment centers in addition to offices for direct sales representatives.
Indirect Distribution Channels
- Resellers. Resellers buy bulk paging services from the Company for
resale to their own business clients and individual customers. The
Company issues one monthly bill to each reseller who is responsible for
marketing, billing and collection, and equipment maintenance. As a result
of emphasizing this channel, the Company is able to achieve high network
utilization at low incremental cost. The Company does not lease pagers to
resellers.
- Retail Outlets. The Company sells pagers on a wholesale basis to retail
outlets such as office supply, electronics and general merchandise chains
for resale to consumers. These outlets are selected based on factors such
as the number of stores in a region and the extent of their advertising.
The outlets sell the
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pager itself and provide limited customer service to the consumer. The
Company provides sales incentives and advertising support, and emphasizes
training of sales personnel to enhance the retail outlet's effectiveness
and to ensure that the customer is well educated regarding the product.
The Company does not lease pagers to retailers. The Company believes that
as consumer awareness of the product grows, retailers will become an
increasingly important distribution channel.
- Independent Dealers, Representatives and Agents. The Company contracts
with independent dealers, representatives and agents, including such
outlets as small cellular phone dealers or independent specialty
electronics stores. The Company typically uses dealers to reach specific
consumer niches (e.g., ethnic or non-English speaking communities) and
small businesses that are more efficiently accessed through this channel
than through other distribution channels. In addition to selling the
Company's pagers, independent dealers assist the subscriber in choosing a
service plan and collect the initial payments. Independent dealers are
paid commissions for their placement of customers with the Company.
- Strategic Partners. The Company has entered into contractual agreements
with several selected national distribution partners who sell or resell
Metrocall's paging services to their existing and future customer
constituency. The Company supplies many of these partners with turnkey
solutions, custom branded, for network services, products, customer
services, billing, collections and fulfillment. The Company's strategy is
to provide these value added services to enhance the business
relationship and margin opportunities for both parties. Alliances with
companies in the long distance, local exchange, cable, retail, direct
response and multi-level marketing businesses have been engaged. The
Company believes that these programs will help deliver paging services to
market segments that our other distribution channels can not cost
effectively reach.
- Affiliates. Through the merger with A+ Network, the Company now has a
network of over one hundred paging carriers or affiliates that resell
services on the 152.480 MHz private carrier paging frequency. The
affiliates are independent owners of paging systems operating on this
frequency in various markets throughout the nation who sell expanded
coverage to their customers by utilizing the Company's infrastructure
that links these independent networks to provide wide area and nationwide
paging on a single channel. The Company provides expanded coverage
options for approximately 130,000 subscribers throughout the nation
through its affiliate network.
The following table sets forth information regarding numbers of pagers in
service by distribution channel at December 31, 1994, 1995 and 1996.
PAGERS IN SERVICE BY DISTRIBUTION CHANNEL
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1994 1995 1996
------------------ ------------------ --------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Direct(1).............................. 491,170 65% 550,970 58% 1,076,411 50%
Indirect(2)............................ 264,376 35 393,043 42 1,065,940 50
------- ----- ------- ----- --------- -----
Total............................. 755,546 100% 944,013 100% 2,142,351 100%
======= ===== ======= ===== ========= =====
</TABLE>
- ---------------
(1) Includes rental, COAM and Company-owned stores.
(2) Includes resellers, affiliates, retailers and independent dealers,
representatives and agents.
Centralized Organizational Structure. In order to minimize its cost
structure, the Company centralizes operating functions where possible, utilizes
common billing and subscriber management systems throughout its markets. The
Company's centralized operating structure focuses regional management on sales
and distribution by transferring technical and back-office responsibilities to a
central location.
The Company's administrative and back-office functions are located in a
single national operations center in Alexandria, Virginia. These functions
include all accounting, management information systems, inventory
8
<PAGE> 10
and order fulfillment. As discussed earlier, the Company is in the process of
integrating its 1996 acquisitions into this structure.
The Company also maintains a centralized National Customer Operations
Center. The Company's National Customer Operations Center handles customer
inquiries from existing and potential customers and supports the Company's
strategic distribution initiatives. The National Customer Operations Center is
staffed with approximately 150 employees and is open six days per week (with
emergency service provided seven days a week, 24 hours a day) with a toll-free
access number. In addition to responding to local customer service inquiries,
the National Customer Operations Center is a critical factor in marketing and
servicing the Nationwide Network to all markets in the United States. Efforts
are made to satisfy customers on initial inquiry to avoid repeat calls, thereby
increasing customer satisfaction and decreasing costs. The Company employs
state-of-the-art call management equipment (such as an automated call
distribution system) to provide quality customer service. The Company tracks
both productivity and quality of performance of its customer service
representatives.
The Company also focuses on the allocation of administrative costs over a
greater number of units in service. While the Company expects revenue from units
in service to grow through internal growth, geographic expansion and its recent
acquisitions, the Company's administrative costs are expected to grow at a much
lower rate.
Network and Equipment. The Company has developed a state-of-the-art paging
system deploying current technology which achieves optimal building penetration,
wide-area coverage and the ability to deliver new and enhanced paging services.
This existing paging transmission equipment has significant capacity to support
future growth.
The Company's paging services are initiated when telephone calls are placed
to the Company's paging terminals. These state-of-the-art terminals, which the
Company maintains within its service areas, have a modular design that allows
significant future expansion by adding or replacing modules rather than
replacing the entire terminal. The Company's paging terminals direct pages to
the Company's primary satellite, which signals terrestrial network transmitters
providing coverage throughout the service area.
The Company operates a series of regional operating systems or networks
consisting of primary networks servicing the states of Arizona, California and
Nevada, and the area from Boston to the Virginia/North Carolina border. The
Company also has two exclusive licenses issued by the FCC for the same channel
in each of the largest 100 SMSAs and began operations of the Nationwide Network
on the channel in November 1993. The Company is also capable of providing local
paging in each market serviced by the Nationwide Network by using nationwide
transmitters to carry local messages. Services provided through the Nationwide
Network are marketed to subscribers directly through the Metrocall sales force
and indirectly through retailers and resellers.
The Company does not manufacture any of the pagers or related transmitting
and computerized paging terminal equipment used in the Company's paging
operations. The equipment used in the Company's paging operations is available
for purchase from multiple sources, and the Company anticipates that equipment
and pagers will continue to be available to the Company in the foreseeable
future, consistent with normal manufacturing and delivery lead times. Because of
the high degree of compatibility among different models of pagers, transmitters,
computers and other paging equipment, the Company is able to design, supply and
operate its systems without being dependent upon any single source of such
equipment. The Company continually evaluates new developments in paging
technology in connection with the design and enhancement of its paging systems
and selection of products to be offered to subscribers.
The Company achieves cost savings by purchasing pagers for a volume
discount from a limited number of companies, including Motorola, Inc.
("Motorola"), from which the Company currently purchases most of its pagers, and
NEC America, Inc. The Company purchases its transmitters and paging terminals
from Motorola and Glenayre Electronics, Incorporated.
9
<PAGE> 11
PAGING INDUSTRY OVERVIEW
Industry sources estimate that there were approximately 43.0 million pagers
in service in the United States at the end of 1996. Industry sources also
indicate that in recent years the number of pagers in service in the United
States has been growing at annual rates in excess of 20% per year and predict
that the number of pagers in service will continue to grow at compound annual
growth rates of approximately 15% through the year 2000. Factors that have been
described as contributing to this growth include (i) declining costs of service,
(ii) increasing consumer awareness of the benefits of mobile communications,
(iii) introduction of new or enhanced paging equipment and services, and (iv)
expanding channels of distribution.
Although the United States paging industry has over 600 licensed paging
companies, the Company estimates that the ten largest paging companies,
including Metrocall, currently serve approximately 80% of the total paging
subscribers in the United States. These paging companies are facilities-based,
Commercial Mobile Radio Service ("CMRS") providers, previously classified as
either Radio Common Carrier ("RCC") or Private Carrier Paging ("PCP") operators,
servicing over 100,000 subscribers each in multiple markets and regions.
The Company believes that future developments in the paging and wireless
communications industry will include (i) technological improvements that permit
increased service and applications to a wider market on a cost-effective basis,
(ii) consolidation of smaller, single-market operators and larger, multi-market
paging companies, and (iii) increased numbers of pagers in service, as a result
of general expansion into consumer and retail markets. Recent technological
developments in the paging industry include new paging services such as
"confirmation" or "response" paging that have the ability to send a message back
to the paging system that confirms that the paging message has been received,
digitized voice paging, two-way paging and notebook and sub-notebook computer
wireless data applications. Narrowband PCS may offer the ability to provide some
of these services on an expanded basis. While these services have been proven
technologically feasible, the economic viability has not been tested based on
the cost of licenses and capital infrastructure requirements.
PAGING TECHNOLOGY
Paging is a method of one-way wireless communications that uses an assigned
radio frequency to contact a paging subscriber anywhere in a service area. A
subscriber carries a pager that receives messages by the broadcast of a one-way
radio signal. To contact a subscriber, a message is usually sent by placing a
telephone call to the subscriber's designated telephone number. The telephone
call is received by an electronic paging switch which then generates a signal
that is sent to radio transmitters in the service area. Depending upon the
topography of the service area, the operating radius of a radio transmitter
typically ranges from three to 20 miles. The transmitters send a signal that is
received by the pager carried by the subscriber and is delivered as a tone,
vibration, numeric or alphanumeric message. A tone-only pager notifies the
subscriber that a call has been received by emitting a beeping sound or
vibration. In the case of tone-plus-voice service, the subscriber's pager emits
a beeping sound followed by a brief voice message. Depending upon the type of
pager in use, the subscriber may receive a message that is displayed on the
pager or a subscriber may call his or her home, office or telemessaging service
to receive the message. A digital display pager permits a caller to transmit to
the subscriber a numeric message that may consist of a telephone number, an
account number or coded information. A digital display pager has the memory
capability to store several numeric messages that can be recalled by the
subscriber when desired. Alphanumeric display paging service allows subscribers
to receive and store messages consisting of both numbers and text.
Metrocall believes that paging is the most cost-effective and reliable
means of conveying a variety of information rapidly over a wide geographic area
either directly to a person traveling or to various fixed locations. Because it
is a one-way communication tool, paging is an inherently lower cost way to
communicate than two-way communication methods. For example, pagers and air time
required to transmit an average message cost less than equipment and air time
for cellular and other wireless PCS telephones. Furthermore, pagers operate for
longer periods due to superior battery life, often exceeding one month on a
single AAA battery. Paging subscribers generally pay a flat monthly service fee,
which covers a certain number of messages sent to the subscriber. In addition,
pagers are unobtrusive, portable and historically have not become
10
<PAGE> 12
obsolete even in the face of substantial technological advances in the
communications industry. Growth in the number of cellular telephone customers is
increasingly viewed as a complement to wireless messaging. Many cellular
telephone customers use pagers in conjunction with their telephones to screen
incoming calls and minimize battery use and cellular usage charges.
COMPETITION
The Company experiences competition from one or more paging operators in
all of the regions in which it operates. Some of the Company's competitors have
greater financial resources than the Company. Since 1988, the Company has
competed with Paging Network, Inc. ("PageNet"), the world's largest provider of
paging services, in all of the Company's major markets. The Company believes
that competition for subscribers is based on price, geographic coverage and
quality of service. Metrocall believes that it compares favorably with its
competitors on these bases.
With the introduction of the Nationwide Network, the Company's principal
competitors for national accounts are MobileMedia Communications, Inc. (using
the trade name MobileComm), SkyTel Corporation ("SkyTel"), a subsidiary of MTEL,
Inc., PageMart, Inc. ("PageMart"), and PageNet. In addition to MobileComm,
SkyTel, PageMart and PageNet, the Company is aware of other paging companies
that offer, or intend to offer, nationwide paging services to their subscribers.
In 1994, the FCC began auctioning licenses for new PCS. PCS involves a
network of small, low-powered transceivers placed throughout a neighborhood,
business complex, community or metropolitan area to provide customers with
mobile voice and data communications. There are two types of PCS, narrowband and
broadband. Narrowband PCS is expected to provide enhanced or advanced paging and
messaging capabilities, such as "acknowledgment paging" or "talk-back" paging.
Broadband PCS is expected to provide new types of communications devices that
will include multi-functional portable phones and imaging devices. PCS providers
may compete directly and indirectly with the Company.
Future technological developments in the wireless telecommunications
industry, such as PCS, and enhancements of current technology could create new
products and services which might compete with the paging services currently
offered by Metrocall. There can be no assurance that Metrocall would not be
adversely affected by such technological change.
REGULATION
Federal. Metrocall's paging operations are subject to regulation by the
FCC under the Communications Act of 1934, as amended (the "Communications Act").
The Communications Act requires that the Company obtain licenses from the FCC to
use radio frequencies to conduct its paging operations within specified
geographic areas. In addition to authorizing the use of the radio frequencies,
FCC licenses awarded to the Company set forth the technical parameters, such as
maximum power and tower height, under which the Company is permitted to use
those frequencies.
The Company has historically provided paging services as both an RCC
operator and PCP operator. Traditionally, RCC frequencies were assigned on an
exclusive basis to a single licensee in a service area; RCCs were subject to
regulation by the states as well as by the FCC and were permitted (indeed,
required) to provide service to anyone requesting such service. PCP frequencies
were assigned on a shared basis (i.e., multiple parties in the same area could
apply for and obtain a license to use the same frequency); there were
restrictions on eligibility of PCP customers; and the states were preempted from
regulating PCP entry, rates, operation, terms of service, etc.
In 1993, the FCC permitted PCPs to provide service to individuals, rather
than only for business purposes. Additionally, in November of 1993, the FCC
adopted new rules to provide "channel exclusivity" to PCP operators operating on
certain 929 MHz frequencies, provided the licensee meets certain qualifications.
The Company has obtained nationwide exclusivity on two of its 929 MHz
frequencies (one used for the Nationwide Network; the other obtained in the
First PAGE acquisition). Under the FCC's current rules, no other entity may
apply anywhere in the U.S. on either of the Company's frequencies. Any PCP
licenses other
11
<PAGE> 13
than the Company's that were previously granted by the FCC may continue
operating on those frequencies, but those other licensees will not be allowed to
expand their paging services beyond their existing coverage areas. Additionally,
on other 929 MHz frequencies, the Company has local exclusivity in the Chicago,
IL area, and for regional exclusivity in the Northeast, Mid-Atlantic, and
(through the A+ Network merger) Southeast areas of the United States.
PCP channels below 900 MHz are still allocated on a shared basis. The
Company obtained a 152.480 MHz shared frequency network through its merger with
A+ Network. Applications for those frequencies are first processed through a
frequency coordinator, which attempts to minimize overcrowding on a given
frequency. The coordinator then files the applications with the FCC, which
processes them on a first-come, first-served basis. So long as a given PCP
frequency is not congested with multiple licensees, the subscriber would not
perceive any differences between shared PCP services and exclusive paging
services. In most areas of the country where the Company holds shared PCP
licenses, the Company is the only paging operator, or one of only a few
operators, licensed on its particular frequency in that area.
In August of 1993, as part of its Omnibus Budget Reconciliation Act (the
"Budget Act"), Congress amended the Communications Act to, inter alia, replace
the prior common carrier and private radio definitions with two newly defined
categories of mobile radio services: (1) CMRS (commercial mobile radio service)
and (2) PMRS (private mobile radio service). The CMRS definition essentially
supplants the prior RCC definition. The FCC has determined that PCP and RCC
paging services are classified as CMRS. The FCC has adopted technical,
operational and licensing rules for CMRS, which became effective on January 2,
1995, and which became applicable to "grandfathered" PCP operators (including
the Company) on August 10, 1996.
Pursuant to authority granted by the Budget Act, the FCC has "forborne"
from enforcing against all CMRS licensees the following common carrier
regulations under Title II of the Communications Act: any interstate tariff
requirements, including regulation of CMRS rates and practices; the collection
of intercarrier contracts; certification concerning interlocking directorates;
and FCC approval relating to market entry and exit. Additionally, the Budget Act
preempted state authority over CMRS entry and regulation.
Historically, paging licenses have been issued for terms of either 10 years
(for RCCs) or 5 years (for PCPs); all paging licenses issued in the future will
be for 10-year terms. Renewal applications must be approved by the FCC. The
Company's current licenses have expiration dates ranging from 1997 to 2007. In
the past, FCC renewal applications have been routinely granted. Although there
can be no assurance that any future applications filed by the Company will be
approved or acted upon in a timely manner by the FCC, based on its experience to
date, the Company knows of no reason to believe such applications would not be
approved or granted.
The Communications Act also requires prior FCC approval for acquisitions by
the Company of radio licenses held by other companies, as well as transfers of
controlling interests of any entities that hold radio licenses. Although there
can be no assurance that any such future applications filed by the Company will
be approved or acted upon in a timely manner by the FCC, based on its experience
to date, the Company knows of no reason to believe such applications would not
be approved or granted.
The Communications Act places limitations on foreign ownership of CMRS
licenses. These foreign ownership restrictions limit the percentage of Company
stock that may be owned or voted, directly or indirectly, by aliens or their
representatives, foreign governments or their representatives, or foreign
corporations. The Company's Certificate of Incorporation permits the redemption
of the Common Stock from stockholders where necessary to protect the Company's
compliance with there requirements.
The FCC has authority to restrict the operation of licensed radio
facilities or to revoke or modify such licenses. The FCC may adopt changes to
its radio licensing rules at any time, and may impose fines for violations of
its rules. Under certain circumstances, the Company's license applications may
be deemed "mutually exclusive" with those of other paging companies, in which
case, the FCC would select between the mutually exclusive applicants. The FCC
previously used lottery procedures to select between mutually exclusive
applications. Pursuant to authority granted by the Budget Act, the FCC will in
the future select
12
<PAGE> 14
between mutually exclusive CMRS paging applications through competitive bidding
procedures (i.e., auctions).
Paging licenses have traditionally been issued on a site-specific basis. On
February 19, 1997, the FCC adopted rules to issue most paging licenses for
large, FCC-defined service areas. Although the rules are subject to a pending
appeal and potential petitions for reconsideration, if they become "final", the
following changes will occur. Licenses for 929 MHz PCP and 931 MHz RCC
frequencies will be issued for larger geographic areas than licenses for RCC
frequencies in lower frequency bands (which will be licensed in "Economic Areas"
or "EAs"). Shared PCP frequencies will continue to be allocated on a shared
basis and licensed in accordance with existing, site-specific procedures;
however, the FCC is considering changes to the application and licensing rules
for these frequencies. Mutually exclusive geographic area applications for all
RCC frequencies and exclusive 929 MHz PCP frequencies will be awarded through an
auction process. The FCC has stated that it will dismiss all pending mutually
exclusive applications for these frequencies , as well as all applications filed
after July 31, 1996 regardless of mutual exclusivity . A filing "freeze" is in
effect for the non-nationwide, exclusive paging frequencies pending commencement
of the auctions. The FCC has not yet announced when paging auctions will begin,
or the order in which it will make the various frequencies and geographic areas
available for bidding. Incumbent licensees will be able to trade in their
existing licenses for a single "wide-area" license based upon their current
coverage; incumbents will be entitled to interference protection from the
auction winners and will be able to modify their facilities within that area,
but they will not be permitted to expand their existing coverage.
Because auctions are new to paging, the Company cannot predict their impact
on its paging business. At least initially, competitive bidding may increase the
Company's costs of obtaining licenses. The FCC's wide-area licensing and auction
rules may also serve as entry barriers to new participants in the paging
industry. In any service area where the Company is the successful bidder, or
where it trades in its licenses for "wide-area" licenses, the Company will save
on the application costs associated with modifying and adding facilities within
its service areas, and no other entity will be able to apply for the Company's
frequencies within those areas, Conversely, in geographic areas where the
Company is not the high bidder, its ability to expand its service territories in
those geographic areas will be curtailed. The Company's nationwide frequencies
will not be subject to competitive bidding, although the FCC is considering
imposing additional "build-out" requirements on the Company and other nationwide
licensees.
The FCC could change its rules or policies in a manner that could have a
material adverse effect on the Company's business. Such actions could affect the
scope and manner of the Company's services, or could lead to increased
competition in the paging industry. Other changes may have a positive impact for
the Company. For example, under the Telecommunications Act of 1996 (the "Telecom
Act") and the FCC's interpreting orders, local exchange carriers ("LECs") are
prohibited from charging paging carriers for the "transport and termination" of
LEC-originated local calls. This could lead to substantial cost savings for the
Company. Moreover, under the Telecom Act and the FCC's rules, paging services
are entitled to compensation from any telecommunications carrier that terminates
a call on a paging network. This could lead to additional revenues for paging
carriers. The Company cannot predict the final outcome of any FCC proceeding or
the possible impact of future FCC proceedings.
State. The Budget Act preempts all state and local rate and entry
regulation of all CMRS operators. The Budget Act became effective August 10,
1994. Entry regulations typically refer to the process whereby an RCC operator
must apply to the state to obtain a certificate to provide service in that
state. Rate regulation typically refers to the requirement that RCC operators
file a tariff describing the Company's rates, terms and conditions by which it
provides paging services. Apart from rate and entry regulations, some states may
continue to regulate other aspects of the Company's business in the form of
zoning regulations, or "health and safety" measures. The Budget Act does not
preempt state authority to regulate such matters. Although there can be no
assurances given with respect to future state regulatory approvals, based on its
experience to date, the Company knows of no reason to believe such approvals
would not be granted. The Telecom Act requires that state and local zoning
regulations shall not unreasonably discriminate among providers of "functionally
equivalent" wireless services, and shall not have the effect of prohibiting the
provision of personal wireless services. The Telecom Act provides for expedited
judicial review of state and local zoning decisions.
13
<PAGE> 15
Additionally, state and local governments may not regulate the placement,
construction and modification of personal wireless service facilities on the
basis of the environmental effects of radio frequency emissions, if the
facilities comply with the FCC's requirements.
Pursuant to the Budget Act's preemption provisions, in August 1994, eight
states petitioned the FCC to retain rate regulation authority over intrastate
CMRS operators. The FCC denied those petitions, and all appeals before the FCC
have been exhausted. One state, Connecticut, filed an appeal of the FCC's order
denying its petition with the U.S. Court of Appeals for the Second Circuit; the
Second Circuit affirmed the FCC's decision in early 1996.
Legislative Changes. From time to time, federal and state legislators
propose legislation that could affect the Company's business, either
beneficially or adversely. For example, the Budget Act requires the FCC to hold
public auctions to award new PCS licenses throughout the United States. While
PCS services do not pose an imminent threat to the Company's business, such
regulatory and legislative actions may increase competition and affect the
Company's cost of operations. The recently-enacted Telecom Act will also have an
impact on the paging industry; the Company expects that that impact will be
mostly positive. For example, the Telecom Act imposes a duty on all
telecommunications carriers to provide interconnection to other carriers, and
requires LECs to, among other things, establish reciprocal compensation
arrangements for the transport and termination of calls, provide other
telecommunications carriers access to the network elements on an unbundled basis
on reasonable and non-discriminatory rates, terms and conditions. The Telecom
Act also requires the FCC to appoint an impartial entity to administer
telecommunications numbering and to make numbers available on an equitable
basis. Additionally, as previously indicated, the Telecom Act restricts state
and local authority with regard to zoning and environmental regulation of
telecommunications operators. Other provisions of the Telecom Act, however, may
provide for increased competition to the Company (for example, the provisions
allowing the FCC to forbear from applying regulations and provisions of the
Communications Act to any class of carriers, not only to CMRS, and the
provisions allowing public utilities to provide telecommunications services
directly) and may impose additional regulatory costs (for example, provisions
requiring contributions to universal service by providers of both interstate and
intrastate telecommunications). The Company cannot predict the impact of such
legislative actions on its operations.
The foregoing description of certain regulatory factors does not purport to
be a complete summary of all present and proposed legislation and regulations
pertaining to the Company's operations.
SEASONALITY
Generally, Metrocall's operating results are not significantly affected by
seasonal factors. However, selected markets reflect slower new pager
replacements during the winter months.
TRADEMARKS; SERVICE MARKS
"Metrocall" is a registered trademark with the U.S. Patent and Trademark
Office ("Trademark Office") and is owned by the Company. The Company markets its
paging services under the service marks "Datacall," "Metronet" and
"Metromessage." In addition, the Company owns the service marks "In Touch,"
which it has used in connection with its paging services, and "Metrotext", which
it has used in connection with its marketing of computer programs designed for
use in transmitting alphanumeric messages from personal computers to pagers.
Copyright registration has been granted to the Metrotext computer program.
During 1996, the Trademark Office granted service marks for "Metrofax" and "The
Power in Paging." The Company has applications with the Trademark Office for
service marks "One Touch," "EZ Pack Paging" and "Notesender."
EMPLOYEES
As of December 31, 1996, the Company had 2,321 full and part-time
employees, none of whom is represented by a labor union. The Company believes
that its relationship with its employees is good.
14
<PAGE> 16
ITEM 2. PROPERTIES
The Company does not hold title to any real property, although the Company
and its affiliates own interests in certain properties. At December 31, 1996,
the Company leased commercial office and retail space at approximately 130
locations in approximately 32 markets used in conjunction with its paging
operations. These office leases provide for monthly payments ranging from
approximately $450 to $40,000 and expire, subject to renewal options, on various
dates through July 2010.
In April 1994, Metrocall entered into a 10-year lease for additional office
space near its existing headquarters building. The lease may be renewed for two
additional five-year periods. The lease provided for initial annual rent of
approximately $450,000 or $37,500 per month, with annual escalation of 3%. In
connection with this lease, Metrocall also has an option, exercisable from
January 2, 1995 through December 31, 1997, to acquire a 51% interest in the
property for approximately $2.9 million. On January 1, 1997, the Company expand
the office space under this lease increasing total payments to approximately
$68,000 per month.
The Company leases sites for its transmitters on commercial broadcast
towers, buildings and other fixed structures. During 1996, the Company leased
transmitter sites for monthly rentals ranging from approximately $100 to $6,000
that expire, subject to renewal options, on various dates through June 2012.
ITEM 3. LITIGATION
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.
15
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Stockholders held on November 6, 1996, the
following proposals were adopted by the vote specified below:
<TABLE>
<CAPTION>
BROKER
PROPOSAL FOR AGAINST ABSTAIN NONVOTES
- ---------------------------------------------------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C>
Ratification of Merger Agreement by and between
Metrocall, Inc. and A+ Network, Inc. ............. 10,048,433 222,941 16,227 3,643,500
Amendment to the Amended and Restated Certificate of
Incorporation of Metrocall to increase the number
of authorized shares of common stock from
26,000,000 to 33,500,000.......................... 13,520,927 391,674 18,500 --
Amendment to the Metrocall 1996 Stock Option Plan to
increase the number of shares of common stock that
may be issued thereunder by 1,000,000............. 6,483,649 3,597,233 50,836 3,799,383
</TABLE>
16
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Common Stock is quoted and traded on The Nasdaq National Market under
the symbol "MCLL." The following table sets forth for the periods indicated the
high and low closing prices per share of the Common Stock as reported by The
Nasdaq National Market.
<TABLE>
<CAPTION>
CALENDAR YEAR 1995 HIGH LOW
---------------------------------------------------------- ------ --------
<S> <C> <C>
Quarter ended March 31.................................... $18 $14 1/2
Quarter ended June 30..................................... 18 3/8 17
Quarter ended September 30................................ 29 18
Quarter ended December 31................................. 28 1/4 19 1/2
CALENDAR YEAR 1996
----------------------------------------------------------
Quarter ended March 31.................................... $21 1/4 $16 1/2
Quarter ended June 30..................................... 21 3/4 10
Quarter ended September 30................................ 11 6 1/4
Quarter ended December 31................................. 7 1/8 313/16
</TABLE>
On February 28, 1997, the last reported sales price of the Common Stock on
The Nasdaq National Market was $5 3/4 per share. As of February 28, 1997, the
Company had approximately 299 stockholders of record.
Dividend Policy. The Company has not declared or paid any cash dividends
or distributions on its capital stock since its initial public offering of
Common Stock in 1993. The Company currently intends to retain future earnings to
finance the growth and development of its business and does not anticipate
paying any cash dividends on the Common Stock in the foreseeable future. Future
cash dividends, if any, will be determined by the Board of Directors, and will
be based upon the Company's earnings, capital requirements, financial condition
and other factors deemed relevant by the Board of Directors. In addition,
certain covenants in the Company's Credit Facility, its Indenture and the terms
of the Series A Convertible Preferred Stock restrict or prohibit the payment of
cash dividends on the Company's Common Stock.
Unregistered Securities. On November 15, 1996, the Company issued 159,600
shares of Series A Convertible Preferred Stock ("Series A Preferred Stock") and
159,600 warrants representing the right to purchase an aggregate of 2.915
million shares of Metrocall Common Stock ("Warrants"). The aggregate purchase
price for the Series A Preferred Stock and the Warrants was $39.9 million. The
purchasers of these securities were John Hancock Mutual Life Insurance Company,
SunAmerica, Inc. and UBS Capital, LLC. Because the securities were sold to
qualified institutional buyers in a transaction not involving a public offering,
the sale was exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act").
The Series A Preferred Stock has a stated vale of $250 per share, and
carries a 14% dividend (subject to increase upon the occurrence of certain
events) payable in cash or additional shares of Series A Preferred Stock at the
election of the Company, a liquidation preference and redemption value of $250
per share, certain redemption rights and the right to elect directors of
Metrocall. In addition, beginning November 15, 2001, holders of Series A
Preferred Stock have the right to convert their Series A Preferred Stock
(including shares issued as dividends) into shares of Metrocall Common Stock
based upon 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
certain change of control events of Metrocall, as defined in the Certificate of
Designation for the Series A Preferred Stock.
Each Warrant represents to right of the holder to purchase 18,266 shares of
Metrocall Common Stock, or an aggregate of 2.915 million shares. The exercise
price per share is $7.40. The Warrants contain certain provisions for adjustment
in the exercise price in the event Metrocall sells common stock or rights to
purchase common stock in private transactions for less than 125% of the then
current market price and other customary anti-dilution provisions. The Warrants
expire November 15, 2001. The Company has registered under the Securities Act
the resale of shares that may be obtained upon exercise of the Warrants.
17
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company for each
of the five years in the period ended December 31, 1992, 1993, 1994, 1995 and
1996. The historical financial data for each of the five years in the period
ended December 31, 1996, have been derived from the audited consolidated
financial statements of the Company. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes thereto presented elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1992 1993 1994(1) 1995 1996(1)
-------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE,
UNIT, AND PER UNIT DATA)
<S> <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
Product sales..................................... 4,196 4,549 8,139 18,699 25,928
-------- -------- -------- -------- ----------
Total revenues........................... 35,192 37,660 57,855 110,859 149,957
Net book value of products sold................... (3,439) (4,130) (6,962) (15,527) (21,633)
-------- -------- -------- -------- ----------
31,753 33,530 50,893 95,332 128,324
Operating expenses:
Service, rent and maintenance..................... 8,342 9,559 14,014 27,258 38,347
Selling, general and administrative(2)............ 12,341 17,879 20,727 42,353 57,226
Depreciation and amortization..................... 6,594 6,525 13,829 31,504 58,196
-------- -------- -------- -------- ----------
Income (loss) from operations..................... 4,476 (433) 2,323 (5,783) (25,445)
Interest and other (expense) income(3)............ 1,212 77 161 314 (607)
Interest expense.................................. (2,631) (1,331) (3,726) (12,533) (20,424)
-------- -------- -------- -------- ----------
Income (loss) before income tax benefit
(provision) and extraordinary item.............. 3,057 (1,687) (1,242) (18,002) (46,476)
Income tax benefit (provision).................... (69) (59) 152 595 1,021
-------- -------- -------- -------- ----------
Income (loss) before extraordinary item........... 2,988 (1,746) (1,090) (17,407) (45,455)
Extraordinary item(3)............................. -- (439) (1,309) (2,695) (3,675)
-------- -------- -------- -------- ----------
Net income (loss)............................... 2,988 (2,185) (2,399) (20,102) (49,130)
Preferred dividends............................... -- -- -- -- (780)
-------- -------- -------- -------- ----------
Income (loss) attributable to common
stockholders.................................. $ 2,988 $ (2,185) $ (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)
======== ======== ==========
OPERATING AND OTHER DATA:
Units in service (end of period).................. 201,397 247,716 755,546 944,013 2,142,351
EBITDA(4)......................................... $ 11,070 $ 10,923 $ 16,152 $ 27,771 $ 32,751
EBITDA margin(5).................................. 34.9% 32.6% 31.7% 29.1% 25.5%
Net cash provided by operating activities......... $ 8,858 $ 10,929 $ 11,796 $ 14,000 $ 15,608
Net cash provided by (used in) investing
activities...................................... $ 26,127 $(13,598) $(19,227) $(44,528) $(327,904)
Net cash (used in) provided by financing
activities...................................... $(34,167) $ 1,983 $ 9,190 $151,329 $ 199,639
ARPU(6)........................................... $ 13.10 $ 12.29 $ 10.53 $ 9.15 $ 8.01
Average monthly operating expense per unit(7)..... $ 8.74 $ 8.39 $ 7.36 $ 6.71 $ 6.28
Units in service per employee (end of period)..... 730 716 1,007 1,047 1,086
Capital expenditures.............................. $ 3,918 $ 13,561 $ 19,091 $ 44,058 $ 62,110
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)......................... $ 531 $ (1,603) $ (5,277) $116,009 $ (7,267)
Cash and cash equivalents......................... 1,700 1,014 2,773 123,574 10,917
Total assets...................................... 26,180 33,857 200,580 340,614 651,468
Total long-term debt.............................. 31,143 12,102 104,846 154,055 327,792
Total stockholders' equity (deficit).............. (11,374) 13,729 68,136 155,238 166,298
</TABLE>
(Footnotes on following page)
18
<PAGE> 20
NOTES TO SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(1) 1994 and 1996 include the results of operations of acquired companies from
their respective acquisition dates (see Note 3 to consolidated financial
statements).
(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 the Company refinanced balances outstanding under its
then existing credit facilities. As a result of this refinancing the Company
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, the Company 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, the Company 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 the Company's covenants are calculated under the
Indenture and its credit facility. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" for discussion of significant capital requirements and
commitments. EBITDA excludes non-recurring charges for the forgiveness of
certain stockholder notes receivable of approximately $4.8 million in 1993,
and approximately $2.0 million incurred as part of a management
reorganization charge in 1995.
(5) EBITDA margin is calculated by dividing (a) EBITDA by (b) the sum of (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.
19
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
financial statements and the notes thereto which appear elsewhere in this annual
report.
All statements contained herein that are not historical facts, including
but not limited to, statements regarding anticipated future capital
requirements, the Company's future development plans, the Company's ability to
obtain additional debt, equity or other financing, and the Company's ability to
generate cash from operations and further savings from existing operations, are
based on current expectations. These statements are forward looking in nature
and involve a number of risks and uncertainties. Actual results may differ
materially. Among the factors that could cause actual results to differ
materially are the following: the availability of sufficient capital to finance
the Company's business plan on terms satisfactory to the Company; competitive
factors, such as the introduction of new technologies and competitors into the
paging and wireless communications industry; pricing pressures which could
affect demand for the Company's services; changes in labor, equipment and
capital costs; future acquisitions and strategic partnerships; general business
and economic conditions; and the other risk factors described from time to time
in the Company's reports filed with the Securities and Exchange Commission. The
Company wishes to caution readers not to place undue reliance on any such
forward looking statements, which statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
OVERVIEW
Metrocall is the fifth largest paging company in the United States, based
on 2,142,351 pagers in service as of December 31, 1996. From December 31, 1993
to December 31, 1996, the Company has increased its base of pagers in service
from less than 250,000 to more than 2.1 million. This growth has been
accomplished through a combination of internal growth and a program of mergers
and acquisitions. In July, August, and November 1996, Metrocall completed the
Parkway Paging, Satellite Paging, Message Network and A+ Network acquisitions,
respectively. As a result of these acquisitions, Metrocall added approximately
900,000 subscribers to its base of pagers in service. In addition to the
acquisitions, the Company grew its subscriber base by approximately 32% through
internal growth. During 1995, the Company's total pagers in service grew
approximately 25%, exclusively through internal growth. In August and November
1994, Metrocall completed the FirstPAGE acquisition and the MetroPaging
acquisition, respectively. As a result of these acquisitions, Metrocall added
approximately 420,000 subscribers to its base of pagers in service, more than
doubling its total pagers in service during 1994 alone. The consolidated
statements of operations for the years ended December 31, 1994 and 1996 includes
the results of operations for acquired companies from their respective
acquisition dates only. The definitions below relate to management's discussion
of the Company's results of operations that follows.
- Service, rent and maintenance revenues: include primarily monthly,
quarterly, semi-annually and annually billed recurring revenue, not
generally dependent on usage, charged to subscribers for paging and
related services such as voice mail and pager repair and replacement.
Service, rent and maintenance revenues also include revenues derived from
telemessaging, cellular and long distance services.
- Net revenues: include service, rent and maintenance revenues and sales of
customer owned and maintained ("COAM") pagers less net book value of
pagers sold.
- Service, rent and maintenance expenses: include costs related to the
management, operation and maintenance of the Company's network systems
and customer support centers.
- Selling and marketing expenses: include salaries, commissions and
administrative costs for the Company's sales force and related marketing
and advertising expenses.
- General and administrative expenses: include executive management,
accounting, office telephone, rents and maintenance, information services
and employee benefits.
20
<PAGE> 22
The Company derives the majority of its revenues from fixed periodic
(usually monthly) fees, generally not dependent on usage, charged to subscribers
for paging services. While a subscriber continues to use the Company's service,
operating results benefit from this recurring revenue stream with minimal
requirements for incremental selling expenses or other fixed costs. The
Company's total revenues have grown from $37.7 million for the year ended
December 31, 1993 to approximately $150.0 million for the year ended December
31, 1996.
In recent years, paging, including paging related services, has been one of
the fastest growing, most cost competitive forms of wireless communications.
Industry experts estimate that total pagers in service will increase to more
than 75 million by the end of the century from approximately 43 million in 1996.
In order to capitalize on this anticipated growth, the Company has expanded its
channels of distribution to include Company-owned and operated retail stores,
strategic partnerships and alliances, franchises and internet sales, among
others; with each focusing on the sale rather than lease of pagers. While there
has been an increase in the percentage of pagers sold through indirect, as
opposed to direct, channels, the Company does not believe this change will have
a material effect on its results of operations or liquidity. The Company's
average monthly service, rent and maintenance revenue per unit ("ARPU") for
paging services for the years ended December 31, 1995 and 1996 was $9.15 and
$8.01, respectively. This decline in ARPU is largely a function of the changing
mix of distribution channels through internal growth and acquisitions and an
overall average ARPU decline of approximately 6.6%. In order to increase
penetration and maximize utilization of its network, the Company emphasizes a
number of distribution channels characterized by lower ARPU, with
correspondingly lower costs. For example, the Company's strategic partners and
third-party resellers do not lease pagers from the Company and generally
purchase services in large quantities at discounted prices. This lower revenue
base is, however, offset by lower sales and administrative costs for their
subscribers. The Company has reduced capital expenditure requirements for these
new customers, as they do not need to make investments in paging equipment for
these subscribers. More customers are purchasing pagers either directly from the
Company or through Company owned retail stores, third-party retail outlets and
the Company's strategic partners. While the Company does not earn lease revenues
from these sold units, the overall capital expenditure requirement is reduced or
eliminated. Enhanced services have partially offset declines in ARPU. The
Company has been successful in marketing enhanced services such as nationwide
paging service and voice mail, to its subscriber base, as well as branded
customer service and billing services for the Company's strategic partners and
franchisees. Such services carry a low incremental cost to the Company. The
Company is attempting to offset declines in ARPU through the expansion of its
distribution channels, continued marketing of enhanced services and expansion
into support functions, including billing and customer service.
The Company's growth and expansion into new markets, whether internal or
through acquisitions, require significant capital investment for the
installation of paging equipment and technical infrastructure. Additionally, the
Company incurred significant expenditures throughout the first three quarters of
1996 while it completed the expansion and buildout of its nationwide network.
The Metrocall Nationwide Network serves the top 100 Standard Metropolitan
Statistical Areas. The Company also purchases pagers for that portion of its
subscriber base that leases equipment from the Company.
The Company's focus is now on integrating its 1996 acquisitions and
increasing the utilization of its networks constructed during 1996. As a result
of the completion of the Company's nationwide network and an emphasis on
distribution channels through which pagers are sold rather than leased, capital
expenditures are expected to be reduced in 1997. The combination of growing
revenues and EBITDA along with reduced levels of capital expenditures should
result in improving leverage ratios and access to capital in future periods.
While the Company has no current outstanding commitments, other than the
agreement to acquire the assets of Page America, the Company will continue to
evaluate strategic acquisition targets in the future. Potential future
acquisitions would be evaluated on significant strategic opportunities such as
geographic coverage and regulatory licenses and other factors including overall
valuation, consideration and availability of financing.
The Company's long-term strategy is to continue to expand its business by
providing paging and other wireless communication services to an increasingly
broad base of subscribers throughout the United States, while increasing total
revenues and EBITDA and de-emphasizing that portion of the business which has
historically leased pagers. The Company believes that increases in revenues from
the sale of pagers and service
21
<PAGE> 23
revenue from providing paging service to such pagers will more than make up for
losses of rental revenues derived from leasing pagers, which has increasingly
involved high volume, lower margin transactions. The Company is seeking to
increase its base of subscribers by expanding its operations in existing,
contiguous and other markets, through start-up operations and internal growth.
As discussed above, the Company significantly expanded its geographic coverage
and subscriber base through four acquisitions in 1996. Furthermore, the Company
has signed a definitive acquisition agreement to acquire the assets of Page
America, as discussed below.
22
<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth the percentage of net revenues (total
revenues less the net book value of products sold) represented by certain items
in the Company's Consolidated Statements of Operations and certain other
information for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- ---------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Service, rent and maintenance..................... 97.7% 96.7% 96.7%
Product sales..................................... 16.0 19.6 20.2
Net book value of products sold................... (13.7) (16.3) (16.9)
----- ----- -----
Net revenues................................. 100.0 100.0 100.0
----- ----- -----
Operating expenses:
Service, rent and maintenance..................... 27.4 28.6 29.9
Selling and marketing............................. 14.6 16.4 18.9
General and administrative........................ 26.2 25.9 25.7
Depreciation and amortization..................... 27.2 33.1 45.4
Management reorganization charge.................. -- 2.1 --
----- ----- -----
Income (loss) from operations........................ 4.6 (6.1) (19.9)
Interest and other income............................ 0.3 0.3 (0.5)
Interest expense..................................... (7.3) (13.1) (15.9)
Loss before extraordinary item....................... (2.1) (18.3) (35.5)
Loss attributable to common stockholders............. (4.7)% (21.1)% (38.9)%
OTHER DATA:
Units in service (end of period)..................... 755,546 944,013 2,142,351
EBITDA (in thousands)(1)............................. $16,152 $27,771 $ 32,751
Ratio of EBITDA to net revenues(1)................... 31.7% 29.1% 25.5%
ARPU(2).............................................. $ 10.53 $ 9.15 $ 8.01
Average monthly operating cost per unit(3)........... $ 7.36 $ 6.71 $ 6.28
</TABLE>
- ---------------
(1) EBITDA (earnings before interest, taxes, depreciation and amortization and
certain one-time charges), 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. EBITDA is, however, an approximation of
the primary financial measure by which the Company's covenants are
calculated under the Indenture and its credit facility. See "-- Liquidity
and Capital Resources" for discussion of significant capital requirements
and commitments. EBITDA excludes one-time, non-recurring charges for
severance and other compensation costs of approximately $2.0 million
incurred as a part of a management reorganization charge in 1995.
(2) 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.
(3) 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 a non-recurring charge of
approximately $2.0 million incurred as a part of a management reorganization
in 1995.
23
<PAGE> 25
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH DECEMBER 31, 1995
Total revenues increased approximately $39.1 million from $110.9 million in
the year ended December 31, 1995 ("1995") to approximately $150.0 million for
the year ended December 31, 1996 ("1996"). Net revenues increased approximately
$33.0 million, or 34.6% from $95.3 million in 1995 to $128.3 million in 1996.
The increase is attributable to greater service revenues due to the growth of
pagers in service from 944,013 at December 31, 1995 to 2,142,351 at December 31,
1996. The Parkway, Satellite Paging, Message Network and A+ Network
acquisitions, completed in July, August and November 1996, respectively, added
approximately 900,000 pagers to the Company's subscriber base. Operations of the
acquired companies are included in the results of operations from their
respective acquisition dates. ARPU for paging services has declined from $9.15
in 1995 to $8.01 in 1996 due primarily to the increase in the base of customers
serviced through indirect channels (which generally have lower ARPU due to
volume discounts) and an overall decline in monthly rates of approximately 6.6%
during 1996. On a pro forma basis, assuming each of the acquisitions occurred on
January 1, 1996, the ARPU for paging services (excluding long distance,
telemessaging and cellular services) is estimated to have been $8.52 and $8.21
per month for the year and quarter ended December 31, 1996. Factors affecting
ARPU in future periods include distribution mix of new subscribers, competition
and new technologies, among others. There can be no assurance that ARPU will not
decline in future periods.
Net book value of products sold increased approximately $6.1 million from
$15.5 million in 1995 to $21.6 million in 1996. The gross margin on products
sold decreased from 17.0% in 1995 to 16.6% in 1996. Net book value of products
sold increased principally due to the increase in product sales, partially
offset by increased depreciation expense.
Overall, the Company has experienced a decrease in total average operating
expenses per unit in service (operating expenses per unit before depreciation
and amortization) from 1995 to 1996. Average monthly operating expenses per unit
decreased from $6.71 for 1995 to $6.28 for 1996. Each component of operating
expenses is discussed separately below. Acquisitions require integration of each
company's administrative, finance, sales and marketing organizations, as well as
the integration of each company's technical network operations. Until the
operations of A+ Network are fully integrated, the Company expects average
operating expenses per unit to increase in 1997 from historical 1996 amounts. On
a pro forma basis, assuming that all acquisitions were completed as of January
1, 1996, the Company's average monthly total operating expense per unit in
service is estimated to have been approximately $7.05 for 1996 and $6.63 for the
quarter ended December 31, 1996. The increase in average monthly total operating
expense per unit is primarily due to higher overall per unit operating costs and
a lower number of subscribers per employee in the A+ Network operations.
Service, rent and maintenance expenses increased approximately $11.0
million from $27.3 million in 1995 to $38.3 million in 1996 and increased as a
percentage of net revenues from 28.6% in 1995 to 29.9% in 1996. The Company
estimates that this overall increase in service, rent and maintenance expenses
is primarily attributable to the acquisitions of Parkway Paging ($1.1 million),
Satellite Paging and Message Network ($1.2 million), and A+ Network ($2.4
million) and increased carrier line costs paid to third party service providers
($2.8 million), increased transmitter site rental costs associated with expanded
system coverage ($1.7 million) and increased personnel costs ($1.7 million). On
a per unit basis, monthly service, rent and maintenance expenses decreased from
$2.71 in 1995 to $2.52 in 1996 as a result of combining operations for greater
efficiencies. On a pro forma basis, assuming that all acquisitions were
completed as of January 1, 1996, the Company's average monthly service, rent and
maintenance expense per unit in service is estimated to have been approximately
$2.55 for 1996 and $2.33 for the quarter ended December 31, 1996.
Selling and marketing expenses increased approximately $8.5 million from
$15.7 million in 1995 to $24.2 million in 1996 and increased as a percentage of
net revenues from 16.4% in 1995 to 18.9% in 1996. The Company estimates this
increase in selling and marketing expenses is primarily associated with the
acquisitions of Parkway Paging ($0.7 million), Satellite Paging and Message
Network ($0.5 million), and A+ Network ($2.6 million) and in part due to
increased personnel costs, including salaries and commissions, ($3.6 million),
advertising and promotion ($0.7 million), rents ($0.2 million) and travel
expenses ($0.2
24
<PAGE> 26
million). Monthly selling and marketing expenses per unit have increased
slightly from $1.55 in 1995 to $1.59 in 1996, due primarily to increasing the
Company's sales force as a result of acquisitions in new geographic areas for
the Company. Selling and marketing expenses may increase as a percentage of
revenue as the Company continues to increase markets and expand geographic
coverage. On a pro forma basis, assuming that all acquisitions were completed as
of January 1, 1996, the Company's average monthly selling and marketing expense
per unit in service for the year and quarter ended December 31, 1996 is
estimated to have been approximately $1.77 and $1.68, respectively.
General and administrative expenses increased approximately $8.4 million
from $24.6 million in 1995 to $33.0 million in 1996 and decreased as a
percentage of net revenues from 25.9% in 1995 to 25.7% in 1996. The Company
estimates that this increase in general and administrative expenses is primarily
attributable to the acquisitions of Parkway Paging ($0.3 million), Satellite
Paging and Message Network ($0.5 million) and A+ Network ($3.7 million) from
their respective acquisition dates, offset by synergies resulting from the
reduction of duplicative functions, and in part due to increased expenses for
collection activities ($0.6 million), professional services, including legal and
accounting fees, ($1.2 million) and general corporate expenses ($2.1 million),
including personnel, taxes and maintenance. Monthly general and administrative
expenses per unit have decreased from $2.45 in 1995 to $2.17 in 1996. On a pro
forma basis, assuming that all acquisitions were completed as of January 1,
1996, the Company's average monthly general and administrative expense per unit
in service for the year and quarter ended December 31, 1996 is estimated to have
been approximately $2.73 and $2.62, respectively.
EBITDA increased approximately $5.0 million from $27.8 million in 1995 to
$32.8 million in 1996. As a percentage of net revenues, EBITDA decreased from
29.1% in 1995 to 25.5% in 1996.
Depreciation and amortization increased approximately $26.7 million from
$31.5 million in 1995 to $58.2 million in 1996 and increased as a percentage of
net revenues from 33.0% to 45.4% for 1995 and 1996, respectively. The Company
estimates that the increase in total depreciation expense resulted from
depreciation on additional pagers in service ($12.2 million) and paging
equipment ($2.7 million), other operating equipment ($3.4 million) and
depreciation of assets acquired in the acquisitions of Parkway, Satellite Paging
and Message Network and A+ Network ($2.0 million). Amortization increased
substantially during 1996 due to the amortization of goodwill and other
intangibles recorded in the acquisitions completed in 1996. 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
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
1996 by approximately $1.3 million.
Interest and other income (expense) decreased approximately $0.9 million
from $0.3 million in 1995 to a loss of $0.6 million in 1996. The decrease is the
result of the recognition of the Company's share of losses of A+ Network (from
June 1996 through November 15, 1996, during which time the Company's investment
was being accounted for under the equity method) of $4.1 million, and the
Company's equity in the Solo America loss ($0.2 million). These losses were
partially offset by a gain recognized on the sale of equipment ($1.2 million)
and increased interest income reflecting higher cash balances in the first half
of 1996.
Interest expense increased approximately $7.9 million from $12.5 million in
1995 to $20.4 million in 1996 primarily due to the Company's 10 3/8% senior
subordinated notes being outstanding all of 1996. Since net proceeds from the
subordinated notes offering were used partially to refinance existing debt, the
impact is to increase interest expense by the marginal increase in the interest
rate of the debt.
During the fourth quarter of 1996, the Company recognized an extraordinary
charge of approximately $3.7 million to expense fees and cash payments incurred
in the tender and consent solicitation for the A+ Network 11 7/8% senior
subordinated notes (the "A+ Notes") outstanding.
The Company's loss attributable to common stockholders increased
approximately $29.8 million from $20.1 million in 1995 to $49.9 million in 1996.
The increase in the loss attributable to common stockholders is primarily
attributable to increased depreciation and amortization expense and increased
interest costs in 1996. The Company's net losses are expected to continue for
additional periods in the future. In addition, the Page
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America acquisition may result in increased net losses as a result of additional
depreciation and amortization and interest expense attributable to the Page
America transaction and borrowings to pay the cash portion of the purchase
price. In November 1996, the Company issued $39.9 million of Series A
Convertible Preferred Stock ("Series A Preferred") together with warrants to
acquire approximately 2.9 million shares of the Company's Common Stock with an
exercise price of $7.40 per share. The Series A Preferred bears dividends at 14%
of the stated value per year. Total dividends accrued but unpaid at December 31,
1996 were approximately $698,000. The total value allocated to the warrants,
$7.9 million or $2.70 per share, will be accreted over the term of the Series A
Preferred as preferred dividends. Since the issuance of the Series A Preferred,
accretion of the allocated value of the warrants was approximately $82,000.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH DECEMBER 31, 1994
Net revenues increased approximately $44.4 million, or 87.2%, from $50.9
million in the year ended December 31, 1994 ("1994"), to $95.3 million for the
year ended December 31, 1995 ("1995"). The increase is attributable to greater
service revenues due to the growth of pagers in service from 755,547 at December
31, 1994 to 944,013 at December 31, 1995. The FirstPAGE and MetroPaging
acquisitions, completed on August 31, 1994 and November 29, 1994, respectively,
added approximately 420,000 pagers in service. Operations of FirstPAGE and
MetroPaging are included in the results of operations from their respective
acquisition dates. ARPU has declined from $10.53 in 1994 to $9.15 in 1995 due
primarily to the increase in the base of customers serviced through indirect
channels and, to a lesser extent, the inclusion of the operations of FirstPAGE
and MetroPaging. Declining ARPU during 1995 is generally offset by increased
sales of enhanced services including the Nationwide Network services. Product
sales increased $10.6 million from $8.1 million in 1994 to $18.7 million in 1995
largely due to the FirstPAGE and MetroPaging acquisitions, and increased as a
percentage of net revenues from 16.0% in 1994 to 19.6% in 1995 due to increased
sales to resellers and other indirect sales channels.
Net book value of products sold increased approximately $8.5 million from
$7.0 million in 1994 to $15.5 million in 1995. The gross margin on products sold
increased from 14.5% in 1994 to 17.0% in 1995. Net book value of products sold
increased principally due to the increase in product sales, partially offset by
increased depreciation expense.
Overall, the Company has experienced a decline in total average operating
expenses per unit in service (operating expenses per unit before depreciation
and amortization) from 1994 to 1995. Average monthly operating expenses per unit
decreased from $7.36 for 1994 to $6.71 for 1995. Each operating expense is
discussed separately below.
Service, rent and maintenance expenses increased approximately $13.3
million from $14.0 million in 1994 to $27.3 million in 1995 and increased as a
percentage of net revenues from 27.5% in 1994 to 28.6% in 1995. The Company
estimates that this overall increase in service, rent and maintenance expenses
is primarily attributable to the acquisitions of FirstPAGE ($6.5 million) and
MetroPaging ($5.3 million) and, to a lesser extent, increased carrier line costs
paid to third party service providers ($0.8 million), increased transmitter site
rental costs associated with expanded system coverage ($0.4 million) and
increased personnel costs ($0.3 million). On a per-unit basis, monthly service,
rent and maintenance expenses declined from $2.97 in 1994 to $2.71 in 1995 as a
result of increased efficiencies due largely to the integration of the FirstPAGE
and MetroPaging operations.
Selling and marketing expenses increased approximately $8.2 million from
$7.4 million in 1994 to $15.6 million in 1995 and increased as a percentage of
net revenues from 14.6% in 1994 to 16.4% in 1995. The Company estimates this
increase in selling and marketing expenses is primarily associated with the
acquisitions of FirstPAGE ($2.5 million) and MetroPaging ($4.2 million), and in
part due to increased personnel costs ($1.2 million) and travel expenses ($0.3
million). Additionally, the Company commenced operations in six new markets
during 1995 including Boston, Pittsburgh, Miami, San Diego, Phoenix and Las
Vegas. Monthly selling and marketing expenses per unit have declined from $1.57
in 1994 to $1.55 in 1995, due primarily to efficiencies gained by consolidating
the Company's sales force with those of FirstPAGE and
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MetroPaging. Selling and marketing expenses may increase as a percentage of
revenue as the Company continues to increase markets and expand geographic
coverage.
General and administrative expenses increased approximately $11.3 million
from $13.3 million in 1994 to $24.6 million in 1995 and decreased as a
percentage of net revenues from 26.2% in 1994 to 25.9% in 1995. The Company
estimates that this increase in general and administrative expenses is primarily
attributable to the acquisitions of FirstPAGE ($7.2 million) and MetroPaging
($4.9 million) from their respective acquisition dates, offset by synergies
resulting from the reduction of duplicative functions and lower personnel costs
($0.8 million). Monthly general and administrative expenses per unit have
declined from $2.82 in 1994 to $2.45 in 1995. General and administrative
expenses per unit should continue to decline as the Company realizes continued
benefits from the integration of its back-office operations and economies of
scale.
In 1995, the Company recognized a charge for $2.0 million as a management
reorganization charge to accrue for severance and other compensation costs
associated with the replacement of the Company's Chairman of the Board and
resignation of its Chief Executive Officer. In addition, the Company instituted
a reduction-in-force whereby certain non-sales positions were eliminated.
Management estimates the reorganization and reduction-in-force will result in
approximately $1.0 million of savings in 1996.
EBITDA increased approximately $11.6 million from $16.2 million in 1994 to
$27.8 million in 1995. As a percentage of net revenues, EBITDA decreased from
31.7% in 1994 to 29.1% in 1995.
Depreciation and amortization increased approximately $17.7 million from
$13.8 million in 1994 to $31.5 million in 1995 and increased as a percentage of
net revenues from 27.2% to 33.1% for 1994 and 1995, respectively. The Company
estimates that the increase in total depreciation expense resulted from
depreciation on additional pagers in service ($5.8 million) and paging equipment
($2.1 million), other operating equipment ($1.2 million) and depreciation of
assets acquired in the FirstPAGE acquisition ($2.6 million) and MetroPaging
acquisition ($1.1 million). Amortization increased substantially during 1995 due
to the amortization of goodwill and other intangibles recorded in the
acquisitions of FirstPAGE ($3.2 million) and MetroPaging ($1.7 million).
Beginning in the quarter ended September 30, 1995, the Company began recording
all purchases of new pagers as a component of subscriber paging equipment.
Amounts previously classified as inventories in the prior year financial
statements have been reclassified to conform to the current period's
presentation. This resulted in an increase to depreciation expense of
approximately $2.7 million.
Interest and other income increased approximately $0.1 million from $0.2
million in 1994 to $0.3 million in 1995. The increase is the result of interest
earned on cash balances, resulting from the completion of public offerings of
4.0 million shares of the Company's common stock and $150.0 million Senior
Subordinated Notes, net of amounts used to repay existing debt and other costs
largely offset by breakage fees of $1.7 million associated with the termination
of two interest rate swap agreements.
Interest expense increased approximately $8.8 million from $3.7 million in
1994 to $12.5 million in 1995. Interest expense increased due to the completion
in October 1995 of the Company's public offering of senior subordinated notes
bearing interest at 10 3/8%, payable semiannually on April 1 and October 1, due
2007. This raised the Company's average level of debt outstanding and increased
the average interest rate in effect in 1995.
During the fourth quarter of 1995, the Company recognized an extraordinary
charge of $2.7 million to expense unamortized debt financing costs and other
costs associated with the repayment of balances outstanding on its credit
agreement in October 1995.
The Company's net loss increased approximately $17.7 million from $2.4
million in 1994 to $20.1 million in 1995.
INFLATION
Inflation is not a material factor affecting the Company's business. Paging
system equipment and operating costs have not increased while pager costs have
declined significantly in recent years. This reduction
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in costs has been reflected in lower prices charged to the Company's
subscribers. General operating expenses such as salaries, employee benefits and
occupancy costs are, however, subject to inflationary pressures.
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 fiscal years ending after December 15,
1997, and when adopted, it will require restatement of prior years' earnings per
share.
Since the effect of outstanding options 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require the availability of substantial funds to
finance the growth of its existing paging operations and customer base,
development and construction of future wireless communications networks,
expansion into new markets and the acquisition of other wireless communications
companies. Further cash requirements also include debt service, working capital
and general corporate requirements.
The Company has financed its internal growth in 1996 through its operating
cash flow, the use of available cash and, to a limited extent, borrowings under
the Company's credit facility. Net cash provided by operating activities
increased from $14.0 million for the year ended December 31, 1995 to $15.6
million for the year ended December 31, 1996. Of the $125.0 million of A+ Notes
outstanding, the Company refinanced approximately $122.5 million under its
credit facility. Through the refinancing of the A+ Notes, the Company expects to
lower its overall interest costs in future periods. See Note 7 to the Company's
consolidated financial statements for a discussion of the Company's credit
facility and other indebtedness.
At December 31, 1996, the Company had a deficit in working capital of
approximately $7.3 million. The Company has experienced such deficits in prior
years and such deficits are likely to continue. Pursuant to the Page America
acquisition, the Company will assume current liabilities of Page America. This
may result in a significant increase in the Company's working capital deficit.
The Company attempts, when possible, to finance its growth through operating
cash flow and available cash balances rather than incurring additional
indebtedness. As a result, purchases of noncurrent assets, including pagers and
other network and transmission equipment, may be financed with current
liabilities (e.g., accounts payable), causing a deficit in working capital. The
Company currently has sufficient borrowing capacity available under its credit
facility, discussed below, to fund the working capital deficit at December 31,
1996.
Cash flows used in investing activities were primarily to fund purchases of
property and equipment and complete the acquisitions of Parkway, Satellite
Paging, Message Network and A+ Network. Capital expenditures were approximately
$62.1 million and $44.1 million for the years ended December 31, 1996 and 1995,
respectively. The Company experienced much greater capital expenditure
requirements in 1996 due to the completion of the Company's Nationwide Network,
the expansion and upgrading of the Company's management information, database
and customer service systems and increased pager placements. In June 1996, the
Company completed a cash offer for approximately 4.4 million shares of the
outstanding common stock of A+ Network for $91.8 million. In July and August
1996, the Company acquired Parkway and Satellite Paging and Message Network,
respectively. The acquisitions of Parkway and Satellite were financed primarily
with cash payments totaling approximately $45 million and the issuance of shares
of the Company's Common Stock.
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Cash flows provided by financing activities for the year ended December 31,
1996, included payments on long-term debt approximately $25.5 million.
Borrowings under the Company's credit facility increased by approximately $194.9
million primarily for the acquisitions of Parkway ($28 million), Satellite and
Message Network ($17 million) and the purchase of the A+ Notes ($122.5 million)
and other working capital requirements. Borrowings under the Company's credit
facility are expected to further increase to finance the cash portion of the
Page America acquisition ($25 million plus, at the Company's option, additional
cash in substitution for all or a portion of the consideration payable in
securities of the Company). In November 1996, the Company sold Series A
Preferred, bearing dividends at 14% of the stated value per year, to a group of
investors. Net proceeds were approximately $38.3 million. Dividends on the
Series A Preferred may be paid in either cash or additional shares of Series A
Preferred, at the Company's option. However, under certain circumstances, as
defined in the certificate of designation, the dividend rate may increase to 16%
and dividends must be paid in cash to the extent permitted by the terms of the
Company's debt agreements. Further, Metrocall is required to redeem all
outstanding shares of Series A Preferred (including dividend shares) in November
2008 unless the holders have previously converted such shares to Common Stock.
From the net proceeds of the Series A Preferred, the Company repaid $25 million
outstanding under the credit facility.
Total capital expenditures during 1997 are estimated to be approximately
$60 million primarily for the acquisition of pagers, paging and transmission
equipment and information system enhancement. This estimate does not include the
cash consideration to be paid in the Page America acquisition, or the related
transaction costs, but does include estimated capital expenditures related to
the Page America assets after the acquisition. The Company expects that its
capital expenditures in 1997 will be financed through a combination of operating
cash flow and borrowings. Projected capital expenditures are subject to change
based on the Company's internal growth, general business and economic conditions
and competitive pressures. The Company has aggregate rental commitments under
operating leases of approximately $11.9 million, $9.5 million and $6.4 million
for the years ending December 31, 1997, 1998 and 1999, respectively. Future cash
requirements include debt service costs, primarily interest. Based on existing
debt at December 31, 1996, estimated interest payments, including fees, in 1997
are approximately $31.3 million. Principal payments due in 1997 are
approximately $0.7 million. The Company will complete the acquisition of Page
America Group, Inc. during 1997 which is discussed further below.
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 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.
In connection with the acquisition of A+ Network, stockholders of A+
Network received approximately 8.1 million indexed Variable Common Rights
("VCRs"). 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, and December 31, 1996, the target price was below the fixed floor
price of $16.10 per share resulting in no current obligation under the VCRs.
While the Company currently expects to incur no future obligations related to
the VCRs, there can be no assurance that future changes in the Company's stock
price or in the industry index, as defined in the merger agreement, will not
create an obligation for the Company in the future.
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SENIOR SECURED CREDIT FACILITY
On September 20, 1996, the Company amended and restated 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 million under
two loan facilities. The first facility ("Facility A") is a $225 million
reducing revolving credit facility and the second ("Facility B") is a $125
million 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 $169.9 million was
outstanding under the New Credit Facility. At January 1, 1997, total additional
borrowings available to the Company under the credit facility were approximately
$46.5 million. On January 14, 1997, the Company increased its borrowings under
the credit facility by $10 million primarily to fund working capital
requirements.
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 covenants also limit
additional indebtedness and future mergers and acquisitions (other than the
pending transaction with Page America discussed below) without the approval of
the lenders, and restrict the payment of cash dividends and other stockholders
distributions by Metrocall during the term of the New Credit Facility. The New
Credit Facility also prohibits certain changes in ownership control of
Metrocall, as defined, during the term of the New Credit Facility.
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, (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, (b) 1,500 shares of Series B
Preferred Stock having 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 to the Company's
Consolidated Financial Statements) having a value equal to $15 million, subject
to adjustment based on certain changes in Page America's working capital and
service revenues. Under the terms of the Page America Agreement, the Company has
retained the option to substitute cash at closing for all or a portion of the
equity securities that are part of the consideration. 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 for financial reporting purposes. The Company expects to finance the
cash portion of the purchase price with borrowings under its credit facility by
leveraging Page America's operating cash flow as permitted under the agreement
governing the New Credit Facility.
ADDITIONAL FACTORS AFFECTING FUTURE OPERATING RESULTS AND FINANCIAL CONDITION
The ability of the Company to meet its debt service and other obligations
will be dependent upon the future performance of the Company and its cash flows
from operations, which will be subject to financial, business and other factors,
certain of which are beyond its control, such as prevailing economic conditions.
Management believes that funds generated from the Company's operations and funds
available under its credit facility will be sufficient to meet projected capital
expenditures and debt service requirements and to fund the Company's operations
for the foreseeable future. Although management has no further obligation to do
so (other than Page America discussed above), it plans to continue to expand its
geographic service areas
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through internal growth and will continue to evaluate potential strategic
acquisition targets in the future which may result in substantial capital
requirements for which additional financing may be required. No assurance can be
given that such additional financing would be available on terms satisfactory to
the Company. Additionally, the following important factors, among others, could
cause the Company's operating results and financial condition to differ
materially from those indicated or suggested by forward looking statements made
in this annual report.
Substantial Indebtedness
At December 31, 1996, the Company had outstanding approximately $327.8
million in long term debt consisting of bank loans, senior subordinated notes,
mortgage indebtedness and capital leases, and expects to incur additional
indebtedness in connection with the Page America acquisition. The Company
increased its borrowings outstanding under its credit facility by $10.0 million
in January 1997. Additionally, the Company expects to incur additional
indebtedness (in the form of draws under the Company's senior secured credit
facility) to meet working capital needs and other purposes. This substantial
indebtedness, along with the net losses and working capital deficits sustained
by the Company in recent periods, will have consequences for the Company,
including the following: (i) the ability of the Company to obtain additional
financing for working capital, capital expenditures, debt service requirements
or other purposes may be impaired; (ii) a substantial portion of the Company's
cash flow from operations will be required to be dedicated to the payment of the
Company's interest expense; (iii) indebtedness under the New Credit Facility
bears interest at floating rates, which will cause the Company to be vulnerable
to increases in interest rates; (iv) the Company may be more highly leveraged
than companies with which it competes, which may place it at a competitive
disadvantage; and (v) the Company may be more vulnerable in the event of a
downturn in its business or in general economic conditions. In addition, the
ability of the Company to access borrowings under its credit facility and to
meet its debt service and other obligations (including compliance with financial
covenants) will be dependent upon the future performance of the Company and its
cash flows from operations, which will be subject to financial, business and
other factors, certain of which are beyond its control, such as prevailing
economic conditions. No assurance can be given that, in the event the Company
were to require additional financing, such additional financing would be
available on terms permitted by agreements relating to existing indebtedness or
otherwise satisfactory to Metrocall.
Possible Impact of Competition and Technological Change
The Company faces competition from other paging companies in all markets in
which it operates. The wireless communications industry is a highly competitive
industry, with price being one of the primary means of differentiation among
providers of numeric messaging services which account for the substantial
majority of the Company's revenues. Companies in the industry also compete on
the basis of coverage area, enhanced services, transmission quality, system
reliability and customer service. Certain of Metrocall's competitors possess
greater financial, technical, marketing and other resources than Metrocall. In
addition, other entities offering wireless two-way communications technology,
including cellular telephone, specialized mobile radio services and personal
communications services, compete with the paging services provided by Metrocall.
There can be no assurance that additional competitors will not enter markets
served by Metrocall or that Metrocall will be able to compete successfully. In
this regard, certain long distance carriers have or have announced their
intention to market paging services jointly with other telecommunications
services.
The wireless communications industry is characterized by rapid
technological change. Future technological advances in the wireless
communications industry could create new services or products competitive with
the paging and wireless messaging services provided or to be developed by
Metrocall. Recent and proposed regulatory changes by the Federal Communications
Commission ("FCC") are aimed at encouraging such services and products.
In particular, in 1994, the FCC began auctioning licenses for new personal
communications services ("PCS"). The FCC's rules also provide for the private
use of PCS spectrum on an unlicensed basis. PCS will involve a network of small,
low-powered transceivers placed throughout a neighborhood, business complex,
community or metropolitan area to provide customers with mobile voice and data
communications. There are
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two types of PCS, narrowband and broadband. Narrowband PCS is expected to
provide enhanced or advanced paging and messaging capabilities, such as
"acknowledgment paging" or "talk-back" paging. Several PCS systems are currently
operational. Additionally, other existing or prospective radio services have
potential to compete with Metrocall. 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 of 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 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 Metrocall.
Moreover, changes in technology could lower the cost of competitive
services and products to a level where Metrocall's services and products would
become less competitive or to where Metrocall would be required to reduce the
prices of its services and products. There can be no assurance that Metrocall
will be able to develop or introduce new services and products to remain
competitive or that Metrocall will not be adversely affected in the event of
such technological developments.
Technological changes also may affect the value of the pagers owned by
Metrocall and leased to its subscribers. If Metrocall's subscribers requested
more technologically advanced pagers, Metrocall could incur additional capital
expenditures if it were required to replace pagers to its subscribers.
History of Net Losses
Metrocall has sustained net losses of $2.4 million, $20.1 million and $49.1
million for the years ended December 31, 1994, 1995 and 1996. No assurance can
be given that losses can be reversed in the future. In addition, at December 31,
1996, Metrocall's accumulated deficit was $96.8 million and Metrocall had a
deficit in working capital of $7.3 million. Metrocall's business requires
substantial funds for capital expenditures and acquisitions that result in
significant depreciation and amortization charges. Additionally, substantial
levels of borrowing, which will result in significant interest expense, are
expected to be outstanding in the foreseeable future. Accordingly, net losses
are expected to continue to be incurred in the future. There can be no assurance
that Metrocall will be able to operate profitably at any time in the future.
Litigation
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.
Subscriber Turnover
The results of operations of paging service providers, such as Metrocall,
can be significantly affected by subscriber cancellations and by subscribers who
switch their service to other carriers. Metrocall's average monthly subscriber
turnover rate for the year ended December 31, 1996 was approximately 2.1%. In
order to realize net growth in subscribers, disconnected subscribers must be
replaced and new subscribers must be added. The sales and marketing costs
associated with attracting new subscribers are substantial relative to the costs
of providing service to existing customers. Because Metrocall's business is
characterized by high fixed costs, disconnections directly and adversely affect
Metrocall's results of operations. An increase in its subscriber cancellation
rate may adversely affect Metrocall's results of operations.
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Potential for Change in Regulatory Environment
Metrocall's paging operations are 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 Metrocall. Changes in regulation of
Metrocall's paging business or the allocation of radio spectrum for services
that compete with Metrocall's business could adversely affect Metrocall's
results of operations. For example, the FCC is currently engaged in a rule
making proceeding whereby it proposes to issue paging licenses on a wide-area
basis by competitive bidding. Although, Metrocall believes that the proposed
rule changes may simplify Metrocall's regulatory compliance burdens,
particularly regarding adding or relocating transmitter sites, those rule
changes may also increase Metrocall's costs of obtaining paging licenses.
Intangible Assets
Intangible assets, net of accumulated amortization, increased from
approximately $129.1 million in 1995 to approximately $452.6 million in 1996
primarily as a result of the Company's 1996 acquisitions of Parkway, Satellite,
Message Network and A+ Network. At December 31, 1996, the Company's total assets
of approximately $651.5 million included net intangible assets of approximately
$452.6 million. Intangible assets include state certificates and FCC licenses,
customer lists, debt financing costs, goodwill and certain other intangibles.
The Company will record, for financial reporting purposes, additional intangible
assets in connection with its acquisition of the assets of Page America in 1997.
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. The Company's estimates
of anticipated gross revenues, the remaining estimated lives of tangible and
intangible assets, or both, could be reduced significantly in the future due to
changes in technology, regulation, available financing and competitive pressures
in any of the Company'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.
33
<PAGE> 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants................ F-2
Financial Statements:
Consolidated Balance Sheets, December 31, 1995 and 1996................. F-3
Consolidated Statements of Operations for the three years ended December
31, 1994, 1995 and 1996................................................ F-4
Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1994, 1995 and 1996................................. F-5
Consolidated Statements of Cash Flows for the three years ended December
31, 1994, 1995 and 1996................................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
Financial Statement Schedule:
Report of Arthur Andersen LLP, Independent Public Accountants........... F-28
Schedule II Valuation and Qualifying Accounts........................... F-29
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors and executive officers of the Company
is incorporated by reference from the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held on May 7, 1997, (the "1997 Proxy Statement")
under the caption "Election of Directors -- Information as to Nominees and
Continuing Directors."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference
from the 1997 Proxy Statement under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the stock ownership of each person known to the
Company to be the beneficial owner of more than 5% of the Common Stock, of each
director and executive officer of Metrocall and all directors and executive
officers as a group is incorporated by reference from the 1997 Proxy Statement
under the caption "Beneficial Ownership of Common Stock."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated by reference from the 1997 Proxy Statement under the caption
"Certain Relationships and Related Transactions."
34
<PAGE> 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements are included in Part II Item 8.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants................ F-2
Financial Statements:
Consolidated Balance Sheets, December 31, 1995 and 1996................. F-3
Consolidated Statements of Operations for the three years ended December
31, 1994, 1995 and 1996................................................ F-4
Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1994, 1995 and 1996................................. F-5
Consolidated Statements of Cash Flows for the three years ended December
31, 1994, 1995 and 1996................................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
Financial Statement Schedule:
Report of Arthur Andersen LLP, Independent Public Accountants........... F-28
Schedule II Valuation and Qualifying Accounts........................... F-29
</TABLE>
All other schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in the financial statements
or notes thereto.
(b) Reports on Form 8-K
A report dated October 1, 1996, regarding the acquisition of Satellite
Paging and Message Network.
A report dated October 31, 1996, regarding the earnings release for
the quarter ended September 30, 1996.
Reports dated November 7, 1996, November 15, 1996 and November 21,
1996, regarding the issuance of Series A Convertible Preferred Stock. Also
included in the report dated November 15, 1996, was information regarding
the A+ Network, Inc. merger.
(c) Exhibits
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
2.1 Amended and Restated Asset Purchase Agreement by and among Page America Group, Inc.,
Page America of New York, Inc., Page America of Illinois, Inc., Page America
Communications of Indiana, Inc., Page America of Pennsylvania, Inc. (collectively,
"Page America") and Metrocall, Inc. ("Metrocall") dated as of January 30, 1997.(a)
2.2 Amendment to Asset Purchase Agreement by and among Page America and Metrocall dated
as of March 28, 1997.(a)
3.1 Amended and Restated Certificate of Incorporation of Metrocall (the
"Certificate").(d)
3.2 Certificate of Amendment to the Certificate dated June 25, 1996.(d)
3.3 Certificate of Amendment to the Certificate dated November 12, 1996.*
3.4 Fifth Amended and Restated Bylaws of Metrocall.*
4.1 Indenture, including form of 10 3/8% Senior Subordinated Notes due 2007.(b)
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
4.2 Indenture for A+ Network, Inc. 11 7/8% Senior Subordinated Notes due 2005 dated
October 24, 1995.(l)
4.3 First Supplemental Indenture dated November 14, 1996, for A+ Network, Inc. 11 7/8%
Senior Subordinated Notes due 2005.*
4.4 Second Supplemental Indenture dated November 15, 1996, for A+ Network, Inc. 11 7/8%
Senior Subordinated Notes due 2005.*
10.1 Agreement and Plan of Merger dated as of May 16, 1996, between Metrocall, Inc. and
A+ Network, Inc.(c)
10.2 Amendment to Agreement and Plan of Merger between Metrocall, Inc. and A+ Network,
Inc.(d)
10.3 Shareholders' Option and Sale Agreement dated as of May 16, 1996 between Metrocall,
Inc. and certain shareholders of A+ Network, Inc. listed therein.(c)
10.4 Metrocall Stockholders Voting Agreement dated as of May 16, 1996 between A+ Network,
Inc. and certain stockholders of Metrocall, Inc., listed therein.(c)
10.5 Agreement dated May 16, 1996 among Metrocall, Inc. and Ray D. Russenberger and
Elliott H. Singer regarding voting for director.(c)
10.6 Employment Agreement between Metrocall and Vincent D. Kelly.(d)
10.7 Employment Agreement between Metrocall and William L. Collins, III.(d)
10.8 Employment Agreement between Metrocall and Steven D. Jacoby.(d)
10.9 Agreement and Plan of Merger entered into effective the 26th day of April between A+
Network, Inc. ("ACOM"), a Louisiana corporation to be formed as a wholly-owned
subsidiary of ACOM, Radio and Communications Consultants, Inc., Advanced Cellular
Telephone, Inc., Leroy Faith, Sr. and Eddie Ray Faith, DeWayne Faith and Leroy Faith
Jr.(d)
10.10 Non-disclosure/No Conflict Agreement dated May 16, 1996 between Metrocall, Inc. and
Ray D. Russenberger.(c)
10.11 Non-disclosure/No Conflict Agreement dated May 16, 1996 between Metrocall, Inc. and
Elliott H. Singer.(c)
10.12 Employment Agreement dated May 16, 1996 between Metrocall, Inc. and Charles A.
Emling III.(c)
10.13 Change of Control Agreement between Metrocall and Vincent D. Kelly.(d)
10.14 Change of Control Agreement between Metrocall and William L. Collins, III.(d)
10.15 Change of Control Agreement between Metrocall and Steven D. Jacoby.(d)
10.16 Agreement of Merger by and among Metrocall, Inc., PPI Acquisition Corp., Parkway
Paging, Inc. certain shareholders of Parkway Paging, Inc., and George W. Bush, dated
February 26, 1996.(e)
10.17 Asset Purchase Agreement by and among O.R. Estman, Inc. d/b/a Satellite Paging, Dana
Paging, Inc., d/b/a/ Message Network, Bertram M. Wachtel, Edward R. Davalos, Kevan
D. Bloomgren and Metrocall, Inc., dated February 28, 1996. (A portion of this
Exhibit has been omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Commission.)(e)
10.18 Amendment to Asset Purchase Agreement dated as of August 30, 1996 by and among O.R.
Estman, Inc. d/b/a Satellite Paging, Dana Paging, Inc. d/b/a Message Network,
Bertman M. Wachtel, Edward R. Davalos and Kevan D. Bloomgren, and Metrocall, Inc.(f)
10.19 Amended and Restated 1993 Stock Option Plan of Metrocall.(g)
10.20 Directors' Stock Option Plan of Metrocall.(g)
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.21 Metrocall 1996 Stock Option Plan, as amended.(h)
10.22 First Amendment to Metrocall 1996 Stock Option Plan.(d)
10.23 Metrocall Employee Stock Purchase Plan.(n)
10.24 Deed of Lease between Douglas and Joyce Jemal, as landlord, and Metrocall, as
tenant, dated April 14, 1994.(i)
10.25 Lease Agreement dated December 20, 1983, between a predecessor of Metrocall and
Beacon Communications Associates, Ltd.(j)
10.26 Tax Indemnification Agreement by and among Metrocall, Harry L. Brock, Jr.,
Christopher A. Kidd, Vincent D. Kelly and Suzanne S. Brock.(d)
10.27 Metrocall Savings and Retirement Plan, as amended and restated dated April 1,
1995.(c)
10.28 Amended and Restated Loan Agreement among Metrocall, Inc., the Toronto-Dominion Bank
and the First National Bank of Boston, with the Toronto-Dominion Bank as
"Documentation Agent," the First National Bank of Boston as "Syndication Agent," the
Toronto-Dominion Bank and the First National Bank of Boston as "Managing Agents,"
and Toronto-Dominion (Texas), Inc. as "Administrative Agent".(k)
10.30 Variable Common Rights Agreement between Metrocall, Inc. and First Union National
Bank of Virginia, Rights Agent, dated as of November 15, 1996, including Form of
Certificate representing Variable Common Rights.
10.31 Unit Purchase Agreement dated as of November 15, 1996 among Metrocall, Inc. and
Certain Purchasers.(m)
10.32 Warrant Agreement dated as of November 15, 1996 between Metrocall, Inc. and The
First National Bank of Boston, Warrant Agent.(m)
11.1 Statement re computation of per share earnings.
21.1 Subsidiaries of Metrocall, Inc.*
23.1 Consent of Arthur Andersen LLP, as independent public accountants for Metrocall.
27.0 Financial Data Schedule.*
</TABLE>
- ---------------
* Previously filed.
(a) Incorporated by reference to Metrocall's Registration Statement on Form
S-4, as amended (File No. 333-21231), initially filed with the Commission
on February 5, 1997.
(b) Incorporated by reference to Metrocall's Registration Statement on Form
S-1, as amended (File No. 33-96042), filed with the Commission on September
27, 1995.
(c) Incorporated by reference to Metrocall, Inc.'s Tender Offer Statement on
Schedule 14D-1, filed with the Commission on May 22, 1996.
(d) Incorporated by reference to Metrocall's Registration Statement on Form
S-4, as amended (File No. 333-06919) initially filed with the Commission on
June 27, 1996.
(e) Incorporated by reference to Metrocall's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, filed with the Commission on May 15,
1996.
(f) Incorporated by reference to Metrocall's Periodic Report on Form 8-K, filed
with the Commission on September 13, 1996, as amended on October 1, 1996.
(g) Incorporated by reference to Metrocall's Annual Report on Form 10-K/A as
amended, for the year ended December 31, 1993, filed with the Commission on
July 21, 1994.
37
<PAGE> 39
(h) Incorporated by reference to Metrocall's Proxy Statement filed for the
Annual Meeting of Stockholders to be held on May 7, 1997.
(i) Incorporated by reference to Metrocall's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994, filed with the Commission on November
14, 1994.
(j) 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.
(k) Incorporated by reference to Metrocall's Registration Statement on Form
S-3, as amended (File No. 333-13123), initially filed with the Commission
on October 1, 1996.
(l) 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.
(m) Incorporated by reference to Metrocall's Current Report on Form 8-K, filed
with the Commission on November 21, 1996.
(n) Incorporated by reference to Metrocall's Proxy Statement filed for the
Annual Meeting of Stockholders held on May 1, 1996.
38
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this day of May,
1997.
METROCALL, INC.
By: /s/ VINCENT D. KELLY
------------------------------------
Vincent D. Kelly
Chief Financial Officer,
Executive Vice President and
Treasurer
39
<PAGE> 41
METROCALL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants....................... F-2
Consolidated Balance Sheets, December 31, 1995 and 1996............................. F-3
Consolidated Statements of Operations for the three years ended December 31, 1994,
1995 and 1996..................................................................... F-4
Consolidated Statements of Stockholders' Equity for the three years ended December
31, 1994, 1995 and 1996........................................................... F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1994,
1995 and 1996..................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 42
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> 43
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> 44
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> 45
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 employer 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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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
<PAGE> 53
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.
F-13
<PAGE> 54
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
<PAGE> 55
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
<PAGE> 56
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> 57
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> 58
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
indirectly, or voted by a foreign government, a foreign corporation, or resident
of a foreign country. The Company's amended and restated certificate of
incorporation permits the redemption of the Company's Common Stock from
stockholders, where necessary, to protect the Company's regulatory licenses.
Such stock may be redeemed at fair market value or if the stock was purchased
within one year of such redemption, at the lesser of fair market value or such
holder's purchase price.
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metrocall, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Metrocall, Inc., and subsidiaries, and
have issued our report thereon dated February 13, 1997. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule included on page F-29 is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 13, 1997
F-28
<PAGE> 69
SCHEDULE II
METROCALL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES ACQUIRED (1) DEDUCTIONS (2) YEAR
- -------------------------------------- ---------- ---------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful
accounts......................... $ 968 $4,575 $1,927 $4,509 $2,961
====== ====== ==== ====== ======
Year ended December 31, 1995
Allowance for doubtful
accounts......................... $1,150 $3,414 $ -- $3,596 $ 968
====== ====== ==== ====== ======
Year ended December 31, 1994
Allowance for doubtful
accounts......................... $ 300 $ 925 $ 850 $ 925 $1,150
====== ====== ==== ====== ======
</TABLE>
- ---------------
(1) Allowance for doubtful accounts acquired in 1994 for the FirstPAGE and
MetroPaging mergers and in 1996 for the Parkway Paging, Satellite Paging,
Message Network and A+ Network (see Note 3 -- Notes to Consolidated
Financial Statements).
(2) Deductions represent write-offs of accounts receivable.
F-29
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
2.1 Amended and Restated Asset Purchase Agreement by and among Page America Group, Inc.,
Page America of New York, Inc., Page America of Illinois, Inc., Page America
Communications of Indiana, Inc., Page America of Pennsylvania, Inc. (collectively,
"Page America") and Metrocall, Inc. ("Metrocall") dated as of January 30, 1997.(a)
2.2 Amendment to Asset Purchase Agreement by and among Page America and Metrocall dated
as of March 28, 1997.(a)
3.1 Amended and Restated Certificate of Incorporation of Metrocall (the
"Certificate").(d)
3.2 Certificate of Amendment to the Certificate dated June 25, 1996.(d)
3.3 Certificate of Amendment to the Certificate dated November 12, 1996.*
3.4 Fifth Amended and Restated Bylaws of Metrocall.*
4.1 Indenture, including form of 10 3/8% Senior Subordinated Notes due 2007.(b)
4.2 Indenture for A+ Network, Inc. 11 7/8% Senior Subordinated Notes due 2005 dated
October 24, 1995.(l)
4.3 First Supplemental Indenture dated November 14, 1996, for A+ Network, Inc. 11 7/8%
Senior Subordinated Notes due 2005.*
4.4 Second Supplemental Indenture dated November 15, 1996, for A+ Network, Inc. 11 7/8%
Senior Subordinated Notes due 2005.*
10.1 Agreement and Plan of Merger dated as of May 16, 1996, between Metrocall, Inc. and
A+ Network, Inc.(c)
10.2 Amendment to Agreement and Plan of Merger between Metrocall, Inc. and A+ Network,
Inc.(d)
10.3 Shareholders' Option and Sale Agreement dated as of May 16, 1996 between Metrocall,
Inc. and certain shareholders of A+ Network, Inc. listed therein.(c)
10.4 Metrocall Stockholders Voting Agreement dated as of May 16, 1996 between A+ Network,
Inc. and certain stockholders of Metrocall, Inc., listed therein.(c)
10.5 Agreement dated May 16, 1996 among Metrocall, Inc. and Ray D. Russenberger and
Elliott H. Singer regarding voting for director.(c)
10.6 Employment Agreement between Metrocall and Vincent D. Kelly.(d)
10.7 Employment Agreement between Metrocall and William L. Collins, III.(d)
10.8 Employment Agreement between Metrocall and Steven D. Jacoby.(d)
10.9 Agreement and Plan of Merger entered into effective the 26th day of April between A+
Network, Inc. ("ACOM"), a Louisiana corporation to be formed as a wholly-owned
subsidiary of ACOM, Radio and Communications Consultants, Inc., Advanced Cellular
Telephone, Inc., Leroy Faith, Sr. and Eddie Ray Faith, DeWayne Faith and Leroy Faith
Jr.(d)
10.10 Non-disclosure/No Conflict Agreement dated May 16, 1996 between Metrocall, Inc. and
Ray D. Russenberger.(c)
10.11 Non-disclosure/No Conflict Agreement dated May 16, 1996 between Metrocall, Inc. and
Elliott H. Singer.(c)
10.12 Employment Agreement dated May 16, 1996 between Metrocall, Inc. and Charles A.
Emling III.(c)
10.13 Change of Control Agreement between Metrocall and Vincent D. Kelly.(d)
10.14 Change of Control Agreement between Metrocall and William L. Collins, III.(d)
10.15 Change of Control Agreement between Metrocall and Steven D. Jacoby.(d)
10.16 Agreement of Merger by and among Metrocall, Inc., PPI Acquisition Corp., Parkway
Paging, Inc. certain shareholders of Parkway Paging, Inc., and George W. Bush, dated
February 26, 1996.(e)
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.17 Asset Purchase Agreement by and among O.R. Estman, Inc. d/b/a Satellite Paging, Dana
Paging, Inc., d/b/a/ Message Network, Bertram M. Wachtel, Edward R. Davalos, Kevan
D. Bloomgren and Metrocall, Inc., dated February 28, 1996. (A portion of this
Exhibit has been omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Commission.)(e)
10.18 Amendment to Asset Purchase Agreement dated as of August 30, 1996 by and among O.R.
Estman, Inc. d/b/a Satellite Paging, Dana Paging, Inc. d/b/a Message Network,
Bertman M. Wachtel, Edward R. Davalos and Kevan D. Bloomgren, and Metrocall, Inc.(f)
10.19 Amended and Restated 1993 Stock Option Plan of Metrocall.(g)
10.20 Directors' Stock Option Plan of Metrocall.(g)
10.21 Metrocall 1996 Stock Option Plan, as amended.(h)
10.22 First Amendment to Metrocall 1996 Stock Option Plan.(d)
10.23 Metrocall Employee Stock Purchase Plan.(n)
10.24 Deed of Lease between Douglas and Joyce Jemal, as landlord, and Metrocall, as
tenant, dated April 14, 1994.(i)
10.25 Lease Agreement dated December 20, 1983, between a predecessor of Metrocall and
Beacon Communications Associates, Ltd.(j)
10.26 Tax Indemnification Agreement by and among Metrocall, Harry L. Brock, Jr.,
Christopher A. Kidd, Vincent D. Kelly and Suzanne S. Brock.(d)
10.27 Metrocall Savings and Retirement Plan, as amended and restated dated April 1,
1995.(c)
10.28 Amended and Restated Loan Agreement among Metrocall, Inc., the Toronto-Dominion Bank
and the First National Bank of Boston, with the Toronto-Dominion Bank as
"Documentation Agent," the First National Bank of Boston as "Syndication Agent," the
Toronto-Dominion Bank and the First National Bank of Boston as "Managing Agents,"
and Toronto-Dominion (Texas), Inc. as "Administrative Agent".(k)
10.30 Variable Common Rights Agreement between Metrocall, Inc. and First Union National
Bank of Virginia, Rights Agent, dated as of November 15, 1996, including Form of
Certificate representing Variable Common Rights.
10.31 Unit Purchase Agreement dated as of November 15, 1996 among Metrocall, Inc. and
Certain Purchasers.(m)
10.32 Warrant Agreement dated as of November 15, 1996 between Metrocall, Inc. and The
First National Bank of Boston, Warrant Agent.(m)
11.1 Statement re computation of per share earnings.
21.1 Subsidiaries of Metrocall, Inc.*
23.1 Consent of Arthur Andersen LLP, as independent public accountants for Metrocall.
27.0 Financial Data Schedule.*
</TABLE>
- ---------------
* Previously filed.
(a) Incorporated by reference to Metrocall's Registration Statement on Form
S-4, as amended (File No. 333-21231), initially filed with the Commission
on February 5, 1997.
(b) Incorporated by reference to Metrocall's Registration Statement on Form
S-1, as amended (File No. 33-96042), filed with the Commission on September
27, 1995.
(c) Incorporated by reference to Metrocall, Inc.'s Tender Offer Statement on
Schedule 14D-1, filed with the Commission on May 22, 1996.
(d) Incorporated by reference to Metrocall's Registration Statement on Form
S-4, as amended (File No. 333-06919) initially filed with the Commission on
June 27, 1996.
(e) Incorporated by reference to Metrocall's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, filed with the Commission on May 15,
1996.
<PAGE> 72
(f) Incorporated by reference to Metrocall's Periodic Report on Form 8-K, filed
with the Commission on September 13, 1996, as amended on October 1, 1996.
(g) Incorporated by reference to Metrocall's Annual Report on Form 10-K/A as
amended, for the year ended December 31, 1993, filed with the Commission on
July 21, 1994.
(h) Incorporated by reference to Metrocall's Proxy Statement filed for the
Annual Meeting of Stockholders to be held on May 7, 1997.
(i) Incorporated by reference to Metrocall's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994, filed with the Commission on November
14, 1994.
(j) 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.
(k) Incorporated by reference to Metrocall's Registration Statement on Form
S-3, as amended (File No. 333-13123), initially filed with the Commission
on October 1, 1996.
(l) 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.
(m) Incorporated by reference to Metrocall's Current Report on Form 8-K, filed
with the Commission on November 21, 1996.
(n) Incorporated by reference to Metrocall's Proxy Statement filed for the
Annual Meeting of Stockholders held on May 1, 1996.
<PAGE> 1
EXHIBIT 10.30
VARIABLE COMMON RIGHTS AGREEMENT
BY AND BETWEEN
METROCALL, INC.
AND
FIRST UNION NATIONAL BANK OF VIRGINIA, RIGHTS AGENT
Dated as of November 15, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE ONE
<S> <C>
TERMS OF THE VCRs
Section 1.01 Title; Maturity Date and Extended Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Payment at Maturity Date and Extended Maturity Date. . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.03 Payments Prior to Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.04 Form of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.05 Termination of VCRs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE TWO
VCR CERTIFICATES
Section 2.01 Form of VCR Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.02 Number of VCR Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.03 Registrable Form. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.04 Execution, Authentication, Delivery and Dating. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.05 Temporary VCR Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.06 Registration, Registration of Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.07 Mutilated, Destroyed, Lost and Stolen VCR Certificates. . . . . . . . . . . . . . . . . . . . . 10
Section 2.08 Presentation of VCR Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.09 Persons Deemed Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.10 Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.11 VCR Certificate Holder Not Deemed a Stockholder . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE THREE
THE RIGHTS AGENT
Section 3.01 Certain Duties and Responsibilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.02 Certain Rights of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.03 Not Responsible for Recitals or Issuance of VCRs. . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.04 May Hold VCRs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.05 Compensation, Reimbursement and Indemnification of the Rights Agent. . . . . . . . . . . . . . 15
Section 3.06 Corporate Rights Agent Required; Eligibility; Disqualification. . . . . . . . . . . . . . . . . 15
Section 3.07 Change of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.08 Acceptance of Appointment by Successor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.09 Merger, Conversion, Consolidation or Succession to Business. . . . . . . . . . . . . . . . . . 17
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE FOUR
<S> <C>
HOLDERS' LISTS AND REPORTS BY RIGHTS AGENT AND COMPANY
Section 4.01 Company to Furnish Rights Agent Names and Addresses of Holders. . . . . . . . . . . . . . . . . 17
Section 4.02 Preservation of Information; Communications to Holders. . . . . . . . . . . . . . . . . . . . . 18
Section 4.03 Reports by Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.04 Reports by Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE FIVE
AMENDMENTS
Section 5.01 Amendments Without Consent of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.02 Amendments with Consent of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.03 Execution of Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.04 Effect of Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.05 Reference in VCRs to Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.06 Conformity with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE SIX
COVENANTS
Section 6.01 Payment, If Any, to Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.02 Trading Moratorium. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE SEVEN
REMEDIES OF THE RIGHTS AGENT AND THE HOLDERS ON EVENT OF DEFAULT
Section 7.01 Collection of Indebtedness by Trustee; Trustee May Prove Debt . . . . . . . . . . . . . . . . . 23
Section 7.02 Application of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.03 Suit for Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.04 Restoration of Rights on Abandonment of Proceedings. . . . . . . . . . . . . . . . . . . . . . 25
Section 7.05 Limitations on Suits by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.06 Unconditional Right Of Holders to Institute Certain Suits . . . . . . . . . . . . . . . . . . . 26
Section 7.08 Control by Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.09 Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.10 Rights Agent to Give Notice of Default, but May Withhold in Certain Circumstances. . . . . . . 28
Section 7.11 Right of Court to Require Filing of Undertaking to Pay Costs. . . . . . . . . . . . . . . . . . 28
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE EIGHT
<S> <C>
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 8.01 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.02 Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.03 Compliance Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.04 Form of Documents Delivered to Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.05 Acts of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.06 Notices, Etc., to Rights Agent and Company. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.07 Notice to Holders; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.08 Effect of Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.09 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.10 Benefits of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.11 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.12 Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.12 Separability Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
EXHIBIT A - Form of VCR Certificate
EXHIBIT B - Notice of Extension of Maturity
EXHIBIT C - Terms of Fractional Shares of Preferred Stock
iii
<PAGE> 5
AGREEMENT, dated as of November 15, 1996, between Metrocall, Inc., a
Delaware corporation (hereinafter called the "Company"), and First Union
National Bank of Virginia, a national banking association (hereinafter called
the "Rights Agent").
W I T N E S S E T H:
WHEREAS, the Company has duly authorized the creation of an issue of
indexed Variable Common Rights (hereinafter called the "VCRs"), having the
rights hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Agreement;
WHEREAS, pursuant to the Agreement and Plan of Merger dated as of May
16, 1996 between the Company and A+ Network, Inc., as amended (the "Merger
Agreement"), the Company has agreed to issue and deliver to shareholders of A+
Network, Inc., among other securities, one (1) VCR for each share of common
stock, par value $.01 per share, of the Company ("Common Stock") issued by the
Company pursuant to the Merger Agreement and to pay cash to such shareholders
in lieu of issuing fractional VCRs as provided in the Merger Agreement; and
WHEREAS, all things necessary have been done by the Company to make
the VCRs, when executed by the Company and authenticated and delivered
hereunder, the valid obligations of the Company and to make this Agreement a
valid agreement of the Company, in accordance with their and its terms.
NOW, THEREFORE, for and in consideration of the promises and the
consummation of the transactions referred to above, it is mutually covenanted
and agreed, for the equal and proportionate benefit of all Holders of the VCRs,
as follows:
ARTICLE ONE
TERMS OF THE VCRs
Section 1.01 Title; Maturity Date and Extended Maturity Date.
(a) The VCRs shall be known and designated as the "Variable Common
Rights" of the Company.
(b) Subject to extension as set forth in Section 1.1(b), the
Maturity Date of the VCRs shall be November 15, 1997, the first anniversary of
the Effective Time of the merger pursuant to the Merger Agreement.
(c) The Company may at its option extend the Maturity Date to
November 15, 1998, the second anniversary of the Effective Time (the "Extended
Maturity Date"), by (i) delivering to the Rights Agent no later than one
Business Day preceding the Maturity Date a notice of extension of maturity in
substantially the form set forth as Exhibit B to this Agreement, and (ii)
publishing notice of such extension in The Wall Street Journal (Eastern
Edition), or if the Wall
<PAGE> 6
Street Journal is not then published, another newspaper with general
circulation in the City of New York, New York, no later than one Business Day
preceding the Maturity Date, provided, however, that no immaterial defect in
any such notice shall affect the validity of the extension of the Maturity Date
to the Extended Maturity Date, and that any such notice when delivered or
published in the aforesaid manner shall be conclusively deemed to have been
received by each Holder whether or not actually received by such Holder.
Section 1.02 Payment at Maturity Date and Extended Maturity Date.
(a) Certain Definitions. In addition to the definitions in
Section 7.01, the following terms shall have the meanings set forth below.
(i) "Target Price" means (A) at the Maturity Date, $21.10
multiplied by the lesser of 1.0 and the Index Factor as of the Maturity Date
and (B) at the Extended Maturity Date, $25.10 multiplied by the lesser of 1.0
and the Index Factor as of the Extended Maturity Date. In each case, upon each
occurrence of an event specified in Section 1.02(c), such amounts, as they may
have been previously adjusted, shall be adjusted pursuant to Section 1.02(c).
(ii) "Current Market Value" per share means, with respect
to any date, (A) the median of the (B) average of the Adjusted Closing Bid
Prices of shares of the Common Stock for each Trading Day during (C) each 20
consecutive Trading Day period that both begins and ends in the Valuation
Period.
(iii) "Minimum Price" means (A) at or before the Maturity
Date, $16.10 and (B) at or before the Extended Maturity Date, $18.10. In each
case, upon each occurrence of an event specified in Section 1.02(c), such
amounts, as they may have been previously adjusted, shall be adjusted pursuant
to Section 1.02(c).
(iv) "Adjusted Closing Bid Price" with respect to the
shares of any company shall mean the closing bid price per share of such
company's shares on the Nasdaq National Market System (or, if the shares are
traded on a securities exchange, on such exchange), adjusted to take account of
any subdivision (by stock split, stock dividend or otherwise) or combination
(by reverse split or otherwise) occurring after May 14, 1996. If any company
(other than the Company) with respect to the shares of which a closing bid
price must be determined merges with or into another company, then the Adjusted
Closing Bid Price shall equal (A) to the extent shares were converted into
shares of another company that are publicly traded, the closing bid price per
share of the shares into which such company's shares were converted in the
merger (adjusted in the case of any share split, share dividend or reverse
split occurring after the merger) times the conversion ratio at which the
shares were converted and (B) to the extent the shares were converted into
consideration other than shares of another company that are publicly traded,
the amount of cash and/or the fair market value (as determined by an
independent nationally recognized investment banking firm) of any other
consideration into which the shares were converted. If the shares of any
company are not traded on the Nasdaq National Market or on a securities
exchange, then the "Adjusted Closing Bid Price" shall be equal to the last
reported bid
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price on such day, as reported by The Wall Street Journal or a reputable
quotation source designated by the Company. If the "Adjusted Closing Bid
Price" cannot be so determined because no bid prices are reported for the
relevant date, then the "Adjusted Closing Bid Price" shall be equal to the last
reported bid price, as reported by The Wall Street Journal or a reputable
quotation service designated by the Company, on the most recent day (not more
than 10 days prior to the date in question) for which prices have been so
reported; provided that if there are no bid prices reported during the 10 days
prior to the date in question, the "Adjusted Closing Bid Price" shall be the
fair market value as determined by an independent nationally recognized
investment banking firm.
(v) "Valuation Period" with respect to any date means the
60 Trading Day period immediately preceding (and including) such date.
(vi) "Index Factor", as of any date, shall be equal to
the Ending Period Comparable Paging Company Index as of such date divided by
$24.604.
(vii) "Daily Index Value" shall mean, on any Trading Day,
the average of the Adjusted Closing Bid Prices on such day of shares of common
stock of Arch Communications Group, Inc., MobilMedia Communications, Inc. and
ProNet, Inc., or any successors as determined pursuant to Section 1.02(a)(iv).
(viii) "Ending Period Comparable Paging Company Index"
means, with respect to any date, (A) the median of (B) the average of the Daily
Index Value for each Trading Day during (C) each 20 consecutive Trading Day
period that both begins and ends in the Valuation Period.
(b) Subject to Section 1.05, each VCR shall entitle the Holder to
receive cash or securities of the Company, as determined pursuant to Section
1.04, in the amount, if any, by which the Target Price on the Maturity Date or,
if the Company has elected to extend the Maturity Date pursuant to Section
1.01(c), on the Extended Maturity Date, exceeds the greater of (i) the Current
Market Value as of such date and (ii) the Minimum Price (the "VCR Payment").
Within 5 Business Days of the Maturity Date or the Extended Maturity Date, as
the case may be, the Company will deposit with the Rights Agent cash or
securities of the Company, as determined pursuant to Section 1.04, in an amount
equal to the number of VCRs then outstanding multiplied by the VCR Payment.
Following such deposit, the Rights Agent will disburse to each Holder of a VCR
Certificate, the VCR Payment times the number of VCRs represented by such VCR
Certificate.
(c) If the Company (i) subdivides (by stock split, stock dividend
or otherwise) its outstanding shares of Common Stock into a greater number of
shares or (ii) combines (by reverse stock split, reclassification or otherwise)
its outstanding shares of Common Stock into a smaller number of shares, each
VCR shall automatically and without further action by the Company or any Holder
be similarly subdivided or combined and the Target Price, the Minimum Price and
the Discounted Target Price (as defined below) shall be adjusted by dividing
each of
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<PAGE> 8
them by the number of shares of Common Stock which a holder of one share of
Common Stock immediately prior to the effective date of a subdivision or
combination would have immediately after the occurrence of any such event.
Nothing contained in this Agreement shall be deemed to preclude any Holder from
receiving a fractional VCR as the result of an adjustment made pursuant to this
Section 1.02(c). Whenever an adjustment is made as provided in this Section
1.02 (c), the Company shall (i) promptly prepare a certificate setting forth
such adjustment and a brief statement of the facts accounting for such
adjustment, (ii) promptly file with the Rights Agent a copy of such certificate
and (iii) mail a brief summary thereof to each Holder. The Rights Agent shall
be fully protected in relying on any such certificate and on any adjustment
therein contained absent manifest error. Each outstanding VCR Certificate shall
thenceforth be deemed to represent that number of adjusted VCRs necessary to
reflect such subdivision or combination, and be deemed to reflect the adjusted
Target Price, the Minimum Price and the Discounted Target Price.
(d) Notwithstanding any provisions of this Agreement or the VCR
Certificates to the contrary, other than in the case of interest on the Default
Amount, no interest shall accrue on any amounts payable on the VCRs to any
Holder.
Section 1.03 Payments Prior to Maturity.
(a) Certain Definitions.
(i) "Event of Default" means any of the following which
shall have occurred and be continuing:
(A) default in the payment of all or any part of
the amounts payable in respect of any of the VCRs as and when the same shall
become due and payable following the Maturity Date or the Extended Maturity
Date, as the case may be, the Disposition Payment Date or otherwise;
(B) material default in the performance, or
material breach, of any material covenant or warranty of the Company in this
Agreement, and continuance of such material default or breach for a period of
98 days after written notice has been given to the Company by the Rights Agent
or to the Company and the Rights Agent by Holders holding at least 25% of the
outstanding VCRs; or
(C) (x) the Company shall have filed 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 bankruptcy,
insolvency or similar law, or the Company shall have consented 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
Company or of any substantial part of its properties or shall take any action
in furtherance of the foregoing, or (y) an involuntary case shall be commenced
against the Company under Title 11 of the United States Code or under any other
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<PAGE> 9
applicable bankruptcy, insolvency or similar law now or hereafter in effect; or
a decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over the Company, or over all of a
substantial part of its property, shall have been entered, or there shall have
occurred the involuntary appointment of an interim receiver, trustee or other
custodian of the Company for all or a substantial part of its property, and any
such event described in this clause (y) shall continue for 60 days without
being dismissed or discharged, or (z) the Company shall fail generally to pay
its debts as the same come due, shall make any assignment for the benefit of
its creditors, shall liquidate, dissolve, or otherwise seek to wind up its
affairs, or shall take any action in furtherance of the foregoing.
(ii) "Disposition" means (A) a merger, consolidation or
other business combination involving the Company as a result of which no shares
of Common Stock shall remain outstanding, (B) a sale, transfer or other
disposition, in one or a series of transactions, of all or substantially all of
the assets of the Company or (C) a reclassification of Common Stock as any
other capital stock of the Company or any other person.
(iii) "Default Amount" means the amount, if any, by which
the Discounted Target Price exceeds the Minimum Price.
(iv) "Discounted Target Price" means (A) if a Disposition
or an Event of Default shall occur prior to the Maturity Date, $21.10
multiplied by the lesser of 1.0 and the relevant Index Factor as of the
Disposition Payment Date or the Default Payment Date, as the case may be, and
discounted from the Maturity Date to the Disposition Payment Date or the
Default Payment Date, as the case may be, at a per annum rate of 8%; or (B) if
a Disposition or an Event of Default shall occur after the Maturity Date but
prior to the Extended Maturity Date, $25.10 multiplied by the lesser of 1.0 and
the Index Factor as of the Disposition Payment Date or the Default Payment
Date, as the case may be, and discounted from the Extended Maturity Date to
the Disposition Payment Date or the Default Payment Date, as the case may be,
at a per annum rate of 8%. In each case, upon each occurrence of an event
specified in Section 1.02(c), such amounts, as they may have been previously
adjusted, shall be adjusted pursuant to Section 1.02(c).
(v) "Disposition Payment Date", with respect to a
Disposition, means the date established by the Company for payment of the
amount due on the VCRs in respect of such Disposition, which in no event shall
be more than 38 days after the date on which such Disposition was consummated.
(vi) "Default Payment Date" means the date on which the
VCRs become due and payable upon the declaration thereof pursuant to Section
1.03(b) following an Event of Default.
(b) The Company will, as soon as practicable, give notice to the
Rights Agent and each Holder of the occurrence of a Disposition and the
Disposition Payment Date. Subject to
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Section 1.05, each VCR shall entitle the holder to receive cash or securities
of the Company, as determined pursuant to Section 1.04, in an amount, if any,
by which the Discounted Target Price on the Disposition Payment Date exceeds
the greater of (i) the fair market value as of the date of the Disposition (if
other than cash, as determined by an independent nationally recognized
investment banking firm) of the consideration, if any, received by holders of
Common Stock for each share of such Common Stock held by such holder as a
result of such Disposition and assuming that such holder did not exercise any
right of appraisal granted under law with respect to such Disposition, and (ii)
the Minimum Price (the "Disposition VCR Payment"). On the Disposition Payment
Date, the Company will deposit with the Rights Agent cash or securities of the
Company, as determined pursuant to Section 1.04, in an amount equal to the
number of VCRs then outstanding multiplied by the Disposition VCR Payment.
Following such deposit, the Rights Agent will disburse to each Holder of a VCR
Certificate the Disposition VCR Payment times the number of VCRs represented by
such VCR Certificate.
(c) If an Event of Default occurs and is continuing, either the
Rights Agent or the Holders holding at least 25% of the Outstanding VCRs, by
notice to the Company (and to the Rights Agent if given by the Holders), may
declare the VCRs to be due and payable, and upon any such declaration, the
Default Amount shall become immediately due and payable and, thereafter, shall
bear interest at an interest rate of 12% per annum (the "Default Interest
Rate") until payment is made to the Rights Agent for distribution to the VCR
Holders.
Section 1.04 Form of Payment.
(a) The Company, at its option, may pay the VCR Payment Amount,
Disposition Payment Amount or Default Amount in (i) cash or (ii) that number of
shares of Common Stock equal to the VCR Payment Amount, Disposition Payment
Amount or Default Amount divided by the Current Market Value of the Common
Stock as of the Maturity Date, the Extended Maturity Date, the Disposition
Payment Date or the Default Payment Date, as the case may be; provided,
however, that if an Event of Default has occurred and is continuing at the time
of such payment, the Default Payment Amount may be paid only in cash or shares
of Company preferred stock ("Preferred Stock") having the terms set forth in
Exhibit C to this Agreement, with each Holder receiving a number of Fractional
Shares (as defined below) equal to the number of shares of Common Stock such
Holder would have received if the Company had paid in shares of Common Stock.
If the number of shares of Common Stock that is authorized by the Company's
certificate of incorporation but not outstanding or reserved for issuance for
purposes other than payment of amounts due in payment of the VCRs is not
sufficient to permit the payment in shares of Common Stock, the Company may, in
lieu of paying in shares of Common Stock, pay amounts due in payment of the
VCRs in shares of Preferred Stock having the terms set forth in Exhibit C to
this Agreement, with each Holder receiving a number of Fractional Shares equal
to the number of shares of Common Stock such Holder would have received if the
Company had paid in shares of Common Stock. "Fractional Share" shall mean such
fraction of a whole share of Preferred Stock as determined by the Board of
Directors of the Company. Any shares of Common Stock or Preferred Stock to be
issued hereunder shall be issued pursuant to an effective registration
statement under the Securities Act or under an exemption therefrom.
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<PAGE> 11
(b) Fractional Shares of Common Stock.
(i) If payment is made in Common Stock pursuant to
Section 1.04(a), the Company shall not issue fractions of shares of Common
Stock upon payment under the VCRs or distribute certificates which evidence
fractional shares of Common Stock; provided that the foregoing shall not
preclude any Holder from aggregating VCR Certificates and receiving a whole
number of shares of Common Stock, in which case the foregoing shall apply only
to any fraction of a share resulting from such aggregation. In lieu of any
such fractional shares of Common Stock, the Holder shall receive cash equal to
the same fraction of the Current Market Value as of the Maturity Date or the
Extended Maturity Date, as the case may be, of one share of Common Stock. Upon
request by the Rights Agent, the Company will deposit sufficient cash to make
payment in respect of fraction VCRs as provided herein.
(ii) The holder of a VCR by the acceptance of the VCR
expressly waives his right to receive any fractional shares of Common Stock
upon exercise of a VCR except as permitted by this Section 1.04.
Section 1.05 Termination of VCRs.
Notwithstanding anything to the contrary set forth herein, the VCRs
shall terminate and become null and void, and the Holders thereof shall have no
further rights with respect thereto, if the closing bid price of the Common
Stock exceeds (a) $21.10 on each Trading Day in any period of 50 consecutive
calendar days prior to the Maturity Date, or (b) $25.10 on each Trading Day in
any period of 50 consecutive calendar days between the Maturity Date and the
Extended Maturity Date. Upon such termination, the Company shall give the
Rights Agent notice of such termination. The failure to give such notice or
any defect therein shall not affect the validity of such termination.
ARTICLE TWO
VCR CERTIFICATES
Section 2.01 Form of VCR Certificates.
(a) The VCR Certificates and the Rights Agent's certificate of
authentication shall be in substantially the forms set forth in Exhibit A
hereto, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Agreement and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed therein as may be required to comply with the rules of any
securities exchange or as may be required by law or any rule or regulation
pursuant thereto, all as may be determined by officers executing such VCR
Certificates, as evidenced by their execution of the
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VCR Certificates. Any portion of the text of any VCR Certificate may be
set forth on the reverse thereof, with an appropriate reference thereto on the
face of the VCR Certificate.
(b) The definitive VCR Certificates shall be printed, lithographed
or engraved on steel engraved borders or produced by any combination of these
methods or may be produced in any other manner permitted by the rules of any
securities exchange on which the VCRs may be listed, all as determined by the
officers executing such VCR Certificates, as evidenced by their execution of
such VCR Certificates.
(c) The form of a VCR Certificate is set forth in Exhibit A
attached hereto.
Section 2.02 Number of VCR Certificates.
The aggregate number of VCR Certificates which may be authenticated
and delivered under this Agreement is limited to 8,574,500, except for VCR
Certificates authenticated and delivered upon registration of transfer, or in
exchange for, or in lieu of, other VCR Certificates pursuant to Section 2.05,
2.06, 2.07 or 5.05; provided, that, the foregoing limitation shall not affect
the adjustments called for in Section 1.02.
Section 2.03 Registrable Form.
The VCR Certificates shall be issuable only in registered form.
Section 2.04 Execution, Authentication, Delivery and Dating.
(a) The VCR Certificates shall be executed an behalf of the
Company by its Chairman of the Board of Directors or its president or any vice
president or its treasurer, under its corporate seal which may, but need not,
be attested. The signature of any of these officers on the VCR Certificates
may be manual or facsimile.
(b) VCR Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such VCR
Certificates or did not hold such offices at the date of such VCR Certificates.
(c) At any time and from time to time after the execution and
delivery of this Agreement, the Company may deliver VCR Certificates executed
by the Company to the Rights Agent for authentication, together with a Company
Order for the authentication and delivery of such VCR Certificates; and the
Rights Agent in accordance with such Company Order shall authenticate and
deliver such VCR Certificates as provided in this Agreement and not otherwise.
(d) Each VCR Certificate shall be dated the date of its
authentication.
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(e) No VCR Certificate shall be entitled to any benefit under this
Agreement or be valid or obligatory for any purpose unless there appears on
such VCR Certificate a certificate of authentication substantially in the form
provided for herein duly executed by the Rights Agent by manual signature of an
authorized officer, and such certificate upon any VCR Certificate shall be
conclusive evidence, and the only evidence, that such VCR Certificate has been
duly authenticated and delivered hereunder and that the Holder is entitled to
the benefits of this Agreement.
Section 2.05 Temporary VCR Certificates.
(a) Pending the preparation of definitive VCR Certificates, the
Company may execute, and upon Company Order the Rights Agent shall authenticate
and deliver, temporary VCR Certificates which are printed, lithographed,
typewritten, mimeographed or otherwise produced, substantially of the tenor of
the definitive VCR Certificates in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such VCR Certificates may determine with the concurrence of
the Rights Agent. Temporary VCR Certificates may contain such reference to any
provisions of this Agreement as may be appropriate. Every temporary VCR
Certificate shall be executed by the Company and be authenticated by the Rights
Agent upon the same conditions and in substantially the same manner, and with
like effect, as the definitive VCR Certificates.
(b) If temporary VCR Certificates are issued, the Company will
cause definitive VCR Certificates to be prepared without unreasonable delay.
After the preparation of definitive VCR Certificates, the temporary VCR
Certificates shall be exchangeable for definitive VCR Certificates upon
surrender of the temporary VCR Certificates at the office of the Rights Agent,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary VCR Certificates the Company shall execute and the Rights Agent
shall authenticate and deliver in exchange therefor a like amount of definitive
VCR Certificates. Until so exchanged, the temporary VCR Certificates shall in
all respects be entitled to the same benefits under this Agreement as
definitive VCR Certificates.
Section 2.06 Registration, Registration of Transfer and Exchange.
(a) The Company shall cause to be kept at the office of the Rights
Agent a register (being herein sometimes referred to as the "Security
Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of VCRs and for
transfers of VCRs. The Rights Agent is hereby initially appointed "Security
Registrar" for the purpose of registering VCRs and transfers of VCRs as herein
provided.
(b) Upon surrender for registration of transfer of any VCR
Certificate at the office of the Rights Agent, the Company shall execute, and
the Rights Agent shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new VCR Certificates representing the
same aggregate number of VCRs represented by the VCR Certificate so surrendered
that are to be transferred and the Company shall execute and the
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Rights Agent shall authenticate and deliver, in the name of the transferor, one
or more new VCR Certificates represented by such VCR Certificate that are not
to be transferred.
(c) At the option of the Holder, VCR Certificates may be exchanged
for other VCR Certificates that represent in the aggregate the same number of
VCRs as the VCR Certificates surrendered at the office of the Rights Agent.
Whenever any VCR Certificates are so surrendered for exchange, the Company
shall execute, and the Rights Agent shall authenticate and deliver, the VCR
Certificates which the Holder making the exchange is entitled to receive.
(d) All VCR Certificates issued upon any registration of transfer
or exchange of VCR Certificates shall be the valid obligations of the Company,
evidencing the same right and entitled to the same benefits under this
Agreement as the VCR Certificates surrendered upon such registration of
transfer or exchange.
(e) Every VCR Certificate presented or surrendered for
registration of transfer or for exchange shall (if so required by the Company
or the Security Registrar) be duly endorsed, or be accompanied by a written
intent of transfer in form satisfactory to the Company and the Security
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
(f) No service charge shall be made for any registration of
transfer or exchange of VCRs, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of VCRs, other than
exchanges pursuant to Section 2.05 or not involving any transfer.
Section 2.07 Mutilated, Destroyed, Lost and Stolen VCR
Certificates.
(a) If (i) any mutilated VCR Certificate is surrendered to the
Rights Agent or (ii) the Company and the Rights Agent receive evidence to their
satisfaction of the destruction, loss or theft of any VCR Certificate, and
there is delivered to the Company and the Rights Agent such security or
indemnity as may be required by them to save each of them harmless, then, in
the absence of notice to the Company or the Rights Agent that such VCR
Certificate has been acquired by a bona fide purchaser, the Company shall
execute and upon its written request the Rights Agent shall authenticate and
deliver, in exchange for any such mutilated VCR Certificate or in lieu of any
such destroyed, lost or stolen VCR Certificate, a new VCR Certificate of like
tenor and amount of VCRs, bearing a number not contemporaneously outstanding.
(b) In case any such mutilated, destroyed, lost or stolen VCR
Certificate has become or is to become due and payable within 15 days, the
Company in its discretion may, instead of issuing a new VCR Certificate,
deliver payment, if any, for such VCR on or prior to the Maturity Date or the
Extended Maturity Date, as the case may be.
(c) Upon the issuance of any new VCR Certificates under this
Section 2.07, the Company may require the payment of a sum sufficient to cover
any tax or other governmental
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charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Rights Agent) connected therewith.
(d) Every new VCR Certificate issued pursuant to this Section 2.07
in lieu of any destroyed, lost or stolen VCR Certificate shall constitute an
original additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen VCR Certificate shall be at any time enforceable by
anyone, and shall be entitled to all benefits of this Agreement equally and
proportionately with any and all other VCR Certificates duly issued hereunder.
(e) The provisions of this Section 2.07 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen VCR
Certificates.
Section 2.08 Presentation of VCR Certificate.
Payment of any amounts on the VCRs shall be made only upon
presentation of the VCR Certificate by the Holder thereof at the office of the
Rights Agent maintained for that purpose in New York, New York.
Section 2.09 Persons Deemed Owners.
Prior to the time of due presentment for registration of transfer, the
Company, the Rights Agent and any agent of the Company or the Rights Agent may
treat the Person in whose name any VCR is registered as the owner of such VCR
for the purpose of receiving payment on such VCR and for all other purposes
whatsoever, whether or not such VCR be overdue, and neither the Company, the
Rights Agent nor any agent of the Company or the Rights Agent shall be affected
by notice to the contrary.
Section 2.10 Cancellation.
All VCRs surrendered for payment, registration, transfer or exchange
shall, if surrendered to any Person other than the Rights Agent, be delivered
to the Rights Agent and shall be promptly canceled by it. The Company may at
any time deliver to the Rights Agent for cancellation any VCRs previously
authenticated and delivered hereunder which the Company may have acquired in
any manner whatsoever, and all VCRs so delivered shall be promptly canceled by
the Rights Agent. No VCRs shall be authenticated in lieu of or in exchange for
any VCRs canceled as provided in this Section 2.10, except as expressly
permitted by this Agreement. All canceled VCRs held by the Rights Agent shall
be disposed of as directed by a Company Order.
Section 2.11 VCR Certificate Holder Not Deemed a Stockholder.
No Holder, as such, of any VCR Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the shares of
capital stock which may at any time be
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issuable on the exercise of the VCRs represented thereby, nor shall anything
contained herein or in any VCR Certificate be construed to confer upon the
holder of any VCR Certificate, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders, or to receive dividends or subscription rights,
or otherwise, unless and until shares of Common Stock have been issued in
payment of the VCRs in accordance with the provisions hereof.
ARTICLE THREE
THE RIGHTS AGENT
Section 3.01 Certain Duties and Responsibilities.
(a) With respect to the Holders of VCRs issued hereunder, the
Rights Agent, prior to an Event of Default with respect to the VCRs and after
curing or waiving of all Events of Default which may have occurred, undertakes
to perform such duties and only such duties as are specifically set forth in
this Agreement, and no implied covenants or obligations shall be read into this
Agreement against the Rights Agent. In case an Event of Default with respect
to the VCRs has occurred (which has not been cured or waived), the Rights Agent
shall exercise such of the rights and powers vested in it by this Agreement,
and use the same degree of care and skill in their exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
(b) In the absence of bad faith on its part, prior to the
occurrence of an Event of Default and after the curing or waiving of all such
Events of Default which may have occurred, the Rights Agent may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Rights Agent
and conforming to the requirements of this Agreement; but in the case of any
such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Rights Agent, the Rights Agent shall be under a
duty to examine the same to determine whether or not they conform to the
requirements of this Agreement.
(c) The Rights Agent shall be liable hereunder only for its own
gross negligence, bad faith or willful misconduct.
(d) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be the Chairman of the Board,
the Chief Executive Officer, the President or any Vice President or the
Secretary or any Assistant Secretary or the Treasurer or any Assistant
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken, suffered or omitted to be taken by it in good faith in accordance
with instructions of any such officer. Any application by the Rights
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Agent for written instructions from the Company may, at the option of the
Rights Agent set forth in writing any action proposed to be taken or omitted by
the Rights Agent under this Agreement and the date on or after which such
action shall be taken or such omission shall be effective. The Rights Agent
shall not be liable for any action taken by, or omission of, the Rights Agent
in accordance with a proposal included in any such application on or after the
date specified in such application (which date shall not be less than five
Business Days after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.
Section 3.02 Certain Rights of Rights Agent.
Subject to the provisions of Trust Indenture Act Sections 315(a)
through 315(d) and Section 3.01 hereof:
(a) The Rights Agent may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties.
(b) Any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution.
(c) Whenever in the administration of this Agreement the Rights
Agent shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Rights Agent (unless
other evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officer's Certificate.
(d) The Rights Agent may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(e) The Rights Agent shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement at the request or
direction of any of the Holders pursuant to this Agreement, unless such Holders
shall have offered to the Rights Agent reasonable security or indemnity against
the costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction.
(f) The Rights Agent shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request
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consent order, approval, appraisal, bond, debenture, note, coupon, security, or
other paper or document unless requested in writing to do so by the Holders of
not less than a majority in aggregate number of the VCRs then outstanding;
provided that, if the payment within a reasonable time to the Rights Agent of
the costs, expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Rights Agent not reasonably
assured to the Rights Agent by the security afforded to it by the terms of this
Agreement, the Rights Agent may require reasonable indemnity against such
expenses or liabilities as a condition to proceeding; the reasonable expenses
of every such investigation shall be paid by the Company or, if paid by the
Rights Agent or any predecessor Rights Agent, shall be repaid by the Company
upon demand.
(g) The Rights Agent may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Rights Agent shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with
due care by it hereunder.
(h) The permissive rights of the Rights Agent to do things
enumerated in this Agreement shall not be construed as a duty.
(i) The Rights Agent shall not be required to give any note or
surety in respect of the execution of the said trusts and powers.
(j) Except for an event of which the Rights Agent has "actual
knowledge," which event, with the giving of notice or the passage of time or
both, would constitute an Event of Default, the Rights Agent shall not be
deemed to have notice of any Event of Default unless specifically notified in
writing of such event by the Company or the Holders of not less than 25% in
aggregate number of VCRs Outstanding; as used herein, the term "actual
knowledge" means the actual fact or statement of knowing, without any duty to
make any investigation without regard thereto.
(k) No provision of this Rights Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
Section 3.03 Not Responsible for Recitals or Issuance of VCRs.
The recitals contained herein and in the VCRs, except the Rights
Agent's certificates of authentication, shall be taken as the statements of the
Company, and the Rights Agent assumes no responsibility for their correctness.
The Rights Agent makes no representations as to the validity or sufficiency of
this Agreement or of the VCRs. The Rights Agent shall not be accountable for
the use or application by the Company of VCRs.
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Section 3.04 May Hold VCRs.
The Rights Agent, any Paying Agent, Security Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of VCRs, and, subject to Section 3.07, may otherwise deal with
the Company with the same rights it would have if it were not Rights Agent,
Paying Agent, Security Registrar or such other agent.
Section 3.05 Compensation, Reimbursement and Indemnification of
the Rights Agent.
The Company agrees:
(a) to pay to the Rights Agent from time to time reasonable
compensation for all services tendered by it hereunder;
(b) except as otherwise expressly provided herein, to reimburse
the Rights Agent upon its request for all reasonable expenses, disbursements
and advances incurred or made by the Rights Agent in accordance with any
provision of this Agreement (including the reasonable compensation and the
events and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its gross negligence, willful
misconduct or bad faith; and
(c) to indemnify the Rights Agent for, and to hold it harmless
against, any loss, liability or expense incurred without gross negligence or
bad faith on its part, arising out of or in connection with the acceptance or
administration of this agency, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder, including the enforcement
of this Section 3.05.
Section 3.06 Corporate Rights Agent Required; Eligibility;
Disqualification.
(a) The Company shall insure that there shall at all times be a
Rights Agent hereunder which shall be a corporation organized and doing
business under the laws of the United States of America or of any state or the
District of Columbia, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authority. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. Neither the Company nor
any Person directly or indirectly controlling, controlled by or under common
control with the Company shall serve as Rights Agent.
(b) The Rights Agent shall be subject to the provisions of Section
310(b) of the Trust Indenture Act during the period of time provided for
therein. Nothing herein shall prevent the
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Trustee from filing with the Commission the application referred to in the
penultimate paragraph of Section 310(b) of the Trust Indenture Act.
(c) If at any time the Rights Agent shall cease to be eligible in
accordance with the provisions of this Section 4.06, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
Section 3.07 Change of Rights Agent.
The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon 30 days notice in writing
mailed to the Company and to each transfer agent of the Common Stock by
registered or certified mail, and to the holders of the VCR Certificates by
first-class mail. The Company may remove this Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock by registered or certified mail and to the holders of the VCR
Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to this Rights Agent. If the Company shall fail to make
such appointment within a period of 30 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a VCR
Certificate (who shall, with such notice, submit his VCR Certificate for
inspection by the Company), then the registered holder of any VCR Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or
by such a court, shall be (a) a corporation organized and doing business under
the laws of the United States or of any state of the United States or the
District of Columbia, in good standing, which is authorized under such law to
exercise stock transfer or corporate trust powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (b) an Affiliate of a corporation described in clause (a) of
this sentence. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed, but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by such predecessor Rights Agent hereunder,
and execute and deliver any further assurance, conveyance, act or deed
necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and mail a
notice thereof in writing to the registered holders of the VCR Certificates.
Failure to give any notice provided for in this Section 4.07, or any defect
therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.
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Section 3.08 Acceptance of Appointment by Successor.
(a) Every successor Rights Agent appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Rights Agent an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Rights Agent shall become effective and such successor Rights
Agent, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Rights Agent; but, on
request of the Company or the successor Rights Agent, such retiring Rights
Agent shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Rights Agent all the rights, powers and trusts
of the retiring Rights Agent, and shall duly assign, transfer and deliver to
such successor Rights Agent all property and money held by such retiring Rights
Agent hereunder. Upon request of any such successor Rights Agent, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Rights Agent all such rights, powers and
trusts.
(b) No successor Rights Agent shall accept its appointment unless
at the time of such acceptance such successor Rights Agent shall be qualified
and eligible under this Article.
Section 3.09 Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Rights Agent may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Rights Agent shall be a party,
or any corporation succeeding to all or substantially all of the corporate
trust business of the Rights Agent shall be the successor of the Rights Agent
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any VCRs shall have been
authenticated, but not delivered, by the Rights Agent then in office, any
successor by merger, conversion or consolidation to such authenticating Rights
Agent may adopt such authentication and deliver the VCRs so authenticated with
the same effect as if such successor Rights Agent had itself authenticated such
VCRs, and such certificate shall have the full force which it is anywhere in
the VCRs or in this Agreement provided that the certificate of the Rights Agent
shall have; provided that the right to adopt the certificate of authentication
of any predecessor Rights Agent shall apply only to its successor or successors
by merger, conversion or consolidation.
ARTICLE FOUR
HOLDERS' LISTS AND REPORTS BY RIGHTS AGENT AND COMPANY
Section 4.01 Company to Furnish Rights Agent Names and Addresses
of Holders.
The Company will furnish or cause to be furnished to the Rights Agent
(a) semiannually, beginning January 1, 1997, a list, in such form as the Rights
Agent may reasonably require, of the names and addresses of the Holders as of
the date thereof and (b) at such times as the Rights
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Agent may request in writing, within 30 days after receipt by the Company of
any such request, a list, in such form as the Rights Agent may reasonably
require, of the names and the addresses of the Holders as of a date not more
than 15 days prior to the time such list is furnished; provided, however, that,
if and so long as the Rights Agent shall be the Security Registrar, no such
list need be furnished.
Section 4.02 Preservation of Information; Communications to
Holders.
(a) If the list is provided pursuant to Section 4.01, the Rights
Agent shall preserve, in as current a form as is reasonable practicable, the
names and addresses of Holders contained in the most recent list furnished to
the Rights Agent as provided in Section 4.01 and the names and addresses of
Holders received by the Rights Agent in its capacity as Security Registrar.
The Rights Agent may destroy any list furnished to it as provided in Section
4.01 upon receipt of a new list so furnished.
(b) If three or more Holders (hereinafter referred to as
"applicants") apply in writing to the Rights Agent, and furnish to the Rights
Agent reasonable proof that each such applicant has owned a VCR for a period of
at least six months preceding the date of such application, and such
application states that the applicants desire to communicate with other Holders
with respect to their rights under this Agreement or under the VCRs and is
accompanied by a copy of the form of proxy or other communication which such
applicants propose to transmit, then the Rights Agent shall, within five
Business Days after the receipt of such application at its election, either (i)
afford such applicants access to the information preserved at the time by the
Rights Agent in accordance with Section 4.02(a), or (ii) inform such applicants
as to the approximate number of Holders whose names and addresses appear in the
information preserved at the time by the Rights Agent in accordance with
Section 4.02(a), and as to the approximate cost of mailing to such Holders the
forms of proxy or other communication, if any, specified in such application.
If the Rights Agent shall elect not to afford such applicants access
to such information, the Rights Agent shall, upon the written request of such
applicants, mail to each Holders whose name and address appear in the
information preserved at the time by the Rights Agent in accordance with
Section 4.02(a), a copy of the form of proxy or other communication which is
specified in such request, with reasonable promptness after a tender to the
Rights Agent of the material to be mailed and of payment, or provision for the
payment, of the reasonable expenses of mailing, unless within five days after
such tender, the Rights Agent shall mail to such applicants and file with the
Commission, together with a copy of the material to be mailed, a written
statement to the effect that, in the opinion of the Rights Agent, such mailing
would be contrary to the best interests of the Holders or would be in violation
of applicable law. Such written statement shall specify the basis of such
opinion. If the Commission, after opportunity for a hearing upon the
objections specified in the written statement so filed, shall enter an order
refusing to sustain any of such objections or if, after the entry of an order
sustaining one or more of such objections, the Commission shall find, after
notice and opportunity for hearing, that all the objections so sustained have
been met and shall enter an order so declaring, the Rights Agent
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shall mail copies of such material to all such Holders with reasonable
promptness after the entry of such order and the renewal of such tender
otherwise the Rights Agent shall be relieved of any obligation or duty to such
applicants respecting their application.
(c) Every Holder of VCRs, by receiving and holding the same,
agrees with the Company and the Rights Agent that neither the Company nor the
Rights Agent shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in accordance with
Subsection (b), regardless of the source from which such information was
derived, and that the Rights Agent shall not be held accountable by reason of
mailing any material pursuant to a request made under Subsection (b).
Section 4.03 Reports by Company.
The Company shall:
(a) file with the Rights Agent, within 15 days after the Company
is required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such portions
of any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if
the Company is not required to file information, documents or reports pursuant
to either of said Sections, then it shall file with the Rights Agent and the
Commission, in accordance with rules and regulations prescribed from time to
time by the Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of the
Exchange Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations; and
(b) file with the Rights Agent and the Commission, in accordance
with rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Company with the conditions and covenants of this Agreement as may be required
from time to time by such rules and regulations.
(c) The Rights Agent shall transmit by mail to all Holders, as
their names and addresses appear in the security Register, within 30 days after
the filing thereof with the Rights Agent such summaries of any information,
documents and reports required to be filed by the Company pursuant to
Subsections (a) and (b) of this Section 4.03 as may be required by rules and
regulations prescribed from time to time by the Commission.
Section 4.04 Reports by Rights Agent.
Within 60 days after [November 15] of each year commencing with
[November 15, 1997], the Rights Agent shall transmit by mail to the Holder, in
the manner and to the extent provided in Section 313(c) of the Trust Indenture
Act, and to the Company, a brief report dated as of such [November 15] which
satisfies the requirements of Section 313(a) of the Trust
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Indenture Act. The Rights Agent shall also transmit such reports to Holders as
are required by Section 313(b) of the Trust Indenture Act. A copy of each
report at the time of its mailing to Holders shall be filed with the Commission
and each stock exchange on which the VCRs are listed, if any, or the Nasdaq
interdealer quotation system, if applicable. The Company shall notify the
Rights Agent when the VCRs are listed on any stock exchange or traded on the
Nasdaq interdealer quotation system.
ARTICLE FIVE
AMENDMENTS
Section 5.01 Amendments Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Rights Agent, at any time and from time to time, may
enter into one or more amendments hereto, in form satisfactory to the Rights
Agent, for any of the following purposes:
(a) to evidence the succession of another Person to the Company,
and the assumption by any such successor of the covenants of the Company herein
and in the VCRs; or
(b) to add to the covenants of the Company such further covenants,
restrictions, conditions or provisions as its Board of Directors and the Rights
Agent shall consider to be for the protection of the Holders of VCRs, and to
make the occurrence, or the occurrence and continuance, of a default in any
such additional covenants, restriction, conditions or provisions an Event of
Default permitting the enforcement of all or any of the several remedies
provided in this Agreement as herein set forth; provided that in respect of any
such additional covenant, restriction, condition or provision such amendment
may provide for a particular period of grace after default (which period may be
shorter or longer than that allowed in the case of other defaults) or may
provide for an immediate enforcement upon such an Event of Default or may limit
the right of the Holders of a majority in aggregate number of the VCRs to waive
such an Event of Default; or
(c) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions with respect to matters or questions arising
under this Agreement;
provided that in each case, such provisions shall not adversely affect the
interests of the Holders.
Section 5.02 Amendments with Consent of Holders.
(a) With the consent of the Holders of not less than a majority of
the outstanding VCRs, by Act of said Holders delivered to the Company and the
Rights Agent, the Company, when authorized by a Board Resolution, and the
Rights Agent may enter into one or more amendments hereto for the purpose of
adding any provisions to or changing in any manner or
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eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Holders under this Agreement; provided, however, that
no such amendment shall, without the consent of the Holder of each outstanding
VCR affected thereby:
(i) modify the definition of Maturity Date, Extended
Maturity Date, Current Market Value, Valuation Period, Target Price, Minimum
Price or Discounted Target Price or modify Section 1.02(c) or otherwise extend
the maturity of the VCRs or reduce the amounts payable in respect of the VCRs;
(ii) reduce the amount of the outstanding VCRs, the
consent of whose Holders is required for any such amendment; or
(iii) modify any of the provisions of this Section 5.02
except to increase any such percentage or to provide that certain other
provisions of this Agreement cannot be modified or waived without the consent
of the Holder of each VCR affected thereby.
(b) It shall not be necessary for any Act of Holders under this
Section 5.02 to approve the particular form of any proposed amendment but it
shall be sufficient if such Act shall approve the substance thereof.
(c) Promptly after the execution by the Company and the Rights
Agent of any amendment pursuant to the provisions of this Section 5.02, the
Company shall mail a notice thereof by first class mail to the Holders of VCRs
at their addresses as they shall appear on the Security Register, setting forth
in general terms the substance of such amendment. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such amendment.
Section 5.03 Execution of Amendment.
In executing any amendment permitted by this Article, the Rights Agent
shall be entitled to receive, and (subject to Section 3.01) shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
such amendment is authorized or permitted by this Agreement. The Rights Agent,
may, but shall not be obligated to, enter into any such amendment which effects
the Rights Agents own rights, duties or immunities under this Agreement or
otherwise.
Section 5.04 Effect of Amendments.
Upon the execution of any amendment under this Article, this Agreement
shall be modified in accordance therewith, and such amendment shall form a part
of this Agreement for all purposes; and every Holder of VCRs theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
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Section 5.05 Reference in VCRs to Amendments.
VCR Certificates authenticated and delivered after the execution of
any amendment pursuant to this Article may, and shall if required by the Rights
Agent, bear a notation in form approved by the Rights Agent as to any matter
provided for in such amendment. If the Company shall so determine, new VCR
Certificates so modified as to conform, in the opinion of the Rights Agent and
the Board of Directors, to any such amendment may be prepared and executed by
the Company and authenticated and delivered by the Rights Agent in exchange for
outstanding VCR Certificates.
Section 5.06 Conformity with Trust Indenture Act.
Every amendment executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act as then in effect.
ARTICLE SIX
COVENANTS
Section 6.01 Payment, If Any, to Holders.
The Company will duly and punctually make the required payment, if
any, in the manner provided for in Article One on the VCRs in accordance with
the terms of the VCRs and this Agreement.
Section 6.02 Trading Moratorium.
At any time that the VCRs remain outstanding, neither the Company nor
any Affiliate of the Company shall purchase or sell or offer to purchase or
sell any shares of Common Stock during any period that (a) begins 18 Trading
Days before commencement of the Valuation Period ending on the Maturity Date
(unless the Company has theretofore elected to extend the Maturity Date to the
Extended Maturity Date) and ends on the Maturity Date, (b) begins 18 Trading
Days before the Valuation Period ending on the Extended Maturity Date and ends
on the Extended Maturity Date or (c) begins on the later of 18 trading days
before any other Valuation Date and the date that the Company knows that a
Valuation Date will occur and ends on such Valuation Date; provided, however,
that nothing in this Section 6.02 shall prevent the Company or any Affiliate of
the Company from purchasing or selling shares of Common Stock pursuant to the
terms of any employee benefit or other incentive compensation arrangement.
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ARTICLE SEVEN
REMEDIES OF THE RIGHTS AGENT AND THE HOLDERS ON EVENT OF DEFAULT
Section 7.01 Collection of Indebtedness by Trustee; Trustee May
Prove Debt.
(a) The Company covenants that in case of default in payments
required by Article One hereof, then in addition to its liability for such
payments, the Company shall pay the Rights Agent such further amount as shall
be sufficient to cover the costs and expenses of collection, including
reasonable compensation to the Rights Agent and such predecessor Rights Agent,
their respective agents, attorneys and counsel, and any expenses and
liabilities incurred and all advances made, by the Rights Agent and each
predecessor Rights Agent except as a result of its negligence or bad faith.
(b) In case the Company shall fail forthwith to pay amounts owed
to the Holders or the Rights Agent upon demand, the Rights Agent, in its own
name and on behalf of the Holders, shall be entitled and empowered to institute
any action or proceedings at law or in equity for the collection of the sums so
due and unpaid, and may prosecute any such action or proceedings to judgment or
final decree, and may enforce any such judgment or final decree against the
Company or other obligor upon such VCRs and collect in manner provided by law
out of the property of the Company or other obligor upon such VCRs, wherever
situated, the moneys adjudged or decreed to be payable.
(c) In case there shall be pending proceedings relative to the
Company or any other obligor upon the VCRs under Title 11 of the United States
Code or any other applicable Federal or State bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or rights agent in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Company or its property or such other
obligor, or in case of any other judicial proceedings relative to the Company
or other obligor upon the VCRs, or to the creditors or property of the Company
or such other obligor, the Rights Agent, irrespective of whether the principal
of any VCRs shall then be due and payable as therein expressed or otherwise and
irrespective of whether the Rights Agent shall have made any demand pursuant to
the provisions of this Section, shall be entitled and empowered, by
intervention in such proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount owing and unpaid in respect of the VCRs, and to file such other
papers or documents as may be necessary or advisable in order to have
the claims of the Rights Agent (including any claim for reasonable
compensation to the Rights Agent and each predecessor Rights Agent,
and their respective agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all
advances made by the Rights Agent and such predecessor Rights Agent,
except as a result of gross negligence or bad faith) and of the
Holders allowed in any judicial proceedings relative to the Company or
other obligor upon the VCRs, or to the property of the Company or such
other obligor;
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(ii) unless prohibited by applicable law and regulations,
to vote on behalf of the Holders in any election of a rights agent or
a standby rights agent in arrangement, reorganization, liquidation or
other bankruptcy or insolvency proceedings or person performing
similar functions in comparable proceedings; and
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims, and to distribute all
amounts receivable with respect to the claims of the Holders and of
the Rights Agent on their behalf and any rights agents, receiver, or
liquidator, custodian or other similar official is hereby authorized
by each of the Holders to make payments to the Rights Agent, and, in
the event that the Rights Agent shall consent to the making of
payments directly to the Holders, to pay to the Rights Agent such
amounts as shall be sufficient to cover reasonable compensation to the
Rights Agent, each predecessor Rights Agent and their respective
agents, attorneys and counsel, and all other expenses and liabilities
incurred, and all advances made, by the Rights Agents and each
predecessor Rights Agent except as a result of gross negligence or bad
faith and all other amounts due to the Rights Agent or any predecessor
Rights Agent pursuant to Section 3.05.
(d) Nothing herein contained shall be deemed to authorize the
Rights Agent to authorize or consent to or vote for or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the VCRs or the rights of any Holder thereof, or to
authorize the Rights Agent to vote in respect of the claim of any Holder in any
such proceeding except, as aforesaid, to vote for the election of a Rights
Agent in bankruptcy or similar person.
(e) All rights of action and of asserting claims under this
Agreement, or under any of the VCRs, may be enforced by the Rights Agent
without the possession of any of the VCRs or the production thereof on any
trial or other proceedings relative thereto, and any such action or proceedings
instituted by the Rights Agent shall be brought in its own name as Rights Agent
of an express trust, and any recovery of judgment subject to the payment of
predecessor Rights Agent and their respective agents and attorneys of such
amounts due pursuant to Section 3.05 and 7.01 hereof, shall be for the ratable
benefit of the Holders.
(f) In any proceedings brought by the Rights Agent (and also any
proceedings involving the interpretation of any provisions of this Agreement to
which the Rights Agent shall be a party) the Rights Agent shall be held to
represent all the Holders, and it shall not be necessary to make any Holders of
such VCRs parties to any such proceedings.
Section 7.02 Application of Proceeds.
Any cash or other payment collected by the Rights Agent pursuant to
this Article in respect to any VCRs shall be applied in the following order at
the date or dates fixed by the Rights Agent upon presentation of the several
VCRs in respect of which cash or other payment
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have been collected and stamping (or otherwise noting) thereon the payment in
exchange for the presented VCRs if only partially paid or upon surrender
thereof if fully paid.
FIRST: To the payment of costs and expenses in respect of which
monies have been collected, including reasonable compensation to the
Rights Agent and each predecessor Rights Agent and their respective
agents and attorneys and of all expenses and liabilities incurred, and
all advances made, by the Rights Agent and each predecessor Rights
Agent except as a result of gross negligence or bad faith, and all
other amounts due to the Rights Agent or any predecessor Rights Agent
pursuant to Sections 3.05 or 7.01;
SECOND: To the payment of the whole amount then owing and unpaid upon
all the VCRs, with interest at the Default Interest Rate on all such
amounts, and in case such moneys shall be insufficient to pay in full
the whole amount so due and unpaid upon the VCRs, then to the payment
of such amounts without preference or priority of any VCR over any
other VCR, to each Holder pro rata; and
THIRD: To the payment of the remainder, if any, to the Company or any
other person lawfully entitled thereto.
Section 7.03 Suit for Enforcement.
In case an Event of Default exists, the Rights Agent may in its
discretion proceed to protect and enforce the rights vested in it by this
Agreement by such appropriate judicial proceedings as the Rights Agent shall
deem most effectual to protect and enforce any of such rights, either at law or
in equity or in bankruptcy or otherwise, whether for the specific enforcement
of any covenant or agreement contained in this Agreement or in aid of the
exercise of any such right granted in this Agreement or to enforce any other
legal or equitable right vested in the Rights Agent by the Agreement or by law.
Section 7.04 Restoration of Rights on Abandonment of Proceedings.
In case the Rights Agent shall have proceeded to enforce any right
under this Agreement and such proceedings shall have been discontinued or
abandoned for any reason, or shall have been determined adversely to the Rights
Agent, then and in every such case the Company and the Rights Agent shall be
restored respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Company, the Rights Agent and the Holders
shall continue as though no such proceedings had been taken.
Section 7.05 Limitations on Suits by Holders
No Holder of any VCR shall have any right by virtue or by availing
itself of any provision of this Agreement to institute any action or proceeding
at law or in equity or in bankruptcy or otherwise upon or under or with respect
to this Agreement (except for payments as described in Section 7.06), or for
the appointment of a Rights Agent, receiver, liquidator,
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custodian or other similar official or for any other remedy hereunder, unless
such Holder previously shall have given to the Rights Agent written notice of
default and of the continuance thereof as hereinbefore provided, and unless
also the Holders of not less than 25% of the VCRs then Outstanding shall have
made written request upon the Rights Agent to institute such action or
proceedings in its own name as Rights Agent hereunder and shall have offered to
the Rights Agent such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby and the Rights Agent
for 60 days after its receipt of notice, request and offer of indemnity shall
have failed to institute any such action or proceeding and no direction
inconsistent with such written request shall have been given to the Rights
Agent pursuant to Section 7.08. No one or more Holders of VCRs shall have any
right in any manner whatever by virtue or by availing itself or themselves of
any provision of this Agreement to effect, disturb or prejudice the rights of
any other such Holder of VCRs, or to obtain or seek to obtain priority over or
preference to any other such Holder or to enforce any right under this
Agreement, except in the manner herein provided and for the equal, ratable and
common benefit of all Holders of VCRs. For the protection and enforcement of
the provisions of this section, each and every Holder and the Rights Agent
shall be entitled to each relief as can be given either at law or in equity.
Section 7.06 Unconditional Right Of Holders to Institute Certain
Suits.
Notwithstanding any other provision in this Agreement and any
provision of any VCR, the right of any Holder of any VCR to receive payment of
the amounts payable in respect of such VCR on or after the respective due dates
expressed in such VCR or to institute suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
Section 7.07 Powers and Remedies Cumulative, Delay or Omission For
Waiver of Default.
(a) Except as provided in Section 7.05, no right or remedy herein
conferred upon or reserved to the Rights Agent or to the Holders is intended to
be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.
(b) No delay or omission of the Rights Agent or of any Holder to
exercise any right or power accruing upon any Event of Default occurring and
continuing as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or any acquiescence
therein, and, subject to Section 7.05, every power and remedy given by this
Agreement or by law to the Rights Agent or to the Holders may be exercised from
time to time, and as often as shall be deemed expedient, by the Rights Agent or
by the Holders.
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Section 7.08 Control by Holders.
(a) The Holders of a majority of the VCRs at the time Outstanding
shall have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Rights Agent, or exercising any
trust or power conferred on the Rights Agent with respect to the VCRs by this
Agreement; provided that such direction shall not be otherwise than in
accordance with law and the provisions of this Agreement, and provided further
that (subject to the provisions of Section 3.01) the Rights Agent shall have
the right to decline to follow any such direction if the Rights Agent, being
advised by counsel, shall determine that the action or proceeding so directed
may not lawfully be taken as if the Rights Agent in good faith by its board of
directors, the executive committee, or a trust committee of directors or
Responsible Officers of the Rights Agent shall determine that the action or
proceedings so directed would involve the Rights Agent in personal liability or
if the Rights Agent in good faith shall so determine that the actions or
forbearances specified in or pursuant to such direction would be unduly
prejudicial to the interests of Holders of the VCRs not joining in the giving
of said direction, it being understood that (subject to Section 3.01) the
Rights Agent shall have no duty to ascertain whether or not such actions or
forbearance are unduly prejudicial to such Holders.
(b) Nothing in this Agreement shall impair the right of the Rights
Agent in its discretion to take any action deemed proper by the Rights Agent
and which is not inconsistent with such direction or directions by Holders.
Section 7.09 Waiver of Past Defaults.
(a) Prior to the declaration of the acceleration of the maturity
of the VCRs as provided in Section 1.03(b), in the case of a default or an
Event of Default specified in clause (B) of Section 1.03(a)(i), the Holders of
a majority of all the VCRs then Outstanding may waive any such default or Event
of Default, and its consequences, except a default in respect of a covenant or
provisions hereof which cannot be modified or amended without the consent of
the Holder of each VCR affected. In the case of any such waiver, the Company,
the Rights Agent and the Holders of the VCRs shall be restored to their former
positions and rights hereunder, respectively, but no such waiver shall extend
to any subsequent or other default or impair any right consequent thereon.
(b) Upon any such waiver, such default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured, and not to have occurred
for every purpose of this Agreement; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
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Section 7.10 Rights Agent to Give Notice of Default, but May
Withhold in Certain Circumstances.
The Rights Agent shall transmit to the Holders, as the names and
addresses of such Holders appear on the security register, notice by mail of
all defaults which have occurred, such notice to be transmitted within 90 days
after the occurrence thereof unless such defaults shall have been cured before
the giving of such notice (the term "default" or "defaults" for the purposes of
this Section being hereby defined to mean any event or condition which is, or
with notice or lapse of time or both would become an Event of Default);
provided that, except in the case of default in the payment of the amounts
payable in respect of any of the VCRs, the Rights Agent shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors or Rights Agents and/or Responsible
Officers of the Rights Agent in good faith determine that the withholding of
such notice is in the interests of the Holders.
Section 7.11 Right of Court to Require Filing of Undertaking to
Pay Costs.
All parties to this Agreement agree, and each holder of any VCR by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy
under this Agreement or in any suit against the Rights Agent for any action
taken, suffered or omitted by it as Rights Agent, the filing by any party
suffered or omitted by it as Rights Agent, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, in such suit, having due regard
to the merits and good faith or the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Rights Agent, to any suit instituted by any Holder or group
of Holders holding in the aggregate more than 10% of the VCRs Outstanding or to
any suit instructed by any Holder for the enforcement of the payment of any VCR
on or after the due date expressed in such VCR.
ARTICLE EIGHT
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 8.01 Definitions.
(a) For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires, the following
terms shall have the meanings given them below.
"Act," when used with respect to any Holder, has the meaning specified
in Section 8.04.
"Adjusted Closing Bid Price" shall have the meaning set forth in
Section 1.02(a).
"Affiliate" means a Person that, directly or indirectly, through one
or more intermediaries, Controls the first mentioned Person.
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"Agreement" means this instrument as originally executed and as it may
from time to time be supplemented or amended pursuant to the applicable
provisions hereof.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Rights Agent.
"Business Day" means any day (other than a Saturday or a Sunday) on
which banking institutions in The City of New York, New York or in the state of
the principal office of the Rights Agent are not authorized or obligated by law
or executive order to close and, if the VCRs are listed on a national
securities exchange or an interdealer quotation service, such exchange is open
for trading or quotations are available, as the case may be.
"Common Stock"' means the Common Stock, par value $.01 per share, of
the Company.
"Commission" means the Securities and Exchange Commission as from time
to time constituted, created under the Exchange Act or if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means the Person named as the "Company" in the first
paragraph of this Agreement until a successor Person shall have become such
pursuant to the applicable provisions of this Agreement, and thereafter
"Company" shall mean such successor Person. To the extent necessary to comply
with the requirements of the provisions of Trust Indenture Act Sections 310
through 317 as they are applicable to the Company, the term "Company" shall
include any other obligor with respect to the VCRs for the purpose of complying
with such provisions.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by the Chairman of the Board of Directors,
president, any vice president, the controller, the treasurer, the secretary or
any assistant secretary, and delivered to the Rights Agent.
"Control" (including the terms "controlled," "controlled by" and
"under common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of stock or
as trustee or executor, by contract or otherwise.
"Current Market Value" shall have the meaning set forth in Section
1.02(a)(ii).
"Default Amount" shall have the meaning set forth in Section
1.03(a)(iii).
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"Default Payment Date" shall have the meaning set forth in Section
1.03(a)(vi).
"Discounted Target Price" shall have the meaning set forth in Section
1.03(a)(iv).
"Disposition" shall have the meaning set forth in Section 1.03(a)(ii).
"Disposition Payment Date" shall have the meaning set forth in Section
1.03(a)(v).
"Effective Time" shall mean the Effective Time of the merger pursuant
to the Merger Agreement.
"Ending Period Comparable Paging Company Index" shall have the meaning
set froth in Section 1.02(a)(vii).
"Event of Default" shall have the meaning set forth in Section
1.03(a)(i).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extended Maturity Date" shall have the meaning set froth in Section
1.01(b).
"Holder" means a Person in whose name a VCR is registered in the
Security Register.
"Index Factor" shall have the meaning set forth in Section
1.02(a)(vi).
"Maturity Date" shall have the meaning set forth in Section 1.01(a).
"Minimum Price" shall have the meaning set forth in Section
1.02(a)(iii)..
"Nasdaq National Market System" means the National Association of
Securities Dealers Automated Quotation System National Market System.
"Officer's Certificate" means a certificate signed by the Chairman of
the Board of Directors, the president, any vice president, the controller, the
treasurer, the secretary or any assistant secretary of the Company in his or
her capacity as such an officer, and delivered to the Rights Agent.
"Opinion of Counsel" means a written opinion of counsel who shall be
reasonably acceptable to the Rights Agent.
"Outstanding," when used with respect to VCRs means, as of the date of
determination, all VCRs theretofore authenticated and delivered under this
Agreement, except:
(i) VCRs theretofore canceled by the Rights Agent or delivered to
the Rights Agent for cancellation;
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(ii) From and after the earlier of the Default Payment Date, the
Disposition Payment Date, the Maturity Date or, in the event the
Company shall extend the Maturity Date, the Extended Maturity Date,
VCRs or portions thereof, for whose exercise payment in the necessary
amount has been theretofore deposited with the Rights Agent or any
Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its
own Paying Agent) for the Holders of such VCRs; and
(iii) VCRs in exchange for or in lieu of which other VCRs have been
authenticated and delivery pursuant to this Agreement other than any
such VCRs in respect of which there shall have been presented to the
Rights Agent proof satisfactory to it that such VCRs are held by a
bona fide purchaser in whose hands the VCRs are valid obligations of
the Company;
provided, however, that in determining whether the Holders of the requisite
outstanding VCRs have given any request, demand, direction, consent or waiver
hereunder, VCRs owned by the Company or any other obligor upon the VCRs or any
affiliate of the Company or such other obligor shall be disregarded and deemed
not to be outstanding except that in determining whether the Rights Agent shall
be protected in relying upon any such request, demand, direction, consent or
waiver, only VCRs which the Rights Agent knows to be so owned shall be so
disregarded.
"Paying Agent" means any Person authorized by the Company to make
payments previously deposited with such Person determined pursuant to Article
One, if any, on any VCRs on behalf of the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
"Responsible Officer," when used with respect to the Rights Agent,
means any officer assigned to the corporate trust office and also means, with
respect to any particular corporate trust matter, any other officer of the
Rights Agent to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Rights Agent" means the Person named as the "Rights Agent" in the
first paragraph of this Agreement, until a successor Rights Agent shall have
become such pursuant to the applicable provisions of this Agreement and
thereafter "Rights Agent," shall mean such successor Rights Agent.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 2.06(a).
"Target Price" shall have the meaning set forth in Section 1.02(a)(i).
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"Trading Day" means (i) a day on which the Common Stock is traded on
the principal stock exchange on which the Common Stock has been listed, or (ii)
if the Common Stock is not listed on any stock exchange, a day on which the
Common Stock is traded in the over-the-counter market, as reported by the
Nasdaq National Market System, or (c) if the Common Stock is not traded on the
Nasdaq National Market System, a day on which the Common Stock is traded in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices).
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this Agreement was executed.
"Valuation Period" shall have the meaning set forth in Section
1.02(a)(v).
"vice president," when used with respect to the Company or the Rights
Agent, means any vice president, whether or not designated by a number or a
word or words added before or after the title of "vice president."
(b) The terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the singular.
(c) All accounting terms used herein and not expressly defined
shall have the meanings assigned to such terms in accordance with generally
accepted accounting principles, and the term "generally accepted accounting
principles" means such accounting principles as are generally accepted in the
United States at the time of any computation.
(d) The words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
Section 8.02 Trust Indenture Act.
(a) The provisions of Section 310 to and including 317 of the
Trust Indenture Act, to the extent not set forth herein, are incorporated by
reference in and made a part of this Agreement. The following Trust Indenture
Act terms used in this Agreement have the following meanings:
"indenture security" means the VCRs;
"indenture security holder" means the Holder;
"indenture to be qualified" means this Agreement;
"indenture trustee" or "institutional trustee" means the Rights Agent;
"obligor" on the indenture securities means the Company.
(b) If any provision of this Agreement limits, qualifies, or
conflicts with another provision which is required or deemed to be included in
this Agreement by the Trust Indenture Act, the provision so required or deemed
shall control.
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Section 8.03 Compliance Certificates.
(a) Upon any application or request by the Company to the Rights
Agent to take any action under any provision of this Agreement, the Company
shall furnish to the Rights Agent (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Agreement (including any
covenants, compliance with which constitutes a condition precedent) relating to
the proposed action have been complied with, and (ii) an Opinion of Counsel
stating that such conditions precedent, if any, have been complied with, except
that, in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Agreement
relating to such particular application, no additional Officer's Certificate or
Opinion of Counsel need be furnished.
(b) Every certificate with respect to compliance with a condition
or covenant provided for in this Agreement shall include:
(i) a statement that each individual signing such
certificate has read such covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether, in the opinion of each
such individual, such condition or covenant has been complied with.
(c) The Company shall deliver to the Rights Agent within 120 days
after the end of each fiscal year of the Company a certificate of the Chief
Executive Officer or Chief Financial Officer of the Company stating that all
conditions and covenants provided for in this Agreement have been complied
with.
Section 8.04 Form of Documents Delivered to Rights Agent.
(a) In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may codify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
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(b) Any Opinion of Counsel may be based upon an Officer's
Certificate unless such counsel knows, or in the exercise of reasonable care
should know, that the Officer's Certificate or representations with respect to
the matters upon which his opinion is based are erroneous.
(c) Any certificate or statement of an officer of the Company may
be based upon a certificate or representation by an officer or officers of the
Company, unless such officer knows, or in the exercise of reasonable care
should know, that the certificate or representations with respect to such
matters are erroneous.
(d) Any certificate or statement of an officer of the Company may
be based, insofar as it relates to accounting matters, upon a certificate or
opinion of or representations by an accountant or firm of accountants in the
employ of the Company, unless such officer knows that the certificate or
opinion or representations with respect to the accounting matters upon which
his certificate or statement may be based as aforesaid are erroneous, or in the
exercise of reasonable care should know that the same are erroneous. Any
certificate or opinion of any independent firm of public accountants filed with
the Rights Agent shall contain a statement that such firm is independent.
(e) Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Agreement, they may, but need not, be consolidated
and form one instrument.
Section 8.05 Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Agreement to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Rights Agent and, where it is hereby expressly required, to the Company.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Agreement and (subject to Section 3.01) conclusive in favor of the Rights
Agent and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any reasonable manner which the Rights
Agent deems sufficient.
(c) The ownership of VCRs shall be proved by the Security
Register.
(d) At any time prior to (but not after) the evidencing to the
Rights Agent as provided in this Section 8.05, of the taking of any action by
the Holders of the VCRs specified in this Agreement in connection with such
action, any Holder of a VCR the serial number of which is
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shown by the evidence to be included among the serial number of the VCRs the
Holders of which have consented to such action may, by filing written notice at
the Corporate Trust Office and upon proof of holding as provided in this
Section 8.05, revoke such action so far as concerns such VCR. Any request,
demand, authorization, direction, notice, consent, waiver or other action by
the Holder of any VCR shall bind every future Holder of the same VCR or the
Holder of every VCR issued upon the registration of transfer thereof or in
exchange thereof or in lieu thereof, in respect of anything done, suffered or
omitted to be done by the Rights Agent, any Paying Agent or the Company in
reliance thereon, whether or not notation of such action is made upon such VCR.
Section 8.06 Notices, Etc., to Rights Agent and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Agreement to
be made upon, given or furnished to, or filed with:
(a) the Rights Agent by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed, in
writing, to or with the Rights Agent at First Union National Bank of Virginia,
Attention: Corporate Trust Department, 901 East Cary Street, 2nd Floor,
Richmond, Virginia 23219, facsimile 804-788-9661; or
(b) the Company by the Rights Agent or by any Holder shall be
sufficient for every purpose hereunder if in writing and mailed, first-class
postage, prepaid, to the Company addressed to it at 6677 Richmond Highway,
Alexandria, Virginia 22306, Attention: Corporate Secretary, facsimile
703-768-3958, or at any other address previously furnished in writing to the
Rights Agent by the Company.
Section 8.07 Notice to Holders; Waiver.
Where this Agreement provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for
the giving of such notice. In any case where notice to Holders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder shall affect the sufficiency of such notice
with respect to other Holders. Where this Agreement provides for notice in any
manner such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with
the Rights Agent but such filing shall not be a condition precedent to the
validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any
event as required by any provision of this
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Agreement then any method of giving such notice as shall be satisfactory to the
Rights Agent shall be deemed to be a sufficient giving of such notice.
Section 8.08 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 8.09 Successors and Assigns.
All covenants and agreements in this Agreement by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 8.10 Benefits of Agreement.
Nothing in this Agreement or in the VCRs, express or implied, shall
give to any Person (other than the parties hereto and their successors
hereunder, any Paying Agent and the Holders) any benefit or any legal or
equitable right, remedy or claim under this Agreement or under any covenant or
provision herein contained, all such covenants and provisions being for the
sole benefit of the parties hereto and their successors and of the Holders.
Section 8.11 Governing Law.
This Agreement and the VCRs shall be governed by and construed in
accordance with the laws of the State of Delaware except that the rights and
obligations of this Rights Agent shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia.
Section 8.12 Legal Holidays.
In the event that any date for payment provided for in this Agreement
shall not be a Business Day, then (notwithstanding any provision of this
Agreement or the VCRs to the contrary) payment on the VCRs need not be made on
such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on such date for payment.
Section 8.12 Separability Clause.
In case any provision in this Agreement or in the VCRs shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
36
<PAGE> 41
Section 8.13 Counterparts.
This Agreement may be signed in any number of counterparts with the
same effect as if the signatures to each counterpart were upon a single
instrument, and all such counterparts together shall be deemed an original of
this Agreement.
37
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
METROCALL, INC.
By: /s/ Vincent D. Kelly
-----------------------------------
Name: Vincent D. Kelly
Title: Vice President
ATTEST:
/s/ Steven D. Jacoby
- --------------------------------
Steven D. Jacoby
Vice President
FIRST UNION NATIONAL BANK OF VIRGINIA
By: /s/ Dante M. Monakil
----------------------------------
Name: Dante M. Monakil
Title: Vice President
<PAGE> 43
EXHIBIT A - Form of VCR Certificate
FORM OF FACE OF VCR CERTIFICATE
METROCALL, INC.
No.____________ Certificate for __________ Variable Common Rights
This certifies that ____________________________________________or
registered assigns (the "Holder"), is the registered holder of the number of
Variable Common Rights ("VCRs") set forth above. Each VCR entitles the Holder,
subject to the provisions contained herein and in the VCR Agreement referred to
below, to payment in an amount determined pursuant to the provisions set forth
on the reverse hereof and as more fully described in the VCR Agreement. The
Company, at its option, may pay the VCR Payment Amount, Disposition Payment
Amount or the Default Amount in (i) cash or (ii) that number of shares of
Common Stock equal to the VCR Payment Amount, the Disposition Payment Amount or
the Default Amount divided by the Current Market Value of the Common Stock as
of the Maturity Date, the Extended Maturity Date, the Disposition Payment Date
or the Default Payment Date, as the case may be; provided, however, that if an
Event of Default has occurred and is continuing at the time of such payment,
the Default Payment Amount may be paid only in cash or shares of Company
preferred stock ("Preferred Stock") as provided in Section 1.04(a) of the VCR
Agreement. Such payment shall be made by the Company to the Rights Agent for
distribution to the Holders within 5 Business Days after the Maturity Date, the
Extended Maturity Date, if the Maturity Date shall be extended by the Company
in its sole discretion, or the Default Payment Date or the Disposition Payment
Date upon the occurrence of an Event of Default or a Disposition, as the case
may be, each as defined in the VCR Agreement.
Any payments made pursuant to this VCR Certificate shall be made
only upon presentation of this VCR Certificate by the Holder hereof, at the
office of the Rights Agent maintained for such purpose in New York, New York.
Notwithstanding anything to the contrary set forth herein or in the
VCR Agreement, the VCRs represented by this VCR Certificate shall terminate if
the closing bid price of the Common Stock exceeds (i) $21.10 on each Trading
Day in any period of 50 consecutive calendar days prior to the Maturity Date,
or (ii) $25.10 on each Trading Day in any period of 50 consecutive calendar
days between the Maturity Date and the Extended Maturity Date.
Reference is hereby made to the further provisions of this VCR
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Rights Agent referred to on the reverse hereof by manual
signature, this VCR Certificate shall not be entitled to any benefit under the
VCR Agreement, or to valid or obligatory for any purpose.
A-1
<PAGE> 44
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.
Dated: , 1996.
-----------------
METROCALL, INC.
By:
---------------------------
ATTEST:
[SEAL]
- ----------------------------
Authorized Signature
RIGHTS AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the VCR Certificates referred to in the within-mentioned VCR
Agreement.
FIRST UNION NATIONAL BANK OF VIRGINIA,
Rights Agent
By:
-------------------------------------
Authorized Officer
FORM OF REVERSE OF VCR CERTIFICATE
This VCR Certificate is issued under and in accordance with the
indexed Variable Common Rights Agreement dated as of November 15, 1996 (the
"VCR Agreement"), between the Company and First Union National Bank of Virginia
(the "Rights Agent", which term includes any successor Rights Agent under the
VCR Agreement), and is subject to the terms and provisions contained in the VCR
Agreement, to all of which terms and provisions the Holder of this VCR
Certificate consents by acceptance hereof. The VCR Agreement is hereby
incorporated herein by reference and made a part hereof. Reference is hereby
made to the VCR Agreement for a full statement of the respective rights,
limitations of rights, duties, obligations and immunities thereunder of the
A-2
<PAGE> 45
Company, the Rights Agent and the holders of the VCRs. Copies of the VCR
Agreement can be obtained by contacting the Rights Agent
Each VCR entitles the Holder, subject to the provisions contained
herein and in the VCR Agreement, to payment in an amount determined pursuant to
the provisions set forth below and as more fully described in the VCR
Agreement. The Company, at its option, may pay the VCR Payment Amount,
Disposition Payment Amount or the Default Amount in (i) cash or (ii) that
number of shares of Common Stock equal to the VCR Payment Amount, Disposition
Payment Amount or the Default Amount divided by the Current Market Value of
the Common Stock as of the Maturity Date, the Extended Maturity Date or the
Disposition Payment Date, as the case may be; provided, however, that if an
Event of Default has occurred and is continuing at the time of such payment,
the Default Payment Amount may be paid only in cash or shares of Company
preferred stock ("Preferred Stock"), as provided in Section 1.04(a) of the VCR
Agreement.
The Company may at its option extend the Maturity Date to the second
anniversary of the Effective Time (the "Extended Maturity Date") by (i)
delivering to the Rights Agent no later than one Business Day preceding the
Maturity Date a notice of extension of maturity in substantially the form set
forth as Exhibit B to the VCR Agreement, and (ii) publishing notice of such
extension in the Wall Street Journal (Eastern Edition), or if the Wall Street
Journal is not then published, such other newspaper with general circulation in
the City of New York, New York no later than one Business Day preceding the
Maturity Date, provided, however, that no defect in any such notice shall
affect the validity of the extension of the Maturity Date to the Extended
Maturity Date, and that any such notice when delivered or published in the
aforesaid manner shall be conclusively deemed to have been received by each
Holder whether or not actually received by such Holder.
If an Event of Default occurs and is continuing, either the Rights
Agent or the Holders holding at least 25% of the Outstanding VCRs, by notice to
the Company (and to the Rights Agent if given by the Holders), may declare the
VCRs to be due and payable, and upon any such declaration, the Default Amount
shall become immediately due and payable and, thereafter, shall bear interest
at an interest rate of 12% per annum (the "Default Interest Rate") until
payment is made to the Rights Agent for distribution to the VCR Holders.
The Company will, as soon as practicable, give notice to the Rights
Agent and each Holder of the occurrence of a Disposition and the Disposition
Payment Date. Subject to Section 1.05 of the VCR Agreement, each VCR shall
entitle the holder to receive cash or securities of the Company, as determined
pursuant to Section 1.04 of the VCR Agreement, in an amount, if any, by which
the Discounted Target Price on the Disposition Payment Date exceeds the greater
of (i) the fair market value as of the date of the Disposition (as determined
by an independent nationally recognized investment banking firm) of the
consideration, if any, received by holders of Common Stock for each share of
such Common Stock held by such holder as a result of such disposition and
assuming that such holder did not exercise any right of appraisal granted under
law with respect to such Disposition, and (ii) the Minimum Price (the
"Disposition VCR Payment"). On the Disposition Payment Date, the Company will
deposit with the Rights Agent cash or securities of the Company, as determined
pursuant to Section 1.04, in an amount
A-3
<PAGE> 46
equal to the number of VCRs then outstanding multiplied by the Disposition VCR
Payment. Following such deposit, the Rights Agent will disburse to each Holder
of a VCR Certificate the Disposition VCR Payment times the number of VCRs
represented by such VCR Certificate.
Notwithstanding anything to the contrary set forth herein or in the
VCR Agreement, the VCRs shall terminate if the closing bid price of the Common
Stock exceeds (a) $21.10 on each Trading Day in any period of 50 consecutive
calendar days prior to the Maturity Date, or (b) $25.10 on each Trading Day in
any period of 50 consecutive calendar days between the Maturity Date and the
Extended Maturity Date.
Notwithstanding any provision of the VCR Agreement or of this VCR
Certificate to the contrary, other than in the case of interest on the Default
Amount, no interest shall accrue on any amounts payable on the VCRs to the
Holder.
No fractional shares of Common Stock will be issued upon the exercise
of any VCR or VCRs evidenced hereby but in lieu thereof a cash payment will be
made, as provided in the VCR Agreement.
"Current Market Value" per share means, with respect to any date, the
median of the averages of the Adjusted Closing Bid Prices on the Nasdaq
National Market System (or, if the Common Stock is listed on a securities
exchange, on such exchange) of shares of the Common Stock during each 20
consecutive Trading Day period that both begins and ends in the Valuation
Period.
"Default Amount" means the amount, if any, by which the Discounted
Target Price exceeds the Minimum Price.
"Default Payment Date" means the date on which the VCRs become due
and payable upon the declaration thereof pursuant to Section 1.03(b) following
an Event of Default.
"Discounted Target Price" means (A) if a Disposition or an Event of
Default shall occur prior to the Maturity Date, $21.10 multiplied by the lesser
of 1.0 and the relevant Index Factor as of the Disposition Payment Date or the
Default Payment Date, as the case may be, and discounted from the Maturity
Date to the Disposition Payment Date or the Default Payment Date, as the case
may be, at a per annum rate of 8%; or (B) if a Disposition or an Event of
Default shall occur after the Maturity Date but prior to the Extended Maturity
Date, $25.10 multiplied by the lesser of 1.0 and the Index Factor as of the
Disposition Payment Date or the Default Payment Date, as the case may be, and
discounted from the Extended Maturity Date to the Disposition Payment Date or
the Default Payment Date, as the case may be, at a per annum rate of 8%. In
each case, upon each occurrence of an event specified in Section 1.02(c), such
amounts, as they may have been previously adjusted, shall be adjusted pursuant
to Section 1.02(c).
A-4
<PAGE> 47
"Disposition" means (A) a merger, consolidation or other business
combination involving the Company as a result of which no shares of Common
Stock shall remain outstanding, (B) a sale, transfer or other disposition, in
one or a series of transactions, of all or substantially all of the assets of
the Company or (C) a reclassification of Common Stock as any other capital
stock of the Company or any other person.
"Disposition Payment Date", with respect to a Disposition, means the
date established by the Company for payment of the amount due on the VCRs in
respect of such Disposition, which in no event shall be more than 38 days after
the date on which such Disposition was consummated.
"Event of Default" means any of the following which shall have
occurred and be continuing:
(A) default in the payment of all or any part of the amounts
payable in respect of any of the VCRs as and when the same shall become due and
payable following the Maturity Date or the Extended Maturity Date, as the case
may be, the Disposition Payment Date or otherwise;
(B) material default in the performance, or material breach,
of any material covenant or warranty of the Company in this VCR Agreement, and
continuance of such material default or breach for a period of 98 days after
written notice has been given to the Company by the Rights Agent or to the
Company and the Rights Agent by Holders holding at least 25% of the outstanding
VCRs; or
(C) (x) the Company shall have filed 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 bankruptcy,
insolvency or similar law, or the Company shall have consented 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
Company or of any substantial part of its properties or shall take any action
in furtherance of the foregoing, or (y) an involuntary case shall be commenced
against the Company under Title 11 of the United States Code or under any other
applicable bankruptcy, insolvency or similar law now or hereafter in effect; or
a decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over the Company, or over all of a
substantial part of its property, shall have been entered, or there shall have
occurred the involuntary appointment of an interim receiver, trustee or other
custodian of the Company for all or a substantial part of its property, and any
such event described in this clause (y) shall continue for 60 days without
being dismissed or discharged, or (z) the Company shall fail generally to pay
its debts as the same come due, shall make any assignment for the benefit of
its creditors, shall liquidate, dissolve, or otherwise seek to wind up its
affairs, or shall take any action in furtherance of the foregoing.
"Minimum Price" means (i) at or before the Maturity Date, $16.10, and
(ii) at or before the Extended Maturity Date, $18.10. In each case, subject to
adjustment as specified in the VCR Agreement.
A-5
<PAGE> 48
"Nasdaq National Market System" means the National Association of
Securities Dealers Automated Quotation System National Market System.
The "Target Price" means (a) at the Maturity Date, $21.10 multiplied
by the lesser of one and the Index Factor as of the Maturity Date and (b) at
the Extended Maturity Date, $25.10 multiplied by the lesser of one and the
Index Factor as of the Extended Maturity Date. In each case, upon each
occurrence of an event specified in Section 1.02(c) of the VCR Agreement, such
amounts, as they may have been previously adjusted, shall be adjusted pursuant
to Section 1.02(c) of the VCR Agreement.
"Trading Day" means (a) a day on which the Common Stock is traded on
the principal stock exchange on which the Common Stock has been listed, or (b)
if the Common Stock is not listed on any stock exchange, a day on which the
Common Stock is traded in the over-the-counter market, as reported by the
Nasdaq National Market System, or (c) if the Common Stock is not traded on the
Nasdaq National Market System a day on which the Common Stock is traded in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices).
"Valuation Period" with respect to any date means the 60 Trading Day
period immediately preceding (and including) such date.
The VCR Agreement permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the holders of VCRs under the VCR
Agreement at any time by the Company and the Rights Agent with the consent of
the holders of a majority of the VCRs at the time outstanding,
No holder of this VCR Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the shares of capital
stock which may at any time be issuable on the exercise hereof, nor shall
anything contained in the VCR Agreement or herein be construed to confer upon
the holder hereof, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or, to receive notice of meetings or other actions affecting
stockholders (except as provided in the VCR Agreement), or to receive dividends
or subscription rights, or otherwise, unless and until shares of Common Stock
have been issued in payment of the VCRs in accordance with the VCR Agreement.
No reference herein to the VCR Agreement and no provision of this VCR
Certificate or of the VCR Agreement shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay any amounts determined
pursuant to the terms hereof and of the VCR Agreement at the times, place, and
amount, and in the cash or securities of the Company, herein prescribed.
A-6
<PAGE> 49
As provided in the VCR Agreement and subject to certain limitations
therein set forth, the transfer of the VCRs represented by this VCR Certificate
is registerable on the Security Register of the Company, upon surrender of this
VCR Certificate for registration of transfer at the office of the Rights Agent
maintained for such purpose in New York, New York, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new VCR
Certificates, for the same amount of VCRs, will be issued to the designated
transferee or transferees.
As provided in the VCR Agreement and subject to certain limitations
therein set forth, this VCR Certificate is exchangeable for one or more VCR
Certificates representing the same number of VCRs as represented by this VCR
Certificate as requested by the Holder surrendering the same.
No service charge will be made for any registration of transfer or
exchange of VCRs, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this VCR Certificate for
registration of transfer, the Company, the Rights Agent and any agent of the
Company or the Rights Agent, may treat the Person in whose name this VCR
Certificate is registered as the owner hereof for all purposes, and neither the
Company, the Rights Agent nor any agent shall be affected by notice to the
contrary.
All capitalized terms used in this VCR Certificate without definition
shall have the meanings assigned to them in the VCR Agreement.
A-7
<PAGE> 50
FORM OF ASSIGNMENT
(To the be executed if the registered holder
desires to transfer the VCR Certificate.)
FOR VALUE
RECEIVED________________________________________________________________________
hereby sells, assigns and transfers ____________________________________________
unto ___________________________________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
this VCR Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ___________________ Attorney, to
transfer the within VCR Certificate on the books of the within-named Company,
with full power of substitution.
Dated: , 19
---------------- --
---------------------------
Signature
Signature Guaranteed:
A-8
<PAGE> 51
EXHIBIT B - Notice of Extension of Maturity
METROCALL, INC.
VARIABLE COMMON RIGHTS
[Date]
NOTICE OF EXTENSION OF MATURITY
DATE TO
-------------------------------------
NOTICE IS HEREBY GIVEN THAT, pursuant to Section 1.01(b) of the
Variable Common Rights Agreement dated as of November 15, 1996 (the "VCR
Agreement"), between Metrocall, Inc. (the "Company") and First Union National
Bank of Virginia (the "Rights Agent"), the Company has extended the Maturity
Date on the Variable Common Rights to November 15, 1997 (the "Extended Maturity
Date"). All terms used in this Notice which are defined in the VCR Agreement
shall have the meanings assigned to them in the VCR Agreement.
B-1
<PAGE> 52
EXHIBIT C - Terms of Fractional Shares of Preferred Stock
Each Fractional Share of Preferred Stock shall have the following rights:
<TABLE>
<S> <C>
Par value: $.01 per Fractional Share
Liquidation Distribution Each Fractional Share shall share pro rata with all other
upon Dissolution: Fractional Shares and shares of Common Stock in all liquidating distributions upon dissolution following
distributions to all other classes or series of Preferred Stock issued by the Company, whether such other
shares are issued and outstanding at the time of the issuance of Fractional Shares of Preferred Stock or
issued thereafter.
Dividends: Each Fractional Share shall be entitled to receive any dividend declared by the Board of Directors with
respect to a share of Common Stock. No other dividends will be paid with respect to the Fractional
Shares of Preferred Stock.
Voting: Each Fractional Share shall have one vote on all matters on which shares of Common Stock have a vote and
shares of Common Stock and Preferred Stock will vote together as a single class. Fractional Shares of
Preferred Stock will have no other voting rights except as required by law.
Conversion: The Company may at any time convert each Fractional Share of Preferred Stock into one share of Common
Stock by notice of such conversion to the record holders of the Fractional Shares of Preferred Stock.
Adjustments: The terms of the Preferred Stock shall be adjusted whenever there is a split or combination of shares of
Common Stock, so that each Fractional Share of Preferred Stock will have the same rights in relation to a
share of Common Stock as at the time of issuance of the Fractional Share of Preferred Stock.
</TABLE>
C-1
<PAGE> 1
Exhibit 11.1
METROCALL, INC.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Loss before extraordinary item................................. $(1,090) $(17,407) $(45,455)
Preferred dividends.......................................... -- -- (780)
------- -------- --------
Loss before extraordinary item attributable
to common stockholders....................................... (1,090) (17,407) (46,235)
Extraordinary item........................................... (1,309) (2,695) (3,675)
------- -------- --------
Loss attributable to common stockholders....................... $(2,399) $(20,102) $(49,910)
======= ======== ========
Weighted-average shares outstanding:
Shares outstanding, beginning of period...................... 7,105 10,605 14,626
Shares issued in acquisitions................................ 1,023 -- 1,619
Shares issued for exercise of stock options.................. -- 11 2
Shares issued in 1995 equity offering........................ -- 1,052 --
Shares issued in employee stock purchase plan................ -- -- 6
------- -------- --------
Weighted-average shares outstanding.......................... 8,128 11,668 16,253
======= ======== ========
Loss per share before extraordinary item attributable
to common stockholders....................................... $ (0.14) $ (1.49) $ (2.84)
Extraordinary item........................................... (0.16) (0.23) (0.23)
------- -------- --------
Loss per share attributable to common stockholders............. $ (0.30) $ (1.72) $ (3.07)
======= ======== ========
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports dated February 13, 1997, included in this Form 10-K into
Metrocall's previously filed Registration Statements on Form S-3, File No.
33-81606; Form S-3, File No. 33-92520; Form S-3, File No. 333-13123; Form S-8,
File No. 33-83452, and Form S-8; File No. 33-99556.
ARTHUR ANDERSEN LLP
Washington, D.C.
May 7, 1997
