<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
<TABLE>
<S> <S>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-21924
</TABLE>
METROCALL, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 54-1215634
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6677 RICHMOND HIGHWAY, ALEXANDRIA, VIRGINIA 22306
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (703) 660-6677
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT MAY 1, 1998
----- --------------------------
<S> <C>
Common Stock, $.01 par value 40,866,548
</TABLE>
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<PAGE> 2
METROCALL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, December 31, 1997 and
March 31, 1998............................................ 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1998................ 4
Condensed Consolidated Statement of Stockholders' Equity for
the three months ended March 31, 1998..................... 5
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1998................ 6
Notes to Condensed Consolidated Financial Statements........ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 19
Item 2. Changes in Securities....................................... 20
Item 3. Defaults Upon Senior Securities............................. 20
Item 4. Submission of Matters to a Vote of Security Holders......... 20
Item 5. Other Information........................................... 20
Item 6. Exhibits and Reports on Form 8-K............................ 20
SIGNATURES.............................................................. 25
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 24,896 $ 14,617
Accounts receivable, less allowance for doubtful accounts
of $6,843 as of December 31, 1997 and $5,066 as of March
31, 1998................................................ 30,208 31,101
Prepaid expenses and other current assets................. 18,372 22,135
---------- ----------
Total current assets............................... 73,476 67,853
---------- ----------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements................ 16,364 16,654
Furniture, office equipment and vehicles.................. 46,588 48,997
Paging and plant equipment................................ 276,993 288,481
Less -- Accumulated depreciation and amortization......... (115,357) (127,016)
---------- ----------
224,588 227,116
---------- ----------
INTANGIBLE ASSETS, net of accumulated amortization of
approximately $58,352 as of December 31, 1997 and $93,939
as of March 31, 1998...................................... 787,003 780,022
OTHER ASSETS................................................ 1,947 2,077
---------- ----------
TOTAL ASSETS................................................ $1,087,014 $1,077,068
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... 952 956
Accounts payable.......................................... 35,160 24,713
Accrued expenses and other current liabilities............ 46,141 49,284
Deferred revenues and subscriber deposits................. 15,854 16,746
---------- ----------
Total current liabilities.......................... 98,107 91,699
---------- ----------
CAPITAL LEASE OBLIGATIONS, net of current portion........... 4,282 4,060
CREDIT FACILITY AND OTHER LONG-TERM DEBT, less current
maturities................................................ 142,173 148,157
SENIOR SUBORDINATED NOTES, due 2005 and 2007................ 452,534 452,534
DEFERRED INCOME TAX LIABILITY............................... 155,930 173,410
MINORITY INTEREST IN PARTNERSHIP............................ 510 510
---------- ----------
Total liabilities.................................. 853,536 870,370
---------- ----------
COMMITMENTS AND CONTINGENCIES
SERIES A CONVERTIBLE PREFERRED STOCK, 14% cumulative; par
value $.01 per share; 810,000 shares authorized; 182,726
shares issued and outstanding as of December 31, 1997 and
March 31, 1998, and a liquidation preference of $46,481
and $48,080 at December 31, 1997 and March 31, 1998,
respectively.............................................. 37,918 39,714
SERIES B JUNIOR CONVERTIBLE PREFERRED STOCK, 14% cumulative,
par value $.01 per share; 9,000 shares authorized; 1,579
shares issued and outstanding as of December 31, 1997 and
March 31, 1998 and a liquidation preference of $16,064 and
$16,616 at December 31, 1997 and March 31, 1998,
respectively.............................................. 16,064 16,616
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share; authorized
80,000,000 shares; 40,548,414 and 40,866,548 shares
issued and outstanding as of December 31, 1997 and March
31, 1998, respectively.................................. 405 409
Additional paid-in capital................................ 336,076 337,492
Accumulated deficit....................................... (156,985) (187,533)
---------- ----------
Total stockholders' equity......................... 179,496 150,368
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $1,087,014 $1,077,068
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1997 1998
------------- -------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C>
REVENUES:
Service, rent and maintenance revenues.................... $ 58,515 $ 92,038
Product sales............................................. 8,238 11,293
----------- -----------
Total revenues.................................... 66,753 103,331
Net book value of products sold........................... (6,157) (7,031)
----------- -----------
60,596 96,300
----------- -----------
OPERATING EXPENSES:
Service, rent and maintenance expenses.................... 14,030 23,376
Selling and marketing..................................... 12,553 16,374
General and administrative................................ 17,723 28,544
Depreciation.............................................. 12,709 16,557
Amortization.............................................. 8,009 35,587
----------- -----------
65,024 120,438
----------- -----------
Loss from operations.............................. (4,428) (24,138)
INTEREST EXPENSE............................................ (8,040) (14,901)
INTEREST AND OTHER (EXPENSE) INCOME......................... (83) 320
----------- -----------
LOSS BEFORE INCOME TAX BENEFIT.............................. (12,551) (38,719)
INCOME TAX BENEFIT.......................................... 803 10,519
----------- -----------
Net loss.......................................... (11,748) (28,200)
PREFERRED DIVIDENDS......................................... (1,560) (2,348)
----------- -----------
Loss attributable to common stockholders.......... $ (13,308) $ (30,548)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE ATTRIBUTABLE TO COMMON
STOCKHOLDERS.............................................. $ (0.54) $ (0.75)
=========== ===========
Weighted-average common shares outstanding.................. 24,858,397 40,866,548
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
SHARES PAR PAID-IN ACCUMULATED
OUTSTANDING VALUE CAPITAL DEFICIT TOTAL
----------- ----- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997................. 40,548,414 $405 $336,076 $(156,985) $179,496
Issuance of shares in employee stock
purchase plan............................ 48,134 1 204 -- 205
Shares issued in settlement of litigation
related to the ProNet Merger
(unaudited).............................. 270,000 3 1,212 -- 1,215
Preferred dividends (unaudited)............ -- -- -- (2,348) (2,348)
Net loss (unaudited)....................... -- -- -- (28,200) (28,200)
---------- ---- -------- --------- --------
BALANCE, March 31, 1998 (unaudited)........ 40,866,548 $409 $337,492 $(187,533) $150,368
========== ==== ======== ========= ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(11,748) $(28,200)
Adjustments to reconcile net loss to net cash provided by
operating activities--Depreciation and amortization.... 20,718 52,144
Amortization of debt financing costs................... 248 441
Amortization of deferred income taxes.................. (1,320) (10,519)
Cash provided by (used in) changes in assets and
liabilities:
Accounts receivable.................................... (2,977) (893)
Prepaid expenses and other current assets.............. 506 (3,763)
Accounts payable....................................... (1,115) (10,447)
Accrued expenses and other current liabilities......... 758 4,357
Deferred revenues and subscriber deposits.............. 1,210 892
-------- --------
Net cash provided by operating activities......... 6,280 4,012
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired.......... (798) --
Purchases of property and equipment, net.................. (14,458) (19,085)
Additions to intangibles.................................. (81) (606)
Other..................................................... 1,152 (570)
-------- --------
Net cash used in investing activities............. (14,185) (20,261)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 10,000 6,000
Principal payments on long-term debt...................... (295) (235)
Net proceeds from issuance of common stock................ 144 205
-------- --------
Net cash provided by financing activities......... 9,849 5,970
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 1,944 (10,279)
CASH AND CASH EQUIVALENTS, beginning of period.............. 10,917 24,896
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 12,861 $ 14,617
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest................................ $ 1,314 $ 6,472
Cash payments for income taxes............................ $ 517 $ --
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. ORGANIZATION AND RISK FACTORS
Metrocall, Inc. and subsidiaries ("Metrocall" or the "Company"), is a
provider of local, regional and nationwide paging and other wireless messaging
services in the United States. The Company's selling efforts are concentrated in
five operating regions: (i) the Northeast (Massachusetts through Delaware), (ii)
the Mid-Atlantic (Maryland, Virginia and the Washington, D. C. metropolitan
area), (iii) the Southeast (including Virginia, the Carolinas, Georgia, Florida,
Alabama, Mississippi and Tennessee), (iv) the Southwest (primarily Louisiana and
Texas) and (v) the West (primarily California, Nevada and Arizona). Through its
Nationwide Network, the Company provides coverage to over 1,000 cities
representing the top 100 Standard Metropolitan Statistical Areas.
Risks and Other Important Factors
The Company sustained net losses of $20.1 million, $49.1 million, $52.5
million and $28.2 million for each of the years ended December 31, 1995, 1996,
1997 and for the quarter ended March 31, 1998, respectively. The Company's loss
from operations for the quarter ended March 31, 1998 was $24.1 million. In
addition, at March 31, 1998, the Company had an accumulated deficit of $187.5
million and a deficit in working capital of $23.8 million. The Company's losses
from operations and its net losses are expected to continue for additional
periods in the future. There can be no assurance that the Company's operations
will become profitable.
The Company's operations require the availability of substantial funds to
finance the maintenance and growth of its existing paging operations and
customer base, development and construction of future wireless communications
networks, expansion into new markets, and the acquisition of other wireless
communications companies. At March 31, 1998, the Company had incurred
approximately $605.7 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 March 31, 1998, approximately
$66.4 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 as well as the availability of financing in the capital markets.
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the year 2000 as "00". This could cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken. The Company utilizes software and related computer technologies essential
to its operations that will be affected by the Year 2000 issue. Many of the
Company's computer systems, including the Company's primary billing system, have
been enhanced to meet Year 2000 compliance. The Company is continuing to review
other computer systems, specifically as they relate to recent mergers and
acquisitions, and is developing plans to address the remaining Year 2000
compliance issues in 1998. The expense associated with these plans cannot
presently be determined, but could be material.
The Company is also subject to certain additional risks and uncertainties
including, but not limited to, changes in technology, business integration,
competition, regulation, litigation and subscriber turnover.
2. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC") and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
7
<PAGE> 8
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BASIS OF PRESENTATION -- (CONTINUED)
condensed or omitted pursuant to such rules and regulations. The Company
believes, however, that its disclosures are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 1997 Annual Report on Form 10-K. The
results of operations for the three-month period ended March 31, 1998, are not
necessarily indicative of the results to be expected for the full year.
3. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue under service, rental and maintenance
agreements with customers as the related services are performed. Sales of
equipment are recognized upon delivery.
Cash and Cash Equivalents
Cash and cash equivalents include short-term, highly liquid investments
purchased with original maturities of three months or less.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives.
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and leasehold improvements........................ 10-31
Furniture and office equipment.............................. 5-10
Vehicles.................................................... 3-5
Subscriber paging equipment................................. 3-5
Transmission and plant equipment............................ 5-12
</TABLE>
The net book value of lost pagers is charged to depreciation expense. New
pagers are depreciated using the half-year convention upon acquisition.
Betterments to acquired pagers are charged to depreciation expense.
Long-Lived Assets
Long-lived assets and identifiable intangibles to be held and used are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount should be addressed. Impairment is measured by
comparing the book value to the estimated undiscounted future cash flows
expected to result from use of the assets and their eventual disposition. 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 January 1, 1998, the Company reduced the estimated useful lives
of certain intangibles, including goodwill, regulatory licenses issued by the
Federal Communications Commission ("FCC") and
8
<PAGE> 9
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
subscriber bases recorded in conjunction with acquisitions from 15 years to 10
years for goodwill, from 25 years to 10 years for FCC licenses and from 5-6
years for subscriber bases to 3 years. The impact of these changes was to
increase amortization expense for the quarter ended March 31, 1998 by
approximately $6.0 million.
4. LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
The Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share" which requires dual presentation of basic and diluted
earnings per share on the face of the statement of operations 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 Company.
Options and warrants to purchase shares of Common Stock were not included in the
computation of loss per share as the effect would be antidilutive. As a result,
the basic and diluted earnings per share amounts are identical.
Reclassifications
Certain amounts in the prior period's consolidated financial statements
have been reclassified to conform with the current period's presentation.
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Pursuant to the Telecommunications Act of 1996 (the "Telecom Act") and
consistent with the FCC's local transport rules, the Company has ceased paying
local exchange carriers ("LECs"), including a number of the Regional Bell
Operating Companies ("RBOCs") in the Company's various service areas for any
facilities used by those LECs to transport local calls to the Company's local
paging networks. The Company has also notified the LECs that it expects to
receive credit from each LEC for any such local transport charges assessed
against the Company by that LEC since November 1, 1996, the effective date for
the FCC's rules governing local transport. As of December 31, 1997 and March 31,
1998, the Company has recorded credits receivable from the LECs related to such
local transport charges of approximately $12.1 million and $15.6 million,
respectively. These LEC receivables represent management's estimate, subject to
significant revision, of amounts management believes are fully realizable. These
LEC credit receivables have been classified as Prepaid Expenses and Other
Current Assets in the accompanying balance sheets as of December 31, 1997 and
March 31, 1998 (see Note 8).
6. ACQUISITION
On December 30, 1997, The Company completed the merger of ProNet with and
into Metrocall (the "ProNet Merger"), pursuant to the terms of the Agreement and
Plan of Merger dated August 8, 1997. Under the terms of the ProNet Merger,
Metrocall issued 0.90 shares of Metrocall common stock for each share of ProNet
common stock, or approximately 12.3 million shares of Metrocall common stock
(including 630,000 shares remaining to be issued in 1998 as settlement of
certain ProNet litigation). In connection with the ProNet Merger, the Company
assumed ProNet's $100.0 million in 11 7/8% senior subordinated notes, due in
2005 and refinanced indebtedness outstanding, including accrued interest and
bank fees, under ProNet's credit facility with borrowings under the Metrocall
Credit Facility. The ProNet Merger has been accounted for as a purchase for
financial reporting purposes.
9
<PAGE> 10
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACQUISITION -- (CONTINUED)
During the first quarter the Company revised its estimate of the deferred
tax liability associated with the ProNet Merger and accordingly, increased the
goodwill and the deferred income tax liability recorded in the ProNet Merger by
$28.0 million at March 31, 1998.
7. STOCK AND STOCK RIGHTS
Stock Option Plans
At December 31, 1997, 3,470,655 options were issued and outstanding with a
weighted-average exercise price of approximately $6.84 per share, expiring on
various dates ranging from 2003 through 2007.
On February 4, 1998, the Board of Directors approved an amendment to the
1996 Stock Option Plan to increase the number of options issuable under the plan
to approximately 6.0 million. During the quarter ended March 31, 1998, the Board
of Directors approved grants of options to purchase 1,675,000 shares of
Metrocall common stock to current officers, employees and directors with
exercise prices ranging from $5.13 to $5.25 per share, a price equal to or
greater than the fair market value on the date of grant.
Employee Stock Purchase Plan
The Metrocall, Inc. Employee Stock Purchase Plan (the "Stock Purchase
Plan"), offers eligible employees the opportunity to purchase an aggregate of
1,000,000 shares of Metrocall common stock through payroll deductions. Each
eligible employee may elect to purchase shares of Metrocall common stock at the
lesser of 85% of the fair market value of Metrocall common stock on either the
first or last trading day for each payroll deduction period. On January 1, 1998,
the Company issued 48,134 shares of Company common stock under the Stock
Purchase Plan with a purchase price of approximately $4.09 per share.
8. 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
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
Source One Wireless, Inc.
Metrocall entered into an agreement in April 1996 to purchase certain
assets of Source One Wireless, Inc. ("Source One") and placed $1 million cash in
escrow. On June 26, 1996, Metrocall advised Source One that Source One had
failed to meet certain conditions to completion of the transaction and
terminated the agreement. On September 20, 1996, Source One filed an action in
the Circuit Court of Cook County, Illinois claiming that Metrocall had breached
the agreement and seeking specific performance of the purchase agreement or
unspecified damages in excess of $80 million. In March 1998, by agreement of the
parties, the lawsuit was dismissed and the parties agreed to a settlement
payment of an equal division of the escrow account plus accrued interest.
Americom Paging Corporation
Contact Communications, Inc. ("Contact"), a wholly-owned subsidiary of
ProNet, entered into an agreement dated May 1995 to acquire substantially all of
the assets of Americom Paging Corporation ("Americom"). On July 2, 1997, two of
the former principal shareholders of Americom brought an action in Texas state
court seeking damages from ProNet (and subsequently Metrocall as successor in
interest to ProNet), Contact and ProNet's former Chief Executive Officer, in
connection with the transaction. The
10
<PAGE> 11
METROCALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
plaintiffs alleged claims under Texas state common law and the Texas Securities
Act and sought compensatory and punitive damages. Metrocall asserted
counterclaims for damages for breach of the purchase agreement. In March 1998,
by mutual agreement, the parties agreed to settle the action for a settlement
payment by Metrocall to the plaintiffs of $2.4 million. Each party released all
claims against the others, and all counterclaims were dismissed with prejudice.
The settlement payment was accrued at December 31, 1997 as part of the purchase
accounting in connection with the ProNet Merger.
Interconnect Complaint
Metrocall has filed complaints with the FCC against a number of RBOCs and
the largest independent telephone company for violations of the FCC's
interconnection and local transport rules and the Telecom Act. The complaints
allege that these local telephone companies are unlawfully charging Metrocall
for local transport of the telephone companies' local traffic. Metrocall has
petitioned the FCC to rule that these local transport charges are unlawful and
to award Metrocall a reimbursement for any past charges assessed. Also,
Metrocall has asked the FCC to resolve these complaints within the five month
statutory deadline for complaint proceedings established under the Telecom Act.
11
<PAGE> 12
ITEM 2. 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
quarterly report and its annual report on Form 10-K for the year ended December
31, 1997.
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
(synergies), 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 currently the second largest paging company in the United
States based on number of subscribers, with 4,116,859 pagers in service at March
31, 1998. For the quarter ended March 31, 1998, the Company added 86,023
subscribers to its base of pagers in service. 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
products sold.
- Service, rent and maintenance expenses: include costs related to the
management, operation and maintenance of the Company's network systems
and customer support centers.
- Selling and marketing expenses: include salaries, commissions and
administrative costs for the Company's sales force and related marketing
and advertising expenses.
- General and administrative expenses: include executive management,
accounting, office telephone, repairs and maintenance, management
information systems and employee benefits.
The Company derives the majority of its revenues from fixed, periodic
(usually monthly) fees, generally not dependent on usage, charged to subscribers
for paging services. While a subscriber 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 increased by approximately 55% to $103.3 million
for the quarter ended March 31, 1998 from $66.8 million for the quarter ended
March 31, 1997. Overall, subscribers have increased by approximately 85% to more
than 4.1 million at March 31, 1998 from 2.2 million at March 31, 1997.
The Company's average monthly paging service, rent and maintenance revenues
per unit ("ARPU") for the three-month periods ended March 31, 1997 ("1997") and
March 31, 1998 ("1998") was $8.31 and $7.28, respectively. For the three month
period ended December 31, 1997, pro forma as if the acquisition of ProNet
12
<PAGE> 13
had occurred on or before October 1, 1997, ARPU is estimated to have been $7.46.
The decrease in ARPU from 1997 to 1998 is primarily attributable to the ProNet
Merger and to a lesser extent the changing overall distribution mix. In order to
offset declines in ARPU and to capitalize on growth of paging and wireless
messaging services, the Company has expanded its channels of distribution to
include Company-owned and operated retail stores, strategic partnerships and
alliances, internet sales, among others; with each distribution channel focusing
on the sale rather than lease of pagers. Some of these channels tend to have
higher ARPU's than the Company's strategic partners and typical resellers, who
purchase service in quantity at wholesale rates. Furthermore, the Company has
been successful in marketing enhanced services, such as nationwide paging
services, voice mail and other ancillary services for its strategic partners and
franchisees.
The Company's growth, whether internal or through acquisitions, requires
significant capital investment for paging equipment and technical
infrastructure. The Company also purchases pagers for that portion of its
subscriber base that leases pagers from the Company. During the quarter ended
March 31, 1998 the Company's capital expenditures totaled $19.1 million
including approximately $14.7 million for pagers, representing an increase in
pagers on hand and net increases and maintenance to the rental pager base.
The Company's focus is now on integrating ProNet, increasing ARPU's,
lowering operating costs, increasing utilization of its nationwide network and
emphasizing distribution channels through which pagers are sold rather than
leased in order to reduce future capital expenditures. 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 communications 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 revenue from providing paging service to such
pagers will more that make up for the 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.
13
<PAGE> 14
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net revenues represented by certain items in the Company's Condensed
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1997 1998
--------- ---------
<S> <C> <C>
REVENUES:
Service, rent and maintenance......................... 96.6% 95.6%
Product sales......................................... 13.6 11.7
--------- ---------
Total revenues................................... 110.2 107.3
Net book value of products sold....................... (10.2) (7.3)
--------- ---------
100.0 100.0
OPERATING EXPENSES:
Service, rent and maintenance expenses................ 23.2 24.3
Selling and marketing................................. 20.7 17.0
General and administrative............................ 29.3 29.6
Depreciation.......................................... 21.0 17.2
Amortization.......................................... 13.2 37.0
--------- ---------
Total operating expenses......................... 107.4 125.1
--------- ---------
Loss from operations............................. (7.4) (25.1)
Interest and other (expense) income..................... (0.1) 0.3
Interest expense........................................ (13.3) (15.4)
--------- ---------
Loss before income tax benefit.......................... (20.8) (40.2)
Income tax benefit...................................... 1.3 10.9
--------- ---------
Net loss......................................... (19.5) (29.3)
Preferred dividends..................................... (2.6) (2.4)
--------- ---------
Loss attributable to common stockholders......... (22.1)% (31.7)%
========= =========
Units in service (end of period)........................ 2,227,564 4,116,859
EBITDA (in thousands)(1)................................ $ 16,290 $ 28,006
Ratio of EBITDA to net revenues(1)...................... 26.9% 29.1%
ARPU(2)................................................. $ 8.31 $ 7.28
Average monthly operating cost per unit(3).............. $ 6.43 $ 5.59
</TABLE>
- ---------------
(1) EBITDA (earnings before interest, taxes, depreciation and amortization),
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 its indenture relating to its
senior subordinated notes and its credit facility. See "-- Liquidity and
Capital Resources" for a discussion of significant capital requirements and
commitments.
(2) ARPU (average monthly paging revenue per unit) is calculated by dividing (a)
paging service, rent and maintenance revenues for the period by (b) the
average number of units in service for the period. The calculation of ARPU
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 paging operating expenses before depreciation and
amortization for the period by (b) the average number of units in service
for the period. The calculation of average monthly operating expense per
unit excludes costs associated with the telemessaging operations.
14
<PAGE> 15
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH 1996
Total revenues increased approximately $36.5 million, or approximately 55%,
from $66.8 million for 1997 to $103.3 million for 1998. Net revenues increased
approximately $35.7 million, or 59%, from $60.6 million in 1997 to $96.3 million
in 1997. The increase is attributable to greater service revenues due to the
growth of pagers in service from 2,227,564 at March 31, 1997, to 4,116,859 at
March 31, 1998. Acquisitions completed in 1997 added approximately 1.5 million
subscribers to the Company's subscriber base. ARPU for paging services decreased
from $8.31 per unit in 1997 to $7.28 per unit in 1998 due to the merger with
ProNet in December 1997, and the changing distribution mix. Pro forma ARPU for
the quarter ended December 31, 1997, assuming the ProNet acquisition was
completed as of October 1, 1997, was estimated to be $7.46 per unit. 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.
Product sales increased $3.1 million from $8.2 million in 1997 to $11.3
million in 1998 and decreased as a percentage of net revenues from 13.6% in 1997
to 11.7% in 1998. Net book value of products sold increased approximately $0.8
million from $6.2 million in 1997 to $7.0 million in 1998 principally due to the
increase in product sales, offset by increased depreciation expense. Pagers are
classified as property and depreciated from the date of acquisition. The gross
margin on products sold increased from 25.3% in 1997 to 37.7% in 1998.
Overall, the Company experienced a decrease in average monthly operating
costs per unit in service (operating costs per unit before depreciation and
amortization) from 1997 to 1998. Average monthly operating cost per unit
decreased from $6.43 per unit for 1997 (excluding operating costs associated
with the telemessaging operations) to $5.59 per unit for 1998. Each operating
expense is discussed separately below.
Service, rent and maintenance expenses increased approximately $9.4 million
from $14.0 million in 1997 to $23.4 million in 1998 and increased as a
percentage of net revenues from 23.2% in 1997 to 24.3% in 1998. The overall
increase in service, rent and maintenance expense is attributable to the
acquisitions of ProNet ($7.9 million) and Page America ($1.5 million) completed
in 1997. The Company has ceased paying local exchange carriers in the Company's
various service areas for any facilities used by those local exchange carriers
to transport local calls to the Company's local paging networks pursuant to the
Telecommunications Act of 1996 (The "Telecom Act") and the FCC's rules regarding
local transport which reduced third party carriers costs by approximately $3.4
million in 1998. The Company has filed complaints with the FCC against a number
of Regional Bell Operating Companies ("RBOCs") and the largest independent
telephone company for violations of the FCC's interconnection and local
transport rules and the Telecom Act. Metrocall has petitioned the FCC to rule
that these local transport charges are unlawful and to award Metrocall a
reimbursement or credit for any past charges assessed. The total value of
credits receivable from these local exchange carriers at December 31, 1997 and
March 31, 1998 was $12.1 million and $15.6 million, respectively. Service, rent
and maintenance expense per unit has decreased from $1.99 per unit in 1997 to
$1.91 per unit in 1998.
Selling and marketing expenses increased approximately $3.8 million from
$12.6 million in 1997 to $16.4 million in 1998 and decreased as a percentage of
net revenues from 20.7% in 1997 to 17.0% in 1998. The increase in selling and
marketing expenses is primarily associated with the companies acquired in 1997.
Selling and marketing expenses attributed to the acquired companies are ProNet
($3.6 million), and Page America ($0.6 million). Monthly selling and marketing
expense per unit has decreased from $1.89 per unit in 1997 to $1.34 per unit in
1998. Selling and marketing expenses may increase as a percentage of net
revenues as the Company continues to increase its presence in existing markets
and expand geographic coverage.
General and administrative expenses increased $10.8 million from $17.7
million in 1997 compared to $28.5 million in 1998, and increased as a percentage
of net revenues from 29.3% in 1997 to 29.6% in 1998. General and administrative
expenses attributed to the acquired companies are ProNet ($6.7 million), and
Page America ($0.5 million). General and administrative expenses also increased
due to increased expenses for a variety of professional services ($1.6 million),
additional operational personnel ($1.7 million), and taxes and licenses ($0.5
million). Monthly general and administrative expense per unit has decreased from
$2.55 per unit in 1997 to $2.34 per unit in 1998. On a per unit basis, general
and administrative expenses are expected to continue to decline as additional
synergies are gained from the Company's acquisitions.
15
<PAGE> 16
Depreciation increased approximately $3.9 million from $12.7 million in
1997 to $16.6 million in 1998, and decreased as a percentage of net revenues
from 21.0% to 17.2% in 1997 and 1998, respectively. The increase in depreciation
expense resulted primarily from depreciation on subscriber equipment ($3.0
million of which is attributable to the ProNet Merger) and also from the
depreciation of other property, plant and equipment as well as computer hardware
and software.
Amortization increased significantly in 1998, up $27.6 million from $8.0
million in 1997 to $35.6 million in 1998 and increased as a percentage of
revenue from 13.2% in 1997 to 37.0% in 1998. The amortization of intangibles
recorded in conjunction with the ProNet Merger and the acquisition of Page
America increased amortization $19.4 million and $3.2 million, respectively.
Additionally, effective January 1, 1998, the Company reduced the estimated
useful lives of certain intangibles, including goodwill, regulatory licenses
issued by the Federal Communications Commission ("FCC") and subscriber bases
from 15 to 10 years for goodwill, 25 to 10 years for FCC licenses and from 5-6
years for subscriber bases to 3 years. The impact of these changes was to
increase amortization expense in 1998 by approximately $6.0 million.
Interest expense increased approximately $6.9 million, from $8.0 million in
1997 to $14.9 million in 1998. Interest expense increased due to higher average
level of debt during 1998 primarily associated with the financing of the 1997
acquisitions of Page America and ProNet and working capital requirements.
Net loss increased $16.5 million from approximately $11.7 million in 1997
to $28.2 million primarily due to the increase in interest expense and
amortization of intangibles, offset partially by a benefit for income taxes. Net
losses are expected to continue in future periods.
Loss attributable to common stockholders increased $17.2 million from $13.3
million in 1997 to $30.5 million in 1998 primarily due to increased amortization
of intangibles ($27.6 million) and increased interest expense ($6.9 million).
These increases were partially offset by an increase in the benefit for income
taxes ($9.7 million).
EBITDA increased approximately $11.7 million to $28.0 million in 1998 from
$16.3 million in 1997. As a percentage of net revenues, EBITDA increased from
26.9% in 1997 to 29.1% in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require the availability of substantial funds to
finance the growth of its existing operations and customer base, development and
construction of future wireless communications networks, expansion into new
markets, and the acquisition of other wireless communications companies. Further
cash requirements include debt service, working capital and general corporate
requirements.
The Company has financed its internal growth in 1998 through its operating
cash flow, available cash on hand and borrowings under the Company's credit
facility. Net cash provided by operating activities decreased from $6.3 million
to $4.0 million for the quarters ended March 31, 1997 and 1998, respectively,
primarily due to the increase in interest expense for 1998 and an increase in
accounts payable funded through borrowings under the Company credit facility.
At March 31, 1998, the Company had a working capital deficit of
approximately $23.8 million. The Company has experienced such deficits in prior
periods and such deficits are likely to continue. The Company attempts, whenever
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 March 31, 1998.
Cash flows used in investing activities were primarily to fund purchases of
property and equipment. Capital expenditures were approximately $14.5 million
and $19.1 million for the quarters ended March 31, 1997 and 1998, respectively.
Capital expenditures for the 1998 quarter included approximately $14.7 million
for pagers, representing increases in pagers on hand and net increases and
maintenance to the rental subscriber base. The balance of capital expenditures
included $1.5 million for information systems and computer related
16
<PAGE> 17
equipment, $2.3 million for network construction and development and $0.6
million for general purchases including leasehold improvements and office
equipment.
Cash flows provided by financing activities for the quarter ended March 31,
1998, included borrowings under the Company's credit facility of $6.0 million
primarily to fund working capital requirements and capital expenditures. Total
capital expenditures for the year ending December 31, 1998 are estimated to be
approximately $75.0 million primarily for the acquisition of pagers, paging and
transmission equipment and information systems enhancement. The Company expects
that its capital expenditures for the year ending December 31, 1998, 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.
Future cash requirements include debt service costs, primarily interest.
There are no significant principal payments required under the Company's
debt agreements during the year ending 1998. Additionally, dividends on the
Company's Series A Preferred and Series B Junior Convertible Preferred Stock
accrue at a rate of 14% of the stated value ($39.9 million and $15.0 million,
respectively) per year. Dividends may be paid in either cash or additional
shares at the Company's option. Under certain circumstances, as defined in the
certificate of designation, the dividend rate on the Series A Preferred may
increase to 16% per year. Further, Metrocall is required to redeem all
outstanding shares of Series A and Series B Preferred (including dividend
shares) in November 2008 and July 2009 respectively, unless the holders have
previously converted such shares to common stock. Accrued but unpaid dividends
at March 31, 1998, were approximately $2.4 million and $0.8 million on the
Series A and B Preferred, respectively.
Subject to certain conditions, the Company may borrow up to $300.0 million
under its Credit Facility ("Credit Facility"). At March 31, 1998, approximately
$147.2 million was outstanding under the Credit Facility, and the Company
borrowed an additional $10.0 million in April 1998. As of March 31, 1998
approximately $66.4 million of additional borrowings were available to the
Company under its 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. Management plans to continue to expand its
geographic service areas 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 quarterly report.
Substantial Indebtedness
At March 31, 1998, the Company had outstanding approximately $605.7 million
in long-term debt consisting of bank loans, senior subordinated notes, mortgage
indebtedness and capital leases. The Company increased its borrowings
outstanding under its Credit Facility by $10.0 million in April 1998, primarily
to fund working capital requirements. Additionally, the Company expects to incur
additional indebtedness (in the form of draws under the 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
17
<PAGE> 18
required to be dedicated to the payment of the Company's interest expense; (iii)
indebtedness under the 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 that 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 begun marketing, or have
announced their intention to begin marketing 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.
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 $20.1 million, $49.1 million and
$52.5 million for the years ended December 31, 1995, 1996 and 1997 and $28.2
million for the quarter ended March 31, 1998. No assurance can be given that
losses can be reversed in the future. In addition, at March 31, 1998,
Metrocall's accumulated deficit was $187.5 million and Metrocall had a deficit
in working capital of $23.8 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.
18
<PAGE> 19
Challenges of Systems Integration
The Company's acquisitions require integration of each company's
administrative, finance, sales and marketing organizations, as well as the
integration of each company's communication networks and the coordination of its
sales efforts. Specifically, this will involve, among other things, integration
of computer operating hardware and software systems, including each company's
billing and subscriber maintenance processes, some of which are incompatible
with the Company's existing systems. These integration efforts will require
substantial management attention and Company resources.
Litigation
Metrocall has filed complaints with the FCC against a number of RBOCS and
the largest independent telephone company for violations of the FCC's
interconnection and local transport rules and the Telecom Act. The complaints
allege that these local telephone companies are unlawfully charging Metrocall
for local transport of the telephone companies' local traffic. Metrocall has
petitioned the FCC to rule that these local transport charges are unlawful and
to award Metrocall a reimbursement or credit for any past charges assessed.
Also, Metrocall has asked the FCC to resolve these complaints within the five
month statutory deadline for complaint proceedings established under the Telecom
Act.
Subscriber Turnover
The results of operations of paging service providers, such as Metrocall,
can be significantly affected by subscriber cancellations and by subscribers who
switch their service to other carriers. In order to realize net growth in
subscribers, disconnected subscribers must be replaced and new subscribers must
be added. The sales and marketing costs associated with attracting new
subscribers are substantial relative to the costs of providing service to
existing customers. Because Metrocall's business is characterized by high fixed
costs, disconnections directly and adversely affect Metrocall's results of
operations. An increase in its subscriber cancellation rate may adversely affect
Metrocall's results of operations.
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.
Intangible Assets
At March 31, 1998, the Company's total assets of approximately $1,077.1
million included net intangible assets of approximately $780.0 million.
Intangible assets include FCC licenses and certificates, customer lists, debt
financing costs, goodwill and certain other intangibles. 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. Because a majority of the Company's assets are intangible, the
assets of the Company would not be sufficient to repay all of the Company's
indebtedness in the event secured creditors foreclose on the assets pledged to
them.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 operations of the Company.
Source One Wireless, Inc.
Metrocall entered into an agreement in April 1996 to purchase certain
assets of Source One Wireless, Inc. ("Source One") and placed $1 million cash in
escrow. On June 26, 1996, Metrocall advised Source One that Source One had
failed to meet certain conditions to completion of the transaction and
terminated the agreement. On September 20, 1996, Source One filed an action in
the Circuit Court of Cook County, Illinois claiming that Metrocall had breached
the agreement and seeking specific performance of the purchase agreement or
unspecified damages in excess of $80 million. In March 1998, by agreement of the
parties, the lawsuit was dismissed and the parties agreed to a settlement
payment of an equal division of the escrow account plus accrued interest.
Americom Paging Corporation
Contact Communications, Inc. ("Contact"), a wholly-owned subsidiary of
ProNet, entered into an agreement dated May 1995 to acquire substantially all of
the assets of Americom Paging Corporation ("Americom"). On July 2, 1997, two of
the former principal shareholders of Americom brought an action in Texas state
court seeking damages from ProNet (and subsequently Metrocall as successor in
interest to ProNet), Contact and ProNet's former Chief Executive Officer, in
connection with the transaction. The plaintiffs alleged claims under Texas state
common law and the Texas Securities Act and sought compensatory and punitive
damages. Metrocall asserted counterclaims for damages for breach of the purchase
agreement. In March 1998, by mutual agreement, the parties agreed to settle the
action for a settlement payment by Metrocall to the plaintiffs of $2.4 million.
Each party released all claims against the others, and all counterclaims were
dismissed with prejudice. The settlement payment was accrued at December 31,
1997 as part of the purchase accounting in connection with the ProNet Merger.
Interconnect Complaint
Metrocall has filed complaints with the FCC against a number of RBOCs and
the largest independent telephone company for violations of the FCC's
interconnection and local transport rules and the Telecom Act. The complaints
allege that these local telephone companies are unlawfully charging Metrocall
for local transport of the telephone companies' local traffic. Metrocall has
petitioned the FCC to rule that these local transport charges are unlawful and
to award Metrocall a reimbursement for any past charges assessed. Also,
Metrocall has asked the FCC to resolve these complaints within the five month
statutory deadline for complaint proceedings established under the Telecom Act.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
20
<PAGE> 21
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Required by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S> <C>
3.1 Amended and Restated Certificate of Incorporation of
Metrocall, as amended.(g)
3.3 Sixth Amended and Restated Bylaws of Metrocall.(g)
4.1 Indenture for Metrocall 10 3/8% Senior Subordinated Notes
due 2007 dated September 27, 1995 including form of
Notes.(h)
4.2 Indenture for A+ Network, Inc. 11 7/8% Senior Subordinated
Notes due 2005 ("A+ Notes") dated October 24, 1995.(i)
4.3 First Supplemental Indenture dated November 14, 1996, for A+
Notes.(j)
4.4 Second Supplemental Indenture dated November 15, 1996, for
A+ Notes.(j)
4.5 Indenture for 9 3/4% Senior Subordinated Notes due 2007
dated October 21, 1997, including form of Notes.(k)
4.6 Indenture for ProNet Inc. 11 7/8% Senior Subordinated Notes
due 2005 ("ProNet Notes") dated June 15, 1995.(t)
4.7 Second Supplemental Indenture dated December 30, 1997, for
ProNet Notes.+
10.1 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)
10.2 Amendment to Asset Purchase Agreement by and among Page
America and Metrocall dated as of March 28, 1997.(a)
10.3 Form of Certificate of Designation, Number, Powers,
Preferences and Relative, Participating, Optional and Other
Rights of Series A Convertible Preferred Stock of
Metrocall(b)
10.4 Form of Certificate of Designation, Number, Powers,
Preferences and Relative, Participating, Optional and Other
Rights of Series B Junior Convertible Preferred Stock of
Metrocall(c)
10.5 Registration Rights Agreement dated July 1, 1997 by and
between Page America Group, Inc. and Metrocall.(d)
10.6 Registration Rights Agreement dated July 1, 1997 by and
among Page America and Metrocall.(d)
10.7 Indemnity Escrow Agreement dated July 1, 1997 by and among
Page America, Metrocall and First Union National Bank of
Virginia.(d)
10.8 Agreement and Plan of Merger dated as of August 8, 1997,
between Metrocall and ProNet Inc. ("ProNet")(e)
10.9 Stockholders Voting Agreement dated as of August 8, 1997,
among ProNet Inc. and certain stockholders of Metrocall
listed therein.(e)
10.10 Option Agreement dated as of August 8, 1997, between
Metrocall and ProNet(e)
10.11 Amendment to Option Agreement dated as of August 29, 1997,
between Metrocall and ProNet(f)
10.12 Agreement and Plan of Merger dated as of May 16, 1996,
between Metrocall and A+ Network, Inc.(u)
10.13 Amendment to Agreement and Plan of Merger between Metrocall
and A+ Network, Inc.(l)
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S> <C>
10.14 Shareholders' Option Sale Agreement dated as of May 16, 1996
between Metrocall and certain shareholders of A+ Network,
Inc. listed therein.(u)
10.15 Metrocall Stockholders Voting Agreement dated as of May 16,
1996 between A+ Network, Inc. and certain stockholders of
Metrocall listed therein.(u)
10.16 Agreement and Plan of Merger entered into effective May 16,
1996 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.(l)
10.17 Agreement of Merger by and among Metrocall, PPI Acquisition
Corp., Parkway Paging, Inc., certain shareholders of Parkway
Paging, Inc., and George W. Bush, dated February 26,
1996.(v)
10.18 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, 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.)(v)
10.19 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.(w)
10.20 Employment Agreement between Metrocall and William L.
Collins, III.(l)
10.21 Employment Agreement between Metrocall and Steven D.
Jacoby.(l)
10.22 Employment Agreement between Metrocall and Vincent D.
Kelly.(l)
10.23 Change of Control Agreement between Metrocall and William L.
Collins, III.(l)
10.24 Change of Control Agreement between Metrocall and Steven D.
Jacoby.(l)
10.25 Change of Control Agreement between Metrocall and Vincent D.
Kelly.(l)
10.26 Noncompetition Agreement dated as of August 8, 1997, between
Metrocall and Jackie R. Kimzey.(m)
10.27 Noncompetition Agreement dated as of August 8, 1997, between
Metrocall and David J. Vucina.(m)
10.28 Letter Agreement dated August 8, 1997, between Metrocall and
Jackie R. Kimzey.(m)
10.29 Letter Agreement dated August 8, 1997, between Metrocall and
David J. Vucina.(m)
10.30 Letter Agreement dated August 8, 1997, between Metrocall and
Jan E. Gaulding.(m)
10.31 Letter Agreement dated August 8, 1997, between Metrocall and
Mark A. Solls.(m)
10.32 Letter Agreement dated August 8, 1997, between Metrocall and
Jeffery A. Owens.(m)
10.33 Amendment to Employment Agreement between Metrocall and
William L. Collins, III.(s)
10.34 Amendment to Employment Agreement between Metrocall and
Steven D. Jacoby.(s)
10.35 Amendment to Employment Agreement between Metrocall and
Vincent D. Kelly.(s)
10.36 Directors' Stock Option Plan, as amended.(n)
10.37 Metrocall 1996 Stock Option Plan.(z)
10.38 Metrocall 1996 Stock Option Plan, as amended.(n)
10.39 Metrocall Amended Employee Stock Purchase Plan.(r)
10.40 Variable Common Rights Agreement between Metrocall and First
Union National Bank of Virginia, Rights Agent, dated as of
November 15, 1996, including Form of Certificate
representing Variable Common Rights.(o)
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S> <C>
10.41 Unit Purchase Agreement dated as of November 15, 1996, among
Metrocall and Certain Purchasers.(p)
10.42 Warrant Agreement dated as of November 15, 1996, between
Metrocall and the First National Bank of Boston, Warrant
Agent.(p)
10.43 Second Amended and Restated Loan Agreement dated as of
October 21, 1997, among Metrocall, the financial
institutions signatory thereto, and Toronto-Dominion
(Texas), Inc., as Administrative Agent.(q)
10.44 Registration Rights Agreement, dated October 21, 1997
between Metrocall and Morgan Stanley & Co. Incorporated, TD
Securities (USA), Inc., First Union Capital Markets Corp.
and Nationsbank Montgomery Securities, Inc.(g)
10.45 Deed of Lease between Douglas and Joyce Jemal, as landlord,
and Metrocall, as tenant, dated April 14, 1994.(x)
10.46 Lease Agreement dated December 20, 1983 between Beacon
Communications Associates, Ltd. and a predecessor of
Metrocall.(y)
10.47 Agreement dated May 16, 1996 among Metrocall and Ray D.
Russenberger and Elliott H. Singer regarding voting for
director.(u)
10.48 Non-disclosure/No Conflict Agreement dated May 16, 1996
between Metrocall and Ray D. Russenberger.(u)
10.49 Non-disclosure/No Conflict Agreement dated May 16, 1996
between Metrocall and Elliott H. Singer.(u)
10.50 Employment Agreement dated May 16, 1996 between Metrocall
and Charles A. Emling III.(u)
11.1 Statement re computation of per share earnings.+
27.1 Financial Data Schedule.+
</TABLE>
- ---------------
+ Filed herewith.
(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 Current Report on Form 8-K filed
with the Commission on November 21, 1996.
(c) Incorporated by reference to Metrocall's Registration Statement, Amendment
No. 1, on Form S-4 (File No. 333-21231) filed with the Commission on April
15, 1997.
(d) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on July 14, 1997.
(e) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on August 12, 1997.
(f) Incorporated by reference to Metrocall's Current Report on Form 8-K, as
amended, filed with the Commission on September 8, 1997.
(g) Incorporated by reference to Metrocall's Registration Statement on Form
S-4, as amended (File No. 333-44329), filed with the Commission on January
15, 1998.
(h) 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.
(i) 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.
(j) Incorporated by reference to Metrocall's Annual Report on Form 10-K for the
year ended December 31, 1996, filed with the Commission on March 31, 1997.
23
<PAGE> 24
(k) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on October 23, 1997.
(l) Incorporated by reference to Metrocall's Registration Statement on Form
S-4, as amended (File No. 333-06919), filed with the Commission on June 27,
1996.
(m) Incorporated by reference to Metrocall's Registration Statement on Form S-4,
as amended (File No. 333-36079), filed with the Commission on September 22,
1997.
(n) Incorporated by reference to Metrocall's Proxy Statement filed for the
Annual Meeting of Stockholders held on May 7, 1997.
(o) Incorporated by reference to Metrocall's Annual Report on Form 10-K/A for
the year ended December 31, 1996, filed with the Commission on May 9, 1997.
(p) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on November 21, 1996.
(q) Incorporated by reference to Metrocall's Registration Statement, Amendment
No. 2, on Form S-4 (File No. 333-36079) filed with the Commission on
November 5, 1997.
(r) Incorporated by reference to Metrocall's Registration Statement, Amendment
No. 1, on Form S-4 (File No. 333-36079) filed with the Commission on
October 27, 1997.
(s) Incorporated by reference to Metrocall's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, filed with the Commission on November
14, 1997.
(t) Incorporated by reference to ProNet's Current Report on Form 8-K filed with
the Commission on July 5, 1995.
(u) Incorporated by reference to Metrocall's Tender Offer Statement on Schedule
14D-1, filed with the Commission on May 22, 1996.
(v) 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.
(w) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on September 13, 1996, as amended on October 1, 1996.
(x) 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.
(y) 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.
(z) Incorporated by reference to Metrocall's Proxy Statement filed for the
Annual Meeting of Stockholders held on May 1, 1996.
(b) Reports on Form 8-K
On January 14, 1998 the Company filed a Report on Form 8-K reporting the
completion of the merger of ProNet Inc. with and into Metrocall, pursuant to the
terms of the Agreement and Plan of Merger dated August 8, 1997.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 1998 METROCALL, INC.
/s/ VINCENT D. KELLY
--------------------------------------
Vincent D. Kelly
Chief Financial Officer,
Treasurer and Executive Vice President
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S> <C>
3.1 Amended and Restated Certificate of Incorporation of
Metrocall, as amended.(g)
3.3 Sixth Amended and Restated Bylaws of Metrocall.(g)
4.1 Indenture for Metrocall 10 3/8% Senior Subordinated Notes
due 2007 dated September 27, 1995 including form of
Notes.(h)
4.2 Indenture for A+ Network, Inc. 11 7/8% Senior Subordinated
Notes due 2005 ("A+ Notes") dated October 24, 1995.(i)
4.3 First Supplemental Indenture dated November 14, 1996, for A+
Notes.(j)
4.4 Second Supplemental Indenture dated November 15, 1996, for
A+ Notes.(j)
4.5 Indenture for 9 3/4% Senior Subordinated Notes due 2007
dated October 21, 1997, including form of Notes.(k)
4.6 Indenture for ProNet Inc. 11 7/8% Senior Subordinated Notes
due 2005 ("ProNet Notes") dated June 15, 1995.(t)
4.7 Second Supplemental Indenture dated December 30, 1997, for
ProNet Notes.+
10.1 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)
10.2 Amendment to Asset Purchase Agreement by and among Page
America and Metrocall dated as of March 28, 1997.(a)
10.3 Form of Certificate of Designation, Number, Powers,
Preferences and Relative, Participating, Optional and Other
Rights of Series A Convertible Preferred Stock of
Metrocall(b)
10.4 Form of Certificate of Designation, Number, Powers,
Preferences and Relative, Participating, Optional and Other
Rights of Series B Junior Convertible Preferred Stock of
Metrocall(c)
10.5 Registration Rights Agreement dated July 1, 1997 by and
between Page America Group, Inc. and Metrocall.(d)
10.6 Registration Rights Agreement dated July 1, 1997 by and
among Page America and Metrocall.(d)
10.7 Indemnity Escrow Agreement dated July 1, 1997 by and among
Page America, Metrocall and First Union National Bank of
Virginia.(d)
10.8 Agreement and Plan of Merger dated as of August 8, 1997,
between Metrocall and ProNet Inc. ("ProNet")(e)
10.9 Stockholders Voting Agreement dated as of August 8, 1997,
among ProNet Inc. and certain stockholders of Metrocall
listed therein.(e)
10.10 Option Agreement dated as of August 8, 1997, between
Metrocall and ProNet(e)
10.11 Amendment to Option Agreement dated as of August 29, 1997,
between Metrocall and ProNet(f)
10.12 Agreement and Plan of Merger dated as of May 16, 1996,
between Metrocall and A+ Network, Inc.(u)
10.13 Amendment to Agreement and Plan of Merger between Metrocall
and A+ Network, Inc.(l)
10.14 Shareholders' Option Sale Agreement dated as of May 16, 1996
between Metrocall and certain shareholders of A+ Network,
Inc. listed therein.(u)
10.15 Metrocall Stockholders Voting Agreement dated as of May 16,
1996 between A+ Network, Inc. and certain stockholders of
Metrocall listed therein.(u)
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S> <C>
10.16 Agreement and Plan of Merger entered into effective May 16,
1996 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.(l)
10.17 Agreement of Merger by and among Metrocall, PPI Acquisition
Corp., Parkway Paging, Inc., certain shareholders of Parkway
Paging, Inc., and George W. Bush, dated February 26,
1996.(v)
10.18 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, 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.)(v)
10.19 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.(w)
10.20 Employment Agreement between Metrocall and William L.
Collins, III.(l)
10.21 Employment Agreement between Metrocall and Steven D.
Jacoby.(l)
10.22 Employment Agreement between Metrocall and Vincent D.
Kelly.(l)
10.23 Change of Control Agreement between Metrocall and William L.
Collins, III.(l)
10.24 Change of Control Agreement between Metrocall and Steven D.
Jacoby.(l)
10.25 Change of Control Agreement between Metrocall and Vincent D.
Kelly.(l)
10.26 Noncompetition Agreement dated as of August 8, 1997, between
Metrocall and Jackie R. Kimzey.(m)
10.27 Noncompetition Agreement dated as of August 8, 1997, between
Metrocall and David J. Vucina.(m)
10.28 Letter Agreement dated August 8, 1997, between Metrocall and
Jackie R. Kimzey.(m)
10.29 Letter Agreement dated August 8, 1997, between Metrocall and
David J. Vucina.(m)
10.30 Letter Agreement dated August 8, 1997, between Metrocall and
Jan E. Gaulding.(m)
10.31 Letter Agreement dated August 8, 1997, between Metrocall and
Mark A. Solls.(m)
10.32 Letter Agreement dated August 8, 1997, between Metrocall and
Jeffery A. Owens.(m)
10.33 Amendment to Employment Agreement between Metrocall and
William L. Collins, III.(s)
10.34 Amendment to Employment Agreement between Metrocall and
Steven D. Jacoby.(s)
10.35 Amendment to Employment Agreement between Metrocall and
Vincent D. Kelly.(s)
10.36 Directors' Stock Option Plan, as amended.(n)
10.37 Metrocall 1996 Stock Option Plan.(z)
10.38 Metrocall 1996 Stock Option Plan, as amended.(n)
10.39 Metrocall Amended Employee Stock Purchase Plan.(r)
10.40 Variable Common Rights Agreement between Metrocall and First
Union National Bank of Virginia, Rights Agent, dated as of
November 15, 1996, including Form of Certificate
representing Variable Common Rights.(o)
10.41 Unit Purchase Agreement dated as of November 15, 1996, among
Metrocall and Certain Purchasers.(p)
10.42 Warrant Agreement dated as of November 15, 1996, between
Metrocall and the First National Bank of Boston, Warrant
Agent.(p)
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S> <C>
10.43 Second Amended and Restated Loan Agreement dated as of
October 21, 1997, among Metrocall, the financial
institutions signatory thereto, and Toronto-Dominion
(Texas), Inc., as Administrative Agent.(q)
10.44 Registration Rights Agreement, dated October 21, 1997
between Metrocall and Morgan Stanley & Co. Incorporated, TD
Securities (USA), Inc., First Union Capital Markets Corp.
and Nationsbank Montgomery Securities, Inc.(g)
10.45 Deed of Lease between Douglas and Joyce Jemal, as landlord,
and Metrocall, as tenant, dated April 14, 1994.(x)
10.46 Lease Agreement dated December 20, 1983 between Beacon
Communications Associates, Ltd. and a predecessor of
Metrocall.(y)
10.47 Agreement dated May 16, 1996 among Metrocall and Ray D.
Russenberger and Elliott H. Singer regarding voting for
director.(u)
10.48 Non-disclosure/No Conflict Agreement dated May 16, 1996
between Metrocall and Ray D. Russenberger.(u)
10.49 Non-disclosure/No Conflict Agreement dated May 16, 1996
between Metrocall and Elliott H. Singer.(u)
10.50 Employment Agreement dated May 16, 1996 between Metrocall
and Charles A. Emling III.(u)
11.1 Statement re computation of per share earnings.+
27.1 Financial Data Schedule.+
</TABLE>
- ---------------
+ Filed herewith.
(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 Current Report on Form 8-K filed
with the Commission on November 21, 1996.
(c) Incorporated by reference to Metrocall's Registration Statement, Amendment
No. 1, on Form S-4 (File No. 333-21231) filed with the Commission on April
15, 1997.
(d) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on July 14, 1997.
(e) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on August 12, 1997.
(f) Incorporated by reference to Metrocall's Current Report on Form 8-K, as
amended, filed with the Commission on September 8, 1997.
(g) Incorporated by reference to Metrocall's Registration Statement on Form
S-4, as amended (File No. 333-44329), filed with the Commission on January
15, 1998.
(h) 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.
(i) 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.
(j) Incorporated by reference to Metrocall's Annual Report on Form 10-K for the
year ended December 31, 1996, filed with the Commission on March 31, 1997.
(k) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on October 23, 1997.
(l) Incorporated by reference to Metrocall's Registration Statement on Form
S-4, as amended (File No. 333-06919), filed with the Commission on June 27,
1996.
<PAGE> 1
EXHIBIT 4.7
------------------------------------------------------------------
METROCALL, INC.
COMPANY
AND
THE BANK OF NEW YORK COMPANY, INC.
TRUSTEE
------------------------------------------------------------------
SECOND SUPPLEMENTAL
INDENTURE
DATED AS OF DECEMBER 30, 1997
------------------------------------------------------------------
11 7/8% SENIOR SUBORDINATED NOTES DUE 2005
<PAGE> 2
SECOND SUPPLEMENTAL INDENTURE
This Second Supplemental Indenture (this "Second Supplemental
Indenture") is dated and is effective as of December 30, 1997, and is by and
between METROCALL, INC., a Delaware corporation (the "Company"), and THE BANK OF
NEW YORK COMPANY, INC., a New York banking corporation, as trustee (the
"Trustee").
W I T N E S S E T H:
WHEREAS, ProNet Inc., a Delaware corporation (the "Predecessor"), has
heretofore entered into an Indenture dated as of June 15, 1995 (as modified by
the Supplemental Indenture dated as of May 28, 1996, the "Indenture"), with
First Interstate Bank of Texas, N.A., the predecessor trustee to the Trustee,
pursuant to which the Predecessor issued $100,000,000 aggregate principal amount
of its 11 7/8% Senior Subordinated Notes Due 2005 (the "Securities");
WHEREAS, the Predecessor, pursuant to an Agreement and Plan of Merger
dated as of August 8, 1997, between the Company and the Predecessor (the "Merger
Agreement"), has merged with and into the Company;
WHEREAS, in accordance with the Merger Agreement, the Company has
succeeded to all right, title and interest of certain property of the
Predecessor and assumed the Predecessor's debts, liabilities, duties and
obligations, including the Predecessor's obligations under the Indenture;
WHEREAS, under Section 5.1 of the Indenture, the Predecessor shall
not merge into any other corporation unless (among other things) the corporation
into which the Predecessor is merged shall be a corporation organized under the
laws of the United States of America, any state thereof or the District of
Columbia, and shall expressly assume, by a supplemental indenture executed and
delivered to the Trustee, in form satisfactory to the Trustee, the Predecessor's
obligation for the due and punctual payment of the principal (premium, if any,
on) and interest on all the Securities and the performance and observance of
every covenant of the Indenture on the part of the Predecessor to be performed
or observed;
WHEREAS, the Company and the Trustee are authorized pursuant to
Section 9.1 of the Indenture to execute this Second Supplemental Indenture
without the consent of the Holders of the Securities in order to comply with
Section 5.1, to evidence the merger of the Predecessor with and into the Company
and to evidence the assumption by the Company of the covenants of the
Predecessor in the Indenture and in the Securities;
WHEREAS, all the requirements of law and the bylaws and Certificate
of Incorporation of the Company have been fully complied with and all other acts
and things necessary to make this Second Supplemental Indenture a valid, binding
and legal instrument for the uses and
2
<PAGE> 3
purposes herein set forth have been done and performed, including the
authorization of the execution and delivery of the Second Supplemental Indenture
by the Board of Directors of the Company;
NOW, THEREFORE, in consideration of the premises herein contained,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Trustee have joined in the
execution and delivery of this Second Supplemental Indenture.
ARTICLE ONE
INCORPORATION OF INDENTURE; DEFINITIONS; NOTICES
1.1 Incorporation of Indenture. This Second Supplemental Indenture
constitutes a supplement to the Indenture, and the Indenture and this Second
Supplemental Indenture shall be read together and shall have effect so far as
practicable as though all of the provisions thereof and hereof are contained in
one instrument.
1.2 Definitions.
(a) The defined term "Company" as used in the Indenture shall mean
"Metrocall, Inc." instead of "ProNet Inc."
(b) All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings assigned to such terms in the Indenture.
1.3 Notices. The addresses of the Company and the Trustee listed in
Section 12.2 of the Indenture shall be amended to read as follows:
If to the Company: Metrocall, Inc.
6677 Richmond Highway
Alexandria, VA 22306
Telephone: (703) 660-6677
Facsimile: (703) 768-5407
Attn: Vincent D. Kelly
With a copy to: Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Telephone: (202) 663-6000
Facsimile: (202) 663-6363
Attn: Thomas W. White
If to the Trustee: The Bank of New York
21st Floor West
3
<PAGE> 4
101 Barclay Street
New York, NY 10286
Attn: Corporate Trust Trustee Administration
Telephone: (212) 815-3703
Facsimile: (212) 815-5915 or 815-5917
ARTICLE TWO
ASSUMPTION OF COVENANTS; EFFECTIVE TIME
2.1 Assumptions of Obligations. The Company expressly and unconditionally
assumes the due and punctual payment of the principal of (and premium, if any,
on) and interest on all the Securities and the performance and observance of
every obligation and covenant of the Indenture on the part of the Predecessor to
be performed or observed. The Company shall succeed to, and be substituted for,
and may exercise every right and power of, the Predecessor under the Indenture
with the same effect as if the Company had been so named therein, and, the
Predecessor is hereby relieved of such obligations and covenants under the
Indenture and the Securities in accordance with Section 5.2 of the Indenture.
2.2 Effective Time. This Second Supplemental Indenture is executed by the
Company and the Trustee pursuant to the provisions of Section 9.1 of the
Indenture and shall take effect immediately upon its execution by the Company
and the Trustee and its delivery to the Trustee by the Company.
ARTICLE THREE
MISCELLANEOUS
4.1 Full Force and Effect. The Indenture, as supplemented by this Second
Supplemental Indenture, remains in full force and effect and is hereby ratified
and confirmed as the valid and binding obligation of the parties hereto. Except
as expressly modified herein, all terms, provisions and conditions of the
Indenture will remain unchanged and are and shall remain in full force and
effect for the full term thereof, and this Second Supplemental Indenture shall
be interpreted with the Indenture as one and the same instrument.
4.2 Multiple Counterparts. This Second Supplemental Indenture may be
executed in multiple counterparts, each of which shall be deemed an original,
but all of which taken together shall constitute one and the same instrument.
4.3 Headings for Convenience Only. The headings of the Sections of this
Second Supplemental Indenture are used for convenience of reference only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
4
<PAGE> 5
4.4 Governing Law. This Second Supplemental Indenture shall be governed
by, and construed in accordance with, the laws of the State of New York without
regard to conflicts of law principles thereof.
4.5 Successors and Assigns. All covenants and agreements in this Second
Supplemental Indenture by the Company shall bind its successors and assigns,
whether so expressed or not.
4.6 Trustee Not Responsible for Recitals, etc. The recitals contained
herein shall be taken as the statements of the Company, and the Trustee assumes
no responsibility whatsoever for their correctness nor for the validity or
sufficiency of this Second Supplemental Indenture or for the due execution
hereof by the Company.
4.7 Certain Duties and Responsibilities of the Trustee. In entering into
this Second Supplemental Indenture, the Trustee accepts the modifications of the
Indenture effected by this Second Supplemental Indenture and agrees to execute
the trusts created by the Indenture as hereby modified, but only upon the terms
and conditions set forth in the Indenture. The Trustee shall be entitled to the
benefit of every provision of the Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee, whether or not
elsewhere herein so provided.
(SIGNATURES ON FOLLOWING PAGE)
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be executed and delivered effective as of the date
first mentioned hereinabove.
METROCALL, INC.
By: /s/ Vincent D. Kelly
------------------------------
Name: Vincent D. Kelly
----------------------------
Title: Chief Financial Officer
---------------------------
THE BANK OF NEW YORK,
as Trustee
By: /s/ Remo J. Reale
------------------------------
Name: Remo J. Reale
----------------------------
Title: Assistant Vice President
---------------------------
6
<PAGE> 1
EXHIBIT 11.1
METROCALL, INC.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Quarter ended March 31,
-------------------------------
1997 1998
------------ ------------
<S> <C> <C>
Net loss $ (11,748) $ (28,200)
Preferred dividends (1,560) (2,348)
------------ ------------
Net loss attributable to common stockholders $ (13,308) $ (30,548)
============ ============
Weighted-average shares outstanding:
Shares outstanding, beginning of period 24,521,135 40,548,414
Shares issued in acquisitions 302,059 -
Shares issued in settlement of litigation
related to the ProNet Merger - 270,000
Shares issued in employee stock purchase plan 35,203 48,134
------------ ------------
Weighted-average shares outstanding 24,858,397 40,866,548
============ ============
Loss per share attributable to common stockholders $ (0.54) $ (0.75)
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,617
<SECURITIES> 0
<RECEIVABLES> 36,167
<ALLOWANCES> 5,066
<INVENTORY> 2,627
<CURRENT-ASSETS> 67,853
<PP&E> 354,132
<DEPRECIATION> 127,016
<TOTAL-ASSETS> 1,077,068
<CURRENT-LIABILITIES> 91,699
<BONDS> 605,707
56,330
0
<COMMON> 409
<OTHER-SE> 149,959
<TOTAL-LIABILITY-AND-EQUITY> 1,077,068
<SALES> 11,293
<TOTAL-REVENUES> 103,331
<CGS> 7,031
<TOTAL-COSTS> 120,438
<OTHER-EXPENSES> (320)
<LOSS-PROVISION> 3,179
<INTEREST-EXPENSE> 14,901
<INCOME-PRETAX> (38,719)
<INCOME-TAX> (10,519)
<INCOME-CONTINUING> (28,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,548)
<EPS-PRIMARY> (0.75)
<EPS-DILUTED> (0.75)
</TABLE>
