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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-21924
METROCALL, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 54-1215634
(State of incorporation) (I.R.S. Employer Identification No.)
6677 RICHMOND HIGHWAY, ALEXANDRIA, 22306
VIRGINIA (Zip Code)
(Address of Principal Executive
Offices)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 660-6677
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NOT APPLICABLE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF CLASS
COMMON STOCK ($.01 PAR VALUE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of
the Registrant was approximately $139.1 million based on the closing sales price
on March 1, 1999.
COMMON STOCK, PAR VALUE $0.01 -- 41,639,878 SHARES OUTSTANDING ON MARCH 1, 1999
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Annual Meeting of the Registrant to
be held May 5, 1999 will be filed with the Commission within 120 days after the
close of the fiscal year and are incorporated by reference into Part III.
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TABLE OF CONTENTS
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PAGE
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PART I
ITEM 1: Business.................................................... 3
ITEM 2: Properties.................................................. 14
ITEM 3: Legal Proceedings........................................... 14
ITEM 4: Submission of Matters to a Vote of Security Holders......... 14
PART II
ITEM 5: Market for Metrocall's Common Stock and Related Stockholder
Matters................................................... 15
ITEM 6: Selected Financial Data..................................... 17
ITEM 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
ITEM 7A: Quantitative and Qualitative Disclosures About Market
Risk...................................................... 32
ITEM 8: Financial Statements and Supplementary Data................. 32
ITEM 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 32
PART III
ITEM 10: Directors and Executive Officers of the Registrant.......... 32
ITEM 11: Executive Compensation...................................... 32
ITEM 12: Security Ownership of Certain Beneficial Owners and
Management................................................ 32
ITEM 13: Certain Relationships and Related Transactions.............. 32
PART IV
ITEM 14: Exhibits, Financial Statement Schedule and Reports on Form
8-K....................................................... 33
Signatures.................................................................. 37
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes or incorporates forward-looking
statements. We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to risks, uncertainties and assumptions including, among
other things those discussed under "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations". These uncertainties
include:
- our high leverage and need for substantial capital;
- our ability to service debt;
- our history of net operating losses;
- the restrictive covenants governing our indebtedness;
- the amortization of our intangible assets;
- our ability to integrate the AMD acquisition;
- our ability to implement our business strategies;
- the impact of competition and technological developments;
- satellite transmission failures;
- subscriber turnover;
- our ability to implement our Year 2000 readiness plan;
- litigation;
- regulatory changes; and
- dependence on key suppliers.
Other matters set forth in this Annual Report on Form 10-K may also cause
actual results to differ materially from those described in the forward-looking
statements. We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Annual Report on Form 10-K might not occur.
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PART I
ITEM 1. BUSINESS
GENERAL
We are a leading provider of local, regional and national paging and other
wireless messaging services. Through our nationwide wireless network we provide
messaging services to over 1,000 U.S. cities, including the top 100 Standard
Metropolitan Statistical Areas (SMSAs). Since 1993, our subscriber base has
increased from less than 250,000 to more than 5.6 million. We have achieved this
growth through a combination of internal growth and a program of mergers and
acquisitions. As of December 31, 1998, we were the second largest messaging
company in the United States based on the number of subscribers.
PAGING AND WIRELESS MESSAGING INDUSTRY OVERVIEW
We believe that paging and wireless messaging is the most cost-effective
and reliable means of conveying a variety of information rapidly over a wide
geographic area either directly to a person traveling or to various fixed
locations. Conventional paging, as a one-way communications tool, is a
lower-cost way to communicate than existing two-way communication methods. For
example, the pagers and air time required to transmit a typical message cost
less than the equipment and air time for cellular and personal communications
services (PCS) telephones. Furthermore, pagers operate for longer periods due to
superior battery life, often exceeding one month on a single battery. Paging
subscribers generally pay a flat monthly service fee, which covers a certain
number of messages sent to the subscriber. In addition, pagers are unobtrusive
and portable and historically have withstood substantial technological advances
in the communications industry. Many mobile telephone customers use pagers in
conjunction with their telephones to screen incoming calls and minimize battery
wear and usage charges.
Although the U.S. paging industry has over 500 licensed paging companies,
we estimate that the ten largest paging companies, including us, currently serve
approximately 75% of the total paging subscribers in the United States. These
paging companies are facilities-based, Commercial Mobile Radio Service (CMRS)
providers, previously classified as either Radio Common Carrier (RCC) or Private
Carrier Paging (PCP) operators, servicing over 100,000 subscribers each in
multiple markets and regions.
We believe that the future of the paging and wireless communications
industry will include technological improvements that permit increased service
and applications, and consolidation of smaller, single-market operators and
larger, multi-market paging companies.
Recent technological advances include new paging services such as
"confirmation" or "response" paging that send a message back to the paging
system confirming that a paging message has been received, digitized voice
paging, two-way paging and notebook and sub-notebook computer wireless data
applications. Narrowband PCS offers the ability to provide some of these
services on an expanded basis. Narrowband PCS utilizes a two-way spectrum, which
offers advantages to the traditional one-way spectrum that some paging networks
use. The two-way spectrum enables a paging device to emit a signal that notifies
the network of the paging device's location and permits the network to send the
message to transmitters closest to the paging device. In contrast, a one-way
spectrum requires the message to be sent to all transmitters within a geographic
area and not necessarily to those transmitters closest to the paging device.
Therefore, a two-way spectrum utilizes less air time of the paging network and
creates more air time capacity particularly in the areas farthest from the
paging device. While these narrowband PCS services have been proven
technologically feasible, their economic viability has not been fully tested
based on the cost of licenses, infrastructure and capital requirements;
increased operating costs; and competitive, similarly priced two-way broadband
PCS and cellular services.
OUR BUSINESS STRATEGY
Our business strategy is to increase shareholder value by expanding our
subscriber base and increasing revenues, cost efficiencies, and operating cash
flow. Operating cash flow is defined as EBITDA (earnings before interest,
taxes, depreciation and amortization). The principal elements of this strategy
include the following:
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Manage Capital Requirements and Increase Free Cash Flow. Our key financial
objective is to manage capital requirements and increase free cash flow. We
define free cash flow as operating cash flow less capital expenditures and
interest expense. To achieve this objective, we focus on the following:
- focusing on selling, rather than leasing, paging units in order to reduce
capital expenditure requirements per subscriber;
- increasing revenues and cash flow through sales of value-added advanced
messaging and information services which generate higher average monthly
revenue per unit (ARPU) than standard messaging or paging services; and
- increasing the utilization of our fully developed nationwide network to
serve more customers per frequency and enter new markets with minimal
capital outlay.
Maximize Internal Growth Potential. We have grown internally by broadening
our distribution network and expanding our target market to capitalize on the
growing appeal of messaging and other wireless products and services. Since
December 31, 1994, we have added approximately 1.4 million new subscribers
through internal growth. We have expanded our direct and indirect distribution
channels to gain access to different market segments. As part of this strategy,
we have formed strategic alliances with:
- local, long-distance, cellular and PCS providers, such as AT&T Wireless
Services Inc. (AT&T Wireless), Bell Atlantic, Qwest, Vanguard Cellular and
ALLTEL;
- cable television companies, such as Adelphia Cable Communications and
Suburban Cable; and
- retail outlets, such as Circle K Stores, AutoZone, Ritz Camera and
Walgreens.
We have also developed strategic marketing relationships with America
Online and Washington Gas and Light Company, which are designed to further
enhance our market presence. We have also entered into a broadband PCS alliance
with AT&T Wireless, which will enable us to further diversify our product mix by
distributing AT&T's digital PCS wireless products and AT&T's Digital One Rate
(SM) service plans via our direct distribution channels. In 1999, we will
continue to expand our multi-tiered distribution network and marketing
relationships. We believe that these initiatives will continue to increase our
sales and broaden the range and diversity of products that we currently offer to
consumers.
Expand Market Presence through Consolidation. We have expanded our
subscriber base and geographic coverage through consolidation. On October 2,
1998, we acquired the Advanced Messaging Division (AMD) of AT&T Wireless, the
paging operations of AT&T. The AMD acquisition increased the size of our
subscriber base by adding 1.2 million subscribers to our existing customer base.
As part of the acquisition, we also acquired a 50KHz/50KHz narrowband personal
communications service license (NPCS license). We expect to realize the
following benefits from the AMD acquisition:
- Greater Scale and Scope. The AMD acquisition increases our geographic
presence to include Alaska, Arkansas, Colorado, Kansas, Minnesota,
Missouri, Oklahoma, Oregon, Utah and Washington. In addition, it adds to
our existing presence in the Northeast, Southeast, Midwest, Mid-Atlantic
and Southwest and West.
- Premium, High Revenue Customer Base. The AMD acquisition adds premium,
high revenue subscribers to our existing customer base. AMD's ARPU has
historically been higher than the paging industry average. AMD provided
its paging and messaging services to large business customers, which
typically generate higher ARPU than individual customers. Approximately
23% of AMD's subscribers were high-ARPU alphanumeric customers, one of the
highest percentages in the industry.
- Synergies. As we integrate AMD's operations with our own paging
operations, we expect to realize significant synergies. For example, AMD
provided nationwide paging services without the benefit of a nationwide
network. As a result, AMD spent $29.3 million in 1997 reselling other
carriers' services, which adversely affected its margins. Over time, we
expect to switch a portion of AMD's customers to our nationwide network,
which will reduce third-party costs and increase the utilization of our
network. In addition, we expect to realize significant annual cost
savings from elimination of duplicative AMD functions. We expect to
complete the integration of AMD by the fourth quarter of 1999.
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Since July 1996, we have acquired the following companies, which have added
approximately 3.6 million subscribers:
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ACQUIRED COMPANY ACQUISITION DATE NO. OF SUBSCRIBERS
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Parkway Paging, Inc. (Parkway)............... July 16, 1996 140,000
Satellite Paging and Messaging Network
(collectively, Satellite).................. August 30, 1996 100,000
A+ Network, Inc. (A+ Network)................ November 15, 1996 660,000
Page America Group, Inc. (Page America)...... July 1, 1997 198,000
ProNet Inc. (ProNet)......................... December 30, 1997 1,286,000
AMD.......................................... October 2, 1998 1,215,000
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Total.............................. 3,599,000
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We believe that our enhanced nationwide coverage will give us a competitive
advantage in gaining additional subscribers in the future. We may continue to
expand our geographic penetration and subscriber base through future
acquisitions, but only if we identify potential candidates that satisfy certain
criteria. These criteria include valuation, geographic coverage, regulatory
licenses, type of consideration, availability of financing and accretive and
de-leveraging benefits.
Pursue Cost-Efficient Technological Advances. We have pursued
technological advances that are proven, cost-efficient and consistent with our
strategy to increase free cash flow. For instance, we have historically
concentrated our capital spending on developing our local, regional and
nationwide one-way paging networks. We have also recently taken steps to enter
the two-way paging business now that the technology has been proven and gained
initial market acceptance. As part of the AMD acquisition, we acquired the NPCS
license in October 1998. Also, in October 1998, we entered into a five-year
strategic alliance with PageMart Wireless, Inc, a leading provider of paging and
messaging services to develop and offer narrowband PCS. Our alliance consists of
two phases: a switch-based resale phase and a shared network build-out phase. In
the first phase, we will provide narrowband PCS using PageMart's advanced
messaging transmit and receive network. We began offering guaranteed-delivery
messaging in the first quarter of 1999. We expect the first phase to permit us
to begin offering two-way messaging by the middle of 1999. In the second phase,
we will install and operate our own outbound narrowband PCS frequency on our
nationwide network and PageMart will provide turnkey installation and operation
of a receiver network. We believe this alliance will enable us to comply with
the FCC's mandated narrowband PCS build-out requirements. Under the alliance, we
will share certain capital expenditures and operating expenses. We believe that
the PageMart alliance will enable us to provide narrowband PCS in a faster and
more cost-effective manner than if we developed the network ourselves. The
development of the NPCS license acquired in the AMD acquisition and the PageMart
alliance will allow us to increase capacity and reduce our long-term cost of
message delivery through frequency reuse. It will also permit us to enter the
market for advanced messaging services, including two-way paging and data
intensive messaging. We are also pursuing other strategic marketing and
development efforts to deliver advanced messaging services, such as e-mail
notification and user-specific data services, to our paging subscribers through
the Internet.
Optimize Customer Relationships. We seek to maintain a close relationship
with our existing customers and to develop stronger relationships with the
subscribers of newly acquired companies by maintaining decentralized sales,
marketing and customer service operations and providing value-added services
tailored to customers' needs. The value-added services we provide are billed as
enhancements to our basic service and generally result in higher ARPU. Our
specific value-added services include:
- Direct View, which permits organizations to use our wireless network to
broadcast news, sports, stock data and general and customized information
to LED display signs;
- Pager ID, which identifies the name of the person placing the call to the
pager;
- customized wireless messaging applications for specific segments of the
public, such as the medical community; and
- an enterprise-wide messaging management software and database system
Maintain Low Cost Operations and Improve Margins. A key component of our
business strategy is to make investments that improve our operating efficiencies
thereby leading to margin improvement. In 1998, our operating efficiencies
improved because we
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continued to invest in high quality, large capacity infrastructure and systems
updates and to centralize administrative and back-office functions. During
1998, we implemented a new financial accounting management information system,
completed a number of billing system upgrades, added a new inventory management
system and began using an Internet based tower site management application. We
also integrated the administrative functions of newly acquired companies which
enabled us to reduce our general and administrative expenses per subscriber.
We also believe that as use of our strategic alliances and other indirect
distribution channels increase, our operating costs will decrease as
participants in these channels typically bear a portion of our sales and
customer service expenses. Similarly, we believe our focus on maximizing monthly
recurring revenues and promoting value-added services will improve operating
margins. We also recently entered into a strategic long-term arrangement with
Motorola to optimize supply chain logistics. As part of this arrangement,
Motorola will ship pager units directly to our strategic retail partners. In
addition, we and Motorola will work to develop an electronic data interchange to
enhance Motorola's ability to supply page units to our customers. We expect this
distribution arrangement to reduce handling costs, inventory levels and cycle
times.
METROCALL'S PAGING AND WIRELESS MESSAGING OPERATIONS
Services and Subscribers
We currently provide four basic paging and wireless messaging services:
- digital display pagers, which permit a subscriber to receive a telephone
number or other numeric coded information and to store several such
numeric messages that the customer can recall when desired;
- alphanumeric display pagers, which allow the subscriber to receive and
store text messages from a variety of sources including the Internet;
- digital broadband and PCS phones and other products of AT&T under a
distribution agreement with AT&T Wireless, which allows users to place and
receive calls under AT&T's Digital One Rate(SM) service plans;
- advanced messaging devices, which provide guaranteed delivery of
messages.
We provide digital display and alphanumeric display in all of our markets.
Approximately 86% of our pagers in service at December 31, 1998 were digital
display. Alphanumeric display service, which was introduced in the mid-1980s,
has grown at increasing rates as users and dispatch centers overcome technical
and operational obstacles to sending messages. Currently, we market, under the
service mark "Notesender," a computer program designed for use in transmitting
alphanumeric messages from personal computers to pagers. In addition,
alphanumeric paging access is available via our Internet website,
www.metrocall.com, where any Internet user can access our on-line alphanumeric
paging software. Approximately 14% of our pagers in service at December 31,
1998 were alphanumeric display.
We also provide enhancements and ancillary services such as:
- personalized automated answering services, which allow a subscriber to
record a message that greets callers who reach the subscriber's voice
mailbox;
- message protection, which allows a subscriber to retrieve any calls that
come in during the period when the subscriber was beyond the reach of our
radio transmitters;
- annual loss protection, which allows subscribers of leased pagers to
limit their cost of replacement upon loss or destruction of the pager; and
- maintenance services, which are offered to subscribers who own their own
pagers.
Subscribers who use paging and wireless messaging services have
traditionally included small business operators and employees, professionals,
medical personnel, sales and service providers, construction and tradespeople,
and real estate brokers and developers;
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however, the appeal of paging to the residential user is growing, with service
increasingly being adopted by individuals for private, nonbusiness uses such as
communicating with family members and friends.
Our subscribers either buy or lease their pagers for local, regional,
multi-regional or nationwide service. We receive additional revenue for enhanced
services such as voice mail, personalized greetings and One Touch(TM) service,
which is an advanced messaging service. Volume discounts on lease payments and
service fees are typically offered to large volume subscribers. In some
instances, our subscribers are resellers that purchase services at substantially
discounted rates, but are responsible for marketing, billing, collection and
related costs with respect to their customers.
Sales and Marketing
Our sales and marketing strategy incorporates a multi-tiered distribution
system designed to maximize internal growth and geographic presence. At December
31, 1998, the Company, through more than 250 sales and administrative offices
and retail outlets, employed a sales force of 1,505 sales representatives,
including our direct sales staff, telemarketing professionals and sales
representatives who call on retailers and resellers. Our major distribution
channels are described briefly below.
Direct Distribution Channels
- Direct Sales. Our direct sales personnel sell our messaging services and
products primarily to businesses, placing special emphasis on key accounts
of strategic importance to us. Our direct sales personnel generally target
businesses that have multiple work locations or have highly mobile
employees. Our sales compensation plans are designed to motivate direct
sales personnel to focus on selling rather than leasing pagers, which
reduces capital requirements, and to increase sales of higher revenue
product enhancements, such as nationwide coverage, alphanumeric service,
voice mail and One Touch(TM).
- Database Telemarketing. Our internal, professionally trained staff
generates sales by utilizing computerized lead management and
telemarketing techniques combined with our proprietary lead screening and
development protocol. Using acquired lists to focus their efforts, our
internal staff targets groups of consumers and small businesses who have a
propensity to use paging and messaging services but are either in a region
where we do not have a direct sales effort or have not been reached by
other distribution channels. In our marketing efforts, we use only
commercially available public information to analyze and target new
customers and do not use "Customer Proprietary Network Information" in a
way that would conflict with the Communications Act of 1934, as amended
(the "Communications Act"), or the Federal Communications Commission (FCC)
rules.
- Company-Owned Retail Stores. At December 31, 1998, we had over 100
Company-owned retail outlets. Our retail outlets are designed to sell
higher ARPU services to the consumer market segment directly while
providing us with a point of presence to enhance our brand recognition.
These retail outlets take a variety of forms, such as mall stores, kiosks,
mall carts, retail merchandising units and mall center locations. Products
sold to consumers at these locations include paging, messaging, cellular,
long distance and PCS services and related accessories. Many of these
locations function as customer service and payment centers in addition to
offices for direct sales representatives.
Indirect Distribution Channels
- Resellers. We sell resellers bulk paging services for resale to their
own business clients and individual customers. We issue one monthly bill
to each reseller who is responsible for marketing, billing and collection,
and equipment maintenance. Through this channel, we achieve high network
utilization at low incremental cost, but realize much lower ARPU than
through other distribution channels.
- Retail Outlets. We sell pagers on a wholesale basis to retail outlets,
such as office supply, electronics and general merchandise chains, for
resale to their customers. We select these outlets based on factors such
as the number of stores in a region and the extent of their advertising.
These outlets then sell the pager itself and provide limited customer
service to the consumer. We provide sales incentives and advertising
support, and train sales personnel to enhance a retail outlet's
effectiveness and to ensure that the customer is well educated regarding
the product.
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- Dealer Network. We contract with independent dealers, representatives
and agents, including such outlets as small cellular phone dealers and
independent specialty electronics stores. We typically use these dealers
to reach specific consumer niches (e.g., ethnic or non-English speaking
communities) and small businesses that are more efficiently accessed
through this channel than through our other distribution channels. In
addition to selling the pagers, independent dealers assist the subscriber
in choosing a service plan and collect the initial payments. We pay
independent dealers a commission when they place customers with us.
- Strategic Partners. We have entered into contractual agreements with
several selected national distribution partners who market our paging
services to their existing and future customers. We supply many of these
partners with custom branded turnkey solutions for network services,
products, customer services, billing, collections and fulfillment. Our
strategy is to provide these value-added services to enhance the business
relationship and margin opportunities for both parties. We have entered
into alliances with companies in the long distance, local exchange,
cable, Internet, retail, direct response and multi-level marketing
businesses and believe that these programs will help deliver paging
services to market segments that our other distribution channels may not
reach cost-effectively.
As part of the AMD acquisition, we signed an exclusive five-year national
distribution agreement with AT&T Wireless. Under the distribution
agreement, AT&T Wireless' retail stores exclusively offer our messaging
products. In addition, we are the exclusive supplier of messaging products
for AT&T and its affiliated companies that wish to sell paging and
advanced messaging services.
- Affiliates. Through the A+ Network merger in 1996, we acquired a network
of paging carriers or affiliates that resell services on the 152.480 MHz
private carrier paging frequency. These affiliates are independent owners
of paging systems in various markets throughout the nation who sell
expanded coverage to their customers. Utilizing our infrastructure, these
independent networks provide wide area and nationwide paging on a single
channel. We provide expanded coverage options for approximately 85,000
subscribers through our affiliate network at December 31, 1998.
Subscribers by Geographic Region. We set forth below the number of pagers
we have in service by geographic region.
NUMBER OF PAGERS IN SERVICE
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DECEMBER 31,
---------------------------------
1996(1) 1997(2) 1998(3)
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Northeast.......................................... 227,022 714,363 772,463
Mid-Atlantic....................................... 558,318 623,077 693,631
Southeast.......................................... 693,837 1,094,313 1,179,548
Midwest............................................ -- 232,105 400,150
Southwest.......................................... 248,846 756,459 1,356,218
West............................................... 414,328 610,519 768,829
Northwest.......................................... -- -- 488,711
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Total.................................... 2,142,351 4,030,836 5,659,550
========= ========= =========
</TABLE>
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(1) Includes approximately 0.9 million pagers in service we acquired from our
1996 merger and acquisitions.
(2) Includes approximately 1.5 million pagers in service we acquired from our
1997 merger and acquisition.
(3) Includes approximately 1.2 million pagers in service we acquired in the AMD
acquisition.
Subscribers by Distribution Channel. We set forth below the respective
numbers and percentages of pagers that we service through our distribution
channels:
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OWNERSHIP OF PAGERS IN SERVICE
<TABLE>
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DECEMBER 31,
------------------------------------------------------------------------
1996(1) 1997(2) 1998(3)
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NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
DIRECT CHANNELS:
Company-owned and
leased to
subscribers..... 690,382 32% 1,184,193 29% 1,980,297 35%
Subscriber-owned
(COAM).......... 271,837 13 430,582 11 629,352 11
Company-owned
retail stores... 114,192 5 223,510 6 207,493 4
INDIRECT CHANNELS:
Resellers.......... 865,221 41 1,965,354 49 2,369,686 42
Strategic Partners
and
affiliates...... 130,142 6 140,625 3 274,844 5
Retail............. 70,577 3 86,572 2 197,878 3
--------- ----- --------- ----- --------- -----
Total...... 2,142,351 100.0 4,030,836 100.0 5,659,550 100.0
========= ===== ========= ===== ========= =====
</TABLE>
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(1) Includes approximately 0.9 million pagers in service we acquired from our
1996 merger and acquisitions.
(2) Includes approximately 1.5 million pagers in service we acquired from our
1997 merger and acquisition.
(3) Includes approximately 1.2 million pagers in service we acquired in the AMD
acquisition.
Network and Equipment
We have developed a state-of-the-art paging system deploying current
technology, which achieves optimal building penetration, wide-area coverage and
the ability to deliver new and enhanced paging services. This existing paging
transmission equipment has significant capacity to support future growth.
Our paging services are initiated when telephone calls are placed to our
Company-maintained paging terminals. These state-of-the-art terminals have a
modular design that allows significant future expansion by adding or replacing
modules rather than replacing the entire terminal. Our paging terminals direct
pages to our primary satellite, which signals terrestrial network transmitters
providing coverage throughout the service area.
We have three exclusive nationwide licenses issued by the FCC and are
operating in each of the largest 100 SMSAs. We began operating the nationwide
network on one of those three channels in November 1993. We are also capable of
providing local paging in many markets served by the nationwide network by using
nationwide transmitters to carry local messages. Services provided through the
nationwide network are marketed to subscribers directly through our sales force
and indirectly through retailers and resellers. We also operate a series of
regional operating systems or networks consisting of primary networks serving
Arizona, California and Nevada, and the area from Boston to the Virginia/North
Carolina border.
In addition, we have initiated paging service through our "Global Messaging
Gateway," which is a satellite uplink facility located in Stockton, California.
We transmit a majority of our traffic through this facility. The facility
operates 24 hours per day, seven days per week. The use of this facility will
permit us to save costs as we phase out operating agreements with three
commercially owned satellite uplink facilities and will increase our control
over our paging system.
We do not manufacture any of the pagers or infrastructure equipment used in
our operations. While the equipment used in our paging operations is available
for purchase from multiple sources, we have historically limited the number of
suppliers to achieve volume cost savings and, therefore, depend on such
manufacturers to obtain sufficient inventory. We anticipate that equipment and
pagers will continue to be available to us in the foreseeable future, consistent
with normal manufacturing and delivery lead times but cannot assure you that we
will not experience unexpected delays in obtaining paging and infrastructure
equipment in the future. Such delays could have an adverse effect on our
operations and network development plans. We continually evaluate new
developments in paging technology in connection with the design and enhancement
of our paging systems and selection of products to be offered to subscribers.
As discussed above, we achieve cost savings by purchasing pagers at volume
discounts from a limited number of companies, including Motorola, Inc., from
which we currently purchase most of our pagers, and NEC America. We purchase our
transmitters and paging terminals from Motorola and Glenayre Electronics,
Incorporated.
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<PAGE> 11
Management Systems and Billing
We centralize certain operating functions and utilize common and
distributed billing and subscriber management systems. This permits us to reduce
costs, increase operating efficiencies, obtain synergies from acquisitions, and
focus regional management on sales and distribution.
The functions we have centralized into our national operations center in
Alexandria, Virginia include accounting, management information systems, and
inventory and order fulfillment. We have integrated the information systems of
the companies we have acquired into our structure, with the exception of AMD's
systems for which integration efforts will be progressing throughout 1999.
We also maintain three national call centers which are critical factors in
marketing and servicing the nationwide network to all markets in the United
States. Our centers handle customer inquiries from existing and potential
customers and support our distribution channels initiatives. Our three centers
are staffed with approximately 385 employees. Each center offers a toll-free
access number. One of our centers is open seven days per week, 24 hours per day.
Our other two centers are open six days a week and provide emergency service
seven days a week, 24 hours a day. We attempt to satisfy customers upon initial
inquiry to avoid repeat calls, thereby increasing customer satisfaction and
decreasing costs. We employ state-of-the-art call management equipment (such as
an automated call distribution system and interactive voice response
capabilities) to provide quality customer service and to track both the
productivity and the quality of the performance of our customer service
representatives.
COMPETITION
The wireless communications industry is very competitive. We compete mainly
with other regional and national paging providers. Certain long-distance
carriers and local exchange carriers (LECs) have also begun, or have announced
their intention to begin, marketing paging services jointly with other
telecommunications services. We also compete with other companies that offer
wireless communications technology such as cellular telephone, specialized
mobile radio services and PCS. Some of our competitors have greater financial
resources than we do. We compete on the basis of price, coverage area, enhanced
services, transmission quality, systems reliability and customer service. We
believe we compare favorably with our competitors on these bases. However, to
respond to price competition, we may need to adjust our prices from time to
time, which may adversely affect our revenues and operating results.
Since 1988, we have competed with Paging Network, Inc. ("PageNet"), the
largest provider of paging services in the United States, in all of our major
markets. With our nationwide network, our principal competitors for national
accounts include, in addition to PageNet, Arch Communications Group, Inc.,
MobileMedia Communications, Inc. (using the trade name MobileComm), PageMart and
SkyTel Corporation. We are also aware of other paging companies that offer, or
intend to offer, nationwide paging services to their subscribers. In August
1998, Arch announced its intention to acquire the operations of MobileMedia,
which has been operating in bankruptcy since January 1997. Arch has stated that,
if this acquisition is consummated, the combined company would be the second
largest paging company based on number of subscribers.
In 1994, the FCC began auctioning licenses for new PCS spectrums. There are
two types of PCS, narrowband and broadband. Narrowband PCS provides enhanced or
advanced paging and messaging capabilities, such as "confirmation" or "response"
paging. Broadband PCS provides new types of communications devices that include
multi-functional portable phones and imaging devices. PCS providers compete
directly and indirectly with the Company. Many narrowband and broadband PCS
systems are now providing commercial service. We recently entered into the
PageMart alliance to develop and offer advanced messaging services on a
narrowband PCS platform and a distribution agreement with AT&T Wireless to offer
digital broadband PCS telephones.
Developments in the wireless telecommunications industry, such as broadband
PCS, and enhancements of current technology have created new products and
services that compete with the paging services we currently offer. There can be
no assurance that we will not be adversely affected by such technological change
or future technological changes.
GOVERNMENT REGULATION
From time to time, federal and state legislators propose legislation that
could affect our business, either beneficially or adversely, such as by
increasing competition or affecting the cost of our operations. We cannot
predict the impact of such legislative actions on our operations. Additionally,
the FCC and, to a lesser extent, state regulatory bodies, may adopt rules,
regulations or policies that may
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<PAGE> 12
affect our business. The following description of certain regulatory factors
does not purport to be a complete summary of all present and proposed
legislation and regulations pertaining to our operations.
Federal. Our paging operations are subject to extensive regulation by the
FCC under the Communications Act. Under the Communications Act, we are required
to obtain FCC licenses for the use of radio frequencies to conduct our paging
operations within specified geographic areas. These licenses set forth the
technical parameters, such as maximum power and tower height, under which we may
use such frequencies. We have historically provided paging services as both a
RCC operator and a PCP operator. Traditionally, RCC frequencies were assigned on
an exclusive basis to a single licensee in a service area; RCCs were subject to
regulation by the states as well as by the FCC and were required to provide
service to anyone requesting such service. PCP frequencies were assigned on a
shared basis (i.e., multiple parties in the same area could apply for and obtain
a license to use the same frequency); there were restrictions on eligibility of
PCP customers; and the states were preempted from regulating PCP entry, rates,
operation, terms of service, etc.
In 1993, the FCC adopted new rules to provide "channel exclusivity" to PCP
operators operating on certain 929 MHz frequencies, provided the licensee meets
certain qualifications. We have obtained nationwide exclusivity on two of our
929 MHz frequencies and one 931 MHz frequency (one 929 MHz frequency is used for
the nationwide network; the other 929 MHz frequency was obtained in the
FirstPAGE USA, Inc. merger in 1994; the 931 MHz frequency was obtained in the
ProNet merger). Under the FCC's current rules, no other entity may apply
anywhere in the United States to operate on these frequencies. However, any
incumbent PCP licensees, other than us, on our two nationwide 929 MHz
frequencies may continue to operate on these frequencies, but those other
licensees are not allowed to expand their paging services beyond their existing
coverage areas. Additionally, on our other 929 MHz frequencies, we have local
exclusivity in the Chicago, Illinois area, and regional exclusivity in the
Northeast, Mid-Atlantic, and Southeast regions of the United States.
PCP channels below 900 MHz are still allocated on a shared basis. We
acquired a 152.480 MHz shared frequency network through our A+ Network merger.
Applications for those frequencies are first processed through a frequency
coordinator, who attempts to minimize overcrowding on a given frequency. The
coordinator then files the applications with the FCC, which processes them on a
first-come, first-served basis. So long as a given PCP frequency is not
congested with multiple licensees, the subscriber would not perceive any
differences between shared PCP services and exclusive paging services. In most
areas of the country where we hold shared PCP licenses, we are the only paging
operator, or one of only a few operators, licensed on that particular frequency
in that area.
The FCC also requires paging licensees to construct their stations and
begin service to the public within a specified period of time (under the
site-specific rules, one year), and failure to do so results in termination of
the authorization. Under the traditional site-specific approach to paging
licensing, a licensee received a construction permit for facilities at a
specific site, and that permit automatically terminated if the facilities were
not timely constructed (RCC paging licensees were also required to notify the
FCC upon commencement of service) and the licensee failed to request an
extension prior to the deadline. The failure to construct some facilities did
not, however, affect other facilities in a licensee's system that had been
timely constructed and placed into operation. However, certain services that we
plan to offer in the future are subject to harsher penalties for failure to
construct. For example, the NPCS license that we acquired in the AMD acquisition
is subject to the condition that we build sufficient stations to cover 750,000
square kilometers, or 37.5% of the U.S. population, by the fifth anniversary of
the initial license grant; by the tenth anniversary of the grant, we must build
sufficient stations to cover 1,500,000 square kilometers, or 75% of the U.S.
population. As a result of the PageMart alliance, we expect to meet the FCC's
build out requirements for both of these anniversaries.
In August 1993, as part of its Omnibus Budget Reconciliation Act (the "1993
Budget Act"), Congress amended the Communications Act to, among other things,
replace the prior RCC and PCP definitions with two newly defined categories of
mobile radio services: CMRS and Private Mobile Radio Service (PMRS). The CMRS
definition essentially supplants the prior RCC definition. The FCC has
determined that PCP and RCC paging services are classified as CMRS. The FCC has
adopted technical, operational and licensing rules for CMRS, which became
effective for us in August 1996.
Pursuant to authority granted by the 1993 Budget Act, the FCC has
"forborne" from enforcing against all CMRS licensees the following common
carrier regulations under Title II of the Communications Act: any interstate
tariff requirements, including regulation of CMRS rates and practices; the
collection of intercarrier contracts; certification concerning interlocking
directorates; and FCC approval relating to market entry and exit. Additionally,
the 1993 Budget Act preempted state authority over CMRS entry and rate
regulation.
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<PAGE> 13
Paging licenses are issued by the FCC for terms of 10 years. Our current
licenses have expiration dates ranging from 1999 to 2009. Renewal applications
must be approved by the FCC. In the past, our FCC renewal applications have been
routinely granted. We are also required to obtain prior FCC approval for our
acquisition of radio licenses held by other companies, as well as transfers of
controlling interests of any entities that hold radio licenses. Although there
can be no assurance that any future renewal or transfer applications we file
will be approved or acted upon in a timely manner by the FCC, based on our
experience to date, we know of no reason to believe such applications would not
be approved or granted.
The Communications Act also places limitations on foreign ownership of CMRS
licenses. These foreign ownership restrictions limit the percentage of our stock
that may be owned or voted, directly or indirectly, by aliens or their
representatives, foreign governments or their representatives, or foreign
corporations. The Company's certificate of incorporation permits the redemption
of our common stock from stockholders where necessary to protect our compliance
with these requirements.
The FCC has authority to restrict the operation of licensed radio
facilities or to revoke or modify such licenses. The FCC may adopt changes to
its radio licensing rules at any time, and may impose fines for violations of
its rules. Some of our license applications were deemed "mutually exclusive"
with those of other paging companies. In the past, the FCC would have selected
among the mutually exclusive applicants by lottery; however, the FCC recently
dismissed all pending mutually exclusive paging applications, including ours, to
facilitate its transition to wide area licensing and auctions for paging
frequencies.
Paging licenses have traditionally been issued on a site-specific basis. In
February 1997, the FCC adopted rules to issue most paging licenses for large,
FCC-defined service areas. Although the rules are subject to a pending appeal
and petitions for reconsideration, if they become "final", the following changes
will occur. Licenses for 929 MHz PCP and 931 MHz RCC frequencies will be issued
for Rand McNally's "MTA" geographic areas; licenses for RCC frequencies in lower
frequency bands will be licensed in "Economic Areas" or "Eas." Shared PCP
frequencies will continue to be allocated on a shared basis and licensed in
accordance with existing, site-specific procedures; however, the FCC is
considering changes to the application and licensing rules for these
frequencies. Mutually exclusive geographic area applications for all RCC
frequencies and exclusive 929 MHz PCP frequencies will be awarded through an
auction process. The FCC has recently dismissed all pending mutually exclusive
applications for these frequencies, as well as all applications filed after July
31, 1996 regardless of mutual exclusivity. A filing "freeze" is in effect for
the non-nationwide, exclusive paging frequencies pending commencement of the
auctions. The FCC has not yet announced when paging auctions will begin, or the
order in which it will make the various frequencies and geographic areas
available for bidding. Incumbent licensees will be able to trade in their
existing licenses for a single "wide-area" license based upon their current
coverage; incumbents will be entitled to interference protection from the
auction winners and will be able to modify their facilities within that area,
but they will not be permitted to expand their existing coverage.
Because auctions are new to the paging industry, we cannot predict their
impact on our business. At least initially, competitive bidding may increase our
costs of obtaining licenses. The FCC's wide-area licensing and auction rules may
also serve as entry barriers to new participants in the industry. In any service
area where we are the successful bidder, or where we trade in our licenses for
"wide-area" licenses, we will save on the application costs associated with
modifying and adding facilities within our service areas, and no other entity
will be able to apply for our frequencies within those areas. Conversely, in
geographic areas where we are not the high bidder, our ability to expand our
service territories in those geographic areas will be curtailed. Our three
nationwide frequencies will not be subject to competitive bidding; although, the
FCC is considering imposing additional "build-out" requirements on nationwide
licensees.
The Telecommunications Act of 1996 (the "1996 Act") also amended the
Communications Act. The 1996 Act imposes a duty on all telecommunications
carriers to provide interconnection to other carriers, and requires LECs to,
among other things, establish reciprocal compensation arrangements for the
transport and termination of calls and provide other telecommunications carriers
access to the network elements on an unbundled basis on reasonable and
non-discriminatory rates, terms and conditions. The LECs are now prohibited from
charging paging carriers for the "transport and termination" of LEC-originated
local calls. This prohibition could lead to substantial cost savings for us.
Moreover, under the 1996 Act and the FCC's rules, paging carriers are entitled
to compensation from any local telecommunications carrier for local calls that
terminate on a paging network. This could lead to additional revenues for us.
The 1996 Act also requires the FCC to appoint an impartial entity to
administer telecommunications numbering and to make numbers available on an
equitable basis. In addition, the 1996 Act requires that state and local zoning
regulations shall not unreasonably
12
<PAGE> 14
discriminate among providers of "functionally equivalent" wireless services,
and shall not have the effect of prohibiting the provision of personal wireless
services. The 1996 Act provides for expedited judicial review of state and
local zoning decisions. Additionally, state and local governments may not
regulate the placement, construction and modification of personal wireless
service facilities on the basis of the environmental effects of radio frequency
emissions, if the facilities comply with the FCC's requirements. Other
provisions of the 1996 Act, however, may increase competition, such as the
provisions which allow the FCC to forbear from applying regulations and
provisions of the Communications Act to any class of carriers, not only to
CMRS, and the provisions allowing public utilities to provide
telecommunications services directly. These provisions may impose additional
regulatory costs (for example, provisions requiring contributions to universal
service by providers of interstate telecommunications). Some of these FCC rules
are subject to pending petitions for reconsideration and Court appeals. We
cannot predict the final outcome of any FCC proceeding or the possible impact
of future FCC proceedings.
State. The 1993 Budget Act preempts all state and local rate and entry
regulation of all CMRS operators. Entry regulations typically refer to the
process whereby an CMRS operator must apply to the state to obtain a certificate
to provide service in that state. Rate regulation typically refers to the
requirement that CMRS operators file a tariff describing our billing rates,
terms and conditions by which we provide paging services. Apart from rate and
entry regulations, some states may continue to regulate other aspects of our
business in the form of zoning regulations (subject to the 1996 Act's
prohibition on discrimination against or among wireless telecommunications
carriers), or "health and safety" measures. The 1993 Budget Act does not preempt
state authority to regulate such matters. Although there can be no assurances
given with respect to future state regulatory approvals, based on our experience
to date, we know of no reason to believe such approvals would not be granted.
In 1997, the FCC held that the Budget Act does not prohibit states from
imposing requirements of CMRS carriers to contribute to funding "universal"
telephone service within the states. Approximately 25 states now impose such
"universal service fund" obligations. The FCC's determination that the states
may impose those obligations is currently on appeal; if that determination is
upheld, we may incur additional costs in contributing to state universal service
funds, which we typically pass through to our subscribers.
Litigation. Metrocall 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 1996 Act. The complaints allege that these local
telephone companies are unlawfully charging the Company for local transport of
the telephone companies' local traffic. The Company has petitioned the FCC to
rule that these local transport charges are unlawful and to award the Company a
reimbursement or credit for any past charges assessed by the respective carriers
since November 1, 1996, the effective date of the FCC's transport rules. The
briefing schedule for these complaint proceedings ended in September 1998. The
complaints remain pending before the FCC. On January 25, 1999, the U.S. Supreme
Court concluded that the FCC had the authority under the Communications Act to
adopt rules necessary to carry out Sections 251 and 252 of the 1996 Act.
Metrocall believes the Supreme Court's ruling appears to validate the FCC's
"proxy" pricing rules for LEC/CMRS interconnection. In addition, the Supreme
Court also ruled that the FCC had the authority to preempt any state or local
tariffs or interconnection agreements contrary to those rules, which we believe
may support our complaints filed with the FCC. At December 31, 1998, Metrocall
had approximately $14 million of credits receivable included in prepaid expenses
and other current assets related to past charges assessed by the LECs for which
the Company is seeking reimbursement.
SEASONALITY
Generally, our operating results are not significantly affected by seasonal
factors.
TRADEMARKS AND SERVICE MARKS
We use the following trademarks and service marks:
- "Metrocall" -- a registered trademark with the U.S. Patent and Trademark
Office;
- "Datacall," "Metronet," "Metromessage" and "In-Touch" -- service marks
under which we market our paging services.
- "Metrotext" -- a computer program designed for use in transmitting
alphanumeric messages from personal computers to pagers (copyright
registration has been granted).
- "Metrofax" and "The Power in Paging" -- service marks.
- "One Touch", "EZ Pack Paging" and "Notesender" -- service marks
(applications with the U.S. Patent and Trademark Office are pending).
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EMPLOYEES
As of December 31, 1998, we employed approximately 3,800 full and part-time
people none of whom is represented by a labor union. We believe that our
relationship with our employees is good.
ITEM 2. PROPERTIES
We do not hold title to any significant real property; although, we and our
affiliates own interests in certain properties. At December 31, 1998, we leased
commercial office and retail space at more than 250 locations used in
conjunction with our operations. These office leases provide for monthly
payments ranging from approximately $250 to $107,000 and expire, subject to
renewal options, on various dates through July 2012.
In April 1994, we entered into a 10-year lease for additional office space
near our headquarters. The lease may be renewed for two additional five-year
periods. The lease, as amended, provides for annual rents of approximately
$814,000, with annual escalation of 3%. In connection with this lease, we have
exercised an option to acquire a 51% interest in the property for approximately
$2.9 million and expect to close this purchase in mid-1999.
We also lease numerous sites under long-term leases for our transmitters on
commercial broadcast towers, buildings and other fixed structures. At December
31, 1998, we leased these transmitter sites for monthly rentals ranging from
approximately $80 to $14,400 that expire, subject to renewal options, on various
dates through June 2029.
ITEM 3. LEGAL PROCEEDINGS
Information regarding contingencies and legal proceedings is included in
Note 8 of the Notes to the Consolidated Financial Statements for the year ended
December 31, 1998, which is included under Item 8 of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
STOCK TRADING
Our common stock is traded on the Nasdaq National Market under the symbol
"MCLL."
COMMON STOCK PRICE RANGES
<TABLE>
<CAPTION>
1997 1998
------------- -------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
Quarter ended March 31.............................. $7 1/2 $4 1/8 $7 1/2 $4 5/8
Quarter ended June 30............................... 5 5/8 3 3/4 7 5/8 5 3/8
Quarter ended September 30.......................... 7 9/16 4 13/16 7 7/16 4 1/2
Quarter ended December 31........................... 7 3/8 4 1/8 6 1/16 2 11/16
</TABLE>
On March 1, 1999, the last reported sales price of our common stock on the
Nasdaq National Market was $3 7/8 per share and, there were 1,347 stockholders
of record.
DIVIDEND POLICY
We have not declared or paid any cash dividends or distributions on our
common stock since our initial public offering of common stock in July 1993. We
do not anticipate paying any cash dividends on our common stock in the
foreseeable future. Future cash dividends, if any, will be determined by our
Board of Directors. Certain covenants in our credit facility, our indentures and
the terms of the Series A Convertible Preferred Stock (the "Series A Preferred")
restrict or prohibit the payment of cash dividends on our common stock. In
addition, if we pay or set aside for payment any dividend or distribution on our
common stock (other than dividends or distributions paid solely in shares of
common stock or rights, options or warrants to purchase common stock) before
October 2, 2003, holders of the Series C Convertible Preferred Stock (the
"Series C Preferred") also will be entitled to receive a certain amount of those
payments.
As discussed below, we have issued shares of each of our series of
preferred stock to the respective holders of those series of preferred stock in
lieu of cash dividends. In addition, we paid the holder of the Series C
Preferred approximately $7,000 of cash dividends in lieu of fractional shares of
the Series C Preferred, and received the consent of the holders of the Series A
Preferred for such cash payment.
UNREGISTERED SECURITIES:
Series A Preferred. On November 15, 1996, we issued 159,600 shares of the
Series A Preferred and 159,600 warrants representing the right to purchase an
aggregate of 2.915 million shares of common stock. The aggregate purchase price
for the Series A Preferred and the Warrants was $39.9 million. The purchasers of
these securities were John Hancock Mutual Life Insurance Company, SunAmerica,
Inc. and UBS Capital, LLC. Because the securities were sold to qualified
institutional buyers in a transaction not involving a public offering, the sale
was exempt from registration pursuant to Section 4(2) of the Securities Act of
1933, as amended.
Each share of the Series A Preferred has a stated value of $250 per share,
a liquidation preference and redemption value equal to its stated value, certain
redemption rights and the right to elect directors of the Company. The Series A
Preferred carries a dividend of 14% (subject to increase upon the occurrence of
certain events), payable semi-annually in cash or in additional shares of the
Series A Preferred, at the Company's option. In addition, beginning November 15,
2001, holders of the Series A Preferred have the right to convert their Series A
Preferred (including shares issued as dividends) into shares of common stock
based upon the market price of common stock at the time of conversion. The
Series A Preferred may, at the option of holders, be converted sooner upon
certain change of control events of the Company, as defined in the Certificate
of Designation for the Series A Preferred. During 1997 and 1998, we issued
23,126 and 26,477 additional shares of the Series A Preferred as dividends to
the holders of the Series A Preferred.
Each Warrant represents the right of the holder to purchase 18.266 shares
of common stock, or an aggregate of 2.915 million shares. The exercise price per
share is $7.40. The Warrants contain certain provisions for adjustment in the
exercise price in the event we sell common stock or rights to purchase common
stock in private transactions for less than 125% of the then current market
price and
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<PAGE> 17
other customary anti-dilution provisions. The Warrants expire November 15,
2001. We have registered the resale of shares that may be obtained upon
exercise of the Warrants under the Securities Act.
Series B Preferred. On July 1, 1997, we issued 1,500 shares of the Series
B Junior Convertible Preferred Stock (the "Series B Preferred") in connection
with our acquisition of Page America. Each share of the Series B Preferred has a
stated value of $10,000 per share and a liquidation preference, which is junior
to the Series A Preferred but senior to the shares of common stock, equal to its
stated value. The Series B Preferred carries a dividend of 14% of the stated
value per year, payable semi-annually in cash or in additional shares of Series
B Preferred, at the Company's option. We registered the Series B Preferred under
the Securities Act. During 1997 and 1998, we issued to Page America 79 and 229
additional shares of Series B Preferred as dividends, which shares were not
registered.
The holders of the Series B Preferred have the right to convert up to 25%
of the number of the Series B Preferred initially issued (plus shares of the
Series B Preferred issued as dividends on such shares, and as dividends on such
dividends) into shares of common stock at the current market value of the common
stock, as defined, on September 1, 1997, December 1, 1997, March 1, 1998 and
June 1, 1998. As of December 31, 1998, no shares of Series B Preferred had been
converted. We registered up to 3,500,000 shares of common stock issuable upon
the conversion of the Series B Preferred.
On January 7, 1999, we repurchased and retired all of the outstanding
shares of the Series B Preferred for $16.2 million using borrowings from our
credit facility.
Series C Preferred. On October 2, 1998, we issued 9,500 shares of the
Series C Preferred in connection with the AMD acquisition. Each share of the
Series C Preferred has a stated value of $10,000 per share and a liquidation
preference, which is junior to the Series A Preferred and the Series B Preferred
but senior to the shares of common stock, equal to its stated value. The Series
C Preferred carries a dividend of 8% of the stated value per year, payable
semiannually in cash or in additional shares of the Series C Preferred, at the
Company's option. We did not register the Series C Preferred under the
Securities Act. In December 1998, we issued the holder of the Series C Preferred
95 additional shares of Series C Preferred and $7,000 cash in lieu of fractional
shares as dividends. We did not register these shares.
Metrocall granted the holder of the Series C Preferred certain registration
rights with respect to the Series C Preferred and the common stock into which
the Series C Preferred may be converted. The effect of these registration rights
is to allow the holder or its transferees to freely transfer either the Series C
Preferred or any common stock it obtains through conversion. The holder or its
transferees also have a one-time right to require Metrocall to participate in an
underwritten public offering of the Series C Preferred or common stock.
The holder of the Series C Preferred may not sell or transfer its shares
for a period of 18 months from their date of issuance. The holder of the Series
C Preferred may convert its Series C Preferred shares into common stock
beginning on October 2, 2003 at a conversion price of $10.40 per Series C
Preferred share, subject to adjustment.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1994(a) 1995 1996(a) 1997(a) 1998(a)
---------- ---------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE, UNIT, AND PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Service, rent and maintenance revenues............ $ 49,716 $ 92,160 $ 124,029 $ 249,900 $ 416,352
Product sales..................................... 8,139 18,699 25,928 39,464 48,372
--------- --------- ----------- ----------- -----------
Total revenues.............................. 57,855 110,859 149,957 289,364 464,724
Net book value of products sold................... (6,962) (15,527) (21,633) (29,948) (31,791)
--------- --------- ----------- ----------- -----------
50,893 95,332 128,324 259,416 432,933
Operating expenses:
Service, rent and maintenance..................... 10,632 20,080 28,567 61,392 112,774
Selling and marketing............................. 7,313 15,546 24,101 53,802 73,546
General and administrative(b)..................... 16,796 33,985 42,905 73,753 121,644
Depreciation and amortization..................... 13,829 31,504 58,196 91,699 234,948
--------- --------- ----------- ----------- -----------
Loss from operations.............................. (2,323) (5,783) (25,445) (21,230) (109,979)
Interest and other income (expense)(c)............ 161 314 (607) 156 849
Interest expense.................................. (3,726) (12,533) (20,424) (36,248) (64,448)
--------- --------- ----------- ----------- -----------
Loss before income tax benefit and extraordinary
item............................................ (1,242) (18,002) (46,476) (57,322) (173,578)
Income tax provision benefit...................... 152 595 1,021 4,861 47,094
--------- --------- ----------- ----------- -----------
Loss before extraordinary item.................... (1,090) (17,407) (45,455) (52,461) (126,484)
Extraordinary item(c)............................. (1,309) (2,695) (3,675) -- --
--------- --------- ----------- ----------- -----------
Net loss........................................ (2,399) (20,102) (49,130) (52,461) (126,484)
Preferred dividends............................... -- -- (780) (7,750) (11,767)
--------- --------- ----------- ----------- -----------
Loss attributable to common stockholders........ $ (2,399) $ (20,102) $ (49,910) $ (60,211) $ (138,251)
========= ========= =========== =========== ===========
Loss per share attributable to common
stockholders:
Loss per share before extraordinary item
attributable to common stockholders........... $ (0.14) $ (1.49) $ (2.84) $ (2.22) $ (3.37)
Extraordinary item, net of income tax benefit... (0.16) (0.23) (0.23) -- --
--------- --------- ----------- ----------- -----------
Loss per share attributable to common
stockholders.................................. $ (0.30) $ (1.72) $ (3.07) $ (2.22) $ (3.37)
--------- --------- ----------- ----------- -----------
OPERATING AND OTHER DATA:
Net cash provided by operating activities......... $ 11,796 $ 14,000 $ 15,608 $ 27,166 $ 41,154
Net cash used in investing activities............. (19,227) (44,528) (327,904) (176,429) (191,747)
Net cash provided by financing activities......... 9,190 151,329 199,639 163,242 134,133
EBITDA(d)......................................... 16,152 27,771 32,751 70,469 124,969
EBITDA margin(d)(e)............................... 31.7% 29.1% 25.5% 27.2% 28.9%
ARPU(f)........................................... 10.53 9.15 8.01 8.25 7.57
Average monthly operating expense per unit(g)..... 7.36 6.71 6.28 6.47 5.66
Units in service (end of period)(a)............... 755,546 944,013 2,142,351 4,030,836 5,659,550
Units in service per employee (end of period)..... 1,007 1,047 1,086 1,366 1,512
Capital expenditures.............................. 19,091 44,058 62,110 69,935 78,658
--------- --------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
-------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)............................... $ (5,277) $116,009 $ (7,267) $ (24,631) $ (27,876)
Cash and cash equivalents............................... 2,773 123,574 10,917 24,896 8,436
Total assets............................................ 200,580 340,614 646,577 1,087,014 1,262,687
Total long-term debt, net of current portion............ 101,346 153,803 327,092 598,989 742,563
Total stockholders' equity.............................. 68,136 155,238 166,298 179,496 45,429
</TABLE>
17
<PAGE> 19
- ---------------
(a) Consolidated statements of operations data for fiscal years 1994, 1996, 1997
and 1998 include the results of operations of acquired companies from their
respective acquisition dates. In May 1997, we sold the assets of our
telemessaging operations (acquired through merger on November 15, 1996);
therefore, results of operations for the year ended December 31, 1997
include telemessaging operations through the date of sale only. Consolidated
statements of operations data for fiscal year 1997 exclude the operations of
ProNet because the merger was completed on December 30, 1997. Units in
service at December 31, 1997, include approximately 1.3 million units
acquired in the ProNet merger.
(b) Includes the impact of one-time, non-recurring charges for severance and
other compensation costs incurred as part of a management reorganization of
approximately $2.0 million in fiscal year 1995.
(c) In fiscal years 1994 and 1995, we refinanced balances outstanding under our
then existing credit facilities and recorded extraordinary items of $1.3
million and $2.7 million, respectively, representing charges to expense
unamortized deferred financing costs and other costs, net of any income tax
benefits, related to those credit facilities. In 1996, we recorded an
extraordinary item for costs of approximately $3.7 million paid to purchase
the A+ Network 11 7/8% senior subordinated notes outstanding. In 1995, we
incurred breakage fees of approximately $1.7 million associated with the
termination of two interest rate swap agreements, which have been included
in interest and other income (expense).
(d) EBITDA (earnings before interest, taxes, depreciation and amortization, and
certain one-time charges), while not a measure under generally accepted
accounting principles (GAAP), is a standard measure of financial performance
in the paging industry; EBITDA should not be considered in isolation or as
an alternative to net income (loss), income (loss) from operations, cash
flows from operating activities, or any other measure of performance under
GAAP. EBITDA is, however, an approximation of the primary financial measure
by which our covenants are calculated under our indentures and our credit
facility. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Financial Condition, Liquidity and Capital
Resources" for discussion of significant capital requirements and
commitments. In 1995, EBITDA excludes non-recurring charges of approximately
$2.0 million incurred as part of a management reorganization.
(e) EBITDA margin is calculated by dividing (a) EBITDA by (b) the amount of
total revenues less the net book value of products sold.
(f) ARPU (average monthly paging revenue per unit) is calculated by dividing (a)
service, rent and maintenance revenues for the period by (b) the average
number of units in service for the period. The ARPU calculation excludes
revenues derived from non-paging services such as telemessaging, long
distance and cellular telephone.
(g) Average monthly operating expense per unit is calculated by dividing (a)
total recurring operating expenses before depreciation and amortization for
the period by (b) the average number of units in service for the period. For
this calculation, operating expenses exclude non-recurring charges for
severance and other compensation costs incurred as part of a management
reorganization of approximately $2.0 million in 1995.
18
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion and analysis of the financial
condition and results of operations of the Company together with the
Consolidated Financial Statements and the notes to the Consolidated Financial
Statements included elsewhere in this Annual Report and the description of
Metrocall's business in "Business."
OVERVIEW
Metrocall is a leading provider of local, regional and national paging and
other wireless messaging services. Through its nationwide wireless network, the
Company provides messaging services to over 1,000 U.S. cities, including the top
100 SMSAs. Since 1993, Metrocall's subscriber base has increased from less than
250,000 to more than 5.6 million. Metrocall has achieved this growth through a
combination of internal growth and a program of mergers and acquisitions. As of
December 31, 1998, the Company was the second largest messaging company in the
United States based on the number of subscribers.
Metrocall derives a 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 services,
operating results benefit from this recurring stream with minimal requirements
for incremental selling expenses or fixed costs.
Metrocall has grown internally by broadening its distribution network and
expanding its target market to capitalize on the growing appeal of messaging and
other wireless products and services, to gain access to different market
segments and to increase the penetration and utilization of its nationwide
network. Since December 31, 1993, the Company has added approximately 1.4
million new subscribers through internal growth. Over the past three years,
Metrocall has emphasized a number of distribution channels that are
characterized by lower ARPU, such as resellers, and correspondingly lower
operating costs. To offset declines in ARPU and to capitalize on the growth of
paging and other wireless messaging services, the Company has expanded its
channels of distribution to include, among others, Company-owned and-operated
retail outlets, strategic partnerships and alliances, Internet sales, with each
distribution channel focusing on the sale rather than the 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, Metrocall has been successful in marketing enhanced
services, such as nationwide paging services, voice mail and other ancillary
services for its strategic partners and other alliances.
The Company has also grown significantly through mergers and acquisitions.
Since July 1996, Metrocall has acquired the following companies, adding
approximately 3.6 million subscribers to its subscriber base.
<TABLE>
<CAPTION>
ACQUISITION
ACQUIRED COMPANY DATE NUMBER OF SUBSCRIBERS
---------------- ----------------- ---------------------
<S> <C> <C>
Parkway............................................ July 16, 1996 140,000
Satellite.......................................... August 30, 1996 100,000
A+ Network......................................... November 15, 1996 660,000
Page America....................................... July 1, 1997 198,000
ProNet............................................. December 30, 1997 1,286,000
AMD................................................ October 2, 1998 1,215,000
---------
Total.................................... 3,599,000
=========
</TABLE>
On October 2, 1998, Metrocall continued its consolidation efforts by
acquiring AMD, the paging operations of AT&T, which increased its customer base
by adding approximately 1.2 million subscribers. As part of the acquisition,
Metrocall also acquired the NPCS license. Metrocall expects to realize the
following benefits from the AMD acquisition:
- Greater Scale and Scope. The AMD acquisition increases the Company's
geographic presence to include Alaska, Arkansas, Colorado, Kansas,
Minnesota, Missouri, Oklahoma, Oregon, Utah and Washington. In addition,
it adds to the Company's existing presence in the Northeast, Southeast,
Midwest, Mid-Atlantic and Southwest and West.
- Premium, High Revenue Customer Base. The AMD acquisition adds premium,
high revenue subscribers to the Company's existing customer base. AMD's
ARPU has historically been higher than the paging industry average. AMD
provided its
19
<PAGE> 21
paging and messaging services to large business customers, which
typically generated a higher ARPU than individual customers.
Approximately 23% of AMD's subscribers were high-ARPU alphanumeric
customers, one of the highest percentages in the paging industry.
Synergies. As Metrocall continues to integrate AMD's paging operations
with its own paging operations, Metrocall expects to realize significant
synergies. For example, AMD provided nationwide paging services without the
benefit of a nationwide network. As a result, AMD spent $29.3 million in 1997
reselling other carriers' services, which adversely affected its margins. Over
time, the Company expects to switch a portion of AMD's customers to its
nationwide network, which will reduce third-party costs and increase the
utilization of its network. In addition, Metrocall expects to realize
significant annual cost savings from elimination of duplicative AMD functions.
The Company expects to complete the integration of AMD by the fourth quarter of
1999. Metrocall cannot assure you that it will be able to integrate AMD
successfully or achieve the expected synergies.
Metrocall's growth, whether internal or through consolidation, requires
significant capital investment for paging equipment and technical
infrastructure. The Company also purchases pagers for that portion of its
subscriber base that it leases pagers to. During the year ended December 31,
1998, capital expenditures totaled $78.7 million, which included approximately
$51.4 million for pagers, representing increases in pagers on hand and net
increases and maintenance to the pager base. Metrocall estimates that capital
expenditures for the year ending December 31, 1999 will approximate $95.0
million.
RESULTS OF OPERATIONS
The definitions below will be helpful in understanding the discussion of
Metrocall's results of operations.
- 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
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 of the Company's sales force and related marketing
and advertising expenses.
- General and administrative expenses: include costs related to executive
management, accounting, office telephone, repairs and maintenance,
management information systems, rent and employee benefits.
20
<PAGE> 22
Year Ended December 31, 1998 Compared With December 31, 1997
The following table sets forth the amounts of revenues and the percentages
of net revenues (defined as total revenues less the net book value of products
sold) represented by certain items in Metrocall's Consolidated Statements of
Operations and certain other information for fiscal years 1997 and 1998.
<TABLE>
<CAPTION>
% OF % OF INCREASE
REVENUES 1997 REVENUES 1998 REVENUES OR (DECREASE)
-------- ---------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Service, rent and maintenance........... $ 249,900 96.3 $ 416,352 96.2 $ 166,452
Product sales........................... 39,464 15.2 48,372 11.1 8,908
---------- ----- ---------- ----- ----------
Total revenues................ 289,364 111.5 464,724 107.3 175,360
Net book value of products sold......... (29,948) (11.5) (31,791) (7.3) 1,843
---------- ----- ---------- ----- ----------
Net revenues.................. $ 259,416 100.0 $ 432,933 100.0 $ 173,517
ARPU.................................... $ 8.25 $ 7.57 $ (0.68)
Number of subscribers................... 4,030,836 5,659,550 1,628,714
</TABLE>
Service, rent and maintenance revenues. Service, rent and maintenance
revenues increased approximately $166.5 million from $249.9 million in 1997 to
$416.4 million in 1998. The increase in revenues was primarily due to the 40.4%
growth in the Company's subscriber base. In 1998, Metrocall added approximately
414,000 subscribers or 10.3% through internal growth and added approximately 1.2
million subscribers or 30.1% through the AMD acquisition. Also in 1998 service,
rent and maintenance revenues included those revenues generated from the 1.3
million subscriber base acquired in the December 30, 1997 ProNet merger for
which no revenues were recognized during 1997 and the 1.2 million subscribers
Metrocall acquired from the AMD acquisition on October 2, 1998. The decline in
monthly ARPU of $0.68 per unit from 1997 to 1998 was attributable to the
Company's subscriber distribution mix and the related increase in its lower ARPU
indirect reseller distribution channel. The decline in ARPU was partially offset
by the increase in the Company's rental base due to the AMD acquisition, as AMD
had higher revenue rental subscribers. Factors affecting ARPU in future periods
include, among other things, distribution mix of new subscribers, competition
and new technologies. Metrocall cannot assure that ARPU will not decline in
future periods.
Product sales revenues. Product sales revenues increased approximately
$8.9 million from $39.5 million in 1997 to $48.4 million in 1998 and decreased
as a percentage of net revenues from 15.2% in 1997 to 11.2% in 1998. Net book
value of products sold increased approximately $1.8 million from $29.9 million
in 1997 to $31.8 million in 1998 and decreased as a percentage of net revenues
from 11.5% in 1997 to 7.3% in 1998. The increase in product sales revenues was
directly attributable to higher unit sales and greater geographic penetration
related to the ProNet merger and the AMD acquisition. Metrocall's gross margin
on product sales increased from 24.1% in 1997 to 34.3% in 1998 as a result of
increased depreciation taken on units sold that resulted in a lower book value
and higher margin at the sales date. Pagers are classified as property and
depreciated from the date of acquisition.
The following tables set forth the amounts of operating expenses and
related percentages of net revenues represented by certain items in Metrocall's
Consolidated Statements of Operations and certain other information for fiscal
years 1997 and 1998.
21
<PAGE> 23
<TABLE>
<CAPTION>
% OF % OF
OPERATING EXPENSES 1997 REVENUES 1998 REVENUES INCREASE
------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Service, rent and maintenance.............. $ 61,392 23.7 $112,774 26.0 $ 51,382
Selling and marketing...................... 53,802 20.7 73,546 17.0 19,744
General and administrative................. 73,753 28.5 121,644 28.1 47,891
Depreciation and amortization.............. 91,699 35.3 234,948 54.3 143,249
-------- ----- -------- ----- --------
$280,646 108.2 $542,912 125.4 $262,266
======== ===== ======== ===== ========
</TABLE>
<TABLE>
<CAPTION>
OPERATING EXPENSES PER UNIT IN SERVICE 1997 1998 $ DECREASE
-------------------------------------- ----- ----- ----------
<S> <C> <C> <C>
Monthly service, rent and maintenance....................... $2.10 $2.07 $(0.03)
Monthly selling and marketing............................... 1.84 1.35 (0.49)
Monthly general and administrative.......................... 2.53 2.24 (0.29)
----- ----- ------
Average monthly operating costs............................. $6.47 $5.46 $(0.81)
===== ===== ======
</TABLE>
Overall in 1998, Metrocall experienced an $0.81 reduction in average
monthly operating expense per unit. As discussed below, the Company's operating
results in 1998 included the operating expenses of Page America and ProNet for a
full fiscal year. In addition, the Company's 1998 operating results include the
operating expenses of AMD from the October 2, 1998 acquisition date. Each
operating expense is discussed separately below.
Service, rent and maintenance expenses. Service, rent and maintenance
expenses increased approximately $51.4 million from $61.4 million in 1997 to
$112.8 million in 1998 and increased as a percentage of net revenues from 23.7%
in 1997 to 26.0% in 1998. Metrocall's service, rent and maintenance expenses
increased in 1998 because they included the service, rent and maintenance
expenses of Page America and ProNet for a complete fiscal year ($37.7 million)
and the expenses of AMD for the fourth quarter of 1998 ($15.2 million).
Exclusive of the impact of the ProNet merger and the Page America and AMD
acquisitions, service, rent and maintenance expenses in 1998 remained relatively
flat compared to 1997 expenses with increases in tower rents and network repairs
and maintenance expenses being partially offset by a decrease in expenses due to
the divesture of Metrocall's telemessaging operations during 1997 for which no
expenses were recognized in 1998. In 1998, Metrocall also continued to withhold
payment and expense recognition of LEC charges in its various service areas for
any facilities used by those LECs to transport local calls to the Company's
local paging networks as provided under the 1996 Act and the FCC's rules
regarding local transport. At December 31, 1998, Metrocall had approximately $14
million of credits receivable included in prepaid expenses and other current
assets related to past charges assessed by the LECs for which the Company is
seeking reimbursement. The increase in service, rent and maintenance expenses as
a percentage of net revenues in 1998 was the result of the recent mergers and
acquisitions. Average monthly service, rent and maintenance expense per unit
slightly declined in 1998 as a result of the higher average subscriber base
throughout 1998. As Metrocall continues to expand its networks in order to serve
more subscribers and offer advanced messaging capabilities, these expenses may
increase.
Selling and marketing expenses. Selling and marketing expenses increased
approximately $19.7 million from $53.8 million in 1997 to $73.5 million in 1998
and decreased as a percentage of net revenues from 20.7% in 1997 to 17.0% in
1998. Selling and marketing expenses increased in 1998 because they included the
selling and marketing expenses of Page America and ProNet for a complete fiscal
year ($16.5 million) and the expenses of AMD for the fourth quarter of 1998
($5.3 million). The decrease in selling and marketing expenses as a percentage
of revenues in 1998 was primarily from the impact of the Company's recent
merger and acquisitions and the related higher revenues base. Metrocall expects
that selling and marketing expenses may increase as a percentage of revenues in
the future as it expands its presence in existing and new markets. Average
monthly selling and marketing expense per unit declined in 1998 as a result of
the higher average subscriber base throughout 1998.
General and administrative expenses. General and administrative expenses
increased approximately $47.9 million from $73.8 million in 1997 to $121.6
million in 1998 and decreased as a percentage of net revenues from 28.5% in 1997
to 28.1% in 1998. General and administrative expenses increased in 1998 because
they included the general and administrative expenses of Page America and ProNet
for a complete fiscal year ($30.4 million) and the expenses of AMD for the
fourth quarter of 1998 ($10.6 million). Exclusive of the impact of the merger
and acquisitions, general and administrative expenses increased for a variety of
professional services ($3.9 million) and additional operating personnel ($3.0
million). The decrease in general and administrative expenses as a percentage of
net
22
<PAGE> 24
revenues in 1998 was primarily from the benefit of economies of scale related
to the Company's recent merger and acquisitions and the related increase in the
revenue base. Metrocall expects general and administrative expenses per unit to
continue to decrease in 1999 as it gains additional synergies from the AMD
acquisition.
Depreciation and amortization expenses. Depreciation and amortization
expense increased approximately $143.2 million from $91.7 million in 1997 to
$234.9 million in 1998. The increase in total depreciation expense in 1998 was
approximately $20 million and resulted primarily from depreciation on additional
subscriber paging equipment and other plant and equipment acquired mainly in the
ProNet merger and Page America and AMD acquisitions. The increase in total
amortization expense in 1998 was approximately $123 million and resulted
primarily from amortization expenses on intangibles acquired in Metrocall's
recent merger and acquisitions and the reduction in estimated useful lives of
certain intangibles described below. Metrocall expects depreciation and
amortization expenses in 1999 to increase as a result of a full year's impact of
the AMD acquisition. Effective January 1, 1998, the Company reduced the
estimated useful lives of certain intangibles, including goodwill, regulatory
licenses issued by the FCC and 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 in 1998 by approximately
$26 million.
<TABLE>
<CAPTION>
$
OTHER 1997 1998 INCREASE
----- -------- --------- ---------
<S> <C> <C> <C>
Interest and other income, net.............................. $ 156 $ 849 $ 693
Interest expense............................................ (36,248) (64,448) 28,200
Income tax benefit.......................................... 4,861 47,094 42,233
Net loss.................................................... (52,461) (126,484) 74,023
Preferred dividends......................................... (7,750) (11,767) 4,017
EBITDA...................................................... $ 70,469 $ 124,969 $54,500
</TABLE>
Interest expense. The increase in interest expense in 1998 of
approximately $28.2 million was the result of higher average debt balances
outstanding during the fiscal year primarily associated with the additional debt
assumed with the ProNet merger and financing requirements of the AMD
acquisition. During 1998, total debt increased by $143.4 million to $743.3
million. Metrocall expects interest expense in 1999 to increase from 1998 due to
expected higher average debt balances during 1999.
Income tax benefit. The increase in the income tax benefit in 1998 of
approximately $42.2 million was the result of the tax benefit recorded on the
amortization of non-goodwill related intangible assets primarily generated from
the ProNet merger which occurred on December 30, 1997 for which no tax benefits
were generated in 1997 and the AMD acquisition which occurred on October 2,
1998.
Net loss. Metrocall's net loss increased approximately $74.0 million from
$52.4 million in 1997 to $126.5 million in 1998. The increase in net loss was
primarily the result of increased depreciation and amortization and other
operating expenses associated with the ProNet merger and the Page America and
AMD acquisitions offset by increases in net revenues related to an increase in
the Company's subscriber base as a result of internal growth and its recent
merger and acquisitions.
Preferred dividends. The increase in preferred dividends in 1998 of
approximately $4.0 million was the result of higher dividends paid to the
holders of the Series A Preferred and the Series B Preferred in 1998 and
dividends paid in the fourth quarter of 1998 to the holder of the Series C
Preferred. Dividends recognized on the Series A Preferred and the Series B
Preferred increased by $0.8 million and $1.3 million, respectively due to their
cumulative nature. On October 2, 1998, Metrocall issued 9,500 shares of the
Series C Preferred in connection with the AMD acquisition. Dividends recognized
on the Series C Preferred were approximately $1.9 million.
EBITDA. The increase in EBITDA in 1998 of approximately $54.5 million was
primarily the result of the increase in revenues in 1998 offset to a lesser
extent by the increase in operating expenses. Metrocall's EBITDA margin improved
from 27.2% in 1997 to 28.9% in 1998.
23
<PAGE> 25
Year Ended December 31, 1997 Compared With December 31, 1996
The following table sets forth the amounts of revenues and the percentages
of net revenues (defined as total revenues less the net book value of products
sold) represented by certain items in Metrocall's Consolidated Statements of
Operations and certain other information for fiscal years 1996 and 1997.
<TABLE>
<CAPTION>
% OF % OF
REVENUES 1996 REVENUES 1997 REVENUES INCREASE
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Service, rent and maintenance........... $ 124,029 96.7 $ 249,900 96.3 $ 125,871
Product sales........................... 25,928 20.2 39,464 15.2 13,536
---------- ----- ---------- ----- ----------
Total revenues................ 149,957 116.9 289,364 111.5 139,407
Net book value of products sold......... (21,633) (16.9) (29,948) (11.5) 8,315
---------- ----- ---------- ----- ----------
Net revenues.................. $ 128,324 100.0 $ 259,416 100.0 $ 131,092
ARPU.................................... $ 8.01 $ 8.25 $ 0.24
Number of Subscribers................... 2,142,351 4,030,836 1,888,485
</TABLE>
Service, rent and maintenance revenues. Service, rent and maintenance
revenues increased approximately $125.9 million from $124.0 million in 1996 to
$249.9 million in 1997. Growth in the Company's subscriber base was the primary
reason for the revenues increase. During 1997, Metrocall's subscriber base grew
by approximately 1.9 million, which included approximately 1.3 million
subscribers acquired in the ProNet merger. Monthly ARPU for paging services
increased by $0.24 due to subscriber revenue mix acquired in the Company's
merger with A+ Network in November 1996, general service rate increases, the
shift in the sales mix from primarily direct distribution channels, especially
the direct sales force, to indirect channels and Company-owned retail stores,
and the sale of enhanced paging services.
Product sales revenues. Product sales revenues increased approximately
$13.5 million from $25.9 million in 1996 to $39.5 million in 1997 and decreased
as a percentage of net revenues from 20.2% in 1996 to 15.2% in 1997. Net book
value of products sold increased approximately $8.3 million from $21.6 million
in 1996 to $29.9 million in 1997 principally because of the increase in product
sales, partially offset by increased depreciation expense. Metrocall's gross
margin on products sold increased from 16.6% in 1996 to 24.1% in 1997.
The following tables set forth the amounts of operating expenses and
related percentages of net revenues represented by certain items in Metrocall's
Consolidated Statements of Operations and certain other information for fiscal
years 1996 and 1997.
<TABLE>
<CAPTION>
% OF % OF
OPERATING EXPENSES 1996 REVENUES 1997 REVENUES INCREASE
------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Service, rent and maintenance................ $ 28,567 22.3 $ 61,392 23.7 $ 32,825
Selling and marketing........................ 24,101 18.8 53,802 20.7 29,701
General and administrative................... 42,905 33.4 73,753 28.5 30,848
Depreciation and amortization................ 58,196 45.4 91,699 35.3 33,503
-------- ----- -------- ----- --------
$153,769 119.8 $280,646 108.2 $128,677
======== ===== ======== ===== ========
</TABLE>
<TABLE>
<CAPTION>
INCREASE
OPERATING EXPENSES PER UNIT IN SERVICE 1996 1997 OR (DECREASE)
-------------------------------------- ----- ----- -------------
<S> <C> <C> <C>
Monthly service, rent and maintenance....................... $1.88 $2.10 $0.22
Monthly selling and marketing............................... 1.58 1.84 0.26
Monthly general and administrative.......................... 2.82 2.53 (0.29)
----- ----- -----
Average monthly operating expense........................... $6.28 $6.47 $0.19
</TABLE>
Overall in 1997, Metrocall experienced a $0.19 increase in average monthly
operating expense per unit. As discussed below, the Company's operating results
in 1997 included the operating expenses of the 1996 acquisitions of Parkway,
Satellite, and A+ Network
24
<PAGE> 26
for a full fiscal year. In addition, the operating results include the
operating expenses of Page America from the July 1, 1997 acquisition date.
Service, rent and maintenance expenses. Service, rent and maintenance
expenses increased approximately $32.8 million from $28.6 million in 1996 to
$61.4 million in 1997 and increased as a percentage of net revenues from 22.3%
in 1996 to 23.7% in 1997. In 1997, the overall increases in service, rent and
maintenance expenses and as a percentage of revenues were attributable to the
acquisitions of Parkway ($1.1 million), Satellite ($1.3 million), A+ Network
($22.7 million) and Page America ($2.6 million) completed during 1996 and 1997.
Additional increases were primarily due to increased site rental costs ($3.1
million) and increased personnel costs ($1.7 million) partially offset by
reductions in third party carrier costs ($1.9 million). In 1997, the Company
ceased paying LECs in its various service areas for any facilities used by those
LECs to transport local calls to Metrocall's local paging networks as provided
under the 1996 Act and the FCC's rules regarding local transport, which had
reduced third party carriers costs by approximately $8.2 million. The monthly
service, rent and maintenance expense per unit increased by $0.22 per unit as a
result of the above items.
Selling and marketing expenses. Selling and marketing expenses increased
approximately $29.7 million from $24.1 million in 1996 to $53.8 million in 1997
and increased as a percentage of net revenues from 18.8% in 1996 to 20.7% in
1997. The increase in selling and marketing expenses and the increase as a
percentage of net revenues were primarily associated with the 1996 and 1997
acquisitions, which added new sales offices and retail locations. Selling and
marketing expenses attributed to the acquired companies were Parkway ($1.0
million), Satellite ($0.8 million), A+ Network ($24.5 million) and Page America
($1.3 million). Additional increases were associated with the increased sales
staff and related costs ($1.5 million) and increased advertising and promotional
costs ($0.1 million). Monthly selling and marketing expense per unit increased
in 1997 by $0.26 per unit due primarily to increases in the Company's sales
force as a result of acquisitions in new geographic areas.
General and administrative expenses. General and administrative expenses
increased approximately $30.8 million from $42.9 million in 1996 to $73.8
million in 1997 and decreased as a percentage of net revenues from 33.4% in 1996
to 28.5% in 1997. The general and administrative expenses increase was primarily
the result of the acquired companies including the operating results of Parkway
($0.7 million), Satellite ($1.9 million), A+ Network ($21.3 million) and Page
America ($1.4 million). General and administrative expenses also increased
primarily due to increased expenses for billing, credit and collection
activities ($3.4 million) and additional operational and administrative
personnel ($3.7 million). The decrease in general and administrative expenses
as a percentage of net revenues was attributable to economies of scale
recognized from the 1996 and 1997 acquisitions and the related increase in the
Company's subscriber base.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased approximately $33.5 million from $58.2 million in 1996 to
$91.7 million in 1997. The increase in depreciation expense resulted primarily
from depreciation on increased levels of subscriber paging equipment and other
plant and operating equipment. Amortization expenses increased substantially
during 1997 due to the amortization expense of goodwill and other intangibles
related to the 1996 and 1997 acquisitions. Effective July 1, 1996, the Company
changed the estimated useful lives of certain intangibles acquired in 1994,
including goodwill and regulatory licenses issued by the FCC from 40 years to 15
years for goodwill and from 40 years to 25 years for FCC licenses. The impact of
these changes was to increase amortization expense for 1997 by approximately
$2.6 million.
<TABLE>
<CAPTION>
INCREASE OR
OTHER 1996 1997 (DECREASE)
----- -------- -------- -----------
<S> <C> <C> <C>
Interest and other income (expense)......................... $ (607) $ 156 $ 763
Interest expense............................................ (20,424) (36,248) 15,824
Income tax benefit.......................................... 1,021 4,861 3,840
Extraordinary item.......................................... (3,675) -- (3,675)
Net loss.................................................... (49,130) (52,461) 3,331
Preferred dividends......................................... (780) (7,750) 6,970
EBITDA...................................................... $ 32,751 $ 70,469 $ 37,718
</TABLE>
Interest expense. The increase in interest expense of approximately $15.8
million in 1997 was due to a higher average level of debt outstanding during
1997 primarily associated with the financing of the 1996 and 1997 acquisitions.
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<PAGE> 27
Net loss. Metrocall's net loss increased approximately $3.3 million from
$49.1 million in 1996 to $52.5 million in 1997. The increase in net loss was
primarily the result of increased depreciation and amortization and other
operating expenses associated with the Parkway, Satellite and A+ Network and
Page America acquisitions offset by increases in net revenues related to an
increase in the Company's subscriber base as a result of internal growth and the
1996 and 1997 mergers and acquisitions.
Preferred dividends. The increase in preferred dividends in 1997 of
approximately $7.0 million was the result of an increase in dividends paid to
the holders of the Series A Preferred ($6 million) and dividends paid to the
holders of the Series B Preferred ($1 million).
EBITDA. EBITDA increased approximately $37.7 million from $32.8 million in
1996 to $70.5 million in 1997. EBITDA margin increased from 25.5% in 1996 to
27.2% in 1997.
INFLATION
Inflation is presently not a material factor affecting Metrocall's
business. Traditional one-way paging system equipment and operating costs have
not increased and one-way pager costs have declined significantly in recent
years. General operating expenses such as salaries, employee benefits and
occupancy costs are, however, subject to inflationary pressures.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During the three years ended December 31, 1998, Metrocall's operations have
required significant funding, primarily to support mergers and acquisitions and
capital expenditures for paging infrastructure and equipment requirements.
Metrocall has met its funding requirements with cash generated from operating
activities, borrowings under its credit facilities and proceeds from its senior
subordinated notes offerings.
Cash Flows
For 1998, the Company's cash provided by operating activities increased
approximately $14.0 million or 51.5% from $27.2 million in 1997 to $41.2 million
in 1998. The increase in cash provided by operating activities was primarily
attributable to the effects of the ProNet merger and the AMD acquisition and
related synergies, and the Company's internal growth.
Net cash used in investing activities in 1998 increased by $15.3 million or
8.7% from $176.4 million in 1997 to $191.7 million in 1998. During 1998, the
Company borrowed $110 million under its credit facility to fund the cash portion
of the purchase price for the AMD acquisition. Capital expenditures for 1998
included approximately $51.4 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 $12.8 million for information
systems and computer related equipment, $12.7 million for network construction
and development and $1.7 million for general purchases including leasehold
improvements.
Net cash used in financing activities in 1998 decreased by $29.1 million or
17.8% from $163.2 million in 1997 to $134.1 million in 1998. During 1998,
Metrocall borrowed $133 million under its credit facility and repaid
approximately $234.2 million. Of the borrowings under the facility, $110 million
was used for the cash portion of the purchase price for the AMD acquisition and
the remaining amount was used for general corporate purposes. The repayments
made under the facility included $229 million using proceeds from the Company's
senior subordinated notes offering in 1998 as described below.
Working Capital
Working capital (defined as current assets less current liabilities) was a
deficit of $27.9 million and $24.6 million in 1998 and 1997, respectively. In
1998, current assets increased by approximately $2.5 million, primarily as a
result of increases in trade receivables and other current assets acquired in
the AMD acquisition offset by lower cash balances. Current liabilities increased
by approximately $5.7 million as a result of higher deferred revenue due to a
higher number of subscribers offset by lower other current liabilities.
LONG-TERM DEBT
At December 31, 1998 and 1997, long-term debt consisted of:
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<PAGE> 28
<TABLE>
<CAPTION>
INCREASE OR
LONG-TERM DEBT 1997 1998 (DECREASE)
-------------- -------- -------- -----------
<S> <C> <C> <C>
Borrowings under the credit facility........................ $141,165 $ 40,000 $(101,165)
Senior subordinated notes................................... 452,534 698,544 246,010
Capital leases and other debt............................... 6,242 4,790 (1,452)
-------- -------- ---------
Total long-term debt.............................. $599,941 $743,334 $ 143,393
======== ======== =========
</TABLE>
Borrowings and repayments under the credit facility. During 1998,
Metrocall reduced borrowings outstanding under its credit facility by
approximately $101.2 million. Repayments under the credit facility were funded
primarily with proceeds from the Company's senior subordinated notes offering in
1998. At the time of the 1998 notes offering, amounts outstanding under the
credit facility approximated $269 million, which had primarily included amounts
outstanding at December 31, 1997 and additional borrowings of $110 million used
to fund the cash portion of the AMD purchase price. Through March 1, 1999,
Metrocall borrowed under the credit facility an additional $24 million of which
$16.2 million was used to fund the repurchase of the Series B Preferred and the
remaining was used for general corporate purposes.
During 1998, Metrocall twice revised the terms of its credit facility to
accommodate the AMD acquisition and its 1998 notes offering. On October 2, 1998,
the Company and its bank lenders increased the amount of borrowings available
under the credit facility by $100 million to $400 million. The additional $100
million term loan facility was used to fund the cash portion of the AMD
acquisition. On December 22, 1998, the Company and its bank lenders reduced the
amount of borrowings available under the credit facility by $200 million to $200
million in connection with the 1998 notes offering. Subject to certain
conditions set forth in the Company's revised credit facility agreement,
Metrocall may borrow up to $200 million under two loan facilities through
December 31, 2004. The first facility (Facility A) is a $150 million reducing
revolving credit facility and the second (Facility B) is a $50 million reducing
term credit. The credit facility is secured by substantially all of Metrocall's
assets. Required quarterly principal repayments, as defined, begin on March 31,
2001 and continue through December 31, 2004.
Under the revised credit facility, the Company is required to comply with
certain financial and operating covenants. The Company is required to maintain
certain financial ratios, including total debt to annualized operating cash
flow, senior debt to annualized operating cash flow, annualized operating cash
flow to pro forma debt service, total sources of cash to total uses of cash, and
operating cash flow to interest expense (in each case, as such terms are defined
in the credit facility agreement). The covenants also limit additional
indebtedness and future mergers and acquisitions without the approval of the
lenders and restrict the payment of cash dividends and other stockholder
distributions by Metrocall. The credit facility agreement also prohibits certain
changes in ownership control of Metrocall, as defined. At December 31, 1998, the
Company was in compliance with all of these covenants.
Proceeds raised from the issuance of senior subordinated notes. In
December 1998, Metrocall completed a private placement of $250 million aggregate
principal amount of 11% senior subordinated notes due 2008. The notes bear
interest, payable semi-annually on March 15 and September 15. The notes may be
redeemed at the Company's option on or after September 15, 2003. The 1998 Notes
are unsecured obligations of the Company, subordinated to all of its present and
future senior indebtedness. The Company used the net proceeds from the notes of
approximately $242 million to repay outstanding indebtedness under its credit
facility and for other corporate purposes. The Company is required to register
the notes under the Securities Act by June 22, 1999. If this requirement is not
met, the annual interest rate on the 1998 Notes will increase by .5% until the
notes are generally freely transferable.
The notes contain various covenants that, among other restrictions, limit
Metrocall's ability to incur additional indebtedness, pay dividends, engage in
certain other transactions with affiliates, sell assets and engage in mergers
and consolidations except under certain conditions.
ACCESS TO FUTURE CAPITAL
Metrocall's ability to access borrowings under the credit facility and to
meet its debt service and other obligations (including compliance with financial
covenants) will be dependent upon its future performance and its cash flows from
operations, which will be subject to financial, business and other factors,
certain of which are beyond the Company's control, such as prevailing economic
conditions. Metrocall cannot assure you that, in the event the Company was to
require additional financing, such additional financing would be available on
terms permitted by agreements relating to existing indebtedness or otherwise
satisfactory to it. Metrocall believes that funds generated by its operations,
together with those available under its credit facility, will be sufficient to
finance estimated capital expenditure requirements and to fund its existing
operations for the foreseeable future. While there are no current
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<PAGE> 29
outstanding commitments, the Company may continue to evaluate strategic
acquisition candidates 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 to be given and the availability of financing. Such potential
acquisitions 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 Metrocall.
Metrocall's shares of common stock have traded on the Nasdaq National
Market since Metrocall's initial public offering in July 1993. The Nasdaq
National Market listing maintenance standards require that, among other things,
either (1) Metrocall maintain net tangible assets of $4.0 million or (2)
Metrocall's common stock maintain a minimum bid price of at least $5.00 per
share for 30 consecutive trading days. At December 31, 1998, Metrocall met the
net tangible asset requirement. If in the future, the Company fails to meet
these standards, it could take a number of actions to maintain listing on a
national exchange including, among others, a reverse stock split, stock
repurchase program, or transfer of its listing to the Nasdaq SmallCap Market.
YEAR 2000 READINESS DISCLOSURE
The year 2000 issue consists of two primary shortcomings of many electronic
data processing systems that may make them unable to process year-date data
accurately beyond the year 1999. First, computer programmers consistently
abbreviated dates by eliminating the first two digits of the year, e.g. December
31, 1998 would become 12/31/98. This shortcut may cause electronic data
processing systems to recognize a date on January 1, 2000 as January 1, 1900 and
process data inaccurately or stop processing altogether. Second, the algorithm
used in some electronic data processing systems for calculating leap years is
unable to detect that the year 2000 is a leap year. Therefore, systems that are
not year 2000 compliant may not register the additional day, resulting in
incorrect date calculations.
Metrocall utilizes software and related computer technologies essential to
its operations that may be affected by the year 2000 issue. Accordingly, the
Company has devised an enterprise-wide program, consisting of the following
phases, aimed to mitigate the year 2000 issue.
Identification and Assessment of Potential Problem Areas. By March 30,
1999, Metrocall had inventoried a substantial portion of its computer hardware
and software systems and the embedded systems contained in its plant and
facilities and related infrastructure. This process was undertaken with the goal
of identifying the Company's critical and non-critical systems and assessing
whether or not such systems are year 2000 compliant. Metrocall's critical
systems include: paging infrastructure, billing systems, telephone services,
financial systems and operating systems and hardware. For each of these systems,
the Company has developed or is in the process of developing a validation or
remediation plan to address year 2000 concerns that have been identified.
Remediation of Identified Problem Areas. During Metrocall's identification
and assessment phase, it had identified requirements for certain systems that it
believes will enable these systems to become year 2000 compliant. The
remediation phase includes correcting identified problem areas. This may include
hardware and software revisions, developing replacement systems and eliminating
non-functional applications or system components. Metrocall is in various stages
of remediation for its critical and non-critical systems. Metrocall's goal is to
complete the majority of its remediation efforts by September 1999.
Validation. As Metrocall makes changes to applications and components of
its systems, it intends to validate and test those changes for year 2000
compliance. The Company plans to perform validation and testing on a system-wide
basis to ensure that any changes made are compatible with interacting systems.
The Company may also conduct acceptance testing, where it deems it necessary.
Metrocall is currently undertaking this phase on certain applications.
Implementation. This phase involves integrating the systems changes
Metrocall made in the remediation stage once they have been appropriately
validated. As Metrocall implements and integrates such changes, it may still
discover that its systems include both year 2000 compliant and non-compliant
applications and components. Metrocall does not expect this combination to have
any significant adverse effect upon its operations but intends to develop
appropriate contingency recovery plans to reduce the risk of such effects.
Metrocall has begun this phase for certain systems' applications and the
Company's goal is to achieve completion of the entire phase by the end of the
fourth quarter 1999.
Third Parties. Metrocall believes that many of its interconnect carriers,
equipment suppliers and other primary vendors have year 2000 issues that may
affect the Company. Metrocall has sought and will continue to seek confirmation
from these parties that they are developing and implementing plans to become
year 2000 compliant. Metrocall intends to validate system processes that require
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<PAGE> 30
interaction with vendor hardware or software in an effort to ensure system
readiness by December 31, 1999. Confirmations received to date have indicated
that such respondents are in the process of implementing remediation plans in an
effort to bring their systems into year 2000 compliance.
Contingency Plans. The Company is in the process of determining
contingency plans for each of its systems if such systems are not year 2000
compliant. The contingency plans will address "likely" worst case scenarios for
each system included in the year 2000 program. They will also consider, to the
extent Metrocall believes necessary, plans that address certain potential third
party non-compliance. At this time, Metrocall does not have sufficient
information to assess the likelihood of such worst case scenarios but
anticipates completion of such planning during 1999.
The following briefly describes each of Metrocall's critical systems and
their year 2000 readiness.
- Paging Infrastructure. Metrocall has an extensive paging infrastructure
that provides services to its customers over a number of different
frequencies. The Company has identified and performed certain year 2000
readiness assessment activities with regard to its paging software and
hardware, and is working with its primary vendor that provides software
to the Company's paging infrastructure. Metrocall expects certain
software upgrades to be installed by the end of the third quarter of
1999, and those upgrades will be validated and tested shortly
thereafter. Certain of the Company's hardware units will require upgrade
to support the required software. Such units will be upgraded at the
same time the software upgrades are performed. Metrocall expects to
incur approximately $7 million during 1999 to support these paging
infrastructure initiatives.
- Billing Systems. Metrocall currently utilizes three different billing
platforms that are used for the recordation and processing of customer
invoices. Two of these platforms are commercial software applications.
The Company has received vendor certification with respect to these
platforms' hardware, databases and the substantial majority of the
software. The third platform was developed by the former AMD. Its year
2000 readiness was previously tested and warranted by AMD's prior
corporate owner. Metrocall has scheduled upgrades to certain operating
systems to promote proper integration for the third and early fourth
quarters 1999. Once the upgrades have been completed, the Company will
move forward with its testing of the platforms and their interfaces to
the paging and financial systems. Metrocall expects to incur
approximately $2.0 million during 1999 on these initiatives.
- Telephone Services. Metrocall's ability to provide paging and messaging
services is directly linked to its ability to accept and direct
telephone traffic over an extended network. In addition, the Company's
ability to sell products, administer customer calls and communicate
between offices is dependent on its telephone network. Metrocall is
currently in various phases of the remediation and validation stages for
its internal telephone network. Metrocall's goal is to complete this
phase by the end of the fourth quarter, with validation and
implementation completed by December 1999. The Company's cost for these
initiatives in 1999 is expected to be approximately $1.5 million.
Metrocall is actively contacting its external telephone service
providers to determine their level of year 2000 readiness.
- Financial Systems. Metrocall's financial systems, which include its
accounts payable, general ledger, fixed asset, purchase and inventory
systems, have been vendor-certified for year 2000 compliance. The Company
is in process of testing the financial systems for functionality and data
integrity between interfaces. The Company expects to have all testing
completed by the end of the third quarter of 1999. Metrocall does not
expect to incur any significant costs related to year 2000 readiness for
its financial systems.
- Operating Systems and Hardware. Metrocall has identified and performed
year 2000 readiness assessment activities with regard to its network
operating systems. Certain of such systems are scheduled for software
upgrades that will improve their functionality and are year 2000
compliant. The Company anticipates completing these upgrades throughout
1999 with validation and implementation occurring shortly thereafter.
Metrocall has identified personal computers that are not year 2000
compliant and which it intends to replace by December 31, 1999. The
Company expects the cost of these initiatives to be approximately $3.5
million.
Metrocall is utilizing both internal and external resources to remediate
and test its systems for year 2000 compliance. The Company is incurring internal
labor as well as consulting and other expenses related to infrastructure and
facilities enhancements necessary to prepare its systems. Although it is
Metrocall's goal that its systems be year 2000 compliant on or before December
31, 1999, there can be no assurance that the Company's year 2000 program will be
successful or that its interconnect carriers and primary vendors
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<PAGE> 31
will also successfully address their year 2000 issues. Metrocall is unable to
predict the potential impact on its financial condition and results of
operations in the event its year 2000 program is not successful.
ADDITIONAL FACTORS AFFECTING FUTURE OPERATING RESULTS AND FINANCIAL CONDITION
As the Company has described in this Annual Report on Form 10-K, Metrocall
believes that its future operating results and funds generated from operations
and available under its credit facility will be sufficient to meet general
corporate requirements and planned capital expenditures for the foreseeable
future. However, Metrocall's ability to meet its debt service and other
obligations is dependent upon such future performance, which will be subject to
factors beyond its control.
The risks and uncertainties described below are not the only ones Metrocall
faces. Additional risks and uncertainties not presently known to the Company or
that the Company currently deems immaterial may also impair its business
operations. If any of the following risks actually occur, Metrocall's business,
financial condition or results of operations could be materially adversely
affected.
Metrocall Has a History of Operating Losses. Metrocall has sustained net
losses of $49.1 million, $52.5 million and $126.5 million for fiscal years 1996,
1997 and 1998. Those losses are significantly attributable to its consolidation
and growth strategies and capital expenditure requirements. Metrocall cannot
assure you that it can reverse such losses in the future. In addition, at
December 31, 1998, Metrocall's accumulated deficit was approximately $295.2
million and its working capital deficit was $27.9 million. The Company's
business requires substantial funds for capital expenditures and acquisitions,
both of which cause significant depreciation and amortization expenses.
Additionally, Metrocall has substantial levels of borrowing, which results in
significant interest expense, expected to be outstanding in the foreseeable
future. Metrocall therefore expects to continue to incur losses from operations.
Metrocall cannot assure you that it will achieve profitability in the future.
Metrocall's Substantial Indebtedness May Have Operating
Consequences. Metrocall had total debt outstanding of approximately $743.3
million at December 31, 1998. This substantial indebtedness, along with the net
operating losses and working capital deficits it has sustained in recent
periods, may have consequences for the Company. For example, it may:
- make it more difficult for the Company to satisfy its debt;
- require Metrocall to dedicate a substantial portion of its operating cash
flows from operations to pay interest expense;
- limit its ability to react to changing market conditions, changes in its
industry and economic downturns;
- place Metrocall at a competitive disadvantage with respect to its ability
to finance future acquisitions or capital expenditures compared to its
competitors that have less debt;
- limit its ability to borrow additional funds; and
- cause the Company to be vulnerable to increases in interest rates because
a substantial amount of its indebtedness under the credit facility bears
interest at floating rates.
Total debt at December 31, 1998 included $40 million outstanding under
Metrocall's credit facility which was subject to variable interest rate risk. To
the extent that interest rates fluctuate, the interest expense Metrocall
recognizes on borrowings outstanding on its credit facility could fluctuate. A
1/8% rate change in the Company's weighted average interest rate in 1998 would
have caused interest expense to increase or decrease by approximately $0.2
million based on its weighted average borrowings outstanding during the year.
Metrocall's Debt Agreements Impose Operating and Financial
Restrictions. Metrocall's debt agreements impose significant operating and
financial restrictions. Such restrictions will affect, and in many respects,
significantly limit or prohibit, among other things,
- Metrocall's ability to incur additional indebtedness and certain types of
indebtedness,
- pay cash dividends,
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- repurchase or redeem its capital stock,
- make certain investments or other restricted payments,
- create liens,
- engage in transactions with stockholders or affiliates,
- sell assets,
- issue or sell stock of subsidiaries,
- merge or consolidate with other companies.
Metrocall's credit facility requires the Company to maintain certain
financial ratios. The terms of the Company's preferred stock also contain
certain restrictive covenants. Events beyond Metrocall's control could affect
its ability to meet these financial ratio tests and restrictive covenants, and
Metrocall cannot assure you that it will meet them.
If Metrocall does not comply with these restrictions, it could lead to
default even if the Company can currently pay its scheduled debt obligations. If
there was a default, the holders could demand immediate payment of the debt.
This could cause much of Metrocall's other debt to be accelerated. Metrocall
cannot assure you that it would be able to pay or refinance this debt on
acceptable terms in that event. A breach of any of the covenants contained in
its credit facility result in an event of default. This could allow MetrocallIs
lenders to declare all amounts outstanding under the credit facility to be
immediately due and payable. In addition, the Company's lenders could proceed
against the collateral granted to them to secure that indebtedness. If the
amounts outstanding under the credit facility are accelerated, Metrocall cannot
assure you that its assets will be sufficient to repay in full the money owed to
the banks or to its other debt holders.
Most of Metrocall's Assets Are Classified as Intangible. At December 31,
1998, Metrocall's total assets were approximately $1,262.7 million including net
intangible assets of approximately $892.4 million. A majority of Metrocall's
assets consist of FCC licenses and certificates, goodwill, subscriber lists,
deferred financing costs and certain other intangibles. The carrying value of
these assets could be impaired in the future due to changes in technology,
regulation, available financing or competitive pressures in any of the Company's
individual markets. Because a majority of the Company's assets are intangible,
they might not be sufficient to repay all of Metrocall's debt if secured
creditors foreclose on assets pledged to them.
Technological Developments Could Affect Metrocall's Business. Future
technological advances in the wireless communications industry could create new
services or products that compete with Metrocall's paging and wireless messaging
services.
Developments in narrowband PCS could affect Metrocall's business.
Narrowband PCS provides enhanced or advanced paging and messaging capabilities,
such as "confirmation" or "response" paging. The Company intends to participate
actively in this business through its alliance with PageMart. Advanced messaging
services marketed by other companies have, to date, had mixed market acceptance.
The success of advanced messaging services could be affected by
circumstances other than market acceptance. These include cost of equipment and
other capital requirements, technological changes in wireless messaging
services, competitors' marketing and sales strategies, regulatory developments
and general economic conditions. Additionally, several of the Company's largest
competitors in the traditional paging market have narrowband PCS licenses that
provide them nationwide coverage. Some of those competitors have had a
significant lead on Metrocall in the deployment of narrowband PCS systems.
Metrocall's business may also be affected by the development of broadband
PCS, which offers two-way voice communications and messaging services. Broadband
PCS competes with cellular telephone services and enhanced specialized mobile
radio services, as well as with conventional paging services. These broadband
services are now offering alphanumeric paging and voice mail included in their
handset and monthly fee. Several broadband PCS systems currently operate in the
United States. Additionally, other existing or prospective radio
services -- such as non-geostationary mobile satellite services -- potentially
could compete with the Company. These broadband services could adversely impact
the demand for our paging and advanced messaging services.
Changes in technology could lower the cost of competing services and
products to a level at which the Company's services and products would become
less competitive or at which the Company would be required to reduce its prices.
Metrocall cannot assure you that it will be able to develop or introduce new
services and products on a timely basis and at competitive prices, if at all,
nor can the Company assure you that its margins, inventory costs and cash flows
will not be adversely affected by technological developments.
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Technological changes also may affect the value of pagers that Metrocall
owns and leases to its subscribers. If the Company's subscribers request more
technologically advanced pagers, Metrocall may incur additional inventory costs
and capital expenditures if it is required to replace pagers leased to its
subscribers within a short period of time.
Metrocall Could Be Affected by Satellite Failures. Metrocall relies on
satellite facilities operated by other companies to control many of the
transmitters on our nationwide and wide-area networks. Metrocall has no control
over the operation and maintenance of those satellite facilities. The Company
also uses land-based communications facilities such as microwave stations and
landline telephone facilities to connect and control the paging base station
transmitters in its networks. The failure or disruption of transmissions by
these satellite facilities could disrupt the Company's paging services.
Metrocall recently initiated paging service through a satellite global uplink
facility in California. The Company transmits a majority of its paging traffic
through this facility. Any unmitigated interruptions in satellite transmissions
or in transmissions from the satellite uplink facility could adversely affect
Metrocall's business and results of operations.
Subscriber Turnover Can Adversely Affect Metrocall's Results of
Operations. The results of operations of paging service providers can be
significantly affected when subscribers cancel their service or switch their
service to other carriers. The sales and marketing costs associated with
attracting new subscribers are much higher than the costs of providing service
to existing customers. Because Metrocall's business has high fixed costs,
disconnections directly and adversely affect its results of operations.
Metrocall's Business Could Be Affected by Changes in Regulations. The FCC
and, to a lesser extent, various state regulatory agencies regulate Metrocall's
paging operations. The Company cannot assure you that those agencies will not
take actions that would have a material adverse effect on Metrocall's business.
Changes in regulation of paging businesses or the allocation of radio spectrum
for services that compete with the Company's business could adversely affect its
results of operations. For example, the FCC has adopted rules under which the
FCC will issue paging licenses on a wide-area basis through competitive bidding.
Although the Company believes that these rules may simplify its regulatory
compliance burdens, particularly regarding adding or relocating transmitter
sites, those rule changes may increase Metrocall's costs of obtaining paging
licenses in the future.
Additional Acquisitions Will Require Successful Integration and May Pose
Other Risks. Metrocall has achieved much of its growth through acquisitions. It
may pursue more acquisitions in the future. Metrocall's success will then depend
upon its ability to identify attractive candidates, to finance potential
acquisitions and to integrate their business. The challenges of acquisitions
include:
- potential strain on management;
- unanticipated liabilities or contingencies from the acquired company;
- reduced earnings due to increased goodwill amortization, increased
interest costs, and costs related to integration;
- integrating the acquired business's financial, personnel, computer and
other systems into its own; and
- need to manage growth and implement controls and information systems
appropriate to a growing company.
If Metrocall is unsuccessful in meeting these challenges, its business
could be adversely affected. The Company is currently in the process of
integrating the recent acquisition of AMD. That acquisition poses certain risks
for Metrocall's business, e.g., the paging systems it acquired may not perform
as expected; it may face difficulties integrating the development,
administrative, finance, sales and marketing organizations of AMD into its
organizations; the Company may face difficulties in integrating AMD's
communications networks with its own networks and coordinating its and AMD's
sales efforts. Metrocall must reassure AMD's customers that their paging
services will continue uninterrupted.
Metrocall Relies on Key Management Personnel. Metrocall depends on the
efforts and abilities of a number of its current key management, sales, support
and technical personnel, including William L. Collins III, Steven D. Jacoby and
Vincent D. Kelly. Metrocall's success will depend to a large extent on its
ability to retain and attract key employees. The loss of certain of these
employees or the Company's inability to retain or attract key employees in the
future could have an adverse effect on its operations. The Company has
employment contracts with, but does not have "key man" life insurance for, each
of the individuals named above.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning this item is included within Management's Discussion
and Analysis of Financial Condition and Results of Operations under the caption
"Additional Factors Affecting Future Operating Results and Financial Condition."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
FINANCIAL STATEMENTS:
Report of Arthur Andersen LLP, Independent Public
Accountants............................................ F-2
Consolidated Balance Sheets, as of December 31, 1997 and
1998................................................... F-3
Consolidated Statements of Operations for the three years
ended December 31, 1996, 1997 and 1998................. F-4
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1996, 1997 and 1998..... F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996, 1997 and 1998................. F-6
Notes to Consolidated Financial Statements................ F-7
FINANCIAL STATEMENT SCHEDULE:
Report of Arthur Andersen LLP, Independent Public
Accountants............................................ F-22
Schedule II Valuation and Qualifying Accounts............. F-23
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning our directors and executive officers is incorporated
by reference from our Proxy Statement for the Annual Meeting of Stockholders to
be held on May 5, 1999, (the "1999 Proxy Statement") under the caption "Election
of Directors."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference
from the 1999 Proxy Statement under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the stock ownership of each person known to the
Company to be the beneficial owner of more than 5% of the common stock of each
director and executive officer of Metrocall and all directors and executive
officers as a group is incorporated by reference from the 1999 Proxy Statement
under the caption "Stock Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated by reference from the 1999 Proxy Statement under the caption
"Certain Relationships and Related Transactions."
33
<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements are included in Part II Item 8
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
FINANCIAL STATEMENTS:
Report of Arthur Andersen LLP, Independent Public
Accountants............................................ F-2
Consolidated Balance Sheets, as of December 31, 1997 and
1998................................................... F-3
Consolidated Statements of Operations for the three years
ended December 31, 1996, 1997 and 1998................. F-4
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1996, 1997 and 1998..... F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996, 1997 and 1998................. F-6
Notes to Consolidated Financial Statements................ F-7
FINANCIAL STATEMENT SCHEDULE:
Report of Arthur Andersen LLP, Independent Public
Accountants............................................ F-22
Schedule II Valuation and Qualifying Accounts............. F-23
</TABLE>
All other schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in the financial statements
or notes thereto.
(b) Reports on Form 8-K
A report dated October 2, 1998, regarding the acquisition of the advanced
messaging division of AT&T Wireless Services, Inc., the paging operations of
AT&T, filed with the Commission on October 16, 1998.
(c) Exhibits
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Metrocall, Inc.
(Metrocall).*
3.2 Eighth Amended and Restated Bylaws of Metrocall.*
4.1 Indenture for Metrocall 11% Senior Subordinated Notes due
2008, dated as of December 22, 1998.(a)
4.2 Indenture for 9 3/4% Senior Subordinated Notes due 2007
dated October 21, 1997.(b)
4.3 Indenture for Metrocall 10 3/8% Senior Subordinated Notes
due 2007 dated September 27, 1995.(c)
4.4 Indenture for ProNet Inc. (ProNet) 11 7/8% Senior
Subordinated Notes due 2005 ("ProNet Notes") dated June 15,
1995.(d)
4.5 Supplemental Indenture dated May 28, 1996 for ProNet Notes.*
4.6 Second Supplemental Indenture dated December 30, 1997 for
ProNet Notes.(e)
4.7 Indenture for A+ Network, Inc. 11 7/8% Senior Subordinated
Notes due 2005 ("A+ Notes") dated October 24, 1995.(f)
4.8 First Supplemental Indenture dated November 14, 1996, for A+
Notes.(g)
4.9 Second Supplemental Indenture dated November 15, 1996 for A+
Notes.(g)
4.10 Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional and Other Rights of Series
C Convertible Preferred Stock of Metrocall.(h)
4.11 Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional and Other Rights of Series
A Convertible Preferred Stock of Metrocall.(i)
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
10.1 Fourth Amended and Restated Loan Agreement by and among
Metrocall, certain lenders and Toronto Dominion (Texas),
Inc. as administrative agent, dated as of December 22, 1998.
(a)
10.2 Stock Purchase Agreement by and among Metrocall and AT&T
Wireless Services, Inc., McCaw Communications Companies,
Inc., and AT&T Two Way Messaging Communications, Inc. dated
June 26, 1998. (k)
10.3 Stockholders Voting Agreement and Proxy between AT&T
Wireless Services, Inc. and certain stockholders of
Metrocall dated June 26, 1998. (l)
10.4 Voting Agreement between AT&T Wireless Services, Inc. and
Page America Group, Inc. dated June 26, 1998. (l)
10.5 Registration Rights Agreement between Metrocall and McCaw
Communications Companies, Inc. dated October 1, 1998. (h)
10.6 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. dated as
of January 30, 1997. (m)
10.7 Amendment to Asset Purchase Agreement by and among Page
America and Metrocall dated as of March 28, 1997. (m)
10.8 Registration Rights Agreement dated July 1, 1997 by and
between Page America Group, Inc. and Metrocall. (n)
10.9 Registration Rights Agreement dated July 1, 1997 by and
among Page America and Metrocall. (n)
10.10 Indemnity Escrow Agreement dated July 1, 1997 by and among
Page America, Metrocall and First Union National Bank of
Virginia. (n)
10.11 Agreement and Plan of Merger dated as of August 8, 1997,
between Metrocall and ProNet. (o)
10.12 Stockholders Voting Agreement dated as of August 8, 1997,
among ProNet and certain stockholders of Metrocall listed
therein. (o)
10.13 Employment Agreement between Metrocall and William L.
Collins, III. (p)
10.14 Amendment to Employment Agreement between Metrocall and
William L. Collins, III. (r)
10.15 Employment Agreement between Metrocall and Steven D. Jacoby.
(p)
10.16 Amendment to Employment Agreement between Metrocall and
Steven D. Jacoby. (r)
10.17 Second Amendment to Employment Agreement between Metrocall
and Steven D. Jacoby. (s)
10.18 Employment Agreement between Metrocall and Vincent D. Kelly.
(p)
10.19 Amendment to Employment Agreement between Metrocall and
Vincent D. Kelly. (r)
10.20 Second Amendment to Employment Agreement between Metrocall
and Vincent D. Kelly. (s)
10.21 Change of Control Agreement between Metrocall and William L.
Collins, III. (p)
10.22 Change of Control Agreement between Metrocall and Steven D.
Jacoby. (p)
10.23 Change of Control Agreement between Metrocall and Vincent D.
Kelly. (p)
10.24 Noncompetition Agreement dated as of August 8, 1997, between
Metrocall and Jackie R. Kimzey. (q)
10.25 Noncompetition Agreement dated as of August 8, 1997, between
Metrocall and David J. Vucina. (m)
10.26 Letter Agreement dated August 8, 1997, between Metrocall and
Jackie R. Kimzey. (q)
10.27 Letter Agreement dated August 8, 1997, between Metrocall and
David J. Vucina. (q)
10.28 Letter Agreement dated August 8, 1997, between Metrocall and
Jan E. Gaulding. (q)
10.29 Letter Agreement dated August 8, 1997, between Metrocall and
Mark A. Solls. (q)
10.30 Letter Agreement dated August 8, 1997, between Metrocall and
Jeffery A. Owens. (q)
10.31 Directors' Stock Option Plan, as amended. (t)
10.32 Metrocall 1996 Stock Option Plan. (u)
10.33 Metrocall 1996 Stock Option Plan, as amended. (t)
10.34 Metrocall Amended Employee Stock Purchase Plan. (v)
10.35 Registration Rights Agreement dated December 22, 1998
between Metrocall and Morgan Stanley & Co. Incorporated,
NationsBanc Montgomery Securities LLC, TD Securities (USA)
Inc., First Union Capital Markets and BancBoston Roberston
Stephens Inc.*
10.36 Deed of Lease between Douglas and Joyce Jemal, as landlord,
and Metrocall, as tenant, dated April 14, 1994. (w)
10.37 Lease Agreement dated December 20, 1983 between Beacon
Communications Associates, Ltd. and a predecessor of
Metrocall. (x)
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
10.38 Non-disclosure/No Conflict Agreement dated May 16, 1996
between Metrocall and Elliot H. Singer.(y)
10.39 Placement Agreement dated December 17,1998 between Metrocall
and Morgan Stanley & Co. Incorporated, NationsBanc
Montgomery Securities LLC, TD Securities (USA) Inc., First
Union Capital Markets and BancBoston Roberston Stephens
Inc.*
11.1 Statement re computation of per share earnings.*
21.1 Subsidiaries of Metrocall, Inc.*
23.2 Consent of Arthur Andersen LLP, as independent public
accountants for Metrocall.*
27.1 Financial Data Schedule.*
</TABLE>
- ---------------
* Filed herewith.
(a) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on January 4, 1999.
(b) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on October 23, 1997.
(c) 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.
(d) Incorporated by reference to ProNet's Current Report on Form 8-K filed with
the Commission on July 5, 1995.
(e) Incorporated by reference to Metrocall's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 filed with the Commission on May 15, 1998.
(f) 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.
(g) 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.
(h) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on October 16, 1998.
(i) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on November 21, 1996.
(j) 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.
(k) Incorporated by reference to Metrocall's Definitive Proxy Statement on
Schedule 14A filed with the Commission on August 31, 1998.
(l) Incorporated by reference to Metrocall's Quarterly Report on Form 8-K filed
July 7, 1998.
(m) 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.
(n) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on July 14, 1997.
(o) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on August 12, 1997.
(p) 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.
(q) 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.
36
<PAGE> 38
(r) 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.
(s) Incorporated by reference to Metrocall's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 filed with the Commission on August 14,
1998.
(t) Incorporated by reference to Metrocall's Proxy Statement filed for the
Annual Meeting of Stockholders held on May 7, 1997.
(u) Incorporated by reference to Metrocall's Proxy Statement filed for the
Annual Meeting of Stockholders held on May 1, 1996.
(v) 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.
(w) 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.
(x) 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.
(y) Incorporated by reference to Metrocall's Tender Offer Statement on Schedule
14D-1, filed with the Commission on May 22, 1996.
37
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 31st day of
March, 1999.
METROCALL, INC.
By: /s/ RICARD M. JOHNSTON
------------------------------------
Richard M. Johnston
Chairman of the Board
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD M. JOHNSTON Chairman of the Board March 31, 1999
- ------------------------------------------------
RICHARD M. JOHNSTON
/s/ WILLIAM L. COLLINS, III Vice Chairman of the Board, March 31, 1999
- ------------------------------------------------ President,
WILLIAM L. COLLINS, III Chief Executive Officer and
Director
/s/ VINCENT D. KELLY Chief Financial Officer, March 31, 1999
- ------------------------------------------------ Executive
VINCENT D. KELLY Vice President, and Treasurer
(Principal Financial and
Accounting Officer)
/s/ HARRY L. BROCK, JR. Director March 31, 1999
- ------------------------------------------------
HARRY L. BROCK, JR.
/s/ ELLIOTT H. SINGER Director March 31, 1999
- ------------------------------------------------
ELLIOTT H. SINGER
/s/ FRANCIS A. MARTIN III Director March 31, 1999
- ------------------------------------------------
FRANCIS A. MARTIN, III
/s/ RONALD V. APRAHAMIAN Director March 31, 1999
- ------------------------------------------------
RONALD V. APRAHAMIAN
/s/ MICHAEL GREENE Director March 31, 1999
- ------------------------------------------------
MICHAEL GREENE
/s/ ROYCE R. YUDKOFF Director March 31, 1999
- ------------------------------------------------
ROYCE R. YUDKOFF
/s/ JACKIE R. KIMZEY Director March 31, 1999
- ------------------------------------------------
JACKIE R. KIMZEY
/s/ EDWARD E. JUNGERMAN Director March 31, 1999
- ------------------------------------------------
EDWARD E. JUNGERMAN
/s/ MAX D. HOPPER Director March 31, 1999
- ------------------------------------------------
MAX D. HOPPER
</TABLE>
38
<PAGE> 40
METROCALL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
FINANCIAL STATEMENTS:
Report of Arthur Andersen LLP, Independent Public
Accountants............................................ F-2
Consolidated Balance Sheets, as of December 31, 1997 and
1998................................................... F-3
Consolidated Statements of Operations for the three years
ended December 31, 1996, 1997 and 1998................. F-4
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1996, 1997 and 1998..... F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996, 1997 and 1998................. F-6
Notes to Consolidated Financial Statements................ F-7
FINANCIAL STATEMENT SCHEDULE:
Report of Arthur Andersen LLP, Independent Public
Accountants............................................ F-22
Schedule II Valuation and Qualifying Accounts............. F-23
</TABLE>
F-1
<PAGE> 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metrocall, Inc.:
We have audited the accompanying consolidated balance sheets of Metrocall,
Inc., and subsidiaries as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metrocall, Inc., and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 5, 1999
F-2
<PAGE> 42
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 24,896 $ 8,436
Accounts receivable, less allowance for doubtful
accounts of $6,843 and $6,196 as of December 31, 1997
and 1998, respectively................................. 30,208 44,694
Prepaid expenses and other current assets (Note 4)...... 18,372 22,795
---------- ----------
Total current assets............................... 73,476 75,925
---------- ----------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements.............. 16,364 15,079
Furniture, office equipment and vehicles................ 46,588 64,438
Paging and plant equipment.............................. 276,993 380,313
Less -- Accumulated depreciation and amortization....... (115,357) (168,067)
---------- ----------
224,588 291,763
---------- ----------
INTANGIBLE ASSETS, net of accumulated amortization of
approximately $58,352 and $219,960 at December 31, 1997
and 1998, respectively.................................... 787,003 892,404
OTHER ASSETS................................................ 1,947 2,595
---------- ----------
TOTAL ASSETS....................................... $1,087,014 $1,262,687
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.................... $ 952 $ 771
Accounts payable........................................ 35,160 37,533
Accrued expenses and other current liabilities (Note
4)..................................................... 46,141 37,728
Deferred revenues and subscriber deposits............... 15,854 27,769
---------- ----------
Total current liabilities.......................... 98,107 103,801
CAPITAL LEASE OBLIGATIONS, less current maturities (Note
5)........................................................ 4,282 3,575
CREDIT FACILITY AND OTHER LONG-TERM DEBT, less current
maturities (Note 5)....................................... 142,173 40,444
SENIOR SUBORDINATED NOTES (Note 5).......................... 452,534 698,544
DEFERRED INCOME TAX LIABILITY............................... 155,930 209,642
MINORITY INTEREST IN PARTNERSHIP............................ 510 510
---------- ----------
Total liabilities.................................. 853,536 1,056,516
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 8)
SERIES A CONVERTIBLE PREFERRED STOCK, 14% cumulative; par
value $.01 per share; 810,000 shares authorized; 182,726
shares and 209,203 shares issued and outstanding as of
December 31, 1997 and 1998, respectively and a liquidation
preference of $46,481 and $53,216 at December 31, 1997 and
1998, respectively (Note 6)............................... 37,918 45,441
SERIES B JUNIOR CONVERTIBLE PREFERRED STOCK, 14% cumulative;
par value $.01 per share; 9,000 shares authorized; 1,579
shares and 1,808 shares issued and outstanding as of
December 31, 1997 and 1998, respectively and a liquidation
preference of $16,064 and $18,391 at December 31, 1997 and
1998, respectively (Note 6)............................... 16,064 18,391
SERIES CONVERTIBLE PREFERRED STOCK, 8% cumulative; par value
$.01 per share; 25,000 shares authorized; 9,595 shares
issued and outstanding and a liquidation preference of
$96,910 at December 31, 1998 (Note 6)..................... -- 96,910
STOCKHOLDERS' EQUITY (Notes 3 and 6):
Common stock, par value $.01 per share; 100,000,000 shares
authorized; 40,548,414 and 41,583,403 shares issued and
outstanding at December 31, 1997 and 1998,
respectively............................................ 405 416
Additional paid-in capital................................ 336,076 340,249
Accumulated deficit....................................... (156,985) (295,236)
---------- ----------
179,496 45,429
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $1,087,014 $1,262,687
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 43
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Service, rent and maintenance...................... $ 124,029 $ 249,900 $ 416,352
Product sales...................................... 25,928 39,464 48,372
----------- ----------- -----------
Total revenues................................ 149,957 289,364 464,724
Net book value of products sold......................... (21,633) (29,948) (31,791)
----------- ----------- -----------
128,324 259,416 432,933
OPERATING EXPENSES:
Service, rent and maintenance...................... 28,567 61,392 112,774
Selling and marketing.............................. 24,101 53,802 73,546
General and administrative......................... 42,905 73,753 121,644
Depreciation and amortization...................... 58,196 91,699 234,948
----------- ----------- -----------
153,769 280,646 542,912
----------- ----------- -----------
Loss from operations.......................... (25,445) (21,230) (109,979)
INTEREST AND OTHER INCOME (expense)..................... (607) 156 849
INTEREST EXPENSE........................................ (20,424) (36,248) (64,448)
----------- ----------- -----------
LOSS BEFORE INCOME TAX BENEFIT AND EXTRAORDINARY ITEM... (46,476) (57,322) (173,578)
INCOME TAX BENEFIT...................................... 1,021 4,861 47,094
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM.......................... (45,455) (52,461) (126,484)
EXTRAORDINARY ITEM (Note 5)............................. (3,675) -- --
----------- ----------- -----------
Net loss...................................... (49,130) (52,461) (126,484)
PREFERRED DIVIDENDS (Note 6)............................ (780) (7,750) (11,767)
----------- ----------- -----------
Loss attributable to common stockholders........... $ (49,910) $ (60,211) $ (138,251)
=========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE ATTRIBUTABLE TO COMMON
STOCKHOLDERS:
Basic and diluted loss per share before
extraordinary item attributable to common
stockholders..................................... $ (2.84) $ (2.22) $ (3.37)
Basic and diluted extraordinary item, net of income
tax benefit...................................... (0.23) -- --
----------- ----------- -----------
Basic and diluted loss per share attributable to
common stockholders.............................. $ (3.07) $ (2.22) $ (3.37)
=========== =========== ===========
Weighted-average common shares outstanding......... 16,252,782 27,086,654 41,029,601
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 44
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL
SHARES PAID-IN ACCUMULATED
OUTSTANDING PAR VALUE CAPITAL DEFICIT TOTAL
----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995............. 14,626,255 $146 $201,956 $ (46,864) $ 155,238
Issuance of shares in employee stock
purchase plan (Note 7)............ 11,942 -- 110 -- 110
Shares issued in Satelite
acquisition....................... 1,771,869 18 10,408 -- 10,426
Exercise of stock options (Note 7)... 4,739 -- 5 -- 5
Shares issued in merger with A+
Network........................... 8,106,330 81 42,477 -- 42,558
Warrants issued in connection with
Series A Preferred Stock (Note
6)................................ -- -- 7,871 -- 7,871
Preferred dividends (Note 6)......... -- -- -- (780) (780)
Net loss............................. -- -- -- (49,130) (49,130)
---------- ---- -------- --------- ---------
BALANCE, December 31, 1996............. 24,521,135 245 262,827 (96,774) 166,298
Issuance of shares in employee stock
purchase plan (Note 7)............ 109,747 1 429 -- 430
Adjustment to shares issued in
Satelite acquisition.............. 74,085 1 (213) -- (212)
Shares issued in acquisition of Radio
and Communications Consultants,
Inc. and Advanced Cellular
Telephone, Inc. (Note 3).......... 494,279 5 2,899 -- 2,904
Issuance of shares in Page America
acquisition (Note 3).............. 3,911,856 39 18,787 -- 18,826
Exercise of stock options (Note 7)... 1,896 -- 2 -- 2
Shares issued in ProNet Merger (Note
3)................................ 11,435,416 114 51,345 -- 51,459
Preferred dividends (Note 6)......... -- -- -- (7,750) (7,750)
Net loss............................. -- -- -- (52,461) (52,461)
---------- ---- -------- --------- ---------
BALANCE, December 31, 1997............. 40,548,414 405 336,076 (156,985) 179,496
Issuance of shares in employee stock
purchase plan and other (Note
7)................................ 134,989 2 573 -- 575
Shares issued in settlement of
litigation related to the ProNet
Merger (Note 3)................... 900,000 9 3,600 -- 3,609
Preferred dividends (Note 6)......... -- -- -- (11,767) (11,767)
Net loss............................. -- -- -- (126,484) (126,484)
---------- ---- -------- --------- ---------
BALANCE, December 31, 1998............. 41,583,403 $416 $340,249 $(295,236) $ 45,429
========== ==== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 45
METROCALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $ (49,130) $ (52,461) $(126,484)
Adjustments to reconcile net loss to net cash provided
by operating activities --
Depreciation and amortization.................... 58,196 91,699 234,948
Amortization of debt financing costs............. 620 1,152 1,771
Decrease in deferred income taxes................ (1,483) (5,400) (47,391)
Gain on liquidation of investment (Note 2)....... -- -- (130)
Write-off of deferred acquisition costs.......... 388 -- --
Minority interest in loss of investments......... 207 -- --
Writedown of equity investment................... 238 240 --
Gain on sale of equipment........................ (1,188) -- --
Extraordinary item............................... 3,675 -- --
Changes in current assets and liabilities, net of
effects from acquisitions:
Accounts receivable.............................. (2,626) (1,408) (2,387)
Prepaid expenses and other current assets........ (1,579) (5,331) (4,351)
Accounts payable................................. 5,841 372 2,175
Deferred revenues and subscriber deposits........ 2,126 (2,481) (12,263)
Accrued expenses and other current liabilities... 323 784 (4,734)
--------- --------- ---------
Net cash provided by operating activities... 15,608 27,166 41,154
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired...... (260,600) (113,466) (110,000)
Capital expenditures, net............................. (62,110) (69,935) (78,658)
Proceeds from sale of telemessaging operations........ -- 11,000 --
Additions to intangibles.............................. (3,853) (5,070) (1,885)
Other................................................. (1,341) 1,042 (1,204)
--------- --------- ---------
Net cash used in investing activities....... (327,904) (176,429) (191,747)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock............ 115 432 577
Net proceeds from preferred stock offering (Note 6)... 38,323 -- --
Proceeds from long-term debt (Note 5)................. 194,904 364,261 248,260
Principal payments on long-term debt.................. (25,464) (194,222) (104,362)
Debt tender and consent solicitation costs............ (3,675) -- --
Deferred debt financing costs......................... (4,562) (7,240) (10,332)
Other................................................. (2) 11 (10)
--------- --------- ---------
Net cash provided by financing activities... 199,639 163,242 134,133
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....... (112,657) 13,979 (16,460)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 123,574 10,917 24,896
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 10,917 $ 24,896 $ 8,436
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 46
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND RISK FACTORS
Metrocall, Inc. and subsidiaries (the "Company" or "Metrocall"), is a
leading provider of local, regional and national paging and other wireless
messaging services in the United States. Through our nationwide wireless
network, the Company provides messaging services to over 1,000 U.S. cities,
including the top 100 Standard Metropolitan Statistical Areas.
Risks and Other Important Factors
The Company sustained net losses of $49.1 million, $52.5 million and $126.5
million for the years ended December 31, 1996, 1997 and 1998, respectively. The
Company's loss from operations for the year ended December 31, 1998 was $110.0
million. In addition, at December 31, 1998, the Company had an accumulated
deficit of approximately $295.2 million and a deficit in working capital of
$27.9 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
subscriber base, development and construction of future wireless communications
networks, expansion into new markets, and the acquisition of other wireless
communication companies. At December 31, 1998, the Company had incurred
approximately $743.3 million in long-term debt and capital leases. Amounts
available under the Company's credit facility are subject to certain financial
covenants and other restrictions. At December 31, 1998, approximately $160.0
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 availability of financing in the capital markets.
The Company is also subject to certain additional risks and uncertainties
including changes in technology, business integration, competition, subscriber
turnover and regulation.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
In addition to Metrocall, the accompanying consolidated financial
statements include the accounts of Metrocall's 61% interest in Beacon Peak
Associates Ltd. ("Beacon Peak") and Metrocall of Virginia, Inc. and Metrocall,
USA, Inc., nonoperating wholly owned subsidiaries that hold certain of the
Company's regulatory licenses issued by the Federal Communications Commission
(the "FCC"). Beacon Peak owns land, adjacent to the Company's headquarters
building, which is valued at cost. The minority interest in Beacon Peak was
$510,000 as of December 31, 1997 and 1998.
Metrocall had a 20% interest in Beacon Communications Associates ("Beacon
Communications"), which was liquidated in November 1998 and had been included in
the consolidated financial statements through the date of sale. Beacon
Communications owns the building that is the Company's headquarters. Since
Beacon Communications' debt related to the building was guaranteed by the
Company's lease (expiring 2008) and because the Company had made the only
substantive investment in Beacon Communications, the accounts of Beacon
Communications had been consolidated in the accompanying financial statements up
until its liquidation.
All significant intercompany transactions have been eliminated in
consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE> 47
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company recognizes revenue under service, rental and maintenance
agreements with customers as the related services are performed. The Company
leases (as lessor) radio pagers under operating leases. Substantially all the
leases are on a month-to-month basis. Advance billings for services are deferred
and recognized as revenue when earned. Sales of equipment are recognized upon
delivery.
Cash and Cash Equivalents
Cash equivalents consist primarily of repurchase agreements, all having
maturities of ninety days or less when purchased. The carrying amount reported
in the accompanying balance sheets for cash equivalents approximates fair value
due to the short-term maturity of these instruments.
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
Transmission and plant equipment............................ 5-12
</TABLE>
New pagers are depreciated using the half-year convention upon acquisition.
Betterments to acquired pagers and the net book value of lost pagers are charged
to depreciation expense.
Purchases of property and equipment in the accompanying consolidated
statements of cash flows are reflected net of the net book value of products
sold to approximate the net addition to subscriber equipment.
The Company currently purchases a significant amount of its subscriber
paging equipment from one supplier. Although there are other manufacturers of
similar subscriber paging equipment, the inability of this supplier to provide
equipment required by the Company could result in a decrease of pager placements
and decline in sales, which could adversely affect operating results.
Intangible Assets
Intangible assets, net of accumulated amortization, consist of the
following at December 31, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, AMORTIZATION
------------------- PERIOD IN
1997 1998 YEARS
-------- -------- ------------
<S> <C> <C> <C>
State certificates and FCC licenses................. $312,873 $325,116 10
Goodwill............................................ 191,550 196,389 10
Subscriber lists.................................... 264,489 328,651 3
Debt financing costs................................ 14,979 23,540 8-12
Covenants........................................... 1,658 17,125 3
Other............................................... 1,454 1,583 3-7
-------- --------
$787,003 $892,404
======== ========
</TABLE>
Debt financing costs represent fees and other costs incurred in connection
with the issuance of long-term debt. These costs are amortized as interest
expense over the term of the related debt using the effective interest rate
method.
Long-Lived Assets
Long-lived assets and identifiable intangibles to be held and used are
reviewed for impairment on a periodic basis and whenever events or changes in
circumstances indicate that the carrying amount should be reviewed. 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 sheets.
F-8
<PAGE> 48
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 1998, the Company reduced the estimated useful lives
of certain intangibles recorded in connection 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 year ended December 31, 1998, by
approximately $26.0 million.
Loss Per Common Share Attributable to Common Stockholders
Basic earnings per share is computed by dividing income (loss) available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share is similar to basic earnings per
share, except the weighted-average number of common shares outstanding is
increased to include dilutive stock options and warrants. Stock options and
warrants 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.
Income Taxes
As prescribed by Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes," the Company utilizes the asset and liability
method of accounting for income taxes. Under this method, deferred income taxes
are recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities, less valuation allowances, if required.
Reclassifications
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the current year's presentation.
3. MERGERS, ACQUISITIONS AND DISPOSITIONS
Presented below is a summary of the Company's merger and acquisitions
completed during 1997 and 1998. The transactions have all been accounted for as
purchases for financial reporting purposes and the operating results of the
purchased businesses have been included in the statements of operations from the
dates of acquisition.
Page America Group, Inc. ("Page America")
On July 1, 1997, the Company acquired substantially all the assets of Page
America and subsidiaries. The total purchase price of approximately $63.7
million included consideration of approximately $25.0 million in cash, 1,500
shares of the Series B Junior Convertible Preferred Stock (Series B Preferred)
(see Note 6) having a value upon liquidation equal to its stated value,
3,911,856 shares of Common Stock and assumed liabilities and transaction fees
and expenses of approximately $4.9 million. The cash portion of the purchase
price including fees and expenses was funded through borrowings under the
Company's credit facility.
ProNet Inc. ("ProNet")
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 Common Stock for each share of ProNet common
stock, or approximately 12.3 million shares of Common Stock (including 900,000
shares issued in 1998 as settlement of certain ProNet litigation). In connection
with the ProNet Merger, the Company assumed ProNet's $100.0 million aggregate
principal amount of 11 7/8% senior subordinated notes, due in 2005 and
refinanced indebtedness outstanding under ProNet's credit facility with
borrowings under the Company's credit facility.
AT&T Wireless Messaging Division ("AMD")
On October 2, 1998, the Company completed a stock purchase agreement with
AT&T Wireless Services, Inc. ("Wireless"), McCaw Communications Companies, Inc.
and AT&T Two Way Messaging Communications, Inc. to acquire the stock of certain
subsidiaries of Wireless that operated the paging and messaging services
business of AT&T. The Company also acquired a nationwide 50KHz/50KHz narrowband
personal communication services license in the transaction. The purchase price
for the business and license acquired was $110.0 million in cash and 9,500
shares of the Series C Convertible Preferred Stock (the "Series C Preferred")
(see Note 6) having a value upon liquidation equal to its stated value. The cash
portion of the purchase price, including fees and expenses, was funded through
borrowings under the Company's credit facility.
F-9
<PAGE> 49
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The purchase prices for the Page America, ProNet and AMD transactions have
been allocated as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------------------- ---------
PAGE
AMERICA PRONET AMD
-------- --------- ---------
<S> <C> <C> <C>
Plant and equipment................................. $ 2,610 $ 60,381 $ 64,215
Accounts receivable and other assets................ 846 15,310 18,773
Noncompete agreements............................... -- -- 17,833
Customer lists...................................... 29,533 205,582 162,428
FCC licenses and state certificates................. 29,759 71,475 45,385
Goodwill............................................ -- 18,403 --
Liabilities assumed................................. (28,467) (230,026) (140,531)
Direct acquisition costs............................ (456) (6,277) --
Deferred income tax liability....................... -- (83,389) (73,103)
-------- --------- ---------
$ 33,825 $ 51,459 $ 95,000
======== ========= =========
</TABLE>
The purchase price allocation for the AMD acquisition may be subject to
adjustment for changes in estimates related to costs to be incurred to close
duplicate facilities and to settle pending legal and other contingencies. The
resolution of these matters is not expected to have a material impact on the
Company's financial condition or its results of future operations.
The unaudited pro forma information presented below reflects the
acquisitions of Page America, ProNet and AMD as if each had occurred on January
1, 1997. The results are not necessarily indicative of future operating results
or of what would have occurred had the acquisitions actually been consummated on
that date (in thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Revenues.................................................... $ 602,368 $ 613,211
Loss attributable to common stockholders.................... $(214,191) $(165,353)
Loss per share attributable to common stockholders.......... $ (5.28) (4.03)
</TABLE>
Radio and Communications Consultants, Inc.
On February 5, 1997, the Company acquired 100% of the outstanding common
stock of Radio and Communications Consultants, Inc. and Advanced Cellular
Telephone, Inc. (collectively, "RCC") by means of a merger of Metrocall of
Shreveport, Inc., a wholly owned subsidiary of Metrocall formed to effect the
merger with RCC. The merger was financed through the issuance of 494,279 shares
of the Common Stock, approximately $0.8 million in cash and assumed liabilities
of approximately $0.2 million. The Company also recorded a deferred tax
liability of approximately $1.3 million in connection with this transaction. The
RCC acquisition was accounted for as a purchase for financial accounting
purposes.
Disposition of Telemessaging Assets
On May 9, 1997, the Company completed the sale of the assets of the
telemessaging business acquired in the merger with A+ Network, Inc. in November
1996 pursuant to the terms of an Asset Purchase Agreement for proceeds totaling
$11.0 million in cash. For the period from January 1, 1997 through the date of
disposition, the telemessaging business generated net revenues of approximately
$3.7 million and operating income of approximately $0.1 million. No gain or loss
was recognized upon the sale for financial reporting purposes as the carrying
value of net assets sold approximated the net proceeds received.
F-10
<PAGE> 50
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUPPLEMENTARY BALANCE SHEET INFORMATION
Company prepaid expenses and other current assets and accrued expenses and
other current liabilities consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Refunds due from local exchange carriers (see Note 8)..... $12,116 $13,952
Tax refunds............................................... -- 2,000
Inventory................................................. 2,663 2,406
Prepaid advertising....................................... 1,603 1,101
Deposits.................................................. 1,151 1,258
Other..................................................... 839 2,078
------- -------
TOTAL............................................. $18,732 $22,795
======= =======
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued severance, payroll and payroll taxes.............. $13,729 $11,542
Accrued acquisition liabilities........................... 13,579 3,321
Accrued interest payable.................................. 9,461 14,216
Accrued state and local taxes............................. 2,955 4,981
Accrued insurance claims.................................. 1,616 1,047
Other..................................................... 4,801 2,621
------- -------
TOTAL............................................. $46,141 $37,728
======= =======
</TABLE>
5. LONG-TERM DEBT AND LEASE OBLIGATIONS
Company debt consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Credit facility, interest at a floating rate, defined below,
with principal payments beginning March 2001.............. $141,165 $ 40,000
10 3/8% Senior subordinated notes due in 2007 (the "1995
Notes")................................................... 150,000 150,000
9 3/4% Senior subordinated notes due in 2007 (the "1997
Notes")................................................... 200,000 200,000
11 7/8% Senior subordinated notes due in 2005 (the "ProNet
Notes")................................................... 100,000 100,000
11% Senior subordinated notes due in 2008 (the "1998
Notes")(net of unamortized discount of $1,740 in 1998).... -- 248,260
11 7/8% Senior subordinated notes due in 2005 (the "A+
Notes")................................................... 2,534 284
Capital lease obligations at a weighted average interest
rate of 9.7%.............................................. 5,104 4,282
Other....................................................... 1,138 508
-------- --------
599,941 743,334
Less -- Current portion..................................... 952 771
-------- --------
Long-term portion........................................... $598,989 $742,563
======== ========
</TABLE>
Annual maturities of long-term debt after December 31, 1999 are as follows
(in thousands): $643 in 2000; $735 in 2001; $836 in 2002; $949 in 2003 and
$739,400 thereafter.
At December 31, 1998 and 1997, the estimated fair value of the Company's
long-term debt excluding capital lease obligations is listed below. The fair
value of the senior subordinated notes is based on market quotes as of the dates
indicated (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Credit facility........................... $141,165 $141,165 $ 40,000 $ 40,000
Senior subordinated notes................. 452,534 460,784 698,544 695,045
Other..................................... 1,138 1,050 508 503
-------- -------- -------- --------
Total debt, excluding capital
leases........................ $594,837 $602,999 $739,052 $735,548
======== ======== ======== ========
</TABLE>
F-11
<PAGE> 51
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Credit Facility
In October 1997, the Company and its bank lenders executed an amended and
restated credit agreement (the "1997 Credit Agreement"). Under the 1997 Credit
Agreement, subject to certain conditions, the Company was able to borrow up to
$300 million under two reducing loan facilities. On October 2, 1998, the Company
and its bank lenders amended and restated the 1997 Credit Agreement to increase
the amount of borrowings available under the 1997 Credit Agreement, as amended,
to $400 million. The additional $100 million term loan facility was used to fund
the cash portion of the AMD acquisition.
On December 22, 1998, the Company revised its $400 million credit facility
and entered into a fourth amended and restated loan agreement with its bank
lenders (the "1998 Credit Agreement"). Subject to certain conditions set forth
in the 1998 Credit Agreement, the Company may borrow up to $200 million under
two loan facilities through December 31, 2004. The first facility ("Facility A")
is a $150 million reducing revolving credit facility and the second ("Facility
B") is a $50 million reducing term credit facility (together Facility A and
Facility B are referred to as the "Credit Facility"). The Credit Facility is
secured by substantially all the assets of the Company. Required quarterly
principal repayments, as defined, begin on March 31, 2001 and continue through
December 31, 2004.
The 1998 Credit Agreement requires compliance with certain financial and
operating covenants. The Company is required to maintain certain financial
ratios, including total debt to annualized operating cash flow, senior debt to
annualized operating cash flow, annualized operating cash flow to pro forma debt
service, total sources of cash to total uses of cash, and operating cash flow to
interest expense (in each case, as such terms are defined in the 1998 Credit
Agreement). The covenants also limit additional indebtedness and future mergers
and acquisitions without the approval of the lenders and restrict the payment of
cash dividends and other stockholder distributions by Metrocall. The 1998 Credit
Agreement also prohibits certain changes in ownership control of Metrocall, as
defined. At December 31, 1998, the Company was in compliance with all of these
covenants.
Under the Credit Facility, the Company may designate all or any portion of
the borrowings outstanding as either a floating base rate advance or a
Eurodollar rate advance with an applicable margin that ranges from 0.625% to
1.875% for base rate advances and 1.750% to 3.000% for Eurodollar rate advances.
The predefined margins are based upon the level of indebtedness outstanding
relative to annualized cash flow, as defined in the 1998 Credit Agreement.
Commitment fees of 0.375% to 0.750% per year (depending on the level of
Metrocall's indebtedness outstanding to annualized cash flow) are charged on the
average unborrowed balance and will be charged to interest expense as incurred.
The Company incurred loan origination fees and direct financing costs in
connection with its Credit Facility and amendments thereto, of approximately
$3.6 million, which are being amortized and charged to interest expense over the
term of the facility.
The weighted-average balances outstanding under the Company's credit
facilities for the years ended December 31, 1996, 1997 and 1998 were
approximately $39.9 million, $170.0 million and $178.6 million, respectively.
For the years ended December 31, 1996, 1997 and 1998, interest expense relating
to the Company's credit facilities was approximately $3.7 million, $15.5 million
and $13.1 million, respectively, at weighted-average interest rates of 9.4%,
9.2%, and 7.3% respectively. The effective interest rates as of December 31,
1997 and 1998 were 8.2% and 7.8%, respectively. As of December 31, 1998,
approximately $160.0 million of additional borrowings were available to the
Company under its Credit Facility.
Senior Subordinated Notes
10 3/8% Senior Subordinated Notes
In October 1995, the Company completed a public offering of $150.0 million
aggregate principal amount of 10 3/8% senior subordinated notes due 2007 (the
"1995 Notes"). Interest on the 1995 Notes is payable semi-annually on April 1
and October 1. The 1995 Notes are general unsecured obligations subordinated in
right to the Company's existing long-term debt and other senior obligations, as
defined.
The 1995 Notes contain various covenants that, among other restrictions,
limit the ability of the Company to incur additional indebtedness, pay
dividends, engage in certain transactions with affiliates, sell assets and
engage in mergers and consolidations except under certain circumstances.
F-12
<PAGE> 52
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1995 Notes may be redeemed at the Company's option after October 1,
2000. The following redemption prices are applicable to any optional redemption
of the 1995 Notes by the Company during the 12-month period beginning on October
1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000........................................................ 105.188%
2001........................................................ 103.458
2002........................................................ 101.729
2003 and thereafter......................................... 100.000
</TABLE>
In the event of a change in control of the Company, as defined, each holder
of the 1995 Notes will have the right, at such holder's option, to require the
Company to purchase that holder's 1995 Notes at a purchase price equal to 101%
of the principal amount thereof, plus any accrued and unpaid interest to the
date of repurchase.
9 3/4% Senior Subordinated Notes
In October 1997, the Company completed a private placement of $200.0
million aggregate principal amount of 9 3/4% senior subordinated notes due 2007
(the "1997 Notes). The 1997 Notes bear interest, payable semi-annually on
January 15 and July 15. The Notes are callable beginning November 1, 2002. The
1997 Notes are unsecured obligations of the Company. The Company used the net
proceeds from the 1997 Notes, approximately $193.0 million, to repay outstanding
indebtedness under its Credit Facility. In March 1998, the 1997 Notes were
registered under the Securities Act pursuant to an exchange offer.
The 1997 Notes contain various covenants that, among other restrictions,
limit the ability of the Company to incur additional indebtedness, pay
dividends, engage in certain transactions with affiliates, sell assets and
engage in mergers and consolidations except under certain circumstances.
The 1997 Notes may be redeemed, in whole or in part, at any time on or
after November 1, 2002, at the option of the Company. The following redemption
prices, plus any accrued and unpaid interest to, but not including, the
applicable redemption date, are applicable to any optional redemption of the
1997 Notes by the Company during the 12-month period beginning on November 1 of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 104.8750%
2003........................................................ 102.4375
2004 and thereafter......................................... 100.0000
</TABLE>
In the event of a change of control of the Company, as defined, each holder
of the 1997 Notes will have the right, at such holder's option, to require the
Company to repurchase that holder's 1997 Notes at a purchase price equal to 101%
of the principal amount thereof, plus any accrued and unpaid interest to the
date of repurchase.
11 7/8% Senior Subordinated Notes (the "A+ Notes")
In connection with the A+ Network merger, the Company offered to purchase
all $125.0 million of A+ Network's 11 7/8% senior subordinated notes due 2005
for $1,005 per $1,000 principal amount plus accrued and unpaid interest (the
"Offer"). Concurrent with the Offer, the Company solicited consents to amend the
indenture governing the A+ Notes to eliminate substantially all restrictive
covenants and certain related events of default contained therein in exchange
for a payment of $5.00 for each $1,000 principal amount of the A+ Notes. Of the
total outstanding, approximately $122.5 million of the A+ Notes were validly
tendered and retired. The Company incurred fees of approximately $3.7 million in
connection with the tender and consent process which has been recorded as an
extraordinary item for the year ended December 31, 1996. In December 1998, the
Company redeemed an additional $2.3 million of the A+ Notes for approximately
$1,005 per $1,000 principal amount plus accrued and unpaid interest. At December
31, 1998, $284,000 of the A+ Notes were outstanding.
11 7/8% Senior Subordinated Notes (the "ProNet Notes")
In connection with the ProNet merger, the Company assumed all $100.0
million aggregate principal amount of ProNet's 11 7/8% senior subordinated notes
due 2005. The ProNet Notes bear interest, payable semi-annually on June 15 and
December 15. The ProNet Notes are general unsecured obligations subordinated in
right to the Company's existing long-term debt and other senior obligations, as
defined.
F-13
<PAGE> 53
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The ProNet Notes contain various covenants that, among other restrictions,
limit the ability of the Company to incur additional indebtedness, pay
dividends, engage in certain other transactions with affiliates, sell assets and
engage in mergers and consolidations except under certain conditions.
The ProNet Notes may be redeemed at the Company's option on or after June
15, 2000. The following redemption prices are applicable to any optional
redemption of the ProNet Notes by the Company during the 12-month period
beginning on June 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000........................................................ 105.938%
2001........................................................ 103.958
2002........................................................ 101.979
2003 and thereafter......................................... 100.000
</TABLE>
In the event of a change of control of the Company, as defined, each holder
of the ProNet Notes will have the right to require that the Company repurchase
such holder's ProNet Notes at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the date of repurchase.
11% Senior Subordinated Notes
In December 1998, the Company completed a private placement of $250.0
million aggregate principal amount of 11% senior subordinated notes due 2008
(the "1998 Notes"). The 1998 Notes bear interest, payable semi-annually on March
15 and September 15. The 1998 Notes are unsecured obligations of the Company,
subordinated in right to the Company's existing long-term debt and other senior
obligations, as defined. The Company used the net proceeds from the 1998 Notes
to repay approximately $229.0 million of indebtedness under its credit facility.
The Company is required to register the 1998 Notes under the Securities Act of
1933 within six months of their placement. If this requirement is not met, the
annual interest rate on the 1998 Notes will increase by .5% until the 1998 Notes
are generally freely transferable.
The 1998 Notes contain various covenants that, among other restrictions,
limit the ability of the Company to incur additional indebtedness, pay
dividends, engage in certain other transactions with affiliates, sell assets and
engage in mergers and consolidations except under certain conditions.
The 1998 Notes may be redeemed at the Company's option on or after
September 15, 2003. The following redemption prices are applicable to any
optional redemption of the 1998 Notes by the Company during the 12-month period
beginning on September 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................ 105.500%
2004........................................................ 103.667
2005........................................................ 101.833
2006 and thereafter......................................... 100.000
</TABLE>
In the event of a change of control of the Company, as defined, each holder
of the 1998 Notes will have the right to require that the Company repurchase
such holder's 1998 Notes at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the date of repurchase.
Lease Obligations
The Company is party to several capital lease agreements for computer
equipment and office space. Future minimum rental commitments for capital leases
are as follows (in thousands): $1,100 in 1999, $896 in 2000, $923 in 2001, $951
in 2002, $980 in 2003 and $751 thereafter. At December 31, 1998, aggregate
future minimum capital lease payments were $5,601 including interest of $1,319.
The Company has an option to acquire a 51% interest in the property housing
certain office space. The Company may exercise the option through December 31,
1999. At the time the option is exercised, the Company, along with the owners of
the remaining 49% interest in the property, will contribute the property to a
general partnership for which the Company will serve as a general partner and
receive a 51% equity interest. When, if ever, the Company exercises the purchase
option to the Purchase Agreement, the purchase price will be approximately $2.9
million, the estimated fair market value at the date of the lease agreement.
F-14
<PAGE> 54
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has various operating lease arrangements (as lessee) for office
space and communications equipment sites. Rental expenses related to operating
leases were approximately (in thousands) $8,612, $21,675 and $37,362 for the
years ended December 31, 1996, 1997 and 1998, respectively.
Minimum rental payments as of December 31, 1998, required under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year are as follows (in thousands): $37,567 in 1999, $24,657 in 2000, $21,318 in
2001, $16,504 in 2002, $12,073 in 2003 and $51,453 thereafter.
Rent expense for lease agreements between the Company and related parties
for office space, tower sites and transmission systems, excluding consolidated
entities, was approximately (in thousands) $334, $761, and $1,033 for the years
ended December 31, 1996, 1997 and 1998, respectively. The Company leases office
and warehouse space from a company owned by a director of the Company. The
annual rental commitment under these leases is approximately $525,000. The
Company believes the terms of these leases are at least as favorable as those
that could be obtained from a non-affiliated party.
6. CAPITAL STOCK
The authorized capital stock of Metrocall consists of 100,000,000 shares of
Common Stock and 1,000,000 shares of preferred stock, par value $0.01 per share
("Preferred Stock"), of which 810,000 shares have been designated as the Series
A Convertible Preferred Stock (the "Series A Preferred"), 9,000 shares have been
designated as Series B Preferred and 25,000 shares have been designated as the
Series C Preferred.
Common Stock
Because the Company holds licenses from the FCC, no more than 20 percent of
its Common Stock may, in the aggregate, be owned directly, or voted by a foreign
government, a foreign corporation, or resident of a foreign country. The
Company's amended and restated certificate of incorporation permits the
redemption of the Common Stock from stockholders, where necessary, to protect
the Company's regulatory licenses. Such stock may be redeemed at fair market
value or, if the stock was purchased within one year of such redemption, at the
lesser of fair market value or such holder's purchase price.
Series A Preferred
On November 15, 1996, the Company issued 159,600 shares of Series A
Preferred, together with the warrants discussed below, for $250 per share or
$39.9 million. At December 31, 1998, there were 209,203 shares of the Series A
Preferred outstanding, including 26,477 shares issued as dividends during 1998.
Each share of the Series A Preferred has a stated value of $250 per share and
has a liquidation preference over shares of the Company's Common Stock equal to
the stated value. The Series A Preferred carries a dividend of 14% of the stated
value per year, payable semi-annually in cash or in additional shares of the
Series A Preferred, at the Company's option. Upon the occurrence of a triggering
event, as defined in the certificate of designation for the Series A Preferred,
and so long as the triggering event continues, the dividend rate increases to
16% per year. Triggering events include, among other things, (i) the Company
issues or incurs indebtedness or equity securities senior with respect to
payment of dividends or distributions on liquidation or redemption to the Series
A Preferred in violation of limitations set forth in the certificate of
designation, and (ii) default on the payment of indebtedness in an amount of
$5,000,000 or more. At December 31, 1997 and 1998, accrued but unpaid dividends
were approximately $799,000 and $915,000, respectively.
Holders of the Series A Preferred have the right, beginning five years from
the date of issuance, to convert their Series A Preferred (including shares
issued as dividends) into shares of Common Stock based on the market price of
the Common Stock at the time of conversion. The Series A Preferred may, at the
holders' option, be converted sooner upon a change of control of Metrocall, as
defined in the certificate of designation. The Series A Preferred must be
redeemed on November 15, 2008, for an amount equal to the stated value plus
accrued and unpaid dividends.
The Series A Preferred may be redeemed by the Company in whole or in part
(subject to certain minimums) beginning November 15, 1999. Prior to then, the
Series A Preferred may be redeemed by the Company in whole in connection with a
sale of the Company (as described in the Series A Preferred certificate of
designation) unless the holders have exercised their rights to convert to
Metrocall Common Stock in connection with the transaction. The redemption price
prior to November 15, 2001, is equal to the stated value of the shares of the
Series A Preferred, plus accrued and unpaid dividends, and a redemption premium,
as defined. After November 15, 2001, the Series A Preferred Stock may be
redeemed for the stated value of $250 per share, without a premium.
F-15
<PAGE> 55
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Holders of the Series A Preferred have the right to elect two members to
the Company's Board of Directors. If a triggering event has occurred and is
continuing, the holders of the Series A Preferred have the right to elect
additional directors so that directors elected by such holders shall constitute
no less than 40% of the members of the Board of Directors. The Company is
required to obtain the approval of the holders of not less than 75% of the
Series A Preferred before undertaking (i) any changes in Metrocall's
certificate of incorporation and bylaws that adversely affect the rights of
holders of the Series A Preferred, (ii) a liquidation, winding up or
dissolution of the Company or the purchase of shares of capital stock of
Metrocall from holders of over 5% of the issued and outstanding voting
securities, (iii) any payment of dividends on or redemption of Common Stock; or
(iv) issuance of any additional shares of the Series A Preferred (except in
payment of dividends) or any shares of capital stock having preferences on
liquidation or dividends ranking equally to the Series A Preferred. The Company
is also required to obtain approval of holders of not less than a majority of
the issued and outstanding Series A Preferred before undertaking (i) any
acquisition involving consideration having a value equal to or greater than 50%
of the market capitalization of the Company or (ii) any sale of the Company
unless Metrocall redeems the Series A Preferred.
Series B Preferred
On July 1, 1997, the Company issued 1,500 shares of the Series B Preferred
in connection with the Page America transaction (see Note 3). Each share of the
Series B Preferred has a stated value of $10,000 per share and a liquidation
preference, which is junior to the Series A Preferred but senior to the shares
of Metrocall Common Stock, equal to its stated value. The Series B Preferred
carries a dividend of 14% of the stated value per year, payable semi-annually in
cash or in additional shares of the Series B Preferred, at the Company's option.
During 1998, the Company issued 229 additional shares of the Series B Preferred
as dividends. At December 31, 1997 and 1998, accrued but unpaid dividends on the
Series B Preferred were approximately $276,000 and $316,000, respectively.
In January 1999, the Company repurchased and retired all the Series B
Preferred shares outstanding for $16.2 million.
Series C Preferred
On October 2, 1998, the Company issued 9,500 shares of the Series C
Preferred in connection with the AMD acquisition (see Note 3). Each share of the
Series C Preferred has a stated value of $10,000 per share and a liquidation
preference, which is junior to the Series A Preferred and the Series B Preferred
but senior to the shares of Metrocall Common Stock, equal to its stated value.
The Series C Preferred carries a dividend of 8% of the stated value per year,
payable semi-annually in cash or in additional shares of the Series C Preferred,
at the Company's option. During 1998, the Company issued 95 additional shares of
the Series C Preferred as dividends. At December 31, 1998, accrued but unpaid
dividends on the Series C Preferred were approximately $960,000.
Metrocall granted the holder of the Series C Preferred certain registration
rights with respect to the Series C Preferred and the Common Stock into which
the Series C Preferred may be converted. The effect of these registration rights
is to allow the holder or its transferees to freely transfer either the Series C
Preferred or any Common Stock it obtains through conversion. The holder or its
transferees also have a one-time right to require Metrocall to participate in an
underwritten public offering of the Series C Preferred or Common Stock.
Beginning on the fifth anniversary of the initial issuance, the Series C
Preferred holders has the right to convert all, but not part, of the Series C
Preferred shares into that number of shares of Common Stock equal to the
accreted stated value of the shares converted divided by the conversion price.
The conversion price of the Series C Preferred shares is $10.40, subject to
adjustment for any Common Stock dividends, stock splits or reverse stock splits.
The Series C Preferred must be redeemed on the twelfth anniversary of the
initial issuance for an amount equal to the stated value, plus accrued and
unpaid dividends. The Series C Preferred may also be redeemed by the Company in
whole, but not in part, beginning on the third anniversary of the initial
issuance for an amount equal to the stated value, plus accrued and unpaid
dividends, and a redemption premium, as defined.
Warrants
In connection with the issuance of the Series A Preferred, discussed above,
the Company issued on November 15, 1996, warrants to purchase Common Stock. Each
warrant represents the right of the holder to purchase 18.266 shares of Common
Stock or an aggregate of 2,915,254 shares of Common Stock. The exercise price
per share is $7.40. The warrants expire November 15, 2001.
The total value allocated to the warrants for financial reporting purposes,
$7.9 million or $2.70 per share, is being accreted over the term of the Series A
Preferred as preferred dividends.
F-16
<PAGE> 56
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. EMPLOYEE STOCK OPTION AND OTHER BENEFIT PLANS
1993 Stock Option Plan
In 1993, the Company adopted a Stock Option Plan (the "1993 Plan"). Under
the 1993 Plan, as amended, options to purchase up to an aggregate of 975,000
shares of Common Stock were reserved for grants to key employees of the Company.
The 1993 Plan limits the maximum number of shares that may be granted to any
person eligible under the 1993 Plan to 325,000. All options have been issued
with exercise prices equal to the fair market value at date of grant. All
options granted under the 1993 Plan become fully vested and exercisable on the
second anniversary of the date of grant. Each option granted under the 1993 Plan
will terminate no later than ten years after the date the option was granted.
In 1993, the Company also adopted a Directors Stock Option Plan (the
"Directors Plan"). Under the Directors Plan, options to purchase up to an
aggregate of 25,000 shares of Common Stock are available for grants to directors
of the Company who are neither officers nor employees of the Company ("Eligible
Director"). Options issued under the Directors Plan vest fully on the six-month
anniversary of the date of grant. Each Eligible Director was also granted an
option to purchase 1,000 shares of Common Stock on the first and second
anniversaries of the grant date of the initial option if the director continues
to be an Eligible Director on each of such anniversary dates.
1996 Stock Option Plan
In May 1996, the Company's stockholders approved the Metrocall 1996 Stock
Option Plan (as amended, the "1996 Plan"). Under the 1996 Plan, options to
purchase up to an aggregate of 6 million shares of Common Stock have been
reserved for grant to key employees, officers and nonemployee directors
("Qualified Directors"). The 1996 Plan limits the maximum number of shares that
may be granted to any person eligible under the 1996 Plan to 1 million. If any
option granted under the 1996 Plan expires or terminates prior to exercise in
full, the shares subject to that option shall be available for future grants
under the 1996 Plan. Substantially all employees and Qualified Directors of the
Company are eligible to participate in the 1996 Plan. All options granted under
the 1996 Plan become fully vested and exercisable on the second anniversary of
the date of grant. Each option granted under the 1996 Plan will terminate no
later than ten years from the date the option was granted.
Under the 1996 Plan, both incentive stock options and nonstatutory stock
options are available for grant to employees. For incentive stock options, the
option price shall not be less than the fair market value of a share of Common
Stock on the date the option is granted. For nonstatutory options, the option
price shall not be less than the par value of Common Stock. All options granted
to Qualified Directors shall be nonstatutory options. Upon approval of the 1996
Plan, each Qualified Director was granted an initial option to purchase 10,000
shares of Common Stock. Thereafter, every Qualified Director will be granted an
initial option to purchase 10,000 shares of Common Stock at the time the
Qualified Director commences service on the Board of Directors. Subsequently,
each Qualified Director who received an initial grant of an option shall
receive an additional option to purchase 1,000 shares of Common Stock on each
anniversary of the initial option, provided that the director continues to be a
Qualified Director on each anniversary date. Options granted to Qualified
Directors shall become fully vested six months after the date of grant. The
exercise price for options granted to Qualified Directors shall be the fair
market value of Common Stock on the date the option is granted.
In connection with the mergers of A+ Network, Inc. in 1996 and ProNet in
1997, the Company exchanged options to purchase Metrocall Common Stock with
former option holders of the acquired companies. The Company issued options to
acquire 468,904 and 1,212,539 shares of Common Stock to former A+ Network and
ProNet option holders, respectively, in exchange for their options held. The
options issued by the Company were fully vested and exercisable upon issuance.
In September 1996, the Compensation Committee of the Board of Directors
approved a change in the exercise price for substantially all outstanding Common
Stock options for then current employees and officers. The new exercise price
was $7.94 per share, the fair market value on the date of the change. In
February 1997, the Compensation Committee approved a change in the exercise
price for substantially all outstanding options for then current employees,
officers and directors. The new exercise price was $6.00 per share, the fair
market value on the date of the change. Each repricing established a new
measurement date for the options.
F-17
<PAGE> 57
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Stock Purchase Plan
In May 1996, the Company's stockholders approved the Metrocall, Inc.
Employee Stock Purchase Plan (the "Stock Purchase Plan"). Under the Stock
Purchase Plan up to 1 million shares of Common Stock may be purchased by
eligible employees of the Company through payroll deductions of up to 15% of
their eligible compensation. Substantially all full-time employees are eligible
to participate in the Stock Purchase Plan. Participants may elect to purchase
shares of Common Stock at the lesser of 85% of the fair market value on either
the first or last trading day of each payroll deduction period. No employee may
purchase in one calendar year shares of Common Stock having an aggregate fair
market value in excess of $25,000. Employees purchased 11,942 shares, 109,747
shares and 136,885 shares of Common Stock in 1996, 1997, and 1998, respectively,
under the Stock Purchase Plan. At December 31, 1998, 85,752 shares of Common
Stock were due to Stock Purchase Plan participants.
Accounting for Stock-Based Compensation
The Company accounts for its stock option plans under Accounting Principles
Board (APB) Opinion No. 25 "Accounting for Stock Issued to Employees." In
accordance with the recognition requirements set forth under this pronouncement,
no compensation expense was recognized for the three years ended December 31,
1998 because the Company had granted options to acquire Common Stock at exercise
prices equal to the fair value of the Common Stock on the dates of grant. In
1996, the Company elected to adopt SFAS No. 123 "Accounting for Stock Based
Compensation" for disclosure purposes only.
For disclosure purposes, the fair value of each stock purchase and option
grant was estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions in 1996, 1997, and 1998,
respectively: expected volatility of 60.6%, 64.4% and 69.7%, risk free interest
rate of 6.4%, 5.7% and 4.7%, and expected life of ten years for all option
grants. The weighted-average fair value of stock options granted in 1996, 1997
and 1998 was $5.89, $4.35, and $4.15 respectively. The weighted-average fair
value of stock purchase rights in 1996, 1997 and 1998 was $6.56 per share, $4.67
per share, and $5.23 per share respectively.
Under the above model, the total value of stock options granted in 1996,
1997 and 1998 was $6.7 million, $3.0 million and $7.0 million, respectively,
which would be recognized ratably on a pro forma basis over the two year vesting
period, and the total value of the stock purchase rights granted in 1996, 1997
and 1998 was $307,000, $575,000, and $913,000, respectively. Had compensation
costs for the Company's stock-based compensation and purchase plans been
determined in accordance with SFAS No. 123, the Company's loss and loss per
share information would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Pro forma loss before extraordinary item
attributable to common stockholders.............. $(49,589) $(64,802) $(144,015)
Pro forma loss attributable to common
stockholders..................................... (53,264) (64,802) (144,015)
Pro forma loss per share before extraordinary item
attributable to common stockholders.............. (3.05) (2.39) (3.51)
Pro forma loss per share attributable to common
stockholders..................................... (3.28) (2.39) (3.51)
</TABLE>
The SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, and, accordingly, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
F-18
<PAGE> 58
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE WEIGHTED-AVERAGE
SHARES PRICE RANGE EXERCISE PRICE
--------- -------------- ----------------
<S> <C> <C> <C>
Options outstanding, December 31, 1995..... 798,958 $1.035-$22.125 $17.75
Options granted.......................... 656,216 5.625-21.25 17.70
Options issued in A+ Network merger...... 468,904 6.04 6.04
Options exercised.......................... (4,739) 1.035 1.04
Options canceled........................... (172,337) 6.044-20.25 18.11
--------- -------------- ------
Options outstanding, December 31, 1996..... 1,747,002 $1.035-$22.125 $ 8.18
Options granted.......................... 685,000 6.00 6.00
Options issued in Pro Net merger......... 1,212,539 6.42 6.42
Options exercised........................ (1,896) 1.04 1.04
Options canceled......................... (171,990) 6.00-20.25 14.16
--------- -------------- ------
Options outstanding, December 31, 1997..... 3,470,655 $1.035-$22.125 $ 6.84
Options granted.......................... 1,679,000 5.125-6.75 5.13
Options exercised........................ -- -- --
Options canceled......................... (144,802) 5.125-6.67 5.90
--------- -------------- ------
Options outstanding, December 31, 1998..... 5,004,853 $1.035-$22.125 $ 5.84
========= ============== ======
Options exercisable, December 31, 1996..... 966,417 $1.035-$22.125 $ 6.64
Options exercisable, December 31, 1997..... 2,362,655 $1.035-$22.125 $ 6.28
Options exercisable, December 31, 1998..... 2,972,353 $1.035-$22.125 $ 6.17
</TABLE>
The following table summarizes information about the options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING LIFE WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING (YEARS) EXERCISE PRICE OUTSTANDING EXERCISE PRICE
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.00-$2.00 21,323 5.0 $ 1.04 21,323 $ 1.04
$2.01-$5.00 96,524 8.9 3.95 96,524 3.95
$8.01-$12.99 2,830,182 8.5 6.19 4,862,682 5.85
$13.00-$19.00 12,324 5.4 14.56 12,324 14.56
$19.01-$22.13 12,000 5.3 19.93 12,000 19.93
--------- --- ------ --------- ------
2,972,353 8.5 $ 6.17 5,004,853 5.84
========= === ====== ========= ======
</TABLE>
Profit Sharing Plan and Retirement Benefits
The Metrocall, Inc. Savings and Retirement Plan (the "Plan"), a combination
employee savings plan and discretionary profit-sharing plan, covers
substantially all full-time employees. The Plan qualifies under section 401(k)
of the Internal Revenue Code (the "IRC"). Under the Plan, participating
employees may elect to voluntarily contribute on a pretax basis between 1% and
15% of their salary up to the annual maximum established by the IRC. The Company
has agreed to match 50% of the employee's contribution, up to 4% of each
participant's gross salary. Contributions made by the Company vest 20% per year
beginning on the second anniversary of the participant's employment. Other than
the Company's matching obligations, discussed above, profit sharing
contributions are discretionary. The Company's expenses for contributions under
the Plan were $112,000, $372,000 and $150,000 for the years ended December 31,
1996, 1997 and 1998, respectively.
8. CONTINGENCIES
Legal and Regulatory Matters
The Company is subject to certain legal and regulatory matters in the
normal course of business. In the opinion of management, the outcome of such
assertions will not have a material adverse effect on the financial position or
the results of the operations of the Company.
F-19
<PAGE> 59
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interconnect Complaint
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
1996 Act. The complaints allege that these local telephone companies are
unlawfully charging the Company for local transport of the telephone companies'
local traffic. The Company has petitioned the FCC to rule that these local
transport charges are unlawful and to award it a reimbursement or credit for any
past charges assessed by the respective carrier and paid by the Company since
November 1, 1996, the effective date if the FCC's transport rules. The briefing
schedule for these complaint proceedings ended in September 1998. The complaints
remain pending before the FCC. As of December 31, 1997 and 1998, the Company had
recorded credits receivable from certain of the RBOCs and the largest
independent telephone company related to such local transport charges of
approximately $12.1 million and $14.0 million, respectively. These receivables
represent management's estimate, subject to significant revision, of amounts
management believes are fully realizable. These LEC receivables were classified
as prepaid expenses and other current assets in the accompanying consolidated
balance sheets as of December 31, 1997 and 1998 (see Note 4).
9. INCOME TAXES
As of December 31, 1998, the Company had net operating loss and investment
tax credit carryforwards of approximately $251.3 million and $1.2 million,
respectively, which expire in the years 1999 through 2012. The benefits of these
carryforwards may be limited in the future if there are significant changes in
the ownership of the Company. Net operating loss carryforwards may be used to
offset up to 90 percent of the Company's alternative minimum taxable income. The
provision for alternative minimum tax will be allowed as a credit carryover
against regular tax in the future in the event regular tax exceeds alternative
minimum tax expense. To the extent that acquired net operating losses are
utilized in future periods, the benefit will first be recognized to reduce
acquired intangible assets before reducing the provision for income taxes.
The tax effect of the net operating loss and investment tax credit
carryforwards, together with net temporary differences, represents a net
deferred tax asset for which management has reserved 100% due to the uncertainty
of future taxable income. These carryforwards will provide a benefit for
financial reporting purposes when utilized to offset future taxable income.
The components of net deferred tax assets (liabilities) were as follows as
of December 31, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 1,085 $ 2,611
Management reorganization................................. 1,279 610
Contributions............................................. -- 169
New pagers on hand........................................ 935 1,468
Intangibles............................................... 6,170 13,668
Other..................................................... 2,418 7,688
Investment tax credit carryforward........................ 1,204 1,204
Net operating loss carryforwards.......................... 97,444 100,283
--------- ---------
Total deferred tax assets......................... 110,535 127,701
========= =========
Deferred tax liabilities:
Basis differences attributable to purchase accounting..... (155,930) (209,642)
Depreciation and amortization expense..................... (10,184) (11,677)
Other..................................................... (1,701) (10,517)
--------- ---------
Total deferred tax liabilities.................... (167,815) (231,836)
========= =========
Net deferred tax liability.................................. (57,280) (104,135)
Less: Valuation allowance................................... (98,650) (105,507)
--------- ---------
$(155,930) $(209,642)
========= =========
</TABLE>
F-20
<PAGE> 60
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax benefit for the years ended December 31, 1996, 1997 and
1998, is primarily the result of the amortization of the basis differences
attributable to purchase accounting and is composed of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Income tax (provision) benefit
Current --
Federal............................................... $ -- $ -- $ --
State................................................. (447) (539) (310)
Deferred --
Federal............................................... 1,277 4,698 41,755
State................................................. 191 702 5,649
------ ------ -------
$1,021 $4,861 $47,094
====== ====== =======
</TABLE>
The benefit for income taxes for the years ended December 31, 1996, 1997
and 1998, results in effective rates that differ from the Federal statutory rate
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
----- ----- ----
<S> <C> <C> <C>
Statutory Federal income tax rate.......................... 35.0% 35.0% 35.0%
Effect of graduated rates.................................. (1.0) (1.0) (1.0)
State income taxes, net of Federal tax benefit............. 4.6 5.3 4.6
Net operating losses for which no tax benefit is currently
available................................................ (24.6) (8.1) (7.1)
Permanent differences...................................... (11.8) (22.7) (6.1)
----- ----- ----
2.2% 8.5% 25.4%
===== ===== ====
</TABLE>
10. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company made cash payments for interest of $19.1 million, $30.2 million
and $58.0 million for the years ended December 31, 1996, 1997 and 1998,
respectively. The Company made cash payments for income taxes of $264,000,
$539,000 and $690,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
During 1996, 1997, and 1998, the Company issued capital stock to effect
certain acquisitions as described in Note 3.
11. UNAUDITED QUARTERLY FINANCIAL DATA
The following table of quarterly financial data has been prepared from the
financial records of the Company, without audit, and reflects all adjustments
that are, in the opinion of management, necessary for a fair presentation of the
results of operations for the interim periods presented (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------ ------------------ ------------------ ------------------
1997 1998 1997 1998 1997 1998 1997 1998
------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $66,753 $103,331 $70,297 $103,254 $75,019 $105,890 $77,295 $152,249
Loss from operations.......... (4,428) (24,138) (5,942) (23,654) (5,204) (23,747) (5,656) (38,440)
Loss attributable to common
stockholders................ (13,308) (30,548) (13,913) (31,157) (16,020) (31,653) (16,970) (44,893)
Loss per share attributable to
common stockholders......... (0.54) (0.75) (0.55) (0.76) (0.55) (0.77) (0.58) (1.08)
</TABLE>
The sum of the per share amounts may not equal the annual amounts because
of the changes in the weighted-average number of shares outstanding during the
year.
F-21
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metrocall, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Metrocall, Inc., and subsidiaries, and
have issued our report thereon dated February 5, 1999. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule included on page F-23 is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 5, 1999
F-22
<PAGE> 62
SCHEDULE II
METROCALL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES ACQUIRED(1) DEDUCTIONS(2) YEAR
----------- ---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful
accounts....................... $ 968 $ 4,575 $1,927 $ 4,509 $2,961
====== ======= ====== ======= ======
Year ended December 31, 1997
Allowance for doubtful
accounts....................... $2,961 $ 9,963 $4,609 $10,690 $6,843
====== ======= ====== ======= ======
Year ended December 31, 1998
Allowance for doubtful
accounts....................... $6,843 $13,418 $1,377 $15,442 $6,196
====== ======= ====== ======= ======
</TABLE>
- ---------------
(1) Allowance for doubtful accounts acquired in 1996 for the Parkway Paging,
Satellite Paging, Message Network and A+ Network, 1997 for Page America and
ProNet and 1998 for AMD (see Note 3 -- Notes to Consolidated Financial
Statements).
(2) Deductions represent write-offs of accounts receivable.
F-23
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Metrocall, Inc.
(Metrocall).*
3.2 Eighth Amended and Restated Bylaws of Metrocall.*
4.1 Indenture for Metrocall 11% Senior Subordinated Notes due
2008, dated as of December 22, 1998. (a)
4.2 Indenture for 9 3/4% Senior Subordinated Notes due 2007
dated October 21, 1997. (b)
4.3 Indenture for Metrocall 10 3/8% Senior Subordinated Notes
due 2007 dated September 27, 1995. (c)
4.4 Indenture for ProNet Inc. (ProNet) 11 7/8% Senior
Subordinated Notes due 2005 ("ProNet Notes") dated June 15,
1995. (d)
4.5 Supplemental Indenture dated May 28, 1996 for ProNet Notes.*
4.6 Second Supplemental Indenture dated December 30, 1997 for
ProNet Notes. (e)
4.7 Indenture for A+ Network, Inc. 11 7/8% Senior Subordinated
Notes due 2005 ("A+ Notes") dated October 24, 1995. (f)
4.8 First Supplemental Indenture dated November 14, 1996, for A+
Notes. (g)
4.9 Second Supplemental Indenture dated November 15, 1996 for A+
Notes. (g)
4.10 Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional and Other Rights of Series
C Convertible Preferred Stock of Metrocall. (h)
4.11 Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional and Other Rights of Series
A Convertible Preferred Stock of Metrocall. (i)
10.1 Fourth Amended and Restated Loan Agreement by and among
Metrocall, certain lenders and Toronto Dominion (Texas),
Inc. as administrative agent, dated as of December 22, 1998.
(a)
10.2 Stock Purchase Agreement by and among Metrocall and AT&T
Wireless Services, Inc., McCaw Communications Companies,
Inc., and AT&T Two Way Messaging Communications, Inc. dated
June 26, 1998. (k)
10.3 Stockholders Voting Agreement and Proxy between AT&T
Wireless Services, Inc. and certain stockholders of
Metrocall dated June 26, 1998. (l)
10.4 Voting Agreement between AT&T Wireless Services, Inc. and
Page America Group, Inc. dated June 26, 1998. (l)
10.5 Registration Rights Agreement between Metrocall and McCaw
Communications Companies, Inc. dated October 1, 1998. (h)
10.6 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. dated as
of January 30, 1997. (m)
10.7 Amendment to Asset Purchase Agreement by and among Page
America and Metrocall dated as of March 28, 1997. (m)
10.8 Registration Rights Agreement dated July 1, 1997 by and
between Page America Group, Inc. and Metrocall. (n)
10.9 Registration Rights Agreement dated July 1, 1997 by and
among Page America and Metrocall. (n)
10.10 Indemnity Escrow Agreement dated July 1, 1997 by and among
Page America, Metrocall and First Union National Bank of
Virginia. (n)
10.11 Agreement and Plan of Merger dated as of August 8, 1997,
between Metrocall and ProNet. (o)
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.12 Stockholders Voting Agreement dated as of August 8, 1997,
among ProNet and certain stockholders of Metrocall listed
therein. (o)
10.13 Employment Agreement between Metrocall and William L.
Collins, III. (p)
10.14 Amendment to Employment Agreement between Metrocall and
William L. Collins, III. (r)
10.15 Employment Agreement between Metrocall and Steven D. Jacoby.
(p)
10.16 Amendment to Employment Agreement between Metrocall and
Steven D. Jacoby. (r)
10.17 Second Amendment to Employment Agreement between Metrocall
and Steven D. Jacoby. (s)
10.18 Employment Agreement between Metrocall and Vincent D. Kelly.
(p)
10.19 Amendment to Employment Agreement between Metrocall and
Vincent D. Kelly. (r)
10.20 Second Amendment to Employment Agreement between Metrocall
and Vincent D. Kelly. (s)
10.21 Change of Control Agreement between Metrocall and William L.
Collins, III. (p)
10.22 Change of Control Agreement between Metrocall and Steven D.
Jacoby. (p)
10.23 Change of Control Agreement between Metrocall and Vincent D.
Kelly. (p)
10.24 Noncompetition Agreement dated as of August 8, 1997, between
Metrocall and Jackie R. Kimzey. (q)
10.25 Noncompetition Agreement dated as of August 8, 1997, between
Metrocall and David J. Vucina. (m)
10.26 Letter Agreement dated August 8, 1997, between Metrocall and
Jackie R. Kimzey. (q)
10.27 Letter Agreement dated August 8, 1997, between Metrocall and
David J. Vucina. (q)
10.28 Letter Agreement dated August 8, 1997, between Metrocall and
Jan E. Gaulding. (q)
10.29 Letter Agreement dated August 8, 1997, between Metrocall and
Mark A. Solls. (q)
10.30 Letter Agreement dated August 8, 1997, between Metrocall and
Jeffery A. Owens. (q)
10.31 Directors' Stock Option Plan, as amended. (t)
10.32 Metrocall 1996 Stock Option Plan. (u)
10.33 Metrocall 1996 Stock Option Plan, as amended. (t)
10.34 Metrocall Amended Employee Stock Purchase Plan. (v)
10.35 Registration Rights Agreement dated December 22, 1998
between Metrocall and Morgan Stanley & Co. Incorporated,
NationsBanc Montgomery Securities LLC, TD Securities (USA)
Inc., First Union Capital Markets and BancBoston Roberston
Stephens Inc.*
10.36 Deed of Lease between Douglas and Joyce Jemal, as landlord,
and Metrocall, as tenant, dated April 14, 1994. (w)
10.37 Lease Agreement dated December 20, 1983 between Beacon
Communications Associates, Ltd. and a predecessor of
Metrocall. (x)
10.38 Non-disclosure/No Conflict Agreement dated May 16, 1996
between Metrocall and Elliot H. Singer. (y)
10.39 Placement Agreement dated December 17,1998 between Metrocall
and Morgan Stanley & Co. Incorporated, NationsBanc
Montgomery Securities LLC, TD Securities (USA) Inc., First
Union Capital Markets and BancBoston Roberston Stephens
Inc.*
11.1 Statement re computation of per share earnings.*
21.1 Subsidiaries of Metrocall, Inc.*
23.2 Consent of Arthur Andersen LLP, as independent public
accountants for Metrocall.*
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
27.1 Financial Data Schedule.*
</TABLE>
- ---------------
* Filed herewith.
(a) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on January 4, 1999.
(b) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on October 23, 1997.
(c) 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.
(d) Incorporated by reference to ProNet's Current Report on Form 8Metrocall's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 filed
with the Commission on May 15, 1998.
(e) Incorporated by reference to Metrocall's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 filed with the Commission on May 15, 1998.
(f) 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.
(g) 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.
(h) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on October 16, 1998.
(i) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on November 21, 1996.
(j) 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.
(k) Incorporated by reference to Metrocall's Definitive Proxy Statement on
Schedule 14A filed with the Commission on August 31, 1998.
(l) Incorporated by reference to Metrocall's Quarterly Report on Form 8-K filed
July 7, 1998.
(m) 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.
(n) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on July 14, 1997.
(o) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on August 12, 1997.
(p) 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.
(q) 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.
(r) 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.
(s) Incorporated by reference to Metrocall's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 filed with the Commission on August 14,
1998.
(t) Incorporated by reference to Metrocall's Proxy Statement filed for the
Annual Meeting of Stockholders held on May 7, 1997.
<PAGE> 66
(u) Incorporated by reference to Metrocall's Proxy Statement filed for the
Annual Meeting of Stockholders held on May 1, 1996.
(v) 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.
(w) 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.
(x) 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.
(y) Incorporated by reference to Metrocall's Tender Offer Statement on Schedule
14D-1, filed with the Commission on May 22, 1996.
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
METROCALL, INC.
Metrocall, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follow:
FIRST: The name of the Corporation is Metrocall, Inc. The
Corporation was originally incorporated under the name Metrocall of Delaware,
Inc., and the original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on October 26, 1982.
SECOND: This Restated Certificate of Incorporation was duly
adopted in accordance with Sections 242 & 245 of the General Corporation Law of
the State of Delaware (the "Delaware General Corporation Law"), and restates and
integrates (including the provisions provided under the Certificate of
Designation, Number, Powers, Preferences and Relative, Participating, Optional
and Other Rights of Series A Convertible Preferred Stock of the Corporation as
filed with the Secretary of State of the State of Delaware on November 15, 1996;
and the Certificate of Designation, Number, Powers, Preferences and Relative,
Participating, Optional and Other Rights of Series C Convertible Preferred Stock
of the Corporation, Inc. as filed with the Secretary of State of the State of
Delaware on October 1, 1998) and does not further amend the provisions of the
Certificate of Incorporation of the Corporation, as theretofore amended,
restated or supplemented, and there is no discrepancy between those provisions
and the provisions of this Restated Certificate of Incorporation.
THIRD: The text of the Certificate of Incorporation of the
Corporation as heretofore amended or supplemented, shall read in its entirety as
follows:
1. NAME.
The name of this corporation is Metrocall, Inc.
2. REGISTERED OFFICE AND AGENT.
The registered office of the Corporation shall be located at 1013
Centre Road, Wilmington, DE 19805, in New Castle County. The registered agent of
the Corporation at such address shall be United States Corporation Company.
<PAGE> 2
3. PURPOSE AND POWERS.
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law. The Corporation shall have all power necessary or helpful to
engage in such acts and activities.
4. CAPITAL STOCK.
4.1. Authorized Shares.
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 101,000,000 shares, of which
1,000,000 shares shall be Preferred Stock, having a par value of $0.01 per share
("the Preferred Stock") and 100,000,000 shall be classified as shares of Common
Stock, par value $0.01 per share ("Common Stock"). The Board of Directors is
expressly authorized to provide for the classification and reclassification of
any unissued shares of Preferred Stock or Common Stock and the issuance thereof
in one or more classes or series without the approval of the stockholders of the
Corporation.
4.2. Common Stock.
(a) Relative Rights.
The Common Stock shall be subject to all of the rights,
privileges, preferences and priorities of the Preferred Stock as set forth in
the certificate of designations filed to establish the respective series of
Preferred Stock. Each share of Common Stock shall have the same relative rights
as and be identical in all respects to all the other shares of Common Stock.
(b) Voting Rights.
Each holder of shares of Common Stock shall be entitled to attend
all special and annual meetings of the stockholders of the Corporation and,
share for share and without regard to class, together with the holders of all
other classes of stock entitled to attend such meetings and to vote (except any
class or series of stock having special voting rights), to cast one vote for
each outstanding share of Common Stock so held upon any matter or thing
(including, without limitation, the election of one or more directors) properly
considered and acted upon by the stockholders, except as otherwise provided in
this Restated Certificate of Incorporation or by applicable law.
2
<PAGE> 3
(c) Dividends.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of shares of any class of stock having preference over
the Common Stock as to the payment of dividends, the full amount of dividends
and of sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then the holders of
record of the Common Stock and any class or series of stock entitled to
participate therewith as to dividends, shall be entitled to receive dividends,
when, as, and if declared by the Board of Directors, out of any assets legally
available for the payment of dividends thereon.
(d) Dissolution, Liquidation, Winding Up.
In the event of any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of record of the
Common Stock then outstanding, and all holders of any class or series of stock
entitled to participate therewith in whole or in part, as to distribution of
assets, shall become entitled to participate in the distribution of any assets
of the Corporation remaining after the Corporation shall have paid, or set aside
for payment, to the holders of any class of stock having preference over the
Common Stock in the event of dissolution, liquidation or winding up, the full
preferential amounts (if any) to which they are entitled, and shall have paid or
provided for payment of all debts and liabilities of the Corporation.
4.3. Preferred Stock.
(a) Issuance, Designations, Powers, Etc.
The Board of Directors expressly is authorized, subject to
limitations prescribed by the Delaware General Corporation Law and the
provisions of this Restated Certificate of Incorporation, to provide, by
resolution and by filing a certificate of designations pursuant to the Delaware
General Corporation Law, for the issuance from time to time of the shares of
Preferred Stock in one or more series, to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences and other rights of the shares of each such series and to
fix the qualifications, limitations and restrictions thereon, including, but
without limiting the generality of the foregoing, the following:
(i) the number of shares constituting that series and the
distinctive designation of that series;
(ii) the dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares of
that series;
3
<PAGE> 4
(iii) whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
(v) whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
(vi) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(vii) the rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(viii) any other relative powers, preferences, and rights
of that series, and qualifications, limitations or restrictions on that series.
(b) Dissolutions, Liquidation, Winding Up.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of Preferred Stock of
each series shall be entitled to receive only such amount or amounts as shall
have been fixed by the certificate of designations or by the resolution or
resolutions of the Board of Directors providing for the issuance of such series.
(c) Pursuant to the foregoing authority, there has been authorized
the following Preferred Stock:
(i) the Series A Convertible Preferred Stock shall have the
powers, preferences and relative, participating, optional or other rights, or
the qualifications, limitations or restrictions as set forth on Exhibit
4.3(c)(i) hereto; and
(ii) the Series C Convertible Preferred Stock shall have
the powers, preferences and relative, participating, optional or other rights,
or the qualifications, limitations or restrictions as set forth on Exhibit
4.3(c)(ii) hereto.
4
<PAGE> 5
4.4. Adjustments of Authorized Stock.
Except as provided to the contrary in the provisions establishing
a class or series of stock, the amount of the authorized stock of the
Corporation of any class or classes may be increased or decreased (but not below
the number then outstanding) by the affirmative vote of a majority of the
directors then in office, whether or not a quorum.
4.5. Restrictions on Foreign Ownership of Shares.
(a) No shares of stock of any class or series outstanding at any
time shall be owned of record or beneficially by a person (as defined in Section
4.5(c) hereof) whose ownership thereof would constitute a violation of Section
310(a) or 310(b) of the Communications Act of 1934, as amended, or any similar
or successor federal statutes.
(b) The Corporation may, in its sole discretion, redeem any
outstanding shares of stock of any class or series which are owned in violation
of Section 4.5(a) hereof. Shares redeemed by the Corporation under this Section
4.5(b) may be redeemed for cash, property or rights, at the lesser of (i) the
fair market value at the time of the redemption or (ii) the holder's purchase
price, provided the holder purchased such shares within a year prior to the
redemption. The Board of Directors shall have sole discretion to determine
whether shares are owned in violation of Section 4.5(a) hereof, the fair market
value of any shares to be redeemed, and the value of any non-cash consideration
to be provided for such shares in any such redemption.
(c) For purposes of this Section 4.5, "person" shall mean an
individual, a partnership, a corporation, a trust, a joint venture, an
unincorporated organization, a government or any department or agency thereof or
any other legal entity.
5. BOARD OF DIRECTORS.
5.1. Classification.
Except as otherwise provided in this Restated Certificate of
Incorporation or a certificate of designations relating to the rights of the
holders of any class or series of Preferred Stock, voting separately by class or
series, to elect additional directors under specified circumstances, the number
of directors of the Corporation shall be as fixed from time to time by or
pursuant to the Bylaws of the Corporation. The directors, other than those who
may be elected by the holders of any class or series of Preferred Stock voting
separately by class or series, shall be classified, with respect to the time for
which they severally hold office, into three classes, Class I, Class II and
Class III, which shall be as nearly equal in number as possible, and shall be
adjusted from time to time in the manner specified in the Bylaws of the
Corporation to maintain such proportionality. Each initial director in Class I
shall hold office for a term expiring at the 1996
5
<PAGE> 6
annual meeting of stockholders, each initial director in Class II shall hold
office initially for a term expiring at the 1995 annual meeting of stockholders,
and each initial director in Class III shall hold office for a term expiring at
the 1994 annual meeting of stockholders. Notwithstanding the foregoing
provisions of this Section 5.1, each director shall serve until such director's
successor is duly elected and qualified or until such director's earlier death,
resignation or removal. At each annual meeting of stockholders, the successors
to the class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election and until their successors
have been duly elected and qualified or until any such director's earlier death,
resignation or removal.
5.2. Removal.
(a) Except as otherwise provided pursuant to the provisions of
this Restated Certificate of Incorporation or a certificate of designations
relating to the rights of the holders of any class or series of Preferred Stock,
voting separately by class or series, to elect directors under specified
circumstances, any director or directors may be removed from office at any time,
but only for cause (as defined in Section 5.2(b) hereof) and only by the
affirmative vote, at a special meeting of the stockholders called for such a
purpose, of not less than 66-2/3% of the total number of votes of the then
outstanding shares of stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, but only if notice of
such proposal was contained in the notice of such meeting. At least 30 days
prior to such special meeting of stockholders, written notice shall be sent to
the director or directors whose removal will be considered at such meeting. Any
vacancy in the Board of Directors resulting from any such removal or otherwise
shall be filled only by vote of a majority of the directors then in office,
although less than a quorum, and any directors so chosen shall hold office until
the next election of the class for which such directors shall have been chosen
and until their successors shall be elected and qualified or until any such
director's earlier death, resignation or removal.
(b) For purposes of this Section 5.2, "cause" shall mean (i)
conduct as a director of the Corporation or any subsidiary involving dishonesty
of a material nature or (ii) criminal conduct (other than minor infractions and
traffic violations) that relates to the performance of the director's duties as
a director of the Corporation or any subsidiary.
5.3. Change of Authorized Number.
In the event of any increase or decrease in the authorized number
of directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes as nearly equal as
possible. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
6
<PAGE> 7
5.4. Directors Elected by Holders of Preferred Stock.
Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation or a certificate of
designations applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Section 5 unless expressly provided by the
certificate of designations.
5.5. Limitation of Liability.
No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for any breach of fiduciary duty as a
director, provided that this provision shall not eliminate or limit the
liability of a director (a) for any breach of the director's duty of loyalty to
the Corporation or its stockholders; (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (c) for
the types of liability set forth in Section 174 of the Delaware General
Corporation Law; or (d) for any transaction from which the director received any
improper personal benefit. Any repeal or modification of this Section 5.5 by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification.
6. INDEMNIFICATION.
To the extent permitted by law, the Corporation shall fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding,
To the extent permitted by law, the Corporation may fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such
7
<PAGE> 8
person in connection with such action, suit or proceeding.
The Corporation may advance expenses (including attorneys' fees)
incurred by a director or officer in advance of the final disposition of such
action, suit or proceeding upon the receipt of an undertaking by or on behalf of
the director or officer to repay such amount if it shall ultimately be
determined that such director or officer is not entitled to indemnification. The
Corporation may advance expenses (including attorneys' fees) incurred by an
employee or agent in advance of the final disposition of such action, suit or
proceeding upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
7. ACTIONS BY STOCKHOLDERS.
Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of stockholders, and may not be effected by any consent in writing by such
stockholders, unless such consent is unanimous.
8. SPECIAL MEETINGS.
Special meetings of the stockholders may be called at any time but
only by (a) the chairman of the board of the Corporation, (b) a majority of the
directors in office, although less than a quorum, or (c) the holders of not less
than 35% of the total number of votes of the then outstanding shares of stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class.
9. CRITERIA FOR EVALUATING CERTAIN OFFERS.
The Board of Directors, when evaluating any offer of another party
to (a) make a tender or exchange offer for any equity security of the
Corporation, (b) merge or consolidate the Corporation with another institution,
or (c) purchase or otherwise acquire all or substantially all of the properties
and assets of the Corporation, shall, in connection with the exercise of its
judgment in determining what is in the best interests of the Corporation and its
stockholders, be authorized, to give due consideration to any such factors as
the Board of Directors determines to be relevant, including, without limitation:
(i) the interests of the stockholders of the Corporation;
(ii) whether the proposed transaction might violate federal
or state laws;
(iii) the consideration being offered in the proposed
transaction, in relation to the then current market price for the outstanding
capital stock of the Corporation, the market price for the capital stock of the
Corporation over a period of years, the estimated price that might
8
<PAGE> 9
be achieved in a negotiated sale of the Corporation as a whole or in part or
through orderly liquidation, the premiums over market price for the securities
of other corporations in similar transactions, current political, economic and
other factors bearing on securities prices and the Corporation's financial
condition and estimated future value as an independent entity; and
(iv) the social, legal and economic effects upon employees,
suppliers, subscribers and others having similar relationships with the
Corporation, and the communities in which the Corporation conducts it business.
In connection with any such evaluation, the Board of Directors is authorized to
conduct such investigations and engage in such legal proceedings as the Board of
Directors may determine.
10. ANTI-GREENMAIL.
Any direct or indirect purchase or other acquisition by the
Corporation of any capital stock of the Corporation from any Significant
Stockholder (as hereinafter defined) who has been the beneficial owner (as
hereinafter defined) of such capital stock for less than two years prior to the
date of such purchase or other acquisition shall, except as hereinafter
expressly provided, require the affirmative vote of the holders of at least a
majority of the total number of outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, excluding in calculating such affirmative vote and
the total number of outstanding shares all capital stock beneficially owned by
such Significant Stockholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required or that a lesser
percentage may be specified, by law, but no such affirmative vote shall be
required with respect to (a) any purchase or other acquisition of capital stock
of the Corporation made as part of a tender or exchange offer by the Corporation
to purchase capital stock of the Corporation on the same terms from all holders
of the same class of capital stock and complying with the applicable
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder, (b) any purchase of capital stock of the Corporation
which the Board of Directors shall determine to be necessary pursuant to Section
4.5 of this Restated Certificate of Incorporation, (c) any purchase or other
acquisition of capital stock of the Corporation on the same terms from all
holders of such class of capital stock in accordance with the terms and
conditions of any stock option or employee benefit plan of the Corporation, or
(d) any purchase of capital stock of the Corporation, where the Board of
Directors has determined that the purchase price per share of the capital stock
does not exceed the fair market value of the capital stock. Such fair market
value shall be equal to the average closing price or the mean of the bid and
asked prices of a share of capital stock for the 20 trading days immediately
preceding the execution of a definitive agreement to purchase the capital stock
from a Significant Stockholder.
For purposes of this Section 10, "Significant Stockholder" shall
mean any person (other than the Corporation or any corporation of which a
majority of any class of capital stock of
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<PAGE> 10
the Corporation is owned, directly or indirectly, by the Corporation) that is
the beneficial owner, directly or indirectly, of five percent or more of the
voting power of the outstanding capital stock of the Corporation.
For purposes of this Section 10, "Beneficial Owner," when used
with respect to any capital stock of the Corporation, means any person that:
(i) individually or with any of its Affiliates (as
hereinafter defined), beneficially owns capital stock directly or indirectly;
(ii) individually or with any of its Affiliates, has (a)
the right to acquire capital stock (whether such right is exercisable
immediately or only after passage of time) pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise; (b) the right to vote or direct the
voting of capital stock pursuant to any agreement, arrangement or understanding;
or (c) the right to dispose of or to direct the disposition of capital stock
pursuant to any agreement, arrangement or understanding; or
(iii) individually or with any of its Affiliates, has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of capital stock with any other person that beneficially
owns, or whose Affiliates beneficially own, directly or indirectly, such shares
of capital stock.
For purposes of this Section 10, "Affiliate" shall mean a person
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, a specified person.
11. COMPROMISE OR ARRANGEMENT CLAUSE.
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
Section 291 of the Delaware General Corporation Law or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
Corporation under Section 279 of the Delaware General Corporation Law order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a
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<PAGE> 11
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders of
the Corporation, as the case may be, and also on the Corporation.
12. AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION.
Notwithstanding any other provisions of this Restated Certificate
of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, this Restated Certificate of
Incorporation or the Bylaws of the Corporation), the affirmative vote of 66 2/3%
of the total number of votes of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal, or to adopt
any provision inconsistent with the purpose or intent of Sections 5, 7, 8, 9,
and 10 hereof, and this Section 12. Notice of any such proposed amendment,
repeal or adoption shall be contained in the notice of the meeting at which it
is to be considered. Subject to the provisions set forth herein, the Corporation
reserves the right to amend, alter, repeal or rescind any provision contained in
this Restated Certificate of Incorporation in the manner now or hereafter
prescribed by law.
13. AMENDMENT OF BYLAWS.
In furtherance and not in limitation of the powers conferred by
the Delaware General Corporation Law, the Board of Directors is expressly
authorized and empowered to adopt, amend and repeal the Bylaws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to amend or repeal Bylaws adopted by the Board of Directors as
provided for in this Restated Certificate of Incorporation or in the Bylaws of
the Corporation.
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<PAGE> 12
IN WITNESS WHEREOF, Metrocall, Inc. has caused this Restated
Certificate of Incorporation to be executed on its behalf on February 16, 1999.
METROCALL, INC.
By: /s/William L. Collins, III
-------------------------------
William L. Collins, III
President
Attest:
/s/Shirley B. White
- ---------------------
Shirley B. White
Assistant Secretary
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<PAGE> 13
Exhibit 4.3(c)(i) to Restated Certificate of Incorporation
<PAGE> 14
CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
METROCALL, INC.
Metrocall, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, hereby
certifies that, pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, its Board of Directors, at a meeting
duly held on November 13, 1996, adopted the following resolution:
WHEREAS, the Board of Directors of the Corporation is
authorized by the Amended and Restated Certificate of Incorporation to issue up
to 1,000,000 shares of preferred stock in one or more classes or series and, in
connection with the creation of any class or series, to fix by the resolutions
providing for the issuance of shares the powers, designations, preferences and
relative, participating, optional or other rights of the class or series and the
qualifications, limitations or restrictions thereof; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to such authority, to authorize and fix the terms and
provisions of a series of preferred stock and the number of shares constituting
the series;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby
authorized a series of preferred stock on the terms and with the provisions
herein set forth on Annex A attached to this resolution.
/s/ Shirley B. White
-----------------------
Shirley B. White
Assistant Secretary
ATTEST:
/s/ Vincent D. Kelly
- --------------------
Vincent D. Kelly
Chief Financial Officer
<PAGE> 15
ANNEX A
SERIES A CONVERTIBLE PREFERRED STOCK
The powers, designations, preferences and relative,
participating, optional or other rights of the Series A Convertible Preferred
Stock of Metrocall, Inc. (the "Corporation") are as follows:
1. DESIGNATION AND AMOUNT.
This series of preferred stock shall be designated as "Series
A Convertible Preferred Stock," and shall have $0.01 par value per share. The
number of authorized shares constituting this series shall be 810,000 shares.
Shares of the Series A Convertible Preferred Stock shall have a stated value of
$250 per share (the "Stated Value").
2. DIVIDENDS.
(a) Right to Receive Dividends. Holders of the Series A
Convertible Preferred Stock shall be entitled to receive, when and as declared
by the Board of Directors of the Corporation (the "Board of Directors"), to the
extent permitted by the General Corporation Law of the State of Delaware,
cumulative dividends at the rate, in the form, at the times and in the manner
set forth in this Section 2. Such dividends shall accrue on any given share from
the day of issuance of such share and shall accrue from day to day whether or
not earned or declared.
(b) Form of Dividend. Except as provided in Section 9(b),
any dividend payment made with respect to the Series A Convertible Preferred
Stock may be made, at the sole discretion of the Board of Directors, in cash out
of funds legally available for such purpose or by issuing the number of shares
of Series A Convertible Preferred Stock equal to the amount of the dividend
divided by the Stated Value. Any such dividend payment may be made, in the sole
discretion of the Board of Directors, partially in cash and partially in shares
of Series A Convertible Preferred Stock determined in accordance with the
preceding formula; provided, that, in the event that any such dividend payment
is made partially in cash and partially in shares of Series A Convertible
Preferred Stock, each holder of Series A Convertible Preferred Stock shall
receive a ratable amount of cash and Series A Convertible Preferred Stock that
is proportionate to the amount of Series A Convertible Preferred Stock held by
such holder on which such dividend is paid. All shares of Series A Convertible
Preferred Stock issued as a dividend shall be fully paid and nonassessable.
(c) Dividend Rate. The dividend rate on the Series A
Convertible Preferred Stock shall be 14% of the Stated Value per share per
annum; provided, that, upon the occurrence and during the continuance of any
Triggering Event (as defined in Section 8 hereof), the dividend rate
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<PAGE> 16
on the Series A Convertible Preferred Stock shall be 16% of the Stated Value per
share per annum (such rate, as applicable, the "Dividend Rate").
(d) Payment of Dividends. Dividends shall be payable in
arrears, when and as declared by the Board of Directors, on May 15 and November
15 of each year, commencing May 15, 1997 (each such semiannual payment date a
"Dividend Payment Date"), except that if any such date is a Saturday, Sunday or
legal holiday then such dividend shall be payable on the first immediately
succeeding calendar day which is not a Saturday, Sunday or legal holiday.
Dividends shall accrue on each share of Series A Convertible Preferred Stock
from the date of issuance of such share which, in the case of the initial
issuance of Series A Preferred Stock, shall be from November 15, 1996 (the
"Issuance Date"), and, after payment of a dividend as required hereunder, from
and after each Dividend Payment Date based on the number of days elapsed and a
365-day year. The dividend payable on the first Dividend Payment Date with
respect to any share of Series A Convertible Preferred Stock shall be the pro
rata portion of the Dividend Rate based upon the number of days from and
including the Issuance Date, up to and including such first Dividend Payment
Date and a 365-day year. Each dividend shall be paid to the holders of record of
shares of the Series A Convertible Preferred Stock as they appear on the books
of the Corporation on such record date, not more than 45 days nor fewer than 10
days preceding the respective Dividend Payment Date, as shall be fixed by the
Board of Directors.
(e) Dividend Preference. Dividends on the Series A
Convertible Preferred Stock shall be payable before any dividends or
distributions or other payments shall be paid or set aside for payment upon the
common stock, par value $0.01 per share, of the Corporation (the "Common
Stock"), the variable common rights ("VCRs") issued pursuant to the Variable
Common Rights Agreement dated November 15, 1996 between the Corporation and
First Union National Bank of Virginia as Rights Agent, or any other stock
ranking on liquidation or as to dividends or distributions junior to the Series
A Convertible Preferred Stock (any such stock or VCRs, together with the Common
Stock, being referred to hereinafter as "Junior Stock"), other than a dividend,
distribution or payment paid solely in shares of Common Stock or other Junior
Stock that is not Redeemable Stock. If at any time dividends on the outstanding
Series A Convertible Preferred Stock at the rate set forth herein shall not have
been paid or declared and set apart for payment with respect to all preceding
and current periods, the amount of the deficiency shall be fully paid or
declared and set apart for payment, before any dividend, distribution or payment
shall be declared or paid upon or set apart for the shares of any other class or
series of stock of the Corporation, other than a dividend, distribution or
payment paid solely in shares of Common Stock or other Junior Stock that is not
Redeemable Stock. The term "Redeemable Stock" shall mean any equity security
that by its terms or otherwise is required to be redeemed for cash on or prior
to the Final Redemption Date (as defined in Section 7) or is redeemable for cash
at the option of the holder thereof at any time prior to the Final Redemption
Date.
If there shall be outstanding shares of any Parity Securities,
no full dividends shall be declared or paid or set apart for payment on any such
Parity Securities for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum
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<PAGE> 17
or additional shares of Series A Convertible Preferred Stock as permitted
hereunder sufficient for the payment thereof set apart for such payment on the
Series A Convertible Preferred Stock for all dividend periods terminating on or
prior to the date of payment of such dividends; provided that in no event shall
any dividends be declared or paid in cash on Parity Securities unless dividends
in cash of not less than a ratable amount are declared and paid on Series A
Convertible Preferred Stock. The term "Parity Securities" shall mean any class
or series of capital stock which is entitled to share ratably with the Series A
Convertible Preferred Stock in the payment of dividends, including
accumulations, if any, and, in the event that the amounts payable thereon on
liquidation are not paid in full, are entitled to share ratably with the Series
A Convertible Preferred Stock in any distribution of assets; provided that
Parity Securities shall not include any shares of Series A Convertible Preferred
Stock issued as dividends pursuant to this Section 2.
If dividends on the Series A Convertible Preferred Stock and
on any other series of Parity Securities are in arrears, in making any dividend
payment on account of such arrears, the Corporation shall make payments ratably
(and ratably as to cash, in-kind or other payments) upon all outstanding shares
of the Series A Convertible Preferred Stock and shares of such other Parity
Securities in proportion to the respective amounts of dividends in arrears on
the Series A Convertible Preferred Stock and on such other series of Parity
Securities to the date of such dividend payment.
3. LIQUIDATION PREFERENCE.
In the event of any bankruptcy, liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, each holder of
Series A Convertible Preferred Stock at the time thereof shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
funds of the Corporation to the holders of the Common Stock or other Junior
Stock by reason of their ownership of such stock, an amount per share of Series
A Convertible Preferred Stock equal to the Stated Value plus any accrued and
unpaid dividends to the date of liquidation. If the assets and funds legally
available for distribution among the holders of Series A Convertible Preferred
Stock shall be insufficient to permit the payment to the holders of the full
aforesaid preferential amount, then the assets and funds shall be distributed
ratably among holders of Series A Convertible Preferred Stock in proportion to
the number of shares of Series A Convertible Preferred Stock owned by each
holder. If the assets and funds of the Corporation available for distribution to
stockholders upon any bankruptcy, liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, shall be
insufficient to permit the payment to holders of the full aforesaid preferential
amount and there shall be any outstanding shares of Parity Securities, the
holders of Series A Convertible Preferred Stock and the holders of such other
Parity Securities shall share ratably (and ratably as to cash or other
distributions) in any distribution of assets of the Corporation in proportion to
the full respective preferential amounts to which they are entitled.
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<PAGE> 18
4. VOTING RIGHTS.
In addition to any voting rights provided elsewhere herein or
in the Corporation's Amended and Restated Certificate of Incorporation, as it
may be amended or restated from time to time (the "Certificate of
Incorporation"), and any voting rights provided by law, the holders of shares of
Series A Convertible Preferred Stock shall have the following voting rights:
(a) Election of Directors
(i) Subject to the terms hereof, the holders of
the Series A Convertible Preferred Stock shall have the right to elect two
directors (in addition to the directors elected by holders of Common Stock or
any other capital stock of the Corporation). Such directors shall be elected as
follows:
(A) The holder or holders of a majority of
shares of the sub-series consisting of the Accreted Number of Shares
held by the purchaser of the largest number shares as designated on
Exhibit A of the Unit Purchase Agreement dated as of November 15, 1996,
among the Corporation and the other parties thereto (the "Unit Purchase
Agreement") and the direct or indirect transferees of such purchaser
(collectively, the "Largest Initial Holder") shall, so long as such
shares are outstanding, have the right to vote as a single class based
on the number of shares of Series A Convertible Preferred Stock held by
each holder, to elect one director. The term "Accreted Number of
Shares" shall mean the number of shares of Series A Convertible
Preferred Stock issued to a holder on the Issuance Date plus the number
of shares of Series A Convertible Preferred Stock paid as dividends in
respect of such shares (including dividends on dividend shares).
(B) The holder or holders of a majority of
shares of the sub-series consisting of the Accreted Number of Shares
issued to the other two purchasers as designated on Exhibit A of the
Unit Purchase Agreement, and the direct or indirect transferees of such
purchasers (collectively, the "Designated Holders") shall, so long as
such shares are outstanding, have the right to vote as a single class
based on the shares of Series A Convertible Preferred Stock held by
each Designated Holder, to elect one director.
(ii) Any director elected by the holders of shares
of Series A Convertible Preferred Stock, including any director elected pursuant
to Section 4(a)(iii) hereof, shall be referred to herein as a "Series A
Preferred Director." The initial terms of the two directors to be appointed
pursuant to Section 4(a)(i) will commence upon their election by the Series A
Convertible Preferred Stock and shall expire at the 1999 annual meeting of
stockholders of the Corporation. Upon expiration of the initial terms of such
Series A Preferred Directors, so long as the Series A Convertible Preferred
Stock is outstanding, the holders of the Series A Convertible Preferred Stock
shall have the right to elect two Series A Preferred Directors to replace such
directors in the same manner described above in Section 4(a)(i). A Series A
Preferred Director so elected shall hold office for a term expiring at the
annual meeting of stockholders in the third year following the election of
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<PAGE> 19
such director; provided that upon any termination of the right of the applicable
holders of Series A Convertible Preferred Stock to designate or vote for a
Series A Preferred Director, the term of office of such director shall
terminate. Notwithstanding the foregoing, a Series A Preferred Director elected
under Section 4(a)(i) shall serve until such Series A Preferred Director's
successor is duly elected and qualified or until such director's earlier removal
as provided in Section 4(a)(iv) or death or resignation and, in the event a
vacancy occurs, a replacement Series A Preferred Director shall be selected as
provided in Section 4(a)(i).
(iii) So long as the Series A Convertible Preferred
Stock is outstanding, if a Triggering Event (as defined in Section 8 hereof) has
occurred and is continuing, the holders of shares of Series A Convertible
Preferred Stock (who will have one vote for each share held) shall have the
right, voting as a single class, to elect an additional number of Series A
Preferred Directors equal to such number of additional directors as will make
the ratio of the number of directors elected by the holders of the Series A
Convertible Preferred Stock to the number of all directors of the Corporation
equal or exceed 4:10. Each Series A Preferred Director selected pursuant to this
Section 4 (a)(iii) shall serve indefinitely until such director's removal as
provided in Section 4(a)(iv) or death or resignation and, in the event a vacancy
occurs, a replacement Series A Preferred Director shall be selected as provided
in this Section 4(a)(iii). At such time as the Triggering Event that enabled the
holders of Series A Convertible Preferred Stock to elect additional Series A
Preferred Directors no longer exists, and no other Triggering Event has occurred
and is continuing, the Series A Preferred Directors appointed pursuant to this
Section 4(a)(iii) shall resign and the right of the holders of Series A
Convertible Preferred Stock under this Section 4(a)(iii) to appoint Series A
Preferred Directors shall lapse unless and until another Triggering Event
occurs.
(iv) Except as provided in Section 4(a)(vi), a
Series A Preferred Director may be removed by, and shall not be removed except
by, the vote of the holders of record of a majority of the outstanding shares of
Series A Convertible Preferred Stock, voting together as a single class, except
that any Series A Preferred Director referred to in Section 4(a)(i) shall be
removed only by the holder or holders of Series A Convertible Preferred Stock
entitled to designate such director as provided therein.
(v) The Corporation shall at all times reserve and
keep available a sufficient number of vacant seats on the Board of Directors
solely for the purpose of enabling the holders of the Series A Convertible
Preferred Stock to designate Series A Preferred Directors as provided in this
Section 4(a) and, if at any time the number of vacant seats shall not be
sufficient, the Corporation will take such corporate action as shall be
necessary to increase the authorized number of board seats for this purpose.
(vi) Notwithstanding anything herein to the
contrary, a majority of the Board of Directors of the Corporation (excluding all
Series A Preferred Directors) may remove any Series A Preferred Director that is
an officer, director, or employee or holder of 10% or more of the voting
securities of any entity engaged directly or indirectly in the paging business
and, upon delivery of written notice by the Corporation to such Series A
Preferred Director, such Series A
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<PAGE> 20
Preferred Director shall resign and the holders of Series A Convertible
Preferred Stock entitled to designate or vote for such Series A Preferred
Director shall be entitled to designate or vote for a replacement Series A
Preferred Director; provided, however, that in no event shall this Section
4(a)(vi) apply to any Series A Preferred Director that is an officer, director,
or employee of any of the initial purchasers of the Series A Convertible
Preferred Shares pursuant to the Unit Purchase Agreement;
(b) Certain Corporate Actions.
(i) So long as the Series A Convertible Preferred
Stock is outstanding, the Corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than 75% of the then outstanding shares of Series A Convertible Preferred
Stock, voting as a single class:
(A) amend, repeal, modify or supplement
any provision of the Certificate of Incorporation, the Fourth Amended
and Restated Bylaws of the Corporation, as in effect on November 15,
1996, or any successor bylaws or this Certificate of Designation,
Number, Powers, Preferences and Relative, Participating, Optional and
Other Rights of Series A Convertible Preferred Stock ("Certificate of
Designation"), if such amendment, repeal, modification or supplement in
any way adversely affects the powers, designations, preferences or
other rights of the Series A Convertible Preferred Stock;
(B) authorize or effect, in a single
transaction or through a series of related transactions, (1) a
liquidation, winding up or dissolution of the Corporation or adoption
of any plan for the same; or (2) any direct or indirect purchase or
other acquisition by the Corporation of any capital stock (other than
the Series A Convertible Preferred Stock) of the Corporation held by
any person or entity or group (as that term is used in Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended) of persons or
entities (in each case, a "Beneficial Owner"), which Beneficial Owner
is the beneficial owner (by voting power or otherwise) of five percent
(5%) or more of the securities of the Corporation ordinarily having the
right to vote in the election of directors;
(C) declare or pay or set aside for
payment any dividend or distribution or other payment (other than a
dividend or distribution paid solely in shares of Common Stock or other
Junior Stock that is not Redeemable Stock) upon the Common Stock, upon
the VCRs or upon any other Junior Stock, nor redeem, purchase or
otherwise acquire any Common Stock, VCRs or other Junior Stock for any
consideration (or pay or make available any moneys, whether by means of
a sinking fund or otherwise, for the redemption of or other
distribution or payment with respect to any shares of any Common Stock,
VCRs or other Junior Stock), except by conversion or exchange of Common
Stock, VCRs, or other Junior Stock for such stock that is not
Redeemable Stock.
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(D) authorize or permit the Corporation
or any subsidiary of the Corporation, (i) to issue any shares of
Series A Convertible Preferred Stock except on the Issuance Date or in
payment of dividends as provided in Section 2 above; or (ii) to issue
any Parity Securities.
(ii) So long as the Series A Convertible
Preferred Stock is outstanding, the Corporation shall not, without
first obtaining the affirmative vote or written consent of the holders
of a majority of the then outstanding shares of Series A Convertible
Preferred Stock, voting as a single class:
(A) authorize or effect in a single
transaction or through a series of related transactions (whether by
purchase, lease, exchange, issuance of stock or other equity or debt
security, merger, reorganization or any other method, other than
transactions that would constitute a Sale of the Company (as defined
below)), any acquisition by, merger or other transaction between, the
Corporation or any of its Subsidiaries and any other Person, which
Person shall then become consolidated or otherwise combined with the
Corporation or any such Subsidiary in accordance with generally
accepted accounting principles ("GAAP"), including but not limited to,
any acquisition by the Corporation or any of its Subsidiaries of all or
any substantial part of the assets of any other Person, if the
aggregate consideration (including cash, the fair market value of any
securities or other property, and all Debt assumed by the Corporation
or any of its subsidiaries after giving effect to such transaction)
paid or otherwise assumed or incurred in such transaction exceeds 50%
of the Corporation's total market capitalization (comprised of
outstanding debt, and the value of all outstanding equity securities)
immediately prior to such transaction. The foregoing provisions shall
not apply to the merger of A+ Network, Inc. with and into the
Corporation; a merger of a wholly-owned subsidiary of the Corporation
with and into the Corporation in which the Corporation is the surviving
entity so long as the subsidiary was a subsidiary of the Corporation on
November 15, 1996, has not merged or consolidated with another entity
after November 15, 1996 and the Corporation is the surviving
corporation; the merger of A+ Network of Shreveport, Inc. with and into
the Corporation; or a merger between one subsidiary of the Corporation
with and into another subsidiary of the Corporation; or
(B) authorize or effect any Sale of the
Company in a single transaction or through a series of related
transactions, unless the Corporation shall, concurrently with the
consummation of any Sale of the Company, redeem all outstanding shares
of the Series A Convertible Preferred Stock pursuant to Section 6(a),
except for shares held by holders that have elected to exercise the
conversion rights provided for under Section 5(h). For purposes hereof,
"Sale of the Company" means (A) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of
all, or substantially all, the assets of the Corporation (other than to
one or more wholly owned subsidiaries of the Corporation); (B) the
merger or consolidation of the Corporation with or into another
corporation where such other corporation is the surviving corporation
or (C) the merger or consolidation of another corporation with and into
the Corporation, with the Corporation as the surviving corporation,
with the effect that immediately after such
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<PAGE> 22
transaction any Beneficial Owner shall have become the beneficial owner
of securities of the surviving corporation of such merger or
consolidation representing a majority of the combined voting power of
the outstanding securities of the surviving corporation ordinarily
having the right to vote in the election of directors.
(c) Means of Voting. The rights of the holders of
Series A Convertible Preferred Stock under this Section 4 may be exercised (i)
with respect to the election of the Series A Preferred Directors pursuant to
Section 4(a), at a meeting of the holders of the Series A Convertible Preferred
Stock or by written consents executed by the holders entitled to vote therefor
and delivered to the Secretary or Assistant Secretary of the Corporation; (ii)
at any meeting of stockholders of the Corporation for the election of directors;
(iii) at a meeting of the holders of shares of such Series A Convertible
Preferred Stock, called for the purpose by the Corporation or by the holders of
record of 25% or more of the outstanding shares of the Series A Convertible
Preferred Stock, pursuant to requests delivered in writing to the Secretary or
Assistant Secretary of the Corporation; or (iv) by written consent signed by the
holders of the requisite percentage of the then outstanding shares of the Series
A Convertible Preferred Stock, delivered to the Secretary or Assistant Secretary
of the Corporation, it being understood that a Series A Preferred Director
selected pursuant to Section 4(a)(i) may be designated by a written consent
executed by holders of a majority of the applicable sub-series of Series A
Convertible Preferred Stock referred to in Section 4(a)(i)(A) or Section
4(a)(i)(B), as the case may be. Except to the extent otherwise provided herein
or to the extent that holders of 75% of the Series A Convertible Preferred Stock
decide otherwise, any meeting of the holders of Series A Convertible Preferred
Stock shall be conducted in accordance with the provisions of the By-Laws of the
Corporation applicable to meetings of stockholders. In the event of a conflict
or inconsistency between the By-Laws of the Corporation and any term of this
Certificate of Designation, including, but not limited to this Section 4, the
terms of this Certificate of Designation shall prevail.
5. CONVERSION
Shares of Series A Convertible Preferred Stock may be
converted into shares of Common Stock, on the terms and conditions set forth in
this Section 5.
(a) Optional Conversion. Commencing on November 15, 2001
(except as to any shares which shall have been called for redemption), and if
the Conversion Price determined in accordance with Section 5(c) below is equal
to or greater than the book value per share (the "Book Value") of the Common
Stock determined in accordance with GAAP as of the end of the most recent fiscal
quarter for which the Corporation has filed reports with the Securities and
Exchange Commission ("SEC") (the "Book Value Requirement"), each holder (or
group of affiliated holders under common control) of shares of Series A
Convertible Preferred Stock may, upon 30 days' notice to the Corporation,
convert all, but not less than all, such shares held by such holder and its
affiliated holders under common control into the number of shares of Common
Stock determined by dividing (x) the Stated Value multiplied by the number of
shares surrendered for conversion plus any accrued
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<PAGE> 23
but unpaid dividends on such shares, by (y) the Conversion Price on the date of
conversion determined in accordance with Section 5(c) below. Notwithstanding the
foregoing, shares of the Series A Convertible Preferred Stock may be converted
into Common Stock at the Conversion Price even if such Conversion Price is less
than Book Value if such conversion would not violate National Association of
Securities Dealers ("NASD") Rule 4460(i)(1)(D)(ii) or any successor provision
and the holders of the Series A Convertible Preferred Stock will have the right
on a pro rata basis to convert less than all of their shares (ratably or as
otherwise agreed by such holders) at a Conversion Price less than Book Value,
provided, in either case, that the Corporation has received an opinion of
counsel reasonably satisfactory in form and substance to the Corporation or
assurances from Nasdaq to the effect that such conversion is permitted by NASD
rules;
(b) Change of Control. (i) If a Change of Control occurs,
then on any date following such Change of Control that the Book Value
Requirement is satisfied, each holder of shares of Series A Convertible
Preferred Stock may convert all, but not less than all, such shares held by such
holder into the number of fully paid and nonassessable shares of Common Stock
determined by dividing (x) the Stated Value multiplied by the number of shares
surrendered plus any accrued but unpaid dividends on such shares by (y) the
Conversion Price on the date of conversion determined in accordance with Section
5(c) below. Notwithstanding the foregoing, shares of the Series A Convertible
Preferred Stock may be converted into Common Stock even if the Conversion Price
is less than Book Value if such conversion would not violate NASD Rule
4460(i)(1)(D)(ii) or any successor provision, and the holders of the Series A
Convertible Preferred Stock will have the right on a pro rata basis to convert
less than all of their shares (ratably or as otherwise agreed by such holders)
at a Conversion Price less than Book Value, provided, in either case, that the
Corporation has received an opinion of counsel reasonably satisfactory in form
and substance to the Corporation or assurances from Nasdaq to the effect that
such conversion is permitted by NASD rules.
(ii) For the purposes of this Section 5(b) "Change
of Control" means the occurrence of one or more of the following events:
(A) a Beneficial Owner shall have become
the beneficial owner of a majority (by voting power or otherwise) of
the securities of the Corporation ordinarily having the right to vote
in the election of directors;
(B) during any consecutive three-year
period commencing on or after September 27, 1995, individuals who at
the beginning of such period constituted the Board of Directors
(together with any directors who are members of such Board of Directors
on September 27, 1995, any Series A Preferred Director and any new
directors whose election by such Board of Directors or whose nomination
for election by the stockholders of the Corporation was approved by a
vote of 66-% of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors then in
office;
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<PAGE> 24
(C) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of
all, or substantially all, the assets of the Corporation to any
Beneficial Owner (other than any wholly owned subsidiary of the
Corporation);
(D) the merger or consolidation of the
Corporation with or into another corporation or the merger of another
corporation into the Corporation with the effect that immediately after
such transaction any Beneficial Owner shall have become the beneficial
owner of securities of the surviving corporation of such merger or
consolidation representing a majority of the combined voting power of
the outstanding securities of the surviving corporation ordinarily
having the right to vote in the election of directors; or
(E) the adoption of a plan leading to the
liquidation or dissolution of the Corporation;
provided, however, that none of the
following, in itself, constitutes or will constitute a Change
of Control within the meaning of this Paragraph: (1) prior to or under
the merger of A+ Network, Inc. with and into the Corporation (the "A+
Merger"), the existence or termination of the Voting Agreement dated
as of August 31, 1996 (the "Voting Agreement"), among the Corporation
and the other parties thereto, (2) the beneficial ownership by the
Stockholders (as such term is defined in the Voting Agreement),
collectively, of a majority of the outstanding shares of Common Stock,
(3) the sale or disposition of any securities of the Corporation by,
or other decrease in the percentage ownership in any class of such
securities of, any Stockholder or Stockholders, or (4) the purchase or
acquisition of any securities of the Corporation by, or other increase
in the percentage ownership in any class of such securities of, any
Stockholder or Stockholders; provided further, however, that,
notwithstanding the foregoing, (a) the beneficial ownership by any
individual Stockholder, by the Metrocall Group, by the FirstPAGE Group
(as such terms are defined in the Voting Agreement), or by any other
group (as defined above) of which any Stockholder is a part, of a
majority (by voting power or otherwise) of securities of the
Corporation ordinarily having the right to vote in the election of
directors, or (b) any transaction or event that constitutes a "Rule
13e-3 transaction" within the meaning of Rule 13e-3 (a) (3) of the SEC
(or that would constitute such a Rule 13e-3 transaction if the person
effecting such transaction was an affiliate of the Corporation within
the meaning of such rule), shall nevertheless constitute a Change of
Control for purposes hereof.
(iii) References in this Section 5 to "Common Stock"
shall include all stock or other securities or property (including cash) into
which Common Stock is converted following any merger, reorganization or
reclassification of the capital stock of the Company.
(c) Conversion Price. The Conversion Price per share, for
any date, shall be the average of the Closing Prices of the Common Stock of the
Corporation for the 10 Trading Days prior to such date. For purposes of this
Agreement:
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<PAGE> 25
(i) the term "Closing Price," on any Trading Day,
shall mean the last reported sale price, or in case no such sale takes
place on such day, the average of the closing bid and asked prices, for
the Common Stock.
(ii) the term "Trading Day" shall mean (A) a day on
which the Common Stock is traded on the principal stock exchange on
which the Common Stock has been listed, or (B) if the Common Stock is
not listed on any stock exchange, a day on which the Common Stock is
traded in the over-the-counter market, as reported by the Nasdaq
National Market System, or (C) if the Common Stock is not listed on any
stock exchange or traded on the Nasdaq National Market System, a day on
which the Common Stock is traded in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting
prices).
(d) Common Stock. The Common Stock to be issued upon
conversion hereunder shall be fully paid and nonassessable.
(e) Procedures for Conversion. (i) In order to convert
shares of Series A Convertible Preferred Stock into shares of Common Stock, the
holder shall surrender the certificate or certificates therefore, duly endorsed
for transfer, at any time during normal business hours, to the Corporation at
its principal or at such other office or agency then maintained by it for such
purpose (the "Payment Office"), accompanied (or preceded as required by Section
5(a)) by written notice to the Corporation of such holder's election to convert
and (if so required by the Corporation or any conversion agent) by an instrument
of transfer, in form reasonably satisfactory to the Corporation and to any
conversion agent, duly executed by the registered holder or by his duly
authorized attorney, and required pursuant to Section 5(e)(iii). As promptly as
practicable after the surrender for conversion of any share of the Series A
Convertible Preferred Stock in the manner provided in the preceding sentence,
and the payment in cash of any amount required by the provisions of Section
5(e)(iii), but in any event within three Trading Days of such surrender for
payment, the Corporation will deliver or cause to be delivered at the Payment
Office to or upon the written order of the holder of such shares, certificates
representing the number of full shares of Common Stock issuable upon such
conversion, issued in such name or names as such holder may direct. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares in proper order for
conversion, and all rights of the holder of such share as a holder of such
shares shall cease at such time and the person or persons in whose name or names
the certificates for such shares of Common Stock are to be issued shall be
treated for all purposes as having become the record holder or holders thereof
at such time; provided, however, that any such surrender and payment on any date
when the stock transfer books of the Corporation shall be closed shall
constitute the person or persons in whose name or names the certificates for
such shares of Common Stock are to be issued as the record holder or holders
thereof for all purposes immediately prior to the close of business on the next
succeeding day on which such stock transfer books are opened and such conversion
shall be at the conversion price in effect at such time on such succeeding day.
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<PAGE> 26
(ii) The Corporation shall not be required to
issue fractional shares of Common Stock upon conversion of shares of
Series A Convertible Preferred Stock. At the Corporation's discretion, in the
event the Corporation determines not to issue fractional shares, in lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the Conversion
Price.
(iii) The issuance of certificates for shares of
Common Stock upon conversion shall be made without charge for any issue, stamp
or other similar tax in respect of such issuance. However, if any such
certificate is to be issued in a name other than that of the holder of record of
the shares converted, the person or persons requesting the issuance thereof
shall pay to the Corporation the amount of any tax which may be payable in
respect of any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid or is not payable.
(f) Reservation of Stock Issuable Upon Conversion. Subject
to the limitation set forth in the last sentence of this Section 5(f), the
Corporation shall reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Convertible Preferred Stock, 15,000,000 shares of
Common Stock. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Convertible Preferred Stock without regard to
the Book Value Requirement or whether the holders of Series A Convertible
Preferred Stock are then entitled to convert, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose, including, without limitation, taking
appropriate board action, recommending such an increase to the holders of Common
Stock, holding shareholders meetings, soliciting votes and proxies in favor of
such increase to obtain the requisite stockholder approval and upon such
approval, the Corporation shall reserve and keep available such additional
shares solely for the purpose of effecting the conversion of the shares of the
Series A Convertible Preferred Stock. Prior to the earlier of (i) June 1, 1997
or (ii) the approval by the stockholders of the Corporation of an increase in
the number of authorized shares of Common Stock as contemplated in the Unit
Purchase Agreement, the Corporation shall be in compliance with this Section
5(f) to the extent that it reserves and keeps available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Convertible Preferred Stock, 500,000
shares of Common Stock.
(g) Notices. Any notice required by the provisions of this
Section to be given to the holders of shares of Series A Convertible Preferred
Stock shall be deemed given five days after such notice is deposited in the
United States mail, postage prepaid, and addressed to each holder of record at
its address appearing on the books of the Corporation.
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<PAGE> 27
(h) Reorganization, Merger or Sale of the Company.
(i) Notwithstanding any other provision hereof, in
case of (A) any reorganization or any reclassification of the capital
stock of the Corporation or (B) any Sale of the Company prior to
November 15, 1999, if such transaction does not constitute a
liquidation, dissolution or winding up as provided in Section 3, then,
at the election of each holder of Series A Convertible Preferred Stock,
concurrently with the consummation of such reorganization,
reclassification or Sale of the Company, provision shall be made so
that each share of Series A Convertible Preferred Stock shall
thereafter be convertible into the number of shares of stock or other
securities or property (including cash) to which a holder of the number
of shares of Common Stock deliverable upon conversion of such share of
Series A Convertible Preferred Stock would have been entitled assuming
conversion on the Trading Day immediately prior to the initial
announcement of the transaction or a proposed transaction that
ultimately resulted in the transaction. For purposes of the preceding
sentence only, the Conversion Price shall be the average of the Closing
Prices of the Common Stock for the 15 Trading Days prior to the date of
such announcement. In any case, appropriate adjustment (as determined
by the Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interests
thereafter of the holders of the Series A Convertible Preferred Stock,
to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as equivalent as is practicable, in relation to
any shares of stock or the securities or property (including cash)
thereafter deliverable upon the conversion of the shares of Series A
Convertible Preferred Stock.
(ii) After the Company has determined to enter
into a transaction described in Section 5(h)(i)(B), and
publicly announces that the Company will enter into such transaction,
the Company will provide written notice to each holder setting forth
the material terms of the transaction, together with all relevant
information regarding such transaction (such transaction a "5(h)(i)(B)
Transaction"). If the Company requests in writing that each holder
elect whether or not to convert its Series A Convertible Preferred
Stock as described above, then, such holder shall have 14 days from
the later of the receipt of such information or such written request
within which to notify the Company in writing of its election to
convert its Series A Convertible Preferred Stock as described above,
and the failure to provide such notice shall be deemed to constitute
such holder's election not to so convert in connection with such
5(h)(i)(B) Transaction. Assuming that the 5(h)(i)(B) Transaction is
consummated on the terms set forth in such information provided by the
Company, such election shall be binding on such holder.
(iii) In case of any merger, consolidation,
reclassification or other similar reorganization, to the extent the
Corporation is not the surviving entity, and the Corporation or the
holders do not otherwise redeem or convert all outstanding shares of
Series A Convertible Stock, the Series A Convertible Preferred Stock
shall be converted into or exchanged for and shall become shares of the
surviving corporation having, in respect of the
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<PAGE> 28
surviving corporation, substantially the same powers, preferences and
relative participating, optional or other special rights, and the
qualifications, limitations or restrictions thereon, that the Series A
Convertible Preferred Stock had immediately prior to such transaction.
6. OPTIONAL REDEMPTION
(a) Redemption Price. The Corporation, at its sole option,
may redeem shares of the Series A Convertible Preferred Stock on or after
November 15, 1999, in whole or (except for redemptions pursuant to Section
6(a)(iv)) in part (subject to Section 6(b)), for cash, at any time or from time
to time, for a redemption price per share equal to the sum of the Stated Value,
any accrued and unpaid dividends on such shares, and the Make Whole Payment, if
any; provided, that the Corporation may redeem all the shares of the Series A
Convertible Preferred Stock prior to November 15, 1999 on the date on which the
Corporation consummates a Sale of the Company to the extent permitted under
Section 6(a)(iv), and provided further that the Corporation may not redeem or
call for redemption any shares of Series A Convertible Preferred Stock from and
including November 15, 2001 through January 15, 2002 and shall not thereafter be
entitled to call for redemption any shares of Series A Convertible Preferred
Stock with respect to which notice of conversion has been given pursuant to
Section 5(a) of this Certificate of Designation. The "Make Whole Payment" per
share shall be equal to:
(i) on and after November 15, 2001, zero;
(ii) on and after November 15, 2000 but prior to
November 15, 2001, an amount equal to the excess, if any, of (1) an
amount sufficient to provide a Unit (as defined in the Unit Purchase
Agreement) a 20% cash-on-cash internal rate of return, over (2) the sum
of (x) the aggregate Stated Value of the Series A Convertible Preferred
Stock included in such Unit plus all Series A Convertible Preferred
Stock received as a dividend on such Series A Convertible Preferred
Stock (including dividends on such dividends) plus (y) the excess, if
any, of the aggregate market value of the number of shares of Common
Stock represented by a Warrant (as defined in the Unit Purchase
Agreement) (such market value to be the average Closing Price of the
Common Stock for the 10 Trading Days prior to the date of notice of
redemption), over the Exercise Price (as defined in the Unit Purchase
Agreement) with respect to the shares of Common Stock represented by
such Warrant;
(iii) on and after November 15, 1999 but prior to
November 15, 2000, the amount which represents the excess, if any, of
(1) an amount sufficient to provide a Unit a 25% cash-on-cash internal
rate of return, over (2) the sum of (x) the aggregate Stated Value of
the Series A Convertible Preferred Stock included in such Unit plus all
Series A Convertible Preferred Stock received as a dividend on such
Series A Convertible Preferred Stock (including dividends on such
dividends) plus (y) the excess, if any, of the aggregate market value
of the number of shares of Common Stock represented by a Warrant (such
market value to be the average Closing Price of the Common Stock for
the 10 Trading Days
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<PAGE> 29
prior to the date of notice of redemption), over the Exercise Price
with respect to the shares of Common Stock represented by such Warrant;
or
(iv) prior to November 15, 1999, in the event that
the Corporation consummates a Sale of the Company and to the extent
that the holders of the Series A Convertible Preferred Shares do not
exercise their conversion right under Section 5(h), an amount equal to
the excess, if any, of (1) an amount sufficient to provide a Unit a 30%
cash-on-cash internal rate of return, over (2) the sum of (x) the
aggregate Stated Value of the Series A Convertible Preferred Stock
included in such Unit plus all Series A Convertible Preferred Stock
received as a dividend on such Series A Convertible Preferred Stock
(including dividends on such dividends) plus (y) the excess, if any, of
the aggregate market value of the number of shares of Common Stock
represented by a Warrant (such market value to be the average Closing
Price of the Common Stock for the 10 Trading Days prior to the date of
consummation of the Sale of the Company), over the Exercise Price with
respect to the shares of Common Stock represented by such Warrant;
provided, that in the event such Sale of the Company is consummated
before November 15, 1997, the Make Whole Payment shall be calculated so
that the holders receive an amount sufficient to provide a Unit a 30%
cash-on-cash internal rate of return through November 15, 1997 without
giving any value to the Warrants or any Common Stock represented by
Warrants and without any reduction or discount as of the result of the
fact that the holders receive redemption proceeds prior to November 15,
1997.
(b) Selection of Shares to be Redeemed. Any partial
redemption of Series A Convertible Preferred Stock shall be for that number of
shares having an aggregate Stated Value of $5 million or such greater amount
that is an integral multiple of $1 million. In the event that fewer than all of
the outstanding shares of the Series A Convertible Preferred Stock are to be
called for redemption, the Series A Convertible Preferred Stock called for
redemption shall be redeemed ratably from each holder of Series A Convertible
Preferred Stock proportionate to the amount of Series A Convertible Preferred
Stock held by each holder.
(c) Notice of Redemptions. Notice of redemptions shall be
given by first class mail, postage prepaid, mailed not less than 30 nor more
than 60 days prior to the redemption date or, if such notice period is not
feasible in connection with a Sale of the Company, such notice period as is
practicable in the circumstances to each holder of record of the shares to be
redeemed, at such holder's address as the same appears on the books of the
Corporation. Each such notice shall state: (i) the redemption date; (ii) the
number of shares of the Series A Convertible Preferred Stock to be redeemed and,
if fewer than all of the shares held by such holder are to be redeemed, the
number of such shares to be redeemed from such holder; (iii) the formula for
determination of the redemption price; (iv) the place or places where
certificates for such shares are to be surrendered for payment of the redemption
price; and (v) that dividends on the shares to be redeemed will cease to accrue
on the redemption date.
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(d) Cessation of Dividends on Shares Redeemed. Notice
having been mailed as stated in subsection (c) above, from and after the close
of business on the redemption date (unless default shall be made by the
Corporation in providing money for the payment of the redemption price of the
shares called for redemption), dividends on the shares of the Series A
Convertible Preferred Stock redeemed shall cease to accrue, and said shares
shall no longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders of the Corporation (except the right to receive from the
Corporation the redemption price) shall cease. Upon surrender in accordance with
said notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be redeemed by the
Corporation at the redemption price aforesaid. If fewer than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the holder thereof.
(e) Status of Redeemed Shares. Upon redemption, any shares
of the Series A Convertible Preferred Stock which have been so redeemed shall be
retired and thereafter have the status of authorized but unissued shares of
preferred stock, without designation as to series until such shares are once
more designated as part of a particular series by the Board of Directors or a
duly authorized committee thereof.
7 MANDATORY REDEMPTION.
On November 15, 2008 (the "Final Redemption Date"), the Corporation
shall redeem from any source of funds legally available therefor, in the manner
provided in Section 6(c) above, all of the shares of the Series A Convertible
Preferred Stock then outstanding at a redemption price equal to the Stated Value
per share, plus, without duplication, an amount in cash equal to all accumulated
and unpaid dividends per share to the Final Redemption Date.
8 TRIGGERING EVENTS.
Any of the following actions or events shall constitute a
"Triggering Event" for purposes hereof:
(a) Failure to Redeem. The Corporation shall fail to redeem
(i) the Series A Convertible Preferred Stock in accordance with Section 7 or
(ii) any Series A Convertible Preferred Stock called for redemption in
accordance with Section 6.
(b) Failure to Pay Dividends. The Corporation shall fail to
pay any dividend on any Series A Convertible Preferred Stock on any Dividend
Payment Date in accordance with Section 2 for any reason, including but not
limited to, that such payment is prohibited by applicable law or the Board of
Directors elect not to pay such dividend, or shall otherwise violate any term of
Section 2 and such failure shall not be cured within a period of 30 days after
such Dividend Payment
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<PAGE> 31
Date or violation (which cure shall be effected in a manner ensuring the holders
the same yield as if such violation had not occurred).
(c) Failure of Voting Rights. The Corporation shall enter
into any transaction or take any action required to be approved by any holders
of Series A Convertible Preferred Stock without obtaining the requisite approval
of the holders of the Series A Convertible Preferred Stock.
(d) Failure of Stockholder Action. The stockholders of the
Corporation shall not have approved the amendment to the Certificate of
Incorporation described in Section 1.02 of the Unit Purchase Agreement by June
1, 1997.
(e) Failure to Convert; Warrant Agreement. The Corporation
shall (i) fail for any reason to issue Common Stock as required under Section 5
upon the request of any holder of Series A Convertible Preferred Stock as
provided in Section 5 or shall fail for any reason to comply with Section 5(f)
or any other term of Section 5 hereof or the Corporation; (ii) fail for any
reason to issue Common Stock as required under the Warrant Agreement dated as of
November 15, 1996 between the Corporation and the Warrant Agent (as amended, the
"Warrant Agreement") upon exercise of any Warrant then held by any purchaser
designated in Exhibit A of the Unit Purchase Agreement (Purchasers") or any of
their respective affiliates; or (iii) so long as any Purchasers or any of their
respective affiliates hold Warrants, fail to make any anti-dilution adjustment
thereunder and such failure to make such adjustment shall continue for 30 days
after notice from any affected Purchaser.
(f) Registration Rights Agreement. The Corporation shall
fail in any material respect to comply with the Registration Rights Agreement
dated as of November 15, 1996, as amended, among the Corporation, the Largest
Initial Holder, the Designated Holders and their permitted successors and
assigns, and such failure shall continue for a period of 30 days after notice
from any such holder.
(g) Unit Purchase Agreement. The Corporation shall fail to
comply with Sections 1.01, 1.02, 1.03, 4.15 (first sentence only), 5.03, 8.01 or
8.05 of the Unit Purchase Agreement and such failure shall continue for a period
of 30 days after notice from the Purchasers or the representations made under
Sections 4.01 (first sentence only), 4.02, 4.03 or 4.04(a) of the Unit Purchase
Agreement shall prove to have been incorrect or misleading in any material
respect when made pursuant thereto or any other material representation made
under the Unit Purchase Agreement shall prove to have been incorrect or
misleading in any substantial material respect when made.
(h) Limitation on Senior Securities. (i) The Corporation
shall incur or issue, or permit any subsidiary of the Corporation to incur or
issue, any Senior Securities, except that the Corporation or a subsidiary may
incur or issue Senior Securities if at the time of incurrance or issuance, the
ratio of (A) Senior Securities outstanding on such date to (B) Pro Forma
Consolidated Cash Flow for the most recently ended full fiscal quarter
multiplied by four, determined on a pro forma basis as if any such Senior
Securities had been incurred or issued and the proceeds thereof had been applied
at the beginning of such fiscal quarter, would be less than 7.0 to 1.0.
Notwithstanding
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the foregoing limitation, the Company may incur and, as applicable, may permit
its Subsidiaries to incur, Refinancing Debt.
(ii) For purposes of this Section,
(A) "Senior Securities" shall mean (i) all Debt,
and (ii) the shares of any classes or series of capital stock which are
senior to the Series A Convertible Preferred Stock in respect of the
right to receive dividends or to participate in any distribution of
assets other than by way of dividends or which are Redeemable Stock.
For the purposes of determining any particular amount of Senior
Securities described in Clause (ii) of the definition of Senior
Securities, said amount shall be the greater of the market value or the
minimum amount payable by the Corporation or any of its subsidiaries
upon the redemption, purchase, or the retirement of such Senior
Securities.
(B) "Pro Forma Consolidated Cash Flow" shall mean
for any period the Corporation's Consolidated Cash Flow for such period
calculated on a pro forma basis to give effect to any Asset Disposition
or acquisition of assets not in the ordinary course of business
(including acquisitions by merger, consolidation or purchase of capital
stock) during such period or thereafter as if such Asset Disposition or
acquisition had taken place on the first day of such period.
(C) "Consolidated Cash Flow" shall mean for any
period the Corporation's Consolidated Net Income for such period plus
(i) the Corporation's Consolidated Interest Expense for such period
plus (ii) the consolidated income tax expense of the Corporation and
its consolidated subsidiaries for such period, plus (iii) the
consolidated depreciation and amortization expense included in the
income statement of the Corporation and its consolidated subsidiaries
for such period plus (iv) other non-cash charges reducing Consolidated
Net Income for such period (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in
any future period), minus (v) non-cash items increasing Consolidated
Net Income for such period. Notwithstanding the foregoing, the
provision for taxes on the income or profits of and the depreciation
and amortization and other non-cash charges of any of the Corporation's
consolidated subsidiaries shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in the same
proportion) that the net income of such subsidiary was included in
calculating the Consolidated Net Income of the Corporation and only if
and to the extent such subsidiary could have paid such amount at the
date of determination as a dividend to the Corporation by such
subsidiary without prior governmental approval (that has not been
obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that subsidiary or its
stockholders.
(D) "Consolidated Net Income" shall mean for any
period the net income (or loss) of the Corporation and its subsidiaries
for such period, determined on a consolidated
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basis in accordance with GAAP; provided that there shall be excluded
therefrom (i) the net income (but not the loss) of any subsidiary which
is subject to restrictions which prevent the payment of dividends and
the making of distributions (by loans, advances, intercompany transfers
or otherwise) to the Corporation except to the extent of the amount of
dividends or other distributions actually paid to the Corporation by
such subsidiary without violation of any such restrictions, (ii) the
net income (or loss) of any Person that is not a consolidated
subsidiary of the Corporation except to the extent of the amount of
dividends or other distributions actually paid to the Corporation by
such Person during any period, (iii) any gain or loss on any Asset
Disposition by the Corporation or any of its subsidiaries and (iv) any
extraordinary gain or loss.
(E) "Consolidated Interest Expense" shall mean for
any period the consolidated interest expense included in a consolidated
income statement (without deduction of interest income) of the
Corporation and its consolidated subsidiaries for such period
determined in accordance with GAAP, including without limitation or
duplication (or, to the extent not so included, with the addition of),
(i) the amortization of Debt discounts; (ii) any payments of fees with
respect to letters of credit, bankers' acceptances or similar
facilities; (iii) fees with respect to interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements,
other than fees or charges related to the acquisition or termination
thereof which are not allocable to interest expense in accordance with
GAAP; and (iv) the interest component associated with capital lease
obligations.
(F) "Asset Disposition" shall mean any transfer,
conveyance, sale, lease or other disposition by the Corporation or any
of its subsidiaries (including a consolidation or merger or other sale
of any such subsidiary with, into or to another Person in a transaction
in which such subsidiary ceases to be a subsidiary, but excluding a
disposition by a subsidiary of such Person to such Person or a wholly
owned subsidiary of such Person or by such Person to a wholly owned
subsidiary of such Person, and excluding the creation of a lien, pledge
or security interest) of (i) shares of capital stock (other than
directors' qualifying shares) or other ownership interests of a
subsidiary of such Person, (ii) substantially all of the assets of such
Person or any of its Subsidiaries representing a division or line of
business or (iii) other assets or rights of such Person or any of its
Subsidiaries outside of the ordinary course of business, in any case
where the consideration received by such Person or a subsidiary of such
Person or the fair market value of the assets subject to such
disposition exceeds $1 million.
(G) "Debt" shall mean (without duplication),
whether recourse is to all or a portion of the assets of the
Corporation or any of its subsidiaries, and whether or not contingent,
(i) every obligation of the Corporation or any of its subsidiaries for
money borrowed, (ii) every obligation of the Corporation or any of its
subsidiaries evidenced by bonds, debentures, notes or other similar
instruments, (iii) every reimbursement obligation of the Corporation or
any of its subsidiaries with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of the
Corporation or any of its
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subsidiaries, (iv) every obligation of the Corporation or any of
its subsidiaries issued or assumed as the deferred purchase price of
property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business), (v) every
capital lease obligation of the Corporation or any of its subsidiaries,
(vi) Attributable Debt of the Corporation or any of its subsidiaries,
(vii) the maximum fixed redemption or repurchase price of Redeemable
Stock of the Corporation or any of its subsidiaries at the time of
determination, (viii) every obligation of the Corporation or any of its
subsidiaries secured by a lien on any asset of the Corporation or any
of its subsidiaries (whether or not such obligation is assumed by the
Corporation or any of its subsidiaries); provided, however, that,
unless such Debt constitutes Debt of the referent Person pursuant to
any other clause of this definition, the amount of such Debt shall be
the lesser of (A) the fair market value of such asset and (B) the
amount of such Debt, and (ix) every obligation of the type referred to
in clauses (i) through (viii) of the Corporation or any of its
subsidiaries and all dividends of the Corporation or any of its
subsidiaries the payment of which, in either case, the Corporation has
guaranteed or for which the Corporation is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise and provided
further that none of the following shall constitute Debt: (i)
guarantees by subsidiaries of Debt under any bank credit facility
incurred by the Corporation; (ii) Debt owed by the Corporation to any
wholly owned subsidiary of the Corporation or owed by any wholly owned
subsidiary of the Corporation to the Corporation or any other wholly
owned subsidiary of the Corporation (but only so long as such Debt is
held by the Corporation or such wholly owned subsidiary); (iii) debt
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument drawn against insufficient funds in
the ordinary course of business, provided that such Debt is
extinguished within two business days of its incurrence; and (iv)
renewals of guarantees permitted by clause (i) above.
For purposes of determining any particular amount of
Debt under this covenant, guarantees of (or obligations with respect to
letters of credit supporting) Debt otherwise included in the
determination of such amount shall not also be included. For the
purpose of determining compliance with this covenant, (A) in the event
that an item of Debt meets the criteria of more than one of the types
of Debt described in the above clauses, the Corporation, in its sole
discretion, shall classify such item of Debt and only be required to
include the amount and type of such Debt in one of such clauses; and
(B) the amount of Debt issued at a price which is less than the
principal amount thereof shall be equal to the amount of the liability
in respect thereof determined in accordance with GAAP.
(H) "Attributable Debt" in respect of a sale and
leaseback transaction shall mean, at the time of determination the
present value (discounted at the interest rate implicit in the lease,
compounded semiannually) of the obligation of the lessee of the
property subject to such sale and leaseback transaction for rental
payments during the remaining term of the lease included in such
transaction, including any period for which such lease has been
extended or may, at the option of the lessor, be extended or until the
earliest date on which the lessee may terminate such lease without
penalty or upon payment of penalty (in which
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<PAGE> 35
case the rental payments shall include such penalty), after excluding
all amounts required to be paid on account of maintenance and repairs,
insurance, taxes, assessments, water, utilities and similar charges.
(I) "Person" shall mean an individual,
partnership, corporation, trust, unincorporated organization or other
business entity, and a government or agency or political subdivision
thereof.
(J) "Refinancing Debt" shall mean (i) any Debt of
the Corporation that renews, refunds or extends any outstanding Debt of
the Corporation or a subsidiary of the Corporation which Debt was
incurred in compliance with this Certificate, and (ii) any Debt of a
subsidiary of the Corporation that renews, refunds or extends any Debt
of such Subsidiary which Debt was incurred in compliance with this
Certificate of Designation in the case of both clauses (i) and (ii) in
an amount not to exceed the outstanding principal amount of the Debt so
refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the debt
refinanced or the amount of any premium reasonably determined by the
Corporation as necessary to accomplish such refinancing by means of a
tender offer or privately negotiated repurchase, plus the expenses of
the Corporation incurred in connection with such refinancing.
(h) Cross-Acceleration. A default shall have occurred under
any bonds, debentures, notes or other evidences of indebtedness of the
Corporation or any subsidiary of the Corporation or under any mortgages,
indentures or instruments under which there may be issued or by which there may
be secured or evidenced any indebtedness by the Corporation or any subsidiary of
the Corporation, in any case with a principal amount of at least $5 million
outstanding, and such indebtedness already is due and payable in full or such
default has resulted in the acceleration of the maturity of such indebtedness.
(i) Bankruptcy, etc.
(i) The Corporation or any of its Subsidiaries (A)
admits in writing its inability to pay its debts generally as they
become due, (B) commences a voluntary case or proceeding under any
bankruptcy law with respect to itself, (C) consents to the entry of a
judgment, decree or order for relief against it in an involuntary case
or proceeding under any bankruptcy law, (D) consents to the appointment
of a custodian of it or for substantially all of its property, (E)
consents to or acquiesces in the institution of a bankruptcy or an
insolvency proceeding against it, (F) makes a general assignment for
the benefit of its creditors, or (G) takes any corporate action to
authorize or effect any of the foregoing;
(ii) A court of competent jurisdiction enters a
judgment, decree or order for relief in respect of the Corporation or
any of its subsidiaries in an involuntary case or proceeding under any
bankruptcy law, which shall (A) approve as properly filed a petition
seeking reorganization, arrangement, adjustment or composition in
respect of the
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<PAGE> 36
Corporation or any of its subsidiaries, (B) appoint a custodian of the
Corporation or any of its subsidiaries or for substantially all of its
property or (C) order the winding-up or liquidation of its affairs; and
such judgment, decree or order shall remain unstayed and in effect for
a period of 60 consecutive days.
9. REMEDIES.
(a) Upon the occurrence and during the continuance of any
Triggering Event (i) the Dividend Rate on all outstanding Series A Convertible
Preferred Stock shall be increased as provided in Section 2 without any action
on the part of any holder of the Series A Convertible Preferred Stock or the
Corporation, and (ii) the holders of a majority of the outstanding Series A
Convertible Preferred Stock shall be entitled to elect additional directors of
the Corporation as provided in Section 4(a)(iii).
(b) In the event that a Triggering Event described in
Section 8(d) shall occur, and be continuing, all dividends on the Series A
Convertible Preferred Stock shall be paid in cash and not shares of Series A
Convertible Preferred Stock, to the extent but only to the extent, that such
cash payments are permitted under any applicable indenture or credit agreement
to which the Corporation is a party.
(c) The Corporation stipulates that the remedies at law of
each holder of Series A Convertible Preferred Stock in the event of any
Triggering Event or threatened Triggering Event or otherwise or other failure in
the performance of or compliance with any of the terms hereof are not and will
not be adequate and that, to the fullest extent permitted by law, such terms may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise without requiring any holder to post a bond or other
security except to the extent required by applicable law.
(d) Any holder of Series A Convertible Preferred Stock
shall be entitled to recover from the Corporation the reasonable attorneys' fees
and expenses incurred by such holder in connection with any Triggering Event or
enforcement by such holder of any obligation of the Corporation hereunder.
(e) No failure or delay on the part of any holder of Series
A Convertible Preferred Stock in exercising any right, power or remedy hereunder
or under applicable law or otherwise shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy hereunder or thereunder. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law or otherwise.
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10. PREEMPTIVE RIGHTS.
No shares of Series A Convertible Preferred Stock shall have any rights
of preemption whatsoever as to any securities of the Corporation, or any
warrants, rights or options issued or granted with respect thereto, regardless
of how such securities or such warrants, rights or options may be designated,
issued or granted.
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Exhibit 4.3(c)(ii) to Restated Certificate of Incorporation
<PAGE> 39
CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER RIGHTS OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
METROCALL, INC.
Metrocall, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, hereby
certifies that, pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, its Board of Directors,, adopted the
following resolution by unanimous written consent as of June 19, 1998:
WHEREAS, the Board of Directors of the Corporation is
authorized by the Amended and Restated Certificate of Incorporation to issue up
to 1,000,000 shares of preferred stock in one or more classes or series and, in
connection with the creation of any class or series, to fix by the resolutions
providing for the issuance of shares the powers, designations, preferences and
relative, participating, optional or other rights of the class or series and the
qualifications, limitations or restrictions thereof; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to such authority, to authorize and fix the terms and
provisions of a series of preferred stock and the number of shares constituting
the series;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby
authorized a series of preferred stock on the terms and with the provisions
herein set forth on Annex A attached to this resolution.
/s/ Shirley B. White
--------------------
Shirley B. White
Assistant Secretary
ATTEST:
/s/ Vincent D. Kelly
- --------------------
Vincent D. Kelly
Chief Financial Officer
<PAGE> 40
ANNEX A
SERIES C CONVERTIBLE PREFERRED STOCK
The powers, designations, preferences and relative,
participating, optional or other rights of the Series C Convertible Preferred
Stock of Metrocall, Inc. (the "Corporation") are as follows:
1. DESIGNATION AND AMOUNT.
This series of preferred stock shall be designated as "Series
C Convertible Preferred Stock," and shall have $0.01 par value per share. The
number of authorized shares constituting this series shall be 25,000 shares.
Shares of the Series C Convertible Preferred Stock shall have a stated value of
$10,000.00 per share (the "Stated Value"). The Corporation may issue fractional
shares of Series C Convertible Preferred Stock.
2. DIVIDENDS.
(a) Right to Receive Dividends. Holders of the Series C
Convertible Preferred Stock shall be entitled to receive, when and as declared
by the Board of Directors of the Corporation (the "Board of Directors"), to the
extent permitted by the General Corporation Law of the State of Delaware,
cumulative dividends at the rate, in the form, at the times and in the manner
set forth in this Section 2. Such dividends shall accrue on any given share from
the day of issuance of such share and shall accrue from day to day whether or
not earned or declared, provided, that dividends shall accrue on any shares of
Series C Convertible Preferred Stock issued pursuant to Section 4.3(b) of that
certain Stock Purchase Agreement dated June 26, 1998 by and among AT&T Wireless
Services, Inc., et al. and the Corporation from the date of the initial issuance
of Series C Convertible Preferred Stock by the Corporation (the "Initial
Issuance Date").
(b) Form of Dividend. Any dividend payment made with respect
to the Series C Convertible Preferred Stock may be made, at the sole discretion
of the Board of Directors, in cash out of funds legally available for such
purpose or by issuing the number of shares of Series C Convertible Preferred
Stock equal to the amount of the dividend divided by the Stated Value. Any such
dividend payment may be made, in the sole discretion of the Board of Directors,
partially in cash and partially in shares of Series C Convertible Preferred
Stock determined in accordance with the preceding formula; provided, that, in
the event that any such dividend payment is made partially in cash and partially
in shares of Series C Convertible Preferred Stock, each holder of Series C
Convertible Preferred Stock shall receive a ratable amount of cash and Series C
Convertible Preferred Stock that is proportionate to the amount of Series C
Convertible
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Preferred Stock held by such holder on which such dividend is paid. All shares
of Series C Convertible Preferred Stock issued as a dividend shall be fully paid
and nonassessable.
(c) Dividend Rate. The dividend rate on the Series C
Convertible Preferred Stock shall be 8% of the Stated Value per share per annum.
(d) Payment of Dividends. Dividends shall be payable in
arrears, when and as declared by the Board of Directors, on May 15 and November
15 of each year (each such semiannual payment date a "Dividend Payment Date"),
except that if any such date is a Saturday, Sunday or legal holiday then such
dividend shall be payable on the first immediately succeeding calendar day which
is not a Saturday, Sunday or legal holiday. Dividends shall accrue on each share
of Series C Convertible Preferred Stock as set forth in Section 2(a), and, after
payment of a dividend as required hereunder, from and after each Dividend
Payment Date based on the number of days elapsed and a 365-day year. If a
payment of a dividend as required hereunder is not made, dividends shall accrue
from the date of the last payment in full of the required dividend. The dividend
payable on each Dividend Payment Date after issuance of any share of Series C
Convertible Preferred Stock shall be the pro rata portion of the Dividend Rate
based upon the number of days from and including the date of issuance or the
last Dividend Payment Date, as the case may be, up to and including such
Dividend Payment Date and a 365-day year. Each dividend shall be paid to the
holders of record of shares of the Series C Convertible Preferred Stock as they
appear on the books of the Corporation on such record date, not more than 45
days nor fewer than 10 days preceding the respective Dividend Payment Date, as
shall be fixed by the Board of Directors.
(e) Dividend Preference. Dividends in cash on the Series C
Convertible Preferred Stock shall be payable after dividends are paid on the
Series A Convertible Preferred Stock, $.01 par value, of the Corporation (the
"Series A Preferred Stock"), on the Series B Junior Convertible Preferred Stock,
$.01 par value of the Corporation (the "Series B Preferred Stock"), and on any
other class or series of preferred stock of the Corporation that by its terms is
senior to the Series C Convertible Preferred Stock in right of payment of
dividends or liquidation preference (together with the Series A Preferred Stock
and the Series B Preferred Stock, "Senior Stock") and before any dividends or
distributions or other payments shall be paid or set aside for payment upon the
Common Stock or any other stock ranking on liquidation or as to dividends or
distributions junior to the Series C Convertible Preferred Stock (any such
stock, together with the Common Stock, being referred to hereinafter as "Junior
Stock"), other than a dividend, distribution or payment paid solely in shares of
Common Stock or other Junior Stock that is not Redeemable Stock. If at any time
dividends on the outstanding Series C Convertible Preferred Stock at the rate
set forth herein shall not have been paid or declared and set apart for payment
with respect to all preceding and current periods, the amount of the deficiency
shall be fully paid or declared and set apart for payment, before any dividend,
distribution or payment shall be declared or paid upon or set apart for the
shares of any class of Junior Stock, other than a dividend, distribution or
payment paid solely in shares of Common Stock or other Junior Stock that is not
Redeemable Stock. The term "Redeemable Stock" shall mean any equity security
that
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by its terms or otherwise is required to be redeemed for cash on or prior to the
Final Redemption Date (as defined in Section 7) or is redeemable for cash at the
option of the holder thereof at any time prior to the Final Redemption Date.
If there shall be outstanding shares of any Parity Securities
(as defined below), no full dividends shall be declared or paid or set apart for
payment on any such Parity Securities for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum or additional shares of Series C Convertible Preferred Stock as permitted
hereunder sufficient for the payment thereof set apart for such payment on the
Series C Convertible Preferred Stock for all dividend periods terminating on or
prior to the date of payment of such dividends; provided that in no event shall
any dividends be declared or paid in cash on Parity Securities unless dividends
in cash of not less than a ratable amount are declared and paid on Series C
Convertible Preferred Stock. The term "Parity Securities" shall mean any class
or series of capital stock which is entitled to share ratably with the Series C
Convertible Preferred Stock in the payment of dividends, including
accumulations, if any, and, in the event that the amounts payable thereon on
liquidation are not paid in full, are entitled to share ratably with the Series
C Convertible Preferred Stock in any distribution of assets; provided that
Parity Securities shall not include any shares of Series C Convertible Preferred
Stock issued as dividends pursuant to this Section 2.
If dividends on the Series C Convertible Preferred Stock and
on any other series of Parity Securities are in arrears, in making any dividend
payment on account of such arrears, the Corporation shall make payments ratably
(and ratably as to cash, in-kind or other payments) upon all outstanding shares
of the Series C Convertible Preferred Stock and shares of such other Parity
Securities in proportion to the respective aggregate amounts of dividends in
arrears on the Series C Convertible Preferred Stock and on such other series of
Parity Securities to the date of such dividend payment.
(f) Common Stock Dividends. If prior to October 1, 2003,
the Corporation pays or sets aside for payment any dividend or distribution on
the Common Stock (a "Common Stock Dividend") (other than dividends or
distributions paid solely in shares of Common Stock or rights, options or
warrants to purchase Common Stock), the Series C Convertible Preferred Stock
will be entitled to receive Common Stock Dividends, as and when paid on the
Common Stock, in an amount per share equal to (i) the Accreted Stated Value (as
defined below) per share divided by the Conversion Price, times (ii) the amount
of the Common Stock Dividend payable per share of Common Stock. Any Common Stock
Dividend shall be paid to the holders of record of shares of the Series C
Convertible Preferred Stock as they appear on the books of the Corporation on
such record date as shall be fixed by the Board of Directors for the payment of
the Common Stock Dividend. If the Corporation declares any Common Stock Dividend
on or after October 1, 2003, the Corporation will provide notice of the record
date for such dividend to the holders of record of shares of the Series C
Convertible Preferred Stock as they appear on the books of the Corporation, such
notice to be provided no later than at least fifteen (15) business days prior to
the record date and no later than the date on which the Corporation is required
to
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give notice of the record date for such dividend under Rule 10b-17 of the
Securities and Exchange Commission or any successor rule or applicable law.
3. LIQUIDATION PREFERENCE.
In the event of any bankruptcy, liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, each holder of
Series C Convertible Preferred Stock at the time thereof shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
funds of the Corporation to the holders of the Common Stock or other Junior
Stock by reason of their ownership of such stock, but after payment to holders
of the Senior Stock of any amounts to which they are entitled, an amount per
share of Series C Convertible Preferred Stock equal to the Stated Value plus any
accrued and unpaid dividends to the date of liquidation. If the assets and funds
legally available for distribution among the holders of Series C Convertible
Preferred Stock shall be insufficient to permit the payment to the holders of
the full aforesaid preferential amount, then the assets and funds shall be
distributed ratably among holders of Series C Convertible Preferred Stock in
proportion to the number of shares of Series C Convertible Preferred Stock owned
by each holder. If any Parity Securities are outstanding, and the assets and
funds legally available for distribution among the Series C Convertible
Preferred Stock and the Parity Securities shall be insufficient to permit the
payment to holders of Series C Convertible Preferred Stock the full aforesaid
preferential amount and the preferential amount payable upon liquidation to any
outstanding Parity Securities, the holders of Series C Convertible Preferred
Stock and the holders of such other Parity Securities shall share ratably (and
ratably as to cash or other distributions) in any distribution of assets of the
Corporation in proportion to the full respective preferential amounts to which
they are entitled.
4. VOTING RIGHTS.
The holders of the Series C Convertible Preferred Stock shall
have no voting rights except as set forth in the Corporation's Amended and
Restated Certificate of Incorporation, as it may be amended or restated from
time to time (the "Certificate of Incorporation") or as provided by applicable
law, and except for the following:
(a) Changes in Organizational Documents. So long as the
Series C Convertible Preferred Stock is outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of a majority of the then outstanding shares of Series C Convertible Preferred
Stock, voting as a single class, amend, repeal, modify or supplement (i) any
provision of the Certificate of Incorporation or the Bylaws of the Corporation,
each as in effect on the Initial Issuance Date, or any successor bylaws, if such
amendment, repeal, modification or supplement in any way adversely affects the
powers, designations, preferences or other rights of the Series C Convertible
Preferred Stock, provided, that nothing contained herein shall be construed to
prohibit the Corporation from issuing any
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<PAGE> 44
debt or equity securities, regardless of ranking, or (ii) this Certificate of
Designation, Number, Powers, Preferences and Relative, Participating, Optional
and Other Rights of Series C Convertible Preferred Stock ("Certificate of
Designation").
(b) Means of Voting. The rights of the holders of Series C
Convertible Preferred Stock under this Section 4 may be exercised (i) at a
meeting of the holders of shares of such Series C Convertible Preferred Stock,
called for the purpose by the Corporation; or (ii) by written consent signed by
the holders of the requisite percentage of the then outstanding shares of the
Series C Convertible Preferred Stock, delivered to the Secretary or Assistant
Secretary of the Corporation. Except to the extent otherwise provided herein or
to the extent that holders of a majority of the Series C Convertible Preferred
Stock decide otherwise, any meeting of the holders of Series C Convertible
Preferred Stock shall be conducted in accordance with the provisions of the
By-Laws of the Corporation applicable to meetings of stockholders. In the event
of a conflict or inconsistency between the By-Laws of the Corporation and any
term of this Certificate of Designation, including, but not limited to this
Section 4, the terms of this Certificate of Designation shall prevail.
5. CONVERSION
Shares of Series C Convertible Preferred Stock may be
converted into shares of Common Stock, on the terms and conditions set forth in
this Section 5.
(a) Optional Conversion. Beginning on October 1, 2003
(except as to any shares which shall have been called for redemption prior to
October 1, 2003), each holder of Series C Convertible Preferred Stock shall have
right, at any time and from time to time thereafter, to convert all, but not
less than all, of the shares of Series C Convertible Preferred Stock held by
such holder or its affiliates into that number of shares of Common Stock equal
to the Accreted Stated Value of the shares converted divided by the Conversion
Price, provided, that in the event that on or after October 1, 2003 the
Corporation delivers a notice of redemption of Series C Convertible Preferred
Stock pursuant to Section 6(c), the right to convert may be exercised with
respect to shares of Series C Convertible Preferred Stock called for redemption
in such notice only during the period ending fifteen (15) days prior to the
redemption date specified in such notice.
(b) Change of Control. (i) If a Change of Control occurs
prior to October 1, 2003, each holder of shares of Series C Convertible
Preferred Stock may, at its option, at times specified below, convert all, but
not less than all, such shares held by such holder into the number of fully paid
and nonassessable shares of Common Stock determined by dividing (x) the Stated
Value multiplied by the number of shares surrendered plus any accrued but unpaid
dividends on such shares by (y) the Conversion Price.
- 5 -
<PAGE> 45
(ii) For the purposes of this Section 5(b), "Change
of Control" means the occurrence of one or more of the following events:
(A) a person or entity or group (as that
term is used in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended) of persons or entities (in each case, a "Beneficial
Owner") shall have become the beneficial owner of a majority (by voting
power or otherwise) of the securities of the Corporation ordinarily
having the right to vote in the election of directors;
(B) during any consecutive three-year
period commencing on or after October 1, 1998, individuals who at the
beginning of such period constituted the Board of Directors (together
with any director elected by the Series A Preferred Stock and any new
directors whose election by such Board of Directors or whose nomination
for election by the stockholders of the Corporation was approved by a
vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors then in
office;
(C) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of
all, or substantially all, the assets of the Corporation to any
Beneficial Owner (other than any wholly owned subsidiary of the
Corporation);
(D) the merger or consolidation of the
Corporation with or into another corporation or the merger of another
corporation into the Corporation with the effect that immediately after
such transaction any Beneficial Owner shall have become the beneficial
owner of securities of the surviving corporation of such merger or
consolidation representing a majority of the combined voting power of
the outstanding securities of the surviving corporation ordinarily
having the right to vote in the election of directors; or
(E) the adoption of a plan leading to the
liquidation or dissolution of the Corporation;
(iii) (A) The Corporation shall give the holders
notice pursuant to Section 5(g) of a Change of Control within five
business days after the occurrence of such Change of Control. Except as
set forth in Section 5(b)(iii)(B), the right to convert set forth in
this Section 5(b) shall be exercised by any holder only within 10
business days after such notice has been given of the occurrence of the
Change of Control.
(B) If the Corporation agrees to enter
into a transaction that, when consummated, would result in a Change of
Control defined in Sections 5(b)(ii)(C) or (D), the Corporation shall
give notice to the holders of such transaction at least 15
- 6 -
<PAGE> 46
business days prior to the consummation of the transaction, and the
holders may, within 10 business days after the date of such notice,
exercise the right to convert the Series C Convertible Preferred Stock
into Common Stock, such conversion to take effect at or immediately
prior to the record date for holders of Common Stock to receive the
consideration to be paid to such holders in the transaction. In
addition, if the transaction results is a Going Private Transaction (as
defined below), then the Conversion Price for purposes of conversion as
described in the preceding sentence shall be the lesser of (x) the
Conversion Price in effect immediately prior to the notice by the
Corporation given to holders pursuant to the preceding sentence and (y)
the value of the consideration per share of Common Stock (determined by
the Board of Directors, in good faith, as of the date of the first
public announcement of the transaction) to be paid to holders of Common
Stock in the transaction times 1.1, provided, that in no event shall
the Conversion Price for this purpose be less than $7.40 (as such
amount may be adjusted pursuant to that certain Warrant Agreement
between the Corporation and The First National Bank of Boston dated as
of November 15, 1996, which adjustment provisions are substantially
similar to the adjustment provision in 5(i)). For purposes hereof, a
"Going Private Transaction" shall mean a Change of Control defined in
Sections 5(b)(ii) (C) or (D), as a result of which, immediately after
consummation of such transaction, the securities into which the Series
C Convertible Preferred Stock would be convertible are not listed on a
national securities exchange or the NASDAQ National Market System or,
even if such securities are so listed, the number of issued and
outstanding shares of such securities (excluding (x) shares owned by
any beneficial owner of a majority of such shares and (y) "restricted"
shares within the meaning of Rule 144 under the Securities Act of 1933,
or any successor rule, that cannot be sold without limitation under
Rule 144) is less than three (3) times the number of shares into which
all outstanding shares of the Series C Convertible Preferred Stock
would be convertible after giving effect to the transaction.
(c) Conversion Price. The Conversion Price of the shares of
Series C Convertible Preferred Stock shall be $10.40, adjusted as set forth
herein.
(d) Common Stock. The Common Stock to be issued upon
conversion hereunder shall be fully paid and nonassessable.
(e) Procedures for Conversion. (i) In order to convert
shares of Series C Convertible Preferred Stock into shares of Common Stock, the
holder shall surrender the certificate or certificates therefore, duly endorsed
for transfer, at any time during normal business hours, to the Corporation at
its principal or at such other office or agency then maintained by it for such
purpose (the "Payment Office"), accompanied (or preceded as required by Section
5(a)) by written notice to the Corporation of such holder's election to convert
and (if so required by the Corporation or any conversion agent) by an instrument
of transfer, in form reasonably satisfactory to the Corporation and to any
conversion agent, duly executed by the registered holder or by his duly
authorized attorney, and any cash payment required pursuant to Section
5(e)(iii). As promptly as practicable after the surrender for conversion of any
share of the Series
- 7 -
<PAGE> 47
C Convertible Preferred Stock in the manner provided in the preceding sentence,
and the payment in cash of any amount required by the provisions of Section
5(e)(iii), but in any event within three Trading Days of such surrender for
payment, the Corporation will deliver or cause to be delivered at the Payment
Office to or upon the written order of the holder of such shares, certificates
representing the number of full shares of Common Stock issuable upon such
conversion, issued in such name or names as such holder may direct. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares in proper order for
conversion, and all rights of the holder of such share as a holder of such
shares shall cease at such time and the person or persons in whose name or names
the certificates for such shares of Common Stock are to be issued shall be
treated for all purposes as having become the record holder or holders thereof
at such time; provided, however, that any such surrender and payment on any date
when the stock transfer books of the Corporation shall be closed shall
constitute the person or persons in whose name or names the certificates for
such shares of Common Stock are to be issued as the record holder or holders
thereof for all purposes immediately prior to the close of business on the next
succeeding day on which such stock transfer books are opened.
(ii) The Corporation shall not be required to
issue fractional shares of Common Stock upon conversion of shares of
Series C Convertible Preferred Stock. At the Corporation's discretion, in the
event the Corporation determines not to issue fractional shares, in lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the Conversion
Price.
(iii) The issuance of certificates for shares of
Common Stock upon conversion shall be made without charge for any issue, stamp
or other similar tax in respect of such issuance. However, if any such
certificate is to be issued in a name other than that of the holder of record of
the shares converted, the person or persons requesting the issuance thereof
shall pay to the Corporation the amount of any tax which may be payable in
respect of any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid or is not payable.
(f) Reservation of Stock Issuable Upon Conversion. The
Corporation shall reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series C Convertible Preferred Stock, 11,500,000 shares of
Common Stock. If at any time the number of authorized and unissued shares of
Common Stock that are reserved for issuance upon conversion of the shares of
Series C Convertible Preferred Stock, shall not be sufficient to effect the
conversion of all then outstanding shares of the Series C Convertible Preferred
Stock, the Corporation will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, taking appropriate board action, recommending
such an increase to the holders of Common Stock, holding shareholders meetings,
soliciting votes and proxies in favor of such increase to obtain the requisite
stockholder approval and upon such
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<PAGE> 48
approval, the Corporation shall reserve and keep available such additional
shares solely for the purpose of effecting the conversion of the shares of the
Series C Convertible Preferred Stock.
(g) Notices. Any notice required by the provisions of this
Certificate of Designation to be given to the holders of shares of Series C
Convertible Preferred Stock shall be deemed given five days after such notice is
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at its address appearing on the books of the Corporation, or
the next business day after such notice is delivered to a recognized overnight
courier service with next-business day delivery specified.
(h) Reorganization, Merger or Sale of the Corporation.
(i) Notwithstanding any other provision hereof, in
case of (A) any reorganization or any reclassification of the capital
stock of the Corporation or (B) any merger or consolidation of the
Corporation, that in any such case results in the Common Stock being
converted into other securities or property, or the right to receive
other securities or property, then, to the extent the Corporation or
the holders do not otherwise redeem or convert all outstanding shares
of Series C Convertible Preferred Stock, appropriate adjustment (as
determined by the Board of Directors) shall be made in the application
of the provisions herein set forth with respect to the rights and
interests of the holders of the Series C Convertible Preferred Stock,
to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as equivalent as is practicable, in relation to
any shares of stock thereafter deliverable upon the conversion of the
shares of Series C Convertible Preferred Stock.
(ii) In case of any merger, consolidation,
reclassification or other similar reorganization, to the extent the
Corporation is not the surviving entity, and the Corporation or the
holders do not otherwise redeem or convert all outstanding shares of
Series C Convertible Preferred Stock, the Series C Convertible
Preferred Stock shall be converted into or exchanged for and shall
become shares of the surviving corporation having, in respect of the
surviving corporation, substantially the same powers, preferences and
relative participating, optional or other special rights, and the
qualifications, limitations or restrictions thereon, that the Series C
Convertible Preferred Stock had immediately prior to such transaction.
In the case the Corporation is not the surviving entity, the Conversion
Price shall be adjusted at the closing of the transaction to equal the
Conversion Price in effect immediately prior to the closing divided by
the fair market value of the common stock immediately prior to the
closing multiplied by the fair market value of the common stock of the
surviving entity at the closing.
(iii) References in this Section 5 to "Common Stock"
shall include all stock or other securities or property (including
cash) into which Common Stock is converted following any merger,
reorganization or reclassification of the capital stock of the
Corporation.
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<PAGE> 49
(i) Adjustments. The number of shares of Common
Stock issuable upon conversion of shares of the Series C Convertible Preferred
Stock that are then outstanding and the Conversion Price shall be subject to
adjustment from time to time as follows:
(i) Stock Dividends; Stock Splits; Reverse Stock
Splits. In case the Corporation shall (A) declare or pay a dividend on
its outstanding Common Stock in shares of Common Stock or make a
distribution to all holders of its outstanding Common Stock in shares
of Common Stock, (B) subdivide its outstanding Common Stock into a
greater number of shares or reclassify its outstanding Common Stock, or
(C) combine its outstanding Common Stock into a smaller number of
shares, the number of shares of Common Stock issuable upon conversion
of each share of Series C Convertible Preferred Stock shall be adjusted
so that the holder of each such share shall thereafter be entitled to
receive the kind and number of shares of Common Stock that such holder
would have owned or have been entitled to receive after the happening
of any of the events described above, had such share been converted in
full immediately prior to the happening of such event or any record
date with respect thereto (with any record date requirement being
deemed to have been satisfied), and, in any such case, the number of
shares of Common Stock issuable upon conversion of each such share
shall be subject to further adjustments under this Section 5(i). An
adjustment made pursuant to this Section 5(i)(i) shall become effective
at the record date, if any, for such event.
(ii) Distributions to Stockholders. In case the
Corporation shall issue to holders of its Common Stock rights, options,
warrants or convertible or exchangeable securities (collectively, the
"rights") entitling them to subscribe for or purchase Common Stock at a
price per share of Common Stock (determined by dividing (A) the total
amount receivable by the Corporation in consideration of the issuance
of such rights plus the total consideration payable to the Corporation
upon exercise, conversion or exchange thereof, by (B) the total number
of shares of Common Stock covered by such rights) that is lower than
the Current Market Price per share of Common Stock in effect
immediately prior to such issuance, then the number of shares of Common
Stock issuable upon conversion of all shares of Series C Convertible
Preferred Stock shall be increased in a manner determined by
multiplying the number of shares of Common Stock theretofore issuable
upon the conversion of all shares of Series C Convertible Preferred
Stock by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of
such rights plus the number of additional shares of Common Stock
offered for subscription or purchase, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately
prior to the issuance of such rights plus the number of shares of
Common Stock which the aggregate consideration to be received by the
Corporation in connection with such issuance (as defined in the
following sentence) would purchase at the then Current Market Price per
share of Common Stock. For purposes of this Section 5(i), the "Current
Market Price" per share of Common Stock for any date shall mean average
of the closing prices of the
- 10 -
<PAGE> 50
Common Stock for the 10 trading days prior to such date. For purposes
of this Section 5(i)(ii), the "aggregate consideration to be received
by the Corporation" in connection with any issuance of such rights
shall be deemed to be the consideration received by the Corporation for
such rights plus any consideration or premiums stated in such rights to
be paid for the shares of Common Stock covered thereby.
(iii) Issuance of Common Stock at Lower Values. In
case the Corporation shall, in a transaction to which Section 5(i)(i)
is inapplicable (and, in any event, other than upon conversion of
Series A Preferred Stock, Series B Preferred Stock, or Series C
Convertible Preferred Stock, or upon exercise of any warrants or
employee stock options that were outstanding on the Initial Issuance
Date or pursuant to contractual commitments to which the Corporation
was bound on the Initial Issuance Date), issue or sell shares of Common
Stock, or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of
Common Stock, at a price per share of Common Stock (determined, in the
case of rights, options, warrants or convertible or exchangeable
securities, by dividing (A) the total amount receivable by the
Corporation in consideration of the issuance and sale of such rights,
options, warrants or convertible or exchangeable securities, plus the
total consideration payable to the Corporation upon exercise,
conversion or exchange thereof, by (B) the total number of shares of
Common Stock covered by such rights, options, warrants or convertible
or exchangeable securities) that is lower (at the date of such sale or
issuance) than the Current Market Price per share of Common Stock in
effect immediately prior to such sale or issuance or for no
consideration, then in each case the number of shares of Common Stock
thereafter issuable upon the conversion of the shares of Series C
Convertible Preferred Stock shall be increased in a manner determined
by multiplying the number of shares of Common Stock theretofore
issuable upon the conversion of all shares of Series C Convertible
Preferred Stock by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately prior to the
sale or issuance, plus the number of additional shares of Common Stock
offered for subscription or purchase or to be issued upon conversion or
exchange of such convertible or exchangeable securities, and of which
the denominator shall be the number of shares of Common Stock
outstanding immediately prior to the sale or issuance plus the number
of shares of Common Stock which the aggregate consideration to be
received by the Corporation (as defined in the following paragraph) in
connection with such sale or issuance would purchase at the then
Current Market Price per share of Common Stock.
For the purpose of such adjustments the "aggregate
consideration to be received by the Corporation" therefor shall be
deemed to be the consideration received by the Corporation for such
rights, options, warrants or convertible or exchangeable securities
plus any consideration or premiums stated in such rights, options,
warrants or convertible or exchangeable securities to be paid for the
shares of Common Stock covered thereby.
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<PAGE> 51
In case the Corporation shall issue or sell shares of
Common Stock or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock for a consideration consisting, in
whole or in part, of property other than cash or its equivalent, then
in determining the "price per share of Common Stock" and the
"consideration" receivable by or payable to the Corporation for
purposes of Sections 5(i)(ii) and 5(i)(iii), the Board of Directors of
the Corporation shall determine, in good faith, the fair value of such
property. In case the Corporation shall issue and sell rights, options,
warrants or convertible or exchangeable securities containing the right
to subscribe for or purchase shares of Common Stock, together with one
or more other securities as part of a unit at a price per unit, then in
determining the "price per share of Common Stock" and the
"consideration" receivable by or payable to the Corporation for
purposes of Sections 5(i)(ii) and 5(i)(iii), the Board of Directors of
the Corporation shall determine, in good faith, the fair value of the
rights, options, warrants or convertible or exchangeable securities
then being sold as part of such unit.
Any increase of the number of shares of Common Stock issuable
upon conversion of shares of Series C Convertible Preferred Stock
pursuant to this Section 5(i)(iii) shall be allocated among such Series
C Convertible Preferred Stock on a pro rata basis.
(iv) Expiration of Rights, Options and Conversion
Privileges. Upon the expiration of any rights, options, warrants or
conversion or exchange rights that have previously resulted in an
adjustment under this Section 5(i), if any thereof shall not have been
exercised, the number of shares of Common Stock issuable upon
conversion of Series C Convertible Preferred Stock shall be readjusted
and shall thereafter, upon any future exercise, be such as they would
have been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the only
shares of Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights, options,
warrants or conversion or exchange rights and (ii) such shares of
Common Stock, if any, were issued or sold for the consideration
actually received by the Corporation upon such exercise plus the
consideration, if any, actually received by the Corporation for
issuance, sale or grant of all such rights, options, warrants or
conversion or exchange rights whether or not exercised; provided that
no such readjustment shall have the effect of decreasing the number of
shares issuable upon conversion of Series C Convertible Preferred Stock
by a number that is in excess of the amount or number of the adjustment
initially made in respect of the issuance, sale or grant of such
rights, options, warrants or conversion or exchange rights or shall
have the effect of decreasing the number of shares of Common Stock that
have been issued upon conversion of any shares of Series C Convertible
Stock prior to the date of such readjustment.
(v) De minimis Adjustments. No adjustment in the
number of shares of Common Stock issuable under any Series C
Convertible Preferred Stock shall be
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<PAGE> 52
required unless such adjustment would require an increase or decrease
of at least one percent (1%) in the number of shares of Common Stock
purchasable upon a conversion of Series C Convertible Preferred Stock;
provided, that any adjustments which by reason of this Section 5(i) are
not required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations shall be made to the
nearest one-thousandth of a share.
(vi) Notice of Adjustment. Whenever the number of
shares of Common Stock or other stock or property issuable upon the
conversion of Series C Convertible Preferred Stock is adjusted, as
herein provided, the Corporation shall deliver to the holders thereof a
certificate of a firm of independent public accountants selected by the
Board of Directors of the Corporation (who may be the regular
accountants employed by the Corporation) setting forth the number of
shares of Common Stock or other stock or property issuable upon the
conversion of each share of Series C Convertible Preferred Stock after
such adjustment, setting forth a brief statement of the facts requiring
such adjustment and setting forth the computation by which such
adjustment was made and shall promptly mail by first class mail,
postage prepaid, to each holder notice of such adjustment or
adjustments.
(vii) Adjustment of Conversion Price. Whenever the
number of shares of Common Stock issuable upon conversion of the Series
C Convertible Preferred Stock is adjusted as provided in this Section
5(i), the Conversion Price shall be adjusted by multiplying such
Conversion Price immediately prior to such adjustment by a fraction,
the numerator of which shall be the number of shares issuable upon
conversion of a share of Series C Convertible Preferred Stock
immediately prior to such adjustment, and the denominator of which is
the number of shares so issuable immediately thereafter.
6. OPTIONAL REDEMPTION
(a) Redemption Price. Beginning on October 1, 2001, the
Corporation, at its sole option, may redeem all, but not less than all, shares
of the Series C Convertible Preferred Stock for cash, at any time or from time
to time, for the redemption price per share set forth below:
<TABLE>
<CAPTION>
DATE OF REDEMPTION REDEMPTION PRICE
------------------ ----------------
<S> <C>
October 1, 2001 to September 30, 2002 105.0% of Redemption Value
October 1, 2002 to September 30, 2003 102.5% of Redemption Value
</TABLE>
- 13 -
<PAGE> 53
<TABLE>
<CAPTION>
DATE OF REDEMPTION REDEMPTION PRICE
------------------ ----------------
<S> <C>
After September 30, 2003 100.0% of Accreted Stated
Value
</TABLE>
For purposes hereof, "Redemption Value" for a share of Series
C Convertible Preferred Stock shall equal the greater of (i) Accreted Stated
Value, and (ii) if the Current Market Price of the Common Stock on the date of
the notice of redemption is greater than the Conversion Price, then an amount
determined in accordance with the following formula:
RV = (CMP)(SV)/CP
For purposes of this formula:
RV = Redemption Value per share
SV = Accreted Stated Value per share
CMP = Current Market Price
CP = Conversion Price
"Accreted Stated Value" per share means the Stated Value per
share plus accrued and unpaid dividends, if any, on such share through the date
of redemption.
(b) Notice of Redemptions. Notice of redemptions shall be
given by first class mail, postage prepaid, not less than 20 nor more than 60
business days prior to the redemption date or, if such notice period is not
feasible in connection with a transaction described in Section 5(g), such notice
period as is practicable in the circumstances, to each holder of record of the
shares to be redeemed, at such holder's address as the same appears on the books
of the Corporation. Each such notice shall state: (i) the redemption date; (ii)
the place or places where certificates for such shares are to be surrendered for
payment of the redemption price; and (iii) that dividends on the shares to be
redeemed will cease to accrue on the redemption date.
(c) Cessation of Dividends on Shares Redeemed. Notice
having been mailed as stated in subsection (c) above, from and after the close
of business on the redemption date (unless default shall be made by the
Corporation in providing money for the payment of the redemption price of the
shares called for redemption), dividends on the shares of the Series C
Convertible Preferred Stock redeemed shall cease to accrue, and said shares
shall no longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders of the Corporation (except the right to receive from the
Corporation the redemption price) shall cease. Upon surrender in accordance with
said notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be redeemed by the
Corporation at the redemption price aforesaid.
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<PAGE> 54
(d) Status of Redeemed or Converted Shares. Upon
redemption or conversion, any shares of the Series C Convertible Preferred Stock
which have been so redeemed or converted shall be retired and thereafter have
the status of authorized but unissued shares of preferred stock, without
designation as to series until such shares are once more designated as part of a
particular series by the Board of Directors or a duly authorized committee
thereof.
7. MANDATORY REDEMPTION.
On October 1, 2010 (the "Final Redemption Date"), the Corporation
shall redeem from any source of funds legally available therefor, in the manner
provided in Section 6(c) above, all of the shares of the Series C Convertible
Preferred Stock then outstanding at a redemption price equal to the Stated Value
per share, plus, without duplication, an amount in cash equal to all accrued and
unpaid dividends per share to the Final Redemption Date.
8. PREEMPTIVE RIGHTS.
No shares of Series C Convertible Preferred Stock shall have any
rights of preemption whatsoever as to any securities of the Corporation, or any
warrants, rights or options issued or granted with respect thereto, regardless
of how such securities or such warrants, rights or options may be designated,
issued or granted.
9. TRANSFERABILITY.
No shares of Series C Convertible Preferred Stock shall be
transferable without the consent of the Corporation until April 1, 2000;
provided, however, this provision shall terminate and be of no further force or
effect immediately upon the occurrence of a Problematic Regulatory Change of
Control. A "Problematic Regulatory Change of Control" is a Change of Control
which causes the Holder and/or its affiliates to receive an attributable
interest in any radio spectrum or FCC Service with respect to which the FCC or
applicable law imposes a spectrum cap (including, without limitation, spectrum
caps imposed on the holding of broadband CMRS or narrowband PCS spectrum),
multiple ownership restriction, or other material limitation. "FCC Service"
shall mean any service subject to FCC (or successor agency) regulation or
oversight.
- 15 -
<PAGE> 1
EXHIBIT 3.2
EIGHTH AMENDED AND RESTATED BYLAWS
OF
METROCALL, INC.
(Effective February 3, 1999)
1. OFFICES
1.1. REGISTERED OFFICE.
The initial registered office of the Corporation shall be in Dover,
Delaware, and the initial registered agent in charge thereof shall be United
States Corporation Company.
1.2. OTHER OFFICES.
The Corporation may also have offices at such other places, both within
and without the State of Delaware, as the Board of Directors may from time to
time determine or as may be necessary or useful in connection with the business
of the Corporation.
2. MEETINGS OF STOCKHOLDERS
2.1. PLACE OF MEETINGS.
All meetings of the stockholders shall be held at such place as may be
fixed from time to time by the Board of Directors.
2.2. ANNUAL MEETINGS.
The Corporation shall hold annual meetings of stockholders on the first
Wednesday in May at 11 a.m. or at such other date and time as shall be
designated from time to time by the Board of Directors, at which stockholders
shall elect directors and transact such other business as may properly be
brought before the meeting.
2.3. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or the Corporation's Amended and Restated
Certificate of Incorporation, as amended (the "Certificate of Incorporation"),
may be called by (a) the Chairman, (b) a majority of the directors in office,
whether or not a quorum, or (c) the holder of not less than 35% of the
<PAGE> 2
total number of votes of the then outstanding shares of stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
2.4. NOTICE OF MEETINGS.
Notice of any meeting of stockholders, stating the place, date and hour
of the meeting and the purpose or purposes for which the meeting is called shall
be given to each stockholder entitled to vote at such meeting not less than 10
days nor more than 60 days before the date of the meeting (except to the extent
that such notice is waived or is not required as provided in the General
Corporation Law of the State of Delaware (the "Delaware General Corporation
Law")). Such notice shall be given in accordance with, and shall be deemed
effective as set forth in, Section 222 (or any successor section) of the
Delaware General Corporation Law.
2.5. WAIVERS OF NOTICE.
Whenever the giving of any notice is required by statute, the
Certificate of Incorporation or these Bylaws, a waiver thereof, in writing and
delivered to the corporation, signed by the person or persons entitled to said
notice, whether before or after the event as to which such notice is required,
shall be deemed equivalent to notice. Attendance of a stockholder at a meeting
shall constitute a waiver of notice (a) of such meeting, except when the
stockholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting, and (b) of consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the stockholder objects to considering the matter at
the beginning of the meeting.
2.6. BUSINESS AT ANNUAL MEETING.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors or (c) otherwise properly brought before the
meeting by a stockholder.
For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary. To be timely, a stockholder's notice must be received at the
principal executive offices of the Corporation no later than the date designated
for receipt of stockholders' proposals in a prior public disclosure made by the
Corporation. If there has been no such prior public disclosure, then to be
timely, a
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stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the annual meeting; provided, however, that in the event
that less than 70 days' notice of the date of this annual meeting is given to
stockholders or prior public disclosure of the date of the meeting is made,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10th day following the date on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reason
for conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, (d) any material interest of the
stockholder in such business and (e) the same information required by clauses
(b), (c) and (d) above with respect to any other stockholder that, to the
knowledge of the stockholder proposing such business, supports such proposal.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 2.6. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the annual meeting that a matter of business
was not properly brought before its meeting in accordance with the provisions of
this Section 2.6, and if the Chairman should so determine, the Chairman shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
2.7. LIST OF STOCKHOLDERS.
After the record date for a meeting of stockholders has been fixed, at
least 10 days before such meeting, the officer who has charge of the stock
ledger of the Corporation shall make a list of all stockholders entitled to vote
at the meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place in the city where the meeting is
to be held, which place is to be specified in the notice of the meeting, or at
the place where the meeting is to be held. Such list, also shall, for the
duration of the meeting, be produced and kept open to the examination of any
stockholder who is present at the time and place of the meeting. The stock
ledger of the Corporation shall be the only evidence as to the stockholders
entitled to examine the list required by Section 2.7 hereof or to vote in person
or by proxy at any meeting of stockholders.
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2.8. QUORUM AT MEETINGS.
Stockholders may take action on a matter at a meeting only if a quorum
exists with respect to that matter. Except as otherwise provided by statute or
by the Certificate of Incorporation, the holders of a majority of the stock
issued and outstanding and entitled to vote at the meeting, and, who are present
in person or represented by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business. Once a share is represented
for any purpose at a meeting (other than solely to object (a) to holding the
meeting or transacting business at the meeting or (b) to consideration of a
particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice), it is deemed present for quorum purposes for
the remainder of the meeting and for any adjournment of that meeting unless a
new record date is or must be set for the adjourned meeting. The holders of a
majority of the voting shares represented at a meeting, whether or not a quorum
is present, may adjourn such meeting from time to time. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
2.9. VOTING AND PROXIES.
Unless otherwise provided in the Delaware General Corporation Law or in
the Certificate of Incorporation, and subject to the other provisions of these
Bylaws, each stockholder shall be entitled to one vote on each matter, in person
or by proxy, for each share of the Corporation's capital stock that has voting
power and that is held by such stockholder. No proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period. A duly executed appointment of proxy shall be irrevocable if the
appointment form states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power.
2.10. REQUIRED VOTE.
If a quorum exists, action on a matter (other than the election of
directors) is approved if the votes cast favoring the action exceed the votes
cast opposing the action, unless the Certificate of Incorporation or the
Delaware General Corporation Law requires a greater number of affirmative votes
(in which case such different requirement shall apply). Directors shall be
elected by a plurality of the votes cast by the shares entitled to vote in the
election (provided a quorum exists), and the election of directors need not be
by written ballot. The Board of Directors, in its discretion, may require that
any votes cast at such meeting shall be cast by written ballot.
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2.11. ACTION WITHOUT A MEETING.
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders, and may not be effected by any consent in writing by such
stockholders, unless such written consent is unanimous, and the writing or
writings are delivered to the Corporation for inclusion in the Minute Book of
the Corporation.
2.12. INSPECTORS OF ELECTION.
The director or the person presiding at the meeting shall appoint one
or more inspectors of election and any substitute inspectors to act at the
meeting or any adjournment thereof. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the beat of his or her ability. The inspectors shall determine the
number of shares of stock outstanding and the voting power of each, the shares
of stock represented at the meeting, the existence of a quorum, the validity and
effect of proxies and ballots, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, determine and retain for a reasonable period a record of the disposition
of any challenges made to any determination by the inspectors, certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. The inspectors may appoint
and retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors. On request of the person presiding at the
meeting, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them.
3. DIRECTORS
3.1. POWERS.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things, subject to any
limitation set forth in the Certificate of Incorporation, these Bylaws or
agreements among stockholders which are otherwise lawful.
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3.2. NUMBER AND ELECTION.
The number of directors which shall constitute the whole board shall
not be fewer than three nor more than 14. If, but only for so long as, any
shares of Series A Convertible Preferred Stock are outstanding, then, if a
"Triggering Event," as that term is defined in the Certificate of Designation,
Number, Powers, Preferences and Relative, Participating, Optional and other
Rights of Series A Convertible Preferred Stock (the "Certificate of
Designation") occurs and is continuing, the maximum number of directors shall be
increased to such number, not to exceed 20, that is sufficient to enable the
holders of Series A Convertible Preferred Stock to designate such number of
additional directors to the Board of Directors as permitted upon the occurrence
of a Triggering Event. Within the limits specified, the number of directors
shall be determined by resolution of the Board of Directors. Except as otherwise
provided in the Certificate of Designation, directors shall be elected only by
stockholders at annual meetings of stockholders, other than the initial board of
directors and except as provided in Section 3.3 hereof in the case of vacancies
and newly created directorships. Each director elected shall hold office for the
term for which such director is elected and until such director's successor is
elected and qualified or until such director's earlier resignation or removal.
3.3. VACANCIES.
Except as otherwise provided in the Certificate of Designation,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors shall be filled, for the unexpired term, by the
concurring vote of a majority of the directors then in office, whether or not a
quorum, and any director so chosen shall hold office for the remainder of the
full term of the class of directors in which the new directorship was created or
the vacancy occurred and until such director's successor shall have been elected
and qualified or until such director's earlier death, resignation or removal.
3.4. CLASSES; TERMS OF OFFICE.
Unless otherwise provided in the Certificate of Incorporation or the
Certificate of Designation, the Board of Directors shall divide the directors
into three classes; and, when the number of directors is changed, shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall affect the term of any director then in office. At
each annual meeting of stockholders, directors elected to succeed those whose
terms are expiring shall be elected for a term of office expiring at the annual
meeting of stockholders held in the third year following their election and
until their respective successors are elected and qualified, or until such
director's earlier death, resignation or removal.
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3.5. NOMINATION OF DIRECTORS.
Except as otherwise provided in the Certificate of Designation,
nominations of persons for election to the Board of Directors may be made by the
Board of Directors, or by any stockholder of the Corporation entitled to vote
for the election of directors at the annual meeting who complies with the notice
procedures set forth in this Section 3.5. Nominations by stockholders shall be
made pursuant to timely notice in writing to the Secretary. To be timely, a
stockholder's notice shall be received at the principal executive offices of the
Corporation no later than the date designated for receipt of stockholders'
proposals in a prior public disclosure made by the Corporation. If there has
been no such prior public disclosure, then to be timely, a stockholders
nomination must be delivered to or mailed and received at the principal
executive offices of the Corporation not less than 60 days nor more than 90 days
prior to the annual meeting; provided, however, that in the event that less than
70 days' notice of the date of the meeting is given to stockholders or prior
public disclosure of the date of the meeting is made, notice by the stockholder
to be timely must be so received not later than the close of business on the
10th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. Such stockholder's notice
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or reelection as a director, (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
Corporation which are beneficially owned by such person, and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving notice (i) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
nomination, and (ii) the class and number of shares of the Corporation which are
beneficially owned by the stockholder. No person shall be eligible for election
as a director of the Corporation unless nominated in accordance with the
procedures set forth in this Section 3.5. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the annual meeting that a nomination
was not made in accordance with the provisions of this Section 3.5, and if the
Chairman should so determine, the Chairman shall so declare to the meeting and
the defective nomination shall be disregarded.
3.6. MEETINGS.
(a) REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board of Directors.
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(b) SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by the
Chairman, the Vice Chairman, a majority of the Board of Directors or Chief
Executive Officer on one day's notice to each director, either personally or by
telephone, express delivery service (so that the scheduled delivery date of the
notice is at least one day in advance of the meeting), telegram or facsimile
transmission, and on five days' notice by mail (effective upon deposit of such
notice in the mail). The notice need not describe the purpose of a special
meeting.
(c) TELEPHONE MEETINGS.
Members of the Board of Directors may participate in a meeting of the
Board of Directors by means of conference telephone or similar communications
equipment by means of which all participating directors can simultaneously hear
each other during the meeting. A director participating in a meeting by this
means is deemed to be present in person at the meeting.
(d) ACTION WITHOUT MEETING.
Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if all members of the Board of
Directors consent thereto in writing, and the writing or writings are delivered
to the Corporation for inclusion in the Minute Book of the Corporation.
(e) WAIVER OF NOTICE OF MEETING; PRESUMPTION OF ASSENT.
A director may waive any notice required by statute, the Certificate of
Incorporation or these Bylaws before or after the date and time stated in the
notice. Except as set forth below, the waiver must be in writing, signed by the
director entitled to the notice, and delivered to the Corporation for inclusion
in the Minute Book of the Corporation. Notwithstanding the foregoing, a
director's attendance at or participation in a meeting waives any required
notice to the director of the meeting unless the director at the beginning of
the meeting objects to holding the meeting or transacting business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting. A director who is present at a meeting is presumed to have assented to
any action taken unless such director enters a dissent or abstention in the
minutes of the meeting or files a written dissent to such action no later than
five days after such director receives a copy of the minutes of the meeting,
provided that the right to dissent shall not apply to a director who votes in
favor of such action.
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(f) QUORUM AND VOTE AT MEETINGS.
At all meetings of the Board of Directors, a quorum of the Board of
Directors consists of a majority of the total number of directors prescribed
pursuant to Section 3.2 hereof (or, if no number is prescribed, the number in
office immediately before the meeting begins). The vote of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation or by these Bylaws. In the
absence of a quorum for any meeting of the Board of Directors, a majority of the
directors present thereat may adjourn such meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
3.7. COMPENSATION OF DIRECTORS.
The Board of Directors shall have the authority to fix the compensation
of directors. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
4. COMMITTEES
4.1. CREATION OF COMMITTEES.
The Board of Directors may by resolution create one or more committees
including, but not limited to, an Executive Committee, and appoint members of
the Board of Directors to serve on them. The Board of Directors shall create (a)
an Audit Committee for the purpose of examining and considering matters relating
to the financial affairs of the Corporation, and (b) a Compensation Committee
for the purpose of establishing and implementing an executive compensation
policy. Each committee may have one or more members, who serve at the pleasure
of the Board of Directors, provided that the Audit Committee and the
Compensation Committee shall consist of at least a majority of non-employee
directors. The creation of a committee and appointment of members to it shall be
approved by a majority of all the directors in office when the action is taken,
whether or not a quorum. The same rules that govern meetings, action without
meetings, notice and waiver of notice, and quorum and voting requirements of the
Board of Directors apply to committees and their members as well.
4.2. COMMITTEE AUTHORITY.
To the extent specified by the Board of Directors or in the Certificate
of Incorporation, each committee may exercise the authority of the Board of
Directors, except that a committee
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may not: (i) approve or recommend to stockholders action that is required by law
to be approved by stockholders; (ii) fill vacancies on the Board of Directors or
on any of its committees; (iii) amend the Certificate of Incorporation; (iv)
adopt, amend or repeal these Bylaws; (v) approve a plan of merger not requiring
stockholder approval; (vi) authorize or approve a distribution, except according
to a general formula or method prescribed by the Board of Directors; or (vii)
authorize or approve the issuance or sale or contract for sale of shares, or
determine the designation and relative rights, preferences and limitations of a
class or series of shares, except that the Board of Directors may authorize a
committee, or a senior executive officer of the Corporation, to do so within the
limits specifically prescribed by the Board of Directors.
5. OFFICERS
5.1. POSITIONS.
The officers of the Corporation shall be a Chairman, Vice Chairman, a
Chief Executive Officer, a Chief Financial Officer, a Chief Operating Officer, a
President, a Secretary and a Treasurer, and such other officers as the Board of
Directors (or an officer authorized by the Board of Directors) from time to time
may appoint, including one or more Executive Vice Presidents, Vice Presidents,
Assistant Secretaries and Assistant Treasurers. Each such officer shall exercise
such powers and perform such duties as shall be set forth below and such other
powers and duties as from time to time may be specified by the Board of
Directors or by any officer(s) authorized by the Board of Directors to prescribe
the duties of such other officers. Any number of offices may be held by the same
person.
5.2. POWERS.
(a) Each officer shall have, in addition to the duties and powers set
forth herein, such duties and powers as are commonly incident to such officer's
office and such additional duties and powers as the Board of Directors may from
time to time authorize.
(b) Powers of attorney, proxies, waivers of notice of meetings,
consents and other instruments relating to securities or partnership interests
owned by the Corporation may be executed in the name of and on behalf of the
Corporation by the Chairman, the Chief Executive Officer or the President and
any such officer may, in the name of and on behalf of the Corporation, take all
such action as any such officer may deem advisable to vote in person or by proxy
at any meeting of security holders of any corporation in which the Corporation
may own securities, or at any meeting of any partnership in which the
Corporation owns an interest at any such meeting, and shall possess and may
exercise any and all rights and powers incident to the
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ownership of such securities or partnership interest and which, as the owner
thereof, the Corporation might have possessed and exercised if present.
5.3. CHAIRMAN.
The Chairman shall (when present) preside at all meetings of the Board
of Directors and stockholders, and shall ensure that all orders and resolutions
of the Board of Directors and stockholders are carried into effect. The Chairman
may execute bonds, mortgages and other contracts, under the seal of the
Corporation, if required, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or
agent of the Corporation.
5.4. VICE CHAIRMAN.
The Vice Chairman shall, in the absence of the Chairman, preside at all
meetings of the Board of Directors and stockholders and, without limiting the
foregoing, shall when serving in such capacity exercise the powers vested in the
Chairman in Sections 2.6 and 3.5. The Vice Chairman may execute bonds, mortgages
and other contracts, under the seal of the Corporation, if required, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the Corporation.
5.5. CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer of the Corporation shall have overall
responsibility and authority for the Corporation's strategic planning and for
evaluating potential mergers and acquisitions and new business opportunities,
subject to the authority of the Board of Directors and the Management Operations
Committee. The Chief Executive Officer may execute bonds, mortgages and other
contracts, under the seal of the Corporation, if required, except where required
or permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation, provided that the
Chief Executive, in the absence of the President, may sign or execute any
document or instrument where the signing and execution thereof shall be
expressly delegated to the "President" of the Corporation.
5.6. CHIEF OPERATING OFFICER.
The Chief Operating Officer of the Corporation shall have overall
responsibility and authority for the technical systems, sales and marketing and
customer service operations of the
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Corporation, subject to the authority of the Board of Directors and the
Management Operations Committee.
5.7. CHIEF FINANCIAL OFFICER.
The Chief Financial Officer of the Corporation shall have overall
responsibility and authority for the financial affairs of the Corporation
including, without limitation, oversight of the Corporation's accounting,
inventory, management information systems, internal audit and billing functions,
subject to the authority of the Board of Directors and the Management Operations
Committee.
5.8. PRESIDENT.
The President, subject to the authority of the Board of Directors,
shall have general charge and supervision of the business of the Corporation,
and shall have such duties and powers as shall be designated from time to time
by the Board of Directors. The President may execute bonds, mortgages and other
contracts, under the seal of the Corporation, if required, except where required
or permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
5.9. VICE PRESIDENT.
Any Vice President shall have such duties and powers as shall be set
forth in these Bylaws or as shall be designated from time to time by the Board
of Directors or by the Chairman, the Chief Executive Officer or the President.
Any Vice President may execute bonds, mortgages and other documents under the
seal of the Corporation, except where required or permitted by law to be
otherwise executed and except where the execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
Corporation.
5.10. SECRETARY.
The Secretary shall have responsibility for preparation of minutes of
meetings of the Board of Directors and of the stockholders and for
authenticating records of the Corporation. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of the
Board of Directors. The Secretary or an Assistant Secretary also may attest all
instruments signed by any other officer of the Corporation.
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5.11. ASSISTANT SECRETARY.
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors (or if there shall
have been no such determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of the Secretary's inability or
refusal to act, perform the duties and exercise the powers of the Secretary.
5.12. TREASURER.
The Treasurer shall have responsibility for the custody of the
corporate funds and securities and shall see to it that full and accurate
accounts of receipts and disbursements are kept in books belonging to the
Corporation. The Treasurer shall render to the Chairman, the Vice Chairman, the
Chief Executive Officer, the President, the Vice President, and the Board of
Directors, upon request, an account of all financial transactions and of the
financial condition of the Corporation.
5.13. ASSISTANT TREASURER.
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors (or if
there shall have been no such determination, than in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer.
5.14. MANAGEMENT OPERATIONS COMMITTEE.
The Management Operations Committee shall be comprised of the Vice
Chairman, who shall serve as the Chairman of such Committee, the Chief Executive
Officer, the Chief Operating Officer and the Chief Financial Officer. The
responsibilities of the Management Operations Committee shall include
development of a business plan of the Corporation which addresses acquisition,
strategies, the integration of the businesses of the Corporation and that of any
acquired entities, including FirstPAGE USA, Inc. and MetroPaging, Inc. (formerly
AllCity Paging, Inc.), development of a strategy for exploitation of nationwide
licenses held by the Corporation, development of sales, marketing and
distribution strategies of the Corporation, coordination of the integrated
management and daily operations of the Corporation and in general recommend to
the Board of Directors of such other initiatives as the Management Operations
Committee considers appropriate to further the growth and successful operations
of the Corporation, subject to the authority of the Board of Directors.
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5.15. TERM OF OFFICE.
The officers of the Corporation shall hold office until their
successors are chosen and qualified or until their death, earlier resignation or
removal. Any officer may resign at any time upon written notice to the
Corporation. Any officer elected or appointed by the Board of Directors may be
removed at any time, with or without cause, by the affirmative vote of a
majority of the Board of Directors
5.16. COMPENSATION.
(a) The Board of Directors shall determine the salary and bonus
for the Senior Officers of the Corporation and approve the employment contracts
of the Senior Officers (where "Senior Officers" means the officers of the
Corporation at the level of executive vice president and above), unless the
Board expressly delegates such authority to the Compensation Committee or
another committee of the Board. The Compensation Committee shall set the salary
and bonuses for other officers of the Corporation but may delegate the
determination of specific levels for such officers to the Senior Officers in
consultation with the Compensation Committee.
(b) The Compensation Committee may only make grants of stock
options to Senior Officers, if either the Board of Directors subsequently
ratifies the grants or the Board expressly approves the future making of such
grants.
(c) Notwithstanding the provisions in subsections (a) and (b)
above and unless the Board directs otherwise, the Compensation Committee may
grant options for up to 50,000 shares of Common Stock to a newly-hired Senior
Officer (other than a chief executive officer) and may establish an initial
salary for a newly-hired Senior Officer, which salary shall remain in effect
until the next regularly-scheduled meeting of the Board, at which time the
provisions of subsection (a) above shall apply.
(d) The Compensation Committee shall retain all other functions
and responsibilities ascribed to it under the Corporation's option and
compensation plans, except as the Board decides to act in its stead.
5.17. FIDELITY BONDS.
The Corporation may secure the fidelity of any or all of its officers
or agents by bond or otherwise.
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6. CAPITAL STOCK.
6.1. CERTIFICATES OF STOCK; UNCERTIFICATED SHARES.
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors may provide by resolution that some or all
of any or all classes or series of the Corporation's stock shall be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates, and upon request every holder
of uncertificated shares, shall be entitled to have a certificate (representing
the number of shares registered in certificate form) signed in the name of the
Corporation by the Chairman, the Vice Chairman, the Chief Executive Officer, the
President, or any Vice President, and by the Treasurer, Secretary or any
Assistant Treasurer or Assistant Secretary. Any or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
whose signature or facsimile signature appears on a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
6.2. LOST CERTIFICATES.
The Board of Directors, Chairman, Vice Chairman, Chief Executive
Officer, President or Secretary may direct a new certificate of stock to be
issued in place of any certificate theretofore issued by the Corporation and
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming that the certificate of stock has been lost,
stolen or destroyed. When authorizing such issuance of a new certificate, the
Board of Directors or any such officer may, as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or such owner's legal representative, to advertise
the same in such manner as the Board of Directors or such officer shall require
and/or to give the Corporation a bond, in such sum as the Board of Directors or
such officer may direct, as indemnity against any claim that may be made against
the Corporation on account of the certificate alleged to have been lost, stolen
or destroyed or an account of the issuance of such new certificate or
uncertified shares.
6.3. RECORD DATE.
(a) ACTIONS BY STOCKHOLDERS.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders (or to take any other
action), the Board of Directors may fix a
15
<PAGE> 16
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and shall
not be less than 10 nor more than 60 days before the meeting or action requiring
a determination of stockholders.
In order that the Corporation may determine the stockholders entitled to
consent to corporate action without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and shall
not be more than 10 days after the date upon which the resolution fixing the
record date is adopted by the Board of Directors.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting,
unless the Board of Directors fixes a new record date.
If no record date is fixed by the Board of Directors, the record date
shall be at the close of business on the day next preceding the day on which the
notice is given, or if notice is not required or is waived, at the close of
business on the day next preceding the day on which the meeting is held or such
other action is taken, except that (if no record date is established by the
Board of Directors) the record date for determining stockholders entitled to
consent to corporate action without a meeting is the first date on which a
stockholder delivers a signed written consent to the Corporation for inclusion
in the Minute Book of the Corporation.
(b) PAYMENTS.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than 60 days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(c) STOCKHOLDERS OF RECORD.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, to
receive notifications, to vote as such owner, and to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part
16
<PAGE> 17
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise may be provided by the Delaware General Corporation
Law.
7. INSURANCE
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation
(or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) against liability
asserted against or incurred by such person in such capacity or arising from
such person's status as such (whether or not the corporation would have the
power to indemnify such person against the same liability).
8. INDEMNIFICATION
8.1. INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN
THOSE BY OR IN RIGHT OF THE CORPORATION.
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether criminal, administrative or
investigative) by reason of fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe that such conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
unreasonable cause to believe that such conduct was unlawful.
(b) This Corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was an
17
<PAGE> 18
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, if such person acted in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that such conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such conduct was unlawful.
8.2. INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION.
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that such person is or was
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the Corporation. No
such indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(b) The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was an
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner which such person reasonably
18
<PAGE> 19
believed to be in or not opposed to the best interests of the Corporation. No
such indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
8.3. AUTHORIZATION OF INDEMNIFICATION.
Any indemnification under this Section 8 shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person or persons have met the applicable standard of
conduct set forth in Sections 8.1 and 8.2 hereof. Such determination shall be
made (a) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel, in a written
opinion, or (c) by a majority of the stockholders entitled to vote generally in
the election of directors.
8.4. ADVANCEMENT OF EXPENSES.
The Corporation may advance expenses (including attorneys' fees)
incurred by a director or officer in advance of the final disposition of such
action, suit or proceeding upon the receipt of an undertaking by or on behalf of
the director or officer to repay such amount if it shall ultimately be
determined that such director or officer is not entitled to indemnification.
The Corporation may advance expenses (including attorneys' fees)
incurred by any employee or agent in advance of the final disposition of such
action, suit or proceeding upon such terms and condition, if any, as the Board
of Directors deems appropriate.
9. GENERAL PROVISIONS
9.1. INSPECTION OF BOOKS AND RECORDS.
Any stockholder, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the Corporation's
stock ledger, a list of its stockholders, and its other books and records, and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every instance
where
19
<PAGE> 20
an attorney or other agent shall be the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing which authorizes the attorney or other agent to so act an
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office or at its principal place of business.
9.2. DIVIDENDS.
The Board of Directors may declare dividends upon the capital stock of
the Corporation, subject to the provisions of the Certificate of Incorporation
and the laws of the State of Delaware.
9.3. RESERVES.
The Board of Directors may set apart, out of the funds of the
Corporation available for dividends, a reserve or reserves for any proper
purpose and may abolish any such reserve.
9.4. EXECUTION OF INSTRUMENTS.
All checks, drafts or other orders for the payment of money, and
promissory notes of the Corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
9.5. FISCAL YEAR.
The fiscal year of the Corporation shall begin on January 1 and end on
December 31.
9.6. SEAL.
The corporate seal shall be in such form as the Board of Directors
shall approve. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
10. AMENDMENTS TO BYLAWS
The Board of Directors may from time to time adopt, amend and repeal
these Bylaws. Such action by the Board of Directors shall require the
affirmative vote of at least a majority of the directors then in office.
Stockholders may from time to time adopt, amend and repeal these Bylaws by the
affirmative vote of the majority of shares present in person or represented by
proxy and entitled to vote on the matter at a stockholders meeting, voting
together as a single class.
20
<PAGE> 21
CERTIFICATE
The undersigned, being the duly appointed Assistant Secretary of
Metrocall, Inc. (the "Corporation"), hereby certifies the foregoing to be the
Bylaws of the Corporation as in effect on February 3, 1999.
/s/Shirley B. White
-------------------
Shirley B. White
21
<PAGE> 1
EXHIBIT 4.5
THIS SUPPLEMENTAL INDENTURE, dated as of May 28, 1996, is between
PRONET INC., a corporation duly organized and existing under the laws of the
State of Delaware (the "Company"), and FIRST INTERSTATE BANK OF TEXAS, N.A.,
acting as Trustee under the Existing Indenture referred to below (the
"Trustee").
W I T N E S S E T H:
WHEREAS, the Company duly authorized the execution and delivery
of an indenture dated as of June 15, 1995 (the "Existing Indenture") to provide
for the issuance of its 11-7/8% Senior Subordinated Notes due 2005 (the
"Securities"), up to principal amount of $100,000,000;
WHEREAS, the Company has duly authorized the execution and
delivery of an indenture (the "New Indenture") to provide for the issuance of
Senior Subordinated Notes due 2006 up to principal amount of $100,000,000;
WHEREAS, the Company has duly authorized the execution and
delivery of this Supplemental Indenture deleting certain definitions and
amending certain covenants and events of default so as to make the terms and
conditions of the Existing Indenture conform to the terms and conditions of the
New Indenture;
WHEREAS, Section 9.2 of the Indenture authorizes the Company and
the Trustee, in accordance with the terms thereof, to enter into a supplement to
the Existing Indenture with the consent of the holders of the Securities;
WHEREAS, the Company has requested the Trustee, and the Trustee
has agreed, to join in the execution of this Supplemental Indenture pursuant to
Section 9.2 of the Existing Indenture on the terms and subject to the conditions
set forth below; and
WHEREAS, all acts and things necessary to make this Supplemental
Indenture a valid agreement of the Company according to its terms have been done
and performed, and the execution and delivery of this Supplemental Indenture
have in all respects been duly authorized.
In consideration of the premises, of the purchase and acceptance
of the Securities by the Holders thereof and of the sum of one dollar duly paid
to it by the Trustee at the execution and delivery of these presents, the
receipt whereof is hereby acknowledged, the Company covenants and agrees with
the Trustee for the equal and proportionate benefit of the respective Holders
from time to time of the Securities or of any series thereof, as follows:
SECTION 1. DEFINED TERMS
1.1 Defined Terms. Capitalized terms herein, not otherwise
defined, shall have the meanings given them in the Existing Indenture.
<PAGE> 2
SECTION 2. AMENDMENTS
2.1 Amendment to Section 1.1 of the Indenture. Section 1.1 of
the Existing Indenture is hereby amended by deleting the definitions of
"Capital Expenditures" and "Free Cash Flow" in their entirety.
2.2 Amendment to Section 4.9 of the Existing Indenture.
Section 4.9 of the Existing Indenture is hereby amended by (a) deleting the
first two paragraphs of such Section in their entirety and (b) inserting in
lieu thereof the following:
"The Company may not, and may not permit its Subsidiaries
to, directly or indirectly, create, incur, assume, become liable
for or guarantee the payment of (collectively, "incur") any Debt
(including Acquired Debt), provided, however, that the Company
may incur Debt (including Acquired Debt) and may permit a
Subsidiary to incur Acquired Debt if immediately thereafter the
ratio of the aggregate principal amount of Debt of the Company
and its Subsidiaries outstanding as of the most recent available
quarterly or annual balance sheet to the product of four times
Pro Forma Consolidated Cash Flow for the preceding full fiscal
quarter, determined on a pro forma basis as if any such Debt had
been incurred and the proceeds thereof had been applied at the
beginning of such fiscal quarter, would be less than 6.0 to 1.
Notwithstanding the foregoing, the Company may, and may
permit its Subsidiaries to, incur the following without regard to
the foregoing limitation and without duplication: (i) Debt of the
Company under the Credit Facility in an aggregate principal
amount not to exceed $125 million at any one time outstanding;
(ii) Guarantees by Subsidiaries of Debt of the Company under the
Credit Facility; (iii) Debt of the Company evidenced by the
Securities; (iv) Debt owed by the Company to any wholly owned
Subsidiary of the Company or owed by any wholly owned Subsidiary
of the Company to the Company or any other wholly owned
Subsidiary of the Company (but only so long as such Debt is held
by the Company or such wholly owned Subsidiary); (v) Debt
outstanding on the date the Securities are originally issued
under the indenture; (vi) Permitted Deferred Payments; (vii) Debt
arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business, provided
that such Debt is extinguished within two Business Days of its
occurrence; (viii) Refinancing Debt; and (ix) renewals of
Guarantees permitted by clause (ii) above."
2.3 Amendment to Section 4.11 of the Existing Indenture.
Section 4.11 of the Existing Indenture is hereby amended by (a) deleting
Section 4.11 in its entirety and (b) inserting in lieu thereof the following:
2
<PAGE> 3
"Section 4.11. Limitations on Restricted Payments. The
Company may not, and may not permit any of its Subsidiaries to,
(i) directly or indirectly, declare or pay any dividend, or make
any distribution, in respect of its Capital Stock or to the
holders thereof (including pursuant to a merger or consolidation
of the Company, but excluding any dividends or distributions
payable solely in shares of its Capital Stock (other than
Redeemable Stock) or in options, warrants or other rights to
acquire its Capital Stock (other than Redeemable Stock)), other
than dividends or distributions payable to the Company or any
wholly owned Subsidiary of the Company, or by a Subsidiary of the
Company to a holder who is not the Company or a wholly owned
Subsidiary of the Company, provided that such dividend or
distribution is paid to all of the holders of the Capital Stock
of the payor of such dividend, pro rata in accordance with their
respective interests, (ii) directly or indirectly, purchase,
redeem or otherwise acquire or retire for value (a) any Capital
Stock of the Company or any Related Person or (b) any options,
warrants, or rights to purchase or acquire shares of Capital
Stock of the Company or any Related Person, (iii) make any loan,
advance, capital contribution to or investment in, or payment on
a Guarantee of any obligation of any Affiliate or any Related
Person (other than the Company or a Subsidiary of the Company),
inclusive of any loan, advance, capital contribution to or
investment in, or payment on a Guarantee of any obligation of any
Affiliate or Related Person by the Company pursuant to a
transaction whereby any such Affiliate or Related Person becomes
an Affiliate or Related Person, but exclusive of any loan,
advance, capital contribution to or investment in, or payment on
a Guarantee of any obligation of, any Person by the Company or a
Subsidiary of the Company pursuant to a transaction whereby any
such Person becomes a Subsidiary of the Company, in each case
unless otherwise prohibited by the terms of this Indenture, or
(iv) redeem, defease, repurchase, retire or otherwise acquire or
retire for value prior to any scheduled maturity, repayment or
sinking fund payment (other than with the proceeds of Refinancing
Debt), Debt of the Company which is subordinate in right of
payment to the Securities (each of clauses (i) through (iv) being
a "Restricted Payment"), if at the time of such Restricted
Payment, or after giving effect thereto: (1) an Event of Default,
or an event that with the lapse of time or the giving of notice,
or both, would constitute an Event of Default, shall have
occurred and be continuing, (2) the Company could not incur $1.00
of additional Debt under the first paragraph of Section 4.9
hereof, or (3) the aggregate of all Restricted Payments from the
date of the Indenture exceeds the sum of: (a) the remainder of
(x) 100% of cumulative Consolidated Cash Flow after June 30, 1996
through the last day of the last full fiscal quarter immediately
preceding such Restricted Payment for which quarterly or annual
financial statements of the Company are available minus (y) the
product of 2.0 times cumulative Consolidated Fixed Charges after
June 30, 1996 through the last day of the last full fiscal
quarter immediately preceding such Restricted Payment for which
quarterly or annual financial statements of the Company are
available; and
3
<PAGE> 4
(b) 100% of the aggregate net proceeds from the issuance, after
June 30, 1996, of Capital Stock (other than Redeemable Stock) of
the Company and options, warrants or other rights on Capital
Stock (other than Redeemable Stock) of the Company and the
principal amount of Debt of the Company that has been converted,
after June 30, 1996, into Capital Stock (other than Redeemable
Stock) of the Company.
The foregoing provision will not be violated by reason of
(i) the payment of any dividend within 60 days after declaration
thereof if at the declaration date such payment would have
complied with the foregoing provision; (ii) the purchase,
redemption, acquisition or retirement of any shares of Capital
Stock of the Company in exchange for, or out of the net proceeds
of the substantially concurrent sale (other than to a Subsidiary
of the Company) of, other shares of Capital Stock (other than
Redeemable Stock) of the Company; (iii) the purchase, redemption,
defeasance or other acquisition or retirement of Debt of the
Company which is subordinate in right of payment to the
Securities, in exchange for, by conversion into, or out of the
net proceeds of, a substantially concurrent (a) issue or sale
(other than to a Subsidiary) of Capital Stock (other than
Redeemable Stock) of the Company, or (b) incurrence of
Refinancing Debt with respect to such subordinated Debt; or (iv)
investments in telecommunications businesses in an aggregate
amount not exceeding $20.0 million; provided that no Default or
Event of Default shall have occurred and be continuing at the
time, or shall occur as a result, of any of the actions
contemplated in clauses (ii) and (iii) above. Any payment made
pursuant to clauses (i) through (iii) (other than subclause
(iii)(b)) of this paragraph shall be a Restricted Payment for
purposes of calculating aggregate Restricted Payments under the
preceding paragraph."
2.4 Amendment to Section 6.1 of the Existing Indenture.
Section 6.1 of the Existing Indenture is hereby amended by (a)
deleting paragraphs (g) and (h) of such Section in their entirety
and (b) inserting in lieu thereof the following:
"(g) final judgment or judgments for the payment of money
which in the aggregate at any one time exceeds $5 million shall
be rendered against the Company or any Subsidiary of the Company
by a court of competent jurisdiction and shall not have been
vacated, discharged, satisfied or stayed within 60 days after
such judgment becomes final and nonappealable; or
(h) a default shall have occurred under any bonds,
debentures, notes or other evidences of indebtedness of the
Company or any Subsidiary of the Company or under any mortgages,
indentures or instruments under which there may be issued or by
which there may be secured or evidenced any indebtedness by the
Company or any Subsidiary of the Company, in any case with a
principal amount of at least $5 million outstanding, and such
indebtedness already is due and payable
4
<PAGE> 5
in full or such default has resulted in the acceleration of the
maturity of such indebtedness, in each case after a period of
five days during which period such default shall not have been
cured or such acceleration shall not have been rescinded."
-----------------------
5
<PAGE> 6
IN WITNESS WHEREOF, ProNet Inc. has caused this Supplemental
Indenture to be signed, and acknowledged by its President, its Chairman of the
Board, one of its Vice Presidents, its Chief Financial Officer or its Treasurer,
and its corporate seal to be affixed hereunto, and the same to be attested by
its Secretary, its Assistant Secretary or one of its Attesting Secretaries, and
First Interstate Bank of Texas, N.A., as Trustee, has caused this Supplemental
Indenture to be signed and acknowledged by one of its authorized officers, and
its corporate seal to be affixed hereunto, and the same to be attested by one of
its authorized officers, as of the day and year first above written.
PRONET INC.
By:
--------------------------
Vice President
Attest:
- ---------------------------------
Assistant Secretary
FIRST INTERSTATE BANK OF TEXAS,
N.A., as Trustee
By:
------------------------------
Jeffrey D. Dunbar
Assistant Vice President
Corporate Trust Officer
Attest:
- ----------------------------------
Christina Faith
Assistant Vice President
Corporate Trust Officer
6
<PAGE> 1
EXHIBIT 10.35
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated December 22, 1998
between
METROCALL, INC.,
and
MORGAN STANLEY & CO. INCORPORATED,
NATIONSBANC MONTGOMERY SECURITIES LLC,
TD SECURITIES (USA) INC.
FIRST UNION CAPITAL MARKETS CORP. and
BANCBOSTON ROBERTSON STEPHENS INC.
- --------------------------------------------------------------------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into December 22, 1998, among METROCALL, INC., a Delaware corporation
(the "Company"), and MORGAN STANLEY & CO. INCORPORATED, NATIONSBANC MONTGOMERY
SECURITIES LLC, TD SECURITIES (USA) INC., FIRST UNION CAPITAL MARKETS, a
division of Wheat First Securities, Inc., and BANCBOSTON ROBERTSON STEPHENS INC.
(the "Placement Agents").
This Agreement is made pursuant to the Placement Agreement dated
December 17, 1998 (the "Placement Agreement"), between the Company and Morgan
Stanley & Co. Incorporated, as representative of the Placement Agents, which
provides for the sale by the Company to the Placement Agents of an aggregate of
$250,000,000 principal amount of the Company's 11% Senior Subordinated Notes Due
2008 (the "Securities"). In order to induce the Placement Agents to enter into
the Placement Agreement, the Company has agreed to provide to the Placement
Agents and their direct and indirect transferees the registration rights set
forth in this Agreement. The execution of this Agreement is a condition to the
closing under the Placement Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from time
to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Closing Date" shall mean the Closing Date as defined in the Placement
Agreement.
"Company" shall have the meaning set forth in the preamble and shall
also include the Company's successors.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2(a)
hereof.
<PAGE> 3
2
"Exchange Offer Registration" shall mean a registration under the 1933
Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Exchange Securities" shall mean securities issued by the Company under
the Indenture containing terms identical to the Securities (except that (i)
interest thereon shall accrue from the last date on which interest was paid
on the Securities or, if no such interest has been paid, from December 22,
1998, (ii) the Exchange Securities will not contain terms with respect to
transfer restrictions and (iii) the Exchange Securities will not contain
terms providing for additional interest if the Company fails to comply with
its exchange obligations under this Agreement) and to be offered to Holders
of Securities in exchange for Securities pursuant to the Exchange Offer.
"Holder" shall mean the Placement Agents, for so long as they own any
Registrable Securities, and each of their successors, assigns and direct
and indirect transferees who become registered owners of Registrable
Securities under the Indenture; provided that for purposes of Sections 4
and 5 of this Agreement, the term "Holder" shall include Participating
Broker-Dealers (as defined in Section 4(a)).
"Indenture" shall mean the Indenture relating to the Securities dated
as of December 22, 1998, between the Company and First Union National Bank,
trustee, and as the same may be amended from time to time in accordance
with the terms thereof.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities; provided
that whenever the consent or approval of Holders of a specified percentage
of Registrable Securities is required hereunder, Registrable Securities
held by the Company or any of its affiliates (as such term is defined in
Rule 405 under the 1933 Act) (other than the Placement Agents or subsequent
holders of Registrable Securities if such subsequent holders are deemed to
be such affiliates solely by reason of their holding of such Registrable
Securities) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage or amount.
<PAGE> 4
3
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
"Placement Agents" shall have the meaning set forth in the preamble.
"Placement Agreement" shall have the meaning set forth in the preamble.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to such prospectus,
and in each case including all material incorporated by reference therein.
"Registrable Securities" shall mean the Securities; provided, however,
that the Securities shall cease to be Registrable Securities (i) when a
Registration Statement with respect to such Securities shall have been
declared effective under the 1933 Act and such Securities shall have been
disposed of pursuant to such Registration Statement, (ii) when such
Securities have been sold to the public pursuant to Rule 144(k) (or any
similar provision then in force, but not Rule 144A) under the 1933 Act or
(iii) when such Securities shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or
blue sky laws (including reasonable fees and disbursements of counsel for
any underwriters or Holders in connection with blue sky qualification of
any of the Exchange Securities or Registrable Securities), (iii) all
expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting
agreements, securities sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating agency
fees, (v) all fees and disbursements relating to the qualification of the
Indenture under applicable securities laws, (vi) the fees and disbursements
of the Trustee and its counsel, (vii) the fees and disbursements of counsel
for the Company and, in the case of a Shelf Registration Statement, the
reasonable fees and disbursements of one counsel for the Holders (which
counsel shall be selected by the Majority Holders and which counsel may
also be counsel for the Placement Agents)
<PAGE> 5
4
and (viii) the fees and disbursements of the independent public accountants
of the Company, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and
compliance, but excluding fees and expenses of counsel to the underwriters
(other than fees and expenses set forth in clause (ii) above) or the
Holders and underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of Registrable Securities by a
Holder.
"Registration Statement" shall mean any registration statement of the
Company that covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement and all amendments
and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Securities (but no other
securities unless approved by the Holders whose Registrable Securities are
covered by such Shelf Registration Statement) on an appropriate form under
Rule 415 under the 1933 Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Trustee" shall mean the trustee with respect to the Securities under
the Indenture.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration in which Registrable Securities are sold to an Underwriter (as
hereinafter defined) for reoffering to the public.
2. Registration Under the 1933 Act.
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Company shall use its best efforts
to cause to be filed an Exchange Offer Registration Statement covering the offer
by the Company to the
<PAGE> 6
5
Holders to exchange all of the Registrable Securities for Exchange Securities
and to have such Registration Statement remain effective until the closing of
the Exchange Offer. The Company shall commence the Exchange Offer promptly after
the Exchange Offer Registration Statement has been declared effective by the SEC
and use its best efforts to have the Exchange Offer consummated not later than
60 days after such effective date. The Company shall commence the Exchange Offer
by mailing the related exchange offer Prospectus and accompanying documents to
each Holder stating, in addition to such other disclosures as are required by
applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities
validly tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a
period of at least 20 business days from the date such notice is
mailed) (the "Exchange Dates");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue interest, but will not retain any
rights under this Agreement;
(iv) that Holders electing to have a Registrable Security
exchanged pursuant to the Exchange Offer will be required to surrender
such Registrable Security, together with the enclosed letters of
transmittal, to the institution and at the address (located in the
Borough of Manhattan, The City of New York) specified in the notice
prior to the close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their
election, not later than the close of business on the last Exchange
Date, by sending to the institution and at the address (located in the
Borough of Manhattan, The City of New York) specified in the notice a
telegram, telex, facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Registrable Securities
delivered for exchange and a statement that such Holder is withdrawing
his election to have such Securities exchanged.
As soon as practicable after the last Exchange Date, the
Company shall:
(i) accept for exchange Registrable Securities or portions
thereof tendered and not validly withdrawn pursuant to the Exchange
Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so accepted
for exchange by the Company and issue, and cause the Trustee to
promptly authenticate and mail to each Holder, an
<PAGE> 7
6
Exchange Security equal in principal amount to the principal amount of
the Registrable Securities surrendered by such Holder.
The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the SEC. The Company shall inform the
Placement Agents of the names and addresses of the Holders to whom the Exchange
Offer is made, and the Placement Agents shall have the right, subject to
applicable law, to contact such Holders and otherwise facilitate the tender of
Registrable Securities in the Exchange Offer.
Each Holder of Securities participating in the Exchange Offer shall be required
to represent to the Company that at the time of consummation of the Exchange
Offer (i) such Holder is not an "affiliate" of the Company within the meaning of
Rule 405 under the 1933 Act, (ii) the Exchange Securities being acquired by it
pursuant to the Exchange Offer are being obtained in the ordinary course of the
business of the person receiving such Exchange Securities and (iii) that the
Holder has no arrangement or understanding with any Person to participate in the
distribution of the Exchange Securities. If such Holder is a Participating
Broker-Dealer that will receive Exchange Securities for its own account as a
result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Securities.
(b) In the event that (i) the Company determines that the Exchange
Offer Registration provided for in Section 2(a) above is not available or may
not be consummated as soon as practicable after the last Exchange Date because
it would violate applicable law or the applicable interpretations of the Staff
of the SEC, (ii) the Exchange Offer is not for any other reason consummated by
June 22, 1998 or (iii) any Holder shall, within 30 days after consummation of
the Exchange Offer, notify the Company that such Holder (x) is prohibited by
applicable law or SEC policy from participating in the Exchange Offer, or (y)
may not resell Exchange Securities acquired by it in the Exchange Offer to the
public without delivering a prospectus and that the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder, the Company shall use its best efforts to cause to be
filed as soon as practicable after such determination, date or notice is given
to the Company, as the case may be, a Shelf Registration Statement providing for
the sale by the Holders of all of the Registrable Securities and to have such
Shelf Registration Statement declared effective by the SEC. The Company agrees
to use its best efforts to keep the Shelf Registration Statement continuously
effective until the second anniversary of the Closing Date or such shorter
period that will terminate when all of the Registrable Securities covered by the
Shelf Registration Statement have been sold pursuant to
<PAGE> 8
7
the Shelf Registration Statement. The Company further agrees to supplement or
amend the Shelf Registration Statement if required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the 1933 Act or by any other rules and
regulations thereunder for shelf registration or if reasonably requested by a
Holder with respect to information relating to such Holder, and to use its best
efforts to cause any such amendment to become effective and such Shelf
Registration Statement to become usable as soon as thereafter practicable. The
Company agrees to furnish to the Holders of Registrable Securities copies of any
such supplement or amendment promptly after its being used or filed with the
SEC.
(c) The Company shall pay all Registration Expenses in connection with
the registration pursuant to Section 2(a) or Section 2(b). Each Holder shall pay
all underwriting discounts and commissions and transfer taxes, if any, relating
to the sale or disposition of such Holder's Registrable Securities pursuant to
the Exchange Offer Registration Statement or the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that, if, after it has been declared effective, the
offering of Registrable Securities pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume. As provided in the Indenture, in the
event that the Exchange Offer is not consummated and, if required by Section
2(b) hereof, a Shelf Registration Statement is not declared effective by the SEC
by June 22, 1999, the interest rate on the Securities will increase by .5% per
annum to 11.5% per annum until the Exchange Offer is consummated or a Shelf
Registration Statement is declared effective. If the Company effects the
Exchange Offer, the Company will be entitled to close the Exchange Offer
provided that it has accepted all Registrable Securities theretofore validly
tendered in accordance with the terms of the Exchange Offer. Registrable
Securities not tendered in the Exchange Offer shall bear interest at the same
rate as in effect at the time of issuance of the Registrable Securities.
(e) Without limiting the remedies available to the Placement Agents and
the Holders, the Company acknowledges that any failure by the Company to comply
with its obligations under Section 2(a) and Section 2(b) hereof may result in
material irreparable injury to the Placement Agents or the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Placement Agents or any Holder may obtain such relief as may be
<PAGE> 9
8
required to specifically enforce the Company's obligations under Section 2(a)
and Section 2(b) hereof.
3. Registration Procedures.
In connection with the obligations of the Company with respect to the
Registration Statements pursuant to Section 2(a) and Section 2(b) hereof, the
Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by
the Company and (y) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling Holders
thereof and (z) shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith or incorporated by reference
therein, and use its best efforts to cause such Registration Statement to
become effective and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and, as
so supplemented, to be filed pursuant to Rule 424 under the 1933 Act; to
keep each Prospectus current during the period described under Section 4(3)
and Rule 174 under the 1933 Act that is applicable to transactions by
brokers or dealers with respect to the Registrable Securities or Exchange
Securities;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities to which such Shelf Registration Statement relates,
to counsel for the Placement Agents, to counsel for the Holders and to each
Underwriter of an Underwritten Offering of Registrable Securities, if any,
without charge, as many copies of each Prospectus, including each
preliminary Prospectus, and any amendment or supplement thereto and such
other documents as such Holder or Underwriter may reasonably request, in
order to facilitate the public sale or other disposition of the Registrable
Securities; and the Company consents to the use of such Prospectus and any
amendment or supplement thereto in accordance with applicable law by each
of the selling holders of Registrable Securities and any such Underwriters
in connection with the offering and sale of the Registrable Securities
covered by and in the manner described in such Prospectus or any amendment
or supplement thereto in accordance with applicable law;
<PAGE> 10
9
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement shall reasonably request in writing by the time the
applicable Registration Statement is declared effective by the SEC, to
cooperate with such Holders in connection with any filings required to be
made with the National Association of Securities Dealers, Inc. and do any
and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Securities owned by such Holder; provided,
however, that the Company shall not be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it would
not otherwise be required to qualify but for this Section 3(d), (ii) file
any general consent to service of process or (iii) subject itself to
taxation in any such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, counsel for the Holders and counsel for the
Placement Agents promptly and, if requested by any such Holder or counsel,
confirm such advice in writing (i) when a Registration Statement has become
effective and when any post-effective amendment thereto has been filed and
becomes effective, (ii) of any request by the SEC or any state securities
authority for amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration Statement
and the closing of any sale of Registrable Securities covered thereby, the
representations and warranties of the Company contained in any underwriting
agreement, securities sales agreement or other similar agreement, if any,
relating to the offering cease to be true and correct in all material
respects or if the Company receives any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation of any proceeding for such purpose, (v)
of the happening of any event during the period a Shelf Registration
Statement is effective which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or which
requires the making of any changes in such Registration Statement or
Prospectus in order to make the statements therein not misleading and (vi)
of any determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment and provide immediate notice to each Holder of the
withdrawal of any such order;
<PAGE> 11
10
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends and enable such Registrable Securities
to be in such denominations (consistent with the provisions of the
Indenture) and registered in such names as the selling Holders may
reasonably request at least two business days prior to the closing of any
sale of Registrable Securities;
(i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3(e)(v) hereof, use its best efforts to
prepare and file with the SEC a supplement or post-effective amendment to a
Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The Company agrees to notify the Holders to suspend
use of the Prospectus as promptly as practicable after the occurrence of
such an event, and the Holders hereby agree to suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of such
document to the Placement Agents and their counsel (and, in the case of a
Shelf Registration Statement, the Holders and their counsel) and make such
of the representatives of the Company as shall be reasonably requested by
the Placement Agents or their counsel (and, in the case of a Shelf
Registration Statement, the Holders or their counsel) available for
discussion of such document, and shall not at any time file or make any
amendment to the Registration Statement, any Prospectus or any amendment of
or supplement to a Registration Statement or a Prospectus or any document
which is to be incorporated by reference into a Registration Statement or a
Prospectus, of which the Placement Agents and their counsel (and, in the
case of a Shelf Registration Statement, the Holders and their counsel)
shall not have previously been advised and furnished a copy or to which the
Placement Agents or their counsel
<PAGE> 12
11
(and, in the case of a Shelf Registration Statement, the Holders or their
counsel) shall object;
(k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;
(l) cause the Indenture to be qualified under the Trust Indenture Act
of 1939, as amended (the "TIA"), in connection with the registration of the
Exchange Securities or Registrable Securities, as the case may be,
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and execute, and use its best efforts
to cause the Trustee to execute, all documents as may be required to effect
such changes and all other forms and documents required to be filed with
the SEC to enable the Indenture to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, make available for inspection
by one representative of the Holders of the Registrable Securities, any
Underwriter participating in any disposition pursuant to such Shelf
Registration Statement, and attorneys and accountants designated by the
Holders, at reasonable times and in a reasonable manner and subject to
execution of customary confidentiality agreements, all financial and other
records, pertinent documents and properties of the Company, and cause the
respective officers, directors and employees of the Company to supply all
information reasonably requested by any such representative, Underwriter,
attorney or accountant in connection with a Shelf Registration Statement;
(n) in the case of a Shelf Registration, use its best efforts to cause
all Registrable Securities to be listed on any securities exchange or any
automated quotation system on which similar securities issued by the
Company are then listed if requested by the Majority Holders, to the extent
such Registrable Securities satisfy applicable listing requirements;
(o) use its best efforts to cause the Exchange Securities or
Registrable Securities, as the case may be, to be rated by two nationally
recognized statistical rating organizations (as such term is defined in
Rule 436(g)(2) under the 1933 Act);
(p) if reasonably requested by any Holder of Registrable Securities
covered by a Registration Statement, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information with
respect to such Holder as such Holder reasonably requests to be included
therein and (ii) make all required filings of such
<PAGE> 13
12
Prospectus supplement or such post-effective amendment as soon as the
Company has received notification of the matters to be incorporated in such
filing; and
(q) in the case of a Shelf Registration, enter into such customary
agreements and take all such other actions in connection therewith
(including those requested by the Holders of a majority of the Registrable
Securities being sold) in order to expedite or facilitate the disposition
of such Registrable Securities including, but not limited to, an
Underwritten Offering and in such connection, (i) to the extent possible,
make such representations and warranties to the Holders and any
Underwriters of such Registrable Securities with respect to the business of
the Company and its subsidiaries, the Registration Statement, Prospectus
and documents incorporated by reference or deemed incorporated by
reference, if any, in each case, in form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings and
confirm the same if and when requested, (ii) use best efforts to obtain
opinions of counsel to the Company (which counsel and opinions, in form,
scope and substance, shall be reasonably satisfactory to the Holders and
such Underwriters and their respective counsel) addressed to each selling
Holder and Underwriter of Registrable Securities, covering the matters
customarily covered in opinions requested in underwritten offerings, (iii)
use best efforts to obtain "cold comfort" letters from the independent
certified public accountants of the Company (and, if necessary, any other
certified public accountant of any subsidiary of the Company, or of any
business acquired by the Company for which financial statements and
financial data are or are required to be included in the Registration
Statement) addressed to each selling Holder and Underwriter of Registrable
Securities, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings, and (iv) deliver such documents and certificates as
may be reasonably requested by the Holders of a majority in principal
amount of the Registrable Securities being sold or the Underwriters, and
which are customarily delivered in underwritten offerings, to evidence the
continued validity of the representations and warranties of the Company
made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in an underwriting agreement.
In the case of a Shelf Registration Statement, the Company may require
each Holder of Registrable Securities to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Securities as the Company may from time to time reasonably request
in writing, and the Company may exclude from such registration the Registrable
Securities of any Holder that unreasonably fails to furnish such information
within a reasonable time after receiving such request.
<PAGE> 14
13
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event of the
kind described in Section 3(e)(v) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to a Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(i) hereof, and, if so directed by the Company, such
Holder will deliver to the Company (at its expense) all copies in its
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Securities current at the time of
receipt of such notice. Each Holder agrees to indemnify the Company, the
Placement Agents, and the other selling Holders and each of their respective
officers and directors who sign the Registration Statement and each person, if
any, who controls any such person for any losses, claims, damages and
liabilities caused by the failure of such Holder to discontinue disposition of
Registrable Securities after receipt of the notice referred to in the preceding
sentence or the failure of such Holder to comply with applicable prospectus
delivery requirements with respect to any Prospectus (including, but not limited
to, any amended or supplemented Prospectus) provided by the Company for such
use. If the Company shall give any such notice to suspend the disposition of
Registrable Securities pursuant to a Registration Statement, the Company shall
extend the period during which the Registration Statement shall be maintained
effective pursuant to this Agreement by the number of days during the period
from and including the date of the giving of such notice to and including the
date when the Holders shall have received copies of the supplemented or amended
Prospectus necessary to resume such dispositions. The Company may give any such
notice only twice during any 365-day period and any such suspensions may not
exceed 30 days for each suspension and there may not be more than two
suspensions in effect during any 365-day period.
The Holders of Registrable Securities covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Securities in an
Underwritten Offering. In any such Underwritten Offering, the investment banker
or investment bankers and manager or managers (the "Underwriters") that will
administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering.
4. Participation of Broker-Dealers in Exchange Offer.
(a) The Staff of the SEC has taken the position that any broker-dealer
that receives Exchange Securities for its own account in the Exchange Offer in
exchange for Securities that were acquired by such broker-dealer as a result of
market-making or other trading activities (a "Participating Broker-Dealer"), may
be deemed to be an "underwriter" within the meaning of the 1933 Act and must
deliver a prospectus meeting the requirements of the 1933 Act in connection with
any resale of such Exchange Securities.
<PAGE> 15
14
The Company understands that it is the Staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means by
which Participating Broker-Dealers may resell the Exchange Securities, without
naming the Participating Broker-Dealers or specifying the amount of Exchange
Securities owned by them, such Prospectus may be delivered by Participating
Broker-Dealers to satisfy their prospectus delivery obligation under the 1933
Act in connection with resales of Exchange Securities for their own accounts, so
long as the Prospectus otherwise meets the requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of this
Agreement, the Company agrees that the provisions of this Agreement as they
relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such reasonable modifications thereto as
may be, reasonably requested by the Placement Agents or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below, in
order to expedite or facilitate the disposition of any Exchange Securities by
Participating Broker-Dealers consistent with the positions of the Staff recited
in Section 4(a) above; provided that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as would
otherwise be contemplated by Section 3(i), for a period exceeding 180 days
after the last Exchange Date (as such period may be extended pursuant to
the penultimate paragraph of Section 3 of this Agreement) and Participating
Broker-Dealers shall not be authorized by the Company to deliver and shall
not deliver such Prospectus after such period in connection with the
resales contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set forth in
Section 3 of this Agreement to an Exchange Offer Registration, to the
extent not required by the positions of the Staff of the SEC or the 1933
Act and the rules and regulations thereunder, will be in conformity with
the reasonable request to the Company by the Placement Agents or with the
reasonable request in writing to the Company by one or more broker-dealers
who certify to the Placement Agents and the Company in writing that they
anticipate that they will be Participating Broker-Dealers; and provided
further that, in connection with such application of the Shelf Registration
procedures set forth in Section 3 to an Exchange Offer Registration, the
Company shall be obligated (x) to deal only with one entity representing
the Participating Broker-Dealers, which shall be the Representative unless
it elects not to act as such representative, (y) to pay the fees and
expenses of only one counsel representing the Participating Broker-Dealers,
which shall be counsel to the Placement Agents unless such counsel elects
not to so act and (z) to cause to be delivered only one, if any, "cold
comfort" letter with respect to the Prospectus in the form existing on the
last Exchange Date and with respect to each
<PAGE> 16
15
subsequent amendment or supplement, if any, effected during the period
specified in clause (i) above.
(c) The Placement Agents shall have no liability to the Company or any
Holder with respect to any request that they may make pursuant to Section 4(b)
above.
5. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Placement
Agent, each Holder and each person, if any, who controls any Placement Agent or
any Holder within the meaning of either Section 15 of the 1933 Act or Section 20
of the 1934 Act, or is under common control with, or is controlled by, any
Placement Agent or any Holder, from and against all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by any Placement Agent, any Holder or any such controlling
or affiliated person in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement (or any amendment thereto)
pursuant to which Exchange Securities or Registrable Securities were registered
under the 1933 Act, including all documents incorporated therein by reference,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or caused by any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact necessary
to make the statements therein in light of the circumstances under which they
were made not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Placement
Agent or any Holder furnished to the Company in writing by such Placement Agent
or any selling Holder expressly for use therein. In connection with any
Underwritten Offering permitted by Section 3, the Company will also indemnify
the Underwriters, if any, selling brokers, dealers and similar securities
industry professionals participating in the distribution, their officers and
directors and each Person who controls such Persons (within the meaning of the
Securities Act and the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders, if requested in connection with
any Registration Statement.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, each Placement Agent and the other selling Holders,
and each of their respective directors, officers who sign the Registration
Statement and each Person, if any, who controls the Company, any Placement Agent
and any other selling Holder within the meaning of either Section 15 of the 1933
Act or Section 20 of the 1934 Act to the same extent as the foregoing indemnity
from the Company to each Placement Agent and each Holder, but only
<PAGE> 17
16
with reference to information relating to such Holder furnished to the Company
in writing by such Holder expressly for use in any Registration Statement (or
any amendment thereto) or any Prospectus (or any amendment or supplement
thereto).
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either paragraph (a) or paragraph (b) above, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Placement Agents and all
persons, if any, who control any Placement Agent within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act, (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either such
Section and (c) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Holders and all persons, if any, who
control any Holders within the meaning of either such Section, and that all such
fees and expenses shall be reimbursed as they are incurred. In such case
involving any Placement Agent and persons who control such Placement Agent, such
firm shall be designated in writing by the Representative. In such case
involving the Holders and such persons who control Holders, such firm shall be
designated in writing by the Majority Holders. In all other cases, such firm
shall be designated by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but,
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days
<PAGE> 18
17
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party for such fees
and expenses of counsel in accordance with such request prior to the date of
such settlement. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which such indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(d) If the indemnification provided for in paragraph (a) or paragraph
(b) of this Section 4 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company and the Holders shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this Section 5(d) are several
in proportion to the respective number of Registrable Securities of such Holder
that were registered pursuant to a Registration Statement.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in paragraph (d) above shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 5, no Holder shall be required to indemnify or contribute any amount in
excess of the amount by which the total price at which Registrable Securities
were sold by such Holder exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The
<PAGE> 19
18
remedies provided for in this Section 5 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any indemnified party
at law or in equity.
The indemnity and contribution provisions contained in this Section 5
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Placement Agent, any Holder or any person controlling any Placement Agent or
Holder, or by or on behalf of the Company, its officers or directors or any
person controlling the Company, (iii) acceptance of any of the Exchange
Securities and (iv) any sale of Registrable Securities pursuant to a Shelf
Registration Statement.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered into, and
on or after the date of this Agreement will not enter into, any agreement which
is inconsistent with the rights granted to the Holders of Registrable Securities
in this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of Holders of at least
a majority in aggregate principal amount of the outstanding Registrable
Securities affected by such amendment, modification, supplement, waiver or
consent; provided, however, that no amendment, modification, supplement, waiver
or consents to any departure from the provisions of Section 5 hereof shall be
effective as against any Holder of Registrable Securities unless consented to in
writing by such Holder.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 6(c), which address initially is, with respect to the Placement Agents,
the address set forth for the Representative in the Placement Agreement; and
(ii) if to the Company, initially at the Company's address set forth in the
Placement Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 6(c).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited
<PAGE> 20
19
in the mail, postage prepaid, if mailed; when answered back, if telexed; when
receipt is acknowledged, if telecopied; and on the next business day if timely
delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Placement Agreement. If any transferee of any
Holder shall acquire Registrable Securities, in any manner, whether by operation
of law or otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding such Registrable
Securities such person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement and such
person shall be entitled to receive the benefits hereof. No Placement Agent (in
its capacity as Placement Agent) shall have any liability or obligation to the
Company with respect to any failure by a Holder to comply with, or any breach by
any Holder of, any of the obligations of such Holder under this Agreement.
(e) Purchases and Sales of Securities. The Company shall not, and shall
use its best efforts to cause its affiliates (as defined in Rule 405 under the
1933 Act) not to, purchase and then resell or otherwise transfer any Securities,
prior to consummation of the Exchange Offer or a Shelf Registration Statement
being declared effective.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Issuer and the
Company, on the one hand, and the Placement Agents, on the other hand, and shall
have the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
<PAGE> 21
20
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
METROCALL, INC.
By
-----------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
Morgan Stanley & Co. Incorporated
Acting severally on behalf of
itself and the several Placement
Agents named herein
By: Morgan Stanley & Co. Incorporated
By
---------------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 10.39
METROCALL, INC.
PLACEMENT AGREEMENT
December 17, 1998
Morgan Stanley & Co. Incorporated,
for itself and the other several
Placement Agents named in Schedule I hereto
1585 Broadway
New York, New York 10036-8293
Ladies and Gentlemen:
Metrocall, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to you (the "Manager") and the other several purchasers named
in Schedule I hereto (collectively with the Manager, the "Placement Agents")
$250,000,000 principal amount of its 11% Senior Subordinated Notes due 2008 (the
"Notes") to be issued pursuant to the provisions of an Indenture to be dated as
of December 22, 1998 (the "Indenture"), between the Company and First Union
National Bank, as Trustee (the "Trustee").
The Notes will be offered without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), to qualified
institutional buyers in compliance with the exemption from registration provided
by Rule 144A under the Securities Act and in offshore transactions in reliance
on Regulation S under the Securities Act (the "Regulation S").
The Placement Agents and their direct and indirect transferees
will be entitled to the benefits of a Registration Rights Agreement, to be dated
the Closing Date (as defined below) and to be substantially in the form attached
hereto as Exhibit A.
In connection with the sale of the Notes, the Company has prepared
a preliminary offering memorandum dated December 3, 1998 (the "Preliminary
Memorandum") and will prepare a final offering memorandum (the "Final
Memorandum" and, with the Preliminary Memorandum, each a "Memorandum") setting
forth or including a description of the terms of the Notes, the terms of the
offering and a description of the Company and its business. As used herein, the
term "Memorandum" shall include in each case the documents incorporated by
reference therein.
<PAGE> 2
2
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, you that as of the date hereof:
(a) (i) Each document, if any, filed with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and incorporated by reference in
either Memorandum complied when so filed in all material respects with the
Exchange Act and the applicable rules and regulations thereunder and (ii) the
Preliminary Memorandum does not contain and the Final Memorandum, in the form
used by the Placement Agents to confirm sales and on the Closing Date, will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this Section 1(a) do not apply to statements or
omissions in either Memorandum based upon information relating to any Placement
Agent furnished to the Company in writing by such Placement Agent through you
expressly for use therein.
(b) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of Delaware, has the corporate
power and authority to own its property and to conduct its business as described
in each Memorandum and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole.
(c) Each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in each Memorandum and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole. All of the issued shares of
capital stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned directly
by the Company, free and clear of all liens, encumbrances, equities or claims,
other than liens disclosed in the Memorandum in favor of the Company's lenders
under the Credit Facility (as used in the Memorandum).
(d) This Agreement has been duly authorized, executed and
delivered by the Company.
<PAGE> 3
3
(e) The Notes have been duly authorized by the Company and,
when executed, authenticated and delivered to and paid for by the Placement
Agents in accordance with the terms of the Indenture and this Agreement, will
(x) be valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as (A) the enforceability thereof
may be limited by the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and (B) rights of acceleration, if applicable, and the availability of equitable
remedies may be limited by equitable principles of general applicability and (y)
be entitled to the benefits of the Indenture.
(f) Each of the Indenture and the Registration Rights Agreement
has been duly authorized, and when executed and delivered by the Company, will
be a valid and binding agreement of, the Company, enforceable in accordance with
its terms except as (x) the enforceability thereof may be limited by the effect
of applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and (y) rights of acceleration, if
applicable, and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(g) The execution, delivery and performance by the Company of
its obligations under this Agreement (including the issuance, sale and delivery
of the Notes), the Indenture, the Registration Rights Agreement and the Notes
will not (i) contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other instrument
binding upon the Company or any of its subsidiaries or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over the
Company or any subsidiary, including, without limitation, the Federal
Communications Commission ("FCC"), (ii) violate or conflict with any law, rule
or regulation applicable to the Company, any of its subsidiaries, or their
respective properties, including, without limitation, the Communications Act of
1934, as amended, and the rules and regulations of the FCC thereunder
(collectively, the "Communications Act"), or (iii) result in termination or
revocation of any of the permits, licenses, approvals, orders, certificates,
franchises or authorizations of governmental or regulatory authorities,
including those relating to the Communications Act, owned or held by the Company
or any of its subsidiaries in order to conduct its paging operations
(collectively, the "Licenses") or result in any other material impairment of the
rights of the holder of any such Licenses; and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency, including, without limitation, the FCC, is required for the performance
by the Company of its obligations under this Agreement (including the issuance,
sale and delivery of the Notes), the Indenture, the Registration Rights
Agreement or the Notes, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale of the
<PAGE> 4
4
Notes or by the securities laws of the various states in connection with the
registration obligations under the Registration Rights Agreement.
(h) There has not occurred any material adverse change, or any
development which could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings, business
or operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Preliminary Memorandum.
(i) There are no legal or governmental proceedings pending, or
to the Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or any
of its subsidiaries is subject other than proceedings accurately described in
all material respects in each Memorandum and proceedings that would not have a
material adverse effect on the Company and its subsidiaries, taken as a whole,
or on the power or ability of the Company to perform its obligations under this
Agreement, the Indenture, the Registration Rights Agreement or the Notes or to
consummate the transactions contemplated by the Final Memorandum.
(j) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act, an "Affiliate") of the Company
has directly, or through any agent, (i) sold, offered for sale, solicited offers
to buy or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the sale of the Notes in a
manner that would require the registration under the Securities Act of the Notes
or (ii) engaged in any form of general solicitation or general advertising in
connection with the offering of the Notes (as those terms are used in Regulation
D under the Securities Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act.
(k) The Company is not and, after giving effect to the offering
and sale of the Notes and the application of the proceeds thereof as described
in the Memorandum, will not be an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in the Investment Company
Act of 1940, as amended.
(l) Assuming the accuracy of the representations of the
Placement Agents contained in Section 6 of this Agreement, and the compliance by
the Placement Agents with the agreements set forth herein, it is not necessary
in connection with the offer, sale and delivery of the Notes to the Placement
Agents in the manner contemplated by this Agreement to register the Notes under
the Securities Act or to qualify the Indenture under the Trust Indenture Act of
1939, as amended.
(m) The Company and each of its subsidiaries have such Licenses
as are necessary for the lawful operation of their paging business as described
in the Final
<PAGE> 5
5
Memorandum under the caption "Business" in the manner and to the full extent now
operated or proposed to be operated as described in the Final Memorandum, except
for those Licenses the absence of which would not, individually or in the
aggregate, have a material adverse effect on the Company and its subsidiaries,
taken as a whole. The Licenses are in full force and effect and no proceeding
has been instituted or is pending or, to the Company's knowledge, is threatened
or contemplated which in any manner affects or draws into question the validity
or effectiveness thereof. The Licenses contain no restrictions, except for
restrictions applicable to the paging industry generally, that are materially
burdensome to the Company or any of its subsidiaries. The Company and each of
its subsidiaries hold all other material licenses, certificates and permits from
governmental authorities which are necessary to the conduct of their businesses,
and neither the Company nor any of its subsidiaries has infringed any patents,
patent rights, trade names, trademarks or copyrights, except for an infringement
which would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(n) Except for matters that would not, individually or in the
aggregate, have a material adverse effect on the Company and its subsidiaries,
taken as a whole, (i) the operation of the Company's paging business in the
manner and to the full extent now operated or proposed to be operated as
described in the Final Memorandum is in accordance with the Licenses, the
Communications Act and all orders, rules and regulations of the FCC, and (ii) no
event has occurred which permits (nor has an event occurred which with notice or
lapse of time or both would permit) the revocation or termination of any
necessary Licenses or which might result in any other impairment of the rights
of the Company or any of its subsidiaries therein or thereunder, and the Company
and each of its subsidiaries are in compliance with all statutes, orders, rules
and regulations of the FCC relating to or affecting their paging operations.
(o) The Company and its subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(p) None of the Company, its Affiliates or any person acting on
its or their behalf (other than the Placement Agents) has engaged in any
directed selling efforts (as that
<PAGE> 6
6
term is defined in Regulation S) with respect to the Notes, and the Company and
its Affiliates and any person acting on their behalf (other than the Placement
Agents) have complied with the offering restrictions requirement of Regulation
S.
(q) The terms of the Notes and the Indenture conform in all
material respects to the description thereof contained in the Preliminary
Memorandum and will conform in all material respects to the description thereof
in the Final Memorandum under the heading "Description of Notes."
(r) The proceeds from the offering and sale of the Notes will
be applied in all material respects in accordance with the description set forth
under the caption "Use of Proceeds" in the Final Memorandum.
(s) The financial statements and pro forma financial
information contained in each Memorandum comply with the requirements of
Regulation S-X of the Commission.
(t) The Company has obtained all waivers and consents necessary
to be obtained by the Company under the Credit Facility in connection with the
issuance and sale of the Notes, including, without limitation, an acknowledgment
that such issuance and sale complies with the requirements of Section 7.1(g)
thereof.
2. Offering. You have advised the Company that the Placement
Agents will make an offering of the Notes purchased by the Placement Agents
hereunder on the terms set forth in the Final Memorandum as soon as practicable
after this Agreement is entered into as in your judgment is advisable.
3. Purchase and Delivery. The Company hereby agrees to sell to
the several Placement Agents, and the Placement Agents, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agree, severally and not jointly, to purchase from the
Company the respective principal amount of Notes set forth in Schedule I hereto
opposite their names at a purchase price of 97.054% of the principal amount
thereof plus accrued interest, if any, from December 22, 1998 to the date of
payment and delivery.
Payment for the Notes shall be made against delivery of the Notes
at a closing (the "Closing") to be held at the office of Shearman & Sterling,
599 Lexington Avenue, New York, New York, at 9:00 a.m., New York City time, on
December 22, 1998, or at such other time on the same or such other date, not
later than December 29, 1998, as shall be designated in writing by you. The time
and date of such payment are herein referred to as the Closing Date. Payment for
the Notes shall be made by wire transfer to an account previously designated to
the Placement Agents by the Company in immediately available funds.
<PAGE> 7
7
Certificates for the Notes shall be in definitive form and
registered in such names and in such denominations as you shall request in
writing not less than one full business day prior to the Closing Date. The
certificates evidencing the Notes shall be delivered to you on the Closing Date
for the respective accounts of the several Placement Agents, with any transfer
taxes payable in connection with the transfer of the Notes to the Placement
Agents duly paid, against payment of the purchase price therefor.
4. Conditions to Closing. The several obligations of the
Placement Agents under this Agreement to purchase the Notes will be subject to
the following conditions:
(a) Subsequent to the date of this Agreement and prior to the
Closing Date,
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction of
the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any
development which could reasonably be expected to result in a change, in
the condition, financial or otherwise, or in the earnings, business or
operations, of the Company and its subsidiaries, taken as a whole, from
that set forth in the Preliminary Memorandum that, in your judgment, is
material and adverse and that makes it, in your judgment, impracticable
to market the Notes on the terms and in the manner contemplated in the
Final Memorandum.
(b) You shall have received on the Closing Date a certificate,
dated the Closing Date and signed by an executive officer of the Company, to the
effect set forth in clause (a)(i) above and to the effect that the
representations and warranties of the Company contained in this Agreement are
true and correct as of the Closing Date and that the Company has complied with
all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied on or before the Closing Date.
The officer signing and delivering such certificate may rely upon
the best of his knowledge as to any proceedings threatened.
(c) You shall have received on the Closing Date an opinion of
Wilmer, Cutler & Pickering, special counsel for the Company, dated the Closing
Date, to the effect set forth in Exhibit B.
<PAGE> 8
8
(d) You shall have received on the Closing Date an opinion of
Joyce & Jacobs, Attorneys at Law, L.L.P., FCC counsel for the Company, dated the
Closing Date, to the effect set forth in Exhibit C.
(e) You shall have received on the Closing Date an opinion of
Shearman & Sterling, counsel for the Placement Agents, dated the Closing Date,
in form and substance satisfactory to you.
(f) You shall have received on each of the date hereof and the
Closing Date a letter, dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from Arthur Andersen LLP, the
Company's independent public accountants, containing statements and information
of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in or incorporated by reference into the Final Memorandum.
(g) You shall have received on each of the date hereof and the
Closing Date a letter, dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from Ernst & Young LLP,
independent auditors for ProNet Inc., containing statements and information of
the type ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial information
contained in or incorporated by reference into the Final Memorandum.
(h) You shall have received on each of the date hereof and the
Closing Date a letter, dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from PricewaterhouseCoopers
LLP, independent accountants for AT&T Wireless Services, Inc.--Messaging
Division, containing statements and information of the type ordinarily included
in accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in or incorporated by
reference into the Final Memorandum.
(i) The Company shall have complied with the provisions of
subsection (a) of Section 5 hereof with respect to the furnishing of copies of
the Final Memorandum on the business day next following the date of this
Agreement, in such quantities as you shall have reasonably requested.
(j) The Company shall have received all waivers and consents
necessary to be obtained by the Company under the Credit Facility.
(k) You shall have received such other documents and
certificates as are reasonably requested by you and your counsel.
<PAGE> 9
9
5. Covenants of the Company. In further consideration of the
agreements of the Placement Agents contained in this Agreement, the Company
covenants as follows:
(a) To furnish to you, without charge, during the period
mentioned in paragraph (c) below, as many copies of the Final Memorandum,
any documents incorporated by reference therein and any supplements and
amendments thereto as you may reasonably request and to use best efforts
to deliver such copies to you by 5 p.m. (New York City time) on the
business day next following the execution of this Agreement.
(b) Before amending or supplementing either Memorandum, to
furnish to you a copy of each such proposed amendment or supplement and
not to use any such proposed amendment or supplement to which you
reasonably object.
(c) If, during such period after the date hereof and prior to
the date on which all of the Notes shall have been sold by the Placement
Agents, any event shall occur or condition exist as a result of which it
is necessary in your judgment to amend or supplement the Final Memorandum
in order to make the statements therein, in the light of the
circumstances when such Memorandum is delivered to a purchaser, not
misleading, or if, in the opinion of counsel to the Placement Agents, it
is necessary to amend or supplement such Memorandum to comply with
applicable law, forthwith to prepare and furnish, at its own expense, to
the Placement Agents, either amendments or supplements to such Memorandum
so that the statements in such Memorandum as so amended or supplemented
will not, in the light of the circumstances when such Memorandum is
delivered to a purchaser, be misleading or so that such Memorandum, as so
amended or supplemented, will comply with applicable law.
(d) To endeavor to qualify the Notes, if required, for offer
and sale under the securities or Blue Sky laws of such jurisdictions as
you shall reasonably request.
(e) Whether or not any sale of such Notes is consummated, to
pay all expenses incident to the performance of its obligations under
this Agreement, including: (i) the preparation of each Memorandum and all
amendments and supplements thereto, (ii) the preparation, issuance and
delivery of the Notes, including any transfer or other taxes payable
thereon, (iii) the fees and disbursements of the Company's counsel and
accountants and the Trustee and its counsel, (iv) the qualification of
such Notes under securities or Blue Sky laws in accordance with the
provisions of Section 5(d), including filing fees and the reasonable fees
and disbursements of counsel for the Placement Agents in connection
therewith and in connection with the preparation of any Blue Sky or legal
investment memoranda, (v) the printing and delivery to the Placement
Agents in quantities as hereinabove stated
<PAGE> 10
10
of copies of the Memorandum and any amendments or supplements thereto,
(vi) any fees charged by rating agencies for the rating of such Notes,
(vii) all document production charges and expenses of counsel to the
Placement Agents (but not including their fees for professional services)
in connection with the preparation of this Agreement, (viii) the fees and
expenses, if any, incurred in connection with the admission of such Notes
for trading in PORTAL or any other appropriate market system, (ix) the
costs and expenses of the Company relating to investor presentations on
any "road show" undertaken in connection with the marketing of the Notes,
including, without limitation, expenses associated with the production of
road show slides and graphics, fees and expenses of any consultants
engaged in connection with the road show presentations with the prior
approval of the Company, travel and lodging expense of the
representatives and officers of the Company and any such consultants, and
the cost of any aircraft chartered in connection with the road show, and
(x) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise
made in this Section.
(f) Neither the Company nor any Affiliate will sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) which could be integrated
with the sale of the Notes in a manner which would require the
registration under the Securities Act of such Notes.
(g) Not to solicit any offer to buy or offer or sell the Notes
by means of any form of general solicitation or general advertising (as
those terms are used in Regulation D under the Securities Act) or in any
manner involving a public offering within the meaning of Section 4(2) of
the Securities Act.
(h) While any of the Notes remain outstanding, to make
available, upon request, to any seller of such Notes the information
specified in Rule 144A(d)(4) under the Securities Act, unless the Company
is then subject to Section 13 or 15(d) of the Exchange Act.
(i) None of the Company, its Affiliates or any person acting on
its or their behalf (other than the Placement Agents) will engage in any
directed selling efforts (as that term is defined in Regulation S) with
respect to the Notes, and the Company and its Affiliates and each person
acting on its or their behalf (other than the Placement Agents) will
comply with the offering restrictions of Regulation S.
(j) To use its best efforts to permit the Notes to be
designated PORTAL securities in accordance with the rules and regulations
adopted by the National Association of Securities Dealers, Inc. relating
to trading in the PORTAL Market.
<PAGE> 11
11
6. Offering of Notes; Restrictions on Transfer. (a) Each
Placement Agent, severally and not jointly, represents and warrants that such
Placement Agent is a qualified institutional buyer as defined in Rule 144A under
the Securities Act (a "QIB"). Each Placement Agent, severally and not jointly,
agrees with the Company that (i) it will not solicit offers for, or offer or
sell, such Notes by any form of general solicitation or general advertising (as
those terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act and (ii) it will solicit offers for such Notes only from, and will offer
such Notes only to, persons that it reasonably believes to be (A) in the case of
offers inside the United States, QIBs and (B) in the case of offers outside the
United States, to persons other than U.S. persons ("foreign purchasers", which
term shall include dealers or other professional fiduciaries in the United
States acting on a discretionary basis for foreign beneficial owners (other than
an estate or trust)) that, in each case, in purchasing such Notes are deemed to
have represented and agreed as provided in the Final Memorandum under the
caption "Transfer Restrictions."
(b) Each Placement Agent, severally and not jointly,
represents, warrants, and agrees with respect to offers and sales outside the
United States that:
(i) it understands that no action has been or will be taken in
any jurisdiction by the Company that would permit a public offering of
the Notes, or possession or distribution of either Memorandum or any
other offering or publicity material relating to the Notes, in any
country or jurisdiction where action for that purpose is required;
(ii) such Placement Agent will comply with all applicable laws
and regulations in each jurisdiction in which it acquires, offers, sells
or delivers Notes or has in its possession or distributes either
Memorandum or any such other material, in all cases at its own expense;
(iii) the Notes have not been and will not be registered under
the Securities Act and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S under the Securities Act or pursuant to an
exemption from the registration requirements of the Securities Act;
(iv) such Placement Agent has offered the Notes and will offer
and sell the Notes (A) as part of their distribution at any time and (B)
otherwise until 40 days after the later of the commencement of the
offering of the Notes and the Closing Date, only in accordance with Rule
903 of Regulation S or another exemption from the registration
requirements of the Securities Act. Accordingly, neither such Placement
Agent, its Affiliates nor any persons acting on its or their behalf have
engaged or will engage in any directed selling efforts (within the
meaning of Regulation S) with respect
<PAGE> 12
12
to the Notes, and any such Placement Agent, its Affiliates and any such
persons have complied and will comply with the offering restrictions
requirements of Regulation S;
(v) such Placement Agent has (A) not offered or sold and, prior
to six months after the Closing Date, will not offer or sell any Notes to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments
(as principal or agent) for the purposes of their businesses or otherwise
in circumstances which have not resulted and will not result in an offer
to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 (the "Regulations"); (B) complied
and will comply with all applicable provisions of the Financial Services
Act 1986 and the Regulations with respect to anything done by it in
relation to the Notes in, from or otherwise involving the United Kingdom;
and (C) only issued or passed on and will only issue or pass on to any
person in the United Kingdom any document received by it in connection
with the issue of the Notes if that person is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on; and
(vi) such Placement Agent understands that the Notes have not
been and will not be registered under the Securities and Exchange Law of
Japan, and represents that it has not offered or sold, and agrees that it
will not offer or sell, any Notes, directly or indirectly in Japan or to
any resident of Japan except (A) pursuant to an exemption from the
registration requirements of the Securities and Exchange Law of Japan and
(B) in compliance with any other applicable requirements of Japanese law.
Terms used in this Section 6 have the meanings given to them by Regulation S.
7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Placement Agent, and each person, if any, who
controls such Placement Agent within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, or is under common control
with, or is controlled by, such Placement Agent, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by any Placement Agent or any such
controlling or affiliated person in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in either Memorandum (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
<PAGE> 13
13
or omission or alleged untrue statement or omission based upon information
relating to any Placement Agent furnished to the Company in writing by such
Placement Agent through you expressly for use therein.
(b) Each Placement Agent agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers and each
person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Placement Agent, but only with
reference to information relating to such Placement Agent furnished to the
Company in writing by such Placement Agent through you expressly for use in
either Memorandum or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or (b) above, such
person (the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all such indemnified parties and that all
such fees and expenses shall be reimbursed as they are incurred. Such firm shall
be designated in writing by Morgan Stanley & Co. Incorporated in the case of
parties indemnified pursuant to paragraph (a) above and by the Company in the
case of parties indemnified pursuant to paragraph (b) above. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days
<PAGE> 14
14
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in paragraph
(a) or (b) of this Section 7 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Placement Agents, on
the other hand, from the offering of such Notes or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and the Placement Agents on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Placement
Agents on the other hand in connection with the offering of such Notes shall be
deemed to be in the same respective proportions as the net proceeds from the
offering of such Notes (before deducting expenses) received by the Company and
the total discounts and commissions received by the Placement Agents in respect
thereof bear to the aggregate offering price of such Notes. The relative fault
of the Company on the one hand and of the Placement Agents on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Placement Agents and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Placement Agents' respective obligations to contribute pursuant to this
Section 7 are several in proportion to the respective principal amount of Notes
they have purchased hereunder, and not joint.
(e) The Company and the Placement Agents agree that it would
not be just or equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Placement Agents were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d) above.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall be
deemed to
<PAGE> 15
15
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7, no Placement Agent shall be required to contribute any amount in
excess of the amount by which the total price at which the Notes resold by it in
the initial placement of such Notes were offered to investors exceeds the amount
of any damages that such Placement Agent has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
indemnity and contribution provisions contained in this Section 7 and the
representations and warranties of the Company contained in this Agreement shall
remain operative and in full force and effect regardless of (i) any termination
of this Agreement, (ii) any investigation made by or on behalf of the Placement
Agents or any person controlling the Placement Agents or by or on behalf of
Issuer or the Company, its officers or directors or any person controlling the
Company and (iii) acceptance of and payment for any of the Notes. The remedies
provided for in this Section 7 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any indemnified party at law or
in equity.
8. Termination. This Agreement shall be subject to termination
by notice given by you to the Company, if (a) after the execution and delivery
of this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event singly or
together with any other such event makes it, in your judgment, impracticable to
market the Notes on the terms and in the manner contemplated in the Final
Memorandum.
9. Miscellaneous. (a) If, on the Closing Date, any one or more
of the Placement Agents shall fail or refuse to purchase Notes that it or they
have agreed to purchase hereunder on such date, and the aggregate principal
amount of Notes which such defaulting Placement Agent or Placement Agents agreed
but failed or refused to purchase is not more than one-tenth of the aggregate
principal amount of Notes to be purchased on such date, the other Placement
Agents shall be obligated severally in the proportions that the principal amount
of Notes set forth opposite their respective names in Schedule I bears to the
aggregate principal amount of Notes set forth opposite the names of all such
non-defaulting Placement
<PAGE> 16
16
Agents, or in such other proportions as you may specify, to purchase the Notes
which such defaulting Placement Agent or Placement Agents agreed but failed or
refused to purchase on such date; provided that in no event shall the principal
amount of Notes that any Placement Agent has agreed to purchase pursuant to
Section 3 be increased pursuant to this Section 9 by an amount in excess of
one-ninth of such principal amount of Notes without the written consent of such
Placement Agent. If, on the Closing Date, any Placement Agent or Placement
Agents shall fail or refuse to purchase Notes which it or they have agreed to
purchase hereunder on such date and the aggregate principal amount of Notes with
respect to which such default occurs is more than one-tenth of the aggregate
principal amount of Notes to be purchased on such date and arrangements
satisfactory to you and the Company for the purchase of such Notes are not made
within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Placement Agent or of the Company.
In any such case either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Final Memorandum or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Placement Agent from liability in respect of any default
of such Placement Agent under this Agreement.
This Agreement may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(b) If this Agreement shall be terminated by the Placement
Agents, or any of them, because of any failure or refusal on the part of the
Company to comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason the Company shall be unable to perform its
obligations under this Agreement, the Company will reimburse the Placement
Agents or such Placement Agents as have so terminated this Agreement with
respect to themselves, severally, for all out-of-pocket expenses (including the
fees and disbursements of their counsel) reasonably incurred by such Placement
Agents in connection with this Agreement or the offering contemplated hereunder.
(c) This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
(d) The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
(e) Any notice required or permitted to be given hereunder
shall be given in writing and shall be deemed effective three days after deposit
in the United States mail (certified or registered, return receipt requested),
postage prepaid, or when received if personally delivered, addressed as follows:
<PAGE> 17
17
<TABLE>
<S> <C>
To the Placement Agents: To the Company:
Morgan Stanley & Co. Incorporated Metrocall, Inc.
1585 Broadway 6677 Richmond Highway
New York, NY 10036 Alexandria, VA 22306
Attention: High Yield New Issue Group Attention: Chief Financial Officer
with a copy to: with a copy to:
Shearman & Sterling Wilmer, Cutler & Pickering
599 Lexington Avenue 2445 M Street N.W.
New York, NY 10022 Washington, D.C. 20037
Attention: Danielle Carbone Attention: Thomas W. White
</TABLE>
or to such other address of which written notice is given to the other.
<PAGE> 18
Please confirm your agreement to the foregoing by signing in the
space provided below for that purpose and returning to us a copy hereof,
whereupon this Agreement shall constitute a binding agreement between us.
Very truly yours,
METROCALL, INC.
By /s/ Vincent D. Kelly
-----------------------
Name: Vincent D. Kelly
Title: Chief Financial Officer
Agreed, December 17, 1998
Morgan Stanley & Co.
Incorporated
Acting severally on behalf
of itself and the several
Placement Agents named herein
By Morgan Stanley & Co.
Incorporated
By /s/ Robert M. Shepardson III
-----------------------------
Authorized Signatory
<PAGE> 19
SCHEDULE I
<TABLE>
<CAPTION>
Principal
Amount of Notes
Placement Agent To Be Purchased
--------------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated ............................... $125,000,000
NationsBanc Montgomery Securities LLC............................ 50,000,000
TD Securities (USA) Inc.......................................... 25,000,000
First Union Capital Markets, a division of Wheat
First Securities, Inc. ..................................... 25,000,000
BancBoston Robertson Stephens Inc................................ 25,000,000
............................................ ------------
$250,000,000
Total................................... ============
</TABLE>
<PAGE> 20
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
<PAGE> 21
EXHIBIT B
Opinion of Wilmer, Cutler & Pickering,
Counsel for the Company
The opinion of the counsel for the Company to be delivered
pursuant to Section 4(c) of the Placement Agreement shall be to the effect that:
(A) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of Delaware, has the
corporate power and authority to own its property and to conduct its
business as described in the Final Memorandum (references herein to the
Final Memorandum being taken to mean the same, as amended or
supplemented) and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(B) each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described in
the Final Memorandum and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(C) the Placement Agreement has been duly authorized, executed
and delivered by the Company;
(D) the Notes have been duly authorized by the Company and,
when executed, authenticated and delivered to and paid for in accordance
with the terms of the Placement Agreement, will (x) be valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, except as (A) the enforceability thereof may be limited
by the effect of applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and (B)
rights of acceleration, if applicable, and the availability of equitable
remedies may be limited by equitable principles of general applicability
and (y) be entitled to the benefits of the Indenture;
<PAGE> 22
(E) each of the Indenture and the Registration Rights Agreement
has been duly authorized, executed and delivered by, and is a valid and
binding agreement of, the Company, enforceable in accordance with its
terms except as (x) the enforceability thereof may be limited by the
effect of applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally and (y) rights of
acceleration, if applicable, and the availability of equitable remedies
may be limited by equitable principles of general applicability, as well
as concepts of materiality, reasonableness, good faith and fair dealing
and (z) with respect to the Registration Rights Agreement only, rights of
indemnification and contribution may be limited by Federal or state
securities law or principles of public policy.
(F) the execution, delivery and performance by the Company of
its obligations under the Placement Agreement, the Indenture, the
Registration Rights Agreement and the Notes will not contravene (i) any
provision of applicable law, (ii) the certificate of incorporation or
by-laws of the Company, (iii) to such counsel's knowledge, any agreement
or other instrument binding upon the Company or any of its subsidiaries
that is material to the Company and its subsidiaries, taken as a whole,
or (iv) to such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company
or any subsidiary, and no consent, approval, authorization or order of,
or qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under the Placement
Agreement, the Indenture, the Registration Rights Agreement or the Notes,
except such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Notes;
(G) to the knowledge of counsel, there are no legal or
governmental proceedings pending or threatened to which the Company or
any of its subsidiaries is a party or to which any of the properties of
the Company or any of its subsidiaries is subject other than proceedings
fairly summarized in all material respects in the Final Memorandum and
proceedings which such counsel believes are not likely to have a material
adverse effect on the Company and its subsidiaries, taken as a whole, or
on the power or ability of the Company to perform its obligations under
the Placement Agreement, the Indenture, the Registration Rights Agreement
or the Notes or to consummate the transactions contemplated by the Final
Memorandum;
(H) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended;
(I) the statements in the Final Memorandum under the captions
"Description of Notes," "Transfer Restrictions," "Risk Factors--The Notes
Will be Subordinated to Metrocall's Senior Debt," "--Metrocall's Debt
Agreements Impose Operating and Financial Restrictions," "Management of
Metrocall--Employment Arrangements,"
B-2
<PAGE> 23
"Indebtedness" and "Private Placement," insofar as such statements
constitute a summary of the laws, regulations, legal matters, documents
or proceedings referred to therein, fairly summarize the matters referred
to therein;
(J) such counsel is of the opinion that the statements in the
Final Memorandum, under the caption "Certain United States Federal Tax
Considerations" are accurate and fairly summarize the matters referred to
therein;
(K) such counsel is of the opinion that each document
incorporated by reference in the Final Memorandum (except for financial
statements included therein as to which such counsel need not express any
opinion) complied as to form when filed with the Commission in all
material respects with the Exchange Act and the rules and regulations of
the Commission thereunder; and
(L) based upon the representations, warranties, and agreements
of the Company in Sections 1(j), 1(p), 5(f), 5(g) and 5(i) of the
Placement Agreement and of the Placement Agents in Section 6 of the
Placement Agreement, and assuming the accuracy of and compliance with
such representations, warranties and agreements, it is not necessary in
connection with the offer, sale and delivery of the Securities to the
Placement Agents under the Placement Agreement or in connection with the
initial resale of such Securities by the Placement Agents in accordance
with Section 6 of the Placement Agreement to register the Securities
under the Securities Act of 1933, it being understood that no opinion is
expressed as to any subsequent resale of any Security.
Such counsel shall also state that they have participated in
conferences with representatives of the Company, representatives of its
independent public accountants, the Company's FCC counsel, and representatives
of the Placement Agents and their counsel at which conferences the contents of
the Preliminary Memorandum and the Final Memorandum (and any amendments or
supplements thereto) and documents incorporated by reference were discussed and,
although such counsel assumes no responsibility for the accuracy, completeness
or fairness of the Final Memorandum or any amendment or supplements thereto
(except as expressly provided above), nothing has come to the attention of such
counsel to cause such counsel to believe the Final Memorandum (other than the
financial statements and other financial and statistical information contained
therein, as to which such counsel need express no belief), as of the date the
Final Memorandum was issued and as of the date such opinion is delivered,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
B-3
<PAGE> 24
EXHIBIT C
Opinion of FCC Counsel
for the Company
The opinion of FCC counsel for the Company to be delivered pursuant to
Section 4(d) of the Placement Agreement shall be to the effect that:
(A) the execution, delivery and performance by the Company of
its obligations under the Placement Agreement, the Indenture, the
Registration Rights Agreement and the Notes will not (1) contravene any
judgment, order or decree of the FCC, (2) violate or conflict with the
Communications Act or (3) result in termination or revocation of any of
the Licenses or result in any other material impairment of the rights of
the holder of any such License; and no consent, approval, authorization
or order of or qualification with the FCC, is required for the
performance by the Company of its obligations under the Placement
Agreement, the Indenture, the Registration Rights Agreement or the Notes;
(B) to the best of such counsel's knowledge, the Company and
each of its subsidiaries have such Licenses as are necessary for the
lawful operation of their paging business in the manner and to the full
extent now operated or proposed to be operated as described in the Final
Memorandum; the Licenses are in full force and effect and, to the best of
our knowledge, no proceeding has been instituted or is threatened,
pending or contemplated which in any manner affects or draws into
question the validity or effectiveness thereof; the Licenses contain no
materially burdensome restrictions not customarily imposed by the FCC on
paging companies of the same class and type;
(C) such counsel has not been retained to devote substantial
attention to any matter or claim which, if true, would constitute a
material violation of the Communications Act or the rules and regulations
of the FCC or warrant revocation or termination of the Licenses or any
other material impairment of the rights of the Company or any of its
subsidiaries therein or thereunder; and
(D) the statements in the Final Memorandum, under the captions
"Risk Factors--Technological Developments Could Affect Metrocall's
Business," "--Metrocall Could Incur Substantial Liabilities if Litigation
Involving Local Transport Charges is Resolved Unfavorably,"
"--Metrocall's Business Can be Affected by Changes in Regulations," and
"Business--Competition," "--Regulation," "--Legislative Changes" and
"--Litigation" which concern legal matters, documents or proceedings
(including, without limitation, provisions of the Communications Act or
the FCC's rules and regulations) arising under or in connection with the
Communications Act and the FCC's rules and regulations, fairly present
and
<PAGE> 25
summarize those legal matters, documents, proceedings, provisions, rules
and regulations.
C-2
<PAGE> 1
Exhibit 11.1
METROCALL, INC.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1996 1997 1998
---------- --------- ----------
Net loss $ (45,455) $ (52,461) $ (126,484)
Preferred dividends (780) (7,750) (11,767)
---------- --------- ----------
Net loss before extraordinary item
attributable to common
stock holdes (46,235) (60,211) (138,251)
Extraordinary item (3,675)
---------- --------- ----------
Net loss attributable to common
stockholders $ (49,910) $ (60,211) $ (138,251)
========== ========= ==========
Weighted-average shares outstanding:
Shares outstanding, beginning of
period 14,626 24,521 40,548
Shares issued in acquisitions 1,619 2,492
Share issued for exercise of stock
options 2 1
Shares issued in settlement of litigation 390
Shares issued in employee stock purchase
plan 6 73 91
--------- --------- ----------
Weighted-average shares outstanding 16,253 27,087 41,030
========= ========= ==========
Net loss before extraordinary item
attributable to common stock holdes $ (2.84) $ (2.22) $ (3.37)
Extraordinary item (0.23)
---------- ---------- ----------
Loss per share attributable to common
stockholders $ (3.07) $ (2.22) $ (3.37)
========== ========= ==========
<PAGE> 1
Exhibit 21.1
Subsidiaries of registrant
Metrocall USA, Inc. (a Delaware corporation)
Electronic Tracking Systems, Inc. (a Delaware corporation)
A+ Acquisitions Subsidiary, Inc. (a Tennessee corporation)
McCaw RCC Communications, Inc. (a Washington corporation)
Advanced Nationwide Messaging Corporation (a Washington corporation)
MSI, Inc. (a Nevada corporation)
Mobilefone Service, L.P. (a Texas limited partnership)
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K into the Company's previously filed
Registration Statements on Form S-3, File No. 33-81606; Form S-3, File No.
33-92520; Form S-3, File No. 333-13123; Form S-3, File No. 333-19139; Form S-3,
File No. 333-24607; Form S-3, File No. 333-31719; Form S-8, File No. 33-83452;
Form S-8, File No. 33-99556; Form S-8, File No. 333-29595; Form S-8, File
No. 333-72279 and Form S-8, File No. 333-71239.
ARTHUR ANDERSEN LLP
Washington, D.C.
March 29, 1999
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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160,742
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<INCOME-PRETAX> (173,578)
<INCOME-TAX> (47,094)
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